MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
FUND LOGO
Quarterly Report
November 30, 1994
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Melvin R. Seiden, Director
Steven B. Swensrud, Director
Harry Woolf, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Lawrence R. Fuller, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
Chase MetroTech Center
Brooklyn, New York 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Fundamental
Growth Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
DEAR SHAREHOLDER
For the fiscal quarter ended November 30, 1994, Merrill Lynch
Fundamental Growth Fund, Inc.'s Class C and Class D Shares had total
returns of -2.11% and -1.88%, respectively. Class A and Class B
Shares had total returns of -0.90% and -1.02%, respectively, for
the period since inception (October 21, 1994) through November 30,
1994. This compared to a total return of -3.90% for the unmanaged
Standard & Poor's 500 Index (S&P 500) for the fiscal quarter ended
November 30, 1994. (Complete performance information, including
average annual total returns, can be found on pages 3 and 4 of this
report to shareholders.)
<PAGE>
During the November quarter, we completed the reinvestment program
of the Fund's cash reserves. Cash reserves on November 30, 1994 were
6.0% of net assets compared to 19.7% at the end of the August
quarter. One of the reasons the Fund's per share net asset value
declines were less than the S&P 500's during the quarter was that
over 40% of the stocks in the Fund's portfolio had positive total
returns. Also, six of the companies among the Fund's top ten equity
investments experienced stock price appreciation. (See page 4 of
this report for the top ten holdings.) We realized capital gains on
investments in six holdings we eliminated from the Fund during the
quarter. The investment performance of the Fund was penalized during
the quarter by substantial stock price declines in two of the Fund's
holdings, NovaCare, Inc. and Fingerhut Companies, Inc., in reaction
to disappointing quarterly earnings. However, we believe that both
companies represent long-run growth opportunities.
The companies where there were positive investment results during
the November quarter were distributed widely among portfolio
industries, with a concentration in the technology, pharmaceutical,
household products, cosmetics, beverage, and food industry sectors.
The Environment
The Federal Reserve Board continued to raise the target level of the
Federal Funds rate in a monetary restraint program that started
early in 1994. The intention of the policy appears to be to prevent
the increases in many basic and industrial commodity prices from
leading to an acceleration of consumer prices and wage rates. The
growth rate of consumer spending slowed during the second and third
calendar quarters of 1994, compared to the first quarter 1994 and
the fourth quarter 1993. So far, the restrictive monetary policy
appears to be slowing the pace of consumer spending without
generating a recession in business activity. The slowdown in the
overall economic growth rate appears to be causing a shift of
investor focus to the large and mid-size capitalization growth
companies. The positive investment returns during the November
quarter from portfolio holdings in the beverage, foods, household
products, cosmetics and pharmaceutical industries appear to reflect
a gradual shift of investor focus from the basic commodities and
industrial cyclical sectors to the consumer nondurables and services
sectors.
<PAGE>
Investment Strategy
The investment strategy, as reflected in the ten largest industry
positions, did not shift significantly during the quarter. The
Fund's largest industry weighting is still telecommunications;
however, the weighting declined from 8.4% on August 31, 1994 to 7.9%
on November 30, 1994. The cash reserve reinvestment program was
focused on industry sectors such as specialty retailing, which we
increased from 4.7% to 6.6% of net assets. During the November
quarter, we raised the software-computer sector from 4.0% to 5.4%,
and the cosmetics and household products industry sectors to 4.1%
and 4.1% of net assets from 2.5% and 1.1%, respectively. The
combined weighting of the beverages, cosmetics, drugs, foods,
healthcare and household products industries is over 15%. Many of
the individual companies in these sectors had positive investment
returns during the quarter. Investments in the consumer nondurables
and services industry sectors currently represent over 50% of the
Fund's net assets. A continuing slowdown in real economic growth may
result in a return of investor focus to many of the large to mid-
size capitalization growth companies in these industries.
Portfolio Matters
The common stock, convertible preferred or debt securities of 63
companies held in the Fund at the end of the November quarter were
essentially unchanged from 64 companies at the end of the prior
quarter. We eliminated the holdings in six companies and introduced
five new companies to the Fund's portfolio during the quarter.
Capital gains were realized on each of the six companies eliminated
from the portfolio. We sold Cabletron Systems, Inc. because we
believe changes taking place in the communications hardware/software
industries may result in an unanticipated slowdown in future
earnings growth. Coca-Cola FEMSA, S.A. de C.V. and Panamerican
Beverages, Inc. were sold on the basis of higher valuations in
comparison to other investment opportunities in the beverage sector.
Holdings in Oracle Systems Corporation and Informix Corp. were also
sold on the basis of relative valuation. We sold the Fund's holding
of Teva Pharmaceutical Industries, Ltd. because of concerns about
the sustainability of the expected growth in earnings in response to
the potential for adverse changes taking place in the Israeli
healthcare market.
<PAGE>
The growth companies introduced to the portfolio during the November
quarter were Amgen, Inc., COMPAQ Computer Corp., Bed, Bath & Beyond
Inc., Best Buy Company, Inc., and Sybase, Inc. Amgen, Inc. is a
leading biotechnology company with an attractive stock valuation,
given a projected growth in earnings per share of 20% per year from
two major products and a broad-based pipeline of new products. We
added COMPAQ Computer Corp. because of the attractive valuation
relative to its projected growth in earnings, which could be revised
upward if its new product line of multimedia personal computers at
lower price points finds widespread retail acceptance. Bed, Bath &
Beyond Inc., which is a relatively unique national specialty
retailer of domestic merchandise and home furnishings, was added to
the portfolio as part of the strategy to increase the weighting in
specialty retailing. Another relatively rapid growth specialty
retailer added to the Fund's portfolio was Best Buy Company, Inc.
with the purchase of a new convertible preferred security. Best Buy
Company, Inc. is one of the largest and fastest growing consumer
electronics retailers. Sybase, Inc. is one of the leading developers
of relational database management systems utilized in networks of
client/server computers. The price of Sybase, Inc.'s common stock
declined meaningfully in response to a recently announced strategic
acquisition, and was added to the Fund at what appears to be an
attractive valuation.
In Conclusion
The investment results in the November quarter appear to reflect a
shift of investor focus toward the mid- to large-size capitalization
growth companies in the consumer sector, which represent the core
holdings of the Fund. The investment returns of many large-
capitalization growth companies have only recently been positive in
comparison to the S&P 500 after a sub-par performance for as long as
two years.
We thank you for your continued investment in Merrill Lynch
Fundamental Growth Fund, Inc., and we look forward to discussing
with you our strategy and investment activities in the next
quarterly report.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
(Lawrence R. Fuller)
Lawrence R. Fuller
Vice President and Portfolio Manager
December 23, 1994
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been 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. If you were a Class A shareholder prior to October 21,
1994, your Class A Shares were redesignated to Class D Shares on
October 21, 1994.
* 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 8 years. If you were a Class B shareholder
prior to October 21, 1994, your Class B Shares were redesignated to
Class C Shares on October 21, 1994.
* 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).
Performance data for the Fund's Class C Shares and Class D Shares
are presented in the "Performance Summary" table on page 4 and the
"Average Annual Total Return" table below. Data for all of the
Fund's shares, including Class A Shares and Class B Shares, are
presented in the "Recent Performance Results" table.
<PAGE>
The "Recent Performance Results" table below shows investment
results before the deduction of any sales charges for Class C and
Class D Shares for the 12-month and 3-month periods ended November
30, 1994 and for Class A and Class B Shares for the period since
inception through November 30, 1994. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
Average Annual Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/94 -1.70% -5.64%
Inception (12/24/92)
through 9/30/94 -1.08 -2.77
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year. On 10/21/94, Class B Shares converted to
Class C Shares.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/94 -1.00% -6.19%
Inception (12/24/92)
through 9/30/94 -0.34 -3.34
[FN]
*Maximum sales charge is 5.25%. On 10/21/94, Class A Shares converted
to Class D Shares.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
11/30/94 8/31/94++ 11/30/93 % Change % Change++
<S> <C> <C> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* $9.90 $ 9.99 -- -- % -0.90%
ML Fundamental Growth Fund, Inc. Class B Shares* 9.75 9.85 -- -- -1.02
ML Fundamental Growth Fund, Inc. Class C Shares* 9.75 9.96 $10.01 -2.60 -2.11
ML Fundamental Growth Fund, Inc. Class D Shares* 9.90 10.09 10.09 -1.88 -1.88
Standard & Poor's 500 Index** 453.69 475.49 461.79 -1.75 -4.58
ML Fundamental Growth Fund, Inc. Class A Shares--Total Return* -- -0.90
ML Fundamental Growth Fund, Inc. Class B Shares--Total Return* -- -1.02
ML Fundamental Growth Fund, Inc. Class C Shares--Total Return* -2.60 -2.11
ML Fundamental Growth Fund, Inc. Class D Shares--Total Return* -1.88 -1.88
Standard & Poor's 500 Index--Total Return** +1.07 -3.90
<FN>
*Investment results shown do not reflect any sales charges; results
shown would be lower if a sales charge was included.
**An unmanaged broad-based Index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
++Investment results shown for Class A and Class B Shares are since
inception (10/21/94).
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class C Shares***
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
12/24/92--12/31/92 $10.00 $ 9.92 -- -- -0.80%
1993 9.92 10.43 -- -- +5.14
1/1/94--11/30/94 10.43 9.75 -- -- -6.52
Cumulative total return as of 11/30/94: -2.50%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
***As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class B Shares of the Fund outstanding prior to
October 21, 1994 have been redesignated Class C Shares.
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class D Shares***
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
12/24/92--12/31/92 $10.00 $ 9.92 -- -- -0.80%
1993 9.92 10.51 -- -- +5.95
1/1/94--11/30/94 10.51 9.90 -- -- -5.80
Cumulative total return as of 11/30/94: -1.00%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
***As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 have been redesignated Class D Shares.
</TABLE>
PORTFOLIO INFORMATION
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Intel Corp. 4.1%
cisco Systems, Inc. 3.9
COMPAQ Computer Corp. 3.2
Pfizer Inc. 3.1
Texas Instruments Inc. 3.1
Procter & Gamble Co. 3.1
The Gillette Co. 3.0
Computer Associates International, Inc. 3.0
Duracell International Inc. 2.9
PolyGram N.V. (ADR) 2.7
<PAGE>
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Telecommunications 7.9%
Retail--Specialty 6.6
Software--Computer 5.4
Pharmaceuticals 4.5
Broadcast--Cable 4.4
Electronics 4.1
Cosmetics 4.1
Household Products 4.1
Communications 3.9
Chemical Producers 3.8
Portfolio Changes for the Quarter Ended
November 30, 1994
Additions
Amgen, Inc.
Bed, Bath & Beyond, Inc.
Best Buy Company, Inc. (Convertible Preferred)
COMPAQ Computer Corp.
Sybase, Inc.
Deletions
Cabletron Systems, Inc.
Coca-Cola FEMSA, S.A. de C.V. (ADR)
Informix Corp.
Oracle Systems Corporation
Panamerican Beverages, Inc. (Class A)
Teva Pharmaceutical Industries Ltd. (ADR)
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Held/ Percent of
Industries Face Amount Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Advertising 20,000 Interpublic Group of Companies, Inc. $ 697,450 $ 632,500 1.0%
Automotive & Truck 75,000 Consorcio G Grupo Dina, S.A. de C.V. (ADR) (a) 1,203,575 984,375 1.6
5,000 Daimler-Benz AG (ADR) (a) 236,997 237,500 0.4
20,000 Ek Chor China Motorcycle Co. Ltd. 734,300 362,500 0.6
----------- ----------- ------
2,174,872 1,584,375 2.6
<PAGE>
Banking & Financial 30,000 State Street Boston Corp. 1,113,525 945,000 1.5
Beverages 5,000 The Coca-Cola Co. 230,925 255,625 0.4
20,000 PepsiCo, Inc. 728,900 707,500 1.2
----------- ----------- ------
959,825 963,125 1.6
Broadcast--Cable 50,000 TCI Communications, Inc. (Class A)(d) 1,219,150 1,181,250 1.9
45,000 Time Warner Inc. 1,711,106 1,518,750 2.5
----------- ----------- ------
2,930,256 2,700,000 4.4
Broadcast--Media 15,000 Grupo Televisa, S.A. de C.V., 'L' (GDS) (b)(c) 782,653 678,750 1.1
25,000 Infinity Broadcasting Corp. 750,433 737,500 1.2
30,000 Turner Broadcasting System, Inc. 787,265 461,250 0.7
----------- ----------- ------
2,320,351 1,877,500 3.0
Business Services 15,000 The Olsten Corp. 501,683 470,625 0.8
$ 500,000 The Olsten Corp., Convertible Bond, 4.875%
due 5/15/2003 500,000 520,000 0.8
----------- ----------- ------
1,001,683 990,625 1.6
Chemical Producers 40,000 Duracell International Inc. 1,726,006 1,800,000 2.9
10,000 Great Lakes Chemical Corp. 732,730 530,000 0.9
----------- ----------- ------
2,458,736 2,330,000 3.8
Communications 75,000 cisco Systems, Inc. 2,449,280 2,418,750 3.9
Computers 50,000 COMPAQ Computer Corp. 1,850,392 1,956,250 3.2
Consumer Products & 45,000 CUC International, Inc. 1,252,989 1,383,750 2.3
Services
Cosmetics 25,000 The Gillette Co. 1,792,750 1,837,500 3.0
15,000 International Flavors & Fragrances Inc. 603,292 660,000 1.1
----------- ----------- ------
2,396,042 2,497,500 4.1
<PAGE>
Electronics 40,000 Intel Corp. 2,447,900 2,515,000 4.1
Entertainment 40,000 Electronic Arts Inc. 1,237,292 795,000 1.3
Finance 5,000 Countrywide Credit Industries, Inc. 88,117 70,625 0.1
Financial Services 40,000 MGIC Investment Corp. 1,337,450 1,195,000 1.9
30,000 The Travelers Corp. 1,292,652 986,250 1.6
----------- ----------- ------
2,630,102 2,181,250 3.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Percent of
Industries Face Amount Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Food 5,000 General Mills, Inc. $ 340,300 $ 268,750 0.4%
5,000 Kellogg Co. 302,175 284,375 0.5
15,000 Wrigley (Wm.) Jr. Co. (Class B) 628,098 701,250 1.1
----------- ----------- ------
1,270,573 1,254,375 2.0
Food Merchandising 35,000 Albertson's, Inc. 944,433 1,006,250 1.6
Health Services 50,000 NovaCare, Inc. 771,887 381,250 0.6
Home Furnishings 50,000 Shaw Industries, Inc. 857,375 700,000 1.1
Hotel 20,000 Marriott International, Inc. 597,884 525,000 0.9
Household Products 10,000 Colgate-Palmolive Co. 598,100 600,000 1.0
30,000 Procter & Gamble Co. 1,856,363 1,875,000 3.1
----------- ----------- ------
2,454,463 2,475,000 4.1
Information 20,000 First Financial Management Corp. 1,197,306 1,177,500 1.9
Processing 25,000 General Motors Corp. (Class E) 896,850 918,750 1.5
----------- ----------- ------
2,094,156 2,096,250 3.4
<PAGE>
Insurance 8,000 American International Group, Inc. 744,214 733,000 1.2
5,000 General Reinsurance Corp. 615,525 586,875 1.0
150,000 Reliance Group Holdings, Inc. 1,096,251 768,750 1.3
----------- ----------- ------
2,455,990 2,088,625 3.5
Leisure 40,000 PolyGram N.V. (ADR) (a) 1,566,058 1,670,000 2.7
Medical--Technology 30,000 Haemonetics Corp. 751,330 585,000 1.0
Oil Services 10,000 Schlumberger Ltd. 649,350 531,250 0.9
Pharmaceuticals 15,000 Amgen, Inc. 855,000 875,625 1.4
25,000 Pfizer Inc. 1,696,713 1,934,375 3.1
----------- ----------- ------
2,551,713 2,810,000 4.5
Pollution Control 20,000 WMX Technologies Inc. 623,700 515,000 0.8
Publishing 10,000 Scholastic Corp. 455,625 470,000 0.8
Restaurant 35,000 McDonald's Corp. 954,300 993,125 1.6
Retail--Specialty 40,000 Bed, Bath & Beyond, Inc. 1,030,934 1,140,000 1.9
10,000 Best Buy Company, Inc. (Convertible Preferred) 500,000 565,000 0.9
30,000 Fingerhut Companies, Inc. 847,727 495,000 0.8
15,000 The Pep Boys--Manny, Moe & Jack 484,983 485,625 0.8
$350,000 The Pep Boys--Manny, Moe & Jack, Convertible
Bond, 4% due 9/01/1999 350,000 343,000 0.6
45,000 Staples Inc. 816,004 978,750 1.6
----------- ----------- ------
4,029,648 4,007,375 6.6
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Held/ Percent of
Industries Face Amount Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Retail Stores 50,000 Cifra, S.A. de C.V., 'C' (b) $ 98,537 $ 135,855 0.2%
15,000 Dollar General Corporation 442,500 442,500 0.7
----------- ----------- ------
541,037 578,355 0.9
Semiconductors 25,000 Texas Instruments Inc. 1,736,767 1,887,500 3.1
Software--Computer 40,000 Computer Associates International, Inc. 1,839,900 1,820,000 3.0
30,000 Sybase, Inc. 1,416,244 1,455,000 2.4
----------- ----------- ------
3,256,144 3,275,000 5.4
Telecommunications 30,000 Bell Atlantic Corp. 1,866,779 1,503,750 2.4
60,000 MCI Communications Corp. 1,559,643 1,170,000 1.9
40,000 QUALCOMM Inc. 1,100,000 1,220,000 2.0
30,000 Vodafone Group PLC (ADR) (a) 894,312 975,000 1.6
----------- ----------- ------
5,420,734 4,868,750 7.9
Toys 30,000 Mattel, Inc. 821,446 802,500 1.3
Travel & Lodging 25,000 Carnival Corporation (Class A) 1,127,968 1,081,250 1.8
Total Stocks & Bonds 63,941,393 60,443,105 98.5
<CAPTION>
Face Amount Short-Term Securities
Commercial $ 1,746,000 General Electric Capital Corp., 5.70%
Paper* due 12/01/1994 1,746,000 1,746,000 2.8
US Government 2,000,000 Federal National Mortgage Association,
& Agency 5.23% due 12/29/1994 1,991,864 1,991,864 3.2
Obligations*
Total Short-Term Securities 3,737,864 3,737,864 6.0
Total Investments $67,679,257 64,180,969 104.5
===========
Liabilities in Excess of Other Assets (2,774,034) (4.5)
----------- ------
Net Assets $61,406,935 100.0%
=========== ======
<PAGE>
Net Asset Class A--Based on net assets of $2,579,245 and 260,438
Value: shares outstanding $ 9.90
===========
Class B--Based on net assets of $13,516,665 and 1,385,783
shares outstanding $ 9.75
===========
Class C--Based on net assets of $38,444,079 and 3,941,538
shares outstanding $ 9.75
===========
Class D--Based on net assets of $6,866,946 and 693,677
shares outstanding $ 9.90
===========
<FN>
*Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
(a)American Depositary Receipt (ADR).
(b)Foreign Stock--Mexico.
(c)Global Depositary Share (GDS).
(d)Formerly Tele-Communications, Inc. (Class A).
</TABLE>
