MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Annual Report
August 31, 1997
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
#16465 -- 8/97
[RECYCLE LOGO OMITTED]
Printed on post-consumer recycled paper
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
DEAR SHAREHOLDER
Fiscal Year in Review
For the fiscal year ended August 31, 1997, total returns for Merrill
Lynch Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and
Class D Shares were +39.24%, +37.95%, +37.90% and +38.90%,
respectively. The Fund substantially outperformed the Lipper
Analytical Services' Growth Funds Average total return of +33.52% and
modestly underperformed the unmanaged Standard & Poor's 500 Index
total return of +40.53% for the fiscal year. (Fund 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.)
Positive portfolio returns during the first half of the Fund's fiscal
year resulted from a relatively meaningful weighting in the
pharmaceutical industry, as well as investments in the household
products, cosmetics, beverages, and financial services industries.
Among the important holdings in these sectors were Pfizer, Inc., Merck
& Co., Inc., The Gillette Co., The Coca-Cola Co., Procter & Gamble
Co., Travelers Group Inc., American International Group, Inc. and US
Bancorp.
During the second half of the fiscal year ended August 31, 1997, our
portfolio strategy shifted more toward several cyclical growth
industries. We increased the Fund's weightings in the computer
equipment, communications equipment, and oil services and exploration
equipment industries. At year-end 1996, surveys of capital investment
intentions reflected the likelihood of an increase in spending during
1997 on networked computer systems, advanced digital wireless
communication infrastructure and energy exploration activities. During
the second half of the fiscal year, the Fund's common stock holdings
of COMPAQ Computer Corp., Cisco Systems, Inc., Lucent Technologies,
Inc., Microsoft Corp., Intel Corp., Schlumberger Ltd., Newbridge
Networks Corp. and Northern Telecom Ltd. were significant contributors
to the Fund's performance.
The Environment
We continue to expect positive, but moderate, overall real growth for
the US economy with modest levels of price inflation. Consumer
spending could be boosted by the recently enacted decrease in capital
gains tax rates on securities transactions. The recent rise in real
wages may be caused by the demand for skilled labor in the
communications equipment and computer industries as well as the
continued improvement in inflation. Growth in commercial capital
spending on communications infrastructure and networked computer
systems and software seems to be continuing at a relatively rapid
pace, even though the year-to-year rate of growth in overall corporate
profits is slowing. The US economy appears to be one of the strongest
around the globe, with a relatively strong and stable foreign exchange
value supported by meaningful and balanced real economic growth.
Investment Strategy
We continue to focus primarily on large-capitalization growth
companies where we think the valuations are reasonable relative to
expectations of above-average rates of growth in earnings. We
concentrated portfolio holdings on high-quality organizations where we
believe the managements have the experience and resources to grow
successfully in the emerging markets of Latin America, Asia and
Eastern Europe, as well as in the developed markets of the world.
The Fund's significant weightings in corporations in the
communications equipment, computer software, oil services and computer
industries contributed strongly to the positive investment returns in
the quarter ended August 31, 1997. The most significant change in
strategy during the quarter was a reduction in the Fund's
pharmaceutical industry weighting, because of our concerns about
potential meaningful declines in valuation ratios for Pfizer, Inc. and
the other pharmaceutical companies in the Fund.
Portfolio Review
We added three companies and eliminated one from the portfolio during
the August 31, 1997 quarter. We added BankAmerica Corporation, CVS
Corporation and American Express Company. BankAmerica Corp. was added
because of the attractive valuation relative to expectations of above-
average growth rates in earnings from internal restructuring of
operations. CVS Corporation, one of the major pharmaceutical
retailers, was added because of its attractive valuation relative to
expectations of above-average rates of return over the next five
years. We invested in American Express Company because of the
attractive valuation relative to expectations of above-average growth
rates in earnings from asset management as well as travel-related
business services. Hasbro, Inc. was eliminated at a capital gain given
the relatively high valuation of the common stock. There were 60
companies in the portfolio at August 31, 1997.
In Conclusion
We continue to have a positive outlook for investment returns in the
US equity market during the remainder of 1997. We thank you for your
investment in Merrill Lynch Fundamental Growth Fund, Inc., and we look
forward to reviewing our outlook and strategy in our upcoming
quarterly shareholder report.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/LAWRENCE R. FULLER
Lawrence R. Fuller
Vice President and Portfolio Manager
October 3, 1997
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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. However, in the
case of certain eligible investors, the shares were simultaneously
exchanged for Class A Shares.
[bullet] 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.
[bullet] 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.
[bullet] Class D Shares incur a maximum initial sales charge of 5.25%
and an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of all
dividends and capital gains distributions at net asset value on the
ex-dividend date. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Dividends paid to each class of shares will
vary because of the different levels of account maintenance,
distribution and transfer agency fees applicable to each class, which
are deducted from the income available to be paid to shareholders.
Recent Performance Results
<TABLE>
<CAPTION>
12 Month 3 Month
8/31/97 5/31/97 8/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* $17.37 $15.87 $13.60 +33.52%(1) +9.45%
ML Fundamental Growth Fund, Inc. Class B Shares* 16.69 15.28 13.14 +32.98(1) +9.23
ML Fundamental Growth Fund, Inc. Class C Shares* 16.72 15.31 13.14 +33.20(1) +9.21
ML Fundamental Growth Fund, Inc. Class D Shares* 17.27 15.78 13.54 +33.36(1) +9.44
Standard & Poor's 500 Index** +37.96 +6.03
ML Fundamental Growth Fund, Inc. Class A Shares -- Total Return* +39.24(2) +9.45
ML Fundamental Growth Fund, Inc. Class B Shares -- Total Return* +37.95(3) +9.23
ML Fundamental Growth Fund, Inc. Class C Shares -- Total Return* +37.90(4) +9.21
ML Fundamental Growth Fund, Inc. Class D Shares -- Total Return* +38.90(5) +9.44
Standard & Poor's 500 Index -- Total Return** +40.53 +6.46
* 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 $0.628 per share capital gains distributions.
(2) Percent change includes reinvestment of $0.620 per share ordinary income dividends and $0.628 per share capital gains
distributions.
(3) Percent change includes reinvestment of $0.523 per share ordinary income dividends and $0.628 per share capital gains
distributions.
(4) Percent change includes reinvestment of $0.495 per share ordinary income dividends and $0.628 per share capital gains
distributions.
(5) Percent change includes reinvestment of $0.598 per share ordinary income dividends and $0.628 per share capital gains
distributions.
</TABLE>
[GRAPHIC OMITTED: Total Return Based on a $10,000 Investment]
Total Return Based on a $10,000 Investment--Class A Shares and
Class B Shares
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** 8/97
ML Fundamental Growth Fund, Inc.+ -- Class A Shares* $9,475 $18,929
ML Fundamental Growth Fund, Inc.+ -- Class B Shares* $10,000 $19,214
S&P 500 Total Return Index ++ $10,000 $20,636
Total Return Based on a $10,000 Investment--Class C Shares and
Class D Shares
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** 8/97
ML Fundamental Growth Fund, Inc.+ -- Class C Shares* $10,000 $19,116
ML Fundamental Growth Fund, Inc.+ -- Class D Shares* $9,475 $18,782
S&P 500 Total Return Index ++ $10,000 $22,958
* Assuming maximum sales charge, transaction costs and other operating
expenses including advisory fees.
** Commencement of Operations.
+ ML 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*
Year Ended 6/30/97 +31.25% +24.36%
Inception (10/21/94)
through 6/30/97 +27.31 +24.79
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +29.84% +25.84%
Inception (10/21/94)
through 6/30/97 +26.03 +25.53
* 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 6/30/97 +29.80% +28.80%
Inception (12/24/92)
through 6/30/97 +14.39 +14.39
* 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 6/30/97 +30.87% +24.00%
Inception (12/24/92)
through 6/30/97 +15.29 +13.92
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
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
1996 12.61 13.77 0.628 0.620 +19.05
1/1/97 -- 8/31/97 13.77 17.37 -- -- +26.14
Total $0.883 Total $0.930
Cumulative total return as of 8/31/97: +99.77%**
<CAPTION>
Performance Summary -- Class B Shares
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
1996 12.28 13.31 0.628 0.523 +17.71
1/1/97 -- 8/31/97 13.31 16.69 -- -- +25.39
Total $0.883 Total $0.833
Cumulative total return as of 8/31/97: +94.14%***
<CAPTION>
Performance Summary -- Class C Shares
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
1996 12.28 13.34 0.628 0.495 +17.73
1/1/97 -- 8/31/97 13.34 16.72 -- -- +25.34
Total $0.883 Total $0.805
Cumulative total return as of 8/31/97: +91.16%***
<CAPTION>
Performance Summary -- Class D Shares
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
1996 12.58 13.71 0.628 0.598 +18.69
1/1/97 -- 8/31/97 13.71 17.27 -- -- +25.97
Total $0.883 Total $0.908
Cumulative total return as of 8/31/97: +98.23%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
*** Figures do not reflect deduction of sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS
Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Advertising 75,000 Interpublic Group of Companies, Inc. $2,084,537 $3,656,250 0.9%
Banking & Financial 120,000 Banc One Corp. 5,616,201 6,435,000 1.6
160,000 BankAmerica Corp. 11,569,931 10,530,000 2.6
60,000 Citicorp 7,586,413 7,657,500 1.9
100,000 State Street Boston Corp. 4,071,881 4,987,500 1.2
---------- ---------- -----
28,844,426 29,610,000 7.3
Beverages 70,000 The Coca-Cola Co. 3,760,705 4,011,875 1.0
Communications 50,000 + Cisco Systems, Inc. 3,335,625 3,765,625 0.9
Equipment 200,000 + FORE Systems, Inc. 4,973,550 4,075,000 1.0
50,000 Lucent Technologies, Inc. 3,344,460 3,893,750 1.0
175,000 + Newbridge Networks Corp. 6,882,028 7,962,500 2.0
120,000 Northern Telecom Ltd. 9,996,477 11,895,000 2.9
150,000 Telefonaktiebolaget LM Ericsson (ADR)(a) 5,634,178 6,243,750 1.5
---------- ---------- -----
34,166,318 37,835,625 9.3
Computers 275,000 + COMPAQ Computer Corp. 9,796,553 18,012,500 4.4
40,000 Hewlett-Packard Co. 2,192,800 2,452,500 0.6
---------- ---------- -----
11,989,353 20,465,000 5.0
Cosmetics 45,000 The Gillette Co. 2,463,996 3,726,563 0.9
20,000 International Flavors & Fragrances Inc. 973,375 1,022,500 0.3
---------- ---------- -----
3,437,371 4,749,063 1.2
Electrical Equipment 30,000 Emerson Electric Co. 1,226,140 1,640,625 0.4
190,000 General Electric Co. 8,425,463 11,875,000 2.9
40,000 Honeywell, Inc. 2,993,474 2,765,000 0.7
---------- ---------- -----
12,645,077 16,280,625 4.0
Electronics 155,000 Intel Corp. 11,063,643 14,250,313 3.5
Energy 150,000 El Paso Natural Gas Co. 6,910,825 8,437,500 2.1
200,000 Enron Corp. 8,433,697 7,712,500 1.9
---------- ---------- -----
15,344,522 16,150,000 4.0
Entertainment 130,000 + Viacom, Inc. (Class A) 6,082,341 3,835,000 0.9
45,000 The Walt Disney Co. 2,948,388 3,456,563 0.9
---------- ---------- -----
9,030,729 7,291,563 1.8
Financial Services 100,000 American Express Company 8,020,647 7,775,000 1.9
270,000 Federal National Mortgage Association 11,473,014 11,880,000 2.9
200,000 Travelers Group Inc. 11,156,398 12,700,000 3.1
---------- ---------- -----
30,650,059 32,355,000 7.9
Food 30,000 ConAgra Inc. 1,334,300 1,929,375 0.5
30,000 Wrigley (Wm.) Jr. Co. (Class B) 1,890,550 2,175,000 0.5
---------- ---------- -----
3,224,850 4,104,375 1.0
Food Merchandising 110,000 Albertson's, Inc. 4,309,983 3,781,250 0.9
100,000 + Meyer (Fred), Inc. 3,679,211 5,200,000 1.3
---------- ---------- -----
7,989,194 8,981,250 2.2
Hotel 20,000 Marriott International, Inc. 994,115 1,331,250 0.3
Household Products 120,000 Colgate-Palmolive Co. 8,092,210 7,530,000 1.9
20,000 Kimberly-Clark Corporation 1,078,644 948,750 0.2
50,000 Procter & Gamble Co. 5,346,649 6,653,125 1.6
---------- ---------- -----
14,517,503 15,131,875 3.7
Information 110,000 First Data Corp. 4,518,508 4,516,875 1.1
Processing
Insurance 10,000 Aetna Inc. 822,491 954,375 0.2
37,500 American International Group, Inc. 2,575,130 3,539,063 0.9
---------- ---------- -----
3,397,621 4,493,438 1.1
Leisure 115,000 Polygram N.V. (NY Registered Shares) 5,983,544 6,059,062 1.5
Medical -- Technology 120,000 + Boston Scientific Corp. 6,801,221 8,460,000 2.1
70,000 Johnson & Johnson 2,915,118 3,968,125 1.0
---------- ---------- -----
9,716,339 12,428,125 3.1
Oil Services 170,000 Baker Hughes, Inc. 6,610,954 7,203,750 1.8
230,000 Diamond Offshore Drilling, Inc. 8,346,270 12,563,750 3.1
165,000 Schlumberger Ltd. 9,351,028 12,570,937 3.1
---------- ---------- -----
24,308,252 32,338,437 8.0
Pharmaceuticals 165,000 Amgen, Inc. 7,109,486 8,167,500 2.0
55,000 Bristol-Myers Squibb Co. 4,234,097 4,180,000 1.0
60,000 Merck & Co., Inc. 4,447,361 5,508,750 1.4
75,000 Pfizer, Inc. 3,180,350 4,153,125 1.0
---------- ---------- -----
18,971,294 22,009,375 5.4
Photography 15,000 Eastman Kodak Co. 953,578 980,625 0.2
Pollution Control 20,000 Waste Management Inc. 591,174 640,000 0.2
Restaurant 25,000 McDonald's Corp. 1,141,245 1,182,812 0.3
Retail Specialty 100,000 CVS Corporation 5,445,625 5,637,500 1.4
155,000 + Staples Inc. 3,910,927 3,623,125 0.9
200,000 Walgreen Co. 4,591,588 5,387,500 1.3
---------- ---------- -----
13,948,140 14,648,125 3.6
Retail Stores 330,000 Wal-Mart Stores, Inc. 10,768,309 11,715,000 2.9
Software -- Computer 130,000 + Baan Company, N.V. (US Registered Shares) 6,990,450 7,816,250 1.9
60,000 + Microsoft Corp. 5,980,753 7,931,250 1.9
200,000 + Oracle Corp. 6,622,281 7,612,500 1.9
130,000 SAP AG (Systeme, Anwendungen, Produkte
in der Datenverarbeitung) (ADR)(a) 7,936,625 10,010,000 2.5
---------- ---------- -----
27,530,109 33,370,000 8.2
Travel & Lodging 25,000 Carnival Corporation (Class A) 588,075 1,095,312 0.3
Total Stocks 312,158,590 361,681,250 89.0
<CAPTION>
Value Percent of
Face Amount Short-Term Securities Cost (Note 1a) Net Assets
Commercial $13,000,000 Falcon Asset Securitization Corp., 5.51% due
Paper* 9/22/1997 $12,954,236 $12,954,236 3.2%
15,968,000 General Motors Acceptance Corp., 5.69% due
9/02/1997 15,960,429 15,960,429 3.9
12,000,000 Lexington Parker Capital Company LLC,
5.52% due 9/17/1997 11,966,880 11,966,880 2.9
---------- ---------- -----
40,881,545 40,881,545 10.0
US Government 7,000,000 Federal National Mortgage Association,
Agency Obligations* 5.44% due 9/26/1997 6,971,440 6,971,440 1.7
Total Short-Term Securities 47,852,985 47,852,985 11.7
Total Investments $360,011,575 409,534,235 100.7
============
Liabilities in Excess of Other Assets (3,015,946) (0.7)
----------- -----
Net Assets $406,518,289 100.0%
============ =====
* 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.
+ on-income producing security.
(a) American Depositary Receipts (ADR).
See Notes to Financial Statements.
</TABLE>
PORTFOLIO INFORMATION
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
COMPAQ Computer Corp. 4.4%
Intel Corp. 3.5
Travelers Group Inc. 3.1
Schlumberger Ltd. 3.1
Diamond Offshore Drilling, Inc. 3.1
Northern Telecom Ltd. 2.9
Federal National Mortgage Association 2.9
General Electric Co. 2.9
Wal-Mart Stores, Inc. 2.9
BankAmerica Corp. 2.6
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Communications Equipment 9.3%
Software -- Computer 8.2
Oil Services 8.0
Financial Services 7.9
Banking & Financial 7.3
Pharmaceuticals 5.4
Computers 5.0
Electrical Equipment 4.0
Energy 4.0
Household Products 3.7
Equity Portfolio Changes for the
Quarter Ended August 31, 1997
Additions
American Express Company
BankAmerica Corporation
CVS Corporation
Deletion
Hasbro, Inc.
<TABLE>
<CAPTION>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1997
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of August 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $360,011,575) (Note 1a) $409,534,235
Cash 781
Receivables:
Capital shares sold $2,119,66
Dividends 244,320 2,363,984
------------
Deferred organization expenses (Note 1f) 5,077
Prepaid registration fees and other assets (Note 1f) 48,848
------------
Total assets 411,952,925
------------
Liabilities: Payables:
Securities purchased 3,033,408
Capital shares redeemed 1,707,569
Distributor (Note 2) 243,391
Investment adviser (Note 2) 212,074 5,196,442
------------
Accrued expenses and other liabilities 238,194
------------
Total liabilities 5,434,636
------------
Net Assets: Net assets $406,518,289
============
Net Assets Class A Shares of capital stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $357,160
Class B Shares of capital stock, $0.10 par value, 100,000,000 shares
authorized 1,298,378
Class C Shares of capital stock, $0.10 par value, 100,000,000 shares
authorized 446,949
Class D Shares of capital stock, $0.10 par value, 100,000,000 shares
authorized 307,419
Paid-in capital in excess of par 292,295,818
Undistributed realized capital gains on investments -- net 62,289,905
Unrealized appreciation on investments -- net 49,522,660
------------
Net assets $406,518,289
============
Net Asset Value: Class A -- Based on net assets of $62,048,468 and 3,571,596 shares
outstanding $17.37
============
Class B -- Based on net assets of $216,636,197 and 12,983,781 shares
outstanding $16.69
============
Class C -- Based on net assets of $74,732,279 and 4,469,488 shares
outstanding $16.72
============
Class D -- Based on net assets of $53,101,345 and 3,074,187 shares
outstanding $17.27
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations for the Year Ended August 31, 1997
<S> <C> <C>
Investment Income Dividends (net of $20,477 foreign withholding tax) $,244,970
(Notes 1d & 1e): Interest and discount earned 1,126,243
------------
Total income 4,371,213
------------
Expenses: Investment advisory fees (Note 2) 1,986,602
Account maintenance and distribution fees -- Class B (Note 2) 1,553,165
Account maintenance and distribution fees -- Class C (Note 2) 626,234
Transfer agent fees -- Class B (Note 2) 350,288
Transfer agent fees -- Class C (Note 2) 141,910
Registration fees (Note 1f) 110,752
Transfer agent fees -- Class A (Note 2) 99,578
Account maintenance fees -- Class D (Note 2) 90,258
Printing and shareholder reports 86,494
Professional fees 77,441
Transfer agent fees -- Class D (Note 2) 69,244
Accounting services (Note 2) 66,072
Directors' fees and expenses 40,267
Custodian fees 21,471
Amortization of organization expenses (Note 1f) 20,308
Pricing fees 711
Other 16,745
------------
Total expenses 5,357,540
------------
Investment loss -- net (986,327)
------------
Realized & Realized gain from investments -- net 63,286,586
Unrealized Gain on Change in unrealized appreciation on investments -- net 31,560,205
Investments -- Net ------------
(Notes 1b, 1c, 1e, & 3): Net Increase in Net Assets Resulting from Operations $93,860,464
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment loss -- net $(986,327) $(574,728)
Realized gain on investments -- net 63,286,586 25,808,365
Change in unrealized appreciation on investments -- net 31,560,205 3,022,827
------------ ------------
Net increase in net assets resulting from operations 93,860,464 28,256,464
------------ ------------
Distributions to Realized gain on investments -- net:
Shareholders Class A (4,708,644) (541,580)
(Note 1g): Class B (11,489,976) (1,655,483)
Class C (4,699,934) (1,010,551)
Class D (2,535,797) (323,823)
------------ ------------
Net decrease in net assets resulting from distributions to shareholders (23,434,351) (3,531,437)
------------ ------------
Capital Share Trans- Net increase in net assets derived from capital share transactions 95,459,275 73,421,174
actions (Note 4): ------------ ------------
Net Assets: Total increase in net assets 165,885,388 98,146,201
Beginning of year 240,632,901 142,486,700
------------ ------------
End of year $406,518,289 $240,632,901
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended 1994+ to
August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $13.60 $11.66 $9.99
Operating ------- ------- -------
Performance: Investment income -- net .07 .07 --
Realized and unrealized gain on investments -- net 4.95 2.13 1.98
------- ------- -------
Total from investment operations 5.02 2.20 1.98
------- ------- -------
Less distributions from realized gain on investments -- net (1.25) (.26) (.31)
------- ------- -------
Net asset value, end of period $17.37 $13.60 $11.66
======= ======= =======
Total Investment Based on net asset value per share 39.24% 19.02% 20.55%++++
Return:** ======= ======= =======
Ratios to Average Expenses .99% 1.12% 1.46%*
Net Assets: ======= ======= =======
Investment income -- net .47% .51% .02%*
======= ======= =======
Supplemental Net assets, end of period (in thousands) $62,049 $47,048 $21,288
Data: ======= ======= =======
Portfolio turnover 94.38% 82.10% 80.41%
======= ======= =======
Average commission rate paid+++ $.0628 $.0623 --
======= ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ 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.
++++ Aggregate total investment return.
See Notes to Financial Statements.
<CAPTION>
Class B++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended 1994+ to
August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $13.14 $11.40 $9.85
Operating -------- ------- -------
Performance: Investment loss -- net (.09) (.07) (.09)
Realized and unrealized gain on investments -- net 4.79 2.07 1.95
-------- ------- -------
Total from investment operations 4.70 2.00 1.86
-------- ------- -------
Less distributions from realized gain on investments -- net (1.15) (.26) (.31)
-------- ------- -------
Net asset value, end of period $16.69 $13.14 $11.40
======== ======= =======
Total Investment Based on net asset value per share 37.95% 17.68% 19.60%++++
Return** ======== ======= =======
Ratios to Average Expenses 2.02% 2.16% 2.48%*
Net Assets: ======== ======= =======
Investment loss -- net (.59%) (.54%) (.95%)*
======== ======= =======
Supplemental Net assets, end of period (in thousands) $216,636 $116,641 $63,748
Data ======== ======= =======
Portfolio turnover 94.38% 82.10% 80.41%
======== ======= =======
Average commission rate paid+++ $.0628 $.0623 --
======== ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ 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.
++++ Aggregate total investment return.
See Notes to Financial Statements.
<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: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $13.14 $11.40 $9.96 $9.86 $10.00
Operating ------- ------- ------- ------- -------
Performance: Investment loss -- net (.09) (.07) (.09) (.05) (.05)
Realized and unrealized gain (loss) on
investments -- net 4.79 2.07 1.84 .15 (.09)
------- ------- ------- ------- -------
Total from investment operations 4.70 2.00 1.75 .10 (.14)
------- ------- ------- ------- -------
Less distributions from realized gain
on investments -- net (1.12) (.26) (.31) -- --
------- ------- ------- ------- -------
Net asset value, end of period $16.72 $13.14 $11.40 $9.96 $9.86
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 37.90% 17.68% 18.28% 1.01% (1.40%)++++
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses 2.02% 2.15% 2.44% 2.35% 2.79%*
Net Assets: ======= ======= ======= ======= =======
Investment loss -- net (.58%) (.57%) (.88%) (.52%) (.83%)*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $74,732 $54,052 $44,220 $47,263 $45,736
Data: ======= ======= ======= ======= =======
Portfolio turnover 94.38% 82.10% 80.41% 112.68% 64.09%
======= ======= ======= ======= =======
Average commission rate paid+++ $.0628 $.0623 -- -- --
======= ======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ 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.
++++ Aggregate total investment return.
See Notes to Financial Statements.
<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: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $13.54 $11.64 $10.09 $9.91 $10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income (loss) -- net .03 .03 (.01) .03 --
Realized and unrealized gain (loss) on
investments -- net 4.93 2.13 1.87 .15 (.09)
------- ------- ------- ------- -------
Total from investment operations 4.96 2.16 1.86 .18 (.09)
------- ------- ------- ------- -------
Less distributions from realized gain
on investments -- net (1.23) (.26) (.31) -- --
------- ------- ------- ------- -------
Net asset value, end of period $17.27 $13.54 $11.64 $10.09 $9.91
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 38.90% 18.70% 19.15% 1.82% (.90%)++++
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses 1.24% 1.37% 1.65% 1.58% 2.03%*
Net Assets: ======= ======= ======= ======= =======
Investment income (loss) -- net .17% .24% (.10%) .31% (.04%)*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands $53,101 $22,892 $13,231 $8,623 $6,930
Data: ======= ======= ======= ======= =======
Portfolio turnover 94.38% 82.10% 80.41% 112.68% 64.09%
======= ======= ======= ======= =======
Average commission rate paid+++ $.0628 $.0623 -- -- --
======= ======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ 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.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1997
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 PricingSM 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.
[bullet] 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.
[bullet] 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
dates. Dividends from foreign securities where the ex-dividend date
may have passed are subsequently recorded when the Fund has determined
the ex-dividend date. Interest income (including amortization of
discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost
basis.
(f) Deferred organization expenses and prepaid registration fees --
Deferred organization expenses are charged to expense on a straight-
line basis over a 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 adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$1,561,106 have been reclassified between undistributed net realized
capital gains and accumulated net investment loss. 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.
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.
Pursuant to the distribution plans (the "Distribution Plans") adopted
by the Fund in accordance with Rule 12b-1 under the Investment Company
Act of 1940, the Fund pays the Distributor ongoing account maintenance
and distribution fees. The fees are accrued daily and paid monthly at
annual rates based upon the average daily net assets of the shares as
follows:
Account
Maintenance Distribution
Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also
provides account maintenance and distribution services to the Fund.
The ongoing account maintenance fee compensates the Distributor and
MLPF&S for providing account maintenance services to Class B, Class C
and Class D shareholders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and distribution-
related services to Class B and Class C shareholders.
For the year ended August 31, 1997, 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 $671 $7,462
Class D $19,739 $256,717
For the year ended August 31, 1997, MLPF&S received contingent
deferred sales charges of $839,643 and $7,765 relating to transactions
in Class B and Class C Shares, respectively.
In addition, MLPF&S received $8,520 in commissions on the execution of
portfolio security transactions for the Fund for the year ended August
31, 1997.
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, MLFDS, PSI, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1997 were $343,712,654 and $270,177,640,
respectively.
Net realized and unrealized gains as of August 31, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $63,285,823 $49,522,660
Short-term investments 763 --
----------- -----------
Total $63,286,586 $49,522,660
=========== ===========
As of August 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $49,522,119, of which $56,467,628 related to
appreciated securities and $6,945,509 related to depreciated
securities. At August 31, 1997, the aggregate cost of investments for
Federal income tax purposes was $360,012,116.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
were $95,459,275 and $73,421,174 for the years ended August 31, 1997
and August 31, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 1997 Shares Amount
Shares sold 5,300,860 $80,749,430
Shares issued to shareholders
in reinvestment of distributions 318,999 4,411,762
---------- -----------
Total issued 5,619,859 85,161,192
Shares redeemed (5,508,434) (81,532,077)
---------- -----------
Net increase 111,425 $3,629,115
========== ===========
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 B Shares for the Year Dollar
Ended August 31, 1997 Shares Amount
Shares sold 8,146,257 $124,318,206
Shares issued to shareholders
in reinvestment of distributions 782,595 10,471,125
---------- -----------
Total issued 8,928,852 134,789,331
Automatic conversion
of shares (23,111) (352,449)
Shares redeemed (4,796,356) (69,880,135)
---------- -----------
Net increase 4,109,385 $64,556,747
========== ===========
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
Automatic conversion
of shares (14,867) (185,102)
Shares redeemed (2,647,233) (33,330,378)
---------- -----------
Net increase 3,280,591 $41,656,335
========== ===========
Class C Shares for the Year Dollar
Ended August 31, 1997 Shares Amount
Shares sold 1,343,912 $20,658,965
Shares issued to share-
holders in reinvestment
of distributions 310,633 4,165,597
---------- -----------
Total issued 1,654,545 24,824,562
Shares redeemed (1,297,675) (19,022,602)
---------- -----------
Net increase 356,870 $5,801,960
========== ===========
Class C Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 1,167,623 $14,787,083
Shares issued to share-
holders 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 D Shares for the Year Dollar
Ended August 31, 1997 Shares Amount
Shares sold 2,051,457 $31,598,761
Automatic conversion of shares 22,419 352,449
Shares issued to shareholders
in reinvestment of distributions 164,753 2,268,645
---------- -----------
Total issued 2,238,629 34,219,855
Shares redeemed (855,358) (12,748,402)
---------- -----------
Net increase 1,383,271 $21,471,453
========== ===========
Class D Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
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
========== ===========
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, 1997, 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.
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 and financial highlights.
Our procedures included confirmation of securities owned as of August
31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Fundamental Growth Fund, Inc. at
August 31, 1997, and 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 periods in conformity with generally accepted accounting
principles.
/S/ ERNST & YOUNG LLP
Princeton, New Jersey
October 3, 1997
<TABLE>
<CAPTION>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions paid by Merrill Lynch Fundamental Growth Fund, Inc.
during its taxable year ended August 31, 1997:
Record Payable Qualifying Non-Qualifying Total Long-Term
Date Date Ordinary Income Ordinary Income Ordinary Income Capital Gains
<S> <C> <C> <C> <C> <C>
Class A Shares
12/10/96 12/18/96 $.114052 $.505536 $.619588 $.627966
Class B Shares
12/10/96 12/18/96 $.096321 $.426943 $.523264 $.627966
Class C Shares
12/10/96 12/18/96 $.091081 $.403716 $.494797 $.627966
Class D Shares
12/10/96 12/18/96 $.110102 $.488024 $.598126 $.627966
The qualifying ordinary income qualifies for the dividends received deductions for corporations.
Please retain this information for your records.
</TABLE>
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
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank
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
