MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
FUND LOGO
Semi-Annual Report
February 29, 1996
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
<PAGE>
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
DEAR SHAREHOLDER
For the quarter ended February 29, 1996, total returns for Merrill
Lynch Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and
Class D Shares were +5.06%, +4.70%, +4.70% and +4.99%, respectively,
underperforming the total return of +6.38% 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 underperformance resulted from a lack of investment
exposure in the large integrated oil companies and the regional Bell
telephone companies. Together, these two sectors represented more
than 10% of the S&P 500 and experienced substantial absolute and
relative stock price appreciation. For the February quarter, the
Fund outperformed the median total return of the Lipper Growth Funds
Group Average. The Fund was fully invested during the quarter and at
February 29, 1996 had cash reserves of 3.7% compared to 6.2% at the
end of the November quarter.
The Environment
The slowdown in real economic growth, which we focused on in our
November 30, 1995 shareholder letter, continued throughout the
February quarter. The Federal Government shutdown, the severe winter
weather and high-profile corporate downsizings combined to reduce
consumer confidence and the pace of overall consumer spending. This
appears to be a period of very slow growth although lower prices
spur consumers to increase purchases, as they did with motor
vehicles in February. This slow real growth environment could
continue for an extended period unless there is a change caused by
monetary easing or fiscal policy actions.
Investment Strategy
We primarily focus on large-capitalization global growth companies
which have demonstrated the potential to produce consistent annual
growth in earnings even through periods of slow real economic growth
in the United States. Pharmaceuticals, which represented 20.0% of
the Fund's net assets at February 29, 1996, comprised the largest
industry weighting. The top ten industry sectors equaled 61.3% of
net assets at quarter-end, with companies in the consumer non-
durables and services industry sectors representing over 60% of the
Fund's net assets. We increased the Fund's technology sector
weighting to a level modestly above the sector weighting in the S&P
500 by taking advantage of declines in technology stock prices to
add to our holdings.
<PAGE>
Portfolio Matters
There were 47 companies represented in the Fund's equity holdings at
the close of the three months ended February 29, 1996. During the
quarter, we added four companies and eliminated three others from
the Fund's portfolio, realizing capital gains on all the companies
eliminated. Great Lakes Chemical Corp. was sold because of our
concerns about the possibility of a deterioration in its growth
outlook for 1996, while Times Mirror Co. was sold because of a
relatively high valuation. We sold CUC International, Inc. after the
company's senior management announced the simultaneous acquisition
of an educational software developer and a leading entertainment
software developer. We believe the acquisitions were too expensive
and increased the risk characteristics of the future operations of
CUC International. Companies added to the Fund included Hasbro,
Inc., Rubbermaid, Inc., SmithKline Beecham PLC, and Wal-Mart Stores,
Inc. We invested in Hasbro after Mattel, Inc. announced plans to
acquire the company. Hasbro, in our opinion, has the ability to
increase its rates of return and continues to be an attractive
acquisition target. Rubbermaid was added because of prospects of a
higher rate of growth in earnings, from corporate restructuring and
lower manufacturing costs, over the next three years--five years.
SmithKline Beecham appeared to be an attractively valued
pharmaceutical company with excellent earnings growth prospects from
restructuring and new products. We decided to include Wal-Mart
Stores, Inc. in the Fund's portfolio because of the currently
attractive valuation.
In Conclusion
We continue to focus the Fund's investments on companies that are
primarily large-capitalization, high-quality organizations with a
global marketing orientation. The managements of many of these
companies have demonstrated the ability to continue to increase
annual earnings at an above-average rate even through major
slowdowns in real economic growth. Most of these companies are in
the consumer non-durable goods and services and commercial services
sectors of the economy and represent the majority of the Fund's
investment holdings.
We thank you for your continued investment in Merrill Lynch
Fundamental Growth Fund, Inc., and we look forward to discussing our
investment strategy and activities in our upcoming quarterly
report.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Lawrence R. Fuller)
Lawrence R. Fuller
Vice President and Portfolio Manager
March 28, 1996
PORTFOLIO INFORMATION
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Johnson & Johnson 3.9%
The Travelers Group Inc. 3.8
MCI Communications Corp. 3.8
PepsiCo, Inc. 3.6
Pharmacia & Upjohn, Inc. 3.6
General Electric Co. 3.6
Merck & Co., Inc. 3.5
Pfizer Inc. 3.4
Amgen, Inc. 3.4
The Coca-Cola Co. 3.4
<PAGE>
Percent of
Ten Largest Industries Net Assets
Pharmaceuticals 20.0%
Beverages 7.0
Software--Computer 5.9
Information Processing 4.9
Retail Specialty 4.6
Electrical Equipment 4.0
Medical--Technology 3.9
Financial Services 3.8
Telecommunications 3.8
Household Products 3.4
Equity Portfolio Changes for the Quarter Ended
February 29, 1996
Additions
Hasbro, Inc.
Rubbermaid, Inc.
SmithKline Beecham PLC (ADR)
Wal-Mart Stores, Inc.
Deletions
CUC International, Inc.
Great Lakes Chemical Corp.
Times Mirror Co. (Class A)
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. 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/95 +33.75% +26.73%
Inception (10/21/94)
through 12/31/95 +26.99 +21.38
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/95 +32.53% +28.53%
Inception (10/21/94)
through 12/31/95 +25.79 +23.38
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/95 +32.53% +31.53%
Inception (12/24/92)
through 12/31/95 + 9.01 + 9.01
[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 12/31/95 +33.58% +26.57%
Inception (12/24/92)
through 12/31/95 +9.86 +7.90
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<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--2/29/96 12.61 13.22 -- -- + 4.84
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 2/29/96: +39.46%**
<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.
</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--2/29/96 12.28 12.84 -- -- + 4.56
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 2/29/96: +37.52%**
<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.
</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--2/29/96 12.28 12.84 -- -- + 4.56
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 2/29/96: +35.46%**
<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
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
***As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class B Shares of the Fund outstanding prior to
October 21, 1994were redesignated Class C Shares.
</TABLE>
PERFORMANCE DATA (concluded)
<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--2/29/96 12.58 13.18 -- -- + 4.77
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 2/29/96: +38.91%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
***As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994were redesignated Class D Shares.
</TABLE>
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
2/29/96 11/30/95 2/28/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* $13.22 $12.84 $9.97 +32.60% +2.96%
ML Fundamental Growth Fund, Inc. Class B Shares* 12.84 12.52 9.80 +31.02 +2.56
ML Fundamental Growth Fund, Inc. Class C Shares* 12.84 12.52 9.80 +31.02 +2.56
ML Fundamental Growth Fund, Inc. Class D Shares* 13.18 12.81 9.97 +32.20 +2.89
Standard & Poor's 500 Index** 640.43 605.37 487.39 +31.40 +5.79
ML Fundamental Growth Fund, Inc. Class A Shares--Total Return* +35.30(1) +5.06
ML Fundamental Growth Fund, Inc. Class B Shares--Total Return* +33.76(1) +4.70
ML Fundamental Growth Fund, Inc. Class C Shares--Total Return* +33.76(1) +4.70
ML Fundamental Growth Fund, Inc. Class D Shares--Total Return* +34.90(1) +4.99
Standard & Poor's 500 Index--Total Return** +34.70 +6.38
<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>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <S> <S> <C> <C> <C>
Advertising 100,000 Interpublic Group of Companies, Inc. $ 3,895,297 $ 4,212,500 2.2%
Automotive & Truck 20,000 Ek Chor China Motorcycle Co. Ltd.
(ADR)(a) 734,300 275,000 0.1
Banking & Financial 10,000 State Street Boston Corp. 352,275 452,500 0.2
Beverages 80,000 The Coca-Cola Co. 4,594,850 6,460,000 3.4
110,000 PepsiCo, Inc. 4,960,134 6,957,500 3.6
------------ ------------ ---
9,554,984 13,417,500 7.0
Chemical Producers 100,000 Duracell International Inc. 4,447,287 5,162,500 2.7
Computers 120,000 ++Compaq Computer Corp. 4,814,173 6,075,000 3.2
Cosmetics 110,000 The Gillette Co. 4,399,500 5,953,750 3.1
10,000 International Flavors & Fragrances Inc. 483,100 501,250 0.3
------------ ------------ ---
4,882,600 6,455,000 3.4
Electrical Equipment 10,000 Emerson Electric Co. 658,040 778,750 0.4
90,000 General Electric Co. 6,133,315 6,795,000 3.6
------------ ------------ ---
6,791,355 7,573,750 4.0
<PAGE>
Electronics 100,000 Intel Corp. 6,140,220 5,875,000 3.0
20,000 Intel Corp. (Warrants)(d) 552,500 520,000 0.3
------------ ------------ ---
6,692,720 6,395,000 3.3
Energy 100,000 Enron Corp. 3,806,500 3,662,500 1.9
Entertainment 100,000 ++Viacom, Inc. (Class A) 5,086,791 3,887,500 2.0
20,000 The Walt Disney Co. 1,141,200 1,310,000 0.7
------------ ------------ ---
6,227,991 5,197,500 2.7
Financial Services 110,000 The Travelers Group Inc. 4,952,281 7,356,250 3.8
Food 10,000 Wrigley (Wm.) Jr. Co. (Class B) 436,070 587,500 0.3
Food Merchandising 20,000 Albertson's, Inc. 590,663 740,000 0.4
Hotel 25,000 Marriott International, Inc. 925,240 1,228,125 0.6
Household Durables 50,000 Rubbermaid, Inc. 1,434,655 1,406,250 0.7
Household Products 10,000 Colgate-Palmolive Co. 747,686 782,500 0.4
70,000 Procter & Gamble Co. 4,702,488 5,740,000 3.0
------------ ------------ ---
5,450,174 6,522,500 3.4
Information Processing 85,000 First Data Corp. (b) 3,997,041 5,886,250 3.1
25,000 General Motors Corp. (Class E) 1,172,750 1,428,125 0.8
50,000 ++Primark Corporation 1,356,250 1,975,000 1.0
------------ ------------ ---
6,526,041 9,289,375 4.9
Insurance 20,000 American International Group, Inc. 1,619,613 1,932,500 1.0
Leisure 80,000 PolyGram N.V. (ADR) (a) 3,976,601 4,670,000 2.4
Medical--Technology 80,000 Johnson & Johnson 5,769,519 7,480,000 3.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
<PAGE>
Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <S> <S> <C> <C> <C>
Oil Services 10,000 Schlumberger Ltd. $ 616,850 $ 728,750 0.4%
Pharmaceuticals 110,000 ++Amgen, Inc. 3,824,831 6,558,750 3.4
100,000 Merck & Co., Inc. 5,218,550 6,625,000 3.5
100,000 Pfizer Inc. 3,889,338 6,587,500 3.4
165,000 Pharmacia & Upjohn, Inc. (c) 4,902,245 6,909,375 3.6
110,000 Schering-Plough Corp. 5,723,607 6,173,750 3.2
100,000 SmithKline Beecham PLC (ADR)(a) 5,403,712 5,475,000 2.9
------------ ------------ ------
28,962,283 38,329,375 20.0
Photography 90,000 Eastman Kodak Co. 5,083,489 6,435,000 3.4
Pollution Control 35,000 WMX Technologies Inc. 1,034,554 997,500 0.5
Restaurant 10,000 McDonald's Corp. 365,170 500,000 0.3
Retail Specialty 200,000 ++Staples Inc. 3,616,547 5,175,000 2.7
150,000 ++Toys 'R' Us, Inc. 3,794,885 3,581,250 1.9
------------ ------------ ------
7,411,432 8,756,250 4.6
Retail Stores 120,000 Wal-Mart Stores, Inc. 2,712,830 2,550,000 1.3
Software--Computer 70,000 Computer Associates International, Inc. 4,380,213 4,812,500 2.5
65,000 ++Microsoft Corp. 6,010,537 6,410,625 3.4
------------ ------------ ------
10,390,750 11,223,125 5.9
Telecommunications 250,000 MCI Communications Corp. 5,799,521 7,281,250 3.8
Toys 20,000 Hasbro, Inc. 838,076 690,000 0.3
170,000 Mattel, Inc. 4,094,705 5,652,500 3.0
------------ ------------ ------
4,932,781 6,342,500 3.3
Travel & Lodging 45,000 Carnival Corporation (Class A) 1,053,675 1,265,625 0.7
Total Stocks 152,243,674 184,500,625 96.3
Face Amount Short-Term Securities
US Government & $7,482,000 Federal Home Loan Mortgage Corp., 5.33%
Agency Obligations* due 3/01/1996 7,482,000 7,482,000 3.9
<PAGE>
Total Short-Term Securities 7,482,000 7,482,000 3.9
Total Investments $159,725,674 191,982,625 100.2
============
Liabilities in Excess of Other Assets (469,823) (0.2)
------------ ------
Net Assets $191,512,802 100.0%
============ ======
<FN>
*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.
++Non-income producing security.
(a)American Depositary Receipts (ADR).
(b)First Data Corp. acquired First Financial Management Corp.
(c)Upjohn Co. merged with Pharmacia AB.
(d)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock. The purchase price and the number of shares
are subject to adjustment under certain conditions until the
expiration date.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 29, 1996
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$159,725,674) (Note 1a) $191,982,625
Receivables:
Capital shares sold $ 997,726
Dividends 167,503 1,165,229
------------
Deferred organization expenses (Note 1f) 45,693
Prepaid registration fees and other assets (Note 1f) 66,972
------------
Total assets 193,260,519
------------
<PAGE>
Liabilities: Payables:
Securities purchased 1,094,950
Capital shares redeemed 279,063
Distributor (Note 2) 116,660
Investment adviser (Note 2) 98,548 1,589,221
------------
Accrued expenses and other liabilities 158,496
------------
Total liabilities 1,747,717
------------
Net Assets: Net assets $191,512,802
============
Net Assets Class A Shares of capital stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 238,829
Class B Shares of capital stock, $0.10 par value, 100,000,000
shares authorized 711,836
Class C Shares of capital stock, $0.10 par value, 100,000,000
shares authorized 395,091
Class D Shares of capital stock, $0.10 par value, 100,000,000
shares authorized 135,062
Paid-in capital in excess of par 153,788,727
Accumulated investment loss--net (1,198,965)
Undistributed realized capital gains on investments--net 5,185,271
Unrealized appreciation on investments--net 32,256,951
------------
Net assets $191,512,802
============
Net Asset Value: Class A--Based on net assets of $31,563,799 and 2,388,285
shares outstanding $ 13.22
============
Class B--Based on net assets of $91,417,580 and 7,118,356
shares outstanding $ 12.84
============
Class C--Based on net assets of $50,736,176 and 3,950,907
shares outstanding $ 12.84
============
Class D--Based on net assets of $17,795,247 and 1,350,623
shares outstanding $ 13.18
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended Februrary 29, 1996
<CAPTION>
<S> <S> <C>
Investment Dividends $ 867,063
Income Interest and discount earned 192,463
(Notes 1d & 1e): ------------
Total income 1,059,526
------------
<PAGE>
Expenses: Investment advisory fees (Note 2) 543,881
Account maintenance and distribution fees--Class B (Note 2) 389,495
Account maintenance and distribution fees--Class C (Note 2) 239,165
Transfer agent fees--Class B (Note 2) 100,579
Printing and shareholder reports 64,134
Transfer agent fees--Class C (Note 2) 59,726
Accounting services (Note 2) 40,399
Registration fees (Note 1f) 38,950
Professional fees 32,801
Transfer agent fees--Class A (Note 2) 28,019
Account maintenance fees--Class D (Note 2) 19,216
Transfer agent fees--Class D (Note 2) 16,408
Directors' fees and expenses 13,737
Amortization of organization expenses (Note 1f) 9,410
Custodian fees 7,698
Other 7,867
------------
Total expenses 1,611,485
------------
Investment loss--net (551,959)
------------
Realized & Realized gain from investments--net 6,347,955
Unrealized Gain on Change in unrealized appreciation on investments--net 17,317,323
Investments--Net ------------
(Notes 1b, 1c, Net Increase in Net Assets Resulting from Operations $23,113,319
1e & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Feb. 29, 1996 Aug. 31, 1995
<S> <S> <C> <C>
Operations: Investment loss--net $ (551,959) $ (647,006)
Realized gain on investments and foreign currency
transactions--net 6,347,955 2,630,765
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 17,317,323 15,920,146
------------ ------------
Net increase in net assets resulting from operations 23,113,319 17,903,905
------------ ------------
<PAGE>
Distributions to Realized gain on investments--net:
Shareholders Class A (541,580) (81,095)
(Note 1g): Class B (1,655,484) (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 (3,531,438) (1,936,754)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 29,444,221 70,633,396
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 49,026,102 86,600,547
Beginning of period 142,486,700 55,886,153
------------ ------------
End of period $191,512,802 $142,486,700
============ ============
</TABLE>
<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 Six Months Oct. 21, Six Months Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Feb. 29, Aug. 31, Feb. 29, 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 .01 -- (.06) (.09)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.81 1.98 1.76 1.95
-------- -------- -------- --------
Total from investment operations 1.82 1.98 1.70 1.86
-------- -------- -------- --------
Less distributions from realized gain on
investments--net (.26) (.31) (.26) (.31)
-------- -------- -------- --------
Net asset value, end of period $ 13.22 $ 11.66 $ 12.84 $ 11.40
======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 15.69%+++ 20.55%+++ 14.99%+++ 19.60%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.12%* 1.46%* 2.16%* 2.48%*
Net Assets: ======== ======== ======== ========
Investment income (loss)--net .15%* .02%* (.90%)* (.95%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 31,564 $ 21,288 $ 91,418 $ 63,748
Data: ======== ======== ======== ========
Portfolio turnover 30.47% 80.41% 30.47% 80.41%
======== ======== ======== ========
Average commission rate paid $ .0620 --+++++ $ .0620 --+++++
======== ======== ======== ========
<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.
+++++Data not obtainable for this period.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C
For the
For the Period
The following per share data and ratios have been derived Six Months Dec. 24,
from information provided in the financial statements. Ended For the Year 1992++ to
Feb. 29, 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 (.05) (.09) (.05) (.05)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 1.75 1.84 .15 (.09)
-------- -------- -------- --------
Total from investment operations 1.70 1.75 .10 (.14)
-------- -------- -------- --------
Less distributions from realized gain on
investments--net (.26) (.31) -- --
-------- -------- -------- --------
Net asset value, end of period $ 12.84 $ 11.40 $ 9.96 $ 9.86
======== ======== ======== ========
Total Investment Based on net asset value per share 14.99%+++ 18.28% 1.01% (1.40%)+++
Return:** ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses 2.15%* 2.44% 2.35% 2.79%*
Net Assets: ======== ======== ======== ========
Investment loss--net (.89%)* (.88%) (.52%) (.83%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 50,736 $ 44,220 $ 47,263 $ 45,736
Data: ======== ======== ======== ========
Portfolio turnover 30.47% 80.41% 112.68% 64.09%
======== ======== ======== ========
Average commission rate paid $ .0620 --+++++ --+++++ --+++++
======== ======== ======== ========
<CAPTION>
Class D
For the
For the Period
The following per share data and ratios have been derived Six Months Dec. 24,
from information provided in the financial statements. Ended For the Year 1992++ to
Feb. 29, 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 (.01) (.01) .03 --
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 1.81 1.87 .15 (.09)
-------- -------- -------- --------
Total from investment operations 1.80 1.86 .18 (.09)
-------- -------- -------- --------
Less distributions from realized gain on
investments--net (.26) (.31) -- --
-------- -------- -------- --------
Net asset value, end of period $ 13.18 $ 11.64 $ 10.09 $ 9.91
======== ======== ======== ========
Total Investment Based on net asset value per share 15.54%+++ 19.15% 1.82% (.90%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.37%* 1.65% 1.58% 2.03%*
======== ======== ======== ========
Investment income (loss)--net (.10%)* (.10%) .31% (.04%)*
======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of period (in thousands) $ 17,795 $ 13,231 $ 8,623 $ 6,930
Data: ======== ======== ======== ========
Portfolio turnover 30.47% 80.41% 112.68% 64.09%
======== ======== ======== ========
Average commission rate paid $ .0620 --+++++ --+++++ --+++++
======== ======== ======== ========
<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.
+++++Data not obtainable for this period.
See Notes to Financial Statements.
</TABLE>
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. These unaudited
financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of results for
the interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select Pricing SM System. Shares of Class A and Class
D are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. All
classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class B,
Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares
also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
<PAGE>
(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.
* 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.
<PAGE>
* 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.
(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.
<PAGE>
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.
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
For the six months ended February 29, 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 $ 230 $ 2,984
Class D $ 3,797 $40,395
For the six months ended February 29, 1996, MLPF&S received
contingent deferred sales charges of $60,875 and $3,707 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $9,300 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended February 29, 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 six months ended February 29, 1996 were $74,757,079 and
$49,451,737, respectively.
Net realized and unrealized gains (losses) as of February 29, 1996
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 6,347,959 $32,256,951
Short-term investments (4) --
----------- -----------
Total $ 6,347,955 $32,256,951
=========== ===========
<PAGE>
As of February 29, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $32,256,951, of which $34,947,262
related to appreciated securities and $2,690,311 related to
depreciated securities. At February 29, 1996, the aggregate cost of
investments for Federal income tax purposes was $159,725,674.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
were $29,444,221 and $70,633,396 for the six months ended February
29, 1996 and for the year ended August 31, 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
February 29, 1996 Shares Amount
Shares sold 916,135 $11,504,961
Shares issued to share-
holders in reinvestment
of distributions 41,134 522,810
----------- -----------
Total issued 957,269 12,027,771
Shares redeemed (394,544) (4,913,538)
----------- -----------
Net increase 562,725 $ 7,114,233
=========== ===========
Class A Shares for the
Period October 21, 1994++ to Dollar
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
Six Months Ended Dollar
February 29, 1996 Shares Amount
Shares sold 2,818,695 $34,541,130
Shares issued to share-
holders in reinvestment
of distributions 121,774 1,507,570
----------- -----------
Total issued 2,940,469 36,048,700
Shares redeemed (1,407,970) (17,233,887)
Automatic conversion of
shares (7,948) (96,721)
----------- -----------
Net increase 1,524,551 $18,718,092
=========== ===========
Class B Shares for the
Period October 21, 1994++ to Dollar
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
Six Months Ended Dollar
February 29, 1996 Shares Amount
Shares sold 578,816 $ 7,124,767
Shares issued to share-
holders in reinvestment
of distributions 71,863 889,667
----------- -----------
Total issued 650,679 8,014,434
Shares redeemed (580,055) (7,137,039)
----------- -----------
Net increase 70,624 $ 877,395
=========== ===========
<PAGE>
Class C Shares for the
Year Ended Dollar
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 D Shares for the Six Months Dollar
Ended February 29, 1996 Shares Amount
Shares sold 437,084 $ 5,563,227
Automatic conversion
of shares 7,767 96,721
Shares issued to share-
holders in reinvestment
of distributions 20,994 266,204
----------- -----------
Total issued 465,845 5,926,152
Shares redeemed (251,799) (3,191,651)
----------- -----------
Net increase 214,046 $ 2,734,501
=========== ===========
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
=========== ===========
<PAGE>
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
Michael J. Hennewinkel, Secretary
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
