MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
FUND LOGO
Quarterly Report
November 30, 1996
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Steven B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Lawrence R. Fuller, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Ira P. Shapiro, Secretary
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Fundamental
Growth Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
DEAR SHAREHOLDER
<PAGE>
For the quarter ended November 30, 1996, total returns for Merrill
Lynch Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and
Class D Shares were +14.49%, +14.23%, +14.23% and +14.48%,
respectively, underperforming the total return of +16.75% 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 main reason for the underperformance was the lack
of exposure in the portfolio to large integrated oil companies
during the November quarter. However, the Fund's investment returns
outperformed the +12.78% total return of Lipper Analytical Services'
Growth Funds average. The Fund's cash reserve, which was over 19% of
net assets at the end of the August quarter, was reduced in
September, and was 5.2% at November 30, 1996.
The Environment
A relatively high level of consumer debt and a reduced availability
of bank credit to households were reflected in an unusual decline in
consumer installment credit outstanding in the month of September.
Consequently, the recent declines in consumer spending on motor
vehicles, home desk-top computers and other consumer electronics is
not surprising. The most recent measure of consumer confidence--
personal income growth rates and employment statistics--support a
slow economic growth outlook when combined with a wide range of
other measures of business activity from corporate and governmental
sources.
Investment Strategy
We are following a relatively fully invested investment strategy
with 95% of net assets invested in stocks, most of which represent
large-capitalization, high-quality growth companies.
Pharmaceutical companies continued to represent the Fund's largest
industry sector at 16.8% of net assets as of November 30, 1996. The
top ten industries represented 65.9% of net assets, with the top ten
equity holdings equal to 32.7%. (See page 5 of this report to
shareholders for complete listings.) The largest equity holding was
Merck & Co., Inc., at 3.7% of net assets. Over two-thirds of the
value of the Fund's stock investments are represented by global
growth companies in the consumer non-durable goods and services or
in the commercial services industries. Historically, the managements
of these companies were able to increase earnings per share at above-
average annual rates because of the global diversification of their
businesses in relatively non-cyclical products and services. The
current slowdown in real business activity will probably test the
ability of managements of cyclical companies in the industrial and
consumer durable goods industries to produce anticipated earnings
and rates of return in 1997.
<PAGE>
Portfolio Review
We initiated several changes in the portfolio during the November
quarter, with eight companies added and six companies deleted. There
were 55 companies represented in the portfolio at November 30, 1996.
H.F. Ahmanson & Co., the largest thrift organization in California
and one with a nationwide presence, was added because of its
relatively attractive valuation and prospects of double-digit growth
in earnings per share. Another new holding, Boston Scientific Corp.,
is one of the leading organizations in medical technology. The
company develops, manufactures and markets devices for minimally
invasive surgical procedures. Its valuation appeared attractive
relative to the significant growth opportunities in this field.
Bristol-Myers Squibb Co. is one of the leading pharmaceutical
companies with an attractive valuation, relative to the potential
growth in earnings from an increased focus on research and
development for new drugs, and a restructuring being engineered by
new senior management. We invested in El Paso Natural Gas Co.
because of the attractive valuation relative to a potential
acceleration in earnings from the restructuring of a major
acquisition in the natural gas distribution business, and the
possible gains from the continued deregulation of domestic electric
utility markets. Fred Meyer, Inc. is one of the major regional
growth retailers of food and other consumer goods. The company was
added to the portfolio because of the attractive valuation and the
prospects for above-average growth in its Pacific Northwest market
as management restructures the company's retail format. In addition,
an anticipated attempt to increase its market share by acquisitions
could succeed. Other attractively valued investments included
Nabisco Holdings Corp. and Rite Aid Corp. Nabisco is one of the
leading food companies, and has the potential for above-average
earnings growth. Rite Aid Corp. is a retail pharmacy chain where we
anticipate above-average earnings growth from acquisitions as
independent pharmacists and smaller retail pharmacy chains are
acquired or go out of business. Finally, US Bancorp is one of the
leading regional bank holding companies with double-digit earnings
growth prospects and a leading market share in the Pacific
Northwest.
Six companies were eliminated from the portfolio during the November
quarter. Compuserve Corporation was sold at a significant capital
loss as a result of our concerns about the important structural
changes taking place in the Internet access marketplace. We sold
Duracell International Inc. at a significant capital gain since the
portfolio had a relatively large investment position in The Gillette
Co., which was acquiring Duracell International Inc. Ek Chor China
Motorcycle Co. Ltd. (ADR) was sold at a significant capital loss
because of the continued deterioration in the fundamental outlook
for profitable growth. We sold PepsiCo, Inc. at a significant
capital gain because of our concerns about a major strategic adverse
change in the global competitive position of the company relative to
The Coca Cola Co. An investment position in Rubbermaid, Inc. was
liquidated at a meaningful loss because we were concerned about the
potential failure of the company's restructuring program. Finally,
Schering-Plough Corp. was eliminated with a meaningful capital gain
as its valuation became excessive relative to our view of its
business fundamentals.
<PAGE>
At August 31, 1996, we anticipated a continued slowdown in consumer
spending, in particular on durable goods such as motor vehicles,
housing and computer systems. Also, we expected a gradual reduction
in inflationary expectations as the slowdown in real growth became
more convincing to investors. These events occurred during the
November quarter. Consequently, our investment strategy remained
consistent with the outlook for a slowing in economic growth. The
Fund's exposure to more cyclical growth sectors, such as technology
equipment and retailing, remained relatively modest.
In Conclusion
We thank you for your continued investment in Merrill Lynch
Fundamental Growth Fund, Inc., and we look forward to updating you
on our investment strategy and activities in our upcoming semi-
annual report.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Lawrence R. Fuller)
Lawrence R. Fuller
Vice President and Portfolio Manager
December 24, 1996
PERFORMANCE DATA
<PAGE>
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors, as detailed in the Fund's prospectus. If you were a Class
A shareholder prior to October 21, 1994, your Class A Shares were
redesignated to Class D Shares on October 21, 1994, which, in the
case of certain eligible investors, were simultaneously exchanged
for Class A Shares.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 8 years. (There is no initial sales charge for
automatic share conversions.) If you were a Class B shareholder
prior to October 21, 1994, your Class B Shares were redesignated to
Class C Shares on October 21, 1994.
* 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**
<PAGE>
Class A Shares*
Year Ended 9/30/96 +20.54% +14.21%
Inception (10/21/94)
through 9/30/96 +23.98 +20.59
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 +19.15% +15.15%
Inception (10/21/94)
through 9/30/96 +22.70 +21.42
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/96 +19.15% +18.15%
Inception (12/24/92)
through 9/30/96 +10.69 +10.69
[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 9/30/96 +20.16% +13.85%
Inception (12/24/92)
through 9/30/96 +11.56 + 9.97
<PAGE>
[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--11/30/96 12.61 15.57 -- -- +23.47
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 11/30/96: +64.25%**
</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--11/30/96 12.28 15.01 -- -- +22.23
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 11/30/96: +60.77%***
</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--11/30/96 12.28 15.01 -- -- +22.23
------ ------
Total $0.255 Total $0.310
<PAGE>
Cumulative total return as of 11/30/96: +58.35%***
</TABLE>
<TABLE>
Performance Summary--Class D Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
12/24/92--12/31/92 $10.00 $ 9.92 -- -- - 0.80%
1993 9.92 10.51 -- -- + 5.95
1994 10.51 9.61 $0.255 $0.051 - 5.56
1995 9.61 12.58 -- 0.259 +33.58
1/1/96--11/30/96 12.58 15.50 -- -- +23.21
------ ------
Total $0.255 Total $0.310
Cumulative total return as of 11/30/96: +63.36%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
***Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
++As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated to Class D Shares, and Class B
Shares of the Fund outstanding prior to October 21, 1994 were
redesignated to Class C Shares.
</TABLE>
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
11/30/96 8/31/96 11/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* $15.57 $13.60 $12.84 +21.26% +14.49%
ML Fundamental Growth Fund, Inc. Class B Shares* 15.01 13.14 12.52 +19.89 +14.23
ML Fundamental Growth Fund, Inc. Class C Shares* 15.01 13.14 12.52 +19.89 +14.23
ML Fundamental Growth Fund, Inc. Class D Shares* 15.50 13.54 12.81 +21.00 +14.48
Standard & Poor's 500 Index** 757.02 651.99 605.37 +25.05 +16.11
ML Fundamental Growth Fund, Inc. Class A Shares--Total Return* +23.73(1) +14.49
ML Fundamental Growth Fund, Inc. Class B Shares--Total Return* +22.40(1) +14.23
ML Fundamental Growth Fund, Inc. Class C Shares--Total Return* +22.40(1) +14.23
ML Fundamental Growth Fund, Inc. Class D Shares--Total Return* +23.47(1) +14.48
Standard & Poor's 500 Index--Total Return** +27.89 +16.75
<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>
PORTFOLIO INFORMATION
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Merck & Co., Inc. 3.7%
SmithKline Beecham PLC (ADR) 3.6
Pfizer Inc. 3.6
General Electric Co. 3.4
Federal National Mortgage Association 3.3
Johnson & Johnson 3.2
The Gillette Co. 3.0
Enron Corp. 3.0
Bristol-Myers Squibb Co. 3.0
State Street Boston Corp. 2.9
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Pharmaceuticals 16.8%
Banking & Financial 8.9
Insurance 6.9
Food 6.3
Financial Services 5.8
Energy 5.4
Entertainment 4.3
Software--Computer 4.1
Electrical Equipment 3.7
Medical--Technology 3.7
<PAGE>
Equity Portfolio Changes for the Quarter
Ended November 30, 1996
Additions
Ahmanson (H.F.) & Co.
Boston Scientific Corp.
Bristol-Meyers Squibb Co.
El Paso Natural Gas Co.
Meyer (Fred), Inc.
Nabisco Holdings Corp.
(Class A)
Rite Aid Corp.
US Bancorp
Deletions
Compuserve Corporation
Duracell
International Inc.
Ek Chor China
Motorcycle Co. Ltd. (ADR)
PepsiCo, Inc.
Rubbermaid, Inc.
Schering-Plough Corp.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Percent of
Industries Shares Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Advertising 100,000 Interpublic Group of Companies, Inc. $ 3,895,297 $ 4,950,000 1.6%
Banking & Financial 240,000 Ahmanson (H.F.) & Co. 7,259,265 7,920,000 2.6
130,000 State Street Boston Corp. 6,455,304 8,791,250 2.9
60,000 US Bancorp 2,596,331 2,565,000 0.9
27,000 Wells Fargo & Company 6,658,277 7,684,875 2.5
------------ ------------ ------
22,969,177 26,961,125 8.9
Beverages 130,000 The Coca-Cola Co. 4,562,975 6,646,250 2.2
<PAGE>
Computers 5,000 Compaq Computer Corp. 255,300 396,250 0.1
Cosmetics 125,000 The Gillette Co. 5,288,464 9,218,750 3.0
20,000 International Flavors & Fragrances Inc. 973,375 910,000 0.3
------------ ------------ ------
6,261,839 10,128,750 3.3
Electrical Equipment 10,000 Emerson Electric Co. 658,040 981,250 0.3
100,000 General Electric Co. 7,694,629 10,400,000 3.4
------------ ------------ ------
8,352,669 11,381,250 3.7
Electronics 5,000 Intel Corp. 302,268 633,750 0.2
Energy 145,000 El Paso Natural Gas Co. 6,651,775 7,250,000 2.4
200,000 Enron Corp. 8,433,697 9,150,000 3.0
------------ ------------ ------
15,085,472 16,400,000 5.4
Entertainment 130,000 Viacom, Inc. (Class A) 6,082,341 4,858,750 1.6
110,000 The Walt Disney Co. 6,549,319 8,112,500 2.7
------------ ------------ ------
12,631,660 12,971,250 4.3
Financial Services 240,000 Federal National Mortgage Association 7,569,209 9,900,000 3.3
166,667 The Travelers Group Inc. 5,157,819 7,500,000 2.5
------------ ------------ ------
12,727,028 17,400,000 5.8
Food 120,000 ConAgra Inc. 5,230,114 6,375,000 2.1
100,000 Nabisco Holdings Corp. (Class A) 3,726,145 3,875,000 1.3
220,000 Sara Lee Corporation 7,245,729 8,635,000 2.8
5,000 Wrigley (Wm.) Jr. Co. (Class B) 222,850 291,875 0.1
------------ ------------ ------
16,424,838 19,176,875 6.3
Food Merchandising 110,000 Albertson's, Inc. 4,309,983 3,836,250 1.3
50,000 Meyer (Fred), Inc. 1,656,250 1,675,000 0.6
------------ ------------ ------
5,966,233 5,511,250 1.9
Hotel 30,000 Marriott International, Inc. 1,463,325 1,672,500 0.6
Household Products 5,000 Colgate-Palmolive Co. 374,260 463,125 0.2
15,000 Kimberly-Clark Corporation 1,139,898 1,466,250 0.5
70,000 Procter & Gamble Co. 6,357,494 7,612,500 2.5
------------ ------------ ------
7,871,652 9,541,875 3.2
<PAGE>
Information Processing 60,000 Electronic Data Systems Corp. 3,313,930 2,902,500 1.0
210,000 First Data Corp. 7,619,302 8,373,750 2.7
------------ ------------ ------
10,933,232 11,276,250 3.7
Insurance 75,000 Aetna Inc. 5,057,108 5,409,375 1.8
75,000 American International Group, Inc. 7,064,335 8,625,000 2.8
200,000 Travelers/Aetna Property Casualty Corp. 5,353,594 6,900,000 2.3
------------ ------------ ------
17,475,037 20,934,375 6.9
Leisure 115,000 Polygram N.V. (NY Registered Shares) 5,983,544 5,591,875 1.8
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Percent of
Industries Shares Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Medical--Technology 25,000 Boston Scientific Corp. $ 1,392,125 $ 1,459,375 0.5%
185,000 Johnson & Johnson 6,952,924 9,828,125 3.2
------------ ------------ ------
8,345,049 11,287,500 3.7
Oil Services 40,000 Schlumberger Ltd. 3,918,415 4,160,000 1.4
Pharmaceuticals 140,000 Amgen, Inc. 5,561,049 8,522,500 2.8
80,000 Bristol-Myers Squibb Co. 7,595,722 9,100,000 3.0
135,000 Merck & Co., Inc. 7,480,604 11,205,000 3.7
120,000 Pfizer Inc. 5,332,413 10,755,000 3.6
5,000 Pharmacia & Upjohn, Inc. 171,550 193,125 0.1
160,000 SmithKline Beecham PLC (ADR) (a) 8,338,917 11,020,000 3.6
------------ ------------ ------
34,480,255 50,795,625 16.8
Photography 15,000 Eastman Kodak Co. 953,578 1,215,000 0.4
Pollution Control 20,000 WMX Technologies Inc. 591,174 720,000 0.2
Restaurant 100,000 McDonald's Corp. 4,575,937 4,675,000 1.5
Retail Specialty 100,000 Rite Aid Corp. 3,510,737 3,962,500 1.3
5,000 Staples Inc. 79,583 98,750 0.0
------------ ------------ ------
3,590,320 4,061,250 1.3
Retail Stores 120,000 Wal-Mart Stores, Inc. 2,901,419 3,060,000 1.0
<PAGE>
Software--Computer 125,000 Computer Associates International,
Inc. 6,562,171 8,218,750 2.7
5,000 Microsoft Corp. 459,375 784,375 0.3
70,000 Oracle Corp. 2,478,600 3,430,000 1.1
------------ ------------ ------
9,500,146 12,433,125 4.1
Telecommunications 225,000 MCI Communications Corp. 5,757,479 6,862,500 2.3
Toys 170,000 Hasbro, Inc. 6,485,209 6,991,250 2.3
Travel & Lodging 25,000 Carnival Corporation (Class A) 588,075 790,625 0.3
Total Stocks 234,848,602 288,625,500 95.2
Face Amount Short-Term Securities
Commercial Paper* $10,000,000 National Fleet Funding Corp., 5.34%
due 1/16/1997 9,930,283 9,930,283 3.3
US Government & 5,821,000 Federal Home Loan Mortgage Corp.,
Agency Obligations* 5.70% due 12/02/1996 5,819,157 5,819,157 1.9
Total Short-Term Securities 15,749,440 15,749,440 5.2
Total Investments $250,598,042 304,374,940 100.4
============
Liabilities in Excess of Other Assets (1,323,915) (0.4)
------------ ------
Net Assets $303,051,025 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $59,505,049 and
3,821,030 shares outstanding $ 15.57
============
Class B--Based on net assets of $149,459,831 and
9,954,210 shares outstanding $ 15.01
============
Class C--Based on net assets of $63,022,232 and
4,197,499 shares outstanding $ 15.01
============
Class D--Based on net assets of $31,063,913 and
2,004,637 shares outstanding $ 15.50
============
<FN>
*Commercial Paper and certain US Government & Agency Obligations are
traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
(a)American Depositary Receipts (ADR).
</TABLE>
<PAGE>
