MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
FUND LOGO
Semi-Annual Report
February 28, 1999
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
For the quarter ended February 28, 1999, total returns for Merrill
Lynch Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and
Class D Shares were +13.89%, +13.60%, +13.63% and +13.84%,
respectively. This compares to the total return of +6.76% for the
unmanaged Standard & Poor's 500 Index (S&P 500) for the same three-
month period. (Fund results do not reflect sales charges, and would
be lower if sales charges were included. Complete performance
information can be found on pages 3 and 4 of this report to
shareholders.)
Merrill Lynch Fundamental Growth Fund, Inc.'s positive performance
during the February quarter was the result of equity holdings in the
telecommunications, retailing and technology industries. Also,
during the latter half of the quarter, we significantly reduced the
weightings of some of the largest investments in the retailing and
technology industries because of our concerns about relatively high
valuations. Several of these investment holdings have fallen
substantially in valuation since we reduced the weightings. The
telecommunications industry, our largest industry weighting, was the
most significant contributor to investment returns and represented
about 13% of the February quarter-end net assets. Major contributors
to the positive investment performance among the top ten equity
holdings were Cisco Systems, Inc., which appreciated +30% during the
February quarter, and AT&T Corp., which appreciated 32% during the
same period. Five of the Fund's top ten equity holdings had stock
price appreciation greater than the total return of the S&P 500
Index for the quarter. (For complete listings of the Fund's Ten
Largest Holdings and Ten Largest Industries, see page 19 of this
report to shareholders.)
The Environment
During the quarter ended February 28, 1999, most economists and
strategists were more optimistic about the US economy as continued
strength in consumer spending on motor vehicles, housing and related
appliances, entertainment services and products, (including
computers), produced the strongest economic growth among the major
industrialized economies. The recent increase in long-term interest
rates appeared to cause a decline in the level of residential
mortgage financing and may cause a slowdown in the rate of growth of
consumer spending. In our opinion, the slowdown in the rate of
growth of real and nominal spending is not likely to approach the
recessionary scope forecasted by many strategists as recently as
late in the fourth quarter of 1998.
The most recent US labor market information shows significant
monthly declines in manufacturing employment, as less expensive
manufacturers in Asia, Latin America and Eastern Europe take market
share from US manufacturers of motor vehicles, steel and other
consumer and industrial durable goods. However, service sector
employment, which is almost 90% of the labor market, continues to be
relatively fully employed. We continue to view the current business
and consumer market conditions as similar to the developments in the
early 1980s when a strong US dollar provided relatively inexpensive
imported goods to a receptive consumer market. Capital spending by
American manufacturers was marking time and many US companies lost
significant market shares to cheaper foreign producers.
Consequently, the US trade deficit in goods continued to increase.
However, contrary to the early 1980s, the Federal Government and
many state and local governments are generating meaningful budget
surpluses. Accordingly, we anticipate a moderating rate of real
economic growth in comparison with recent calendar quarters and a
continued relatively low rate of inflation for the remainder of
1999. Also, we expect US consumer spending to remain the strongest
growth segment of the economy. It appears that US corporate profits,
on an operating basis, rose in the fourth quarter of 1998 on a year-
to-year comparison. We believe that the Federal Reserve Board will
continue to follow a strategy of increasing liquidity to the US
economy. In our opinion, Federal, state and local governments are
likely to provide more fiscal stimulus to the US economy during the
remainder of 1999 and into 2000 through more rapid growth in
spending as well as reduced income taxes for households. We believe
there appears to be an attractive environment for finding good
equity invest-ment opportunities.
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
Investment Overview and Strategy
During the quarter ended February 28, 1999, we slightly modified our
investment strategy. We reduced investment weightings selectively in
technology and retailing companies in response to increases in
valuation ratios. Also, we decreased the Fund's investment
weightings in Microsoft Corporation, Compaq Computer Corporation,
Intel Corporation, Wal-Mart Stores, Inc., The Gap, Inc. and Staples,
Inc.
During the February quarter, we eliminated investment holdings in
Ascend Communications, Inc., Avon Products, Inc., Ceridian
Corporation, Computer Sciences Corporation, Eli Lilly and Company,
Household International, Inc., Koninklijke (Royal) Philips
Electronics NV, Momentum Business Applications Inc., Nokia Oyj,
Novartis AG, The Seagram Company Ltd., Shaw Industries, Inc., Thermo
Ecotek Corporation and Waddell & Reed Financial, Inc. We sold stocks
based on our concerns about the business fundamentals for the
individual companies and our desire to focus on what we believe are
the best companies with the most reasonable valuations. Federated
Department Stores, Inc. was eliminated from the portfolio after
management announced its decision to acquire Fingerhut Companies
Inc. We believe the acquisition is dilutive to earnings growth
without any offsetting benefits from an operational or strategic
perspective.
During the quarter ended February 28, 1999, we added Ameritech
Corporation, Equant, Infinity Broadcasting Corporation, Minnesota
Mining and Manufacturing Company, T. Rowe Price Associates, Inc. and
Vodafone Group PLC to the portfolio. The valuation of Ameritech
Corporation is relatively attractive and the organization has a
meaningful portfolio of investments in overseas telecommunication
service companies. Equant is one of the most rapidly growing global
providers of sophisticated commercial telecommunication services.
Also, the company is in a joint venture with Cisco Systems, Inc. to
deploy voice as well as data commu-nications over a global Internet
system. Infinity Broadcasting Corp., one of the leading radio
broadcast networks, appears to be attractive on the basis of the
organization's potential growth in advertising revenues and cash
flow as the industry continues to consolidate around a handful of
networks. We believe that Minnesota Mining and Manufacturing Company
has an attractive valuation relative to the prospects for improved
rates of return and rates of earnings growth from an ongoing
restructuring program on a global basis. T. Rowe Price Associates,
Inc., one of the leading US financial asset managers, appears to
have attractive growth prospects in a consolidating industry.
Vodafone Group PLC, the leading wireless telecommunications service
company on the basis of global coverage, appears attractively valued
relative to the prospects for enhanced growth in earnings from its
recently announced acquisition of Airtouch Communications, Inc. Our
changes in the portfolio, as well as stock price appreciation during
the February quarter, increased the telecommunications industry from
9.1% at November 30, 1998 net assets to 13.0% of net assets on
February 28, 1999.
In Conclusion
Looking ahead, we will continue to maintain a positive perspective
with respect to finding attractive equity investments in the US
market. Our emphasis remains on high-quality, large-capitalization
companies with above-average earnings growth prospects. Recently, a
surprising decline in German real economic activity reported for the
fourth quarter of 1998 may have implications for slower real growth
in Continental Europe and the United Kingdom. From our perspective,
Japanese political leaders have yet to implement fiscal and monetary
policies that are likely to create an uptrend in domestic business
activity and consumer spending. The US policymakers appear to have a
good blend of monetary and fiscal policies, which is fostering a
continued real growth of overall employment and business activity,
as described by Federal Reserve Board Chairman Alan Greenspan in
recent Congressional testimony. Corporations whose managers can
generate increased earnings and improved rates of return in this
environment could be worthwhile investments, in our opinion.
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
We thank you for your continued investment in Merrill Lynch
Fundamental Growth Fund, Inc., and we look forward to serving your
investment needs in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Lawrence R. Fuller)
Lawrence R. Fuller
Senior Vice President and Portfolio Manager
March 30, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chair-
man since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch Fundamental Growth
Fund, Inc.'s Board of Directors. We are pleased to announce that
Terry K. Glenn has been elected President and Director of the Fund.
Mr. Glenn has held the position of Executive Vice President of MLAM
since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
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. However, in the
case of certain eligible investors, the shares 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. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" 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.
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* +28.33% +13.89% +193.93%
ML Fundamental Growth Fund, Inc. Class B Shares* +27.06 +13.60 +181.13
ML Fundamental Growth Fund, Inc. Class C Shares* +27.10 +13.63 +176.91
ML Fundamental Growth Fund, Inc. Class D Shares* +28.02 +13.84 +190.49
Standard & Poor's 500 Index** +19.74 + 6.76 +191.10/+223.63
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund's inception periods are Class A & Class B Shares, from 10/21/94
to 2/28/99 and Class C & Class D Shares, from 12/24/92 to 2/28/99.
**An unmanaged broad-based Index comprised of common stocks. Since
inception total returns are from 10/21/94 to 2/28/99 and from
12/24/92 to 2/28/99, respectively.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/98 +34.77% +27.70%
Inception (10/21/94)
through 12/31/98 +28.02 +26.38
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/98 +33.41% +29.41%
Inception (10/21/94)
through 12/31/98 +26.70 +26.70
[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 12/31/98 +33.37% +32.37%
Five Years Ended 12/31/98 +20.57 +20.57
Inception (12/24/92)
through 12/31/98 +17.63 +17.63
[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 12/31/98 +34.47% +27.41%
Five Years Ended 12/31/98 +21.52 +20.22
Inception (12/24/92)
through 12/31/98 +18.55 +17.49
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Advertising 300,000 The Interpublic Group of Companies, Inc. $ 18,003,596 $ 22,443,750 0.8%
Banking & Financial 1,200,000 Bank One Corporation 60,314,384 64,500,000 2.3
1,125,000 BankAmerica Corporation 72,899,695 73,476,562 2.6
1,000,000 Citigroup Inc. 56,170,294 58,750,000 2.0
600,000 Mellon Bank Corporation 35,882,302 40,575,000 1.4
328,100 State Street Corporation 19,742,087 25,161,169 0.9
-------------- -------------- ------
245,008,762 262,462,731 9.2
Beverages 381,000 The Coca-Cola Company 30,048,481 24,360,187 0.8
Broadcasting-- 350,000 CBS Corporation 9,992,755 12,906,250 0.5
Radio & Television 445,000 ++Chancellor Media Corporation 20,378,648 19,468,750 0.7
625,000 ++Clear Channel Communications, Inc. 28,637,184 37,500,000 1.3
600,000 ++Infinity Broadcasting Corp. (Class A) 13,849,114 14,250,000 0.5
-------------- -------------- ------
72,857,701 84,125,000 3.0
Chemicals 915,000 E.I. du Pont de Nemours and Company 56,444,071 46,950,937 1.7
Communications 1,035,000 ++Cisco Systems, Inc. 59,659,782 101,235,937 3.6
Equipment 70,000 ++FORE Systems, Inc. 1,752,804 1,015,000 0.0
30,000 Lucent Technologies Inc. 2,653,851 3,046,875 0.1
142,660 ++Newbridge Networks Corporation 5,769,684 3,477,338 0.1
78,865 Northern Telecom Limited (Nortel) 3,998,914 4,579,099 0.2
30,300 Telefonaktiebolaget LM Ericsson (ADR)(a) 820,244 787,800 0.0
-------------- -------------- ------
74,655,279 114,142,049 4.0
Computers 1,100,000 Compaq Computer Corporation 39,055,528 38,775,000 1.4
120,000 ++Dell Computer Corporation 5,887,865 9,607,500 0.3
250,000 International Business Machines Corporation 34,305,777 42,500,000 1.5
115,000 ++Network Appliance, Inc. 3,187,701 4,830,000 0.2
-------------- -------------- ------
82,436,871 95,712,500 3.4
Cosmetics 235,000 The Gillette Company 11,529,016 12,601,875 0.5
24,266 International Flavors & Fragrances Inc. 1,157,165 999,456 0.0
-------------- -------------- ------
12,686,181 13,601,331 0.5
Diversified 660,000 Minnesota Mining and Manufacturing Company (3M) 50,666,445 48,881,250 1.7
Electrical 36,399 Emerson Electric Co. 1,616,259 2,090,668 0.1
Equipment 1,100,000 General Electric Company 88,606,273 110,343,750 3.9
12,133 Honeywell Inc. 925,783 848,552 0.0
-------------- -------------- ------
91,148,315 113,282,970 4.0
Electronics 200,000 Intel Corporation 19,811,432 23,987,500 0.8
20,000 ++STMicroelectronics NV (NY Registered Shares) 1,342,520 1,747,500 0.1
50,000 Texas Instruments Incorporated 3,150,385 4,459,375 0.2
-------------- -------------- ------
24,304,337 30,194,375 1.1
Energy 500,000 El Paso Energy Corporation 17,131,800 18,218,750 0.6
30,000 Enron Corporation 1,446,269 1,950,000 0.1
-------------- -------------- ------
18,578,069 20,168,750 0.7
Entertainment 150,000 ++Liberty Media Group (Series A) 1,786,112 8,081,250 0.3
150,000 ++Viacom, Inc. (Class A) 7,778,458 13,096,875 0.4
1,600,000 The Walt Disney Company 53,960,022 56,300,000 2.0
-------------- -------------- ------
63,524,592 77,478,125 2.7
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Financial Services 67,283 American Express Company $ 6,728,783 $ 7,300,205 0.2%
250,000 Federal Home Loan Mortgage Association 14,899,606 14,718,750 0.5
600,000 Federal National Mortgage Association 40,493,143 42,000,000 1.5
200,000 Franklin Resources, Inc. 10,343,119 6,362,500 0.2
218,394 Morgan Stanley Dean Witter & Co. 14,669,924 19,764,657 0.7
70,000 T. Rowe Price Associates, Inc. 2,635,381 2,148,125 0.1
-------------- -------------- ------
89,769,956 92,294,237 3.2
Food Merchandising 48,000 Albertson's, Inc. 1,895,172 2,736,000 0.1
100,000 ++Fred Meyer, Inc. 2,405,021 6,425,000 0.2
125,000 ++Safeway Inc. 6,042,742 7,218,750 0.3
-------------- -------------- ------
10,342,935 16,379,750 0.6
Foods 75,000 ConAgra, Inc. 1,834,821 2,259,375 0.1
60,665 Wm. Wrigley Jr. Company 4,533,973 5,641,845 0.2
-------------- -------------- ------
6,368,794 7,901,220 0.3
Healthcare 7,888 Coram Healthcare Corp. (Warrants)(b) 0 0 0.0
Home Furnishings 355,000 Ethan Allen Interiors, Inc. 18,274,523 15,975,000 0.6
Hotels 145,596 Marriott International, Inc. (Class A) 4,604,376 5,241,456 0.2
Household Products 20,000 Colgate-Palmolive Company 1,579,466 1,697,500 0.0
500,000 Kimberly-Clark Corporation 25,103,633 23,625,000 0.8
625,000 The Procter & Gamble Company 49,954,500 55,937,500 2.0
465,000 Unilever NV (NY Registered Shares) 33,048,690 33,683,438 1.2
-------------- -------------- ------
109,686,289 114,943,438 4.0
Information 700,000 ++America Online, Inc. 27,083,065 62,256,250 2.2
Processing 436,788 First Data Corporation 15,634,701 16,707,141 0.6
-------------- -------------- ------
42,717,766 78,963,391 2.8
Insurance 200,000 Aetna Inc. 15,656,832 14,812,500 0.5
288,999 American International Group, Inc. 22,766,088 32,927,824 1.2
-------------- -------------- ------
38,422,920 47,740,324 1.7
Medical Technology 412,800 ++Boston Scientific Corporation 10,934,071 10,939,200 0.4
40,000 Guidant Corporation 1,502,734 2,280,000 0.1
24,266 Johnson & Johnson 1,280,674 2,071,710 0.0
-------------- -------------- ------
13,717,479 15,290,910 0.5
Oil Services 70,000 Baker Hughes Incorporated 2,439,890 1,260,000 0.0
36,000 Diamond Offshore Drilling, Inc. 1,584,456 744,750 0.0
30,000 Schlumberger Limited 2,064,088 1,456,875 0.0
-------------- -------------- ------
6,088,434 3,461,625 0.0
Pharmaceuticals 36,399 ++Amgen Inc. 2,051,765 4,545,325 0.2
750,000 Bristol-Myers Squibb Company 77,816,331 94,453,125 3.3
1,000,000 Merck & Co., Inc. 60,308,632 81,750,000 2.9
560,000 Pfizer Inc. 53,622,255 73,885,000 2.6
-------------- -------------- ------
193,798,983 254,633,450 9.0
Photography 13,000 Eastman Kodak Company 906,493 860,437 0.0
Pollution Control 100,000 Waste Management, Inc. 4,607,530 4,887,500 0.2
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Publishing 165,450 Gannett Co., Inc. $ 11,654,521 $ 10,506,075 0.4%
Restaurants 100,000 McDonald's Corporation 6,091,574 8,500,000 0.3
Retail--Specialty 250,000 ++Abercrombie & Fitch Co. (Class A) 11,855,954 19,000,000 0.7
875,000 CVS Corporation 34,079,049 46,375,000 1.6
190,000 The Gap, Inc. 7,214,633 12,290,625 0.4
652,120 Lowe's Companies, Inc. 31,758,566 38,678,868 1.4
1,468,323 ++Staples, Inc. 27,928,333 43,040,218 1.5
75,000 ++Tommy Hilfiger Corporation 4,051,102 5,179,687 0.2
1,750,000 Walgreen Co. 38,563,732 56,000,000 2.0
-------------- -------------- ------
155,451,369 220,564,398 7.8
Retail--Stores 200,000 The TJX Companies, Inc. 5,946,423 5,712,500 0.2
550,000 Wal-Mart Stores, Inc. 32,058,099 47,506,250 1.7
-------------- -------------- ------
38,004,522 53,218,750 1.9
Semiconductors 200,000 ++Applied Materials, Inc. 6,971,186 11,125,000 0.4
Software--Computer 75,000 ++Baan Company NV 3,198,679 703,125 0.0
250,000 ++Microsoft Corporation 27,752,710 37,515,625 1.3
350,000 ++PeopleSoft, Inc. 12,890,854 6,606,250 0.3
1,400,000 SAP AG (Systeme, Anwendungen, Produkte in der
Datenverarbeitung)(ADR)(a) 46,261,507 44,800,000 1.6
-------------- -------------- ------
90,103,750 89,625,000 3.2
Telecommunications 1,000,000 AT&T Corp. 77,788,350 82,125,000 2.9
260,000 Ameritech Corporation 14,675,358 16,997,500 0.6
154,420 Cable & Wireless PLC (ADR)(a) 6,210,420 6,263,661 0.2
204,200 ++Equant (NY Registered Shares) 14,906,599 14,702,400 0.5
1,070,000 GTE Corporation 62,053,707 69,416,250 2.5
600,000 ++MCI WorldCom Inc. 30,699,246 49,500,000 1.8
85,000 ++Nextel Communications, Inc. (Class A) 1,924,895 2,555,313 0.1
1,000,000 ++Sprint Corp. (PCS Group) 17,876,472 32,000,000 1.1
885,000 Sprint Corporation 60,820,578 75,944,063 2.7
100,000 Vodafone Group PLC (ADR)(a) 17,869,478 18,218,750 0.6
-------------- -------------- ------
304,825,103 367,722,937 13.0
Toys 303,325 Mattel, Inc. 11,546,515 8,000,197 0.3
Travel & Lodging 770,000 Carnival Corporation 26,669,781 34,265,000 1.2
Total Stocks 2,030,987,499 2,415,904,050 85.2
Face
Amount Short-Term Securities
<S> <C> <S> <C> <C> <C>
Commercial $58,000,000 Associates First Capital, 4.85% due 3/01/1999 57,984,372 57,984,372 2.0
Paper* 7,000,000 Block Financial Corp., 4.83% due 3/19/1999 6,981,217 6,981,217 0.2
CSW Credit Inc.:
20,000,000 4.84% due 3/01/1999 19,994,622 19,994,622 0.7
12,800,000 4.82% due 3/26/1999 12,753,728 12,753,728 0.5
E.I. du Pont de Nemours and Company:
7,500,000 4.80% due 3/03/1999 7,496,000 7,496,000 0.3
30,000,000 4.81% due 4/06/1999 29,847,683 29,847,683 1.1
20,000,000 Eli Lilly and Company, 4.75% due 3/12/1999 19,965,694 19,965,694 0.7
20,000,000 Lucent Technologies Inc., 4.81% due 3/31/1999 19,914,489 19,914,489 0.7
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Industries Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Metropolitan Life Insurance Company:
Paper* $20,000,000 4.81% due 3/01/1999 $ 19,994,656 $ 19,994,656 0.7%
(concluded) 13,128,000 4.84% due 3/31/1999 13,071,520 13,071,520 0.5
20,000,000 Pfizer Inc., 4.76% due 3/24/1999 19,933,889 19,933,889 0.7
30,000,000 SBC Communications Inc., 4.81% due 3/17/1999 29,927,850 29,927,850 1.1
26,911,000 Xerox Capital (Europe) PLC, 4.80% due 3/17/1999 26,846,414 26,846,414 0.9
-------------- -------------- ------
284,712,134 284,712,134 10.1
US Government Federal Home Loan Mortgage Corporation:
Agency Obligations* 50,000,000 4.69% due 3/09/1999 49,934,861 49,934,861 1.8
50,000,000 4.75% due 3/15/1999 49,894,444 49,894,444 1.8
32,776,000 4.76% due 3/26/1999 32,658,990 32,658,990 1.1
75,000,000 Federal National Mortgage Association, 4.74%
due 3/15/1999 74,842,000 74,842,000 2.6
-------------- -------------- ------
207,330,295 207,330,295 7.3
Total Short-Term Securities 492,042,429 492,042,429 17.4
Total Investments $2,523,029,928 2,907,946,479 102.6
==============
Liabilities in Excess of Other Assets (72,792,427) (2.6)
-------------- ------
Net Assets $2,835,154,052 100.0%
============== ======
(a)American Depositary Receipt (ADR).
(b)Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
++Non-income producing security.
*Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rates shown reflect the
discount rates paid at the time of purchase by the Fund.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$2,523,029,928) (Note 1a) $2,907,946,479
Cash 986
Receivables:
Capital shares sold $ 19,516,656
Dividends 1,722,240 21,238,896
--------------
Prepaid registration fees and other assets (Note 1e) 144,576
--------------
Total assets 2,929,330,937
--------------
Liabilities: Payables:
Securities purchased 85,242,950
Capital shares redeemed 6,073,630
Distributor (Note 2) 1,400,923
Investment adviser (Note 2) 1,285,030 94,002,533
--------------
Accrued expenses and other liabilities 174,352
--------------
Total liabilities 94,176,885
--------------
Net Assets: Net assets $2,835,154,052
==============
Net Assets Class A Shares of capital stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $ 1,830,011
Class B Shares of capital stock, $0.10 par value, 100,000,000 shares
authorized 7,477,325
Class C Shares of capital stock, $0.10 par value, 100,000,000 shares
authorized 1,218,062
Class D Shares of capital stock, $0.10 par value, 100,000,000 shares
authorized 3,087,196
Paid-in capital in excess of par 2,277,528,265
Accumulated investment loss--net (2,620,464)
Undistributed realized capital gains on investments--net 161,717,106
Unrealized appreciation on investments--net 384,916,551
--------------
Net assets $2,835,154,052
==============
Net Asset Value: Class A--Based on net assets of $394,639,806 and 18,300,108 shares
outstanding $ 21.56
==============
Class B--Based on net assets of $1,529,751,042 and 74,773,248 shares
outstanding $ 20.46
==============
Class C--Based on net assets of $250,763,483 and 12,180,616 shares
outstanding $ 20.59
==============
Class D--Based on net assets of $659,999,721 and 30,871,961 shares
outstanding $ 21.38
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended February 28, 1999
<S> <S> <C> <C>
Investment Income Dividends (net of $21,212 foreign withholding tax) $ 6,288,221
(Notes 1c & 1d): Interest and discount earned 4,208,985
------------
Total income 10,497,206
------------
Expenses: Investment advisory fees (Note 2) $ 5,651,345
Account maintenance and distribution fees--Class B (Note 2) 4,808,776
Account maintenance and distribution fees--Class C (Note 2) 882,679
Transfer agent fees--Class B (Note 2) 494,962
Account maintenance fees--Class D (Note 2) 478,336
Registration fees (Note 1e) 198,971
Transfer agent fees--Class D (Note 2) 154,806
Transfer agent fees--Class A (Note 2) 109,308
Transfer agent fees--Class C (Note 2) 96,997
Printing and shareholder reports 72,459
Accounting services (Note 2) 52,023
Professional fees 44,290
Custodian fees 34,177
Directors' fees and expenses 16,848
Pricing fees 145
Other 21,548
------------
Total expenses 13,117,670
------------
Investment loss--net (2,620,464)
------------
Realized & Realized gain from investments--net 162,144,788
Unrealized Gain on Change in unrealized appreciation/depreciation on investments--net 364,003,041
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $523,527,365
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Year Ended
Increase (Decrease) in Net Assets: Feb. 28, 1999 Aug. 31, 1998
<S> <S> <C> <C>
Operations: Investment loss--net $ (2,620,464) $ (2,856,129)
Realized gain on investments--net 162,144,788 53,073,187
Change in unrealized appreciation/depreciation on
investments--net 364,003,041 (107,454,701)
-------------- --------------
Net increase (decrease) in net assets resulting from operations 523,527,365 (57,237,643)
-------------- --------------
Distributions to Realized gain on investments--net:
Shareholders Class A (9,138,118) (8,425,794)
(Note 1f): Class B (28,020,289) (34,969,855)
Class C (5,194,883) (10,532,443)
Class D (7,743,304) (8,909,959)
-------------- --------------
Net decrease in net assets resulting from distributions
to shareholders (50,096,594) (62,838,051)
-------------- --------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 1,264,350,948 810,929,738
(Note 4): -------------- --------------
Net Assets: Total increase in net assets 1,737,781,719 690,854,044
Beginning of period 1,097,372,333 406,518,289
-------------- --------------
End of period $2,835,154,052 $1,097,372,333
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A++++
For the
For the Period
The following per share data and ratios have been derived Six Months Oct. 21,
from information provided in the financial statements. Ended 1994++ to
Feb. 28, For the Year Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.19 $ 17.37 $ 13.60 $ 11.66 $ 9.99
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .04 .07 .07 .07 --+++++
Realized and unrealized gain on
investments--net 6.03 1.09 4.95 2.13 1.98
-------- -------- -------- -------- --------
Total from investment operations 6.07 1.16 5.02 2.20 1.98
-------- -------- -------- -------- --------
Less distributions from realized gain on
investments--net (.70) (2.34) (1.25) (.26) (.31)
-------- -------- -------- -------- --------
Net asset value, end of period $ 21.56 $ 16.19 $ 17.37 $ 13.60 $ 11.66
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 38.32%+++ 6.37% 39.24% 19.02% 20.55%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .77%* .87% .99% 1.12% 1.46%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net .41%* .37% .47% .51% .02%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $394,640 $167,133 $ 62,049 $ 47,048 $ 21,288
Data: ======== ======== ======== ======== ========
Portfolio turnover 29.15% 40.27% 94.38% 82.10% 80.41%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B++++
For the
For the Period
The following per share data and ratios have been derived Six Months Oct. 21,
from information provided in the financial statements. Ended 1994++ to
Feb. 28, For the Year Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.39 $ 16.69 $ 13.14 $ 11.40 $ 9.85
Operating ---------- -------- -------- -------- --------
Performance: Investment loss--net (.05) (.11) (.09) (.07) (.09)
Realized and unrealized gain on
investments--net 5.73 1.05 4.79 2.07 1.95
---------- -------- -------- -------- --------
Total from investment operations 5.68 .94 4.70 2.00 1.86
---------- -------- -------- -------- --------
Less distributions from realized gain on
investments--net (.61) (2.24) (1.15) (.26) (.31)
---------- -------- -------- -------- --------
Net asset value, end of period $ 20.46 $ 15.39 $ 16.69 $ 13.14 $ 11.40
========== ======== ======== ======== ========
Total Investment Based on net asset value per share 37.63%+++ 5.21% 37.95% 17.68% 19.60%+++
Return:** ========== ======== ======== ======== ========
Ratios to Average Expenses 1.79%* 1.88% 2.02% 2.16% 2.48%*
Net Assets: ========== ======== ======== ======== ========
Investment loss--net (.61%)* (.64%) (.59%) (.54%) (.95%)*
========== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $1,529,751 $641,688 $216,636 $116,641 $ 63,748
Data: ========== ======== ======== ======== ========
Portfolio turnover 29.15% 40.27% 94.38% 82.10% 80.41%
========== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Feb. 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.45 $ 16.72 $ 13.14 $ 11.40 $ 9.96
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.05) (.11) (.09) (.07) (.09)
Realized and unrealized gain on
investments--net 5.77 1.05 4.79 2.07 1.84
-------- -------- -------- -------- --------
Total from investment operations 5.72 .94 4.70 2.00 1.75
-------- -------- -------- -------- --------
Less distributions from realized gain
on investments--net (.58) (2.21) (1.12) (.26) (.31)
-------- -------- -------- -------- --------
Net asset value, end of period $ 20.59 $ 15.45 $ 16.72 $ 13.14 $ 11.40
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 37.71%+++ 5.19% 37.90% 17.68% 18.28%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.79%* 1.89% 2.02% 2.15% 2.44%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (.61%)* (.63%) (.58%) (.57%) (.88%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $250,763 $130,652 $ 74,732 $ 54,052 $ 44,220
Data: ======== ======== ======== ======== ========
Portfolio turnover 29.15% 40.27% 94.38% 82.10% 80.41%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Feb. 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.06 $ 17.27 $ 13.54 $ 11.64 $ 10.09
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .01 .02 .03 .03 (.01)
Realized and unrealized gain on
investments--net 5.99 1.09 4.93 2.13 1.87
-------- -------- -------- -------- --------
Total from investment operations 6.00 1.11 4.96 2.16 1.86
-------- -------- -------- -------- --------
Less distributions from realized gain
on investments--net (.68) (2.32) (1.23) (.26) (.31)
-------- -------- -------- -------- --------
Net asset value, end of period $ 21.38 $ 16.06 $ 17.27 $ 13.54 $ 11.64
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 38.15%+++ 6.08% 38.90% 18.70% 19.15%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.01%* 1.11% 1.24% 1.37% 1.65%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .15%* .12% .17% .24% (.10%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $660,000 $157,899 $ 53,101 $ 22,892 $ 13,231
Data: ======== ======== ======== ======== ========
Portfolio turnover 29.15% 40.27% 94.38% 82.10% 80.41%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
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's
financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial
statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the 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 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 or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). 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
financial 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.
* 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).
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
Written and purchased options are non-income producing investments.
(c) 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.
(d) 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.
(e) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or the "Distributor"), a division of Princeton
Funds Distributor, Inc. ("PFD"), which is 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. Effective October
14, 1998, the Fund's Board of Directors voted to change the monthly
fee paid to MLAM to be paid at the annual rate of 0.65% of average
daily net assets of the Fund not exceeding $1 billion, 0.625% of net
assets in excess of $1 billion but not exceeding $1.5 billion and
0.60% of net assets in excess of $1.5 billion.
Pursuant to 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 Incorporated ("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 six months ended February 28, 1999, 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 $ 545 $ 1,899
Class D $28,744 $411,871
For the six months ended February 28, 1999, MLPF&S received
contingent deferred sales charges of $137,625 and $6,111 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $117,632 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended February 28, 1999.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
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, FDS, PSI, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1999 were $1,154,138,006 and
$491,231,414, respectively.
Net realized gains for the six months ended February 28, 1999 and
net unrealized gains as of February 28, 1999 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $162,142,607 $ 384,916,551
Short-term investments 2,181 --
------------ -------------
Total $162,144,788 $ 384,916,551
============ =============
As of February 28, 1999, net unrealized appreciation for Federal
income tax purposes aggregated $384,916,551, of which $433,689,767
related to appreciated securities and $48,773,216 related to
depreciated securities. At February 28, 1999, the aggregate cost of
investments for Federal income tax purposes was $2,523,029,928.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
were $1,264,350,948 and $810,929,738 for the six months ended
February 28, 1999 and for the year ended August 31, 1998,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
February 28, 1999 Shares Amount
Shares sold 9,630,635 $186,790,690
Shares issued to shareholders
in reinvestment of
distributions 321,174 5,813,254
Shares issued resulting from
reorganization 473,544 8,961,244
------------ ------------
Total issued 10,425,353 201,565,188
Shares redeemed (2,447,888) (47,217,575)
------------ ------------
Net increase 7,977,465 $154,347,613
============ ============
Class A Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 10,150,522 $184,644,940
Shares issued to shareholders
in reinvestment of
distributions 492,245 8,166,345
------------ ------------
Total issued 10,642,767 192,811,285
Shares redeemed (3,891,720) (70,428,026)
------------ ------------
Net increase 6,751,047 $122,383,259
============ ============
Class B Shares for the
Six Months Ended Dollar
February 28, 1999 Shares Amount
Shares sold 37,182,716 $711,021,412
Shares issued to shareholders
in reinvestment of
distributions 1,508,065 25,968,879
Shares issued resulting from
reorganization 2,156,337 38,818,026
------------ ------------
Total issued 40,847,118 775,808,317
Automatic conversion
of shares (902,044) (17,272,567)
Shares redeemed (6,876,881) (125,115,651)
------------ ------------
Net increase 33,068,193 $633,420,099
============ ============
Class B Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 33,050,643 $574,031,375
Shares issued to shareholders
in reinvestment of
distributions 2,042,041 32,448,035
------------ ------------
Total issued 35,092,684 606,479,410
Automatic conversion
of shares (100,555) (1,730,013)
Shares redeemed (6,270,855) (107,964,345)
------------ ------------
Net increase 28,721,274 $496,785,052
============ ============
Class C Shares for the
Six Months Ended Dollar
February 28, 1999 Shares Amount
Shares sold 4,774,111 $ 91,132,259
Shares issued to shareholders
in reinvestment of
distributions 273,509 4,739,909
Shares issued resulting from
reorganization 82,042 1,486,191
------------ ------------
Total issued 5,129,662 97,358,359
Shares redeemed (1,402,860) (25,499,750)
------------ ------------
Net increase 3,726,802 $ 71,858,609
============ ============
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 5,075,475 $ 88,126,487
Shares issued to shareholders
in reinvestment of
distributions 592,391 9,454,545
------------ ------------
Total issued 5,667,866 97,581,032
Shares redeemed (1,683,540) (28,971,978)
------------ ------------
Net increase 3,984,326 $ 68,609,054
============ ============
Class D Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 11,093,837 $219,498,956
Automatic conversion of shares 864,494 17,272,567
Shares issued to shareholders
in reinvestment of
distributions 397,153 7,132,877
Shares issued resulting from
reorganization 11,158,555 209,477,356
------------ ------------
Total issued 23,514,039 453,381,756
Shares redeemed (2,476,128) (48,657,129)
------------ ------------
Net increase 21,037,911 $404,724,627
============ ============
Class D Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 8,037,460 $146,003,016
Automatic conversion of shares 96,623 1,730,013
Shares issued to shareholders
in reinvestment of
distributions 485,816 8,011,110
------------ ------------
Total issued 8,619,899 155,744,139
Shares redeemed (1,860,036) (32,591,766)
------------ ------------
Net increase 6,759,863 $123,152,373
============ ============
5. Acquisition of Merrill Lynch Fund For Tomorrow, Inc.:
On November 23, 1998, the Fund acquired all of the net assets of
Merrill Lynch Fund For Tomorrow, Inc. pursuant to a plan of
reorganization. The acquisition was accomplished by a tax-free
exchange of 16,839,346 shares of common stock of Merrill Lynch Fund
For Tomorrow, Inc. for 13,870,478 shares of common stock of the
Fund. Merrill Lynch Fund For Tomorrow, Inc.'s net assets on that
date of $258,742,817, including $78,845,551 of unrealized
appreciation, were combined with those of the Fund. The aggregate
net assets immediately after the acquisition amounted to
$1,775,138,303.
Merrill Lynch Fundamental Growth Fund, Inc.
February 28, 1999
PORTFOLIO INFORMATION
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
General Electric Company 3.9%
Cisco Systems, Inc. 3.6
Bristol-Myers Squibb Company 3.3
AT&T Corp. 2.9
Merck & Co., Inc. 2.9
Sprint Corporation 2.7
Pfizer, Inc. 2.6
BankAmerica Corporation 2.6
GTE Corporation 2.5
Bank One Corporation 2.3
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Telecommunications 13.0%
Banking & Financial 9.2
Pharmaceuticals 9.0
Retail--Specialty 7.8
Household Products 4.0
Communications Equipment 4.0
Electrical Equipment 4.0
Computers 3.4
Financial Services 3.2
Software--Computer 3.2
Equity Portfolio Changes for the
Quarter Ended February 28, 1999
Additions
Ameritech Corporation
Equant (NY Registered Shares)
Infinity Broadcasting Corp. (Class A)
Minnesota Mining and Manufacturing Company (3M)
*Momentum Business Applications, Inc. (Class A)
Nextel Communications, Inc. (Class A)
T.Rowe Price Associates, Inc.
The TJX Companies, Inc.
Vodafone Group PLC (ADR)
Deletions
Ascend Communications, Inc.
Avon Products, Inc.
Ceridian Corporation
Computer Sciences Corporation
Eli Lilly and Company
Federated Department Stores, Inc.
Household International, Inc.
Koninklijke (Royal) Philips Electronics NV (NY Registered Shares)
*Momentum Business Applications, Inc. (Class A)
Nokia Oyj (ADR)
Novartis AG (ADR)
Shaw Industries, Inc.
The Seagram Company Ltd.
Thermo Ecotek Corporation
Waddell & Reed Financial, Inc. (Class A)
Waddell & Reed Financial, Inc. (Class B)
[FN]
*Added and deleted in the same quarter.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Lawrence R. Fuller, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank
Global Securities Services
Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Gerald M. Richard, Treasurer and Norman R. Harvey, Senior Vice
President of Merrill Lynch Fundamental Growth Fund, Inc. have
recently retired. Their colleagues at Merrill Lynch Asset
Management, L.P. join the Fund's Board of Directors in wishing Mr.
Richard and Mr. Harvey well in their retirements.
