MERRILL LYNCH
GROWTH FUND
FUND LOGO
Annual Report
October 31, 1998
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
Fiscal Year in Review
Since Merrill Lynch Growth Fund's inception in 1987, we have
employed a three-year-five-year time horizon for new investments and
a focused bottom-up research process emphasizing growth at a
reasonable price (GARP). While the number of portfolio holdings has
grown with assets under management, historically the Fund has been
managed with a relatively short list of portfolio holdings,
averaging less than 40. Essentially, we have sought to identify and
invest in businesses with superior long-term total return potential,
choosing not to trade stocks in an effort to influence quarterly
returns. As a result of this approach, the Fund has never closely
tracked the broader equity market in the short run. Also, some of
the Fund's best investment ideas often follow from work performed on
existing holdings, frequently resulting in investment themes within
the portfolio.
Although this investment approach served the Fund well for many
years, the fiscal year ended October 31, 1998 was a notable
exception. For the 12 months ended October 31, 1998, the Fund had
total returns for Class A, Class B, Class C and Class D Shares of
- -25.83%, -26.57%, -26.60% and -26.00%, respectively, compared to
+21.99% for the unmanaged Standard & Poor's 500 Index (S&P 500). We
are very disappointed with our results. In this letter to
shareholders, we will review the Fund's performance for the year,
what went wrong, what we intend to do differently in the future and
what aspects of our approach we will retain.
As our long-term shareholders will recall, we have maintained a
substantial focus in the energy sector for a number of years. More
recently, we established a significant presence in real estate
through the Fund's real estate investment trust (REIT) investments.
The Fund's energy holdings were an important contributor to the
positive relative performance delivered in the previous two fiscal
years with REITs playing a part in last fiscal year's positive
performance. At the end of October, energy holdings represented
41.4% of net assets and REITs, 18.0%. However, for the 12 months
ended October 31, 1998, both groups delivered negative total returns
and were largely responsible for the Fund's poor performance.
By way of review, the investment premise for the Fund's energy
investments centers on two distinct long-term trends. First, we
believe that strong supply/demand fundamentals for domestic natural
gas will benefit well-positioned natural gas producers. Second, a
secular rise in capacity utilization within the oilfield services
sector, following a period of chronic oversupply during the 1980s
and early 1990s, will lead to significant earnings and revenue
growth for this industry sector, in our estimation.
While our conviction in the long-term industry fundamentals for US
natural gas and oilfield services remains, our assessment on the
timing of how events would unfold in 1998 was wrong. The inventory
overhang of crude oil resulting from the combined effects of a mild
winter in the Northern Hemisphere and the impact of the Asian
financial crisis pressured crude oil prices below $15/barrel for
most of 1998. With persistent weak oil prices, oil and gas producers
have reduced their capital expenditure plans with the greatest
impact to date being felt during the third calendar quarter. While
there was evidence that supply constraints were having an effect on
crude oil inventories, the rate of change so far has been slower
than expected. The confluence of these events depressed the equity
prices for many of the Fund's energy holdings to 52-week lows with a
bottom occurring in late August.
Looking ahead, we believe that US gas market fundamentals remain
strong. In spite of strong growth in natural gas drilling activity
for the past several years, continental US natural gas reserves and
production have been virtually flat over this period. In fact, as
oil and gas producers reduced their spending during 1998, they did
so somewhat indiscriminately, with both oil-related and gas-related
drilling being deferred. With steep production decline rates and
reduced drilling activity, natural gas production capacity will be
strained near term. We believe this will benefit the Fund's
investments that have US natural gas-related exposure and should
also lend support to the oilfield services sector since gas-related
drilling activity is likely to rebound. We are monitoring events in
order to modify our strategy as needed.
Merrill Lynch Growth Fund
October 31, 1998
While REITs performed poorly during the 12 months ended October 31,
1998, we believe the business fundamentals for the Fund's
investments in this area remain strong. Recent financial market
volatility has essentially eliminated many sources of capital for
speculative investment in new construction and has also cooled the
recent acquisition pace for existing properties. With capital
constrained, investor focus going forward is likely to be on
companies that can add value as efficient, low-cost operators of
real estate assets. Companies with national operations and strong
balance sheets are likely to be the long-term beneficiaries of
recent market turbulence since these companies still have access to
capital to grow, and in the long run, the ability to bring real
estate assets from the largely private market to public ownership.
In the near term, while there may be regions of the country and
select property types that run the risk of overbuilding, national
supply and demand fundamentals remain strong. The Fund's portfolio
holdings in this area have significant internal growth prospects as
existing below-market rents roll over. These holdings also offer
current income with yields in the range of 5%-7%. Considering the
internal growth prospects together with high current yields, the
Fund's REIT holdings continue to represent an attractive long-term
investment opportunity, in our view. During the October quarter,
however, we sold some of the Fund's REIT investments in favor of
keeping others that we believed met the above criteria.
Portfolio Matters
The recent worldwide financial market volatility offered the Fund an
attractive entry point to establish new positions and increase
existing positions in several franchise businesses that we believed
offer very attractive long-term potential. We added positions in two
Mexican national television broadcasters, Grupo Televisa, S.A. de
C.V. and TV Azteca, S.A. de C.V.; Transaction Systems Architects,
Inc. (TSA), a software technology company positioned to benefit from
the growth in electronic commerce; and United Healthcare
Corporation, a leading managed care company. We increased the Fund's
positions in two existing holdings, namely Panamerican Beverages,
Inc., the largest Coca-Cola bottler in Latin America, and Maxim
Integrated Products, Inc., an industry leading provider of precision
analog semiconductors.
The Mexican television advertising market offers significant long-
term growth potential as the advertising cost per thousand
households is markedly below other countries in Central and Latin
America. As the Mexican economy grows and as the broadcaster duopoly
of Grupo Televisa and TV Azteca deploys new pricing policies, we
believe that both companies can deliver significant long-term growth
in revenue and earnings. Accordingly, we viewed the recent equity
market volatility as providing an attractive entry point for
establishing positions in these companies that we believe have
significant long-term growth potential and franchise value.
TSA is well-positioned to be a prime beneficiary in the growth of
electronic commerce as we move to a cashless society. TSA is the
leading provider of software switch products that underlie automated
teller machines (ATM) and point of sale networks (POS). Essentially,
TSA's software routes and authorizes ATM and POS transactions for
the card-issuing bank. TSA currently has a greater than 40% market
share in the US ATM market and a growing presence internationally as
electronic transactions proliferate. TSA counts 108 of the top 500
banks worldwide as its customers, and its growth is driven by new
account penetration as well as transaction growth on existing
customer networks. Today, electronic transactions account for
approximately 20% of all transactions and are growing at an
estimated 15% rate by taking share from more traditional forms of
payment. With its current product offering, we believe that TSA is
also well-positioned to benefit from the anticipated growth in home
banking and Internet commerce. Considering these opportunities, we
forecast that TSA has the potential to grow its revenue in excess of
20% and earnings greater than 30% annually over the long term.
United Healthcare is an industry-leading managed healthcare provider
in the United States. During the October quarter, United
Healthcare's stock price came under considerable selling pressure in
response to concerns surrounding its organizational restructuring,
recent losses in its Medicare business and a failed merger with
Humana, Inc. We initiated a position in United Healthcare because we
believed the company is well positioned to deliver significant
earnings growth in 1999 driven by an improved pricing environment
for its commercial healthcare business, improved operating
performance in its Medicare plans, and growth in plan participants
in existing markets. Considering the company's improving near-term
business prospects and long-term growth opportunity as a leader in
the managed care sector, it is our view that the sell-off in United
Healthcare's stock presented an attractive entry point for long-term
investors such as the Fund.
Merrill Lynch Growth Fund
October 31, 1998
During the July quarter, we initiated a position in Maxim Integrated
Products, Inc. We used recent market volatility to expand this
position. Maxim is a leading provider of precision analog
semiconductor components. Precision analog components are highly
customized parts that serve as the pathways through which
information, such as sound and radio signals, are received and
converted into a digital format that can then be processed by a
microprocessor or other digital processing chip. The trend toward
increasing digital content in consumer appliances, such as digital
cell phones, actually drives more analog semiconductor content. As
digital products become more widespread, this will propel demand for
precision analog components. The $6 billion precision analog market
is expected to be one of the fastest-growing segments of the
semiconductor market with a long-term secular growth rate in the
range of 20%. We believe that Maxim is well-positioned to benefit
from these trends, and has a record of strong and consistent revenue
and earnings growth through both good and bad periods in the
semiconductor industry. As a public company, Maxim's revenue growth
has exceeded that of the precision analog market.
Finally, during the fourth quarter of the Fund's fiscal year, we
took advantage of Latin American equity market volatility to
increase the Fund's position in Panamerican Beverages, Inc. The
company has a deep management team and a long history of successful
operations and growth in these geographic markets. Furthermore, with
relatively low per capita consumption of soft drinks in its licensed
territories, Panamerican Beverages has significant long-term growth
potential, in our view. The sell-off in Panamerican Beverage's share
price, coincident with the sharp declines experienced in the Latin
American equity markets, presented an attractive opportunity to
increase the Fund's position in this strong franchise.
In Conclusion
Despite the challenges we encountered during the fiscal year ended
October 31, 1998, we will continue to invest with the same bottom-up
approach, seeking out growth at a reasonable price, which has worked
so successfully for the Fund in the past. Looking ahead, we intend
to opportunistically increase the number of Fund holdings while
keeping the discipline of our three-year-five-year investment time
horizon. The recent additions to the Fund provide examples of the
types of long-term business opportunities that we intend to
introduce into the portfolio in the months ahead.
We thank you for your continued investment in Merrill Lynch Growth
Fund, and we look forward to reviewing our outlook and strategy with
you again in our upcoming quarterly report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Arthur Moretti)
Arthur Moretti
Senior Vice President and Portfolio Manager
December 7, 1998
Merrill Lynch Growth Fund
October 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.
<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* -25.83% -3.57% +323.36%
ML Growth Fund Class B Shares* -26.57 -3.78 +266.28
ML Growth Fund Class C Shares* -26.60 -3.85 + 55.55
ML Growth Fund Class D Shares* -26.00 -3.62 + 60.58
Standard & Poor's 500 Index** +21.99 -1.57 +435.74/+418.25/+157.09
<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
ten-year/inception periods are: Class A Shares, from 11/28/88 to
10/31/98; Class B Shares, for the ten years ended 10/31/98; and
Class C & Class D Shares, from 10/21/94 to 10/31/98.
**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 10/31/98;
for the ten years ended 10/31/98; and from 10/21/94 to 10/31/98,
respectively.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/98 -32.58% -36.12%
Five Years Ended 9/30/98 +10.08 + 8.90
Inception (11/28/88)
through 9/30/98 +14.92 +14.30
<FN>
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/98 -33.29% -35.69%
Five Years Ended 9/30/98 + 8.95 + 8.95
Ten Years Ended 9/30/98 +13.31 +13.31
<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 9/30/98 -33.30% -33.90%
Inception (10/21/94)
through 9/30/98 + 9.79 + 9.79
<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 9/30/98 -32.74% -36.27%
Inception (10/21/94)
through 9/30/98 +10.66 + 9.16
<FN>
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Growth Fund
October 31, 1998
PERFORMANCE DATA (concluded)
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** 10/98
ML Growth Fund++--
Class A Shares* $ 9,475 $40,116
S&P 500 Total Return Index++++ $10,000 $53,574
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:
10/88 10/98
ML Growth Fund++--
Class B Shares* $10,000 $36,629
S&P 500 Total Return Index++++ $10,000 $51,825
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** 10/98
ML Growth Fund++--
Class C Shares* $10,000 $15,555
ML Growth Fund++--
Class D Shares* $ 9,475 $15,214
S&P 500 Total Return Index++++ $10,000 $25,708
<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.
Merrill Lynch Growth Fund
October 31, 1998
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industries Held Long-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Banking & Financial 2,000,000 Republic New York Corp. $ 44,267,281 $ 83,625,000 1.7%
Services 3,900,000 Safra Republic Holdings S.A. (ADR)* 67,382,625 195,000,000 3.9
-------------- -------------- ------
111,649,906 278,625,000 5.6
Basic Industries 7,000,000 IMC Global, Inc. (f) 223,652,140 182,000,000 3.7
1,250,000 IMC Global, Inc. (Warrants) (a) 4,374,956 1,562,500 0.0
-------------- -------------- ------
228,027,096 183,562,500 3.7
Beverages 3,949,108 ++Coca-Cola Beverages PLC 10,825,153 8,331,607 0.2
4,000,000 Panamerican Beverages, Inc. (Class A)
(US Registered Shares) 113,501,830 81,000,000 1.6
-------------- -------------- ------
124,326,983 89,331,607 1.8
Capital 658,200 Danaher Corp. 22,453,506 26,286,863 0.5
Goods-- 2,210,000 ++National Instruments Corp. (f) 60,822,924 60,498,750 1.2
Industrial 5,443,400 ++Unova, Inc. (f) 78,797,591 78,589,087 1.6
-------------- -------------- ------
162,074,021 165,374,700 3.3
Capital Goods-- 1,000,000 ++Lam Research Corp. 23,934,370 14,437,500 0.3
Technology 1,455,000 ++Maxim Integrated Products, Inc. 43,773,356 51,834,375 1.0
260,000 ++Transaction Systems Architects,
Inc. (TSA) 9,156,888 9,376,250 0.2
-------------- -------------- ------
76,864,614 75,648,125 1.5
Consumer Growth 2,000,000 ++Grupo Televisa, S.A. de C.V. (GDR)** 38,869,750 54,250,000 1.1
1,368,700 TV Azteca, S.A. de C.V. (ADR)* 8,621,849 11,976,125 0.2
-------------- -------------- ------
47,491,599 66,226,125 1.3
Domestic 8,000,000 Burlington Resources, Inc. 374,995,519 329,500,000 6.6
Exploration & 3,500,000 Vastar Resources, Inc. 106,578,685 167,343,750 3.4
Production -------------- -------------- ------
481,574,204 496,843,750 10.0
Energy 9,000,000 Apache Corp. (f) 266,675,926 254,812,500 5.1
Acquisition & 3,000,000 Devon Energy Corp. (f) 63,886,306 101,625,000 2.0
Exploitation 1,000,000 Devon Financing Trust (Convertible
Preferred) (b)(e) 50,000,000 58,714,286 1.2
4,000,000 ++Newfield Exploration Co. (f) 56,598,373 97,250,000 2.0
2,200,000 Noble Affiliates, Inc. 81,282,534 72,050,000 1.4
-------------- -------------- ------
518,443,139 584,451,786 11.7
Gas Pipeline 3,855,434 ++TransMontaigne Oil Co. (f) 27,060,669 60,000,192 1.2
& Transmission 3,500,000 Western Gas Resources, Inc. (f) 74,549,278 28,656,250 0.6
-------------- -------------- ------
101,609,947 88,656,442 1.8
Health Care 50,000 ++American Oncology Resources, Inc. 440,000 665,625 0.0
2,000,000 United Healthcare Corporation 72,698,072 87,125,000 1.7
-------------- -------------- ------
73,138,072 87,790,625 1.7
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Long-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Life Sciences 1,230,600 ++Affymetrix, Inc. (f) $ 22,542,668 $ 29,688,225 0.6%
3,875,000 ++Chiron Corp. 65,166,114 86,945,313 1.7
434,500 CytoTherapeutics, Inc. (Warrants) (a) 651,750 4 0.0
1,130,000 ++Genset (ADR)* (f) 22,166,589 33,193,750 0.7
1,500,000 ++Human Genome Sciences, Inc. (f) 54,858,031 51,750,000 1.0
1,000,000 ++Millennium Pharmaceuticals, Inc. 17,754,752 18,250,000 0.4
1,500,000 ++Pharmacopeia, Inc. (f) 26,553,699 15,937,500 0.3
-------------- -------------- ------
209,693,603 235,764,792 4.7
Offshore Drilling 18,400,000 Ensco International, Inc. (f) 194,651,449 247,250,000 5.0
16,300,000 ++Global Marine, Inc. (f) 59,126,323 201,712,500 4.0
4,500,000 Santa Fe International Corp. 164,472,233 82,968,750 1.7
-------------- -------------- ------
418,250,005 531,931,250 10.7
Oilfield Services 7,000,000 Baker Hughes Inc. 148,113,085 154,437,500 3.1
8,000,000 ++Nabors Industries, Inc. (f) 114,462,629 148,000,000 3.0
1,000,000 Schlumberger Ltd. 36,134,221 52,500,000 1.1
-------------- -------------- ------
298,709,935 354,937,500 7.2
Real Estate 2,000,000 AMB Property Corp. 44,944,801 46,000,000 1.0
Investment
Trusts--Industrial
Real Estate 8,500,000 Equity Office Properties Trust 194,531,914 204,000,000 4.1
Investment
Trusts--Office
Real Estate 2,500,000 Avalonbay Communities, Inc. (c) 87,344,543 80,312,500 1.6
Investment 4,900,000 Equity Residential Properties Trust (f) 210,655,218 205,800,000 4.1
Trusts--Residential -------------- -------------- ------
297,999,761 286,112,500 5.7
Real Estate 3,900,000 Federal Realty Investment Trust (f) 106,064,064 88,237,500 1.8
Investment 6,100,000 Simon Property Group, Inc. (d) 178,362,655 182,618,750 3.7
Trusts--Retail 1,910,000 Weingarten Realty Investors (f) 78,951,837 84,875,625 1.7
-------------- -------------- ------
363,378,556 355,731,875 7.2
Total Long-Term Investments 3,752,708,156 4,130,988,577 83.0
Face
Amount Short-Term Investments
Commercial $50,000,000 E.I. du Pont de Nemours and Company,
Paper*** 5.03% due 12/07/1998 49,741,514 49,741,514 1.0
Eureka Securitization Inc.:
21,200,000 5.50% due 11/06/1998 21,180,567 21,180,567 0.4
50,000,000 5.18% due 12/18/1998 49,654,667 49,654,667 1.0
24,290,000 Falcon Asset Securitization Corp.,
5.20% due 11/18/1998 24,226,846 24,226,846 0.5
50,000,000 Fleet Funding Corp., 5.20% due
12/11/1998 49,703,889 49,703,889 1.0
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Industries Amount Short-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial $73,437,000 General Motors Acceptance Corp.,
Paper*** 5.69% due 11/02/1998 $ 73,413,786 $ 73,413,786 1.5%
(concluded) 36,510,000 General Motors Corp., 5.12% due
11/06/1998 36,478,845 36,478,845 0.7
Greyhawk Capital Corp.:
25,000,000 5.37% due 11/13/1998 24,951,521 24,951,521 0.5
30,000,000 5.22% due 11/23/1998 29,899,950 29,899,950 0.6
International Securitization Corporation:
29,990,000 5.30% due 11/05/1998 29,967,924 29,967,924 0.6
50,000,000 5.45% due 11/16/1998 49,878,889 49,878,889 1.0
50,000,000 5.28% due 11/20/1998 49,853,333 49,853,333 1.0
25,000,000 Lexington Parker Capital Corp., 5.47%
due 11/03/1998 24,988,604 24,988,604 0.5
36,184,000 Monte Rosa Capital Corp., 5.25% due
11/16/1998 36,099,570 36,099,570 0.7
47,495,000 Repeat Offering Security Enterprises,
5.34% due 11/05/1998 47,459,774 47,459,774 1.0
60,000,000 Republic Industries, Inc., 5.25% due
11/30/1998 59,737,500 59,737,500 1.2
30,000,000 Riverwoods Funding Corp., 5.35% due
11/09/1998 29,959,875 29,959,875 0.6
50,000,000 Variable Funding Capital Corp., 5.25%
due 11/24/1998 49,825,000 49,825,000 1.0
-------------- -------------- ------
737,022,054 737,022,054 14.8
US Government Federal Home Loan Mortgage Corp.:
Agency 20,000,000 5.08% due 11/06/1998 19,983,067 19,983,067 0.4
Obligations*** 50,000,000 4.80% due 12/10/1998 49,733,333 49,733,333 1.0
-------------- -------------- ------
69,716,400 69,716,400 1.4
Total Short-Term Investments 806,738,454 806,738,454 16.2
Total Investments $4,559,446,610 4,937,727,031 99.2
==============
Other Assets Less Liabilities 40,490,193 0.8
-------------- ------
Net Assets $4,978,217,224 100.0%
============== ======
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rates shown reflect the
discount rates paid at the time of purchase by the Fund.
++Non-income producing security.
(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)Represents a pay-in-kind security which may pay interest/dividend
in additional face/shares.
(c)Formerly Avalon Bay Communities, Inc.
(d)Formerly Simon DeBartolo Group, Inc.
(e)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(f)Investment in an affiliated company (Note 5).
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets and Liabilities as of October 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$4,559,446,610)
(Note 1a) $4,937,727,031
Foreign cash (Note 1b) 367
Receivables:
Securities sold $ 67,049,562
Beneficial interest sold 4,281,012
Dividends 3,695,261
Interest 410,714 75,436,549
--------------
Prepaid registration fees and other assets (Note 1f) 120,882
--------------
Total assets 5,013,284,829
--------------
Liabilities: Payables:
Beneficial interest redeemed 18,593,290
Securities purchased 9,156,888
Distributor (Note 2) 2,354,453
Investment adviser (Note 2) 2,345,283 32,449,914
--------------
Accrued expenses and other liabilities 2,617,691
--------------
Total liabilities 35,067,605
--------------
Net Assets: Net assets $4,978,217,224
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 4,893,459
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 12,190,544
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 1,155,365
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 4,784,837
Paid-in capital in excess of par 4,623,501,282
Undistributed investment income--net 17,387,631
Accumulated distributions in excess of realized capital gains on
investments and foreign currency transactions--net (Note 6) (63,976,324)
Unrealized appreciation on investments and foreign currency
transactions 378,280,430
--------------
Net assets $4,978,217,224
==============
Net Asset Value: Class A--Based on net assets of $1,111,165,845 and
48,934,592 shares of beneficial interest
outstanding $ 22.71
==============
Class B--Based on net assets of $2,544,978,578 and
121,905,440 shares of beneficial interest
outstanding $ 20.88
==============
Class C--Based on net assets of $239,445,516 and
11,553,654 shares of beneficial interest
outstanding $ 20.72
==============
Class D--Based on net assets of $1,082,627,285 and
47,848,368 shares of beneficial interest
outstanding $ 22.63
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Statement of Operations for the Year Ended October 31, 1998
<S> <S> <C> <C>
Investment Dividends (net of $132,877 foreign withholding tax) $ 91,755,857
Income Interest and discount earned 86,724,803
(Notes 1d & 1e): ---------------
Total income 178,480,660
---------------
Expenses: Investment advisory fees (Note 2) $ 45,929,114
Account maintenance and distribution fees--Class B (Note 2) 37,764,466
Transfer agent fees--Class B (Note 2) 7,475,039
Account maintenance and distribution fees--Class C (Note 2) 3,672,761
Account maintenance fees--Class D (Note 2) 3,558,546
Transfer agent fees--Class A (Note 2) 2,698,389
Transfer agent fees--Class D (Note 2) 2,572,343
Transfer agent fees--Class C (Note 2) 778,571
Printing and shareholder reports 475,484
Accounting services (Note 2) 365,124
Custodian fees 263,559
Professional fees 96,414
Registration fees (Note 1f) 72,063
Trustees' fees and expenses 45,565
Pricing fees 5,344
Other 69,453
--------------
Total expenses before reimbursement 105,842,235
Reimbursement of expenses (Note 2) (2,909,721)
--------------
Total expenses after reimbursement 102,932,514
---------------
Investment income--net 75,548,146
---------------
Realized & Realized loss from:
Unrealized Gain Investments--net (63,609,511)
(Loss) on Foreign currency transactions--net (366,681) (63,976,192)
Investments & --------------
Foreign Currency Change in unrealized appreciation on:
Transactions--Net Investments--net (2,191,116,033)
(Notes 1b, 1c, Foreign currency transactions--net 9 (2,191,116,024)
1e & 3): --------------
Net realized and unrealized loss on investments and
foreign currency transactions (2,255,092,216)
---------------
Net Decrease in Net Assets Resulting from Operations $(2,179,544,070)
===============
See Notes to Financial Statements.
Merrill Lynch Growth Fund
October 31, 1998
FINANCIAL INFORMATION (continued)
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 75,548,146 $ 77,646,122
Realized gain (loss) on investments and foreign currency
transactions--net (63,976,192) 533,833,873
Change in unrealized appreciation on investments and
foreign currency transactions--net (2,191,116,024) 1,320,593,787
-------------- --------------
Net increase (decrease) in net assets resulting from
operations (2,179,544,070) 1,932,073,782
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (26,531,245) (20,060,922)
Shareholders Class B (29,259,026) (27,296,782)
(Note 1g): Class C (2,908,954) (2,319,545)
Class D (21,460,174) (15,879,973)
Realized gain on investments--net:
Class A (92,635,994) (72,708,025)
Class B (264,389,838) (214,744,463)
Class C (24,792,797) (14,376,468)
Class D (88,098,272) (65,179,339)
In excess of realized capital gain on investments--net:
Class A (12,611,827) --
Class B (35,995,066) --
Class C (3,375,388) --
Class D (11,994,043) --
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (614,052,624) (432,565,517)
-------------- --------------
Beneficial Net increase (decrease) in net assets derived from
Interest beneficial interest transactions (755,047,073) 1,933,943,957
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (3,548,643,767) 3,433,452,222
Beginning of year 8,526,860,991 5,093,408,769
-------------- --------------
End of year* $4,978,217,224 $8,526,860,991
============== ==============
<FN>
*Undistributed investment income--net $ 17,387,631 $ 21,998,884
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A++
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 33.13 $ 26.87 $ 23.13 $ 19.19 $ 19.22
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .46 .53 .31 .23 .08
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (8.47) 7.98 5.63 4.01 2.01
---------- ---------- ---------- ---------- ----------
Total from investment operations (8.01) 8.51 5.94 4.24 2.09
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.48) (.44) (.35) -- --
Realized gain on investments--net (1.70) (1.81) (1.85) (.30) (2.12)
In excess of realized gain on
investments--net (.23) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (2.41) (2.25) (2.20) (.30) (2.12)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 22.71 $ 33.13 $ 26.87 $ 23.13 $ 19.19
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share (25.83%) 34.03% 28.15% 22.60% 12.50%
Return:* ========== ========== ========== ========== ==========
Ratios to Expenses, net of reimbursement .81% .77% .80% .82% .82%
Average ========== ========== ========== ========== ==========
Net Assets: Expenses .85% .81% .84% .84% .82%
========== ========== ========== ========== ==========
Investment income--net 1.72% 1.84% 1.28% 1.10% .44%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $1,111,166 $1,769,296 $1,056,870 $ 670,164 $ 382,077
========== ========== ========== ========== ==========
Portfolio turnover 24.41% 24.75% 30.01% 37.42% 4.22%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B++
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 30.63 $ 25.03 $ 21.60 $ 18.12 $ 18.43
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net .17 .22 .06 .01 (.10)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (7.80) 7.39 5.26 3.77 1.91
---------- ---------- ---------- ---------- ----------
Total from investment operations (7.63) 7.61 5.32 3.78 1.81
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.19) (.20) (.04) -- --
Realized gain on investments--net (1.70) (1.81) (1.85) (.30) (2.12)
In excess of realized gain on
investments--net (.23) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (2.12) (2.01) (1.89) (.30) (2.12)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 20.88 $ 30.63 $ 25.03 $ 21.60 $ 18.12
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share (26.57%) 32.62% 26.84% 21.37% 11.41%
Return:* ========== ========== ========== ========== ==========
Ratios to Expenses, net of reimbursement 1.83% 1.79% 1.82% 1.84% 1.84%
Average ========== ========== ========== ========== ==========
Net Assets: Expenses 1.87% 1.83% 1.85% 1.87% 1.84%
========== ========== ========== ========== ==========
Investment income (loss)--net .70% .82% .26% .04% (.58%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in
Data: thousands) $2,544,979 $4,687,523 $2,916,507 $1,920,451 $1,433,051
========== ========== ========== ========== ==========
Portfolio turnover 24.41% 24.75% 30.01% 37.42% 4.22%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C++++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994++ to
For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 30.43 $ 24.89 $ 21.59 $ 18.12 $ 17.45
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .17 .22 .06 .03 --
Realized and unrealized gain
(loss) on investments and foreign
currency transactions--net (7.75) 7.34 5.23 3.74 .67
---------- ---------- ---------- ---------- ----------
Total from investment operations (7.58) 7.56 5.29 3.77 .67
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.20) (.21) (.14) -- --
Realized gain on investments--net (1.70) (1.81) (1.85) (.30) --
In excess of realized gain on
investments--net (.23) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (2.13) (2.02) (1.99) (.30) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 20.72 $ 30.43 $ 24.89 $ 21.59 $ 18.12
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share (26.60%) 32.63% 26.84% 21.32% 3.84%+++
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses, net of reimbursement 1.84% 1.80% 1.84% 1.86% 2.52%*
Net Assets: ========== ========== ========== ========== ==========
Expenses 1.88% 1.84% 1.87% 1.89% 2.52%*
========== ========== ========== ========== ==========
Investment income (loss)--net .68% .81% .25% .14% (1.17%)*
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $ 239,445 $ 427,377 $ 187,221 $ 85,486 $ 1,381
========== ========== ========== ========== ==========
Portfolio turnover 24.41% 24.75% 30.01% 37.42% 4.22%
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
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. 1994++ to
For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 33.01 $ 26.79 $ 23.06 $ 19.18 $ 18.47
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .39 .46 .24 .22 --
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (8.43) 7.95 5.63 3.96 .71
---------- ---------- ---------- ---------- ----------
Total from investment operations (8.04) 8.41 5.87 4.18 .71
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.41) (.38) (.29) -- --
Realized gain on investments--net (1.70) (1.81) (1.85) (.30) --
In excess of realized gain on
investments--net (.23) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (2.34) (2.19) (2.14) (.30) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 22.63 $ 33.01 $ 26.79 $ 23.06 $ 19.18
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share (26.00%) 33.67% 27.83% 22.29% 3.84%+++
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses, net of reimbursement 1.06% 1.02% 1.05% 1.08% 1.77%*
Net Assets: ========== ========== ========== ========== ==========
Expenses 1.10% 1.06% 1.08% 1.10% 1.77%*
========== ========== ========== ========== ==========
Investment income (loss)--net 1.47% 1.59% 1.03% 1.00% (.54%)*
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $1,082,627 $1,642,665 $ 932,811 $ 614,357 $ 1,186
========== ========== ========== ========== ==========
Portfolio turnover 24.41% 24.75% 30.01% 37.42% 4.22%
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
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 or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). 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.
(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
options 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).
Merrill Lynch Growth Fund
October 31, 1998
Written and purchased options are non-income producing investments.
* 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 of 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 if 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 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 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. Distributions in
excess of realized capital gains are due primarily to differing tax
treatments for post-October losses.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$366,794 have been reclassified between accumulated distributions in
excess of net realized capital gains and undistributed net
investment income and $19 has been reclassified between paid-in
capital in excess of par and accumulated distributions in excess of
net realized capital gains. These reclassifications have no effect
on net assets or net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is 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 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% of the average net assets on the next $500 million;
and 0.60% of the average net assets over $1.5 billion. For the year
ended October 31, 1998, MLAM earned fees of $45,929,114, of which
$2,909,721 was voluntarily waived.
Merrill Lynch Growth Fund
October 31, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended October 31, 1998, MLFD earned underwriting
discounts and direct commissions, and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $ 6,709 $ 96,394
Class D $90,709 $1,329,895
For the year ended October 31, 1998, MLPF&S received contingent
deferred sales charges of $5,818,896 and $247,792 relating to
transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$177,033 and $66,156 relating to transactions subject to front-end
sales charge waivers in Class A and Class D Shares, respectively.
In addition, MLPF&S received $147,538 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended October 31, 1998.
Financial Data Services, Inc. ("FDS"), 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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1998 were $1,383,103,329 and
$1,963,812,131, respectively.
Net realized gains (losses) for the year ended October 31, 1998 and
net unrealized gains as of October 31, 1998 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $(63,609,518) $378,280,421
Short-term investments 7 --
Foreign currency
transactions (366,681) 9
------------ ------------
Total $(63,976,192) $378,280,430
============ ============
As of October 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $378,280,421, of which $705,847,731
related to appreciated securities and $327,567,310 related to
depreciated securities. At October 31, 1998, the aggregate cost of
investments for Federal income tax purposes was $4,559,446,610.
4. Shares of Beneficial Interest:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $(755,047,073) and $1,933,943,957 for the
years ended October 31, 1998 and October 31, 1997, respectively.
Merrill Lynch Growth Fund
October 31, 1998
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
Shares sold 22,278,893 $ 605,535,677
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,995,517 118,469,939
------------ --------------
Total issued 26,274,410 724,005,616
Shares redeemed (30,752,326) (794,372,160)
------------ --------------
Net decrease (4,477,916) $ (70,366,544)
============ ==============
Class A Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 26,024,620 $ 745,365,301
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,259,696 85,223,804
------------ --------------
Total issued 29,284,316 830,589,105
Shares redeemed (15,200,649) (431,634,274)
------------ --------------
Net increase 14,083,667 $ 398,954,831
============ ==============
Class B Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
Shares sold 39,588,205 $ 996,388,789
Shares issued to shareholders
in reinvestment of dividends
and distributions 10,881,118 300,907,393
------------ --------------
Total issued 50,469,323 1,297,296,182
Automatic conversion of
shares (7,275,492) (175,563,924)
Shares redeemed (74,319,312) (1,755,281,872)
------------ --------------
Net decrease (31,125,481) $ (633,549,614)
============ ==============
Class B Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 58,873,336 $1,555,413,648
Shares issued to shareholders
in reinvestment of dividends
and distributions 9,170,267 221,585,076
------------ --------------
Total issued 68,043,603 1,776,998,724
Automatic conversion of
shares (3,569,962) (96,367,617)
Shares redeemed (27,974,354) (736,256,154)
------------ --------------
Net increase 36,499,287 $ 944,374,953
============ ==============
Class C Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
Shares sold 5,773,646 $ 148,910,650
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,035,142 28,415,638
------------ --------------
Total issued 6,808,788 177,326,288
Shares redeemed (9,297,825) (220,244,333)
------------ --------------
Net decrease (2,489,037) $ (42,918,045)
============ ==============
Class C Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 8,962,055 $ 238,396,273
Shares issued to shareholders
in reinvestment of dividends
and distributions 636,886 15,333,078
------------ --------------
Total issued 9,598,941 253,729,351
Shares redeemed (3,076,879) (81,814,832)
------------ --------------
Net increase 6,522,062 $ 171,914,519
============ ==============
Class D Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
Shares sold 15,622,997 $ 429,388,296
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,664,390 108,678,158
Automatic conversion of
shares 6,721,770 175,563,924
------------ --------------
Total issued 26,009,157 713,630,378
Shares redeemed (27,919,811) (721,843,248)
------------ --------------
Net decrease (1,910,654) $ (8,212,870)
============ ==============
Class D Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 17,348,143 $ 497,504,347
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,769,334 72,205,886
Automatic conversion of
shares 3,317,532 96,367,617
------------ --------------
Total issued 23,435,009 666,077,850
Shares redeemed (8,490,489) (247,378,196)
------------ --------------
Net increase 14,944,520 $ 418,699,654
============ ==============
Merrill Lynch Growth Fund
October 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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:
<TABLE>
<CAPTION>
Increase Increase
(Decrease) in (Decrease) in Dividend
Industry Affiliate Shares--Net Cost--Net Income
<S> <C> <C> <C> <C>
Life Sciences Affymetrix, Inc. 230,600 $ 5,880,041 ++
Energy Acquisition & Exploitation Apache Corp. 1,000,000 34,552,883 $ 2,485,000
Energy Acquisition & Exploitation Devon Energy Corp. 800,000 29,485,176 520,000
Offshore Drilling Ensco International, Inc. -- -- 1,840,000
Real Estate Investment Trusts-- Equity Residential Properties Trust (600,000) (30,443,545) 14,740,000
Residential
Real Estate Investment Trusts--Retail Federal Realty Investment Trust 158,000 3,096,757 6,543,180
Life Sciences Genset (ADR) (535,000) (10,118,812) ++
Offshore Drilling Global Marine, Inc. -- -- ++
Life Sciences Human Genome Sciences, Inc. 1,500,000 54,858,031 ++
Basic Industries IMC Global, Inc. (1,000,000) (50,225,064) 3,426,544
Oilfield Services Nabors Industries, Inc. 1,000,000 24,269,659 ++
Capital Goods--Industrial National Instruments Corp. 2,210,000 60,822,924 ++
Energy Acquisition & Exploitation Newfield Exploration Co. -- -- ++
Life Sciences Pharmacopeia, Inc. 720,000 11,649,919 ++
Gas Pipeline & Transmission TransMontaigne Oil Co. -- -- ++
Capital Goods--Industrial Unova, Inc. 5,182,400 73,684,417 ++
Real Estate Investment Trusts--Retail Weingarten Realty Investors 182,800 7,218,298 4,869,058
Gas Pipeline & Transmission Western Gas Resources, Inc. -- -- 700,000
<FN>
++Non-income producing security.
</TABLE>
6. Capital Loss Carryforward:
At October 31, 1998, the Fund had a net capital loss carryforward of
approximately $63,610,000, all of which expires in 2006. This amount
will be available to offset like amounts of any future taxable
gains.
Merrill Lynch Growth Fund
October 31, 1998
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
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, 1998, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at October
31, 1998 by correspondence with the custodian and broker. 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, 1998, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 14, 1998
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch Growth Fund during its taxable year ended
October 31, 1998:
<TABLE>
<CAPTION>
Qualifying Non-Qualifying Total Long-Term
Record Payable Ordinary Ordinary Ordinary Capital
Date Date Income Income Income Gains
<S> <C> <C> <C> <C> <C> <C>
Class A Shares 12/08/97 12/16/97 $.226083 $.192434 $.418517 $1.764973*
7/06/98 7/14/98 $.119360 $.112796 $.232156 --
Class B Shares 12/08/97 12/16/97 $.147031 $.125147 $.272178 $1.764973*
7/06/98 7/14/98 $.045774 $.043257 $.089031 --
Class C Shares 12/08/97 12/16/97 $.150969 $.128500 $.279469 $1.764973*
7/06/98 7/14/98 $.045152 $.042668 $.087820 --
Class D Shares 12/08/97 12/16/97 $.205732 $.175112 $.380844 $1.764973*
7/06/98 7/14/98 $.100740 $.095200 $.195940 --
<FN>
*Of this distribution, 42.61% is subject to the 28% tax rate and
57.39% is subject to the 20% tax rate.
The qualifying ordinary income qualifies for the dividends received
deduction for corporations.
Please retain this information for your records.
</TABLE>
Merrill Lynch Growth Fund
October 31, 1998
PORTFOLIO INFORMATION (unaudited)
As of October 31, 1998
Percent of
Ten Largest Equity Holdings Net Assets
Burlington Resources, Inc. 6.6%
Apache Corp. 5.1
Ensco International, Inc. 5.0
Equity Residential Properties Trust 4.1
Equity Office Properties Trust 4.1
Global Marine, Inc. 4.0
Safra Republic Holdings S.A. (ADR) 3.9
Simon Property Group, Inc. 3.7
IMC Global, Inc. 3.7
Vastar Resources, Inc. 3.4
Equity Portfolio Changes for the
Quarter Ended October 31, 1998
Additions
American Oncology Resources, Inc.
Baker Hughes Inc.
Grupo Televisa, S.A. de C.V. (GDR)
TV Azteca, S.A. de C.V. (ADR)
Transaction Systems Architects, Inc. (TSA)
United Healthcare Corp.
Deletions
Chelsea GCA Realty, Inc.
Crescent Real Estate Equities, Inc.
EVI Weatherford, Inc.
Freeport-McMoRan Copper & Gold, Inc. (Class A)
Freeport-McMoRan Copper & Gold, Inc. (Class B)
New Plan Realty Trust
Tidewater, Inc.
Merrill Lynch Growth Fund
October 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
