MERRILL LYNCH
ASSET GROWTH
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
February 28, 1997
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
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 #18241 -- 2/97
[RECYCLED LOGO OMITTED]
Printed on post-consumer recycled paper
Merrill Lynch Asset Growth Fund, Inc.
Worldwide
Investments as of
February 28, 1997
Percent Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets
United States* 49.9%
Japan 8.6
United Kingdom 5.0
Germany 4.1
France 3.7
Sweden 3.1
Italy 2.5
Argentina 2.4
Mexico 2.2
Spain 2.2
Switzerland 2.1
Canada 1.9
Brazil 1.9
Hong Kong 1.6
Denmark 1.3
Finland 1.3
Indonesia 0.8
Philippines 0.7
Netherlands 0.7
South Africa 0.6
Norway 0.4
South Korea 0.1
----
Total 97.1%
====
* Includes investments in short-term securities.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Banking 6.4%
Telecommunications 5.2
Computer Services & Software 3.8
Pharmaceuticals 3.8
Insurance 3.5
Petroleum 3.3
Financial Services 3.3
Beverages 2.9
Chemicals 2.5
Electrical Equipment 2.3
Country Percent
Ten Largest Holdings of of Net
(Equity Investments) Origin Assets
Telecomunicacoes
Brasileiras S.A. -
Telebras (ADR) Brazil 1.0%
Kimberly-Clark Corp. US 1.0
Scor S.A. France 0.9
Edison International US 0.9
Brunswick Corporation US 0.9
Companhia Cervejaria
Brahma S.A. PN
(Preferred) Brazil 0.9
Vodafone Group PLC UK 0.9
Sears, Roebuck & Co. US 0.9
El Paso Natural Gas Co. US 0.9
Yacimientos
Petroliferos Fiscales
S.A. (ADR) Argentina 0.9
Merrill Lynch Asset Growth Fund, Inc., February 28, 1997
DEAR SHAREHOLDER
There was a relatively benign economic environment as 1996 drew to a
close, a trend which continued into the first months of 1997. Inflation
remains low, the pace of economic activity is moderate, and trends in
corporate earnings generally still appear to be favorable, although the
rate of increase in profits will probably be slower in 1997 than in
previous years.
On balance, US economic fundamentals appear to be the most positive they
have been for many years. However, the dilemma facing investors is how
long the economic expansion can continue at a steady, noninflationary
pace. At this late stage of the current economic recovery, investor
expectations can quickly change from positive to negative with the
release of surprising economic results. This tendency was illustrated in
the stock and bond market volatility sparked by Federal Reserve Board
Chairman Alan Greenspan's Humphrey-Hawkins testimony before Congress in
late February. Investors interpreted Chairman Greenspan's comments as
indicative of a tightening in monetary policy, although stock and bond
prices did stabilize subsequently. Continued steady, noninflationary
economic growth would be very positive for the stock and bond markets in
the new year, provided that it is not accompanied by successive
preemptive moves by the Federal Reserve Board to raise interest rates to
quell potential inflationary forces.
On the international front, the US dollar continued its strong advance
relative to the yen and the Deutschemark, raising concerns about the
outlook for US trade. In early February, the leading industrialized
nations expressed apparent agreement that it was time to seek a lower
dollar and less volatility in the foreign exchange markets. It remains
to be seen whether these stated intentions will be acted upon, or if the
US dollar continues to rise relative to other major currencies.
Portfolio Matters
As of February 28, 1997, the asset allocation for Merrill Lynch Asset
Growth Fund, Inc. was: US stocks, 41.5%; foreign stocks, 38.1%; US
bonds, 4.4%; foreign bonds, 9.1%; and cash reserves, 4.0%. Equity
representation in the United States, Europe and Latin America
contributed positively to performance during the three-month and twelve-
month periods ended February 28, 1997. US and foreign bonds provided
returns well below those of US stocks during the same periods.
Our allocation of assets to US stocks has not changed significantly in
recent months. The largest portfolio concentrations remain in the
technology, financial services and healthcare sectors. We expect these
areas to continue to provide above-average relative performance given
the potential for well-positioned companies to exhibit favorable
earnings patterns in upcoming quarters. In view of this outlook, we
concentrated new investments in these areas during the six-month period
ended February 28, 1997. Additions to the portfolio included: Cabletron
Systems, Inc. in the technology sector; BankAmerica Corp., Countrywide
Credit Industries Inc., First USA Inc., MGIC Investment Corp., and
Travelers Group, Inc. in the financial services sector; and American
Home Products Corporation in the healthcare sector.
In the foreign equity sector, we liquidated a number of positions which
had performed well and where the reward/risk relationships no longer
appeared attractive. Investments sold on this basis included Kimberly-
Clark de Mexico, S.A. de C.V., Nokia Corp., Northern Telecommunications
Ltd., Petroleo Brasileiro S.A. (Petrobras) and Societa Finanziara
Telefonica S.p.A. (STET). In addition, we established new positions in
companies which were laggard performers and where upside potential
appeared significant. Commitments made on this basis included RTZ
Corporation PLC and De Beers Consolidated Mines Ltd. Other new investment
positions included Roche Holding AG and Mondadori (Arnoldo) Editore S.p.A.
The Fund's country allocations did not materially change during the
February period. However, while the size of the Japanese equity position
remained well below the Morgan Stanley Capital International World Index
benchmark, we modestly increased the size of the position by buying
shares of Sony Corporation. Europe remained well represented, while
significant positions were maintained in Latin America and Canada. We
continued to maintain a limited commitment to the emerging markets of
Asia.
Among the fixed-income holdings, we eliminated the commitment to
Canadian bonds in favor of an increased allocation to European bond
markets during the three-month period ended February 28, 1997. Within
Europe, the German bond holding was enlarged and positions initiated in
French and Spanish bonds. We also sold the portfolio's UK obligations
because we expect the strength of the US dollar exhibited in previous
months to continue relative to European currencies, as well as the
Japanese yen. In view of this outlook, we enlarged our hedged positions
back into US dollars to include all the European bond and Japanese
equity holdings and the majority of the European equity holdings. During
February, we began to extend the average duration of the US bond
holdings because we expect that the back-up in US interest rates of
prior months will end soon.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/THOMAS R. ROBINSON
Thomas R. Robinson
Vice President and
Senior Portfolio Manager
/S/JOEL HEYMSFELD
Joel Heymsfeld
Portfolio Manager
April 4, 1997
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
(bullet) 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.
(bullet) 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.)
(bullet) 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.
(bullet) Class D Shares incur a maximum initial sales charge of 4% 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.
<TABLE>
<CAPTION>
Recent Performance Results*
12 Month 3 Month
2/28/97 11/30/96 2/29/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $11.34 $11.26 $10.06 +12.72% +0.71%
Class B Shares 11.32 11.19 10.07 +12.41% +1.16
Class C Shares 11.26 11.14 10.03 +12.26% +1.08
Class D Shares 11.36 11.23 10.05 +13.03% +1.16
Class A Shares - Total Return +14.43%(1) +2.23(1)
Class B Shares - Total Return +13.24%(2) +1.91(2)
Class C Shares - Total Return +13.20%(3) +1.92(3)
Class D Shares - Total Return +14.14%(4) +2.15(4)
* Investment results shown do not reflect sales charges; results would be lower if a sales charge
was included.
(1) Percent change includes reinvestment of $0.163 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.080 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.090 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.106 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/02/94 -- 12/31/94 $10.00 $9.33 -- $0.038 - 6.31%
1995 9.33 9.80 -- 0.226 + 7.49
1996 9.80 10.97 -- 0.163 +13.63
1/1/97 -- 2/28/97 10.97 11.34 -- -- + 3.37
Total $0.427
Cumulative total return as of 2/28/97: +18.29%**
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change***
<S> <C> <C> <C> <C> <C>
9/02/94 -- 12/31/94 $10.00 $9.33 -- $0.009 - 6.61%
1995 9.33 9.83 -- 0.096 + 6.40
1996 9.83 10.97 -- 0.080 +12.42
1/1/97 -- 2/28/97 10.97 11.32 -- -- + 3.19
Total $0.185
Cumulative total return as of 2/28/97: +15.27%***
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.85 $9.32 -- $0.023 - 5.14%
1995 9.32 9.79 -- 0.120 + 6.34
1996 9.79 10.92 -- 0.090 +12.48
1/1/97 -- 2/28/97 10.92 11.26 -- -- + 3.11
Total $0.233
Cumulative total return as of 2/28/97: +16.99%***
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.86 $9.33 -- $0.036 - 5.01%
1995 9.33 9.80 -- 0.207 + 7.28
1996 9.80 11.00 -- 0.106 +13.35
1/1/97 -- 2/28/97 11.00 11.36 -- -- + 3.27
Total $0.349
Cumulative total return as of 2/28/97: +19.28%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at
net asset value on the ex-dividend date, and do not include sales charge;
results would be lower if sales charge was included.
*** Figures assume reinvestment of all dividends and capital gains distributions at
net asset value on the ex-dividend date, and do not reflect deduction of any sales
charge; results would be lower if sales charge was deducted.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +13.63% +7.67%
Inception (9/02/94)
through 12/31/96 + 5.96 +3.53
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +12.42% +8.42%
Inception (9/02/94)
through 12/31/96 + 4.87 +4.06
* 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 12/31/96 +12.48% +11.48%
Inception (10/21/94)
through 12/31/96 + 5.92 + 5.92
* 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 12/31/96 +13.35% +7.40%
Inception (10/21/94)
through 12/31/96 + 6.79 +4.19
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Merrill Lynch Asset Growth Fund, Inc. February 28, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in US dollars)
Shares Value Percent of
COUNTRY Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
Argentina Banking 3,570 Banco de Galicia y Buenos Aires S.A. (ADR)(a) $73,342 $84,341 0.8%
2,673 Banco Frances del Rio de la Plata S.A. (ADR)(a) 62,653 76,515 0.7
---------- ----------- ------
135,995 160,856 1.5
Petroleum 3,600 Yacimientos Petroliferos Fiscales S.A. (ADR)(a) 81,316 96,300 0.9
Total Common Stocks in Argentina 217,311 257,156 2.4
Brazil Beverages 150,000 Companhia Cervejaria Brahma S.A. PN (Preferred) 87,058 100,057 0.9
Telecommunications 1,100 Telecomunicacoes Brasileiras S.A.-Telebras
(ADR)(a) 65,044 106,700 1.0
Total Common Stocks in Brazil 152,102 206,757 1.9
Canada Automobile Parts 1,200 Magna International, Inc. 52,649 63,000 0.6
Mining 1,100 Potash Corp. of Saskatchewan, Inc. 80,048 86,488 0.8
Multi-Industry 2,400 Canadian Pacific, Ltd. 42,744 59,400 0.5
Total Common Stocks in Canada 175,441 208,888 1.9
Finland Paper & Forest Products 3,200 UPM-Kymmene OY 64,665 67,166 0.6
Transportation 2,600 Finnlines OY 48,128 70,283 0.7
Total Common Stocks in Finland 112,793 137,449 1.3
France Iron & Steel 4,100 Usinor-Sacilor S.A. 68,506 63,315 0.6
Reinsurance 2,400 Scor S.A. 89,982 101,079 0.9
Semiconductor Capital 1,100 SGS-Thomson Microelectronics N.V. 41,340 72,600 0.7
Equipment (NY Registered Shares)
Total Common Stocks in France 199,828 236,994 2.2
Germany Chemicals 200 Henkel KGaA 8,891 10,231 0.1
1,600 Henkel KGaA (Preferred) 68,038 85,258 0.8
---------- ----------- ------
76,929 95,489 0.9
Electrical Equipment 1,900 Siemens AG 86,269 96,012 0.9
Footwear 400 Puma AG 13,123 13,973 0.1
Machinery & Equipment 160 Mannesmann AG 44,739 63,138 0.6
Total Common Stocks in Germany 221,060 268,612 2.5
Hong Kong Banking 3,200 HSBC Holdings PLC 51,510 78,107 0.7
Telecommunications 5,500 Hong Kong Telecommunications Ltd. (ADR)(a) 92,580 95,563 0.9
Total Common Stocks in Hong Kong 144,090 173,670 1.6
Indonesia Telecommunications 2,890 P.T. Indonesian Satellite Corp. (ADR)(a) 105,524 83,088 0.8
Total Common Stocks in Indonesia 105,524 83,088 0.8
Italy Machinery 23,000 Danieli & C. Officine Meccaniche S.p.A. 67,768 87,651 0.8
Publishing 7,000 Mondadori (Arnoldo) Editore S.p.A. 59,094 45,772 0.4
Total Common Stocks in Italy 126,862 133,423 1.2
Japan Building & Construction 10,000 Maeda Corp. 102,085 60,744 0.5
12,000 Okumura Corp. 96,740 63,446 0.6
---------- ----------- ------
198,825 124,190 1.1
Capital Goods 10,000 Mitsubishi Heavy Industries, Ltd. 80,780 72,015 0.7
Consumer -- Electronics 4,000 Matsushita Electric Industrial Co., Ltd. 67,209 61,656 0.6
Electrical Equipment 14,000 Mitsubishi Electric Co. 93,847 78,661 0.7
Electronics 1,000 Rohm Co., Ltd. 42,944 71,683 0.6
600 Sony Corporation (ADR) (a) 43,536 43,200 0.4
---------- ----------- ------
86,480 114,883 1.0
Financial Services 4,000 Nomura Securities Co., Ltd. 81,427 53,369 0.5
Insurance 8,000 Tokio Marine & Fire Insurance Co., Ltd. 94,559 76,241 0.7
Pharmaceuticals 4,000 Eisai Co., Ltd. 70,601 74,915 0.7
Photography 4,000 Canon, Inc. 75,063 83,534 0.8
Textiles 11,000 Toray Industries, Inc. 71,494 63,628 0.6
Tires & Rubber 5,000 Bridgestone Corporation 86,184 89,500 0.8
Warehouse & Storage 9,000 Mitsui-Soko Co., Ltd. 73,996 49,896 0.4
Total Common Stocks in Japan 1,080,465 942,488 8.6
Mexico Beverages 1,400 Panamerican Beverages, Inc. (Class A) 56,898 78,925 0.7
Multi-Industry 6,200 Grupo Carso, S.A. de C.V. (ADR)(a) 98,670 69,750 0.7
Telecommunications 2,300 Telefonos de Mexico, S.A. de C.V. (ADR)(a) 87,533 89,413 0.8
Total Common Stocks in Mexico 243,101 238,088 2.2
Netherlands Banking 1,100 ABN AMRO Holding N.V. 61,651 78,960 0.7
Total Common Stocks in the Netherlands 61,651 78,960 0.7
Norway Cruise Lines 10,000 Color Line ASA 37,601 48,988 0.4
Total Common Stocks in Norway 37,601 48,988 0.4
Philippines Beverages 21,200 San Miguel Corp. (Class B) 74,672 78,996 0.7
Total Common Stocks in the Philippines 74,672 78,996 0.7
South Africa Mining 2,000 De Beers Consolidated Mines Ltd. (ADR)(a) 66,203 69,500 0.6
Total Common Stocks in South Africa 66,203 69,500 0.6
South Korea Engineering & 3,500 +Hyundai Engineering & Construction Co.,
Construction Ltd. (GDR)(b)++ 45,605 14,000 0.1
Total Common Stocks in South Korea 45,605 14,000 0.1
Spain Petroleum 2,200 Repsol S.A. (ADR)(a) 70,920 83,600 0.8
Total Common Stocks in Spain 70,920 83,600 0.8
Sweden Banking 3,200 Sparbanken Sverige AB (Class A) 40,252 63,197 0.6
Investment Management 4,500 Bure Investment AB 37,938 60,348 0.5
Total Common Stocks in Sweden 78,190 123,545 1.1
Switzerland Electrical Equipment 65 BBC Brown Boveri & Cie (Bearer) 63,940 73,848 0.7
Pharmaceuticals 1,100 +Novartis AG (ADR)(a) 47,575 65,905 0.6
10 Roche Holding AG 84,002 84,158 0.8
---------- ----------- ------
131,577 150,063 1.4
Total Common Stocks in Switzerland 195,517 223,911 2.1
United Banking 5,800 National Westminster Bank PLC 61,230 71,599 0.7
Kingdom Beverages 9,500 +Grand Metropolitan PLC 64,774 70,117 0.6
Chemicals 7,100 Imperial Chemical Industries PLC (Ordinary) 91,648 87,531 0.8
Merchandising 6,400 Boots Company PLC 60,430 70,516 0.6
Mining 5,800 RTZ Corporation PLC (Registered) 86,574 88,495 0.8
Steel 25,000 British Steel PLC 65,679 61,235 0.6
Telecommunications 21,000 Vodafone Group PLC 73,076 99,457 0.9
Total Common Stocks in the United Kingdom 503,411 548,950 5.0
United Aerospace & Defense 700 AlliedSignal, Inc. 51,507 50,575 0.5
States 2,200 +Gulfstream Aerospace Corporation 54,238 47,850 0.4
900 Northrop Grumman Corp. 60,116 65,363 0.6
1,000 United Technologies Corp. 44,217 75,250 0.7
---------- ----------- ------
210,078 239,038 2.2
Automobile 700 General Motors Corp. 37,210 40,513 0.4
Automobile Parts 2,200 +Lear Corporation 73,700 85,800 0.8
Banking 2,300 Bank of New York Company, Inc. (The) 49,231 89,125 0.8
500 BankAmerica Corp. 51,121 56,875 0.5
800 Citicorp 58,440 93,400 0.9
---------- ----------- ------
158,792 239,400 2.2
Broadcasting -- Cable 900 Tele-Communications, Inc. (Class A) 12,931 10,688 0.1
Building Products 2,300 Oakwood Homes Corporation 52,087 45,425 0.4
Chemicals 800 du Pont (E.I.) de Nemours & Co. 87,347 85,800 0.8
Computer Services & 2,600 +Cabletron Systems, Inc. 89,756 78,000 0.7
Software 1,500 +cisco Systems, Inc. 67,442 83,063 0.8
2,550 First Data Corp. 90,095 93,394 0.8
650 International Business Machines Corp. 71,432 93,438 0.9
1,712 +Oracle Corp. 56,889 67,196 0.6
---------- ----------- ------
375,614 415,091 3.8
Computers 1,000 +COMPAQ Computer Corp. 74,153 79,250 0.7
Consumer Products 1,600 Black & Decker Corporation 53,578 50,600 0.5
Diversified Companies 1,000 +FMC Corporation 71,038 68,750 0.6
Electronics 800 General Electric Company 60,717 82,300 0.8
Engineering &
Construction 1,700 Foster Wheeler Corporation 69,512 66,300 0.6
Entertainment 1,400 +Imax Corporation 45,392 48,650 0.4
Fertilizers 1,200 IMC Global, Inc. 46,490 41,850 0.4
Financial Services 1,300 American Express Company 61,941 84,988 0.8
1,700 Countrywide Credit Industries, Inc. 51,678 49,512 0.5
1,600 First USA, Inc. 81,734 77,800 0.7
1,100 MGIC Investment Corp. 82,945 86,487 0.8
---------- ----------- ------
278,298 298,787 2.8
Foods 2,100 H.J. Heinz Company 67,379 87,412 0.8
Hospital Supplies 1,500 Abbott Laboratories 47,340 84,375 0.8
Insurance 800 Aetna Inc. 59,537 66,300 0.6
1,400 Allstate Corp. 57,305 88,725 0.8
1,600 Travelers Group, Inc. 84,816 85,800 0.8
900 Unum Corporation 57,110 69,187 0.6
---------- ----------- ------
258,768 310,012 2.8
Leisure/Tourism 3,500 Brunswick Corporation 86,625 100,187 0.9
914 TCI Pacific Communications
(Convertible Preferred) 86,556 81,346 0.8
---------- ----------- ------
173,181 181,533 1.7
Machinery 2,000 +American Standard Companies, Inc. 65,274 90,000 0.8
Medical 1,400 +Centocor, Inc. 51,326 53,025 0.5
2,700 +Health Management Associates, Inc. (Class A) 62,115 71,550 0.7
3,200 +Tenet Healthcare Corp. 83,400 86,800 0.8
---------- ----------- ------
196,841 211,375 2.0
Natural Gas 1,800 El Paso Natural Gas Co. 91,026 96,525 0.9
2,300 Enron Corp. 88,840 91,712 0.8
---------- ----------- ------
179,866 188,237 1.7
Oil Services 2,500 Dresser Industries, Inc. 48,945 75,937 0.7
900 Schlumberger Ltd. 57,879 90,562 0.8
---------- ----------- ------
106,824 166,499 1.5
Paper 1,000 Kimberly-Clark Corp. 76,827 106,000 1.0
Petroleum 1,500 Pennzoil Company 60,966 86,062 0.8
2,300 Unocal Corp. 77,289 88,837 0.8
---------- ----------- ------
138,255 174,899 1.6
Pharmaceuticals 1,500 American Home Products Corporation 88,095 96,000 0.9
1,000 Merck & Co., Inc. 34,185 92,000 0.8
---------- ----------- ------
122,280 188,000 1.7
Railroads 1,000 Burlington Northern Santa Fe 81,076 83,250 0.8
Real Estate Investment
Trusts 2,300 Prentiss Properties Trust 47,045 62,100 0.6
Retail Stores 2,155 Rite Aid Corporation 67,608 90,779 0.8
1,800 Sears, Roebuck & Co. 71,474 97,650 0.9
---------- ----------- ------
139,082 188,429 1.7
Scientific Equipment 1,500 Fisher Scientific International, Inc. 47,028 67,875 0.6
Software -- Computer 1900 +BMC Software, Inc. 71,078 81,225 0.7
Telecommunications 3000 +Airtouch Communications, Inc. 85,657 81,750 0.8
Tobacco 650 Philip Morris Companies, Inc. 64,666 87,831 0.8
Travel & Lodging 2,300 Carnival Corporation (Class A) 65,720 81,075 0.7
Utilities -- Electric 4,700 Edison International 87,739 101,050 0.9
Total Common Stocks in the United States 3,828,863 4,521,169 41.5
Total Investments in Common Stocks 7,741,210 8,678,232 79.6
<CAPTION>
Face
Amount Fixed-Income Securities
<S> <C> <C> <C> <C> <C> <C> <C>
Denmark Foreign
Government Dkr 800,000 Danish Government Bonds, 8% due 3/15/2006 146,515 138,897 1.3
Obligations
Total Fixed-Income Securities in Denmark 146,515 138,897 1.3
France Foreign
Government French Government O.A.T.:
Obligations Frf 574,000 6.75% due 10/25/2003 111,291 111,617 1.0
300,000 5.50% due 4/25/2004 56,529 54,320 0.5
Total Fixed-Income Securities in France 167,820 165,937 1.5
Germany Foreign
Government Bundesrepublik Deutschland:
Obligations DM 120,000 7.125% due 12/20/2002 83,338 78,941 0.7
75,000 6.50% due 10/14/2005 48,349 47,504 0.4
75,000 Treuhandanstalt, 6.875% due 6/11/2003 49,876 48,792 0.5
Total Fixed-Income Securities in Germany 181,563 175,237 1.6
Italy Foreign
Government Lit 235,000,000 Buoni Poliennali del Tesoro, 8.50% due 1/01/2004 166,488 146,537 1.3
Obligations
Total Fixed-Income Securities in Italy 166,488 146,537 1.3
Spain Foreign
Government Esp 20,000,000 Spanish Government Bonds, 7.90% due 2/28/2002 162,076 148,500 1.4
Obligations
Total Fixed-Income Securities in Spain 162,076 148,500 1.4
Sweden Foreign
Government Government of Sweden:
Obligations Skr 600,000 10.25% due 5/05/2000 101,118 92,046 0.8
900,000 8% due 8/15/2007 141,283 130,641 1.2
Total Fixed-Income Securities in Sweden 242,401 222,687 2.0
United US Government
States & Agency
Obligations US Treasury Notes:
US$ 170,000 5.50% due 4/15/2000 167,503 166,520 1.5
275,000 7% due 7/15/2006 288,277 282,304 2.6
30,000 6.75% due 8/15/2026 29,517 29,480 0.3
Total Fixed-Income Securities in the
United States 485,297 478,304 4.4
Total Investments in Fixed-Income Securities 1,552,160 1,476,099 13.5
Short-Term Securities
United Commercial Paper* 434,000 General Electric Capital Corp., 5.38% due
States 3/03/1997 433,870 433,870 4.0
Total Investments in Short-Term Securities 433,870 433,870 4.0
Total Investments $9,727,240 10,588,201 97.1
==========
Unrealized Appreciation on Forward Foreign Exchange Contracts** 3,826 0.0
Other Assets Less Liabilities 311,758 2.9
----------- ------
Net Assets $10,903,785 100.0%
=========== ======
(a) American Depositary Receipts (ADR).
(b) Global Depositary Receipts (GDR).
+ Non-income producing security.
++ The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
* Commercial Paper is traded on a discount basis; the interest rates shown are the discount rates
paid at the time of purchase by the Fund.
** Forward foreign exchange contracts as of February 28, 1997 were as follows:
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Depreciation)
Chf 350,000 March 1997 $4,591
DM 1,465,000 March 1997 3,903
Esp 37,000,000 March 1997 (1,490)
Fim 645,000 March 1997 1,391
Frf 2,200,000 March 1997 1,118
[Pound] 365,000 March 1997 (3,040)
Skr 2,630,710 March 1997 2,041
(yen) 83,000,000 March 1997 (4,564)
(yen) 28,000,000 April 1997 (124)
Total Unrealized Appreciation --
Net on Forward Foreign
Exchange Contracts
(US$ Commitment -- $3,748,979) $3,826
======
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
As of February 28, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $9,727,240) (Note 1a) $10,588,201
Unrealized appreciation on forward foreign exchange contracts (Note 1b) 3,826
Cash 14,820
Receivables:
Securities sold $479,835
Interest 38,274
Capital shares sold 17,530
Forward foreign exchange contracts (Note 1b) 12,918
Dividends 12,664 561,221
-----------
Deferred organization expenses (Note 1f) 66,690
Prepaid registration fees and other assets (Note 1f) 30,658
-----------
Total assets 11,265,416
-----------
Liabilities: Payables:
Securities purchased 221,215
Capital shares redeemed 14,016
Distributor (Note 2) 6,922
Forward foreign exchange contracts (Note 1b) 6,172 248,325
-----------
Accrued expenses and other liabilities 113,306
-----------
Total liabilities 361,631
-----------
Net Assets: Net assets $10,903,785
===========
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized $13,575
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 72,851
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 4,804
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 5,058
Paid-in capital in excess of par 9,336,758
Accumulated investment loss -- net (87,277)
Undistributed realized capital gains on investments and foreign currency
transactions -- net (Note 6) 696,423
Unrealized appreciation on investments and foreign currency transactions -- net 861,593
-----------
Net assets $10,903,785
===========
Net Asset Class A -- Based on net assets of $1,539,272 and 135,746 shares outstanding $11.34
Value: ===========
Class B -- Based on net assets of $8,248,790 and 728,508 shares outstanding $11.32
===========
Class C -- Based on net assets of $541,161 and 48,044 shares outstanding $11.26
===========
Class D -- Based on net assets of $574,562 and 50,575 shares outstanding $11.36
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1997
<S> <C> <C> <C>
Investment Dividends (net of $2,562 foreign witholding tax) $74,480
Income Interest and discount earned (net of $531 foreign witholding tax) 55,509
(Notes 1d & 1e): -----------
Total income 129,989
-----------
Expenses: Account maintenance and distribution fees -- Class B (Note 2) $41,288
Investment advisory fees (Note 2) 41,163
Registration fees (Note 1f) 38,550
Professional fees 34,486
Printing and shareholder reports 25,916
Accounting services (Note 2) 23,473
Transfer agent fees -- Class B (Note 2) 13,680
Custodian fees 11,779
Amortization of organization expenses (Note 1f) 11,550
Directors' fees and expenses 6,605
Account maintenance and distribution fees -- Class C (Note 2) 2,631
Transfer agent fees -- Class A (Note 2) 2,160
Transfer agent fees -- Class D (Note 2) 1,131
Account maintenance fees -- Class D (Note 2) 945
Transfer agent fees -- Class C (Note 2) 930
Pricing fees 676
Other 8,111
-----------
Total expenses before reimbursement 265,074
Reimbursement of expenses (Note 2) (50,110)
-----------
Total expenses after reimbursement 214,964
-----------
Investment loss -- net (84,975)
-----------
Realized & Realized gain from:
Unrealized Investments -- net 850,527
Gain on Foreign currency transactions -- net 236,777 1,087,304
Investments & -----------
Foreign Currency Change in unrealized appreciation on:
Transactions --
Net (Notes Investments -- net 369,318
1b, 1c, 1e & 3): Foreign currency transactions -- net 360 369,678
----------- -----------
Net realized and unrealized gain on investments and foreign currency
transactions 1,456,982
-----------
Net Increase in Net Assets Resulting from Operations $1,372,007
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
For the For the
Six Months Year
Ended Ended
Feb. 28, Aug. 31,
STATEMENTS OF CHANGES IN NET ASSETS 1997 1996
----------- -----------
Increase (Decrease) in Net Assets:
<S> <C> <C> <C>
Operations: Investment income (loss) -- net ($84,975) $45,807
Realized gain on investments and foreign currency transactions -- net 1,087,304 3,841
Change in unrealized appreciation on investments and foreign currency
transactions -- net 369,678 475,895
----------- -----------
Net increase in net assets resulting from operations 1,372,007 525,543
----------- -----------
Dividends to Investment income -- net:
Shareholders Class A (21,039) (24,902)
(Note 1g): Class B (59,443) (67,838)
Class C (4,516) (5,670)
Class D (5,212) (24,710)
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 (90,210) (175,305)
----------- -----------
Capital Share Net decrease in net assets derived from capital share transactions (1,622,103) (5,049,797)
Transactions
(Note 4):
Net Assets: Total decrease in net assets (340,306) (4,699,559)
Beginning of period 11,244,091 15,943,650
----------- -----------
End of period* $10,903,785 $11,244,091
=========== ===========
* Undistributed (accumulated) investment income (loss) -- net ($87,277) $87,908
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Class A Class B
For the For the For the For the
Six For the Period Six For the Period
The following per share data and ratios have been Months Year Sept. 2, Months Year Sept. 2,
derived from information provided in the financial Ended Ended 1994+ to Ended Ended 1994+ to
statements. Feb. 28, Aug. 31, Aug. 31 Feb. 28, Aug. 31, Aug. 31,
1997++++ 1996 1995 1997++++ 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.13 $9.90 $10.00 $10.09 $9.83 $10.00
Operating ------ ------ ------ ------ ------ ------
Performance: Investment income (loss) -- net (.04) .12 .16 (.09) .01 .05
Realized and unrealized gain (loss) on investments
and foreign currency transactions -- net 1.41 .34 (.22) 1.40 .35 (.21)
------ ------ ------ ------ ------ ------
Total from investment operations 1.37 .46 (.06) 1.31 .36 (.16)
------ ------ ------ ------ ------ ------
Less dividends:
Investment income -- net (.16) (.16) (.04) (.08) (.07) (.01)
In excess of investment income -- net -- (.07) -- -- (.03) --
------ ------ ------ ------ ------ ------
Total dividends (.16) (.23) (.04) (.08) (.10) (.01)
------ ------ ------ ------ ------ ------
Net asset value, end of period $11.34 $10.13 $9.90 $11.32 $10.09 $9.83
====== ====== ====== ====== ====== ======
Total
Investment Based on net asset value per share 13.64%++ 4.71% (.59%)++ 13.02%++ 3.65% (1.60%)++
Return:** ====== ====== ====== ====== ====== ======
Ratios to Expenses, net of reimbursement 3.08%* 2.47% 2.47%* 4.11%* 3.50% 3.50%*
Average Net ====== ====== ====== ====== ====== ======
Assets: Expenses 3.99%* 3.75% 3.31%* 5.02%* 4.78% 4.37%*
====== ====== ====== ====== ====== ======
Investment income (loss) -- net (.72%)* 1.16% 1.46%* (1.74%)* .13% .43%*
====== ====== ====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $1,539 $1,352 $1,677 $8,249 $8,141 $11,835
Data: ====== ====== ====== ====== ====== ======
Portfolio turnover 64.59% 120.43% 42.50% 64.59% 120.43% 42.50%
====== ====== ====== ====== ====== ======
Average commission rate paid+++ $.0144 $.0184 -- $.0144 $.0184 --
====== ====== ====== ====== ====== ======
<CAPTION>
Class C Class D
For the For the For the For the
Six For the Period Six For the Period
The following per share data and ratios have been Months Year Oct. 21, Months Year Oct. 21,
derived from information provided in the financial Ended Ended 1994+ to Ended Ended 1994+ to
statements Feb. 28, Aug. 31, Aug. 31, Feb. 28, Aug. 31, Aug. 31,
1997++++ 1996 1995 1997++++ 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.05 $9.82 $9.85 $10.11 $9.88 $9.86
Operating ------ ------ ------ ------ ------ ------
Performance: Investment income (loss) -- net (.10) (.04) .04 (.05) .08 .10
Realized and unrealized gain (loss) on investents
and foreign currency transactions -- net 1.40 .39 (.05) 1.41 .36 (.04)
------ ------ ------ ------ ------ ------
Total from investment operations 1.30 .35 (.01) 1.36 .44 .06
------ ------ ------ ------ ------ ------
Less dividends:
Investment income -- net (.09) (.08) (.02) (.11) (.15) (.04)
In excess of investment income -- net -- (.04) -- -- (.06) --
------ ------ ------ ------ ------ ------
Total dividends (.09) (.12) (.02) (.11) (.21) (.04)
------ ------ ------ ------ ------ ------
Net asset value, end of period $11.26 $10.05 $9.82 $11.36 $10.11 $9.88
====== ====== ====== ====== ====== ======
Total
Investment Based on net asset value per share 12.98%++ 3.61% (.05%)++ 13.47%++ 4.51% .59%++
Return:** ====== ====== ====== ====== ====== ======
Ratios to Expenses, net of reimbursement 4.14%* 3.52% 3.51%* 3.26%* 2.72% 2.75%*
Average Net ====== ====== ====== ====== ====== ======
Assets: Expenses 5.05%* 4.81% 4.58%* 4.22%* 4.00% 4.32%*
====== ====== ====== ====== ====== ======
Investment income (loss) -- net (1.77%)* .09% .51%* (.90%)* .93% 1.43%*
====== ====== ====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $541 $438 $735 $575 $1,313 $1,697
Data: ====== ====== ====== ====== ====== ======
Portfolio turnover 64.59% 120.43% 42.50% 64.59% 120.43% 42.50%
====== ====== ====== ====== ====== ======
Average commission rate paid+++ $.0144 $.0184 -- $.0144 $.0184 --
====== ====== ====== ====== ====== ======
* 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. The "Average
Commission Rate Paid" includes commissions paid in foreign currencies, which have been converted
into US dollars using the prevailing exchange rate on the date of the transaction. Such conversions
may significantly affect the rate shown.
++++ Based on average shares outstanding during the period.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., February 28, 1997
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. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature. The
Fund offers four classes of shares under the Merrill Lynch Select
PricingSM System. Shares of Class A and Class D are sold with a front-
end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B
and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Portfolio securities which are traded on
stock exchanges are valued at the last sale price on the exchange on
which such securities are traded, as of the close of business on the day
the securities are being valued or, lacking any sales, at the last
available bid price. Securities traded in the over-the-counter market
are valued at the last available bid price prior to the time of
valuation. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market.
Securities which are traded both in the over-the-counter market and on a
stock exchange are valued according to the broadest and most
representative market. Options written are valued at the last sale price
in the case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the last asked price. Options purchased
are valued at the last sale price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter market, the
last bid price. Short-term securities are valued at amortized cost,
which approximates market value. Other investments, including futures
contracts and related options, are stated at market value. Securities
and assets for which market value quotations are not available are
valued at their fair value as determined in good faith by or under the
direction of the Fund's Board of Directors, 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.
(bullet) 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.
(bullet) 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.
(bullet) 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.
(bullet) 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. 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.
(d) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required. Under the applicable foreign tax law, a withholding tax may
be imposed on interest, dividends, and capital gains at various rates.
(e) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Dividend income is recorded on the ex-dividend dates. Dividends
from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income (including amortization of discount) is recognized on
the accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(f) Deferred organization expenses and prepaid registration fees --
Deferred organization expenses are charged to expense on a straight-line
basis over a five-year period. Prepaid registration fees are charged to
expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates. Dividends in excess of
net investment income are due primarily to differing tax treatments for
foreign currency transactions.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill
Lynch Asset Management, L.P. ("MLAM"). The general partner of MLAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner.
The Fund has also entered into a Distribution Agreement and Distribution
Plans with Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee of 0.75%, on an annual basis, of
the average daily value of the Fund's net assets. For the six months
ended February 28, 1997, MLAM earned fees of $41,163, all of which was
voluntarily waived. MLAM also reimbursed the Fund for additional
expenses of $8,947.
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 six months ended February 28, 1997, MLFD earned underwriting
discounts 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 $4 $ 45
Class D $9 $170
For the six months ended February 28, 1997, MLPF&S received
contingent deferred sales charges of $15,611 and $27 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $1,667 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended February 28, 1997.
During the six months ended February 28, 1997, the Fund paid
Merrill Lynch Security Pricing Service, an affiliate of MLPF&S, $71 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, MLFDS, MLFD, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the six months ended February 28, 1997 were $6,945,566 and $9,097,742,
respectively.
Net realized and unrealized gains (losses) as of February 28, 1997 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 850,527 $ 860,961
Forward foreign exchange contracts 241,341 3,826
Foreign currency transactions (4,564) (3,194)
---------- ----------
Total $1,087,304 $ 861,593
========== ==========
As of February 28, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $860,961, of which $1,288,064 related to
appreciated securities and $427,103 related to depreciated securities.
At February 28, 1997, the aggregate cost of investments for Federal
income tax purposes was $9,727,240.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transac-
tions were $1,622,103 and $5,049,797 for the six months ended
February 28, 1997 and for the year ended August 31, 1996,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended February 28, 1997 Shares Amount
Shares sold 21,220 $ 234,509
Shares issued to shareholders
in reinvestment of dividends 1,699 18,333
-------- ---------
Total issued 22,919 252,842
Shares redeemed (20,600) (224,959)
-------- ---------
Net increase 2,319 $ 27,883
======== =========
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 B Shares for the Six Months Dollar
Ended February 28, 1997 Shares Amount
Shares sold 65,641 $ 722,356
Shares issued to shareholders
in reinvestment of dividends 4,415 47,640
-------- ---------
Total issued 70,056 769,996
Automatic conversion of shares (743) (8,615)
Shares redeemed (147,638) (1,612,003)
-------- ---------
Net decrease (78,325) $ (850,622)
======== =========
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
Automatic conversion of shares (2,219) (22,220)
Shares redeemed (510,410) (5,087,031)
-------- ---------
Net decrease (396,999) $(3,952,456)
======== =========
Class C Shares for the Six Months Dollar
Ended February 28, 1997 Shares Amount
Shares sold 28,685 $ 233,313
Shares issued to shareholders
in reinvestment of dividends 391 4,201
-------- ---------
Total issued 29,076 237,514
Shares redeemed (24,625) (193,520)
-------- ---------
Net increase 4,451 $ 43,994
======== =========
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)
======== =========
Class D Shares for the Six Months Dollar
Ended February 28, 1997 Shares Amount
Shares sold 18,578 $148,259
Automatic conversion of shares 741 8,615
Shares issued to shareholders
in reinvestment of dividends 437 4,728
-------- ---------
Total issued 19,756 161,602
Shares redeemed (99,080) (1,004,960)
-------- ---------
Net decrease (79,324) $(843,358)
======== =========
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)
======== =========
5. Commitments:
At February 28, 1997, the Fund had foreign exchange contracts, in
addition to the contracts listed in the Schedule of Investments, un-
der which it had agreed to purchase and sell various foreign currencies
with approximate values of $114,000 and $130,000, respectively.
6. Capital Loss Carryforward:
At August 31, 1996, the Fund had a net capital loss carryforward of
approximatley $6,000, all of which expires in 2004. This amount will be
available to offset like amounts of any future taxable gains.
EQUITY PORTFOLIO CHANGES
For the Quarter Ended February 28, 1997
Additions
American Home Products Corporation
BankAmerica Corp.
Black & Decker Corporation
Cabletron Systems, Inc.
Centocor, Inc.
Countrywide Credit Industries, Inc.
*Covance Inc.
De Beers Consolidated Mines Ltd. (ADR)
du Pont (E.I.) de Nemours & Co.
El Paso Natural Gas Co.
First USA, Inc.
IMC Global, Inc.
Imax Corporation
Imperial Chemical Industries PLC
(Ordinary)
*Linear Technology Corp.
MGIC Investment Corp.
Mondadori (Arnoldo) Editore S.p.A.
Novartis AG (ADR)
*Quest Diagnostic Inc.
RTZ Corporation PLC (Registered)
Rite Aid Corporation
Roche Holding AG
Sony Corporation (ADR)
Tele-Communications, Inc. (Class A)
Telefonos de Mexico, S.A. de C.V. (ADR)
Tenet Healthcare Corp.
Travelers Group, Inc.
Deletions
AK Steel Holding Corp.
Bell Atlantic Corp.
Carso Global Telecom (ADR)
Corning, Inc.
*Covance Inc.
Deere & Company
General Electric Co. PLC (Ordinary)
Glaxo Wellcome PLC
Grupo Financiero Inbursa,
S.A. de C.V. (ADR)
Kimberly-Clark de Mexico, S.A. de C.V.
*Linear Technology Corp.
Michelin (C.G.D.E.) (Class B)
Nokia Corp. (ADR)
Northern Telecommunications Ltd.
PPG Industries, Inc.
Petroleo Brasileiro S.A. (Petrobras)
(Preferred)
*Quest Diagnostic Inc.
Sandoz AG (ADR)
Societa Finanziara Telefonica S.p.A. (STET)
Spieker Properties, Inc.
Thrifty Payless Holdings, Inc. (Class B)
Toys 'R' Us, Inc.
Viacom, Inc. (Class B)
* Added and deleted in the same quarter.
