MERRILL LYNCH
ASSET GROWTH
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
February 28, 1998
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
Thomas R. Robinson, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Barbara G. 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
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 prospectus 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 -- 2/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MERRILL LYNCH ASSET GROWTH FUND, INC.
Worldwide
Investments as of
February 28, 1998
Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets+
United States 50.5%
United Kingdom 8.0
Japan 7.4
Germany 5.9
Italy 5.6
Sweden 5.5
Finland 3.4
France 2.7
Canada 2.3
Mexico 2.2
Denmark 1.7
Switzerland 1.2
Australia 0.9
Spain 0.9
Netherlands 0.8
Argentina 0.7
Indonesia 0.6
South Africa 0.6
Bahamas 0.6
Norway 0.4
Philippines 0.3
South Korea 0.0++
---------
Total 102.2%
=========
+ Total may not equal 100%.
++ Amount is less than 0.1%.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Chemicals 4.4%
Pharmaceuticals 3.9
Insurance 3.8
Retail Stores 3.7
Banking 3.7
Machinery 3.1
Electronics 2.8
Telecommunications 2.7
Aerospace & Defense 2.7
Automobile Parts 2.5
Country Percent
Ten Largest Holdings of of Net
(Equity Investments) Origin Assets
Great Lakes Chemical
Corporation US 1.6%
Roche Holding AG Switzerland 1.2
Imperial Chemical
Industries PLC
(Ordinary) UK 1.1
International Business
Machines Corp. US 1.1
UPM - Kymmene OY Finland 1.0
Henkel KGaA
(Preferred) Germany 1.0
Scor S.A. France 1.0
Danieli & C. Officine
Meccaniche S.p.A. Italy 1.0
Rio Tinto PLC UK 1.0
COMPAQ Computer
Corp. US 1.0
Merrill Lynch Asset Growth Fund, Inc., February 28, 1998
DEAR SHAREHOLDER
During the quarter ended February 28, 1998, investors focused on the
implications that the financial crisis in Asia would have on
economic growth worldwide. In the United States, sentiment
fluctuated between a variety of outlooks. At times, US stock and
bond prices reflected expectations that the slowdown in Asian
economic growth would lead to a sharp decline in US business
activity and, ultimately, a deflationary environment. During other
periods, US investors appeared to expect that the positive trends of
a moderately expanding economy, declining unemployment, enhanced
productivity and corporate profits growth would continue, unimpeded
by the developments in Asia. To date, there have been only a few
signs that Asia's troubles are influencing US economic activity.
Industrial activity is beginning to slow, but the slowdown has not
spread to other sectors of the economy.
The Federal Open Market Committee did not ease monetary policy at
its meeting in early February. Subsequently, in his Humphrey-Hawkins
testimony before Congress, Federal Reserve Board Chairman Alan
Greenspan indicated that monetary policy might remain steady for
some time. This raised concerns among US bond investors who had
expected imminent monetary policy easing. As 1998 progresses, it is
likely that investor focus will remain on developments in Asia,
their potential impact on the US economy, and the Federal Reserve
Board's response to them.
Portfolio Matters
As of February 28, 1998, the Fund's asset allocation was: foreign
stocks, 38% of net assets; US stocks, 38%; foreign bonds, 13%; US
bonds, 13%; and cash reserves, less than 1%.
During the first two months of the February quarter, we remained
cautious toward foreign stocks. Our continuing concerns over the
widening economic problems in Asia, including South Korea, Japan and
Southeast Asia, led us to reduce our allocation to foreign equities.
We eliminated the Fund's representation in Brazil since we regarded
the Brazilian market as the most vulnerable to a deterioration of
the situation in Asia, particularly if the Hong Kong currency peg to
the US dollar were to come under pressure.
By late January and early February 1998, evidence of stabilization
in a number of the Asian economies led us to become more positive in
our stance toward foreign equities. We raised the Fund's asset
allocation to foreign equities from 31% as of late January to 38% as
of February 28, 1998. We expanded the Fund's representation in Japan
following measures proposed by the government which we believe could
stabilize the financial structure and the economy. We established
new positions in The Bank of Tokyo -- Mitsubishi, Ltd., Ito-Yokado
Co., Ltd. and Makino Milling Machine Co., Ltd. We added to our
European representation through commitments in Nordbanken Holding
AB, Thomson -- CSF S.A., British Aerospace PLC and Devro PLC. We
also initiated a commitment in Sun International Hotels Ltd.
During the February quarter, we became more positive in our view of
US equities. This increasingly optimistic position led us to enlarge
our representation in US equities from 24% of net assets as of
November 30, 1997 to 38% of net assets as of February 28, 1998.
Consistent with our expectation of further US interest rate
declines, financial services equities continued to account for the
largest concentration of assets in the US stock portion of the Fund.
We also maintained significant representation in the areas of
healthcare and technology. Overall, we have maintained a balance
between the largest capitalization equities, such as AT&T Corp.,
Microsoft Corp., General Electric Company and Philip Morris
Companies, Inc., and secondary companies with strong fundamentals.
Examples of the latter include recently established positions in
Chancellor Media Corp., Gartner Group Inc., Orbital Sciences
Corporation and SmarTalk Teleservices, Inc.
In the foreign bond sector, the bulk of our weighting remains in
Europe, including Denmark, Germany, Italy, Sweden and the United
Kingdom. During January 1998, we became more optimistic in our
outlook for the US dollar. Consequently, we increased the size of
the hedges to include the equivalent of the full weighting in
European stocks and bonds and Japanese equities. In the US bond
sector, we expanded the average duration to 6.9 years as of February
28, 1998. Our optimistic stance toward US bonds reflected continued
indications of a lack of inflationary pressures in the US economy.
Increased evidence that the Federal budget deficit would turn into a
surplus during the current fiscal year was expected to continue to
reduce the supply of newly issued US Government securities relative
to demand.
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
Senior Vice President and
Portfolio Manager
April 3, 1998
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
5.25% and an account maintenance fee of 0.25% (but no distribution
fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date.
Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their
original cost. Dividends paid to each class of shares will vary
because of the different levels of account maintenance, distribution
and transfer agency fees applicable to each class, which are
deducted from the income available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent
Performance
Results*
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Asset Growth Fund, Inc. Class A Shares +9.18% +4.84% +29.15%
ML Asset Growth Fund, Inc. Class B Shares +8.11 +4.60 +24.62
ML Asset Growth Fund, Inc. Class C Shares +8.09 +4.57 +26.46
ML Asset Growth Fund, Inc. Class D Shares +8.96 +4.81 +29.97
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included.
Total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all
dividends and capital gains distributions at net asset value on the ex-dividend date. The Fund's inception dates are:
Class A and Class B Shares, 9/02/94, and Class C and Class D Shares, 10/21/94.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 +8.32% +2.63%
Inception (9/02/94)
through 12/31/97 +6.66 +4.95
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +7.28% +3.62%
Inception (9/02/94)
through 12/31/97 +5.59 +5.32
* 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 12/31/97 +7.16% +6.24%
Inception (10/21/94)
through 12/31/97 +6.31 +6.31
* 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 12/31/97 +8.02% +2.35%
Inception (10/21/94)
through 12/31/97 +7.17 +5.38
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Asset Growth Fund, Inc., February 28, 1998
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 2,300 Yacimientos Petroliferos Fiscales
S.A. (ADR)(a) $68,307 $72,738 0.7%
------------ ------------ --------
Total Common Stocks in Argentina 68,307 72,738 0.7
============ ============ ========
Australia Diversified 9,000 Broken Hill Proprietary Co., Ltd. 118,416 88,897 0.9
------------ ------------ --------
Total Common Stocks in Australia 118,416 88,897 0.9
============ ============ ========
Bahamas Hotels & Casinos 1,300 Sun International Hotels Ltd. 50,936 56,550 0.6
------------ ------------ --------
Total Common Stocks in the Bahamas 50,936 56,550 0.6
============ ============ ========
Canada Automobile Parts 1,300 Magna International, Inc. 66,479 78,650 0.8
Entertainment 2,700 +Imax Corporation 43,811 73,913 0.7
------------ ------------ --------
Total Common Stocks in Canada 110,290 152,563 1.5
============ ============ ========
Finland Diversified 3,900 +Amer Group Ltd. 69,340 77,880 0.8
Paper & Forest
Products 4,000 UPM - Kymmene OY 85,779 103,840 1.0
Pharmaceuticals 2,520 Orion - yhtymae OY (Class B) 68,840 79,372 0.8
Transportation 1,600 Finnlines OY 29,618 77,843 0.8
------------ ------------ --------
Total Common Stocks in Finland 253,577 338,935 3.4
============ ============ ========
France Electronics 2,200 Thomson - CSF S.A. 72,342 75,924 0.8
Reinsurance 2,000 Scor S.A. 76,549 103,369 1.0
Semiconductor
Capital 1,100 +SGS - Thomson Microelectronics N.V.
Equipment (NY Registered Shares) 65,275 83,738 0.9
------------ ------------ --------
Total Common Stocks in France 214,166 263,031 2.7
============ ============ ========
Germany Banking 900 Bayerische Vereinsbank AG 54,210 56,151 0.6
Chemicals 200 Henkel KGaA 8,891 12,280 0.1
1,600 Henkel KGaA (Preferred) 68,038 103,616 1.0
------------ ------------ --------
76,929 115,896 1.1
Machinery &
Equipment 100 Mannesmann AG 36,975 60,075 0.6
------------ ------------ --------
Total Common Stocks in Germany 168,114 232,122 2.3
============ ============ ========
Indonesia Telecommunications 4,290 P.T. Indonesian Satellite Corp.
(ADR)(a) 117,402 64,350 0.6
------------ ------------ --------
Total Common Stocks in Indonesia 117,402 64,350 0.6
============ ============ ========
Italy Apparel 2,000 Gucci Group N.V. (NY Registered
Shares) 142,007 83,875 0.8
Machinery 23,000 Danieli & C. Officine Meccaniche
S.p.A. 67,768 103,218 1.0
Publishing 7,000 Mondadori (Arnoldo) Editore S.p.A. 59,094 75,551 0.8
------------ ------------ --------
Total Common Stocks in Italy 268,869 262,644 2.6
============ ============ ========
Japan Banking &
Financial 4,000 Bank of Tokyo - Mitsubishi, Ltd.
(The) 60,434 56,758 0.6
Building &
Construction 10,000 Maeda Corp. 102,085 35,355 0.4
9,000 Matsushita Electric Works, Ltd. 97,733 89,893 0.9
12,000 Okumura Corp. 96,740 53,365 0.5
------------ ------------ --------
296,558 178,613 1.8
Consumer --
Electronics 5,000 Matsushita Electric Industrial
Co., Ltd. 78,495 72,929 0.7
Electronics 1,000 Sony Corporation 72,316 90,369 0.9
Insurance 6,000 Tokio Marine & Fire Insurance
Co., Ltd. 60,133 68,014 0.7
Machinery 9,000 Makino Milling Machine Co., Ltd. 64,593 63,496 0.6
Merchandising 3,000 Amway Japan, Ltd. 91,744 58,740 0.6
Retail Stores 1,000 Ito-Yokado Co., Ltd. 54,556 54,697 0.6
Tires & Rubber 4,000 Bridgestone Corporation 68,942 92,271 0.9
------------ ------------ --------
Total Common Stocks in Japan 847,771 735,887 7.4
============ ============ ========
Mexico Beverages 2,100 Panamerican Beverages, Inc.
(Class A) 67,285 76,519 0.8
Financial Services 2,150 +Grupo Financiero Bancomer S.A.
(Class B) (ADR)(a) 30,688 24,725 0.3
Multi-Industry 3,600 Grupo Carso, S.A. de C.V. (ADR)(a) 41,850 42,624 0.4
Telecommunications 1,450 Telefonos de Mexico, S.A. de C.V.
(ADR)(a) 70,106 73,497 0.7
------------ ------------ --------
Total Common Stocks in Mexico 209,929 217,365 2.2
============ ============ ========
Netherlands Oil --
International 1,400 Royal Dutch Petroleum Company
(NY Registered Shares) 75,635 76,038 0.8
------------ ------------ --------
Total Common Stocks in the
Netherlands 75,635 76,038 0.8
============ ============ ========
Norway Cruise Lines 10,000 Color Line ASA 37,601 36,337 0.4
------------ ------------ --------
Total Common Stocks in Norway 37,601 36,337 0.4
============ ============ ========
Philippines Beverages 17,620 San Miguel Corp. (Class B) 48,216 29,293 0.3
------------ ------------ --------
Total Common Stocks in the
Philippines 48,216 29,293 0.3
============ ============ ========
South Africa Diversified 7,400 Sasol Ltd. 86,342 63,215 0.6
------------ ------------ --------
Total Common Stocks in South
Africa 86,342 63,215 0.6
============ ============ ========
South Korea Engineering &
Construction 2,753 +Hyundai Engineering &
Construction Co., Ltd. (GDR)(b)(d) 35,336 1,900 0.0
------------ ------------ --------
Total Common Stocks in South Korea 35,336 1,900 0.0
============ ============ ========
Spain Petroleum 1,900 Repsol, S.A. (ADR)(a) 68,090 84,550 0.9
------------ ------------ --------
Total Common Stocks in Spain 68,090 84,550 0.9
============ ============ ========
Sweden Banking 3,200 ForeningsSparbanken AB 40,252 98,384 1.0
10,000 Nordbanken Holding AB 54,891 63,115 0.6
------------ ------------ --------
95,143 161,499 1.6
Chemicals 3,000 Perstorp AB (Class B) 56,249 53,241 0.6
Investment
Management 3,900 Bure Investment AB 32,910 57,272 0.6
Laser Components 1,600 Spectra - Physics AB (Class A) 48,844 32,495 0.3
Real Estate
Investment Trusts 4,600 Castellum AB 38,997 52,891 0.5
------------ ------------ --------
Total Common Stocks in Sweden 272,143 357,398 3.6
============ ============ ========
Switzerland Pharmaceuticals 10 Roche Holding AG 83,503 117,190 1.2
------------ ------------ --------
Total Common Stocks in Switzerland 83,503 117,190 1.2
============ ============ ========
United Kingdom Aerospace &
Defense 2,600 British Aerospace PLC 75,856 81,615 0.8
Automobile Parts 24,900 LucasVarity PLC 79,024 95,859 1.0
Beverages 8,208 Diageo PLC (e) 64,774 83,926 0.8
Chemicals 5,800 Imperial Chemical Industries PLC
(Ordinary) 70,683 105,775 1.1
Foods 4,900 Devro PLC 32,782 37,163 0.4
Mining 7,500 Rio Tinto PLC 114,244 101,180 1.0
Retail Stores 5,900 Dixons Group PLC 62,128 52,853 0.5
------------ ------------ --------
Total Common Stocks in the United
Kingdom 499,491 558,371 5.6
============ ============ ========
United States Aerospace 300 +Orbital Sciences Corporation 7,888 11,438 0.1
Aerospace &
Defense 1,825 AlliedSignal, Inc. 70,831 77,677 0.8
1,200 GenCorp, Inc. 34,074 32,700 0.3
650 Lockheed Martin Corporation 69,625 75,847 0.8
------------ ------------ --------
174,530 186,224 1.9
Airlines 850 +US Airways Group Inc. 37,075 53,816 0.6
Automobile Parts 1,400 Federal - Mogul Corp. 54,985 68,688 0.7
Automobile Rental
& Leasing 1,550 +Avis Rent A Car, Inc. 36,870 44,369 0.5
1,500 Hertz Corp. (Class A) 49,904 59,438 0.6
------------ ------------ --------
86,774 103,807 1.1
Banking 600 Bank of New York Company, Inc.
(The) 19,867 35,137 0.4
470 BankAmerica Corp. 27,759 36,425 0.4
1,400 First Union Corp. 69,099 73,762 0.7
------------ ------------ --------
116,725 145,324 1.5
Broadcast 1,360 +Chancellor Media Corp. 43,930 60,860 0.6
Broadcasting --
Cable 2,063 +Tele-Communications, Inc.
(Class A) 41,348 59,956 0.6
3,274 +Tele-Communications TCI Ventures
Group (Class A) 31,640 50,542 0.5
------------ ------------ --------
72,988 110,498 1.1
Chemicals 3,300 Great Lakes Chemical Corporation 158,853 160,462 1.6
Commercial
Services 1,200 +Gartner Group, Inc. (Class A) 40,872 47,850 0.5
Computer Services
& Software 510 +Cisco Systems, Inc. 29,226 33,596 0.3
850 Computer Associates
International, Inc. 28,455 40,056 0.4
1,000 International Business Machines
Corp. 80,178 104,437 1.1
720 +Microsoft Corp. 47,965 61,020 0.6
------------ ------------ --------
185,824 239,109 2.4
Computers 3,100 COMPAQ Computer Corp. 98,449 99,394 1.0
Consumer Products 1,200 Black & Decker Corporation 41,254 60,450 0.6
2,400 Dial Corp. 47,331 56,850 0.6
------------ ------------ --------
88,585 117,300 1.2
Containers 1,900 +Owens - Illinois, Inc. 56,851 72,912 0.7
Cruise Lines 1,000 Royal Caribbean Cruises Ltd. 46,157 54,750 0.5
Dental Supplies
& Equipment 700 DENTSPLY International Inc. 17,656 21,700 0.2
Electrical
Equipment 1,000 Illinova Corporation 29,949 27,750 0.3
1,000 Public Service Enterprise Group,
Inc. 31,468 32,250 0.3
------------ ------------ --------
61,417 60,000 0.6
Electronics 910 General Electric Company 65,675 70,752 0.7
1,800 +National Semiconductor Corp. 69,267 42,975 0.4
------------ ------------ --------
134,942 113,727 1.1
Energy 850 Texas Utilities Company 34,010 34,372 0.3
Entertainment 450 Walt Disney Company 49,555 50,372 0.5
Financial Services 450 American Express Company 24,608 40,528 0.4
820 MGIC Investment Corp. 32,022 60,424 0.6
------------ ------------ --------
56,630 100,952 1.0
Foods 800 +Keebler Foods Company 22,608 25,100 0.2
Industrial 1,700 COMSAT Corporation 52,045 56,844 0.6
Insurance 1,400 Allmerica Financial Corporation 85,884 86,100 0.9
1,300 Equitable Companies Inc. (The) 68,299 68,006 0.7
400 Hartford Life, Inc. (Class A) 14,050 17,225 0.2
1,000 Provident Companies, Inc. 34,296 36,000 0.4
1,150 Travelers Group Inc. 50,252 64,112 0.6
400 Travelers Property Casualty Corp.
(Class A) 16,206 16,400 0.1
400 UNUM Corporation 12,712 20,575 0.2
------------ ------------ --------
281,699 308,418 3.1
Leisure/Tourism 500 Brunswick Corporation 14,221 15,875 0.2
Machinery 850 Harnischfeger Industries, Inc. 35,905 30,069 0.3
1,600 Ingersoll-Rand Company 51,250 76,200 0.8
600 SPX Corp. 33,940 44,812 0.4
------------ ------------ --------
121,095 151,081 1.5
Medical Services 2,900 +HEALTHSOUTH Corp. 76,673 78,300 0.8
Natural Gas 800 El Paso Natural Gas Co. 43,193 53,100 0.5
720 Enron Corp. 28,369 33,840 0.4
------------ ------------ --------
71,562 86,940 0.9
Office Equipment 640 Danka Business Systems PLC (ADR)
(a)(c) 31,542 11,440 0.1
Oil Services 750 Schlumberger Ltd. 40,216 56,531 0.6
400 +Smith International, Inc. 22,576 21,300 0.2
------------ ------------ --------
62,792 77,831 0.8
Petroleum 1,400 Unocal Corp. 49,195 52,762 0.5
Pharmaceuticals 600 Bristol-Myers Squibb Co. 57,128 60,112 0.6
800 Pfizer Inc. 58,966 70,800 0.7
400 Warner-Lambert Co. 55,049 58,500 0.6
------------ ------------ --------
171,143 189,412 1.9
Railroads 500 Burlington Northern Santa Fe Corp. 41,528 49,812 0.5
Real Estate
Investment 1,000 Glenborough Realty Trust 25,000 28,500 0.3
Trusts 600 Starwood Hotels & Resorts 27,000 33,937 0.3
------------ ------------ --------
52,000 62,437 0.6
Retail Stores 2,010 Rite Aid Corporation 35,356 65,074 0.7
1,700 +Safeway, Inc. 49,747 59,287 0.6
1,350 Sears, Roebuck & Co. 61,021 71,634 0.7
1,400 Wal-Mart Stores, Inc. 57,672 64,837 0.6
------------ ------------ --------
203,796 260,832 2.6
Software --
Computer 750 +BMC Software, Inc. 34,130 57,375 0.6
Telecommunications 400 +Globalstar Telecommunications Ltd. 23,568 27,100 0.3
800 +SmarTalk Teleservices, Inc. 22,716 26,850 0.2
2,300 +WorldCom, Inc. 64,415 87,831 0.9
------------ ------------ --------
110,699 141,781 1.4
Tobacco 1,800 Philip Morris Companies, Inc. 78,644 78,187 0.8
Travel & Lodging 1,100 Carnival Corporation (Class A) 36,514 64,762 0.7
Utilities --
Communications 450 AT&T Corp. 28,786 27,394 0.3
Waste Management 1,000 +USA Waste Services, Inc. 41,063 41,625 0.4
------------ ------------ --------
Total Common Stocks in the United
States 3,206,431 3,751,763 37.7
============ ============ ========
Total Investments in Common Stocks 6,840,565 7,561,137 76.0
============ ============ ========
<CAPTION>
Face
Amount Fixed-Income Securities
<S> <C> <C> <C> <C> <C> <C>
Canada Foreign
Government C$ 100,000 Canadian Government Bonds, 7% due
Obligations 12/01/2006 75,972 77,643 0.8
------------ ------------ --------
Total Fixed-Income Securities in
Canada 75,972 77,643 0.8
============ ============ ========
Denmark Foreign
Government Dkr 1,000,000 Danish Government Bonds, 7% due
Obligations 11/15/2007 159,760 163,315 1.7
------------ ------------ --------
Total Fixed-Income Securities in
Denmark 159,760 163,315 1.7
============ ============ ========
Germany Foreign
Government Bundesrepublik Deutschland:
Obligations DM 225,000 6.50% due 10/14/2005 142,066 136,967 1.4
165,000 6% due 7/04/2007 96,503 98,014 1.0
130,000 6% due 6/20/2016 72,326 77,410 0.8
75,000 Treuhandanstalt, 6.875% due
6/11/2003 49,876 45,722 0.4
------------ ------------ --------
Total Fixed-Income Securities in
Germany 360,771 358,113 3.6
============ ============ ========
Italy Foreign
Government Lit 450,000,000 Buoni Poliennali del Tesoro,
Obligations 8.50% due 8/01/2004 292,885 296,569 3.0
------------ ------------ --------
Total Fixed-Income Securities in
Italy 292,885 296,569 3.0
============ ============ ========
Sweden Foreign
Government Skr 1,300,000 Government of Sweden, 8% due
Obligations 8/15/2007 185,475 192,624 1.9
------------ ------------ --------
Total Fixed-Income Securities in
Sweden 185,475 192,624 1.9
United Kingdom Foreign
Government [POUND] 135,000 UK Treasury Gilt, 7.25% due
Obligations 12/07/2007 223,453 240,772 2.4
------------ ------------ --------
Total Fixed-Income Securities in
the United Kingdom 223,453 240,772 2.4
============ ============ ========
United States US
Government US$ 395,000 US Treasury Bonds, 6.625% due
Obligations 2/15/2027 424,577 429,871 4.3
US Treasury Notes:
500,000 6% due 8/15/1999 501,367 503,045 5.1
110,000 6.50% due 5/31/2002 110,739 113,609 1.1
125,000 6.25% due 2/15/2007 124,910 129,746 1.3
95,000 6.625% due 5/15/2007 96,174 101,204 1.0
------------ ------------ --------
Total Fixed-Income Securities in
the United States 1,257,767 1,277,475 12.8
============ ============ ========
Total Investments in Fixed-Income
Securities 2,556,083 2,606,511 26.2
============ ============ ========
Total Investments $9,396,648 10,167,648 102.2
============
Unrealized Depreciation on Forward Foreign Exchange Contracts* (27,035) (0.3)
Liabilities in Excess of Other Assets (192,667) (1.9)
------------ --------
Net Assets $9,947,946 100.0%
============ ========
(a) American Depositary Receipts (ADR).
(b) Global Depositary Receipts (GDR).
(c) Consistent with the general policy of the Securities and Exchange
Commission, the nationality or domicile of an issuer for determination
of foreign issuer status may be (i) the country under whose laws the
issuer is organized, (ii) the country in which the issuer's securities are
principally traded, or (iii) the country in which the issuer derives a
significant proportion (at least 50%) of its revenue or profits from goods
produced and sold, investments made, or services performed in the
country, or in which at least 50% of the assets of the issuer are situated.
(d) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(e) Diageo PLC was the result of a merger between Grand Metropolitan PLC
and Guiness PLC.
+ Non-income producing security.
* Forward foreign exchange contracts as of February 28, 1998 were
as follows:
Unrealized
Foreign Appreciation
Currency Expiration (Depreciation)
Purchased Date (Note 1b)
Frf 600,000 April 1998 $408
Pta 25,000,000 March 1998 (1,221)
------------
Total (US$Commitment -- $262,276) (813)
------------
Foreign Currency Sold
A$ 125,000 March 1998 (581)
C$ 320,000 March 1998 470
Chf 160,000 April 1998 (1,030)
DM 1,220,000 April 1998 (3,589)
Dkr 1,100,000 April 1998 (784)
Fim 1,800,000 April 1998 (1,232)
Frf 2,000,000 April 1998 (1,576)
[POUND] 455,000 March 1998 (2,070)
Lit 950,000,000 March 1998 (20)
Pta 37,100,000 March 1998 386
Skr 4,200,000 April 1998 (2,376)
(yen) 90,000,000 April 1998 (13,820)
------------
Total (US$ Commitment -- $4,648,661) (26,222)
------------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts -- Net $(27,035)
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
As of February 28, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $9,396,648) (Note 1a) $10,167,648
Foreign cash (Note 1c) 9
Receivables:
Securities sold $101,104
Interest 34,927
Capital shares sold 14,549
Dividends 9,480
Forward foreign exchange contracts (Note 1b) 345 160,405
------------
Deferred organization expenses (Note 1f) 44,460
Prepaid registration fees and other assets (Note 1f) 33,671
------------
Total assets 10,406,193
------------
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1b) 27,035
Payables:
Securities purchased 164,177
Capital shares redeemed 44,710
Distributor (Note 2) 6,081
Forward foreign exchange contracts (Note 1b) 885 215,853
------------
Accrued expenses and other liabilities 215,359
------------
Total liabilities 458,247
------------
Net Assets: Net assets $9,947,946
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $18,058
Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 68,887
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 5,466
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 3,059
Paid-in capital in excess of par 9,150,464
Accumulated investment loss -- net (3,948)
Accumulated realized capital losses on investments and foreign currency
transactions -- net (37,378)
Unrealized appreciation on investments and foreign currency transactions
-- net 743,338
------------
Net assets $9,947,946
============
Net Asset Value: Class A -- Based on net assets of $1,883,518 and 180,584 shares outstanding $10.43
============
Class B -- Based on net assets of $7,177,444 and 688,866 shares outstanding $10.42
============
Class C -- Based on net assets of $566,280 and 54,661 shares outstanding $10.36
============
Class D -- Based on net assets of $320,704 and 30,585 shares outstanding $10.49
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1998
<S> <C> <C> <C>
Investment Interest and discount earned $113,133
Income Dividends (net of $1,907 foreign witholding tax) 47,185
(Notes 1d & 1e): ------------
Total income 160,318
------------
Expenses: Investment advisory fees (Note 2) $40,137
Account maintenance and distribution fees -- Class B (Note 2) 39,959
Registration fees (Note 1f) 31,786
Professional fees 28,222
Accounting services (Note 2) 19,500
Printing and shareholder reports 17,973
Transfer agent fees -- Class B (Note 2) 11,708
Custodian fees 11,685
Amortization of organization expenses (Note 1f) 11,449
Directors' fees and expenses 6,661
Pricing fees 4,234
Account maintenance and distribution fees -- Class C (Note 2) 2,791
Transfer agent fees -- Class A (Note 2) 2,383
Transfer agent fees -- Class C (Note 2) 882
Transfer agent fees -- Class D (Note 2) 484
Account maintenance fees -- Class D (Note 2) 458
Other 7,679
------------
Total expenses before reimbursement 237,991
Reimbursement of expenses (Note 2) (40,137)
------------
Total expenses after reimbursement 197,854
------------
Investment loss -- net (37,536)
------------
Realized & Realized gain (loss) from:
Unrealized Investments -- net 603,622
Gain (Loss) on Foreign currency transactions -- net (237,566) 366,056
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Net Investments -- net (351,437)
(Notes 1b, 1c, Foreign currency transactions -- net 40,490 (310,947)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 55,109
------------
Net Increase in Net Assets Resulting from Operations $17,573
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the
Six Months For the
Ended Year Ended
Feb. 28, Aug. 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <C> <C> <C>
Operations: Investment loss -- net $(37,536) $(82,956)
Realized gain on investments and foreign currency transactions -- net 366,056 1,716,633
Change in unrealized appreciation on investments and foreign currency
transactions -- net (310,947) 562,370
------------ ------------
Net increase in net assets resulting from operations 17,573 2,196,047
------------ ------------
Dividends & Investment income -- net:
Distributions to Class A (52,967) (1,155)
Shareholders Class B (156,249) (3,263)
(Note 1g): Class C (9,893) (248)
Class D (8,230) (286)
In excess of investment income -- net:
Class A -- (19,884)
Class B -- (56,180)
Class C -- (4,268)
Class D -- (4,925)
Realized gain on investments -- net:
Class A (228,810) --
Class B (1,043,599) --
Class C (67,660) --
Class D (42,934) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (1,610,342) (90,209)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital share
Transactions transactions 198,296 (2,007,510)
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (1,394,473) 98,328
Beginning of period 11,342,419 11,244,091
------------ ------------
End of period* $9,947,946 $11,342,419
============ ============
* Undistributed (accumulated) investment income (loss) -- net $(3,948) $260,927
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following per
share data and Class A
ratios have been For the For the
derived from Six Period
information provided Months For the Sept. 2,
in the financial Ended Year Ended 1994+ to
statements. Feb. 28, August 31, Aug. 31,
1998++ 1997++ 1996 1995
Increase (Decrease)
in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $12.28 $10.13 $9.90 $10.00
Performance: Investment income
(loss) -- net .01 .01 .12 .16
Realized and
unrealized gain
(loss) on investments
and foreign currency
transactions -- net .01 2.30 .34 (.22)
---------- ---------- ---------- ----------
Total from investment
operations .02 2.31 .46 (.06)
---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income --
net (.35) (.01) (.16) (.04)
In excess of
investment income --
net -- (.15) (.07)
Realized gain on
investments -- net (1.52) -- -- --
---------- ---------- ---------- ----------
Total dividends and
distributions (1.87) (.16) (.23) (.04)
---------- ---------- ---------- ----------
Net asset value, end
of period $10.43 $12.28 $10.13 $9.90
========== ========== ========== ==========
Total
Investment Based on net asset
Return:** value per share .83%++++ 23.06% 4.71% (.59%)++++
========== ========== ========== ==========
Ratios to Expenses, net of
Average Net reimbursement 2.87%* 2.79% 2.47% 2.47%
Assets: ========== ========== ========== ==========
Expenses 3.62%* 3.61% 3.75% 3.31%*
========== ========== ========== ==========
Investment income
(loss) -- net .14%* .13% 1.16% 1.46%*
========== ========== ========== ==========
Supplemental Net assets, end of
Data: period (in thousands) $1,884 $1,803 $1,352 $1,677
========== ========== ========== ==========
Portfolio turnover 47.69% 128.28% 120.43% 42.50%
========== ========== ========== ==========
Average commission
rate paid+++ $.0271 $.0215 $.0184 --
========== ========== ========== ==========
<CAPTION>
The following per
share data and Class B
ratios have been For the For the
derived from Six Period
information provided Months For the Sept. 2,
in the financial Ended Year Ended 1994+ to
statements. Feb. 28, August 31, Aug. 31,
1998++ 1997++ 1996 1995
Increase (Decrease)
in Net Asset Value: <C> <C> <C> <C>
Per Share Net asset value, $12.20 $10.09 $9.83 $10.00
Operating beginning of period ---------- ---------- ---------- ----------
Performance: Investment income (.05) (.11) .01 .05
(loss) -- net
Realized and .02 2.30 .35 (.21)
unrealized gain ---------- ---------- ---------- ----------
(loss) on investments
and foreign currency
transactions -- net
Total from investment
operations (.03) 2.19 .36 (.16)
---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income --
net (.23) --+++++ (.07) (.01)
In excess of
investment income -- (.08) (.03) --
net
Realized gain on
investments -- net (1.52) -- -- --
---------- ---------- ---------- ----------
Total dividends and
distributions (1.75) (.08) (.10) (.01)
---------- ---------- ---------- ----------
Net asset value, end
of period $10.42 $12.20 $10.09 $9.83
========== ========== ========== ==========
Total
Investment Based on net asset
Return:** value per share .31%++++ 21.81% 3.65% (1.60)++++
========== ========== ========== ==========
Ratios to Expenses, net of
Average Net reimbursement 3.89%* 3.84% 3.50% 3.50%*
Assets: ========== ========== ========== ==========
Expenses 4.64%* 4.67% 4.78% 4.37%
========== ========== ========== ==========
Investment income
(loss) -- net (.90%)* (.94%) .13% .43%
========== ========== ========== ==========
Supplemental Net assets, end of
Data: period (in thousands) $7,177 $8,403 $8,141 $11,835
========== ========== ========== ==========
Portfolio turnover 47.69% 128.28% 120.43% 42.50%
========== ========== ========== ==========
Average commission
rate paid+++ $.0271 $.0215 $.0184 --
========== ========== ========== ==========
<CAPTION>
The following per
share data and Class C
ratios have been For the For the
derived from Six Period
information provided Months For the Sept. 2,
in the financial Ended Year Ended 1994+ to
statements. Feb. 28, August 31, Aug. 31,
1998++ 1997++ 1996 1995
Increase (Decrease)
in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $12.13 $10.05 $9.82 $9.85
Performance: Investment income ---------- ---------- ---------- ----------
(loss) -- net (.05) (.11) (.04) .04
Realized and
unrealized gain
(loss) on investments
and foreign currency
transactions -- net .02 2.28 .39 (.05)
---------- ---------- ---------- ----------
Total from investment
operations (.03) 2.17 .35 (.01)
---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income --
net (.22) --+++++ (.08) (.02)
In excess of
investment income
net -- (.09) (.04) --
Realized gain on
investments -- net (1.52) -- -- --
---------- ---------- ---------- ----------
Total dividends and
distributions (1.74) (.09) (.12) (.02)
---------- ---------- ---------- ----------
Net asset value, end
of period $10.36 $12.13 $10.05 $9.82
========== ========== ========== ==========
Total
Investment Based on net asset
Return:** value per share .34%++++ 21.71% 3.61% (.05%)++++
========== ========== ========== ==========
Ratios to Expenses, net of
Average Net reimbursement 3.92%* 3.86% 3.52% 3.51%*
Assets: ========== ========== ========== ==========
Expenses 4.67%* 4.68% 4.81% 4.58%*
========== ========== ========== ==========
Investment income
(loss) -- net (.92%)* (.94%) .09% .51%*
========== ========== ========== ==========
Supplemental Net assets, end of
Data: period (in thousands) $566 $572 $438 $735
========== ========== ========== ==========
Portfolio turnover 47.69% 128.28% 120.43% 42.50%
========== ========== ========== ==========
Average commission
rate paid+++ $.0271 $.0215 $.0184 --
========== ========== ========== ==========
<CAPTION>
The following per
share data and Class D
ratios have been For the For the
derived from Six Period
information provided Months For the Sept. 2,
in the financial Ended Year Ended 1994+ to
statements. Feb. 28, August 31, Aug. 31,
1998++ 1997++ 1996 1995
Increase (Decrease)
in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $12.28 $10.11 $9.88 $9.86
Performance: Investment income ---------- ---------- ---------- ----------
(loss) -- net (.01) (.02) .08 .10
Realized and
unrealized gain
(loss) on investments
and foreign currency
transactions -- net .03 2.30 .36 (.04)
---------- ---------- ---------- ----------
Total from investment
operations .02 2.28 .44 .06
---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income --
net (.29) (.01) (.15) (.04)
In excess of
investment income
net -- (.10) (.06) --
Realized gain on
investments -- net (1.52) -- -- --
---------- ---------- ---------- ----------
Total dividends and
distributions (1.81) (.11) (.21) (.04)
---------- ---------- ---------- ----------
Net asset value, end
of period $10.49 $12.28 $10.11 $9.88
========== ========== ========== ==========
Total
Investment Based on net asset
Return:** value per share .80++++ 22.66% 4.51% .59%++++
========== ========== ========== ==========
Ratios to Expenses, net of
Average Net reimbursement 3.10%* 3.05% 2.72% 2.75%
Assets: ========== ========== ========== ==========
Expenses 3.85%* 3.92% 4.00% 4.32%
========== ========== ========== ==========
Investment income
(loss) -- net (.17%)* (.21%) .93% 1.43%*
========== ========== ========== ==========
Supplemental Net assets, end of
Data: period (in thousands) $321 $564 $1,313 $1,697
========== ========== ========== ==========
Portfolio turnover 47.69% 128.28% 120.43% 42.50%
========== ========== ========== ==========
Average commission
rate paid+++ $.0271 $.0215 $.0184 --
========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ 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.
++++ Aggregate total investment return.
+++++ Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., February 28, 1998
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 Pricing sm System. Shares of Class A and
Class D are sold with a front-end sales charge. Shares of Class B
and Class C may be subject to a contingent deferred sales charge.
All classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that
Class B, Class C and Class D Shares bear certain expenses related to
the account maintenance of such shares, and Class B and Class C
Shares also bear certain expenses related to the distribution of
such shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Portfolio securities which are
traded on stock exchanges are valued at the last sale price on the
exchange on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Securities traded in the
over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded
on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of 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 quotations are not available
are valued at 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 financial 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 and call options. When the Fund writes
an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current
market value of the option written. When a security is purchased or
sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the 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 of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) Deferred organization expenses and prepaid registration
fees -- Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid
by the Fund are recorded on the ex-dividend dates. Dividends in
excess of net investment income are due primarily to differing tax
treatments for foreign 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, 1998, MLAM earned fees of $40,137, all of
which was voluntarily waived.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended February 28, 1998, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $2 $25
Class D $208 $3,083
For the six months ended February 28, 1998, MLPF&S received
contingent deferred sales charges of $12,941 and $169 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $825 in commissions on the execution of
portfolio security transactions for the Fund for the six months
ended February 28, 1998.
During the six months ended February 28, 1998, the Fund paid
Merrill Lynch Security Pricing Service, an affiliate of MLPF&S,
$95 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, 1998 were $4,762,866 and
$5,910,031, respectively.
Net realized gains (losses) for the six months ended February 28,
1998 and net unrealized gains (losses) as of February 28, 1998 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $603,646 $771,000
Short-term investments (24) --
Forward foreign exchange contracts (198,919) (27,035)
Foreign currency transactions (38,647) (627)
---------- ----------
Total $366,056 $743,338
========== ==========
As of February 28, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $771,000, of which $1,265,877 related
to appreciated securities and $494,877 related to depreciated
securities. At February 28, 1998, the aggregate cost of investments
for Federal income tax purposes was $9,396,648.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions were $198,296 and $(2,007,510) for the six months ended
February 28, 1998 and for the year ended August 31, 1997.
Class A Shares for the Six Months Dollar
Ended February 28, 1998 Shares Amount
Shares sold 30,347 $344,431
Shares issued to shareholders in
reinvestment of dividends
and distributions 26,551 265,240
------------ ------------
Total issued 56,898 609,671
Shares redeemed (23,209) (268,905)
------------ ------------
Net increase 33,689 $340,766
============ ============
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 B Shares for the Six Months Dollar
Ended February 28, 1998 Shares Amount
Shares sold 98,214 $1,101,353
Shares issued to shareholders
in reinvestment of dividends and
distributions 94,498 944,985
------------ ------------
Total issued 192,712 2,046,338
Automatic conversion of shares (1,324) (14,446)
Shares redeemed (191,528) (2,046,829)
------------ ------------
Net decrease (140) $(14,937)
============ ============
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 C Shares for the Six Months Dollar
Ended February 28, 1998 Shares Amount
Shares sold 8,929 $92,790
Shares issued to shareholders in
reinvestment of dividends
and distributions 7,429 73,920
------------ ------------
Total issued 16,358 166,710
Shares redeemed (8,845) (96,059)
------------ ------------
Net increase 7,513 $70,651
============ ============
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 D Shares for the Six Months Dollar
Ended February 28, 1998 Shares Amount
Shares sold 7,730 $87,720
Automatic conversion of shares 1,315 14,446
Shares issued to shareholders in
reinvestment of dividends
and distributions 3,808 38,266
------------ ------------
Total issued 12,853 140,432
Shares redeemed (28,190) (338,616)
------------ ------------
Net decrease (15,337) $(198,184)
============ ============
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)
============ ============
Equity Portfolio Changes
For the Quarter Ended February 28, 1998
Additions
AT&T Corp.
Allmerica Financial Corporation
Bank of Tokyo - Mitsubishi, Ltd. (The)
British Aerospace PLC
COMSAT Corporation
Chancellor Media Corp.
Devro PLC
*Diageo PLC (Class B)
Equitable Companies Inc. (The)
Gartner Group, Inc. (Class A)
Globalstar Telecommunications Ltd.
Great Lakes Chemical Corporation
Illinova Corporation
Ito - Yokado Co., Ltd.
Keebler Foods Company
Lockheed Martin Corporation
Makino Milling Machine Co., Ltd.
Nordbanken Holding AB
Orbital Sciences Corporation
Philip Morris Companies, Inc.
Public Service Enterprise Group, Inc.
Royal Dutch Petroleum Company
(NY Registered Shares)
SmarTalk Teleservices, Inc.
Sun International Hotels Ltd.
Texas Utilities Company
Thomson - CSF S.A.
USA Waste Services, Inc.
Wal-Mart Stores, Inc.
Walt Disney Company
Deletions
De Beers Consolidated Mines Ltd. (ADR)
*Diageo PLC (Class B)
Dresser Industries, Inc.
Edison International
Gulf Canada Resources Ltd.
Lilly (Eli) and Co.
Mitsui - Soko Co., Ltd.
Novartis AG (ADR)
OMI Corp.
Oracle Corp.
Prentiss Properties Trust
Quantum Corp.
Siemens AG
Sony Corporation (ADR)
Sunbeam Corp.
Telecomunicatoes Brasileiras S.A. -
Telebras (ADR)
Tricon Global Restaurants, Inc.
Uniao de Bancos Brasileiros S.A. (GDR)
United Technologies Corp.
*Added and deleted in the same quarter.
