MERRILL LYNCH
ASSET GROWTH
FUND, INC.
FUND LOGO
Annual Report
August 31, 1996
<PAGE>
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Thomas R. Robinson, Vice President
and Senior Portfolio Manager
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Chase Manhattan Bank, N.A.
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch 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 Asset
Growth Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
Printed on post-consumer recycled paper
MERRILL LYNCH ASSET GROWTH FUND, INC.
Worldwide
Investments as of
August 31, 1996
Percent Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States 49.8%
United Kingdom 8.8
Japan 7.2
Germany 6.5
Denmark 4.5
Sweden 3.0
Canada 2.4
France 2.1
Mexico 2.0
Brazil 2.0
Finland 1.9
Argentina 1.6
Italy 1.5
Switzerland 1.3
Hong Kong 1.2
Philippines 0.7
Spain 0.6
Netherlands 0.6
Indonesia 0.6
South Korea 0.3
[FN]
++Percent of net assets may not total 100%.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Telecommunications 6.0%
Banking 5.5
Computer Services & Software 4.1
Electronics 4.0
Insurance 3.6
Aerospace & Defense 3.6
Petroleum 3.5
Pharmaceuticals 3.1
Beverages 3.1
Electrical Equipment 2.7
<PAGE>
Country Percent
Ten Largest Holdings of of Net
(Equity Investments) Origin Assets
Electronic Data
Systems Corp. US 1.3%
United Technologies Corp. US 1.3
Merck & Co., Inc. US 1.2
Enron Corp. US 1.2
Sears, Roebuck & Co. US 1.2
Northrop Grumman Corp. US 1.2
Pennzoil Company US 1.2
Dresser Industries, Inc. US 1.2
Bank of New York
Company, Inc. (The) US 1.1
Boeing Co. (The) US 1.1
DEAR SHAREHOLDER
Fiscal Year in Review
The primary positive influence on portfolio performance for the 12
months ended August 31, 1996 was the Fund's commitment in US
equities, the best-performing of the asset classes. Our foreign
equity commitment proved to have a negative influence on Fund
performance, since Japan, a large foreign equity weighting, produced
a negative return in US dollars over the 12-month period. Our
commitment in high-yield US bonds, which we held for a good part of
the year, had a favorable impact on performance. The decision to
eliminate this position by the fourth fiscal quarter helped
performance for the last few months of the fiscal year when interest
rates rose. At the same time, the gradual expansion of foreign bond
holdings proved beneficial in terms of performance, since these
bonds outperformed US commitments on a US-dollar basis during the
fiscal year.
For the year ended August 31, 1996, total returns for the Fund's
Class A, Class B, Class C and Class D Shares were +4.71%, +3.65%,
+3.61% and +4.51%, respectively. (Results shown are before the
deduction of sales charges and would be lower if sales charges were
included. For complete performance information, see pages 4 and 5 of
this report to shareholders.) For the same period, the total returns
of the unmanaged MSCI World Index, the unmanaged Salomon World
Government Bond Index and the unmanaged Salomon World Money
Market Index were +12.57%, +6.10% and +2.65%, respectively.
<PAGE>
Portfolio Matters
As of August 31, 1996, the Fund's asset allocation was: US equities,
49.8% of net assets; foreign equities, 33.4%; foreign bonds, 15.4%;
and cash reserves, 1.4%.
The elimination of our commitment in high-yielding US bonds was
completed during the three months ended August 31, 1996. We regarded
appreciation potential as being limited, given evidence of a
stronger US economy. This strength has increased the probability of
a hike in short-term interest rates by the Federal Reserve Board.
Our foreign bond exposure shifted dramatically during August. Our
commitments in Italy and Spain were eliminated, with assets shifted
into Denmark and the United Kingdom. Increasing concerns over the
ability of Italy and Spain to meet the criteria necessary to move to
a single European currency seem likely to limit the trend toward
convergence of their interest rates with those of Germany. On the
other hand, Denmark currently enjoys the strongest fiscal position
in Europe, while the UK bond market is expected to benefit from
evidence of a surprisingly benign rate of inflation. We maintained
our bond commitment in Germany in view of favorable economic data.
As of August 31, 1996, all positions in European bonds were being
maintained on an unhedged basis. Heightened European tensions are
likely to lead to Deutschemark strength within Europe and reduce the
potential for a stronger US dollar.
The commitment in US equities was virtually unchanged during the
three months ended August 31, 1996. Our new investments in US stocks
were concentrated in areas that would benefit from a continued
strong US economy and among companies whose shares we determined to
be selling at a discount to their enterprise value or projected rate
of earnings growth. Examples of investments which fulfill these
criteria are Lear Corporation, a leader in the manufacturing of
seating systems for the auto industry, and Northrop Grumman Corp., a
diversified electronics and defense company. Companies which enjoy
dominant franchises within their respective industries, such as The
Coca Cola Company and Baxter International, Inc., also accounted for
a significant portion of US equity assets.
In the foreign equity sector, we continued to reduce our commitment
to Japanese stocks. Sales included Sumitomo Corp. and Sanwa Bank
Ltd. At the same time, we adhered to a strategy of adding to our
European equity representation. The majority of new purchases were
in the UK market, which appeared to be particularly attractive after
an extended period of underperformance. New positions included
British Steel PLC, Glaxo Wellcome PLC, Grand Metropolitan PLC, Boots
Company PLC and National Westminster Bank PLC. Other new European
commitments included UPM-Kymmene OY in Finland and SGS-Thompson
Microelectronics N.V. in France. Uncertain prospects led us to
eliminate Philips Electronics N.V., and we accepted profits in Royal
Dutch Petroleum N.V. In emerging markets, we continue to prefer
Latin America over Asia. The commitment to Latin America was
enlarged through the addition of shares of Petroleo Brasileiro S.A.
(Petrobras).
<PAGE>
In Conclusion
We thank you for your investment in Merrill Lynch Asset Growth Fund,
Inc., and we look forward to reviewing our outlook and strategy with
you in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Thomas R. Robinson)
Thomas R. Robinson
Vice President and
Senior Portfolio Manager
(Joel Heymsfeld)
Joel Heymsfeld
Portfolio Manager
October 7, 1996
EQUITY PORTFOLIO CHANGES
For the Quarter Ended August 31, 1996
<PAGE>
Additions
ABN AMRO Holding N.V.
American Standard Companies, Inc.
AutoZone, Inc.
BMC Software, Inc.
Banco de Galicia y Bienos Aires S.A. (ADR)
Baxter International, Inc.
Boots Company PLC
British Steel PLC
Bure Investment AB
Burlington Northern, Inc.
The Coca-Cola Company
*COMPAQ Computer Corp.
Glaxo Wellcome PLC
Global Telecom (ADR)
Grand Metropolitan PLC
H.J. Heinz Company
Henkel KGaA
Invercorporacion S.A. (ADR)
Kimberly-Clark Corp.
Lear Corporation
The Limited, Inc.
National Processing, Inc.
National Westminster Bank PLC
Northrop Grumman Corp.
PPG Industries, Inc.
Petroleo Brasileiras S.A. (Petrobras) (Preferred)
SGS-Thompson Microelectronics N.V.
Sparbanken Sverige AB (Class A)
Spieker Properties, Inc.
Sun Microsystems, Inc.
TCI Pacific Communications (Convertible Preferred)
Toray Industries, Inc.
UPM-Kymmene OY
Unocal Corp.
Unum Corporation
Deletions
Applied Materials, Inc.
Associates First Capital Corporation
*COMPAQ Computer Corp.
Dell Computer Corp.
Eastman Kodak Co.
Ford Motor Co.
Humana, Inc.
National Re Corp.
Philips Electronics N.V.
Preussag AG
Royal Dutch Petroleum N.V. (ADR)
Sanwa Bank Ltd.
Singer Co.
The Stanley Works Co.
Sumitomo Corp.
Wheelabrator Technologies Inc.
[FN]
*Added and deleted in the same quarter.
<PAGE>
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.
Total Return
Based on a
$10,000 Investment
<PAGE>
A line graph depicting the growth of an investment in the Fund's
Class A and Class B Shares compared to growth of an investment in the
Composite Index and the MSCI World Index. Beginning and ending
values are:
9/02/94** 8/96
ML Asset Growth Fund++--
Class A Shares* $ 9,475 $ 9,863
ML Asset Growth Fund++--
Class B Shares* $10,000 $ 9,899
Composite Index++++ $10,000 $12,141
MSCI World Index# $10,000 $12,185
A line graph depicting the growth of an investment in the Fund's
Class C and Class D Shares compared to growth of an investment in the
Composite Index and the MSCI World Index. Beginning and ending
values are:
10/21/94** 8/96
ML Asset Growth Fund++--
Class C Shares* $10,000 $10,355
ML Asset Growth Fund++--
Class D Shares* $ 9,475 $ 9,961
Composite Index++++ $10,000 $12,060
MSCI World Index# $10,000 $12,172
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Asset Growth Fund, Inc. invests in a portfolio of US and
foreign equity, debt and money market securities.
++++This unmanaged Index, which is an equally weighted blend of the
Morgan Stanley Capital International World Index, the Salomon
Brothers World Government Bond Index, and the Salomon Brothers World
Money Market Index is comprised of a representative sampling of
stocks of large-, medium-, and small-capitalization companies in 22
countries, government bonds and money market securities in the major
markets, including the United States.
#This unmanaged market capitalization-weighted Index is comprised of
a representative sampling of stocks of large-, medium-, and small-
capitalization companies in 22 countries, including the United States.
<PAGE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +10.26% +4.47%
Inception (9/02/94)
through 6/30/96 + 3.10 +0.10
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +9.17% +5.17%
Inception (9/02/94)
through 6/30/96 +2.07 +0.44
[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 6/30/96 +9.02% +8.02%
Inception (10/21/94)
through 6/30/96 +3.10 +3.10
[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**
<PAGE>
Class D Shares*
Year Ended 6/30/96 +9.95% +4.18%
Inception (10/21/94)
through 6/30/96 +3.95 +0.70
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
8/31/96 5/31/96 8/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.13 $10.36 $9.90 +2.32% -2.22%
Class B Shares 10.09 10.34 9.83 +2.64 -2.42
Class C Shares 10.05 10.30 9.82 +2.34 -2.43
Class D Shares 10.11 10.34 9.88 +2.33 -2.22
Class A Shares-Total Return +4.71(1) -2.22
Class B Shares-Total Return +3.65(2) -2.42
Class C Shares-Total Return +3.61(3) -2.43
Class D Shares-Total Return +4.51(4) -2.22
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.226 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.096 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.120 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.207 per share ordinary
income dividends.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Banking 3,000 Banco de Galicia y Buenos Aires
S.A. (ADR)(a) $ 73,342 $ 61,875 0.5%
2,325 Banco Frances del Rio de la Plata
S.A. (ADR)(a) 62,653 53,766 0.5
------------ ------------ ------
135,995 115,641 1.0
<PAGE>
Petroleum 3,300 Yacimientos Petroliferos Fiscales
S.A. (ADR)(a) 73,623 69,713 0.6
Total Common Stocks in Argentina 209,618 185,354 1.6
Brazil Beverages 100,000 Companhia Cervejaria Brahma S.A. PN
(Preferred) 57,348 63,466 0.6
Oil & Related 630,000 Petroleo Brasileiro S.A. (Petrobras)
(Preferred) 74,243 75,317 0.7
Telecommunications 1,000 Telecomunicacoes Brasileiras S.A.--
Telebras(ADR)(a) 50,386 74,375 0.7
Total Common Stocks in Brazil 181,977 213,158 2.0
Canada Automobile Parts 1,400 Magna International, Inc. 61,424 67,550 0.6
Mining 800 Potash Corp. of Saskatchewan, Inc. 57,343 60,800 0.5
Multi-Industry 3,400 Canadian Pacific, Ltd. 60,554 76,500 0.7
Telecommunications 1,300 Northern Telecommunications Ltd. 45,253 64,838 0.6
Total Common Stocks in Canada 224,574 269,688 2.4
Finland Paper & Forest 3,200 ++UPM-Kymmene OY 64,665 73,422 0.7
Products
Telecommunications 1,700 Nokia Corp. (ADR)(a) 62,507 71,825 0.6
Equipment
Transportation 3,400 Finnlines OY 62,937 73,064 0.6
Total Common Stocks in Finland 190,109 218,311 1.9
France Iron & Steel 5,800 Usinor-Sacilor S.A. 95,485 79,633 0.7
Semiconductor 1,800 ++SGS-Thompson Microelectronics N.V. 66,255 73,575 0.7
Capital
Equipment
Tires & Rubber 1,600 Michelin (C.G.D.E.)(Class B) 66,613 74,785 0.7
Total Common Stocks in France 228,353 227,993 2.1
<PAGE>
Germany Chemicals 200 ++Henkel KGaA 8,891 8,462 0.1
1,800 Henkel KGaA (Preferred) 76,502 74,032 0.7
------------ ------------ ------
85,393 82,494 0.8
Electrical 1,500 Siemens AG 66,527 79,284 0.7
Equipment
Machinery & 200 Mannesmann AG 55,924 72,187 0.6
Equipment
Total Common Stocks in Germany 207,844 233,965 2.1
Hong Kong Banking 4,400 HSBC Holdings PLC 70,858 75,970 0.7
Telecommunications 3,500 Hong Kong Telecommunications Ltd.
(ADR)(a) 57,960 59,062 0.5
Total Common Stocks in Hong Kong 128,818 135,032 1.2
Indonesia Telecommunications 2,090 P.T. Indonesian Satellite Corp.
(ADR)(a) 82,376 65,313 0.6
Total Common Stocks in Indonesia 82,376 65,313 0.6
Italy Machinery 27,000 Danieli & C. Officine Meccaniche S.p.A. 78,138 84,934 0.8
Telecommunications 24,000 Societa Finanziara Telefonica S.p.A.
(STET) 72,825 76,291 0.7
Total Common Stocks in Italy 150,963 161,225 1.5
Japan Building & 7,000 Maeda Corp. 78,210 61,850 0.6
Construction 9,000 Okumura Corp. 76,982 67,676 0.6
------------ ------------ ------
155,192 129,526 1.2
Capital Goods 10,000 Mitsubishi Heavy Industries, Ltd. 80,780 79,061 0.7
Consumer--Electronics 4,000 Matsushita Electric Industrial Co., Ltd. 67,209 67,372 0.6
Electrical Equipment 11,000 Mitsubishi Electric Co. 75,983 70,566 0.6
Electronics 1,000 Rohm Co., Ltd. 42,944 59,917 0.5
Financial Services 4,000 Nomura Securities Co., Ltd. 81,427 69,581 0.6
<PAGE>
Insurance 6,000 Tokio Marine & Fire Insurance Co., Ltd. 72,400 68,477 0.6
Pharmaceuticals 4,000 Eisai Co., Ltd. 70,601 69,213 0.6
Photography 4,000 Canon, Inc. 70,302 74,367 0.7
Textiles 11,000 Toray Industries, Inc. 71,494 68,541 0.6
Warehouse & Storage 9,000 Mitsui-Soko Co., Ltd. 73,996 69,581 0.6
Total Common Stocks in Japan 862,328 826,202 7.3
Mexico Beverages 1,700 Panamerican Beverages, Inc. (Class A) 69,076 71,825 0.6
Multi-Industry 6,200 Grupo Carso, S.A. de C.V. (ADR)(a) 98,670 57,350 0.5
6,200 ++Invercorporacion S.A. 'A-1' (ADR)(a) 868 744 0.0
------------ ------------ ------
99,538 58,094 0.5
Paper Products 3,700 Kimberly-Clark de Mexico, S.A. de C.V 62,881 67,947 0.6
Telecommunications 6,200 ++Carso Global Telecom (ADR)(a) 29,450 34,875 0.3
Total Common Stocks in Mexico 260,945 232,741 2.0
Netherlands Banking 1,300 ABN AMRO Holding N.V. 72,906 71,099 0.6
Total Common Stocks in the Netherlands 72,906 71,099 0.6
Philippines Beverages 24,200 San Miguel Corp. (Class B) 85,238 79,094 0.7
Total Common Stocks in the Philippines 85,238 79,094 0.7
South Engineering & 3,500 ++Hyundai Engineering & Construction Co.,
Korea Construction Ltd. (GDR)(b)++++ 45,605 38,938 0.3
Total Common Stocks in South Korea 45,605 38,938 0.3
Spain Petroleum 2,200 Repsol S.A. (ADR)(a) 70,920 71,775 0.6
Total Common Stocks in Spain 70,920 71,775 0.6
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Sweden Banking 5,900 Sparbanken Sverige AB (Class A) $ 74,215 $ 73,527 0.7%
Investment 6,500 Bure Investment AB 54,697 56,458 0.5
Management
Total Common Stocks in Sweden 128,912 129,985 1.2
Switzerland Electrical 60 BBC Brown Boveri & Cie (Bearer) 54,429 74,036 0.7
Equipment
Pharmaceuticals 1,100 Sandoz AG (ADR)(a) 47,575 64,900 0.6
Total Common Stocks in Switzerland 102,004 138,936 1.3
United Banking 7,300 National Westminster Bank PLC 77,066 75,542 0.7
Kingdom
Beverages 9,500 Grand Metropolitan PLC 64,774 70,263 0.6
Electrical 13,000 General Electric Co. PLC (Ordinary) 65,148 78,280 0.7
Equipment
Merchandising 7,800 Boots Company PLC 73,585 75,965 0.7
Pharmaceuticals 5,600 Glaxo Wellcome PLC 75,626 80,343 0.7
Steel 25,000 British Steel PLC 65,679 72,633 0.6
Total Common Stocks in the
United Kingdom 421,878 453,026 4.0
United Aerospace & 1,400 Boeing Co. (The) 102,737 126,700 1.1
States Defense 1,900 Northrop Grumman Corp. 124,783 136,325 1.2
1,250 United Technologies Corp. 110,544 140,938 1.3
------------ ------------ ------
338,064 403,963 3.6
Airlines 1,385 Delta Air Lines, Inc. 109,455 98,162 0.9
Auto--Related 2,000 ++AutoZone, Inc. 70,000 54,500 0.5
<PAGE>
Automobile 2,200 General Motors Corp. 121,853 109,450 1.0
Automobile Parts 3,100 ++Lear Corporation 103,850 118,963 1.1
Banking 4,600 Bank of New York Company, Inc. (The) 98,463 128,225 1.1
1,000 Citicorp 72,955 83,250 0.7
------------ ------------ ------
171,418 211,475 1.8
Beverages 1,300 The Coca-Cola Company 60,585 65,000 0.6
Broadcasting--Media 2,393 Viacom, Inc. (Class B) 88,434 75,380 0.7
Building Products 4,200 Spieker Properties, Inc. 118,681 125,475 1.1
Chemicals 2,500 PPG Industries, Inc. 124,102 123,438 1.1
Commercial Services 1,000 ++National Processing, Inc. 16,500 17,125 0.2
Computer Services 2,600 Electronic Data Systems Corp. (d) 132,709 141,700 1.3
Computer Services & 2,000 cisco Systems, Inc. 89,318 105,250 0.9
Software 1,275 First Data Corp. 90,095 99,450 0.9
900 International Business Machines Corp. 98,906 102,938 0.9
500 ++Microsoft Corp. 56,031 61,250 0.5
2,812 Oracle Corp. 93,203 98,771 0.9
------------ ------------ ------
427,553 467,659 4.1
Electronics 3,100 Corning, Inc. 86,670 115,475 1.0
1,200 General Electric Company 91,075 99,750 0.9
1,100 Intel Corp. 68,173 87,725 0.8
2,400 ++Lexmark International Group, Inc.
(Class A) 50,454 42,900 0.4
800 Sun Microsystems, Inc. 50,438 43,400 0.4
------------ ------------ ------
346,810 389,250 3.5
Engineering & 1,700 Foster Wheeler Corporation 74,696 73,312 0.7
Construction
Financial Services 2,850 American Express Company 132,447 124,687 1.1
Foods 3,600 H.J. Heinz Company 118,103 113,400 1.0
Hospital Supplies 2,800 Abbott Laboratories 88,368 126,350 1.1
2,600 Baxter International, Inc. 121,905 116,025 1.0
------------ ------------ ------
210,273 242,375 2.1
<PAGE>
Household Products 1,050 Procter & Gamble Company (The) 88,454 93,319 0.8
Insurance 1,900 Aetna Inc. (c) 140,850 125,637 1.1
2,800 Allstate Corp. 114,610 124,950 1.1
1,400 Unum Corporation 89,608 88,900 0.8
------------ ------------ ------
345,068 339,487 3.0
Leisure/Tourism 914 ++TCI Pacific Communications
(Convertible Preferred) 86,556 82,946 0.7
Machine Tools & 2,500 Cincinnati Milacron, Inc. 63,001 49,375 0.4
Machinery 3,000 Deere & Company 124,668 119,250 1.1
------------ ------------ ------
187,669 168,625 1.5
Machinery 2,000 ++American Standard Companies, Inc. 65,274 68,250 0.6
Natural Gas 3,400 Enron Corp. 130,426 136,425 1.2
Oil Services 4,500 Dresser Industries, Inc. 89,815 130,500 1.2
1,000 Schlumberger Ltd. 64,310 84,375 0.8
------------ ------------ ------
154,125 214,875 2.0
Paper 1,500 Kimberly-Clark Corp. 115,339 117,562 1.0
Petroleum 2,500 Pennzoil Company 100,457 133,437 1.2
3,600 Unocal Corp. 121,059 123,300 1.1
------------ ------------ ------
221,516 256,737 2.3
Pharmaceuticals 2,100 Merck & Co., Inc. 71,789 137,812 1.2
Railroads 700 Burlington Northern, Inc. 56,618 56,000 0.5
900 Conrail, Inc. 63,099 61,312 0.5
------------ ------------ ------
119,717 117,312 1.0
Retail Apparel 4,100 The Limited, Inc. 91,418 75,850 0.7
Retail Stores 3,100 Sears, Roebuck & Co. 123,298 136,400 1.2
Scientific Equipment 3,000 Fisher Scientific International, Inc. 93,945 119,250 1.1
Software--Computer 800 BMC Software, Inc. 58,731 59,600 0.5
Steel 2,800 AK Steel Holding Corp. 115,713 104,300 0.9
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Telecommunications 1,800 AT&T Corp. $ 94,369 $ 94,500 0.8%
States 2,000 Bell Atlantic Corp. 98,620 112,500 1.0
(concluded) 1,500 Lucent Technologies, Inc. 40,500 55,312 0.5
------------ ------------ ------
233,489 262,312 2.3
Tobacco 750 Philip Morris Companies, Inc. 74,532 67,312 0.6
Travel & Lodging 3,200 Carnival Corporation (Class A) 90,487 90,400 0.8
Total Common Stocks in the
United States 5,233,079 5,604,088 49.8
Total Investments in Common Stocks 8,888,447 9,355,923 83.2
Face Amount Fixed-Income Securities
Denmark Foreign Dkr 2,750,000 Danish Government Bonds, 8% due
Government 3/15/2006 503,644 501,810 4.4
Obligations
Total Fixed-Income Securities in
Denmark 503,644 501,810 4.4
Germany Foreign DM 500,000 Bundes Obligations, 5.875% due
Government 5/15/2000 336,900 349,341 3.1
Obligations 200,000 Bundesrepublik Deutschland, 7.125%
due 12/20/2002 138,896 144,495 1.3
Total Fixed-Income Securities in
Germany 475,796 493,836 4.4
Sweden Foreign Government of Sweden:
Government Skr 400,000 11% due 1/21/1999 66,300 66,405 0.6
Obligations 800,000 10.25% due 5/05/2000 130,859 133,527 1.2
Total Fixed-Income Securities in
Sweden 197,159 199,932 1.8
<PAGE>
United Foreign Pound 350,000 United Kingdom Treasury Gilt,
Kingdom Government Sterling 6% due 8/10/1999 532,109 537,297 4.8
Obligations
Total Fixed-Income Securities in the
United Kingdom 532,109 537,297 4.8
Total Investments in Fixed-Income
Securities 1,708,708 1,732,875 15.4
Total Investments $ 10,597,155 11,088,798 98.6
============
Other Assets Less Liabilities 155,293 1.4
------------ ------
Net Assets $ 11,244,091 100.0%
============ ======
<FN>
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
(c)Formerly Aetna Life & Casualty Company.
(d)Formerly General Motors Corp. (Class E).
++Non-income producing security.
++++Restricted security as to resale. The value of the Fund's
investments in restricted securities was approximately $39,000,
representing 0.3% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Hyundai Engineering &
Construction Co., Ltd. (GDR) 3/19/1996 $45,605 $38,938
Total $45,605 $38,938
======= =======
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of August 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$10,597,155) (Note 1a) $11,088,798
Foreign cash (Note 1c) 4,672
Receivables:
Securities sold $ 433,543
Interest 40,194
Dividends 20,747
Capital shares sold 10,466 504,950
-----------
Deferred organization expenses (Note 1f) 66,690
Prepaid registration fees and other assets (Note 1f) 40,729
-----------
Total assets 11,705,839
-----------
Liabilities: Payables:
Securities purchased 41,313
Capital shares redeemed 16,664
Distributor (Note 2) 7,520 65,497
-----------
Accrued expenses and other liabilities 396,251
-----------
Total liabilities 461,748
-----------
Net Assets: Net assets $11,244,091
===========
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 13,343
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 80,683
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 4,359
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 12,990
Paid-in capital in excess of par 10,943,773
Undistributed investment income--net 87,908
Accumulated realized capital losses on investments and foreign
currency transactions--net (Note 6) (390,880)
Unrealized appreciation on investments and foreign currency
transactions--net 491,915
-----------
Net assets $11,244,091
===========
<PAGE>
Net Asset Value: Class A--Based on net assets of $1,351,693 and 133,427 shares outstanding $ 10.13
===========
Class B--Based on net assets of $8,141,183 and 806,833 shares outstanding $ 10.09
===========
Class C--Based on net assets of $438,049 and 43,593 shares outstanding $ 10.05
===========
Class D--Based on net assets of $1,313,166 and 129,899 shares outstanding $ 10.11
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended August 31, 1996
<S> <S> <C> <C>
Investment Interest and discount earned (net of $1,531 foreign witholding tax) $ 254,387
Income Dividends (net of $14,000 foreign withholding tax) 229,906
(Notes 1d & 1e) -----------
Total income 484,293
-----------
Expenses: Registration fees (Note 1f) $ 115,952
Investment advisory fees (Note 2) 99,790
Account maintenance and distribution fees--Class B (Note 2) 95,835
Professional fees 56,348
Printing and shareholder reports 52,737
Accounting services (Note 2) 51,835
Transfer agent fees--Class B (Note 2) 25,423
Directors' fees and expenses 23,629
Custodian fees 22,900
Amortization of organization expenses (Note 1f) 22,230
Pricing fees 6,068
Account maintenance and distribution fees--Class C (Note 2) 5,728
Account maintenance fees--Class D (Note 2) 4,229
Transfer agent fees--Class D (Note 2) 3,907
Transfer agent fees--Class A (Note 2) 3,367
Transfer agent fees--Class C (Note 2) 1,639
Other 18,456
-----------
Total expenses before reimbursement 610,073
Reimbursement of expenses (Note 2) (171,587)
-----------
Total expenses after reimbursement 438,486
-----------
Investment income--net 45,807
-----------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Investments--net (392,904)
Gain (Loss) on Foreign currency transactions--net 396,745 3,841
Investments & -----------
Foreign Currency Change in unrealized appreciation (depreciation) on:
Transactions--Net Investments--net 723,735
(Notes 1b, 1c, Foreign currency transactions--net (247,840) 475,895
1e & 3): ----------- -----------
Net realized and unrealized gain on investments and foreign
currency transactions 479,736
-----------
Net Increase in Net Assets Resulting from Operations $ 525,543
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSTES
<CAPTION>
For the
For the Period
Year September 2,
Ended 1994++ to
August 31, August 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 45,807 $ 102,063
Realized gain (loss) on investments and foreign currency
transactions--net 3,841 (254,628)
Change in unrealized appreciation on investments and foreign
currency transactions--net 475,895 16,020
----------- -----------
Net increase (decrease) in net assets resulting from operations 525,543 (136,545)
----------- -----------
Dividends to Investment income--net:
Shareholders Class A (24,902) (9,329)
(Note 1g): Class B (67,838) (13,875)
Class C (5,670) (1,125)
Class D (24,710) (421)
In excess of investment income--net:
Class A (10,554) --
Class B (28,754) --
Class C (2,403) --
Class D (10,474) --
----------- -----------
Net decrease in net assets resulting from dividends to
shareholders (175,305) (24,750)
----------- -----------
<PAGE>
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (5,049,797) 16,004,945
(Note 4): ----------- -----------
Net Assets: Total increase (decrease) in net assets (4,699,559) 15,843,650
Beginning of period 15,943,650 100,000
----------- -----------
End of period* $11,244,091 $15,943,650
=========== ===========
<FN>
*Undistributed investment income--net (Note 1h) $ 87,908 $ 77,313
=========== ===========
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Sept. 2, Year Sept. 2,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.90 $ 10.00 $ 9.83 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income (loss)--net .12 .16 .01 .05
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .34 (.22) .35 (.21)
------- ------- ------- -------
Total from investment operations .46 (.06) .36 (.16)
------- ------- ------- -------
Less dividends:
Investment income--net (.16) (.04) (.07) (.01)
In excess of investment income--net (.07) -- (.03) --
------- ------- ------- -------
Total dividends (.23) (.04) (.10) (.01)
------- ------- ------- -------
Net asset value, end of period $ 10.13 $ 9.90 $ 10.09 $ 9.83
======= ======= ======= =======
Total Investment Based on net asset value per share 4.71% (.59%)+++ 3.65% (1.60%)+++
Return:** ======= ======= ======= =======
<PAGE>
Ratios to Average Expenses, net of reimbursement 2.47% 2.47%* 3.50% 3.50%*
Net Assets: ======= ======= ======= =======
Expenses 3.75% 3.31%* 4.78% 4.37%*
======= ======= ======= =======
Investment income--net 1.16% 1.46%* .13% .43%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 1,352 $ 1,677 $ 8,141 $11,835
Data: ======= ======= ======= =======
Portfolio turnover 120.43% 42.50% 120.43% 42.50%
======= ======= ======= =======
Average commission rate paid+++++ $ .0184 -- $ .0184 --
======= ======= ======= =======
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Sept. 2, Year Sept. 2,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.82 $ 9.85 $ 9.88 $ 9.86
Operating ------- ------- ------- -------
Performance: Investment income (loss)--net (.04) .04 .08 .10
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .39 (.05) .36 (.04)
------- ------- ------- -------
Total from investment operations .35 (.01) .44 .06
------- ------- ------- -------
Less dividends:
Investment income--net (.08) (.02) (.15) (.04)
In excess of investment income--net (.04) -- (.06) --
------- ------- ------- -------
Total dividends (.12) (.02) (.21) (.04)
------- ------- ------- -------
Net asset value, end of period $ 10.05 $ 9.82 $ 10.11 $ 9.88
======= ======= ======= =======
Total Investment Based on net asset value per share 3.61% (.05%)+++ 4.51% .59%+++
Return:** ======= ======= ======= =======
<PAGE>
Ratios to Average Expenses, net of reimbursement 3.52% 3.51%* 2.72% 2.75%*
Net Assets: ======= ======= ======= =======
Expenses 4.81% 4.58%* 4.00% 4.32%*
======= ======= ======= =======
Investment income--net .09% .51%* .93% 1.43%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 438 $ 735 $ 1,313 $ 1,697
Data: ======= ======= ======= =======
Portfolio turnover 120.43% 42.50% 120.43% 42.50%
======= ======= ======= =======
Average commission rate paid+++++ $ .0184 -- $ .0184 --
======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Asset Growth Fund, Inc. (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.
<PAGE>
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market value quotations are not available are valued at
their fair value as determined in good faith by or under the
direction of the Fund's Board of Directors, including valuations
furnished by a pricing service retained by the Fund, which may
utilize a matrix system for valuations.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
<PAGE>
* 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.
* 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
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current value of the
option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold.
NOTES TO FINANCIAL STATEMENTS (continued)
When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the
extent the cost of the closing transaction exceeds the premium paid
or received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
<PAGE>
(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, except that 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
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates. Dividends in excess
of net investment income are due primarily to differing tax
treatments for foreign exchange transactions.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial and tax reporting
for foreign exchange transactions. Accordingly, current year's
permanent book/tax differences of $140,093 have been reclassified
between undistributed net investment income and accumulated net
realized capital losses. 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, 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 pays a monthly fee of 0.75%, on an annual basis,
of the average daily value of the Fund's net assets. Certain states
in which the shares of the Fund are qualified for sale impose
limitations on the expenses of the Fund. The most restrictive annual
expense limitation requires that MLAM reimburse the Fund to the
extent the Fund's expenses (excluding interest, taxes, distribution
fees, brokerage fees and commissions, and extraordinary items)
exceed 2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess thereof. MLAM's
obligation to reimburse the Fund is limited to the amount of the
management fee. No fee payment will be made to MLAM during any
fiscal year which will cause such expenses to exceed the most
restrictive expense limitation at the time of such payment. For the
year ended August 31, 1996, MLAM earned fees of $99,790, all of
which was reimbursed pursuant to the expense limitation. MLAM also
reimbursed the Fund for additional expenses of $71,797.
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 August 31, 1996, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
<PAGE>
MLFD MLPF&S
Class A $ 9 $ 311
Class D $99 $1,488
For the year ended August 31, 1996, MLPF&S received contingent
deferred sales charges of $34,821 and $326 relating to transactions
in Class B and Class C Shares, respectively.
In addition, MLPF&S received $3,293 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
August 31, 1996.
During the year ended August 31, 1996, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $1,014 for
security price quotations to compute the net asset value of the
Fund.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, MLPF&S, MLFDS, MLFD, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1996 were $15,002,813 and $19,423,642,
respectively.
Net realized and unrealized gains (losses) as of August 31, 1996
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $(392,835) $ 491,643
Short-term investments (69) --
Forward foreign exchange contracts 414,241 --
Foreign currency transactions (17,496) 272
--------- -----------
Total $ 3,841 $ 491,915
========= ===========
<PAGE>
As of August 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $487,801, of which $830,131 related
to appreciated securities and $342,330 related to depreciated
securities. At August 31, 1996, the aggregate cost of investments
for Federal income tax purposes was $10,600,997.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions were $(5,049,797) and $16,004,945 for the year ended
August 31, 1996 and for the period ended August 31, 1995,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 36,673 $ 368,782
Shares issued to shareholders in
reinvestment of dividends 2,989 28,966
--------- -----------
Total issued 39,662 397,748
Shares redeemed (75,614) (757,231)
--------- -----------
Net decrease (35,952) $ (359,483)
========= ===========
Class A Shares for the Period
September 2, 1994++ to Dollar
August 31, 1995 Shares Amount
Shares sold 275,032 $ 2,724,867
Shares issued to shareholders in
reinvestment of dividends 647 6,028
--------- -----------
Total issued 275,679 2,730,895
Shares redeemed (111,300) (1,060,813)
--------- -----------
Net increase 164,379 $ 1,670,082
========= ===========
[FN]
++Prior to September 2, 1994 (commencement of operations), the Fund
issued 5,000 shares to MLAM for $50,000.
<PAGE>
Class B Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 107,795 $ 1,080,559
Shares issued to shareholders in
reinvestment of dividends 7,835 76,236
--------- -----------
Total issued 115,630 1,156,795
Shares redeemed (510,410) (5,087,031)
Automatic conversion of shares (2,219) (22,220)
--------- -----------
Net decrease (396,999) $(3,952,456)
========= ===========
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Period
September 2, 1994++ to Dollar
August 31, 1995 Shares Amount
Shares sold 1,943,995 $19,092,515
Shares issued to shareholders in
reinvestment of dividends 1,273 11,853
--------- -----------
Total issued 1,945,268 19,104,368
Shares redeemed (739,645) (7,002,581)
Automatic conversion of shares (6,791) (63,907)
--------- -----------
Net increase 1,198,832 $12,037,880
========= ===========
[FN]
++Prior to September 2, 1994 (commencement of operations), the Fund
issued 5,000 shares to MLAM for $50,000.
Class C Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 8,016 $ 79,485
Shares issued to shareholders in
reinvestment of dividends 642 6,222
--------- -----------
Total issued 8,658 85,707
Shares redeemed (39,859) (397,832)
--------- -----------
Net decrease (31,201) $ (312,125)
========= ===========
<PAGE>
Class C Shares for the Period
October 21, 1994++ to Dollar
August 31, 1995 Shares Amount
Shares sold 120,893 $ 1,143,290
Shares issued to shareholders in
reinvestment of dividends 88 814
--------- -----------
Total issued 120,981 1,144,104
Shares redeemed (46,187) (431,343)
--------- -----------
Net increase 74,794 $ 712,761
========= ===========
[FN]
++Commencement of Operations.
Class D Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 44,926 $ 449,969
Automatic conversion of shares 2,211 22,220
Shares issued to shareholders in
reinvestment of dividends 3,537 34,271
--------- -----------
Total issued 50,674 506,460
Shares redeemed (92,454) (932,193)
--------- -----------
Net decrease (41,780) $ (425,733)
========= ===========
Class D Shares for the Period
October 21, 1994++ to Dollar
August 31, 1995 Shares Amount
Shares sold 186,141 $ 1,722,943
Automatic conversion of shares 6,773 63,907
Shares issued to shareholders in
reinvestment of dividends 42 393
--------- -----------
Total issued 192,956 1,787,243
Shares redeemed (21,277) (203,021)
--------- -----------
Net increase 171,679 $ 1,584,222
========= ===========
[FN]
++Commencement of Operations.
<PAGE>
5. Commitments:
At August 31, 1996, the Fund had foreign exchange contracts under
which it had agreed to sell various foreign currencies with
approximate values of $226,000.
6. Capital Loss Carryforward:
At August 31, 1996, the Fund had a net capital loss carryforward of
approximately $6,000, all of which expires in 2004. This amount will
be available to offset like amounts of any future taxable gains.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors,
Merrill Lynch Asset Growth Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Asset Growth Fund, Inc. as of August 31, 1996, the related statement
of operations for the year then ended, the statements of changes in
net assets and the financial highlights for the year then ended and
for the period September 2, 1994 (commencement of operations) to
August 31, 1995. 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 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 August
31, 1996, by correspondence with the custodian and brokers. 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 Asset Growth Fund, Inc. as of August 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
October 7, 1996
</AUDIT-REPORT>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share dividends paid by
the Merrill Lynch Asset Growth Fund, Inc. during its taxable year
ended August 31, 1996:
Qualifying Non-Qualifying Total Foreign
Record Payable Ordinary Ordinary Ordinary Withholding
Date Date Income Income Income Taxes
<S> <S> <S> <C> <C> <C> <C>
Class A Shares 12/13/95 12/21/95 $0.161487 $0.064419 $0.225906 $0.017880
Class B Shares 12/13/95 12/21/95 $0.068394 $0.027283 $0.095677 $0.017880
Class C Shares 12/13/95 12/21/95 $0.085662 $0.034171 $0.119833 $0.017880
Class D Shares 12/13/95 12/21/95 $0.147716 $0.058926 $0.206642 $0.017880
</TABLE>
The qualifying domestic ordinary income qualifies for the dividends
received deduction for corporations.
All of the foreign taxes paid or withheld represent taxes incurred
by the Fund on dividends received by the Fund from foreign sources.
Foreign taxes paid or withheld should be included in taxable income
with an offsetting deduction from gross income or as a credit for
taxes paid to foreign governments. You should consult your tax
adviser regarding the appropriate treatment of foreign taxes paid.
Additionally, there were no long-term capital gains paid by the Fund
during the year.
Please retain this information for your records.
