MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
FUND LOGO
Annual Report
August 31, 1996
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon, Jr., Director
Melvin R. Seiden, Director
Steven B. Swensrud, 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
Ira P. Shapiro, Secretary
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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
Fundamental
Growth Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
DEAR SHAREHOLDER
<PAGE>
For the quarter ended August 31, 1996, total returns for Merrill
Lynch Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and
Class D Shares were +0.22%, -0.08%, -0.08% and +0.15%, respectively,
outperforming the total return of -2.00% for the unmanaged Standard
& Poor's 500 Index (S&P 500). (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.) The Fund's
outperformance reflects its significant industry weighting in
pharmaceuticals and its focus on relatively stable growth companies
in the consumer non-durable and services sectors. Stock selection
was also beneficial with seven of the ten-largest equity holdings
producing total returns greater than the S&P 500. Finally, we
significantly increased the cash reserve level to approximately 19%
of net assets in late August before the general decline in US equity
markets.
The Environment
The recent increases in energy and food commodity prices, political
and military unrest in the Middle East, rising wage gains, and
fiscal policy uncertainties created by the national political
campaign, caused us to become concerned about the increased price
volatility in both the US bond and stock markets. We continue to
believe, on the basis of our analysis of a wide range of economic
and business indicators, including management statements concerning
the business outlook, that we will see a relatively slow growth
period continue to develop for the US economy.
Investment Strategy
We plan to reinvest the Fund's cash reserves in large-capitalization
global growth companies where we anticipate managements can produce
consistent and above-average annual rates of growth in earnings.
Cash reserves were increased late in the August quarter by reducing
the Fund's weightings in holdings which tend to experience greater
stock price volatility relative to the S&P 500. We generally seek to
keep the weekly percentage changes in the share prices of Merrill
Lynch Fundamental Growth Fund, Inc. less volatile than the changes
in the S&P 500. The Fund's largest industry sector continued to be
pharmaceuticals which were 16.9% of net assets at August 31, 1996.
The top ten industries represented 56.7% of net assets. The top ten
companies totaled 32.8% of net assets, with the largest holding,
Johnson & Johnson, comprising 3.8%. (See page 2 of this report to
shareholders for complete listings of these top ten positions.)
<PAGE>
Fiscal Year in Review
Total returns for the fiscal year ended August 31, 1996 of Merrill
Lynch Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and
Class D Shares were +19.02%, +17.68%, +17.68% and +18.70%, respec-
tively, compared to the +18.72% total return for the unmanaged S&P
500. For the same period, the average total return for the Growth
Funds Group calculated by Lipper Analytical Services, Inc. was
+12.70%.
The major positive factors for investment performance during the
fiscal year ended August 31, 1996, were our continued focus on
pharmaceuticals as the largest industry weighting, and the
consistent weighting of over 50% of net assets in consumer non-
durable goods and services companies. In addition, the Fund had a
relatively modest cash reserve position throughout the fiscal year
until late in August 1996.
During the first half of the fiscal year ended August 31, 1996, our
investment strategy remained relatively unchanged. However, during
the quarter ended May 31, 1996, the most significant increase in
sector weightings was in the financial sector, which was increased
from 5.0% of net assets on February 29, 1996 to 14.8% at May 31,
1996. We decreased the retailing sector from 5.9% of net assets to
1.4% during the same time period. The shift in industry focus
reflected our expectation that the consumer spending growth rate
would slow, leading to reduced inflationary expectations and lower
interest rates. Therefore, we had only a 2.4% investment weighting
in retailing and 14.2% in financial services at August 31, 1996. We
anticipate a continued slowdown in consumer spending, in particular
on durable goods such as motor vehicles, housing and computer
systems, and a gradual reduction in inflationary expectations as the
slowdown in real growth becomes more convincing to investors.
Obviously, a major household tax reduction at the Federal level
would change this outlook.
Our investment strategy remained consistent over the fiscal year
ended August 31, 1996 with the majority of the investment holdings
focused on large-capitalization global growth companies. We also
steadily reduced the Fund's investment exposure to the more cyclical
growth sectors such as technology and retailing.
In Conclusion
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 our next quarterly
report.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Lawrence R. Fuller)
Lawrence R. Fuller
Vice President and Portfolio Manager
October 2, 1996
IMPORTANT TAX INFORMATION (unaudited)
<TABLE>
The following information summarizes all the per share distributions
paid by Merrill Lynch Fundamental Growth Fund, Inc. during its
taxable year ended August 31, 1996:
<CAPTION>
Record Payable Qualifying Non-Qualifying Total
Date Date Ordinary Income Ordinary Income Ordinary Income
<S> <S> <C> <C> <C>
12/11/95 12/19/95 $.068224 $.190980 $.259204
Additionally, there were no long-term capital gains distributed by
the Fund during the year.
Please retain this information for your records.
</TABLE>
PORTFOLIO INFORMATION
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Johnson & Johnson 3.8%
Merck & Co., Inc. 3.7
SmithKline Beecham PLC (ADR) 3.6
Pfizer Inc. 3.5
The Gillette Co. 3.3
Amgen, Inc. 3.2
Federal National Mortgage Association 3.1
Sara Lee Corporation 2.9
PepsiCo, Inc. 2.9
Wells Fargo & Company 2.8
<PAGE>
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Pharmaceuticals 16.9%
Banking & Financial 5.5
Beverages 5.4
Food 5.1
Financial Services 4.9
Software--Computer 4.3
Insurance 3.8
Medical--Technology 3.8
Cosmetics 3.7
Entertainment 3.3
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, 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. (There is no initial sales charge for
automatic share conversions.) 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).
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.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
8/31/96 5/31/96 8/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* $13.60 $13.57 $11.66 +16.64% +0.22%
ML Fundamental Growth Fund, Inc. Class B Shares* 13.14 13.15 11.40 +15.26 -0.08
ML Fundamental Growth Fund, Inc. Class C Shares* 13.14 13.15 11.40 +15.26 -0.08
ML Fundamental Growth Fund, Inc. Class D Shares* 13.54 13.52 11.64 +16.32 +0.15
Standard & Poor's 500 Index** 651.99 669.12 561.88 +16.04 -2.56
ML Fundamental Growth Fund, Inc. Class A Shares--Total Return* +19.02(1) +0.22
ML Fundamental Growth Fund, Inc. Class B Shares--Total Return* +17.68(1) -0.08
ML Fundamental Growth Fund, Inc. Class C Shares--Total Return* +17.68(1) -0.08
ML Fundamental Growth Fund, Inc. Class D Shares--Total Return* +18.70(1) +0.15
Standard & Poor's 500 Index--Total Return** +18.72 -2.00
<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.
(1)Percent change includes reinvestment of $0.259 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
<PAGE>
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the S&P 500 Total Return Index. Beginning and ending
values are:
10/21/94** 8/96
ML Fundamental Growth Fund, Inc.++--
Class A Shares* $ 9,475 $13,595
ML Fundamental Growth Fund, Inc.++--
Class B Shares* $10,000 $13,774
S&P 500 Total Return Index++++ $10,000 $14,682
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the S&P 500 Total Return Index. Beginning and ending
values are:
12/24/92** 8/96
ML Fundamental Growth Fund, Inc.++--
Class C Shares* $10,000 $13,863
ML Fundamental Growth Fund, Inc.++--
Class D Shares* $ 9,475 $13,522
S&P 500 Total Return Index++++ $10,000 $16,339
[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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
<PAGE>
Year Ended 6/30/96 +27.02% +20.35%
Inception (10/21/94)
through 6/30/96 +24.99 +21.08
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +25.74% +21.74%
Inception (10/21/94)
through 6/30/96 +23.79 +22.25
[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 6/30/96 +25.74% +24.74%
Inception (12/24/92)
through 6/30/96 +10.34 +10.34
[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 6/30/96 +26.68% +20.03%
Inception (12/24/92)
through 6/30/96 +11.19 + 9.50
<PAGE>
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.99 $ 9.62 $0.255 $0.051 - 0.54%
1995 9.62 12.61 -- 0.259 +33.75
1/1/96--8/31/96 12.61 13.60 -- -- + 7.85
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 8/31/96: +43.47%**
</TABLE>
<TABLE>
Performance Summary--Class B Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.85 $ 9.46 $0.255 $0.051 - 0.76%
1995 9.46 12.28 -- 0.259 +32.53
1/1/96--8/31/96 12.28 13.14 -- -- + 7.00
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 8/31/96: +40.74%***
</TABLE>
<TABLE>
Performance Summary--Class C Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <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
1995 9.46 12.28 -- 0.259 +32.53
1/1/96--8/31/96 12.28 13.14 -- -- + 7.00
------ ------
Total $0.255 Total $0.310
<PAGE>
Cumulative total return as of 8/31/96: +38.63%***
</TABLE>
<TABLE>
Performance Summary--Class D Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1995 9.61 12.58 -- 0.259 +33.58
1/1/96--8/31/96 12.58 13.54 -- -- + 7.63
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 8/31/96: +42.71%**
<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.
***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 to Class D Shares, and Class B
Shares of the Fund outstanding prior to October 21, 1994 were
redesignated to Class C Shares.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Advertising 100,000 Interpublic Group of Companies, Inc. $ 3,895,297 $ 4,525,000 1.9%
<PAGE>
Automotive & Truck 20,000 Ek Chor China Motorcycle Co. Ltd.
(ADR)(a) 734,300 152,500 0.1
Banking & Financial 120,000 State Street Boston Corp. 5,884,170 6,495,000 2.7
27,000 Wells Fargo & Company 6,658,277 6,716,250 2.8
------------ ------------ ------
12,542,447 13,211,250 5.5
Beverages 120,000 The Coca-Cola Co. 4,052,375 6,000,000 2.5
240,000 PepsiCo, Inc. 5,601,334 6,900,000 2.9
------------ ------------ ------
9,653,709 12,900,000 5.4
Chemical Producers 30,000 Duracell International Inc. 1,437,230 1,353,750 0.6
Computers 5,000 ++Compaq Computer Corp. 255,300 283,125 0.1
Cosmetics 125,000 The Gillette Co. 5,288,464 7,968,750 3.3
20,000 International Flavors & Fragrances Inc. 973,375 860,000 0.4
------------ ------------ ------
6,261,839 8,828,750 3.7
Electrical Equipment 10,000 Emerson Electric Co. 658,040 837,500 0.3
80,000 General Electric Co. 5,649,799 6,650,000 2.8
------------ ------------ ------
6,307,839 7,487,500 3.1
Electronics 5,000 Intel Corp. 302,268 398,750 0.2
Energy 70,000 Enron Corp. 2,732,512 2,808,750 1.2
Entertainment 110,000 Viacom, Inc. (Class A) 5,426,141 3,437,500 1.4
80,000 The Walt Disney Co. 4,712,519 4,560,000 1.9
------------ ------------ ------
10,138,660 7,997,500 3.3
Financial Services 240,000 Federal National Mortgage Association 7,569,209 7,440,000 3.1
100,000 The Travelers Group Inc. 3,580,882 4,337,500 1.8
------------ ------------ ------
11,150,091 11,777,500 4.9
Food 120,000 ConAgra, Inc. 5,230,114 5,055,000 2.1
220,000 Sara Lee Corporation 7,245,729 6,930,000 2.9
5,000 Wrigley (Wm.) Jr. Co. (Class B) 222,850 270,625 0.1
------------ ------------ ------
12,698,693 12,255,625 5.1
Food Merchandising 100,000 Albertson's, Inc. 3,884,383 4,237,500 1.8
Hotel 25,000 Marriott International, Inc. 1,173,025 1,371,875 0.6
<PAGE>
Household Durables 100,000 Rubbermaid, Inc. 2,944,159 2,650,000 1.1
Household Products 5,000 Colgate-Palmolive Co. 374,261 406,250 0.1
15,000 Kimberly-Clark Corporation 1,139,898 1,175,625 0.5
35,000 Procter & Gamble Co. 2,992,019 3,110,625 1.3
------------ ------------ ------
4,506,178 4,692,500 1.9
Information Processing 25,000 Electronic Data Systems Corp. (f) 1,361,580 1,362,500 0.6
60,000 First Data Corp. (b) 3,869,832 4,680,000 1.9
------------ ------------ ------
5,231,412 6,042,500 2.5
Insurance 40,000 Aetna Inc. (e) 2,840,475 2,645,000 1.1
35,000 American International Group, Inc. 3,011,642 3,325,000 1.4
120,000 Travelers/Aetna Property Casualty Corp. 3,002,742 3,300,000 1.3
------------ ------------ ------
8,854,859 9,270,000 3.8
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Leisure 110,000 PolyGram N.V. (ADR)(a) $ 5,751,369 $ 6,517,500 2.7%
Medical--Technology 185,000 Johnson & Johnson 6,952,924 9,111,250 3.8
Oil Services 10,000 Schlumberger Ltd. 853,740 843,750 0.3
Pharmaceuticals 130,000 ++Amgen, Inc. 4,954,799 7,572,500 3.2
135,000 Merck & Co., Inc. 7,480,604 8,859,375 3.7
120,000 Pfizer Inc. 5,332,413 8,520,000 3.5
5,000 Pharmacia & Upjohn, Inc. (c) 171,550 210,000 0.1
120,000 Schering-Plough Corp. 6,298,583 6,705,000 2.8
150,000 SmithKline Beecham PLC (ADR)(a) 7,759,567 8,737,500 3.6
------------ ------------ ------
31,997,516 40,604,375 16.9
Photography 15,000 Eastman Kodak Co. 953,578 1,087,500 0.4
Pollution Control 20,000 WMX Technologies Inc. 591,174 632,500 0.3
Restaurant 10,000 McDonald's Corp. 365,170 463,750 0.2
Retail Specialty 5,000 Staples Inc. 79,583 98,750 0.0
<PAGE>
Retail Stores 50,000 Wal-Mart Stores, Inc. 1,122,689 1,325,000 0.5
Software--Computer 120,000 ++Compuserve Corporation 3,567,407 1,455,000 0.6
80,000 Computer Associates International, Inc. 3,735,658 4,200,000 1.7
5,000 ++Microsoft Corp. 459,375 612,500 0.3
120,000 Oracle Corp. (d) 4,199,700 4,215,000 1.7
------------ ------------ ------
11,962,140 10,482,500 4.3
Telecommunications 220,000 MCI Communications Corp. 5,583,615 5,527,500 2.3
Toys 100,000 Hasbro, Inc. 3,851,771 3,675,000 1.5
Travel & Lodging 25,000 Carnival Corporation (Class A) 588,075 706,250 0.3
Total Stocks 175,357,545 193,320,000 80.3
Face Amount Short-Term Securities
Commercial Paper* $ 9,000,000 Deer Park Refining L.P., 5.38%
due 9/10/1996 8,986,550 8,986,550 3.8
10,000,000 Delaware Funding Corp., 5.30% due
10/17/1996 9,930,806 9,930,806 4.1
10,000,000 National Fleet Funding Corp., 5.30%
due 10/15/1996 9,933,750 9,933,750 4.1
------------ ------------ ------
28,851,106 28,851,106 12.0
US Government & 17,791,000 Federal Home Loan Mortgage Corp.,
Agency Obligations* 5.18% due 9/03/1996 17,783,320 17,783,320 7.4
Total Short-Term Securities 46,634,426 46,634,426 19.4
Total Investments $221,991,971 239,954,426 99.7
============
Other Assets Less Liabilities 678,475 0.3
------------ ------
Net Assets $240,632,901 100.0%
============ ======
<FN>
++Non-income producing security.
*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).
(b)First Data Corp. acquired First Financial Management Corp.
(c)Upjohn Co. merged with Pharmacia AB.
(d)Formerly Oracle Systems Corp.
(e)Formerly Aetna Life & Casualty Company.
(f)Formerly General Motors Corp. (Class E).
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$221,991,971) (Note 1a) $239,954,426
Receivables:
Capital shares sold $ 1,125,999
Dividends 281,452 1,407,451
------------
Deferred organization expenses (Note 1f) 25,385
Prepaid registration fees and other assets (Note 1f) 35,140
------------
Total assets 241,422,402
------------
Liabilities: Payables:
Capital shares redeemed 328,722
Distributor (Note 2) 144,632
Investment adviser (Note 2) 128,195 601,549
------------
Accrued expenses and other liabilities 187,952
------------
Total liabilities 789,501
------------
Net Assets: Net assets $240,632,901
============
Net Assets Class A Shares of capital stock, $0.10 par value,
Consist of: 100,000,000 shares authorized $ 346,017
Class B Shares of capital stock, $0.10 par value,
100,000,000 shares authorized 887,440
Class C Shares of capital stock, $0.10 par value,
100,000,000 shares authorized 411,262
Class D Shares of capital stock, $0.10 par value,
100,000,000 shares authorized 169,091
Paid-in capital in excess of par 197,432,639
Accumulated investment loss--net (574,779)
Undistributed realized capital gains on investments--net 23,998,776
Unrealized appreciation on investments--net 17,962,455
------------
Net assets $240,632,901
============
<PAGE>
Net Asset Value: Class A--Based on net assets of $47,048,152 and 3,460,171
shares outstanding $ 13.60
============
Class B--Based on net assets of $116,641,045 and 8,874,396
shares outstanding $ 13.14
============
Class C--Based on net assets of $54,052,102 and 4,112,618
shares outstanding $ 13.14
============
Class D--Based on net assets of $22,891,602 and 1,690,916
shares outstanding $ 13.54
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended August 31, 1996
<S> <S> <C>
Investment Dividends (net of $19,631 foreign withholding tax) $ 2,393,883
Income Interest and discount earned 737,227
(Notes 1d & 1e): -----------
Total income 3,131,110
-----------
Expenses: Investment advisory fees (Note 2) 1,259,493
Account maintenance and distribution fees--Class B (Note 2) 920,937
Account maintenance and distribution fees--Class C (Note 2) 503,737
Transfer agent fees--Class B (Note 2) 251,568
Registration fees (Note 1f) 138,599
Transfer agent fees--Class C (Note 2) 133,830
Printing and shareholder reports 108,225
Professional fees 81,036
Transfer agent fees--Class A (Note 2) 77,046
Accounting services (Note 2) 57,139
Account maintenance fees--Class D (Note 2) 44,389
Transfer agent fees--Class D (Note 2) 40,736
Directors' fees and expenses 35,332
Amortization of organization expenses (Note 1f) 20,308
Custodian fees 17,228
Other 16,235
-----------
Total expenses 3,705,838
-----------
Investment loss--net (574,728)
-----------
<PAGE>
Realized & Realized gain from investments--net 25,808,365
Unrealized Gain on Change in unrealized appreciation on investments--net 3,022,827
Investments--Net -----------
(Notes 1b, 1c, Net Increase in Net Assets Resulting from Operations $28,256,464
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: 1996 1995
<S> <S> <C> <C>
Operations: Investment loss--net $ (574,728) $ (647,006)
Realized gain on investments and foreign currency
transactions--net 25,808,365 2,630,765
Change in unrealized appreciation/depreciation on
investments--net 3,022,827 15,920,146
------------ ------------
Net increase in net assets resulting from operations 28,256,464 17,903,905
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (541,580) (81,095)
(Note 1g): Class B (1,655,483) (445,476)
Class C (1,010,551) (1,196,817)
Class D (323,823) (213,366)
------------ ------------
Net decrease in net assets resulting from distributions
to shareholders (3,531,437) (1,936,754)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 73,421,174 70,633,396
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 98,146,201 86,600,547
Beginning of year 142,486,700 55,886,153
------------ ------------
End of year $240,632,901 $142,486,700
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
Class A++++ Class B++++
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.66 $ 9.99 $ 11.40 $ 9.85
Operating -------- -------- -------- --------
Performance: Investment income (loss)--net .07 -- (.07) (.09)
Realized and unrealized gain on investments--net 2.13 1.98 2.07 1.95
-------- -------- -------- --------
Total from investment operations 2.20 1.98 2.00 1.86
-------- -------- -------- --------
Less distributions from realized gain on
investments--net (.26) (.31) (.26) (.31)
-------- -------- -------- --------
Net asset value, end of period $ 13.60 $ 11.66 $ 13.14 $ 11.40
======== ======== ======== ========
Total Investment Based on net asset value per share 19.02% 20.55%+++ 17.68% 19.60%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.12% 1.46%* 2.16% 2.48%*
Net Assets ======== ======== ======== ========
Investment income (loss)--net .51% .02%* (.54%) (.95%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 47,048 $ 21,288 $116,641 $ 63,748
Data: ======== ======== ======== ========
Portfolio turnover 82.10% 80.41% 82.10% 80.41%
======== ======== ======== ========
Average commission rate paid+++++ $ 0623 -- $ .0623 --
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<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. 1992++ to
For the Year Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.40 $ 9.96 $ 9.86 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment loss--net (.07) (.09) (.05) (.05)
Realized and unrealized gain (loss) on investments
--net 2.07 1.84 .15 (.09)
-------- -------- -------- --------
Total from investment operations 2.00 1.75 .10 (.14)
-------- -------- -------- --------
Less distributions from realized gain on investments
--net (.26) (.31) -- --
-------- -------- -------- --------
Net asset value, end of period $ 13.14 $ 11.40 $ 9.96 $ 9.86
======== ======== ======== ========
Total Investment Based on net asset value per share 17.68% 18.28% 1.01% (1.40%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 2.15% 2.44% 2.35% 2.79%*
Net Assets ======== ======== ======== ========
Investment loss--net (.57%) (.88%) (.52%) (.83%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 54,052 $ 44,220 $ 47,263 $ 45,736
Data: ======== ======== ======== ========
Portfolio turnover 82.10% 80.41% 112.68% 64.09%
======== ======== ======== ========
Average commission rate paid+++++ $ .0623 -- -- --
======== ======== ======== ========
<PAGE>
<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. 1992++ to
For the Year Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.64 $ 10.09 $ 9.91 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income (loss)--net .03 (.01) .03 --
Realized and unrealized gain (loss) on
investments--net 2.13 1.87 .15 (.09)
-------- -------- -------- --------
Total from investment operations 2.16 1.86 .18 (.09)
-------- -------- -------- --------
Less distributions from realized gain on investments
--net (.26) (.31) -- --
-------- -------- -------- --------
Net asset value, end of period $ 13.54 $ 11.64 $ 10.09 $ 9.91
======== ======== ======== ========
Total Investment Based on net asset value per share 18.70% 19.15% 1.82% (.90%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.37% 1.65% 1.58% 2.03%*
Net Assets: ======== ======== ======== ========
Investment income (loss)--net .24% (.10%) .31% (.04%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 22,892 $ 13,231 $ 8,623 $ 6,930
Data: ======== ======== ======== ========
Portfolio turnover 82.10% 80.41% 112.68% 64.09%
======== ======== ======== ========
Average commission rate paid+++++ $ .0623 -- -- --
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
</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.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $646,955 has been reclassified from undistributed net realized
capital gains to accumulated net investment loss and $49 has been
reclassified from paid-in capital in excess of par to undistributed
net realized capital gains. These reclassifications have no effect
on net assets or net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<PAGE>
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.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended August 31, 1996, 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 $ 516 $ 6,942
Class D $9,460 $117,694
<PAGE>
For the year ended August 31, 1996, MLPF&S received contingent
deferred sales charges of $175,285 and $10,678 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $15,900 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
August 31, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, 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, 1996 were $177,383,332 and
$148,425,248, respectively.
Net realized and unrealized gains (losses) as of August 31, 1996
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $25,809,088 $17,962,455
Short-term investments (723) --
----------- -----------
Total $25,808,365 $17,962,455
=========== ===========
As of August 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $17,952,138, of which $24,336,923
related to appreciated securities and $6,384,785 related to
depreciated securities. At August 31, 1996, the aggregate cost of
investments for Federal income tax purposes was $222,002,288.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
were $73,421,174 and $70,633,396, for the years ended August 31,
1996 and August 31, 1995, respectively.
Transactions in capital shares for each class were as follows:
<PAGE>
Class A Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 2,291,835 $29,954,753
Shares issued to shareholders
in reinvestment of distributions. 41,134 522,810
----------- -----------
Total issued 2,332,969 30,477,563
Shares redeemed (698,358) (8,998,807)
----------- -----------
Net increase 1,634,611 $21,478,756
=========== ===========
Class A Shares for the Period Dollar
Oct. 21, 1994++ to Aug. 31, 1995 Shares Amount
Shares sold 2,009,549 $21,624,913
Shares issued to shareholders
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.
Class B Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 5,820,916 $73,664,245
Shares issued to shareholders
in reinvestment of distributions. 121,775 1,507,570
----------- -----------
Total issued 5,942,691 75,171,815
Shares redeemed (2,647,233) (33,330,378)
Automatic conversion of
shares (14,867) (185,102)
----------- -----------
Net increase 3,280,591 $41,656,335
=========== ===========
Class B Shares for the Period Dollar
Oct. 21, 1994++ to Aug. 31, 1995 Shares Amount
<PAGE>
Shares sold 8,004,244 $80,928,047
Shares issued to shareholders
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, 1996 Shares Amount
Shares sold 1,167,623 $14,787,083
Shares issued to shareholders
in reinvestment of distributions. 71,863 889,667
----------- -----------
Total issued 1,239,486 15,676,750
Shares redeemed (1,007,151) (12,689,514)
----------- -----------
Net increase 232,335 $ 2,987,236
=========== ===========
Class C Shares for the Year Dollar
Ended August 31, 1995 Shares Amount
Shares sold 2,740,277 $27,157,046
Shares issued to shareholders
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 D Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
<PAGE>
Shares sold 953,782 $12,474,082
Automatic conversion
of shares 14,515 185,102
Shares issued to shareholders
in reinvestment of distributions. 20,994 266,204
----------- -----------
Total issued 989,291 12,925,388
Shares redeemed (434,952) (5,626,541)
----------- -----------
Net increase 554,339 $ 7,298,847
=========== ===========
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 shareholders
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
=========== ===========
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, 1996, 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, 1996 by correspondence with the custodian. 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, 1996, 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)
Princeton, New Jersey
October 2, 1996
</AUDIT-REPORT>
