MERRILL LYNCH
ASSET GROWTH
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Annual Report
August 31, 1997
Investing in emerging market securities involves a number of risk
factors and special considerations, including restrictions on foreign
investments and on repatriation of capital invested in emerging markets,
currency fluctuations, and potential price volatility and less liquidity
of securities traded in emerging markets. In addition, there may be less
publicly available information about the issuers of securities, and such
issuers may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those to which US
companies are subject. Therefore, the Fund is designed as a long-term
investment for investors capable of assuming the risks of investing in
emerging markets. The Fund should be considered as a vehicle for
diversification and not as a complete investment program. Please refer
to the propectus for details.
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 -- 8/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MERRILL LYNCH ASSET GROWTH FUND, INC.
Worldwide
Investments as of
August 31, 1997
Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets+
United States* 38.9%
Japan 11.7
United Kingdom 8.8
Germany 5.1
Mexico 3.6
Canada 3.4
Italy 3.3
France 3.3
Sweden 3.3
Finland 2.9
Switzerland 2.8
South Africa 2.4
Spain 2.3
Brazil 2.2
Denmark 1.4
Argentina 1.3
Australia 1.0
Hong Kong 0.9
Indonesia 0.8
Netherlands 0.8
Philippines 0.6
Norway 0.4
South Korea 0.1
-----
Total 101.3%
=====
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Banking 4.3%
Telecommunications 4.1
Pharmaceuticals 3.3
Beverages 3.3
Mining 3.2
Automobile Parts 3.1
Electrical Equipment 3.0
Chemicals 3.0
Petroleum 2.9
Diversified 2.9
Country Percent
Ten Largest Holdings of of Net
(Equity Investments) Origin Assets
Yacimientos Petroliferos
Fiscales S.A. (ADR) Argentina 1.3%
SGS-Thomson Micro-
electronics N.V. (NY
Registered Shares) France 1.2
Grupo Carso, S.A.
de C.V. (ADR) Mexico 1.2
De Beers Consolidated
Mines Ltd. (ADR) S. Africa 1.2
Sasol Ltd. S. Africa 1.2
Imperial Chemical
Industries PLC
(Ordinary) UK 1.2
Mannesmann AG Germany 1.1
Scor S.A. France 1.1
LucasVarity PLC UK 1.1
Magna International, Inc. Canada 1.1
* Includes investments in short-term investments.
+ Total may not equal 100%.
Merrill Lynch Asset Growth Fund, Inc., August 31, 1997
DEAR SHAREHOLDER
Fiscal Year in Review
During the fiscal year ended August 31, 1997, total returns of Merrill
Lynch Asset Growth Fund, Inc.'s Class A, Class B, Class C and Class D
Shares were +23.06%, +21.81%, +21.71% and +22.66%, respectively.
(Results shown do not reflect sales charges and would be lower if sales
charges were included. Complete performance information, including
average annual total returns, can be found on pages 3 -- 6 of this
report to shareholders.)
As was the case in the fiscal year ended August 31, 1996, US equities
were the best performing asset class during the 12 months ended August
31, 1997. However, in contrast to fiscal year 1996, foreign equities had
a positive impact on portfolio returns during fiscal year 1997. The
decision to allocate significant assets to Latin America and to
underweight Asian equities including Japan, relative to the unmanaged
benchmark, the Morgan Stanley Europe Australia Far East (EAFE) Index,
had a favorable impact on portfolio performance. The returns on foreign
and US bonds, although positive, were well below those of equities
during the fiscal year ended August 31, 1997. At the same time, the
decision to hedge the Japanese equity commitments and most of the
European bond and stock commitments back to the US dollar during much of
the 12-month period enhanced the overall return of the portfolio.
Portfolio Matters
As of August 31, 1997, the asset allocation for Merrill Lynch Asset
Growth Fund, Inc. was: foreign equities, 52% of net assets; US equities,
24%; foreign bonds, 10%; US bonds, 11%, and cash reserves of 3%.
During the three months ended August 31, 1997, we became more positive
toward US bonds. We increased the weighting from 3% of net assets as of
May 31, 1997 to 11% as of August 31, 1997. The duration of the US fixed-
income sector was increased from 5 years to 6 years. Our more optimistic
stance toward US bonds reflected evidence of a slowdown in the US
economy's growth rate and indications that inflationary pressures were
exceptionally subdued. At the same time, the rapid shrinkage of the
Federal budget deficit reduced the supply of newly issued US Government
securities relative to the demand.
To expand the US bond commitment, we primarily used proceeds from sales
of foreign bonds. We reduced foreign bond holdings from 15% to 10% of
net assets during the August period by eliminating the position in
Australian bonds and reducing commitments in Germany, Italy, Spain and
Sweden. At the same time, our belief that the total return potential of
UK obligations was attractive led us to establish a position in
sterling-denominated bonds. As of August 31, 1997, our expectation of
further US dollar strength resulted in our hedging our commitments in
European stocks and bonds and Japanese and Australian equities back to
the US dollar.
The foreign equity allocation did not materially change during the three
months ended August 31, 1997. Japan remained the largest single
commitment, although the weighting remains below that in the benchmark
Morgan Stanley EAFE Index. While we sold the position in Eisai Co. Ltd.
in Japan, we established commitments in Amway Japan, Ltd. and
Matsushita Electric Works, Ltd. We continue to maintain a meaningful
position in Latin America, with a new position being established in
Grupo Financera Bancomer S.A. The commitment to Canada was reduced
as result of the sale of Canadian Pacific, Ltd. In Europe, changes
included the sale of British Steel PLC and the establishment of
commitments in Gucci Group N.V., Perstorp AB, and Dixons Group
PLC. We also reduced our already limited representation in Asia by
accepting profits in Hong Kong Telecommunications Ltd.
In the US equity sector, the largest concentration of funds remained in
the financial services category, which should be a beneficiary of
declining US interest rates. We maintained other meaningful positions in
technology, healthcare and energy. These areas of emphasis were
unchanged over the past three months and reflected our expectation that
earnings of selected companies in these sectors should continue to
exceed consensus expectations despite a slower rate of growth in
the US economy.
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 upcoming quarterly report to shareholders.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/THOMAS R. ROBINSON
Thomas R. Robinson
Vice President and
Senior Portfolio Manager
October 7, 1997
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:
[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. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the ex-dividend date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
[GRAPHIC LINE CHART OMITTED: TOTAL RETURN BASED ON A $10,000 INVESTMENT]
Total Return Based on a $10,000 Investment
Class A and Class B Shares
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 MSCI World
Index and the Salomon Brothers World Government Index (Weighted).
Beginning and ending values are:
9/02/94** 8/97
ML Asset Growth Fund, Inc.+ -- Class A Shares* $9,475 $12,137
ML Asset Growth Fund, Inc.+ -- Class B Shares* $10,000 $12,223
MSCI World Index++ $10,000 $14,905
Salomon Brothers World Govt. Index (wtd)++++ $10,000 $12,228
Class C and Class D Shares
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 MSCI World
Index and the Salomon Brothers World Government Index (Weighted).
Beginning and ending values are:
10/21/94** 8/97
ML Asset Growth Fund, Inc.+ -- Class C Shares* $10,000 $12,603
ML Asset Growth Fund, Inc.+ -- Class D Shares* $9,475 $12,218
MSCI World Index++ $10,000 $14,890
Salomon Brothers World Govt. Index (wtd)++++ $10,000 $11,948
* 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 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.
++++ This unmanaged market capitalization-weighed Index is comprised of
government bonds from major markets, including the United States.
Past performance is not predictive of future performance.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +21.84% +15.44%
Inception (9/02/94)
through 6/30/97 + 9.38 + 7.31
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +20.55% +16.55%
Inception (9/02/94)
through 6/30/97 + 8.27 + 7.65
* 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 6/30/97 +20.57% +19.57%
Inception (10/21/94)
through 6/30/97 + 9.28 + 9.28
* Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/97 +21.53% +15.15%
Inception (10/21/94)
through 6/30/97 +10.17 + 7.99
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Recent
Performance
Results*
12 Month 3 Month
8/31/97 5/31/97 8/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $12.28 $11.90 $10.13 +21.22% +3.19%
Class B Shares 12.20 11.85 10.09 +20.91 +2.95
Class C Shares 12.13 11.79 10.05 +20.70 +2.88
Class D Shares 12.28 11.91 10.11 +21.46 +3.11
Class A Shares - Total Return +23.06(1) +3.19
Class B Shares - Total Return +21.81(2) +2.95
Class C Shares - Total Return +21.71(3) +2.88
Class D Shares - Total Return +22.66(4) +3.11
* 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 -- 8/31/97 10.97 12.28 -- -- +11.94
Total $0.427
Cumulative total return as of 8/31/97: +28.09%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the
ex-dividend date, and do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<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 -- 8/31/97 10.97 12.20 -- -- +11.21
Total $0.185
Cumulative total return as of 8/31/97: +24.23%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</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 -- 8/31/97 10.92 12.13 -- -- +11.08
Total $0.233
Cumulative total return as of 8/31/97: +26.03%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</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 -- 8/31/97 11.00 12.28 -- -- +11.64
Total $0.349
Cumulative total return as of 8/31/97: +28.94%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<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 Petroleum 4,500 Yacimientos Petroliferos Fiscales
S.A. (ADR) (a) $106,570 $146,531 1.3%
----------- ----------- ------
Total Common Stocks in Argentina 106,570 146,531 1.3
=========== =========== ======
Australia Diversified 9,000 Broken Hill Proprietary Co., Ltd. 118,416 112,938 1.0
----------- ----------- ------
Total Common Stocks in Australia 118,416 112,938 1.0
=========== =========== ======
Brazil Banking 1,700 Uniao de Bancos Brasileiros S.A.
(GDR) (b) 57,375 59,500 0.5
Beverages 150,000 Companhia Cervejaria Brahma S.A.
PN (Preferred) 87,058 100,559 0.9
Telecommunications 800 Telecomunicacoes Brasileiras S.A.
-Telebras (ADR)(a) 49,928 94,400 0.8
----------- ----------- ------
Total Common Stocks in Brazil 194,361 254,459 2.2
=========== =========== ======
Canada Automobile Parts 1,900 Magna International, Inc. 92,803 125,875 1.1
Entertainment 2,800 +Imax Corporation 45,392 66,150 0.6
Mining 1,500 Potash Corp. of Saskatchewan, Inc. 110,576 110,906 1.0
----------- ----------- ------
Total Common Stocks in Canada 248,771 302,931 2.7
=========== =========== ======
Finland Diversified 3,900 +Amer Group Ltd. 69,340 75,593 0.7
Paper & Forest
Products 5,000 UPM - Kymmene OY 105,987 118,696 1.0
Pharmaceuticals 1,800 Orion - yhtymae OY (Class B) 68,840 57,816 0.5
Transportation 2,600 Finnlines OY 48,128 74,393 0.7
----------- ----------- ------
Total Common Stocks in Finland 292,295 326,498 2.9
=========== =========== ======
France Iron & Steel 6,100 Usinor - Sacilor S.A. 99,172 106,135 1.0
Reinsurance 3,100 Scor S.A. 118,452 127,801 1.1
Semiconductor
Capital 1,500 +SGS - Thomson Microelectronics
Equipment N.V. (NY Registered Shares) 70,718 139,313 1.2
----------- ----------- ------
Total Common Stocks in France 288,342 373,249 3.3
=========== =========== ======
Germany Chemicals 200 Henkel KGaA 8,891 9,254 0.1
1,600 Henkel KGaA (Preferred) 68,038 81,059 0.7
----------- ----------- ------
76,929 90,313 0.8
Electrical Equipment 1,900 Siemens AG 86,269 116,967 1.0
Machinery & Equipment 275 Mannesmann AG 91,316 127,850 1.1
----------- ----------- ------
Total Common Stocks in Germany 254,514 335,130 2.9
=========== =========== ======
Hong Kong Banking 3,200 HSBC Holdings PLC 51,510 97,458 0.9
----------- ----------- ------
Total Common Stocks in Hong Kong 51,510 97,458 0.9
=========== =========== ======
Indonesia Telecommunications 4,290 P.T. Indonesian Satellite Corp.
(ADR)(a) 144,283 93,039 0.8
----------- ----------- ------
Total Common Stocks in Indonesia 144,283 93,039 0.8
=========== =========== ======
Italy Apparel 1,800 Gucci Group N.V. (NY Registered
Shares) 130,623 109,575 0.9
Machinery 23,000 Danieli & C. Officine Meccaniche
S.p.A. 67,768 81,723 0.7
Publishing 7,000 Mondadori (Arnoldo) Editore S.p.A. 59,094 41,522 0.4
----------- ----------- ------
Total Common Stocks in Italy 257,485 232,820 2.0
=========== =========== ======
Japan Automobile Parts 1,000 Autobacs Seven Co., Ltd. 58,806 63,619 0.6
Building &
Construction 10,000 Maeda Corp. 102,085 43,717 0.4
5,000 Matsushita Electric Works, Ltd. 56,912 54,126 0.4
12,000 Okumura Corp. 96,740 67,449 0.6
----------- ----------- ------
255,737 165,292 1.4
Capital Goods 18,000 Mitsubishi Heavy Industries, Ltd. 132,433 119,760 1.0
Consumer --
Electronics 6,000 Matsushita Electric Industrial
Co., Ltd. 97,202 110,917 1.0
Electrical Equipment 22,000 Mitsubishi Electric Co. 138,107 101,307 0.9
Electronics 1,000 Rohm Co., Ltd. 42,944 104,089 0.9
1,000 Sony Corporation 72,316 87,434 0.8
400 Sony Corporation (ADR)(a) 29,432 35,250 0.3
----------- ----------- ------
144,692 226,773 2.0
Insurance 10,000 Tokio Marine & Fire Insurance Co.,
Ltd. 107,184 114,914 1.0
Merchandising 2,000 Amway Japan, Ltd. 69,732 52,960 0.5
Photography 4,000 Canon, Inc. 75,063 110,917 1.0
Textiles 16,000 Toray Industries, Inc. 98,636 106,587 0.9
Tires & Rubber 5,000 Bridgestone Corporation 86,184 111,167 1.0
Warehouse & Storage 9,000 Mitsui - Soko Co., Ltd. 73,996 40,919 0.4
----------- ----------- ------
Total Common Stocks in Japan 1,337,772 1,325,132 11.7
=========== =========== ======
Mexico Beverages 3,600 Panamerican Beverages, Inc.
(Class A) 85,294 108,225 1.0
Financial Services 4,300 +Grupo Financiera Bancomer S.A.
(Class B) (ADR)(a) 61,970 54,825 0.5
Multi-Industry 10,200 Grupo Carso, S.A. de C.V. (ADR)(a) 145,170 138,975 1.2
Telecommunications 2,300 Telefonos de Mexico, S.A. de C.V.
(ADR)(a) 90,994 105,513 0.9
----------- ----------- ------
Total Common Stocks in Mexico 383,428 407,538 3.6
=========== =========== ======
Netherlands Banking 4,400 ABN AMRO Holding N.V. 61,651 86,709 0.8
----------- ----------- ------
Total Common Stocks in the
Netherlands 61,651 86,709 0.8
=========== =========== ======
Norway Cruise Lines 10,000 Color Line ASA 37,601 45,001 0.4
----------- ----------- ------
Total Common Stocks in Norway 37,601 45,001 0.4
=========== =========== ======
Philippines Beverages 40,920 San Miguel Corp. (Class B) 122,824 67,973 0.6
----------- ----------- ------
Total Common Stocks in the
Philippines 122,824 67,973 0.6
=========== =========== ======
South Africa Diversified 10,000 Sasol Ltd. 116,199 133,262 1.2
Mining 4,200 De Beers Consolidated Mines Ltd.
(ADR)(a) 142,103 134,138 1.2
----------- ----------- ------
Total Common Stocks in South
Africa 258,302 267,400 2.4
=========== =========== ======
South Korea Engineering &
Construction 3,553 Hyundai Engineering & Construction
Co., Ltd. (GDR)(b)(c) 45,605 13,324 0.1
----------- ----------- ------
Total Common Stocks in South Korea 45,605 13,324 0.1
=========== =========== ======
Spain Petroleum 2,900 Repsol, S.A. (ADR)(a) 100,275 114,188 1.0
----------- ----------- ------
Total Common Stocks in Spain 100,275 114,188 1.0
=========== =========== ======
Sweden Banking 3,200 Sparbanken Sverige AB (Class A) 40,252 69,757 0.6
Chemicals 3,000 Perstorp AB (Class B) 56,249 53,924 0.5
Investment Management 4,500 Bure Investment AB 37,938 54,497 0.5
Real Estate Investment
Trusts 2,600 +Castellum AB 17,442 21,213 0.2
----------- ----------- ------
Total Common Stocks in Sweden 151,881 199,391 1.8
=========== =========== ======
Switzerland Electrical Equipment 85 ABB AG 87,949 125,610 1.1
Pharmaceuticals 1,100 Novartis AG (ADR)(a) 47,575 78,650 0.7
13 Roche Holding AG 108,704 109,939 1.0
----------- ----------- ------
156,279 188,589 1.7
----------- ----------- ------
Total Common Stocks in Switzerland 244,228 314,199 2.8
=========== =========== ======
United Kingdom Automobile Parts 40,100 LucasVarity PLC 131,353 127,223 1.1
Beverages 9,500 Grand Metropolitan PLC 64,774 87,292 0.8
Chemicals 8,100 Imperial Chemical Industries PLC
(Ordinary) 100,372 131,119 1.2
Merchandising 9,300 Boots Company PLC 95,557 120,149 1.1
Mining 7,500 Rio Tinto PLC 114,244 118,430 1.0
Office Equipment 640 Danka Business Systems PLC (ADR)
(a) 31,542 29,840 0.3
Retail Stores 5,900 Dixons Group PLC 62,128 62,204 0.5
Telecommunications 21,000 Vodafone Group PLC 73,076 105,252 0.9
----------- ----------- ------
Total Common Stocks in the United
Kingdom 673,046 781,509 6.9
=========== =========== ======
United States Aerospace & Defense 550 AlliedSignal, Inc. 41,038 45,409 0.4
1,000 GenCorp, Inc. 29,255 26,750 0.2
600 United Technologies Corp. 26,530 46,838 0.4
----------- ----------- ------
96,823 118,997 1.0
Airlines 1,200 +US Airways Group Inc. 44,104 40,950 0.4
Appliances 1,400 Sunbeam Corp. 53,084 61,600 0.5
Automobile Parts 850 Federal - Mogul Corp. 31,127 30,388 0.3
Automobile Rental &
Leasing 1,000 Hertz Corp. (Class A) 29,921 34,563 0.3
Banking 1,282 Banc One Corp. 56,014 68,747 0.6
1,400 Bank of New York Company, Inc.
(The) 29,967 62,475 0.6
600 BankAmerica Corp. 30,788 39,488 0.3
----------- ----------- ------
116,769 170,710 1.5
Broadcasting -- Cable 500 +Tele-Communications, Inc.
(Class A) 7,189 8,719 0.1
Chemicals 1,000 du Pont (E.I.) de Nemours & Co. 54,569 62,313 0.5
Computer Services &
Software 1,000 Computer Associates International,
Inc. 41,029 66,875 0.6
500 International Business Machines
Corp. 27,474 50,438 0.4
200 +Microsoft Corp. 24,211 26,437 0.2
1,068 +Oracle Corp. 23,818 40,651 0.4
----------- ----------- ------
116,532 184,401 1.6
Computers 1,150 +COMPAQ Computer Corp. 34,217 75,325 0.7
1,100 +Quantum Corp. 31,289 38,500 0.3
----------- ----------- ------
65,506 113,825 1.0
Consumer Products 1,000 Black & Decker Corporation 33,358 38,312 0.3
Containers 1,600 +Owens-Illinois, Inc. 46,170 55,700 0.5
Cosmetics &
Toiletries 875 Avon Products, Inc. 60,732 56,055 0.5
Dental Supplies &
Equipment 600 DENTSPLY International Inc. 30,168 33,675 0.3
Electronics 720 Intel Corp. 48,921 66,195 0.6
Financial Services 800 American Express Company 38,967 62,200 0.6
1,370 MGIC Investment Corp. 52,998 68,928 0.6
----------- ----------- ------
91,965 131,128 1.2
Health Care -- Managed
Care 900 +Oxford Health Plans, Inc. 56,624 65,756 0.6
Insurance 400 Allstate Corp. 16,373 29,225 0.2
400 Hartford Life, Inc. (Class A) 12,983 14,925 0.1
500 Nationwide Financial Services,
Inc. 11,750 13,875 0.1
100 Provident Companies, Inc. 6,407 6,512 0.1
1,000 Travelers Group, Inc. 53,925 63,500 0.6
450 Travelers Property Casualty Corp.
(Class A) 17,942 18,112 0.2
1,000 UNUM Corporation 31,736 41,250 0.4
----------- ----------- ------
151,116 187,399 1.7
Leisure/Tourism 2,100 Brunswick Corporation 52,568 64,050 0.6
514 TCI Pacific Communications
(Convertible Preferred) 45,616 56,925 0.5
----------- ----------- ------
98,184 120,975 1.1
Machinery 1,200 American Standard Companies, Inc. 39,338 56,400 0.5
1,150 Ingersoll-Rand Company 51,790 69,144 0.6
300 SPX Corp. 16,368 17,437 0.2
----------- ----------- ------
107,496 142,981 1.3
Medical Services 880 +HEALTHSOUTH Corp. 23,874 21,945 0.2
100 +Horizon/CMS Healthcare Corp. 2,158 2,056 0.0
----------- ----------- ------
26,032 24,001 0.2
Natural Gas 1,100 El Paso Natural Gas Co. 56,692 61,875 0.5
1,400 Enron Corp. 54,689 53,987 0.5
----------- ----------- ------
111,381 115,862 1.0
Oil Services 1,500 Dresser Industries, Inc. 29,046 62,625 0.5
400 Schlumberger Ltd. 12,862 30,475 0.3
650 +Smith International, Inc. 29,748 47,287 0.4
----------- ----------- ------
71,656 140,387 1.2
Petroleum 400 Pennzoil Company 16,054 30,875 0.3
1,000 Unocal Corp. 33,402 39,062 0.3
----------- ----------- ------
49,456 69,937 0.6
Pharmaceuticals 900 American Home Products Corporation 52,940 64,800 0.6
600 Merck & Co., Inc. 20,511 55,087 0.5
----------- ----------- ------
73,451 119,887 1.1
Railroads 500 Burlington Northern Santa Fe 41,528 45,844 0.4
Real Estate
Investment 1,400 Prentiss Properties Trust 28,797 38,675 0.4
Trusts 800 Starwood Lodging Trust 36,000 36,950 0.3
----------- ----------- ------
64,797 75,625 0.7
Retail Stores 1,255 Rite Aid Corporation 42,351 62,828 0.6
300 +Safeway, Inc. 15,883 15,281 0.1
1,100 Sears, Roebuck & Co. 44,048 62,425 0.5
----------- ----------- ------
102,282 140,534 1.2
Software -- Computer 1,100 +BMC Software, Inc. 41,343 68,750 0.6
Telecommunications 1,000 +Airtouch Communications, Inc. 27,955 33,812 0.3
1,600 +WorldCom, Inc. 39,831 47,900 0.4
----------- ----------- ------
67,786 81,712 0.7
Tobacco 850 Philip Morris Companies, Inc. 28,323 37,081 0.3
Travel & Lodging 1,400 Carnival Corporation (Class A) 40,147 61,337 0.5
Utilities -- Electric 2,300 Edison International 43,145 55,487 0.5
----------- ----------- ------
Total Common Stocks in the United
States 2,101,685 2,761,086 24.3
=========== =========== ======
Total Investments in Common Stocks 7,474,845 8,658,503 76.4
=========== =========== ======
<CAPTION>
Face
Amount Fixed-Income Securities
<S> <C> <C> <C> <C> <C> <C>
Canada Foreign Government
Obligations C$ 100,000 Canadian Government Bonds, 7% due
12/01/2006 75,972 77,219 0.7
----------- ----------- ------
Total Fixed-Income Securities in
Canada 75,972 77,219 0.7
=========== =========== ======
Denmark Foreign Government
Obligations Dkr 1,000,000 Danish Government Bonds, 7% due
11/15/2007 159,760 153,496 1.4
----------- ----------- ------
Total Fixed-Income Securities in
Denmark 159,760 153,496 1.4
=========== =========== ======
Germany Foreign Government Bundesrepublik Deutschland:
Obligations DM 120,000 7.125% due 12/20/2002 83,338 73,160 0.6
225,000 6.50% due 10/14/2005 142,066 132,733 1.2
75,000 Treuhandanstalt, 6.875% due
6/11/2003 49,876 45,304 0.4
----------- ----------- ------
Total Fixed-Income Securities in
Germany 275,280 251,197 2.2
=========== =========== ======
Italy Foreign Government
Obligations Lit 240,000,000 Buoni Poliennali del Tesoro,
8.50% due 1/01/2004 147,590 149,737 1.3
----------- ----------- ------
Total Fixed-Income Securities in
Italy 147,590 149,737 1.3
=========== =========== ======
Spain Foreign Government
Obligations Pta 20,000,000 Spanish Government Bonds, 7.90%
due 2/28/2002 162,076 143,389 1.3
----------- ----------- ------
Total Fixed-Income Securities in
Spain 162,076 143,389 1.3
=========== =========== ======
Sweden Foreign Government Government of Sweden:
Obligations Skr 600,000 10.25% due 5/05/2000 101,118 85,490 0.8
600,000 8% due 8/15/2007 84,621 84,172 0.7
----------- ----------- ------
Total Fixed-Income Securities in
Sweden 185,739 169,662 1.5
=========== =========== ======
United Kingdom Foreign Government
Obligations [#] 135,000 UK Treasury Gilt, 7.25% due
12/07/2007 223,453 221,379 1.9
----------- ----------- ------
Total Fixed-Income Securities in
the United Kingdom 223,453 221,379 1.9
=========== =========== ======
United States US Government
Obligations US$ 395,000 US Treasury Bonds, 6.625% due
2/15/2027 387,757 393,949 3.5
US Treasury Notes:
500,000 6% due 8/15/1999 501,367 500,080 4.4
110,000 6.50% due 5/31/2002 110,739 111,118 1.0
175,000 6.25% due 2/15/2007 176,395 173,222 1.5
95,000 6.625% due 5/15/2007 96,174 96,633 0.8
----------- ----------- ------
Total Fixed-Income Securities in
the United States 1,272,432 1,275,002 11.2
=========== =========== ======
Total Investments in Fixed-Income
Securities 2,502,302 2,441,081 21.5
=========== =========== ======
<CAPTION>
Short-Term Securities
<S> <C> <C> <C> <C> <C> <C>
United States Commercial Paper* 389,000 General Motors Acceptance Corp.,
5.69% due 9/02/1997 388,816 388,816 3.4
----------- ----------- ------
Total Investments in Short-Term
Securities 388,816 388,816 3.4
=========== =========== ======
Total Investments $10,365,963 11,488,400 101.3
===========
Unrealized Depreciation on Forward Foreign Exchange Contracts** (66,629) (0.6)
Liabilities in Excess of Other Assets (79,352) (0.7)
----------- ------
Net Assets $11,342,419 100.0%
=========== ======
(a) American Depositary Receipts (ADR).
(b) Global Depositary Receipts (GDR).
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
+ Non-income producing security.
* Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the Fund.
** Forward foreign exchange contracts as of August 31, 1997 were as follows:
Unrealized
Appreciation
Expiration (Depreciation)
Foreign Currency Sold Date (Note 1b)
A $165,000 September 1997 $1,320
Chf 525,000 September 1997 (7,090)
DM 1,175,000 September 1997 (25,430)
Dkr 1,070,000 September 1997 (1,016)
Fim 1,875,000 September 1997 (6,222)
Frf 2,250,000 September 1997 (15,563)
[#] 530,000 September 1997 (24,066)
Lit 700,000,000 September 1997 (1,856)
Pta 39,500,000 September 1997 (8,466)
Skr 2,900,000 September 1997 (1,478)
(yen) 160,000,000 September 1997 23,238
Total Unrealized Depreciation on Forward Foreign
Exchange Contracts -- Net (US$ Commitment -- $5,159,188) $(66,629)
========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
As of August 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $10,365,963) (Note 1a) $11,488,400
Receivables:
Interest $40,207
Dividends 15,679
Capital shares sold 6,693 62,579
------------
Deferred organization expenses (Note 1f) 44,460
Prepaid registration fees and other assets (Note 1f) 26,146
------------
Total assets 11,621,585
------------
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1b) 66,629
Payables:
Securities purchased 91,575
Capital shares redeemed 35,792
Distributor (Note 2) 7,552 134,919
------------
Accrued expenses and other liabilities 77,618
------------
Total liabilities 279,166
------------
Net Assets: Net assets $11,342,419
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $14,690
Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 68,901
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 4,715
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 4,592
Paid-in capital in excess of par 8,954,740
Undistributed investment income -- net 260,927
Undistributed realized capital gains on investments and foreign currency
transactions -- net 979,569
Unrealized appreciation on investments and foreign currency transactions
-- net 1,054,285
------------
Net assets $11,342,419
============
Net Asset Value: Class A -- Based on net assets of $1,803,323 and 146,895 shares
outstanding $12.28
============
Class B -- Based on net assets of $8,403,038 and 689,006 shares
outstanding $12.20
============
Class C -- Based on net assets of $571,945 and 47,148 shares
outstanding $12.13
============
Class D -- Based on net assets of $564,113 and 45,922 shares
outstanding $12.28
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1997
<S> <C> <C> <C>
Investment Dividends (net of $14,418 foreign witholding tax) $187,352
Income Interest and discount earned (net of $277 foreign witholding tax) 133,552
(Notes 1d & 1e): ----------
Total income 320,904
----------
Expenses: Investment advisory fees (Note 2) $83,088
Account maintenance and distribution fees -- Class B (Note 2) 82,939
Registration fees (Note 1f) 64,463
Professional fees 63,666
Printing and shareholder reports 43,399
Accounting services (Note 2) 37,254
Transfer agent fees -- Class B (Note 2) 24,357
Custodian fees 23,167
Amortization of organization expenses (Note 1f) 22,230
Directors' fees and expenses 12,680
Pricing fees 7,540
Account maintenance and distribution fees -- Class C (Note 2) 5,491
Transfer agent fees -- Class A (Note 2) 4,070
Transfer agent fees -- Class D (Note 2) 1,828
Transfer agent fees -- Class C (Note 2) 1,727
Account maintenance fees -- Class D (Note 2) 1,709
Other 16,287
----------
Total expenses before reimbursement 495,895
Reimbursement of expenses (Note 2) (92,035)
----------
Total expenses after reimbursement 403,860
----------
Investment loss -- net (82,956)
----------
Realized & Realized gain from:
Unrealized Investments -- net 1,370,449
Gain (Loss) on Foreign currency transactions -- net 346,184 1,716,633
Investments & ----------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Net Investments -- net 630,794
(Notes 1b, 1c, Foreign currency transactions -- net (68,424) 562,370
1e & 3): ---------- ----------
Net realized and unrealized gain on investments and foreign currency
transactions 2,279,003
----------
Net Increase in Net Assets Resulting from Operations $2,196,047
==========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income (loss) -- net $(82,956) $45,807
Realized gain on investments and foreign currency transactions -- net 1,716,633 3,841
Change in unrealized appreciation on investments and foreign currency
transactions -- net 562,370 475,895
----------- -----------
Net increase in net assets resulting from operations 2,196,047 525,543
----------- -----------
Dividends to Investment income -- net:
Shareholders Class A (1,155) (24,902)
(Note 1g): Class B (3,263) (67,838)
Class C (248) (5,670)
Class D (286) (24,710)
In excess of investment income -- net:
Class A (19,884) (10,554)
Class B (56,180) (28,754)
Class C (4,268) (2,403)
Class D (4,925) (10,474)
----------- -----------
Net decrease in net assets resulting from dividends to shareholders (90,209) (175,305)
----------- -----------
Capital Share Net decrease in net assets derived from capital share transactions (2,007,510) (5,049,797)
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase (decrease) in net assets 98,328 (4,699,559)
Beginning of year 11,244,091 15,943,650
----------- -----------
End of year* $11,342,419 $11,244,091
=========== ===========
* Undistributed investment income -- net (Note 1h) $260,927 $87,908
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A Class B
For the For the
For the Period For the Period
Year Sept. 2, Year Sept. 2,
The following per share data and ratios have been derived Ended 1994+ to Ended 1994+ to
from information provided in the financial statements. Aug. 31, Aug. 31, 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 .01 .12 .16 (.11) .01 .05
Realized and unrealized gain (loss)
on investments and foreign currency
transactions -- net 2.30 .34 (.22) 2.30 .35 (.21)
--------- --------- --------- --------- --------- ---------
Total from investment operations 2.31 .46 (.06) 2.19 .36 (.16)
--------- --------- --------- --------- --------- ---------
Less dividends:
Investment income -- net (.01) (.16) (.04) --+++++ (.07) (.01)
In excess of investment income --
net (.15) (.07) -- (.08) (.03) --
--------- --------- --------- --------- --------- ---------
Total dividends (.16) (.23) (.04) (.08) (.10) (.01)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $12.28 $10.13 $9.90 $12.20 $10.09 $9.83
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value per share 23.06% 4.71% (.59%)++ 21.81% 3.65% (1.60%)++
Return:** ========= ========= ========= ========= ========= =========
Ratios to Expenses, net of reimbursement 2.79% 2.47% 2.47%* 3.84% 3.50% 3.50%*
Average Net ========= ========= ========= ========= ========= =========
Assets: Expenses 3.61% 3.75% 3.31%* 4.67% 4.78% 4.37%*
========= ========= ========= ========= ========= =========
Investment income (loss) -- net .13% 1.16% 1.46%* (.94%) .13% .43%*
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period (in
Data: thousands) $1,803 $1,352 $1,677 $8,403 $8,141 $11,835
========= ========= ========= ========= ========= =========
Portfolio turnover 128.28% 120.43% 42.50% 128.28% 120.43% 42.50%
========= ========= ========= ========= ========= =========
Average commission rate paid+++ $.0215 $.0184 -- $.0215 $.0184 --
========= ========= ========= ========= ========= =========
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
Year Oct. 21, Year Oct. 21,
The following per share data and ratios have been derived Ended 1994+ to Ended 1994+ to
from information provided in the financial statements. Aug. 31, Aug. 31, 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 (.11) (.04) .04 (.02) .08 .10
Realized and unrealized gain (loss)
on investments and foreign currency
transactions -- net 2.28 .39 (.05) 2.30 .36 (.04)
--------- --------- --------- --------- --------- ---------
Total from investment operations 2.17 .35 (.01) 2.28 .44 .06
--------- --------- --------- --------- --------- ---------
Less dividends:
Investment income -- net --+++++ (.08) (.02) (.01) (.15) (.04)
In excess of investment income --
net (.09) (.04) -- (.10) (.06) --
--------- --------- --------- --------- --------- ---------
Total dividends (.09) (.12) (.02) (.11) (.21) (.04)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $12.13 $10.05 $9.82 $12.28 $10.11 $9.88
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value per share 21.71% 3.61% (.05%)++ 22.66% 4.51% .59%++
Return:** ========= ========= ========= ========= ========= =========
Ratios to Expenses, net of reimbursement 3.86% 3.52% 3.51%* 3.05% 2.72% 2.75%*
Average Net ========= ========= ========= ========= ========= =========
Assets: Expenses 4.68% 4.81% 4.58%* 3.92% 4.00% 4.32%*
========= ========= ========= ========= ========= =========
Investment income (loss) -- net (.94%) .09% .51%* (.21%) .93% 1.43%*
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period (in
Data: thousands) $572 $438 $735 $564 $1,313 $1,697
========= ========= ========= ========= ========= =========
Portfolio turnover 128.28% 120.43% 42.50% 128.28% 120.43% 42.50%
========= ========= ========= ========= ========= =========
Average commission rate paid+++ $.0215 $.0184 -- $.0215 $.0184 --
========= ========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects 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 year.
+++++ Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., August 31, 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. 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 and put
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.
(h) Reclassification -- Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting for foreign
currency transactions. Accordingly, current year's permanent book/tax
differences of $346,184 have been reclassified between undistributed net
realized capital gains and undistributed net investment income. 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.
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 year ended
August 31, 1997, MLAM earned fees of $83,088, 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 year ended August 31, 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 $12 $130
Class D $194 $2,485
For the year ended August 31, 1997, MLPF&S received contingent deferred
sales charges of $35,456 and $77 relating to transactions in Class B and
Class C Shares, respectively.
In addition, MLPF&S received $3,252 in commissions on the execution of
portfolio security transactions for the Fund for the year ended August
31, 1997.
During the year ended August 31, 1997, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $120 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 year ended August 31, 1997 were $13,652,229 and $15,573,229,
respectively.
Net realized and unrealized gains (losses) as of August 31, 1997 were as
follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $1,370,449 $1,122,437
Forward foreign exchange contracts 432,929 (66,629)
Foreign currency transactions (86,745) (1,523)
----------- -----------
Total $1,716,633 $1,054,285
=========== ===========
As of August 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $1,109,191 of which $1,609,746, related to
appreciated securities and $500,555 related to depreciated securities.
At August 31, 1997, the aggregate cost of investments for Federal income
tax purposes was $10,379,209.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions were
$2,007,510 and $5,049,797 for the years ended August 31, 1997 and August
31, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 1997 Shares Amount
Shares sold 64,930 $766,134
Shares issued to shareholders
in reinvestment of dividends 1,699 18,333
----------- -----------
Total issued 66,629 784,467
Shares redeemed (53,161) (620,321)
----------- -----------
Net increase 13,468 $164,146
=========== ===========
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 Year Dollar
Ended August 31, 1997 Shares Amount
Shares sold 134,761 $1,545,773
Shares issued to shareholders
in reinvestment of dividends 4,415 47,640
----------- -----------
Total issued 139,176 1,593,413
Automatic conversion of shares (1,041) (12,375)
Shares redeemed (255,962) (2,880,538)
----------- -----------
Net decrease (117,827) $(1,299,500)
=========== ===========
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 Year Dollar
Ended August 31, 1997 Shares Amount
Shares sold 26,773 $292,552
Shares issued to shareholders
in reinvestment of dividends 391 4,201
----------- -----------
Total issued 27,164 296,753
Shares redeemed (23,609) (265,841)
----------- -----------
Net increase 3,555 $30,912
=========== ===========
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 Year Dollar
Ended August 31, 1997 Shares Amount
Shares sold 24,261 $273,733
Automatic conversion of shares 1,037 12,375
Shares issued to shareholders
in reinvestment of dividends 437 4,728
----------- -----------
Total issued 25,735 290,836
Shares redeemed (109,712) (1,193,904)
----------- -----------
Net decrease (83,977) $(903,068)
=========== ===========
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 August 31, 1997, the Fund had foreign exchange contracts, in addition
to the contracts listed in the Schedule of Investments, under which it
had agreed to purchase various foreign currencies with approximate
values of $35,000.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
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, 1997, the related statements of operations
for the year then ended and changes in net assets for each of the years
in the two-year period then ended, and the financial highlights for each
of the years in the two-year period 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 the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
the financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at August 31, 1997 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, 1997, the results
of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 7, 1997
<TABLE>
<CAPTION>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share dividends paid by the Merrill Lynch Asset Growth Fund, Inc. during its
taxable year ended August 31, 1997.
Qualifying Non-Qualifying Total
Record Payable Ordinary Ordinary Ordinary
Date Date Income Income Income
<S> <C> <C> <C> <C> <C>
Class A Shares 12/12/96 12/20/96 $0.083331 $0.079941 $0.163272
Class B Shares 12/12/96 12/20/96 $0.040713 $0.039058 $0.079771
Class C Shares 12/12/96 12/20/96 $0.045891 $0.044025 $0.089916
Class D Shares 12/12/96 12/20/96 $0.054133 $0.051931 $0.106064
The qualifying domestic ordinary income qualifies for the dividends received deduction for corporations.
Additionally, there were no long-term capital gains paid by the Fund during the year.
Please retain this information for your records.
</TABLE>
EQUITY PORTFOLIO CHANGES (unaudited)
For the Quarter Ended August 31, 1997
Additions
Amway Japan, Ltd.
Avon Products, Inc.
Banc One Corp.
DENTSPLY International Inc.
Danka Business Systems PLC (ADR)
Dixons Group PLC
Federal-Mogul Corp.
GenCorp, Inc.
Grupo Financiera Bancomer S.A.
(Class B) (ADR)
Gucci Group N.V. (NY Registered Shares)
HEALTHSOUTH Corp.
Horizon/CMS Healthcare Corp.
LucasVarsity PLC
Matsushita Electric Works, Ltd.
Perstorp AB (Class B)
Provident Companies, Inc.
Quantum Corp.
SPX Corp.
Safeway, Inc.
Travelers Property Casualty Corp.
(Class A)
US Airways Group Inc.
Deletions
Abbott Laboratories
Aetna Inc.
British Steel PLC
Cabletron Systems, Inc.
Canadian Pacific, Ltd.
Chase Manhattan Corporation
Ciba Specialty Chemicals AG (ADR)
Eisai Co., Ltd.
First Data Corp.
First USA, Inc.
Hong Kong Telecommunications
Ltd. (ADR)
IMC Global, Inc.
Kimberly-Clark Corp.
McDonald's Corp.
Tenet Healthcare Corp.
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
Barbara B. Fraser, 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
