MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
FUND LOGO
Annual Report
August 31, 1995
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, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Fundamental
Growth Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
DEAR SHAREHOLDER
Fiscal Year in Review
For the fiscal year ended August 31, 1995, total returns for Merrill
Lynch Fundamental Growth Fund, Inc.'s Class C Shares and Class D
Shares were +18.28% and +19.15%, respectively, compared to a total
return of +21.42% for the unmanaged Standard & Poor's 500 Index (S&P
500). The Fund's Class A Shares and Class B Shares had total returns
of +20.55% and +19.60%, respectively, for the period since inception
(October 21, 1994) through August 31, 1995, while the total return
for the S&P 500 Index during this time was +23.69%. (Results shown
do not reflect sales charges and would be lower if sales charges
were included. For complete performance information, including
average annual and aggregate total returns, see pages 4--6 of this
report to shareholders.)
During the Fund's first fiscal quarter ended November 30, 1994, the
Fund declined less than the S&P 500 Index. More than 40% of the
stocks in the Fund's portfolio had positive total returns and six of
the top ten holdings appreciated. The diversification of the stock
holdings among technology, pharmaceutical, household products,
cosmetics, beverage and food industries contributed positively to
Fund performance. However, negative surprises by the managements of
Novacare, Inc. and Fingerhut Companies, Inc. resulted in substantial
stock price declines for these companies.
In the second fiscal quarter ended February 28, 1995, we were
penalized by a substantial decline in the stock prices of three
Mexican companies held in the Fund's portfolio. Although these three
companies represented only 2.9% of the Fund's net assets on November
30, 1994, they were responsible for an approximate 1.7% loss in net
asset value during the second fiscal quarter, primarily as a result
of the surprising devaluation of the Mexican peso on December 20,
1994. Stock price declines for Compaq Computer Corp. and Duracell
International Inc., both among the Fund's top ten holdings, also
penalized Fund performance during the fiscal quarter. The Fund
showed positive total returns for the February quarter although
these results were significantly less than the positive return of
the S&P 500 Index. Valuations of the stocks in both the technology
and financial services sectors, which were reduced significantly in
terms of percentage weighting in the Fund during the February
quarter, continued to rise throughout the three-month period.
The positive total returns of the Fund's shares were less than the
total return for the unmanaged S&P 500 Index in the Fund's third
fiscal quarter ended May 31, 1995. This was in response to the
Fund's underweighting of the financial services and technology
sectors as compared to the S&P 500 at the beginning of the period.
Many of the companies in the financial services (banks, insurance
and mortgage finance) and technology sectors appeared to have stock
valuations which we believed were close to relative record high
levels. Consequently, we have attempted to be selective and
conservatively weighted in terms of the Fund's investment exposure
in these sectors.
<PAGE>
During the August 31, 1995 quarter, the Fund achieved its best
performance relative to the S&P 500 during the fiscal year. The
positive contributions to performance were distributed among
companies in several industries. Among the most important
contributors to the Fund's performance were Amgen, Inc., Electronic
Arts Inc., Compaq Computer Corp., First Financial Management Corp.,
Bay Networks Inc., Hewlett-Packard Co., MCI Communications Corp.,
Capital Cities/ABC, Inc., Pfizer Inc. and 3Com Corp. Both absolute
and relative performance were hampered by a relatively modest
exposure of 17.3% of net assets to the technology sector at the
outset of the quarter.
The Environment
During the August 31, 1995 quarter, there was a rebound in the rate
of growth of consumer spending. Residential housing and motor
vehicle sales rose in response to lower mortgage financing rates and
substantial purchase incentives by the major automobile companies. A
low rate of overall growth in gross national product reflected
reduced manufacturing activity to pare consumer durable goods
inventories. Consumer demand for personal computers, air
conditioners and electric power was strong during the summer months.
Consumer demand for multimedia personal computers in Europe and
Japan also has started to become a meaningful growth factor for the
personal computer industry. Department store sales suffered,
however, from a continuation of reduced levels of apparel and other
consumer non-durable goods purchases. Corporate capital investment
on a global basis in networked computers, telecommunication
equipment and software appears to continue at a rapid pace. The
recent rise in the foreign exchange value of the US dollar may be
having some effect on reducing the prices of imported industrial
supplies. The economic outlook appears to hold forth the prospects
for both moderate real growth and inflation. The Federal Reserve
Board started to lower the Federal Funds rate in early July to
reflect these prospects.
Investment Strategy
We made some significant changes in the Fund's industry emphasis and
company holdings during the August quarter. We eliminated the Fund's
weightings in the broadcast-cable and broadcast-media industries
during the August quarter. It appears to us that the tele-
communications legislation being promulgated in Washington, DC,
will have more negative than positive implications for the broadcast-
cable and local exchange telecommunication companies. On the other
hand, it appears that the major television and radio broadcast
networks will benefit.
<PAGE>
The pharmaceutical industry continues to be the Fund's most
important industry weighting at 11.6% of net assets at the end of
the August quarter compared to 6.7% at May 31, 1995. The computer
industry weighting has declined from 6.4% of net assets at the
outset of the quarter to 4.4% by August quarter-end. The top ten
industries represented 50.4% of net assets on August 31, 1995,
compared to 52.3% on May 31, 1995. The technology sector of the Fund
was 19.1% of net assets on August 31, 1995, compared to 17.3% on May
31, 1995. Finally, the consumer nondurables and service industry
sectors were equal to 57.9% of net assets at the end of the August
quarter compared to 59.2% on May 31, 1995. (See page 9 of this
report for a complete listing.) These companies as well as the
companies in other sectors are large-capitalization, high-quality,
global growth companies. Cash reserves stood at 7.5% of net assets
at August quarter-end compared to 3.9% at the end of the May
quarter.
Portfolio Matters
We held the common stock and convertible debt securities of 46
companies at the end of the August quarter, compared to 49 companies
at the end of the May quarter. During the August quarter, we added
seven new companies to the Fund and eliminated ten holdings. We
eliminated, with capital gains, our holdings in TCI Communications,
Inc. and Time Warner Inc. These sales stemmed from concerns about
future competition and lower rates of return deriving from
deregulation as a result of Federal telecommunications legislation.
We made an investment in Capital Cities/ABC, Inc. because of the
potential increase in growth rates and returns as a result of the
same Federal legislation, which is likely to further deregulate and
benefit the major television and radio networks. Shortly thereafter,
The Walt Disney Co. announced the proposed purchase of Capital
Cities/ABC, Inc. so we sold the Capital Cities/ABC, Inc. holding at
a substantial capital gain and reinvested part of the proceeds in
The Walt Disney Co., which we believe will benefit from the proposed
acquisition. Other companies which we eliminated because we believed
the stock valuations were relatively high include 3Com Corp.,
Countrywide Credit Industries, Inc., Electronic Arts Inc., General
Mills, Inc. and Kellogg Co. Capital gains were realized on all of
these transactions with the exception of the General Mills, Inc.
holding where we realized a minor capital loss. Subsequent to the
announced intention by Time Warner Inc.'s management to make a
friendly acquisition of Turner Broadcasting System, Inc., we sold
the Fund's holding of Turner Broadcasting at a capital gain.
<PAGE>
The other five new companies added to the Fund during the August
quarter were Johnson & Johnson, Merck & Co., Inc., Times Mirror Co.,
Upjohn Co. and Viacom, Inc. Johnson & Johnson has an attractive
valuation in comparison to continued positive earnings surprises and
a relatively high double-digit rate of growth in earnings. We added
Merck & Co., Inc. to the Fund because of the potential for future
upward revisions in growth estimates as a result of important new
products. We added Times Mirror to the portfolio in response to the
potential for future positive earnings surprises resulting from the
efforts of a new chief executive. Our investment in Upjohn Co.,
subsequent to management's announcement of a proposed merger with a
major European pharmaceutical company, is based on expectations of a
rapid rise in earnings from downsizing and restructuring of the
combined companies. Our investment in Viacom, Inc. reflects what we
believe is a very attractive valuation for one of the major
entertainment companies with potentially one of the most rapid rates
of growth in cash flow and earnings over the next five years.
In Conclusion
If the current modest real growth and moderate inflation continue,
investors may focus more selectively on those companies where
managements produce attractive relative rates of growth in earnings.
Our investment focus is on the largest, best-managed global growth
companies which should, in most cases, be able to manage their
operating results through any periods of slowdown in business
activity in individual geographic and product/service markets.
We thank you for your continued investment in Merrill Lynch
Fundamental Growth Fund, Inc., and we look forward to updating you
on our investment strategy and activities in the Fund's next
quarterly report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Lawrence R. Fuller)
Lawrence R. Fuller
Vice President and Portfolio Manager
October 2, 1995
<PAGE>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all the per share distributions
paid by Merrill Lynch Fundamental Growth Fund, Inc. during its
taxable year ended August 31, 1995:
<TABLE>
<CAPTION>
Qualifying Non-Qualifying Total Long-Term
Record Payable Ordinary Ordinary Ordinary Capital
Date Date Income Income Income Gains
<C> <C> <C> <C> <C> <C>
12/12/94 12/20/94 $.026215 $.024399 $.050614 $.255226
Please retain this information for your records.
</TABLE>
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, as detailed in the Fund's prospectus. 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, which, in the
case of certain eligible investors, were simultaneously exchanged
for Class A Shares.
* 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.
<PAGE>
* 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).
Data for all of the Fund's shares are presented in the "Total Return
Based on a $10,000 Investment" graphs on page 5 and the "Recent
Performance Results" table on page 6. Data for Class A Shares and
Class B Shares are also presented in the "Aggregate Total Return"
tables on page 5. Data for the Fund's Class C and Class D Shares are
presented in the "Performance Summary" and the "Average Annual Total
Return" tables on pages 5 and 6.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the since inception and 3-month periods ended August 31,
1995 and for Class C and Class D Shares for the 12-month and 3-month
periods ended August 31, 1995. 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. 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.
PERFORMANCE DATA (continued)
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 S&P 500 Total Return Index. Beginning and ending values are:
<PAGE>
10/21/94** 8/95
ML Fundamental Growth Fund, Inc.++--
Class A Shares* $ 9,475 $11,422
ML Fundamental Growth Fund, Inc.++--
Class B Shares* $10,000 $11,560
S&P 500 Total Return Index++++ $10,000 $12,369
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 S&P 500 Total Return Index. Beginning and ending values are:
10/21/94** 8/95
ML Fundamental Growth Fund, Inc.++--
Class C Shares* $10,000 $11,780
ML Fundamental Growth Fund, Inc.++--
Class D Shares* $ 9,475 $11,391
S&P 500 Total Return Index++++ $10,000 $13,761
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++Merrill Lynch Fundamental Growth Fund, Inc. invests primarily
in equity securities with a particular emphasis on companies
that have exhibited above-average growth rates in earnings.
++++This unmanaged broad-based Index is comprised of common
stocks.
Past performance is not predictive of future performance.
Aggregate Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (10/21/94)
through 6/30/95 +14.86% +8.83%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (10/21/94)
through 6/30/95 +14.14% +10.14%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Average Annual Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/95 +21.41% +20.41%
Inception (12/24/92)
through 6/30/95 + 4.77 + 4.77
[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 6/30/95 +22.35% +15.93%
Inception (12/24/92)
through 6/30/95 + 5.58 + 3.35
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
8/31/95 5/31/95 8/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* $11.66 $10.63 $9.99 +19.91%(1) +9.69%
ML Fundamental Growth Fund, Inc. Class B Shares* 11.40 10.41 9.85 +18.96(1) +9.51
ML Fundamental Growth Fund, Inc. Class C Shares* 11.40 10.41 9.96 +17.64(1) +9.51
ML Fundamental Growth Fund, Inc. Class D Shares* 11.64 10.61 10.09 +18.52(1) +9.71
Standard & Poor's 500 Index** 561.88 533.41 475.49 +18.17 +5.34
ML Fundamental Growth Fund, Inc. Class A Shares--Total Return* +20.55(2) +9.69
ML Fundamental Growth Fund, Inc. Class B Shares--Total Return* +19.60(2) +9.51
ML Fundamental Growth Fund, Inc. Class C Shares--Total Return* +18.28(2) +9.51
ML Fundamental Growth Fund, Inc. Class D Shares--Total Return* +19.15(2) +9.71
Standard & Poor's 500 Index--Total Return** +21.42 +6.04
<FN>
*Investment results shown do not reflect 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).
(1)Percent change includes reinvestment of $0.255 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.051 per share ordinary
income dividends and $0.255 per share capital gains distributions.
</TABLE>
<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
1994 10.43 9.46 $0.255 $0.051 - 6.28
1/1/95-8/31/95 9.46 11.40 -- -- +20.51
------ ------
Total $0.255 Total $0.051
Cumulative total return as of 8/31/95: +17.80%**
<PAGE>
<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 B Shares of the Fund outstanding prior to
October 21, 1994 were redesignated Class C Shares.
</TABLE>
<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
1994 10.51 9.61 $0.255 $0.051 - 5.56
1/1/95-8/31/95 9.61 11.64 -- -- +21.12
------ ------
Total $0.255 Total $0.051
Cumulative total return as of 8/31/95: +20.22%**
<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 A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated Class D Shares.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industries Shares Held Stocks & Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Advertising 45,000 Interpublic Group of Companies, Inc. $ 1,610,850 $ 1,749,375 1.2%
Automotive & Truck 20,000 Ek Chor China Motorcycle Co. Ltd. (ADR)(a) 734,300 397,500 0.3
Banking & Financial 10,000 State Street Boston Corp. 352,275 368,750 0.3
Beverages 70,000 The Coca-Cola Co. 3,849,200 4,497,500 3.2
55,000 PepsiCo, Inc. 2,198,500 2,488,750 1.7
------------ ------------ ------
6,047,700 6,986,250 4.9
Chemical Producers 80,000 Duracell International Inc. 3,469,407 3,570,000 2.5
30,000 Great Lakes Chemical Corp. 1,962,268 1,983,750 1.4
------------ ------------ ------
5,431,675 5,553,750 3.9
Communications 100,000 ++Bay Networks Inc. 3,968,563 4,737,500 3.3
Computers 100,000 ++Compaq Computer Corp. 3,762,873 4,775,000 3.3
20,000 Hewlett-Packard Co. 1,514,950 1,600,000 1.1
------------ ------------ ------
5,277,823 6,375,000 4.4
Consumer Products & 105,000 ++CUC International, Inc. 2,296,189 3,583,125 2.5
Services
Cosmetics 100,000 The Gillette Co. 3,875,150 4,175,000 2.9
40,000 International Flavors & Fragrances Inc. 1,814,597 1,915,000 1.3
------------ ------------ ------
5,689,747 6,090,000 4.2
Electrical Equipment 10,000 Emerson Electric Co. 658,040 713,750 0.5
Electronics 90,000 Intel Corp. 4,522,225 5,523,750 3.9
<PAGE>
Entertainment 25,000 ++Viacom, Inc. (Class A) 1,210,525 1,215,625 0.8
40,000 The Walt Disney Co. 2,415,368 2,245,000 1.6
------------ ------------ ------
3,625,893 3,460,625 2.4
Financial Services 100,000 The Travelers Group Inc. 4,443,567 4,800,000 3.4
Food 10,000 Wrigley (Wm.) Jr. Co. (Class B) 436,070 451,250 0.3
Food Merchandising 75,000 Albertson's, Inc. 2,150,222 2,390,625 1.7
Hotel 100,000 Marriott International, Inc. 3,394,490 3,550,000 2.5
Household Products 10,000 Colgate-Palmolive Co. 696,062 680,000 0.5
60,000 Procter & Gamble Co. 3,911,888 4,162,500 2.9
------------ ------------ ------
4,607,950 4,842,500 3.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Information Processing 35,000 First Financial Management Corp. $ 2,156,956 $ 3,154,375 2.2%
75,000 General Motors Corp. (Class E) 3,096,100 3,496,875 2.5
------------ ------------ ------
5,253,056 6,651,250 4.7
Insurance 65,000 American International Group, Inc. 4,783,093 5,240,625 3.7
Leisure 60,000 PolyGram N.V. (ADR) (a) 2,789,132 3,675,000 2.6
Medical--Technology 30,000 ++Haemonetics Corp. 751,330 645,000 0.5
55,000 Johnson & Johnson 3,848,050 3,795,000 2.7
------------ ------------ ------
4,599,380 4,440,000 3.2
<PAGE>
Oil Services 40,000 Schlumberger Ltd. 2,438,770 2,580,000 1.8
Pharmaceuticals 100,000 ++Amgen, Inc. 3,273,581 4,787,500 3.4
50,000 Merck & Co., Inc. 2,388,000 2,493,750 1.7
100,000 Pfizer Inc. 3,889,338 4,937,500 3.5
100,000 Upjohn Co. 4,262,940 4,237,500 3.0
------------ ------------ ------
13,813,859 16,456,250 11.6
Photography 60,000 Eastman Kodak Co. 3,209,725 3,457,500 2.4
Pollution Control 70,000 WMX Technologies Inc. 2,051,425 2,056,250 1.4
Publishing 10,000 ++Scholastic Corp. 455,625 612,500 0.4
125,000 Times Mirror Co. (Class A) 3,407,785 3,828,125 2.7
------------ ------------ ------
3,863,410 4,440,625 3.1
Restaurant 25,000 McDonald's Corp. 912,925 912,500 0.6
Retail Specialty 35,000 The Pep Boys--Manny, Moe & Jack 1,166,513 962,500 0.7
$ 350,000 The Pep Boys--Manny, Moe & Jack,
Convertible Bond, 4% due 9/01/1999 350,000 332,500 0.2
165,000 ++Staples Inc. 2,450,364 4,207,500 3.0
100,000 ++Toys 'R' Us, Inc. 2,626,260 2,600,000 1.8
------------ ------------ ------
6,593,137 8,102,500 5.7
Software--Computer 50,000 ++Microsoft Corp. 4,676,162 4,618,750 3.2
Telecommunications 200,000 MCI Communications Corp. 4,515,146 4,800,000 3.4
Toys 150,000 Mattel, Inc. 3,553,505 4,350,000 3.1
Travel & Lodging 100,000 Carnival Corporation (Class A) 2,290,068 2,175,000 1.5
Total Stocks & Bonds 120,590,372 135,530,000 95.1
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Face Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Paper* $5,120,000 General Electric Capital Corp.,
5.82% due 9/01/1995 $ 5,120,000 $ 5,120,000 3.6%
US Government & 2,500,000 Federal Home Loan Bank, 5.62% due
Agency Obligations* 9/26/1995 2,490,243 2,490,243 1.8
3,000,000 Federal National Mortgage Association,
5.64% due 9/13/1995 2,994,360 2,994,360 2.1
Total Short-Term Securities 10,604,603 10,604,603 7.5
Total Investments $131,194,975 146,134,603 102.6
------------
Liabilities in Excess of Other Assets (3,647,903) (2.6)
------------ ------
Net Assets $142,486,700 100.0%
============ ======
<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 Receipts (ADR).
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
PORTFOLIO INFORMATION
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Intel Corp. 3.9%
American International Group, Inc. 3.7
Pfizer Inc. 3.5
MCI Communications Corp. 3.4
The Travelers Group Inc. 3.4
Amgen, Inc. 3.4
Compaq Computer Corp. 3.3
Bay Networks Inc. 3.3
Microsoft Corp. 3.2
The Coca-Cola Co. 3.2
<PAGE>
Percent of
Ten Largest Industries Net Assets
Pharmaceuticals 11.6%
Retail Specialty 5.7
Beverages 4.9
Information Processing 4.7
Computers 4.4
Cosmetics 4.2
Chemical Producers 3.9
Electronics 3.9
Insurance 3.7
Household Products 3.4
Equity Portfolio Changes for the Quarter Ended
August 31, 1995
Additions
*Capital Cities/ABC, Inc.
Johnson & Johnson
Merck & Co., Inc.
Times Mirror Co. (Class A)
Upjohn Co.
Viacom, Inc. (Class A)
The Walt Disney Co.
Deletions
3Com Corp.
*Capital Cities/ABC, Inc.
Countrywide Credit Industries, Inc.
Darden Restaurants Inc.
Electronic Arts, Inc.
General Mills, Inc.
Kellogg Co.
TCI Communications, Inc. (Class A)
Time Warner Inc.
Turner Broadcasting System, Inc.
[FN]
*Added and deleted in the same quarter.
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$131,194,975) (Note 1a) $146,134,603
Receivables:
Securities sold $ 4,685,584
Capital shares sold 605,651
Dividends 153,323
Interest 7,000 5,451,558
------------
Deferred organization expenses (Note 1f) 45,693
Prepaid registration fees and other assets (Note 1f) 66,972
------------
Total assets 151,698,826
------------
Liabilities: Payables:
Securities purchased 8,245,722
Capital shares redeemed 275,485
Distributor (Note 2) 91,606
Investment adviser (Note 2) 75,535 8,688,348
------------
Accrued expenses and other liabilities 523,778
------------
Total liabilities 9,212,126
------------
Net Assets: Net assets $142,486,700
============
Net Assets Class A Shares of capital stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $ 182,556
Class B Shares of capital stock, $0.10 par value, 100,000,000 shares
authorized 559,381
Class C Shares of capital stock, $0.10 par value, 100,000,000 shares
authorized 388,028
Class D Shares of capital stock, $0.10 par value, 100,000,000 shares
authorized 113,658
Paid-in capital in excess of par 124,581,701
Accumulated investment loss--net (647,006)
Undistributed realized capital gains on investments and foreign
currency transactions--net 2,368,754
Unrealized appreciation on investments--net 14,939,628
------------
Net assets $142,486,700
============
<PAGE>
Net Asset Value: Class A--Based on net assets of $21,287,507 and 1,825,560
shares of capital stock outstanding $ 11.66
============
Class B--Based on net assets of $63,748,494 and 5,593,805
shares of capital stock outstanding $ 11.40
============
Class C--Based on net assets of $44,220,150 and 3,880,283
shares of capital stock outstanding $ 11.40
============
Class D--Based on net assets of $13,230,549 and 1,136,577
shares of capital stock outstanding $ 11.64
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended August 31, 1995
<S> <S> <C>
Investment Dividends (net of $5,168 foreign withholding tax) $ 863,232
Income Interest and discount earned 468,462
(Notes 1d & 1e): ------------
Total income 1,331,694
------------
Expenses: Investment advisory fees (Note 2) 560,426
Account maintenance and distribution fees--Class C (Note 2) 409,486
Account maintenance and distribution fees--Class B (Note 2) 295,005
Printing and shareholder reports 143,693
Transfer agent fees--Class C (Note 2) 104,571
Registration fees (Note 1f) 97,250
Professional fees 84,708
Transfer agent fees--Class B (Note 2) 79,935
Accounting services (Note 2) 72,042
Directors' fees and expenses 25,420
Account maintenance fees--Class D (Note 2) 23,581
Transfer agent fees--Class D (Note 2) 20,372
Amortization of organization expenses (Note 1f) 20,308
Transfer agent fees--Class A (Note 2) 14,857
Custodian fees 12,471
Other 14,575
------------
Total expenses 1,978,700
------------
Investment loss--net (647,006)
------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ 2,630,816
(Loss) on Foreign currency transactions--net (51) 2,630,765
Investments & ------------
Foreign Change in unrealized depreciation on investments--net 15,920,146
Currency ------------
Transactions Net Increase in Net Assets Resulting from Operations $ 17,903,905
- --Net (Notes 1b, ============
1c, 1e & 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment loss--net $ (647,006) $ (214,924)
Realized gain on investments and foreign currency
transactions--net 2,630,765 2,028,567
Change in unrealized depreciation on investments--net 15,920,146 (964,529)
------------ ------------
Net increase in net assets resulting from operations 17,903,905 849,114
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (81,095) --
(Note 1g): Class B (445,476) --
Class C (1,196,817) --
Class D (213,366) --
------------ ------------
Net decrease in net assets resulting from distributions to
shareholders (1,936,754) --
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 70,633,396 2,371,410
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 86,600,547 3,220,524
Beginning of year 55,886,153 52,665,629
------------ ------------
End of year $142,486,700 $ 55,886,153
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++
to August 31, 1995++++
Increase (Decrease) in Net Asset Value: Class A Class B
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 9.99 $ 9.85
Operating ------------ ------------
Performance: Investment loss--net -- (.09)
Realized and unrealized gain on investments and
foreign currency transactions--net 1.98 1.95
------------ ------------
Total from investment operations 1.98 1.86
------------ ------------
Less distributions from realized gain on investments--net (.31) (.31)
------------ ------------
Net asset value, end of period $ 11.66 $ 11.40
============ ============
Total Investment Based on net asset value per share 20.55%+++ 19.60%+++
Return:** ============ ============
Ratios to Expenses, excluding account maintenance and distribution fees 1.46%* 1.48%*
Average Net ============ ============
Assets: Expenses 1.46%* 2.48%*
============ ============
Investment income (loss)--net 0.02%* (.95)%*
============ ============
Supplemental Net assets, end of period (in thousands) $ 21,288 $ 63,748
Data: ============ ============
Portfolio turnover 80.41% 80.41%
============ ============
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effect of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C
For the
Period
The following per share data and ratios have been derived Dec. 24,
from information provided in the financial statements. For the Year 1992++ to
Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1994++++ 1993++++
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.96 $ 9.86 $ 10.00
Operating -------- -------- --------
Performance: Investment loss--net (.09) (.05) (.05)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 1.84 .15 (.09)
-------- -------- --------
Total from investment operations 1.75 .10 (.14)
-------- -------- --------
Less distributions from realized gain on
investments--net (.31) -- --
-------- -------- --------
Net asset value, end of period $ 11.40 $ 9.96 $ 9.86
======== ======== ========
Total Investment Based on net asset value per share 18.28% 1.01% (1.40%)+++
Return:** ======== ======== ========
Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees 1.44% 1.35% 1.79%*
======== ======== ========
Expenses 2.44% 2.35% 2.79%*
======== ======== ========
Investment loss--net (.88%) (.52%) (.83%)*
======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 44,220 $ 47,263 $ 45,736
Data: ======== ======== ========
Portfolio turnover 80.41% 112.68% 64.09%
======== ======== ========
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived Dec. 24,
from information provided in the financial statements. For the Year 1992++ to
Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1994++++ 1993++++
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.09 $ 9.91 $ 10.00
Operating -------- -------- --------
Performance: Investment income (loss)--net (.01) .03 --
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 1.87 .15 (.09)
-------- -------- --------
Total from investment operations 1.86 .18 (.09)
-------- -------- --------
Less distributions from realized gain on
investments--net (.31) -- --
-------- -------- --------
Net asset value, end of period $ 11.64 $ 10.09 $ 9.91
======== ======== ========
Total Based on net asset value per share 19.15% 1.82% (.90%)+++
Investment ======== ======== ========
Return:**
Ratios to Expenses, excluding account maintenance fees 1.40% 1.33% 1.78%*
Average ======== ======== ========
Net Assets: Expenses 1.65% 1.58% 2.03%*
======== ======== ========
Investment income (loss)--net (.10%) .31% (.04%)*
======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 13,231 $ 8,623 $ 6,930
Data: ======== ======== ========
Portfolio turnover 80.41% 112.68% 64.09%
======== ======== ========
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effect of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Fundamental Growth Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
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 value quotations are not available are valued at
their fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
(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.
<PAGE>
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
* 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 and purchase call and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
<PAGE>
(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 date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed 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.
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 at the annual rate of 0.65% of
the average daily value of the Fund's net assets. The Investment
Advisory Agreement obligates MLAM to reimburse the Fund to the
extent the Fund's expenses (excluding interest, taxes, distribution
fees, brokerage fees and commissions, and extraordinary items)
exceed 2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the next $70 million of average daily net assets,
and 1.5% of the remaining average daily net assets. No fee payment
will be made to MLAM during any fiscal year which will cause such
expenses to exceed the expense limitations at the time of such
payment.
<PAGE>
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account
Maintenance Distribution
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.
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended August 31, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 541 $ 6,693
Class D $6,751 $91,433
For the year ended August 31, 1995, MLPF&S received contingent
deferred sales charges of $61,480 and $10,532 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $21,850 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
August 31, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
<PAGE>
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, MLPF&S, MLFDS, PSI, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1995 were $132,812,639 and $64,906,083,
respectively.
Net realized and unrealized gains (losses) as of August 31, 1995
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 2,630,961 $14,939,628
Short-term investments (145) --
Foreign currency transactions (51) --
----------- -----------
Total $ 2,630,765 $14,939,628
=========== ===========
As of August 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $14,933,383, of which $16,062,112
related to appreciated securities and $1,128,729 related to
depreciated securities. At August 31, 1995, the aggregate cost of
investments for Federal income tax purposes was $131,201,220.
4. Shares of Beneficial Interest:
Net increase in net assets derived from capital share transactions
for the years ended August 31, 1995 and August 31, 1994 were
$70,633,396 and $2,371,410, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
Oct. 21, 1994++ to August 31, 1995 Shares Amount
Shares sold 2,009,549 $21,624,913
Shares issued to share-
holders in reinvestment
of distributions 8,261 76,992
----------- -----------
Total issued 2,017,810 21,701,905
Shares redeemed (192,250) (2,043,907)
----------- -----------
Net increase 1,825,560 $19,657,998
=========== ===========
[FN]
++Commencement of Operations.
<PAGE>
Class B Shares for the Period Dollar
Oct. 21, 1994++ to August 31, 1995 Shares Amount
Shares sold 8,004,244 $80,928,047
Shares issued to share-
holders in reinvestment
of distributions 46,613 427,439
----------- -----------
Total issued 8,050,857 81,355,486
Shares redeemed (2,444,266) (24,442,131)
Automatic conversion
of shares (12,786) (131,315)
----------- -----------
Net increase 5,593,805 $56,782,040
=========== ===========
[FN]
++Commencement of Operations.
Class C Shares for the Year Dollar
Ended August 31, 1995 Shares Amount
Shares sold 2,740,277 $27,157,046
Shares issued to share-
holders in reinvestment
of distributions 115,667 1,060,667
----------- -----------
Total issued 2,855,944 28,217,713
Shares redeemed (3,721,745) (36,946,754)
----------- -----------
Net decrease (865,801) $(8,729,041)
=========== ===========
Class C Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 2,123,924 $20,737,115
Shares redeemed (2,017,787) (19,872,529)
----------- -----------
Net increase 106,137 $ 864,586
=========== ===========
<PAGE>
Class D Shares for the Year Dollar
Ended August 31, 1995 Shares Amount
Shares sold 695,327 $ 7,169,960
Automatic conversion
of shares 12,554 131,315
Shares issued to share-
holders in reinvestment
of distributions 19,040 177,267
----------- -----------
Total issued 726,921 7,478,542
Shares redeemed (445,171) (4,556,143)
----------- -----------
Net increase 281,750 $ 2,922,399
=========== ===========
Class D Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 556,921 $ 5,502,292
Shares redeemed (401,467) (3,995,468)
----------- -----------
Net increase 155,454 $ 1,506,824
=========== ===========
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 were redesignated to Class D Shares. There were
676,497 shares redesignated amounting to $6,699,703. In addition,
Class B Shares of the Fund outstanding prior to October 21, 1994
were redesignated to Class C Shares. There were 2,449,771 shares
redesignated amounting to $24,321,655.
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
Merrill Lynch Fundamental Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities
of Merrill Lynch Fundamental Growth Fund, Inc., including the
schedule of investments, as of August 31, 1995, and the related
statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then
ended and financial highlights for each of the years indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
<PAGE>
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 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 as of
August 31, 1995 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Fundamental Growth Fund, Inc. at
August 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the
indicated years, in conformity with generally accepted accounting
principles.
(Ernst & Young LLP)
Ernst & Young LLP
Princeton, New Jersey
September 29, 1995
