MERRILL LYNCH
GROWTH FUND
FUND LOGO
Quarterly Report
July 31, 1998
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
Arthur Moretti, Senior Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Ira P. Shapiro, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, MA 02171
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Growth Fund
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH GROWTH FUND
DEAR SHAREHOLDER
Mounting evidence of a slowing economy and the prospect of lower
corporate earnings growth led to greater volatility in the US
financial markets during the quarter ended July 31, 1998. At the
same time, greater economic and political uncertainties in Asia and
Russia led investors to become concerned about the outlook for
economic activity worldwide. Although these developments were
negative for stock markets, they generally were beneficial to bond
prices, especially as inflationary trends remained subdued. As was
widely anticipated, the Federal Reserve Board did not move to
tighten monetary policy.
In the United States, gross domestic product (GDP) rose at a rate of
1.4% for the second calendar quarter, down from the 5.5% rate for
the first three months of the year. The economic slowdown in Asia
negatively impacted US exports, and the protracted strike at General
Motors Corporation also was a negative factor for economic activity.
However, the US dollar remained strong, especially relative to the
Japanese yen. The weakness of the Japanese economy continues to be a
source of concern not only for Asia, but also for the rest of the
world as well.
In the months ahead, investors will continue to focus on the
economic outlook in Asia and its impact on worldwide economic
activity and corporate earnings results. If there were evidence of
more buoyant yet moderate US economic growth and a pick-up in
corporate profits growth, we would expect stability to return to the
financial markets on a global basis. Absent these developments,
market volatility is likely to continue.
Portfolio Matters
Merrill Lynch Growth Fund's fiscal third quarter proved challenging
as the Fund underperformed the broader market. The Fund's Class A,
Class B, Class C and Class D Shares had total returns of -18.77%,
- -19.00%, -18.99% and -18.81%, respectively, compared to a +1.18%
total return for the unmanaged Standard & Poor's 500 Composite
Index. Weak share price performance by the Fund's energy and real
estate investment trust (REIT) investments was principally
responsible for this underperformance. While disappointed by the
Fund's performance thus far into fiscal 1998, we believe that the
intermediate-term to long-term return opportunities afforded by the
Fund's energy and REIT holdings will be an important factor in
delivering improved relative and absolute performance.
In previous letters to shareholders, we have discussed the long-term
investment rationale underlying the Fund's energy and REIT
investments. In this letter to shareholders, we update our thinking
for these two important industry sectors as well as provide an early
look into other investment areas the Fund is pursuing.
The investment premise for the Fund's energy-related investments
centers on our belief that the energy sector is in need of a
significant new capital investment cycle, since supplies of
equipment and services have not grown materially since the oilfield
depression of the early 1980s. Since we established an overweighted
exposure in the energy sector several years ago, the Fund's energy-
related holdings were a significant positive contributor to overall
performance through the fall of 1997. At that time, the onset of the
Asian financial crisis and a mild winter in the Northern Hemisphere
led to a counter-seasonal increase in crude oil inventories during
the first half of 1998. While the short-term impact of higher-than-
normal oil inventories has pressured oil prices to five-year lows
and negatively impacted near-term business fundamentals for energy-
related equities, it has not undermined the long-term need for a new
capital investment cycle in the energy sector.
Merrill Lynch Growth Fund
July 31, 1998
While the performance of the Fund's energy-related investments thus
far in 1998 has been disappointing, there is evidence that
intermediate-term commodity market fundamentals are improving. For
example, since mid-May, US crude oil and refined product inventories
have stabilized. Going forward, despite the current weakness in
Asia, we expect crude oil inventories to converge toward 1997 levels
as continued demand growth in North America and Europe, together
with supply constraints, work to draw down today's excess supply. As
the inventory overhang is removed, the Fund's energy-related
investments are well positioned to benefit from the long-term
investment opportunity that originally attracted us to this sector.
Notwithstanding the impact of what we believe to be a short-term
inventory imbalance, the long-term business fundamentals for the
Fund's energy investments are very promising.
Since the Fund began investing in REITs in 1996, positive near-term
supply/demand fundamentals have contributed to growth in rental
revenues and funds from operations for companies with well-
positioned assets. More importantly, the longer-term opportunity for
public real estate operating companies derives from the ongoing
transition in institutional ownership from private direct investment
in specific assets (such as office buildings and shopping malls) to
public ownership through equity REITs. As this transition in
ownership continues to evolve, it provides incremental growth and
economies of scale for the larger, well-capitalized public companies
that acquire these privately held assets.
Near-term fundamentals for real estate remain strong with supply and
demand well balanced nationally. Furthermore, the reasons for owning
REITs for the long term have not changed, since the industry is
still early in the transition of private assets to the public
market. In fact, the companies consolidating the real estate
industry are clearly beginning to differentiate themselves with
superior operating performance as economies of scale from recent
transactions are now being realized.
While we remain optimistic on the long-term investment opportunities
afforded by the Fund's energy and REIT investments, over time the
Fund is likely to opportunistically increase its commitments to
other industry segments. Life sciences, industrial automation/process
control, and technology are three broadly defined industry segments
currently represented in the Fund that are likely to see greater
emphasis in the future. While these investment areas have a small
representation in the Fund today, we believe that they offer
significant long-term growth potential.
For example, in the life sciences area, the Fund initiated a
position in Chiron Corp. during the July quarter. Chiron is an
established biotechnology leader with business interests in
therapeutic drugs, diagnostics and vaccines. We identified Chiron as
a potential investment through our research on current life science
holdings. Chiron's core enabling technologies for new drug
discoveries are frequently cited by industry professionals as "best
in class." As we investigated further, we learned that Chiron has an
emerging portfolio of new drug candidates, prospective extensions of
existing drugs and significant unrealized value in its diagnostics
and vaccines businesses. Under the management of Sean Lance
(Chiron's new chief executive officer, formerly associated with
Glaxo-Wellcome), management is charged with realizing value from the
company's existing portfolio of undervalued assets. At current
prices, we believe that Chiron's stock price does not fully reflect
the long-term value of its existing portfolio of business assets.
Going forward, the Fund's investment in Chiron should benefit as the
company's diagnostics business is rationalized and as the full
potential of the company's pipeline of new drug candidates moves
closer to market.
In the industrial automation/process control sector, the Fund
recently initiated a position in National Instruments Corp., the
industry leader in providing personal computer software-based
solutions for programmable "virtual" instruments. The worldwide
instrumentation market for test and measurement and industrial
automation is estimated to exceed $30 billion in annual spending,
with personal computer-based solutions comprising approximately $4
billion of this total. Dedicated, fixed-function devices have
traditionally served the market for instrumentation equipment.
National Instruments provides personal computer-based software
solutions that give increased functionality and flexibility relative
to a dedicated fixed-function instrument at a greatly reduced cost.
Since the market for virtual instruments is relatively young,
National Instruments has been growing significantly faster than the
broader instrumentation market as its products take market share
from the more mature, less versatile, and more costly incumbent
solutions.
Merrill Lynch Growth Fund
July 31, 1998
In Conclusion
With the broad equity market trading near historic valuation highs,
the relative value and long-term return opportunities afforded by
the Fund's energy and REIT holdings appear compelling, in our view.
Finally, we remain disciplined in deploying the Fund's cash
balances, seeking attractively valued businesses that offer
meaningful long-term return potential, consistent with the Fund's
three-year--five-year investment focus that emphasizes growth
at a reasonable price, otherwise known by the acronym "GARP."
We thank you for your continued investment in Merrill Lynch Growth
Fund, Inc., and we look forward to reviewing our outlook and
strategy with you again in our upcoming annual report to
shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Arthur Moretti)
Arthur Moretti
Senior Vice President and Portfolio Manager
August 28, 1998
Merrill Lynch Growth Fund
July 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the ex-dividend date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Merrill Lynch Growth Fund
July 31, 1998
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Growth Fund Class A Shares* -16.70% -18.77% +339.02%
ML Growth Fund Class B Shares* -17.58 -19.00 +299.38
ML Growth Fund Class C Shares* -17.57 -18.99 + 61.78
ML Growth Fund Class D Shares* -16.93 -18.81 + 66.62
Standard & Poor's 500 Index** +19.28 + 1.18 +444.31/+445.10/+161.20
<FN>
*Investment results shown do not reflect sales charges; results
would be lower if a sales charge was included. Total investment
returns are based on changes in net asset values for the periods
shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. The Fund's
inception dates are: Class A Shares, 11/28/88; Class B Shares, ten
years ended 7/31/98; and Class C and Class D Shares, 10/21/94.
**An unmanaged broad-based index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates. Ten
years/since inception total returns are: from 11/28/88 to 7/31/98;
for the ten years ended 7/31/98; and from 10/21/94 to 7/31/98,
respectively.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/98 - 0.19% - 5.43%
Five Years Ended 6/30/98 +17.18 +15.92
Inception (11/28/88)
through 6/30/98 +17.95 +17.29
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/98 - 1.22% - 4.84%
Five Years Ended 6/30/98 +15.97 +15.97
Ten Years Ended 6/30/98 +16.20 +16.20
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/98 - 1.21% - 2.11%
Inception (10/21/94)
through 6/30/98 +17.19 +17.19
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/98 - 0.46% - 5.69%
Inception (10/21/94)
through 6/30/98 +18.11 +16.39
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Growth Fund
July 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industries Held Long-Term Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Banking & Financial 2,000,000 Republic New York Corp. $ 44,267,281 $ 118,625,000 2.0%
Services 3,900,000 Safra Republic Holdings S.A. (ADR)* 67,382,625 302,250,000 5.2
-------------- -------------- ------
111,649,906 420,875,000 7.2
Beverages 3,949,108 Coca-Cola Beverages PLC 10,825,153 12,016,977 0.2
2,246,300 Panamerican Beverages, Inc. (Class A)
(US Registered Shares) 70,771,223 69,775,694 1.2
-------------- -------------- ------
81,596,376 81,792,671 1.4
Diversified Resource 5,800,000 Freeport-McMoRan Copper & Gold, Inc.
Companies (Class A) 150,211,626 82,287,500 1.4
5,000,000 Freeport-McMoRan Copper & Gold, Inc.
(Class B) 107,984,584 74,062,500 1.3
11,000,000 IMC Global, Inc. 361,136,814 281,187,500 4.9
1,250,000 IMC Global, Inc. (Warrants)(a) 4,374,956 2,031,250 0.0
-------------- -------------- ------
623,707,980 439,568,750 7.6
Domestic 9,000,000 Burlington Resources, Inc. 424,965,127 326,250,000 5.6
Exploration & 3,500,000 Vastar Resources, Inc. 106,578,685 149,625,000 2.6
Production -------------- -------------- ------
531,543,812 475,875,000 8.2
Energy Acquisition & 9,000,000 Apache Corp. 266,675,926 238,500,000 4.1
Exploitation 3,000,000 Devon Energy Corp. 63,886,306 96,750,000 1.7
1,000,000 Devon Financing Trust
(Convertible Preferred) 50,000,000 59,125,000 1.0
4,000,000 Newfield Exploration Co. 56,598,372 79,250,000 1.3
1,608,000 Noble Affiliates, Inc. 64,670,761 51,255,000 0.9
-------------- -------------- ------
501,831,365 524,880,000 9.0
Industrial 658,200 Danaher Corp. 22,453,506 26,862,788 0.5
Automation/ 1,520,600 National Instruments Corp. 44,832,162 39,535,600 0.7
Process Control 5,443,400 Unova, Inc. 78,797,591 112,950,550 1.9
-------------- -------------- ------
146,083,259 179,348,938 3.1
Life Sciences 1,230,600 Affymetrix, Inc. 22,542,668 33,072,375 0.6
2,025,000 Chiron Corp. 35,338,275 34,425,000 0.6
434,500 CytoTherapeutics, Inc. (Warrants)(a) 651,750 0 0.0
1,198,100 Genset (ADR)* 23,745,154 37,740,150 0.6
1,352,500 Human Genome Sciences, Inc. 49,385,532 50,380,625 0.9
1,000,000 Millennium Pharmaceuticals, Inc. 17,754,752 15,000,000 0.3
1,500,000 Pharmacopeia, Inc. 26,553,699 18,375,000 0.3
-------------- -------------- ------
175,971,830 188,993,150 3.3
Natural Gas 3,855,434 TransMontaigne Oil Co. 27,060,669 55,421,864 0.9
Gathering & 3,500,000 Western Gas Resources, Inc. 74,549,278 40,468,750 0.7
Transmission -------------- -------------- ------
101,609,947 95,890,614 1.6
Offshore Drilling 18,400,000 Ensco International, Inc. 194,651,449 249,550,000 4.3
Companies 16,300,000 Global Marine, Inc. 59,126,323 223,106,250 3.8
4,500,000 Santa Fe International Corp. 164,472,233 103,500,000 1.8
-------------- -------------- ------
418,250,005 576,156,250 9.9
Oilfield Services 4,170,000 EVI Weatherford, Inc. (b) 128,588,585 107,377,500 1.8
8,000,000 Nabors Industries, Inc. 114,462,629 136,500,000 2.3
3,800,000 Schlumberger Ltd. 178,946,321 230,137,500 4.0
</TABLE>
Merrill Lynch Growth Fund
July 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industries Held Long-Term Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Oilfield Services 1,900,000 Tidewater, Inc. $ 84,775,251 $ 55,100,000 1.0%
(concluded) 1,483,700 Western Atlas, Inc. 79,331,484 97,089,619 1.7
-------------- -------------- ------
586,104,270 626,204,619 10.8
Real Estate 2,000,000 AMB Property Corp. 44,944,801 47,750,000 0.8
Investment Trusts--
Industrial
Real Estate 2,649,200 Crescent Real Estate Equities, Inc. 67,893,031 77,820,250 1.4
Investment Trusts-- 10,799,772 Equity Office Properties Trust 261,261,735 268,644,328 4.6
Office -------------- -------------- ------
329,154,766 346,464,578 6.0
Real Estate 2,500,000 Avalon Bay Communities, Inc. (c) 87,344,543 89,687,500 1.5
Investment Trusts-- 5,500,000 Equity Residential Properties Trust 239,719,663 231,000,000 4.0
Residential -------------- -------------- ------
327,064,206 320,687,500 5.5
Real Estate 337,800 Chelsea GCA Realty, Inc. 12,857,881 12,245,250 0.2
Investment Trusts-- 3,742,000 Federal Realty Investment Trust 102,498,004 87,469,250 1.5
Retail 1,639,200 New Plan Realty Trust 39,681,672 37,394,250 0.6
7,456,600 Simon DeBartolo Group, Inc. 219,856,087 232,086,675 4.0
1,842,900 Weingarten Realty Investors 76,494,865 69,454,294 1.2
-------------- -------------- ------
451,388,509 438,649,719 7.5
Technology 2,500,000 Lam Research Corp. 66,892,917 44,375,000 0.8
180,000 Maxim Integrated Products, Inc. 5,760,000 5,748,750 0.1
-------------- -------------- ------
72,652,917 50,123,750 0.9
Total Long-Term Investments 4,503,553,949 4,813,260,539 82.8
Face
Amount Short-Term Investments
Commercial $50,000,000 Bell Atlantic Financial Services,
Paper** Inc., 5.56% due 8/17/1998 49,876,444 49,876,444 0.9
Concord Minutemen Capital Co. LLC:
15,000,000 5.55% due 8/07/1998 14,986,125 14,986,125 0.3
59,054,000 5.55% due 8/13/1998 58,944,750 58,944,750 1.0
Countrywide Home Loans, Inc.:
15,000,000 5.54% due 8/10/1998 14,979,225 14,979,225 0.3
40,000,000 5.56% due 8/31/1998 39,814,667 39,814,667 0.7
50,000,000 Delaware Funding Corp., 5.53%
due 8/05/1998 49,969,278 49,969,278 0.9
Edison Asset Securitization, LLC:
48,997,000 5.53% due 8/07/1998 48,951,841 48,951,841 0.8
47,695,000 5.53% due 9/03/1998 47,453,226 47,453,226 0.8
40,000,000 Eureka Securitization Inc., 5.56%
due 8/31/1998 39,814,667 39,814,667 0.7
Finova Capital Corp.:
40,000,000 5.53% due 8/10/1998 39,944,700 39,944,700 0.7
15,000,000 5.55% due 9/08/1998 14,912,125 14,912,125 0.3
15,000,000 5.53% due 9/15/1998 14,896,312 14,896,312 0.3
35,317,000 General Motors Acceptance Corp.,
5.69% due 8/03/1998 35,305,836 35,305,836 0.6
50,000,000 General Motors Corp., 5.54% due
8/21/1998 49,846,111 49,846,111 0.8
50,000,000 Goldman Sachs Group, 5.53% due
8/28/1998 49,792,625 49,792,625 0.8
30,277,000 Lexington Parker Capital Corp.,
5.53% due 8/07/1998 30,249,095 30,249,095 0.5
50,218,000 Metropolitan Life Funding Corp.,
5.53% due 8/03/1998 50,202,572 50,202,572 0.9
</TABLE>
Merrill Lynch Growth Fund
July 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Percent of
Amount Short-Term Investments Cost Value Net Assets
<C> <S> <C> <C> <C>
Commercial Park Avenue Receivables Corp.:
Paper** $11,109,000 5.54% due 8/07/1998 $ 11,098,743 $ 11,098,743 0.2%
(concluded) 15,567,000 5.56% due 8/14/1998 15,535,745 15,535,745 0.3
40,000,000 5.54% due 8/18/1998 39,895,356 39,895,356 0.7
30,231,000 5.56% due 8/20/1998 30,142,289 30,142,289 0.5
40,000,000 Republic Industries, Inc., 5.53%
due 8/03/1998 39,987,711 39,987,711 0.7
Riverwoods Funding Corp.:
50,000,000 5.52% due 9/08/1998 49,708,667 49,708,667 0.8
50,000,000 5.52% due 9/10/1998 49,693,333 49,693,333 0.8
35,000,000 Southern Company (The), 5.52% due
8/14/1998 34,930,233 34,930,233 0.6
50,000,000 Three Rivers Funding Corp., 5.54%
due 8/18/1998 49,869,194 49,869,194 0.8
50,000,000 Variable Funding Capital Corp.,
5.56% due 8/06/1998 49,961,389 49,961,389 0.9
Total Short-Term Investments 1,020,762,259 1,020,762,259 17.6
Total Investments $5,524,316,208 5,834,022,798 100.4
==============
Liabilities in Excess of Other Assets (22,201,994) (0.4)
-------------- -------
Net Assets $5,811,820,804 100.0%
============== ======
Net Asset Class A--Based on net assets of $1,261,919,865 and 53,595,863
Value: shares of beneficial interest outstanding $ 23.55
==============
Class B--Based on net assets of $3,028,129,915 and 139,527,568
shares of beneficial interest outstanding $ 21.70
==============
Class C--Based on net assets of $296,110,957 and 13,743,347
shares of beneficial interest outstanding $ 21.55
==============
Class D--Based on net assets of $1,225,660,067 and 52,209,825
shares of beneficial interest outstanding $ 23.48
==============
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper is traded on a discount basis; the interest rates
shown reflect 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 and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
(b)Formerly Weatherford Enterra, Inc.
(c)Formerly Avalon Properties, Inc.
</TABLE>
PORTFOLIO INFORMATION
Ten Largest Equity Holdings Percent of
As of July 31, 1998 Net Assets
Burlington Resources, Inc. 5.6%
Safra Republic Holdings S.A. (ADR) 5.2
IMC Global, Inc. 4.9
Equity Office Properties Trust 4.6
Ensco International, Inc. 4.3
Apache Corp. 4.1
Simon DeBartolo Group, Inc. 4.0
Equity Residential Properties Trust 4.0
Schlumberger Ltd. 4.0
Global Marine, Inc. 3.8
Equity Portfolio Changes for the
Quarter Ended July 31, 1998
Additions
Chiron Corp.
Coca-Cola Beverages PLC
Maxim Integrated Products, Inc.
Deletions
CytoTherapeutics, Inc.
Dell Computer Corp.
