MERRILL LYNCH
ASSET GROWTH
FUND, INC.
FUND LOGO
Annual Report
August 31, 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
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 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
Printed on post-consumer recycled paper
MERRILL LYNCH ASSET GROWTH FUND, INC.
Worldwide
Investments as of
August 31, 1998
Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States* 51.7%
Sweden 10.4
United Kingdom 8.0
Germany 7.9
France 6.5
Japan 4.4
Finland 2.3
Italy 2.0
Canada 1.6
Spain 1.3
Switzerland 1.3
Netherlands 1.1
Singapore 0.2
Ireland 0.4
------
Total 99.1%
======
[FN]
*Includes investments in short-term securities.
++Total may not equal 100%.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Banking 4.8%
Insurance 4.7
Retail Stores 3.7
Electronics 2.9
Automobile Parts 2.7
Telecommunications 2.1
Machinery 2.0
Pharmaceuticals 2.0
Chemicals 1.8
Real Estate Investment Trusts 1.8
Country Percent
Ten Largest Holdings of of Net
(Equity Investments) Origin Assets
AXA-UAP S.A. France 1.3%
Bayerische
Vereinsbank AG Germany 1.2
Scor S.A. France 1.2
Wolters Kluwer N.V. Netherlands 1.1
Thomson-CSF S.A. France 1.1
Union Bank of
Switzerland Switzerland 1.1
Elf Aquitaine S.A. France 1.0
British Aerospace PLC UK 1.0
Diageo PLC UK 1.0
Banca di Roma S.p.A. Italy 0.9
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
DEAR SHAREHOLDER
Fiscal Year in Review
For the year ended August 31, 1998, total returns of Merrill Lynch
Asset Growth Fund, Inc.'s Class A, Class B, Class C and Class D
Shares were -7.49%, -8.45%, -8.47% and -7.66%, 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 3-5 of
this report to shareholders.)
Throughout the year ended August 31, 1998, the primary negative
influence on the Fund's performance was foreign equities and, in
particular, companies based in the emerging markets of Asia and
Latin America. The intensifying economic crisis in Asia led to
weakness in all emerging markets during the fiscal year. While the
Fund's exposure to these markets was significantly reduced by the
end of the 12-month period, our emerging markets equity commitments
had a negative impact on overall performance. Also, although the
worsening economic situation in Japan led to weakness in Japanese
equities, US and European equities produced positive returns, even
with market weakness during the latter stages of the period. The US
and foreign bond commitments also produced favorable returns.
Portfolio Matters
As of August 31, 1998, the asset allocation for Merrill Lynch Asset
Growth Fund, Inc. was: foreign stocks, 32% of net assets; US stocks,
28%; US bonds, 22%; foreign bonds, 15%; and cash reserves, 3%.
During the three months ended August 31, 1998, increasingly
uncertain global economic prospects led us to reduce the Fund's
equity exposure in favor of bonds. The Fund's representation in
foreign equities was reduced from 44% of net assets on May 31, 1998
to 32% by August 31, 1998. This allowed us to substantially decrease
our commitments to emerging markets through the elimination of our
remaining positions in Latin America and the sale of positions in
P.T. Indonesian Satellite Corp. and Hyundai Engineering &
Construction Co., Ltd. in Asia. The Fund's remaining foreign equity
commitments are mostly in European equities, since we continue to
regard long-term economic prospects there as favorable, offering
continuing potential for economic restructuring. During the quarter,
we also maintained a commitment in Japanese equities, although our
position continues to be underweighted relative to the benchmark
Morgan Stanley Europe Australasia Far East Index.
During the quarter ended August 31, 1998, we modestly reduced the
Fund's US equity exposure from 31% of net assets to 28%. It is our
opinion that consumer spending will continue to be the strongest
sector of the US economy, thereby keeping consumer cyclical stocks
the largest sector. We continued to allocate substantial funds to
the financial and consumer staples sectors, emphasizing companies
with limited exposure to economies with uncertain prospects, and
favoring those firms that are more dependent on domestic sources of
revenue.
Throughout the three-month period ended August 31, 1998, the increas-
ing probability of a slowdown in global economic activity led us
to expand the Fund's fixed-income representation. The Fund's
US bond commitments were increased from 8% of net assets to
22% during the quarter. We also extended the average duration
of the Fund's US fixed-income holdings from 5.3 years to 8.0
years. While the major portion of the Fund's fixed-income
assets remained allocated to US Treasury obligations, we also
took advantage of an unusually large yield differential between US
Treasury and Federal National Mortgage Association (FNMA)
obligations to initiate commitments in FNMA securities during the
August quarter.
During the August quarter, we slightly increased the Fund's exposure
to foreign bonds from 13% of net assets to 15%. We maintained
representation in German and UK obligations, given the appeal of
these markets as safe havens during the current period of economic
uncertainty. We also retained a position in Swedish bonds in view of
the attractive yields offered by these obligations. Finally, our
expectation of renewed strength in the US dollar led us to continue
to hedge the equivalent of the full weighting in European and
Japanese stocks and European bonds back into US dollars.
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,
(Arthur Zeikel)
Arthur Zeikel
President
(Thomas R. Robinson)
Thomas R. Robinson
Senior Vice President and
Portfolio Manager
October 2, 1998
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the ex-dividend date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
PERFORMANCE DATA (concluded)
Total Return
Based on a
$10,000 Investment
A line graph depicting the growth of an investment in the
Fund's Class A 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** 8/98
ML Asset Growth Fund++--
Class A Shares* $ 9,475 $11,228
ML Asset Growth Fund++--
Class B Shares* $10,000 $11,280
MSCI World Index++++ $10,000 $15,463
Salomon Brothers World
Government Index (Weighted)+++ $10,000 $13,230
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** 8/98
ML Asset Growth Fund++--
Class C Shares* $10,000 $11,535
ML Asset Growth Fund++--
Class C Shares* $ 9,475 $11,282
MSCI World Index++++ $10,000 $15,447
Salomon Brothers World
Government Index (Weighted)+++ $10,000 $12,927
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Asset Growth Fund, Inc. invests in a portfolio of US and foreign
equity, debt and money market securities.
++++This unmanaged market capitalization-weighted Index is comprised
of a representative sampling of stocks of large-, medium-, and small-
capitalization companies in 22 countries, including the United
States. The starting date for the Index in the Class A & Class B
Shares graph is 8/31/94 and in the Class C & Class D Shares graph is
10/31/94.
+++This unmanaged market capitalization-weighted Index is comprised
of government bonds from major markets, including the United States.
The starting date for the Index in the Class A & Class B Shares
graph is 8/31/94 and in the Class C & Class D Shares graph is
10/31/94.
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 6/30/98 +5.45% -0.09%
Inception (9/02/94)
through 6/30/98 +8.34 +6.82
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/98 +4.36% +0.75%
Inception (9/02/94)
through 6/30/98 +7.23 +7.01
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/98 +4.41% +3.51%
Inception (10/21/94)
through 6/30/98 +7.94 +7.94
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/98 +5.20% -0.32%
Inception (10/21/94)
through 6/30/98 +8.80 +7.23
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Asset Growth Fund, Inc. Class A Shares -7.49% -12.04% +18.50%
ML Asset Growth Fund, Inc. Class B Shares -8.45 -12.27 +13.74
ML Asset Growth Fund, Inc. Class C Shares -8.47 -12.34 +15.35
ML Asset Growth Fund, Inc. Class D Shares -7.66 -12.08 +19.06
<FN>
*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 & Class B Shares, 9/02/94 and
Class C & Class D Shares, 10/21/94.
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Value Percent of
COUNTRY Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Canada Automobile Parts 1,200 Magna International, Inc. $ 68,256 $ 71,925 0.8%
Telecommunications 2,700 Teleglobe Inc. 73,086 66,150 0.8
Total Common Stocks in Canada 141,342 138,075 1.6
Finland Diversified 3,900 ++Amer Group Ltd. 69,341 59,634 0.7
Insurance 900 Sampro Insurance Company Ltd.
(Class A) 41,729 32,726 0.4
Pharmaceuticals 2,520 Orion-Yhtymae Oyj (Class B) 68,840 61,089 0.7
Real Estate 5,990 ++Sponda Oyj 42,205 40,770 0.5
Investment Trusts
Transportation 100 Finnlines OY 1,851 3,524 0.0
Total Common Stocks in Finland 223,966 197,743 2.3
France Electronics 2,800 Thomson-CSF S.A. 95,316 94,273 1.1
Insurance 1,000 AXA-UAP S.A. 113,313 115,049 1.3
Machinery & Equipment 3,100 ++Alstom 105,583 72,380 0.8
Oil & Related 900 Elf Aquitaine S.A. 106,779 89,079 1.0
Reinsurance 1,600 Scor S.A. 61,312 100,161 1.2
Semiconductor Capital 1,300 ++STMicroelectronics N.V.
Equipment (NY Registered Shares) 79,896 67,844 0.8
Water Utilities 150 Vivendi S.A. 30,103 29,896 0.3
Total Common Stocks in France 592,302 568,682 6.5
Germany Banking 1,400 Bayerische Vereinsbank AG 91,254 106,837 1.2
Chemicals 900 Henkel KGaA (Preferred) 38,361 72,000 0.8
Total Common Stocks in Germany 129,615 178,837 2.0
Ireland Banking 2,100 Bank of Ireland (The) 44,433 33,270 0.4
Total Common Stocks in Ireland 44,433 33,270 0.4
Italy Banking 41,000 ++Banca di Roma S.p.A. 89,648 79,192 0.9
Machinery 9,300 Danieli & C. Officine Meccaniche
S.p.A. 32,247 31,762 0.3
Publishing 7,000 Mondadori (Arnoldo) Editore S.p.A. 59,094 66,699 0.8
Total Common Stocks in Italy 180,989 177,653 2.0
Japan Banking & Financial 7,000 Bank of Tokyo-Mitsubishi, Ltd. (The) 87,695 49,483 0.6
Computers 3,000 Tokyo Electron Limited 101,795 69,061 0.8
Consumer--Electronics 4,000 Matsushita Electric Industrial
Co., Ltd. 61,692 57,515 0.6
Electronics 1,000 Sony Corporation 72,316 73,027 0.8
Insurance 5,000 Tokio Marine & Fire Insurance Co., Ltd. 50,368 41,153 0.5
Machinery 1,000 Makino Milling Machine Co., Ltd. 7,377 5,879 0.1
Machinery & Equipment 4,000 Minebea Co., Ltd. 42,179 40,572 0.5
Retail Stores 1,000 Ito-Yokado Co., Ltd. 54,556 46,536 0.5
Total Common Stocks in Japan 477,978 383,226 4.4
Netherlands Broadcasting & 600 Wolters Kluwer N.V. 91,777 99,130 1.1
Publishing
Total Common Stocks in the Netherlands 91,777 99,130 1.1
Singapore Banking 8,000 Overseas Chinese Banking Corp. Ltd. 38,099 20,642 0.2
Total Common Stocks in Singapore 38,099 20,642 0.2
Spain Building Materials 3,100 Uralita, S.A. 43,535 33,538 0.4
Real Estate 1,400 Metrovacesa, S.A. 43,683 34,593 0.4
Venture Capital 3,900 ++Dinamia Capital Privado. Sociedad
de Capital Riesgo, S.A. 71,130 49,486 0.5
Total Common Stocks in Spain 158,348 117,617 1.3
Sweden Auto & Truck 1,300 Autoliv AB 42,179 40,045 0.4
Automobile Parts 2,500 Haldex AB 44,179 36,494 0.4
Banking 1,500 ForeningsSparbanken AB 18,653 33,958 0.4
4,100 Nordbanken Holding AB 27,195 24,447 0.3
----------- ----------- ------
45,848 58,405 0.7
Chemicals 1,600 Perstorp AB (Class B) 30,336 22,960 0.3
Diversified Companies 700 Custos AB (Class A) 18,029 14,288 0.2
700 Custos AB (Class B) 18,434 13,682 0.1
----------- ----------- ------
36,463 27,970 0.3
Investment Management 3,900 Bure Investment AB 32,910 50,176 0.6
Laser Components 1,600 Spectra-Physics AB (Class A) 48,844 18,804 0.2
Real Estate 4,600 Castellum AB 38,997 43,533 0.5
Investment Trusts 3,000 Fastighets AB Tornet 48,453 40,824 0.5
----------- ----------- ------
87,450 84,357 1.0
Telecommunications 2,800 Telefonaktiebolaget LM
Ericsson (ADR)(a) 71,882 60,025 0.7
Total Common Stocks in Sweden 440,091 399,236 4.6
Switzerland Banking & Financial 290 Union Bank of Switzerland 96,896 93,723 1.1
Machinery 56 Schindler Holding AG 101,112 68,208 0.7
Merchandising 75 Valora Holding AG 20,531 20,502 0.2
Total Common Stocks in Switzerland 218,539 182,433 2.0
United Aerospace & Defense 13,600 British Aerospace PLC 102,562 87,004 1.0
Kingdom
Automobile Parts 20,700 LucasVarity PLC 65,010 73,493 0.8
Beverages 8,208 Diageo PLC 92,620 83,163 1.0
Foods 4,900 Devro PLC 32,782 21,479 0.3
Travel & Lodging 32,000 ++Thomson Travel Group PLC 96,643 73,419 0.8
Total Common Stocks in the
United Kingdom 389,617 338,558 3.9
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Value Percent of
COUNTRY Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United States Aerospace & Defense 1,200 GenCorp, Inc. $ 34,074 $ 25,200 0.3%
Airlines 850 ++US Airways Group, Inc. 37,075 49,513 0.6
Automobile Parts 1,150 Federal-Mogul Corp. 45,834 61,381 0.7
Automobile Rental 1,400 ++Avis Rent A Car, Inc. 34,320 21,963 0.3
& Leasing 1,000 Hertz Corp. (Class A) 35,974 37,750 0.4
----------- ----------- ------
70,294 59,713 0.7
Banking 1,200 Bank of New York Company, Inc. (The) 19,867 29,025 0.3
470 BankAmerica Corp. 27,759 30,109 0.4
1,400 First Union Corp. 69,099 67,900 0.8
----------- ----------- ------
116,725 127,034 1.5
Beverages 800 PepsiCo, Inc. 32,084 22,150 0.3
Broadcast 510 Chancellor Media Corp. 16,914 18,201 0.2
Broadcasting--Cable 1,763 ++Tele-Communications, Inc.
(Class A) 36,060 58,179 0.7
3,274 ++Tele-Communications TCI Ventures
Group (Class A) 31,640 54,226 0.6
----------- ----------- ------
67,700 112,405 1.3
Chemicals 1,800 Great Lakes Chemical Corporation 77,123 70,425 0.8
Computer Services 540 ++Cisco Systems, Inc. 32,414 44,213 0.5
& Software 1,150 Computer Associates International,
Inc. 38,405 31,050 0.3
300 International Business Machines Corp. 31,245 33,788 0.4
----------- ----------- ------
102,064 109,051 1.2
Computers 2,000 COMPAQ Computer Corp. 70,947 55,875 0.6
Consumer Products 600 Black & Decker Corporation 21,121 24,975 0.3
2,600 Dial Corp. 52,225 50,700 0.6
----------- ----------- ------
73,346 75,675 0.9
Containers 1,200 ++Owens-Illinois, Inc. 36,638 37,425 0.4
Cosmetics 500 Gillette Company (The) 28,583 20,563 0.2
Cruise Lines 1,260 Royal Caribbean Cruises Ltd. 31,063 30,555 0.3
Electronics 610 General Electric Company 44,762 48,800 0.6
750 Texas Instruments Inc. 48,775 35,766 0.4
----------- ----------- ------
93,537 84,566 1.0
Entertainment 2,800 Premier Parks, Inc. 78,950 45,500 0.5
Financial Services 1,600 ++Heller Financial, Inc. 44,502 31,600 0.4
Foods 1,075 ++Keebler Foods Company 29,995 27,748 0.3
Healthcare--Products 800 Columbia/HCA Healthcare Corp. 24,501 18,050 0.2
& Services
Insurance 1,100 Allmerica Financial Corporation 67,690 65,587 0.7
900 Equitable Companies Inc. (The) 47,806 51,469 0.6
650 Providian Corporation 40,573 41,722 0.5
1,050 Travelers Group, Inc. 46,625 46,594 0.5
400 UNUM Corporation 12,712 17,600 0.2
----------- ----------- ------
215,406 222,972 2.5
Machinery 1,600 Ingersoll-Rand Company 51,250 63,600 0.7
Manufacturing 900 Tyco International Ltd. 46,584 49,950 0.6
Medical 600 Beckman Coulter, Inc. 36,262 33,225 0.4
Medical Services 1,000 ++HEALTHSOUTH Corp. 25,513 18,937 0.2
Natural Gas 920 Enron Corp. 38,451 38,927 0.5
Oil Services 450 Schlumberger Ltd. 30,570 19,716 0.2
Petroleum 900 Unocal Corp. 32,530 28,181 0.3
Pharmaceuticals 600 Bristol-Myers Squibb Co. 57,128 58,725 0.7
800 Warner-Lambert Co. 35,974 52,200 0.6
----------- ----------- ------
93,102 110,925 1.3
Printing & Publishing 1,800 ++World Color Press, Inc. 55,204 50,625 0.6
Radio & Television 2,300 ++Capstar Broadcasting Corporation
(Class A) 43,700 38,956 0.4
Railroads 500 Burlington Northern Santa Fe Corp. 41,528 46,531 0.5
Real Estate 600 Starwood Hotels & Resorts 27,000 21,900 0.2
Investment Trusts
Retail Specialty 1,200 Lowe's Companies, Inc. 43,185 42,075 0.5
Retail Stores 1,600 ++Consolidated Stores Corporation 57,647 50,400 0.6
1,610 Rite Aid Corporation 29,058 58,262 0.7
1,700 ++Safeway, Inc. 49,747 66,937 0.8
1,190 Sears, Roebuck & Co. 57,030 54,071 0.6
900 Wal-Mart Stores, Inc. 37,119 52,875 0.6
----------- ----------- ------
230,601 282,545 3.3
Savings and Loan 1,600 Greenpoint Financial Corp. 64,221 40,300 0.5
Scientific Instruments 200 Millipore Corporation 4,497 4,337 0.0
Software--Computer 900 BMC Software, Inc. 22,850 38,250 0.4
Telecommunications 1,400 ++WorldCom, Inc. 41,804 57,225 0.6
Travel & Lodging 1,700 Carnival Corporation (Class A) 29,378 49,087 0.6
Utilities--Gas 1,300 El Paso Energy Corp. 35,397 32,256 0.4
Waste Management 1,390 ++USA Waste Services, Inc. 58,465 61,334 0.7
Total Common Stocks in the
United States 2,379,447 2,434,484 27.8
Total Investments in
Common Stocks 5,506,543 5,269,586 60.1
Face
Amount Fixed-Income Securities
Germany Foreign Government Bundesrepublik Deutschland:
Obligations DM 165,000 6% due 7/04/2007 96,503 106,162 1.2
130,000 6% due 6/20/2016 72,326 84,277 1.0
525,000 5.625% due 1/04/2028 298,321 325,128 3.7
Total Fixed-Income Securities
in Germany 467,150 515,567 5.9
Sweden Foreign Government Government of Sweden:
Obligations Skr 2,000,000 5.50% due 4/12/2002 254,064 253,974 2.9
1,300,000 8% due 8/15/2007 185,475 198,010 2.2
Total Fixed-Income Securities
in Sweden 439,539 451,984 5.1
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in USdollars)
<CAPTION>
Face Value Percent of
COUNTRY Industries Amount Fixed-Income Securities Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Foreign Government UK Treasury Gilt:
Kingdom Obligations Pound 60,000 8% due 12/07/2000 $ 101,394 $ 104,219 1.2%
Sterling 135,000 7.25% due 12/07/2007 223,453 257,736 2.9
Total Fixed-Income Securities
in the United Kingdom 324,847 361,955 4.1
United US Government & Federal National Mortgage
States Agency Association:
Obligations US$ 180,000 5.625% due 3/15/2001 180,639 181,800 2.1
180,000 5.75% due 4/15/2003 181,145 183,037 2.1
300,000 5.75% due 2/15/2008 298,990 303,516 3.5
685,000 US Treasury Bonds, 6.625% due
2/15/2027 763,475 803,806 9.2
US Treasury Notes:
300,000 6% due 8/15/1999 300,820 302,343 3.4
110,000 6.50% due 5/31/2002 113,455 115,414 1.3
Total Fixed-Income Securities
in the United States 1,838,524 1,889,916 21.6
Total Investments in
Fixed-Income Securities 3,070,060 3,219,422 36.7
Short-Term Securities
United Commercial US$ 200,000 General Motors Acceptance Corp.,
States Paper* 5.81% due 9/01/1998 200,000 200,000 2.3
Total Investments in
Short-Term Securities 200,000 200,000 2.3
Total Investments $ 8,776,603 8,689,008 99.1
============
Unrealized Depreciation on Forward Foreign Exchange Contracts** (27,468) (0.3)
Other Assets Less Liabilities 105,388 1.2
----------- ------
Net Assets $ 8,766,928 100.0%
=========== ======
<FN>
(a)American Depositary Receipts (ADR).
++Non-income producing security.
*Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Fund.
**Forward foreign exchange contracts as of August 31, 1998 were as follows:
Unrealized
Appreciation
Foreign Expiration (Depreciation)
Currency Sold Date (Note 1b)
C$ 235,000 November 1998 $ 3,776
Chf 280,000 September 1998 (5,723)
DM 1,425,000 September 1998 (9,167)
Fim 1,400,000 September 1998 (4,265)
Frf 3,500,000 September 1998 (6,215)
Pound Sterling 450,000 September 1998 (19,520)
Lit 350,000,000 November 1998 (3,603)
Pta 19,300,000 November 1998 (2,270)
Skr 7,500,000 September 1998 6,414
YEN 58,000,000 September 1998 13,105
--------
Total Unrealized Depreciation on Forward Foreign
Exchange Contracts--Net (US$ Commitment--$4,403,473) $(27,468)
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of August 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$8,776,603) (Note 1a) $ 8,689,008
Receivables:
Securities sold $ 327,867
Interest 39,175
Forward foreign exchange contracts (Note 1b) 12,606
Dividends 11,610
Capital shares sold 8,449 399,707
-----------
Deferred organization expenses (Note 1f) 22,230
Prepaid registration fees and other assets (Note 1f) 23,947
-----------
Total assets 9,134,892
-----------
Liabilities: Unrealized depreciation on forward foreign exchange
contracts (Note 1b) 27,468
Payables:
Securities purchased 153,398
Capital shares redeemed 62,607
Distributor (Note 2) 6,085
Forward foreign exchange contracts (Note 1b) 1,812 223,902
-----------
Accrued expenses and other liabilities 116,594
-----------
Total liabilities 367,964
-----------
Net Assets: Net assets $ 8,766,928
===========
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 100,000,000 shares authorized $ 21,452
Class B Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 62,529
Class C Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 4,856
Class D Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 3,219
Paid-in capital in excess of par 8,795,556
Accumulated realized capital losses on investments and
foreign currency transactions--net (5,955)
Unrealized depreciation on investments and foreign
currency transactions--net (114,729)
-----------
Net assets $ 8,766,928
===========
Net Asset Value: Class A--Based on net assets of $2,052,701 and 214,523
shares outstanding $ 9.57
===========
Class B--Based on net assets of $5,945,917 and 625,293
shares outstanding $ 9.51
===========
Class C--Based on net assets of $459,057 and 48,555
shares outstanding $ 9.45
===========
Class D--Based on net assets of $309,253 and 32,187
shares outstanding. $ 9.61
===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
For the Year Ended August 31, 1998
<S> <S> <C> <C>
Investment Interest and discount earned $ 195,346
Income Dividends (net of $10,272 foreign witholding tax) 133,459
(Notes 1d & 1e): -----------
Total income 328,805
-----------
Expenses: Investment advisory fees (Note 2) $ 78,681
Account maintenance and distribution fees--Class B (Note 2) 75,733
Registration fees (Note 1f) 64,118
Professional fees 53,474
Accounting services (Note 2) 37,483
Custodian fees 28,489
Transfer agent fees--Class B (Note 2) 27,915
Amortization of organization expenses (Note 1f) 22,230
Printing and shareholder reports 20,909
Directors' fees and expenses 12,851
Pricing fees 7,192
Transfer agent fees--Class A (Note 2) 6,803
Account maintenance and distribution fees--Class C (Note 2) 5,712
Transfer agent fees--Class C (Note 2) 2,230
Transfer agent fees--Class D (Note 2) 1,185
Account maintenance fees--Class D (Note 2) 872
Other 14,391
-----------
Total expenses before reimbursement 460,268
Reimbursement of expenses (Note 2) (78,681)
-----------
Total expenses after reimbursement 381,587
-----------
Investment loss--net (52,782)
-----------
Realized & Realized gain (loss) from:
Unrealized Investments--net 615,225
Gain (Loss) on Foreign currency transactions--net (198,553) 416,672
Investments & -----------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (1,210,031)
(Notes 1b, 1c, Foreign currency transactions--net 41,018 (1,169,013)
1e & 3): ----------- -----------
Net realized and unrealized loss on investments and
foreign currency transactions (752,341)
-----------
Net Decrease in Net Assets Resulting from Operations $ (805,123)
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment loss--net $ (52,782) $ (82,956)
Realized gain on investments and foreign
currency transactions--net 416,672 1,716,633
Change in unrealized appreciation on investments and
foreign currency transactions--net (1,169,013) 562,370
----------- -----------
Net increase (decrease) in net assets resulting from operations (805,123) 2,196,047
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (48,495) (1,155)
Shareholders Class B (143,057) (3,263)
(Note 1g): Class C (9,058) (248)
Class D (7,535) (286)
In excess of investment income--net:
Class A (4,472) (19,884)
Class B (13,192) (56,180)
Class C (835) (4,268)
Class D (695) (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 decrease in net assets derived from capital
Transactions share transactions (160,026) (2,007,510)
(Note 4): ----------- -----------
Net Assets: Total increase (decrease) in net assets (2,575,491) 98,328
Beginning of year 11,342,419 11,244,091
----------- -----------
End of year* $ 8,766,928 $11,342,419
=========== ===========
<FN>
*Undistributed investment income--net (Note 1h) $ -- $ 260,927
=========== ===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the
Period
The following per share data and ratios have been derived Sept. 2,
from information provided in the financial statements. 1994++ to
Forthe Year Ended Aug. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1998+++ 1997+++ 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.28 $ 10.13 $ 9.90 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income--net .03 .01 .12 .16
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.87) 2.30 .34 (.22)
------- ------- ------- -------
Total from investment operations (.84) 2.31 .46 (.06)
------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.32) (.01) (.16) (.04)
In excess of investment income--net (.03) (.15) (.07) --
Realized gain on investments--net (1.52) -- -- --
------- ------- ------- -------
Total dividends and distributions (1.87) (.16) (.23) (.04)
------- ------- ------- -------
Net asset value, end of period $ 9.57 $ 12.28 $ 10.13 $ 9.90
======= ======= ======= =======
Total Investment Based on net asset value per share (7.49%) 23.06% 4.71% (.59%)++++
Return:** ======= ======= ======= =======
Ratios to Expenses, net of reimbursement 2.82% 2.79% 2.47% 2.47%*
Average Net ======= ======= ======= =======
Assets: Expenses 3.57% 3.61% 3.75% 3.31%*
======= ======= ======= =======
Investment income--net .31% .13% 1.16% 1.46%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 2,053 $ 1,803 $ 1,352 $ 1,677
Data: ======= ======= ======= =======
Portfolio turnover 104.48% 128.28% 120.43% 42.50%
======= ======= ======= =======
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived Sept. 2,
from information provided in the financial statements. 1994++ to
Forthe Year Ended Aug. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1998+++ 1997+++ 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.20 $ 10.09 $ 9.83 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income (loss)--net (.08) (.11) .01 .05
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.86) 2.30 .35 (.21)
------- ------- ------- -------
Total from investment operations (.94) 2.19 .36 (.16)
------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.21) --+++++ (.07) (.01)
In excess of investment income--net (.02) (.08) (.03) --
Realized gain on investments--net (1.52) -- -- --
------- ------- ------- -------
Total dividends and distributions (1.75) (.08) (.10) (.01)
------- ------- ------- -------
Net asset value, end of period $ 9.51 $ 12.20 $ 10.09 $ 9.83
======= ======= ======= =======
Total Investment Based on net asset value per share (8.45%) 21.81% 3.65% (1.60%)++++
Return:** ======= ======= ======= =======
Ratios to Expenses, net of reimbursement 3.86% 3.84% 3.50% 3.50%*
Average Net ======= ======= ======= =======
Assets: Expenses 4.61% 4.67% 4.78% 4.37%*
======= ======= ======= =======
Investment income (loss)--net (.73%) (.94%) .13% .43%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 5,946 $ 8,403 $ 8,141 $11,835
Data: ======= ======= ======= =======
Portfolio turnover 104.48% 128.28% 120.43% 42.50%
======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Aggregate total investment return.
+++Based on average shares outstanding.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPITION>
Class C
For the
Period
The following per share data and ratios have been derived Sept. 2,
from information provided in the financial statements. 1994++ to
Forthe Year Ended Aug. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1998+++ 1997+++ 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.13 $ 10.05 $ 9.82 $ 9.85
Operating ------- ------- ------- -------
Performance: Investment income (loss)--net (.08) (.11) (.04) .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.86) 2.28 .39 (.05)
------- ------- ------- -------
Total from investment operations (.94) 2.17 .35 (.01)
------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.20) --+++++ (.08) (.02)
In excess of investment income--net (.02) (.09) (.04) --
Realized gain on investments--net (1.52) -- -- --
------- ------- ------- -------
Total dividends and distributions (1.74) (.09) (.12) (.02)
------- ------- ------- -------
Net asset value, end of period $ 9.45 $ 12.13 $ 10.05 $ 9.82
======= ======= ======= =======
Total Investment Based on net asset value per share (8.47%) 21.71% 3.61% (.05%)++++
Return:** ======= ======= ======= =======
Ratios to Expenses, net of reimbursement 3.88% 3.86% 3.52% 3.51%*
Average Net ======= ======= ======= =======
Assets: Expenses 4.63% 4.68% 4.81% 4.58%*
======= ======= ======= =======
Investment income (loss)--net (.73%) (.94%) .09% .51%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 459 $ 572 $ 438 $ 735
Data: ======= ======= ======= =======
Portfolio turnover 104.48% 128.28% 120.43% 42.50%
======= ======= ======= =======
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived Sept. 2,
from information provided in the financial statements. 1994++ to
Forthe Year Ended Aug. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1998+++ 1997+++ 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.28 $ 10.11 $ 9.88 $ 9.86
Operating ------- ------- ------- -------
Performance: Investment income (loss)--net --+++++ (.02) .08 .10
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.86) 2.30 .36 (.04)
------- ------- ------- -------
Total from investment operations (.86) 2.28 .44 .06
------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.27) (.01) (.15) (.04)
In excess of investment income--net (.02) (.10) (.06) --
Realized gain (loss) on investments--net (1.52) -- -- --
------- ------- ------- -------
Total dividends and distributions (1.81) (.11) (.21) (.04)
------- ------- ------- -------
Net asset value, end of period $ 9.61 $ 12.28 $ 10.11 $ 9.88
======= ======= ======= =======
Total Investment Based on net asset value per share (7.66%) 22.66% 4.51% .59%++++
Return:** ======= ======= ======= =======
Ratios to Expenses, net of reimbursement 3.07% 3.05% 2.72% 2.75%*
Average Net ======= ======= ======= =======
Assets: Expenses 3.82% 3.92% 4.00% 4.32%
======= ======= ======= =======
Investment income (loss)--net .02% (.21%) .93% 1.43%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 309 $ 564 $ 1,313 $ 1,697
Data: ======= ======= ======= =======
Portfolio turnover 104.48% 128.28% 120.43% 42.50%
======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Aggregate total investment return.
+++Based on average shares outstanding.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Growth Fund, Inc., August 31, 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. 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.
* Financial futures contracts--The Fund may purchase or sell
financial futures contacts 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.
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
* Options--The Fund is authorized to write covered call 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 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 period not exceeding five years. Prepaid registra-
tion 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.
Accordingly, current year's permanent book/tax differences of
$19,194 have been reclassified between accumulated net realized
capital losses and accumulated distributions in excess of 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 ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund 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, 1998, MLAM earned fees of $78,681, 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 year ended August 31, 1998, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $ 11 $ 113
Class D $328 $5,196
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended August 31, 1998, MLPF&S received contingent
deferred sales charges of $20,016 and $224 relating to transactions
in Class B and Class C Shares, respectively.
In addition, MLPF&S received $1,761 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
August 31, 1998.
During the year ended August 31, 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.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, FDS, PFD, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1998 were $10,310,005 and $12,277,470,
respectively.
Net realized gains (losses) for the year ended August 31, 1998 and
net unrealized gains (losses) as of August 31, 1998 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 615,250 $ (87,595)
Short-term investments (25) --
Forward foreign exchange contracts (147,356) (27,468)
Foreign currency transactions (51,197) 334
---------- ----------
Total $ 416,672 $ (114,729)
========== ==========
As of August 31, 1998, net unrealized depreciation for Federal
income tax purposes aggregated $98,777, of which $569,227 related to
appreciated securities and $668,004 related to depreciated
securities. At August 31, 1998, the aggregate cost of investments
for Federal income tax purposes was $8,787,785.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
were $160,026 and $2,007,510 for the years ended August 31, 1998 and
August 31, 1997.
Class A Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 96,527 $ 1,058,818
Shares issued to shareholders
in reinvest ment of dividends &
distributions 26,551 265,240
---------- -----------
Total issued 123,078 1,324,058
Shares redeemed (55,450) (616,366)
----------- -----------
Net increase 67,628 $ 707,692
=========== ===========
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 Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 168,419 $ 1,860,233
Shares issued to shareholders
in reinvestment of dividends
& distributions 94,499 944,985
----------- -----------
Total issued 262,918 2,805,218
Automatic conversion of shares (4,460) (47,580)
Shares redeemed (322,171) (3,447,929)
----------- -----------
Net decrease (63,713) $ (690,291)
=========== ===========
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 Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 19,142 $ 201,591
Shares issued to shareholders in
reinvest ment of dividends
& distributions 7,429 73,920
----------- -----------
Total issued 26,571 275,511
Shares redeemed (25,164) (271,224)
----------- -----------
Net increase 1,407 $ 4,287
=========== ===========
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 Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 12,729 $ 141,881
Automatic conversion of shares 4,424 47,580
Shares issued to shareholders in
reinvest ment of dividends
& distributions 3,808 38,267
----------- -----------
Total issued 20,961 227,728
Shares redeemed (34,696) (409,442)
----------- -----------
Net decrease (13,735) $ (181,714)
=========== ===========
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)
=========== ===========
5. Commitments:
At August 31, 1998, the Fund had foreign exchange contracts, in
addition to the contracts listed in the Schedule of Investments,
under which it had agreed to purchase and sell various foreign
currencies with approximate values of $30,000 and $155,000,
respectively.
Merrill Lynch Asset Growth Fund, Inc., August 31, 1998
<AUDIT-REPORT>
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, 1998, the related
statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the three-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, 1998 by correspondence with the custodian and brokers or other
alternative procedures. 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, 1998, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 9, 1998
</AUDIT-REPORT>
EQUITY PORTFOLIO CHANGES (unaudited)
For the Quarter Ended August 31, 1998
Additions
Alstom
Banca di Roma S.p.A.
Bank of Ireland (The)
Consolidated Stores Corporation
El Paso Energy Corp.
Greenpoint Financial Corp.
Haldex AB
Metrovacesa, S.A.
Millipore Corporation
Minebea Co., Ltd.
PepsiCo, Inc.
*Sanwa Bank Ltd.
Telefonaktiebolaget LMEricsson (ADR)
Teleglobe Inc.
*United Healthcare Corp.
Uralita, S.A.
Valora Holding AG
Vivendi S.A.
Wolters Kluwer N.V.
Deletions
Amway Japan, Ltd.
Broken Hill Proprietary Co., Ltd.
Color Line ASA
Comsat Corp.
Daimler-Benz AG
Danka Business Systems PLC (ADR)
Dixons Group PLC
El Paso Natural Gas Co.
Gartner Group, Inc. (Class A)
Globalstar Telecommunications Ltd.
Grupo Carso, S.A. de C.V. (ADR)
Grupo Financiero Bancomer S.A.
(Class B) (ADR)
Henkel KGaA
Hyundai Engineering & Construction
Co., Ltd. (GDR)
Imax Corporation
Imperial Chemical Industries PLC
(Ordinary)
Intel Corp.
Mandamus AB
Mannesmann AG
Matsushita Electric Works, Ltd.
Orbital Sciences Corporation
P.T. Indonesian Satellite Corp. (ADR)
Panamerican Beverages, Inc. (Class A)
Repsol, S.A. (ADR)
Roche Holding AG
Royal Dutch Petroleum Company
(NY Registered Shares)
*Sanwa Bank Ltd.
Sasol Ltd.
Seagram Company, Ltd. (The)
SmarTalk Teleservices, Inc.
Sun International Hotels Ltd.
Telefonos de Mexico, S.A. de C.V. (ADR)
UPM-Kymmene OY
*United Healthcare Corp.
Yacimientos Petroliferos Fiscales S.A. (ADR)
[FN]
*Added and deleted in the same quarter.
IMPORTANT TAX INFORMATION (unaudited)
<TABLE>
The following information summarizes all per share dividends paid by
Merrill Lynch Asset Growth Fund, Inc. during its taxable year ended
August 31, 1998.
<CAPTION>
Qualifying Non-Qualifying Foreign Total Foreign Long-Term
Record Payable Ordinary Ordinary Source Ordinary Taxes Capital
Date Date Income Income Income Income Paid Gains
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 12/09/97 12/17/97 $0.078402 $0.715951 $0.159092 $0.953445 $0.016127 $0.915670*
Class B Shares 12/09/97 12/17/97 0.068197 0.622758 0.138383 0.829338 0.016127 0.915670*
Class C Shares 12/09/97 12/17/97 0.067759 0.618757 0.137495 0.824011 0.016127 0.915670*
Class D Shares 12/09/97 12/17/97 0.073435 0.670584 0.149011 0.893030 0.016127 0.915670*
<FN>
*Of this long-term capital gains distribution, 49.45% represents the
28% tax rate and 50.55% represents the 20% tax rate.
</TABLE>
The foreign taxes paid represent taxes incurred by the Fund from
foreign sources. Foreign taxes paid should be included in taxable
income with an offsetting deduction from gross income or as a credit
for taxes paid to foreign governments. You should consult your tax
adviser regarding the appropriate treatment of foreign taxes paid.
The qualifying domestic ordinary income qualifies for the dividends
received deduction for corporations.
Please retain this information for your records.
