MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
FUND LOGO
Annual Report
August 31, 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
Fiscal Year in Review
For the fiscal year ended August 31, 1999, total returns for Merrill
Lynch Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and
Class D Shares were +41.08%, +39.58%, +39.65% and +40.67%,
respectively. The total return for the unmanaged Standard & Poor's
500 Index was +39.82% for the same one-year period. (Investment
results shown do not reflect sales charges and would be lower if
sales charges were included. Complete performance information can be
found on pages 3--5 of this report to shareholders.)
We kept the Fund relatively fully invested during September and
October 1998 when many strategists were recommending selling stocks
and purchasing bonds. This strategy benefited Fund performance
during the fiscal year ended August 31, 1999. Our holdings in the
technology, telecommunications services and retailing industries
also benefited total returns during the first half of the fiscal
year. Companies in these industries that were significant
contributors to performance included Cisco Systems, Inc., Wal-Mart
Stores, Inc., Intel Corporation, Microsoft Corporation, Compaq
Computer Corporation, Dell Computer Corporation, Equant and MCI
WorldCom Inc.
In the information processing industry, the Fund's investments in
America Online, Inc. and First Data Corporation contributed
positively to Fund performance. In addition, CBS Corporation and
Clear Channel Communications, Inc., holdings in the broadcasting
industry, benefited Fund performance.
At the beginning of the second half of the fiscal year, we
significantly reduced our weighting in technology and retailing
companies. This move was in response to our concerns about the
relatively high valuations of individual stocks and the potential
for a deterioration in the outlook for profitable growth for
retailers and the profitability of the personal computer business.
This decision was a good one, based on the business experience of
many of the major companies in these industries and stock price
declines since our reduction of these investment weightings.
Therefore, the decline in the Fund's weighting of the technology and
retailing industries during late January and early February 1999
improved comparative and absolute investment returns until late in
the Fund's fourth fiscal quarter.
At that time, it appeared that investors began to perceive a major
cyclical improvement in the profitability in the personal computer
business and the profit prospects for Intel Corporation and
Microsoft Corporation. However, the Fund's performance in the final
months of the year was held back by our relatively modest investment
exposure to these companies. It also appeared that investors
anticipated an acceleration of real economic growth in the US
economy during the second half of 1999 and a continuing tightening
of monetary policy by the Federal Reserve Board. The Fund's
comparative investment performance was penalized during the August
quarter as a result of the increase in short-term and long-term
interest rates and the negative effect on our significant industry
exposures to pharmaceutical, banking and financial companies.
The Fund's leading industry sector at the end of the fiscal year was
telecommunications services. There was a significant decline in the
prices of AT&T Corp., Sprint Corp. (FONGroup and PCS Group) and MCI
WorldCom Inc. during the period. The declines appeared to be in
response to the perception that the price competition in the
residential off-peak long distance communication market is likely to
significantly decrease the profitability of these companies. In our
opinion, this segment of the communication service business is
relatively insignificant to all of these companies. However, the
decline penalized both absolute and comparative performance of the
Fund during this period. The recently proposed merger of MCI
WorldCom and Sprint has improved the valuation of Sprint's common
shares.
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
In Conclusion
We continue to focus our investments on the larger, higher-quality
companies in developed economies around the world where we believe
the valuations are reasonable relative to the corporate rates of
return and prospective above-average growth in earnings.
We thank you for your investment in Merrill Lynch Fundamental Growth
Fund, Inc., and we look forward to discussing our investment
strategy and outlook with you in our upcoming quarterly report to
shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Lawrence R. Fuller)
Lawrence R. Fuller
Senior Vice President and Portfolio Manager
October 5, 1999
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
Robert C. Doll, Senior Vice President
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
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
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.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month Since Inception
As of August 31, 1999 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* +41.08% -1.57% +199.79%
ML Fundamental Growth Fund, Inc. Class B Shares* +39.58 -1.84 +185.11
ML Fundamental Growth Fund, Inc. Class C Shares* +39.65 -1.88 +180.81
ML Fundamental Growth Fund, Inc. Class D Shares* +40.67 -1.67 +195.79
Standard & Poor's 500 Index** +39.82 +1.75 +212.41/+247.33
<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 dates are from 10/21/94 for Class A & Class B
Shares and from 12/24/92 for Class C & Class D Shares.
**An unmanaged broad-based Index comprised of common stocks. Since
inception total returns are from 10/21/94 and from 12/24/92,
respectively.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the S&P 500 Total Return Index. Beginning and ending
values are:
10/21/94** 8/99
ML Fundamental Growth Fund, Inc++--
Class A Shares* $ 9,475 $28,405
ML Fundamental Growth Fund, Inc++--
Class B Shares* $10,000 $28,511
S&P 500 Total Return Index++++ $10,000 $31,241
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the S&P 500 Total Return Index. Beginning and ending
values are:
12/24/92** 8/99
ML Fundamental Growth Fund, Inc.++--
Class C Shares $10,000 $28,081
ML Fundamental Growth Fund, Inc.++--
Class D Shares $ 9,475 $28,026
S&P 500 Total Return Index++++ $10,000 $34,733
[FN]
*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.
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/99 +27.42% +20.73%
Inception (10/21/94)
through 6/30/99 +28.34 +26.87
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/99 +26.09% +22.09%
Inception (10/21/94)
through 6/30/99 +27.02 +27.02
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/99 +26.10% +25.10%
Five Years Ended 6/30/99 +26.71 +26.71
Inception (12/24/92)
through 6/30/99 +18.52 +18.52
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/99 +27.11% +20.44%
Five Years Ended 6/30/99 +27.70 +26.33
Inception (12/24/92)
through 6/30/99 +19.44 +18.46
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PORTFOLIO INFORMATION (unaudited)
As of August 31, 1999
Percent of
Ten Largest Holdings Net Assets
General Electric Company 4.3%
Cisco Systems, Inc. 4.2
Pfizer Inc. 3.2
International Business Machines Corporation 3.2
AT&T Corp. 3.1
Merck & Co., Inc. 2.9
MCI WorldCom Inc. 2.5
Mellon Bank Corporation 2.3
Minnesota Mining and Manufacturing
Company (3M) 2.3
America Online, Inc. 2.2
Percent of
Ten Largest Industries Net Assets
Telecommunications 11.5%
Pharmaceuticals 7.9
Banking & Financial 7.7
Communications Equipment 7.3
Electrical Equipment 6.1
Computers 5.9
Retail--Specialty 4.5
Information Processing 4.2
Insurance 3.4
Broadcasting--Radio & Television 3.4
Portfolio Changes for the
Quarter Ended August 31, 1999
Additions
3Com Corporation
Best Buy Co., Inc.
Copper Mountain Networks, Inc.
Duke Energy Corporation
EMC Corporation
General Motors Corporation (Class H)
Mannesmann AG
STMicroelectornics
Sun Microsystems, Inc.
UtiliCorp United Inc.
Deletions
Ameritech Corporation
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 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 600,000 The Interpublic Group of Companies,
Inc. $ 18,003,596 $ 23,775,000 0.7%
Banking & Financial 1,250,000 Bank of America Corporation 81,132,770 75,625,000 2.1
1,200,000 Bank One Corporation 60,314,384 48,150,000 1.3
1,100,000 Citigroup Inc. 47,249,572 48,881,250 1.4
2,500,000 Mellon Bank Corporation 82,044,620 83,437,500 2.3
328,100 State Street Corporation 19,742,087 19,644,988 0.6
-------------- -------------- ------
290,483,433 275,738,738 7.7
Beverages 150,000 The Coca-Cola Company 12,674,176 8,971,875 0.3
Broadcasting-- 445,000 ++AMFM Inc. 20,378,648 21,916,250 0.6
Radio & Television 500,000 ++CBS Corporation 15,516,415 23,500,000 0.7
625,000 ++Clear Channel Communications, Inc. 28,637,184 43,789,062 1.2
1,200,000 ++Infinity Broadcasting Corp. (Class A) 29,172,154 32,475,000 0.9
-------------- -------------- ------
93,704,401 121,680,312 3.4
Chemicals 915,000 E.I. du Pont de Nemours and Company 56,444,071 57,988,125 1.6
Communications 800,000 ++3Com Corporation 22,107,053 19,800,000 0.6
Equipment 2,235,000 ++Cisco Systems, Inc. 81,111,613 151,421,250 4.2
125,000 ++Copper Mountain Networks, Inc. 9,640,112 14,656,250 0.4
1,140,000 Lucent Technologies Inc. 71,795,692 73,031,250 2.0
60,000 Nortel Networks Corporation 1,566,687 2,463,750 0.1
-------------- -------------- ------
186,221,157 261,372,500 7.3
Computers 275,000 Compaq Computer Corporation 9,877,313 6,376,562 0.2
140,000 ++Dell Computer Corporation 3,689,656 6,833,750 0.2
615,000 ++EMC Corporation 36,707,010 36,900,000 1.0
900,000 International Business Machines
Corporation 77,986,902 112,106,250 3.2
600,000 ++Sun Microsystems, Inc. 44,682,175 47,662,500 1.3
-------------- -------------- ------
172,943,056 209,879,062 5.9
Cosmetics 125,000 The Gillette Company 5,897,622 5,828,125 0.2
24,266 International Flavors & Fragrances Inc. 1,157,165 988,839 0.0
-------------- -------------- ------
7,054,787 6,816,964 0.2
Diversified 240,000 Mannesmann AG 35,303,747 36,789,034 1.0
860,000 Minnesota Mining and Manufacturing
Company (3M) 67,814,465 81,270,000 2.3
-------------- -------------- ------
103,118,212 118,059,034 3.3
Electrical 1,036,399 Emerson Electric Co. 67,314,334 64,904,487 1.8
Equipment 1,350,000 General Electric Company 116,300,499 151,621,875 4.3
12,133 Honeywell Inc. 925,783 1,377,095 0.0
-------------- -------------- ------
184,540,616 217,903,457 6.1
Electronics 60,000 Intel Corporation 3,621,831 4,931,250 0.1
515,000 STMicroelectronics 36,890,656 34,170,634 1.0
580,000 Texas Instruments Incorporated 39,605,394 47,596,250 1.3
-------------- -------------- ------
80,117,881 86,698,134 2.4
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 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>
Energy 300,000 Duke Energy Corporation $ 17,136,090 $ 17,250,000 0.5%
1,200,000 El Paso Energy Corporation 43,940,242 43,875,000 1.2
1,230,000 Enron Corp. 46,346,675 51,506,250 1.5
300,000 UtiliCorp United Inc. 7,739,456 6,956,250 0.2
-------------- -------------- ------
115,162,463 119,587,500 3.4
Entertainment 1,350,800 ++AT&T Corp.- Liberty Media Group (Class A) 36,965,511 43,225,600 1.2
1,600,000 The Walt Disney Company 53,960,022 44,400,000 1.3
-------------- -------------- ------
90,925,533 87,625,600 2.5
Financial Services 145,000 American Express Company 17,082,450 19,937,500 0.6
110,000 Federal Home Loan Mortgage Association 6,726,251 5,665,000 0.2
167,000 Federal National Mortgage Association 11,812,924 10,374,875 0.3
255,000 Franklin Resources, Inc. 10,974,269 9,164,062 0.2
179,975 Morgan Stanley Dean Witter & Co. 17,671,302 15,444,105 0.4
900,000 T. Rowe Price Associates, Inc. 33,532,367 27,562,500 0.8
-------------- -------------- ------
97,799,563 88,148,042 2.5
Food Merchandising 700,000 Albertson's, Inc. 36,430,547 33,556,250 1.0
800,000 ++The Kroger Co. 19,038,228 18,500,000 0.5
175,000 ++Safeway Inc. 8,673,652 8,148,438 0.2
-------------- -------------- ------
64,142,427 60,204,688 1.7
Foods 75,000 ConAgra, Inc. 1,834,821 1,837,500 0.1
60,665 Wm. Wrigley Jr. Company 4,533,973 4,750,828 0.1
-------------- -------------- ------
6,368,794 6,588,328 0.2
Home Furnishings 532,500 Ethan Allen Interiors Inc. 18,274,523 15,542,344 0.4
Hotels 175,000 Marriott International, Inc. (Class A) 5,813,048 5,993,750 0.2
Household Products 40,000 Colgate-Palmolive Company 1,579,466 2,140,000 0.1
170,000 Kimberly-Clark Corporation 9,050,070 9,679,375 0.2
100,000 The Procter & Gamble Company 9,031,820 9,925,000 0.3
415,178 Unilever NV (NY Registered Shares) 33,048,654 28,595,385 0.8
-------------- -------------- ------
52,710,010 50,339,760 1.4
Information 870,000 ++America Online, Inc. 44,277,005 79,441,875 2.2
Processing 800,000 First Data Corporation 31,802,221 35,200,000 1.0
700,000 ++General Motors Corporation (Class H) 38,971,720 36,050,000 1.0
-------------- -------------- ------
115,050,946 150,691,875 4.2
Insurance 400,000 Aetna Inc. 35,231,699 31,100,000 0.8
500,000 American International Group, Inc. 44,604,335 46,343,750 1.3
1,000,000 The Hartford Financial Services
Group, Inc. 57,609,421 45,437,500 1.3
-------------- -------------- ------
137,445,455 122,881,250 3.4
Medical Technology 1,000,000 Abbott Laboratories 49,813,219 43,375,000 1.1
200,000 ++Boston Scientific Corporation 8,240,285 6,787,500 0.2
40,000 ++Guidant Corporation 1,502,734 2,347,500 0.1
24,266 Johnson & Johnson 1,280,674 2,481,199 0.1
-------------- -------------- ------
60,836,912 54,991,199 1.5
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 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>
Oil Services 750,000 Baker Hughes Incorporated $ 26,540,410 $ 25,500,000 0.7%
180,000 Diamond Offshore Drilling, Inc. 7,377,740 6,885,000 0.2
560,000 Schlumberger Limited 35,762,012 37,380,000 1.1
-------------- -------------- ------
69,680,162 69,765,000 2.0
Pharmaceuticals 200,000 ++Amgen Inc. 10,188,692 16,625,000 0.4
700,000 Bristol-Myers Squibb Company 46,707,014 49,262,500 1.4
1,550,000 Merck & Co., Inc. 98,285,712 104,140,625 2.9
3,000,000 Pfizer Inc. 107,359,858 113,250,000 3.2
-------------- -------------- ------
262,541,276 283,278,125 7.9
Photography 500,000 Eastman Kodak Company 36,758,097 36,718,750 1.0
Pollution Control 200,000 Waste Management, Inc. 9,741,420 4,362,500 0.1
Publishing 165,450 Gannett Co., Inc. 11,654,521 11,240,259 0.3
Restaurants 200,000 McDonald's Corporation 6,091,574 8,275,000 0.2
Retail--Specialty 85,000 ++Abercrombie & Fitch Co. (Class A) 3,777,226 2,964,375 0.1
270,000 ++Best Buy Co., Inc. 19,086,219 18,967,500 0.5
950,000 CVS Corporation 37,995,549 39,603,125 1.1
75,000 The Gap, Inc. 1,893,863 2,934,375 0.1
652,120 Lowe's Companies, Inc. 31,758,566 29,508,430 0.8
1,000,000 ++Staples, Inc. 21,922,629 21,687,500 0.6
115,000 ++Tommy Hilfiger Corporation 4,204,609 3,902,812 0.1
1,900,000 Walgreen Co. 43,100,122 44,056,250 1.2
-------------- -------------- ------
163,738,783 163,624,367 4.5
Retail--Stores 290,000 The TJX Companies, Inc. 9,244,591 8,373,750 0.2
1,100,000 Wal-Mart Stores, Inc. 32,058,099 48,743,750 1.4
-------------- -------------- ------
41,302,690 57,117,500 1.6
Semiconductors 270,000 ++Applied Materials, Inc. 15,324,793 19,170,000 0.5
Software-- 40,000 ++Microsoft Corporation 3,107,500 3,700,000 0.1
Computer 2,000,000 SAP AG (Systeme, Anwendungen,
Produkte in der Datenverarbeitung)
(ADR)(a) 67,634,962 66,000,000 1.9
-------------- -------------- ------
70,742,462 69,700,000 2.0
Telecommunications 2,450,000 AT&T Corp. 130,128,547 110,250,000 3.1
100,000 Cable & Wireless PLC (ADR)(a) 4,001,353 3,462,500 0.1
660,000 ++Equant (NY Registered Shares) 50,567,661 58,121,250 1.6
300,000 GTE Corporation 19,076,206 20,587,500 0.6
1,200,000 ++MCI WorldCom Inc. 82,164,585 90,825,000 2.5
1,770,000 Sprint Corp. (FON Group) 60,820,578 78,543,750 2.2
150,000 ++Sprint Corp. (PCS Group) 3,217,275 8,962,500 0.3
200,000 Vodafone AirTouch PLC (ADR)(a) 36,451,120 40,112,500 1.1
-------------- -------------- ------
386,427,325 410,865,000 11.5
Toys 303,325 Mattel, Inc. 11,546,515 6,464,614 0.2
Travel & Lodging 820,000 Carnival Corporation 28,916,041 36,643,750 1.0
Total Stocks 3,084,300,719 3,328,702,402 93.1
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial $20,000,000 CSW Credit Inc., 5.16% due 9/02/1999 $ 19,997,133 $ 19,997,133 0.6%
Paper* 53,852,000 General Motors Acceptance Corp.,
5.56% due 9/01/1999 53,852,000 53,852,000 1.5
25,000,000 Metropolitan Life Insurance Company,
5.16% due 9/14/1999 24,953,417 24,953,417 0.7
25,000,000 Newell Rubbermaid Inc., 5.18% due
9/10/1999 24,967,625 24,967,625 0.7
Xerox Capital (Europe) Plc:
25,000,000 5.15% due 9/07/1999 24,978,542 24,978,542 0.7
39,668,000 5.20% due 9/09/1999 39,622,161 39,622,161 1.1
-------------- -------------- ------
188,370,878 188,370,878 5.3
US Government Federal Home Loan Mortgage Corporation:
Agency 25,000,000 5.01% due 9/03/1999 24,993,042 24,993,042 0.7
Obligations* 30,000,000 5.04% due 9/09/1999 29,966,400 29,966,400 0.8
-------------- -------------- ------
54,959,442 54,959,442 1.5
Total Short-Term Securities 243,330,320 243,330,320 6.8
Total Investments $3,327,631,039 3,572,032,722 99.9
==============
Other Assets Less Liabilities 4,561,171 0.1
-------------- ------
Net Assets $3,576,593,893 100.0%
============== ======
<FN>
++Non-income producing security.
(a)American Depositary Receipts (ADR).
*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.
August 31, 1999
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of August 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$3,327,631,039) (Note 1a) $3,572,032,722
Cash 76,770
Receivables:
Capital shares sold $ 7,799,839
Securities sold 6,338,690
Dividends 3,096,254 17,234,783
--------------
Prepaid registration fees and other assets (Note 1f) 178,197
--------------
Total assets 3,589,522,472
--------------
Liabilities: Payables:
Capital shares redeemed 6,982,055
Distributor (Note 2) 2,220,826
Investment adviser (Note 2) 1,951,364 11,154,245
--------------
Accrued expenses and other liabilities 1,774,334
--------------
Total liabilities 12,928,579
--------------
Net Assets: Net assets $3,576,593,893
==============
Net Assets Class A Shares of capital stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 2,149,025
Class B Shares of capital stock, $.10 par value, 100,000,000
shares authorized 9,641,207
Class C Shares of capital stock, $.10 par value, 100,000,000
shares authorized 1,475,108
Class D Shares of capital stock, $.10 par value, 100,000,000
shares authorized 3,654,835
Paid-in capital in excess of par 2,994,979,554
Undistributed realized capital gains on investments--net 320,292,481
Unrealized appreciation on investments--net 244,401,683
--------------
Net assets $3,576,593,893
==============
Net Asset Value: Class A--Based on net assets of $472,464,457 and 21,490,246
shares outstanding $ 21.99
==============
Class B--Based on net assets of $2,000,535,125 and 96,412,066
shares outstanding $ 20.75
==============
Class C--Based on net assets of $307,987,490 and 14,751,077
shares outstanding $ 20.88
==============
Class D--Based on net assets of $795,606,821 and 36,548,352
shares outstanding $ 21.77
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statement of Operations for the Year Ended August 31, 1999
<S> <S> <C> <C>
Investment Income Dividends (net of $639,070 foreign withholding tax) $ 25,344,880
(Notes 1d & 1e): Interest and discount earned 12,307,215
--------------
Total income 37,652,095
--------------
Expenses: Investment advisory fees (Note 2) $ 16,601,840
Account maintenance and distribution fees--Class B (Note 2) 14,704,773
Account maintenance and distribution fees--Class C (Note 2) 2,424,280
Transfer agent fees--Class B (Note 2) 1,954,212
Account maintenance fees--Class D (Note 2) 1,465,704
Registration fees (Note 1f) 823,600
Transfer agent fees--Class D (Note 2) 659,039
Transfer agent fees--Class A (Note 2) 406,885
Transfer agent fees--Class C (Note 2) 334,630
Reorganization expenses 315,378
Printing and shareholder reports 228,248
Accounting services (Note 2) 143,457
Custodian fees 126,876
Professional fees 125,133
Directors' fees and expenses 48,217
Pricing fees 4,013
Other 32,970
--------------
Total expenses 40,399,255
--------------
Investment loss--net (2,747,160)
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 323,402,058
(Loss) on Foreign currency transactions--net (250,114) 323,151,944
Investments & --------------
Foreign Change in unrealized appreciation/depreciation on
Currency investments--net 223,488,173
(Notes 1b, --------------
1c, 1e & 3): Net Increase in Net Assets Resulting from Operations $ 543,892,957
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment loss--net $ (2,747,160) $ (2,856,129)
Realized gain on investments--net 323,151,944 53,073,187
Change in unrealized appreciation/depreciation on
investments--net 223,488,173 (107,454,701)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations 543,892,957 (57,237,643)
-------------- --------------
Distributions to Realized gain on investments--net:
Shareholders Class A (9,138,117) (8,425,794)
(Note 1g): 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 (50,096,593) (62,838,051)
-------------- --------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 1,985,425,196 810,929,738
(Note 4): -------------- --------------
Net Assets: Total increase in net assets 2,479,221,560 690,854,044
Beginning of year 1,097,372,333 406,518,289
-------------- --------------
End of year $3,576,593,893 $1,097,372,333
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Financial Highlights
Class A++++
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 21, 1994++
For the Year Ended August 31, to 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 .13 .07 .07 .07 --+++++
Realized and unrealized gain on
investments and foreign currency
transactions--net 6.37 1.09 4.95 2.13 1.98
-------- -------- -------- -------- --------
Total from investment operations 6.50 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 $ 21.99 $ 16.19 $ 17.37 $ 13.60 $ 11.66
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 41.08% 6.37% 39.24% 19.02% 20.55%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .81% .87% .99% 1.12% 1.46%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net .60% .37% .47% .51% .02%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $472,464 $167,133 $ 62,049 $ 47,048 $ 21,288
Data: ======== ======== ======== ======== ========
Portfolio turnover 52.72% 40.27% 94.38% 82.10% 80.41%
======== ======== ======== ======== ========
<CAPTION>
Class B++++
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 21, 1994++
For the Year Ended August 31, to 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 (.08) (.11) (.09) (.07) (.09)
Realized and unrealized gain on
investmentsand foreign currency
transactions--net 6.05 1.05 4.79 2.07 1.95
---------- -------- -------- -------- --------
Total from investment operations 5.97 .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 $ 20.75 $ 15.39 $ 16.69 $ 13.14 $ 11.40
========== ======== ======== ======== ========
Total Investment Based on net asset value per share 39.58% 5.21% 37.95% 17.68% 19.60%+++
Return:** ========== ======== ======== ======== ========
Ratios to Average Expenses 1.83% 1.88% 2.02% 2.16% 2.48%*
Net Assets: ========== ======== ======== ======== ========
Investment loss--net (.41%) (.64%) (.59%) (.54%) (.95%)*
========== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $2,000,535 $641,688 $216,636 $116,641 $ 63,748
Data: ========== ======== ======== ======== ========
Portfolio turnover 52.72% 40.27% 94.38% 82.10% 80.41%
========== ======== ======== ======== ========
<FN>
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
*Annualized.
**Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
<TABLE>
FINANCIAL INFORMATION (concluded)
<CAPTION>
Financial Highlights (concluded)
The following per share data and ratios have been derived
from information provided in the financial statements. Class C++
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 year $ 15.45 $ 16.72 $ 13.14 $ 11.40 $ 9.96
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.09) (.11) (.09) (.07) (.09)
Realized and unrealized gain on
investments and foreign currency
transactions--net 6.10 1.05 4.79 2.07 1.84
-------- -------- -------- -------- --------
Total from investment operations 6.01 .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 year $ 20.88 $ 15.45 $ 16.72 $ 13.14 $ 11.40
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 39.65% 5.19% 37.90% 17.68% 18.28%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.83% 1.89% 2.02% 2.15% 2.44%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (.43%) (.63%) (.58%) (.57%) (.88%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $307,988 $130,652 $ 74,732 $ 54,052 $ 44,220
Data: ======== ======== ======== ======== ========
Portfolio turnover 52.72% 40.27% 94.38% 82.10% 80.41%
======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class D++
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 year $ 16.06 $ 17.27 $ 13.54 $ 11.64 $ 10.09
Operating -------- -------- -------- -------- --------
Performance: Investment income(loss)--net .08 .02 .03 .03 (.01)
Realized and unrealized gain on
investmentsand foreign currency
transactions--net 6.31 1.09 4.93 2.13 1.87
-------- -------- -------- -------- --------
Total from investment operations 6.39 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 year $ 21.77 $ 16.06 $ 17.27 $ 13.54 $ 11.64
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 40.67% 6.08% 38.90% 18.70% 19.15%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.05% 1.11% 1.24% 1.37% 1.65%
Net Assets: ======== ======== ======== ======== ========
Investment income(loss)--net .36% .12% .17% .24% (.10%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $795,607 $157,899 $ 53,101 $ 22,892 $ 13,231
Data: ======== ======== ======== ======== ========
Portfolio turnover 52.72% 40.27% 94.38% 82.10% 80.41%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 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. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities that 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 that 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).
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.
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
(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) Prepaid registration fees--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
$2,431,782 have been reclassified between undistributed net realized
capital gains and accumulated net investment loss and $315,378 has
been reclassified between paid-in capital in excess of par 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 ("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 .65% of
the average net assets of the Fund not exceeding $1 billion, .625%
of average net assets of the Fund in excess of $1 billion but not
exceeding $1.5 billion and .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 .25% .75%
Class C .25% .75%
Class D .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 year ended August 31, 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 $ 871 $ 6,376
Class D $67,018 $979,257
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
For the year ended August 31, 1999, MLPF&S received contingent
deferred sales charges of $1,984,060 and $72,553 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $336,235 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended August 31, 1999.
Financial Data Services, Inc. ("FDS"), 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, FDS, PSI, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1999 were $2,821,043,967 and
$1,265,984,993, respectively.
Net realized gains (losses) for the year ended August 31, 1999 and
net unrealized gains as of August 31, 1999 were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $323,411,848 $ 244,401,683
Short-term investments (9,790) --
Foreign currency
transactions (250,114) --
------------ -------------
Total $323,151,944 $ 244,401,683
============ =============
As of August 31, 1999, net unrealized appreciation for Federal
income tax purposes aggregated $244,298,487, of which $377,290,800
related to appreciated securities and $132,992,313 related to
depreciated securities. At August 31, 1999, the aggregate cost of
investments for Federal income tax purposes was $3,327,734,235.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
were $1,985,425,196 and $810,929,738 for the years ended August 31,
1999 and August 31, 1998, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 16,482,160 $ 342,447,904
Shares issued to shareholders
in reinvestment of
distributions 321,175 5,813,284
Shares issued resulting from
reorganization 473,544 8,961,244
---------- -------------
Total issued 17,276,879 357,222,432
Shares redeemed (6,109,276) (131,189,396)
---------- -------------
Net increase 11,167,603 $ 226,033,036
========== =============
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 Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 68,982,103 $1,395,097,045
Shares issued to shareholders
in reinvestment of
distributions 1,508,070 25,968,991
Shares issued resulting from
reorganization 2,156,337 38,818,026
---------- --------------
Total issued 72,646,510 1,459,884,062
Automatic conversion
of shares (1,056,963) (20,611,014)
Shares redeemed (16,882,536) (340,776,855)
---------- --------------
Net increase 54,707,011 $1,098,496,193
========== ==============
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
========== ==============
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 9,035,252 $ 183,385,732
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 9,390,803 189,611,832
Shares redeemed (3,093,540) (62,175,064)
---------- --------------
Net increase 6,297,263 $ 127,436,768
========== ==============
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 Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 20,333,829 $ 428,555,461
Automatic conversion of
shares 1,012,397 20,611,014
Shares issued to shareholders
in reinvestment of
distributions 397,154 7,132,878
Shares issued resulting from
reorganization 11,158,555 209,477,356
---------- --------------
Total issued 32,901,935 665,776,709
Shares redeemed (6,187,633) (132,317,510)
---------- --------------
Net increase 26,714,302 $ 533,459,199
========== ==============
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.
August 31, 1999
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
Merrill Lynch Fundamental Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities
of Merrill Lynch Fundamental Growth Fund, Inc., including the
schedule of investments, as of August 31, 1999, 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 periods 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, 1999 by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Fundamental Growth Fund, Inc. at
August 31, 1999, 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.
Ernst & Young LLP
MetroPark, New Jersey
October 4, 1999
</AUDIT-REPORT>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share distributions
paid by Merrill Lynch Fundamental Growth Fund, Inc. during its
taxable year ended August 31, 1999:
Record Payable Qualifying Federal Non-Qualifying Total Long-Term
Date Date Ordinary Income Obligation Interest Ordinary Income Ordinary Income Capital Gains*
<S> <C> <C> <C> <C> <C>
Class A Shares
11/12/98 11/18/98 $.080224 $.000025 $.205220 $.285469 $.414261
Class B Shares
11/12/98 11/18/98 $.054171 $.000017 $.138573 $.192761 $.414261
Class C Shares
11/12/98 11/18/98 $.045951 $.000014 $.117547 $.163512 $.414261
Class D Shares
11/12/98 11/18/98 $.074015 $.000023 $.189338 $.263376 $.414261
<FN>
*This entire distribution is subject to the 20% tax rate.
The qualifying ordinary income qualifies for the dividends received
deduction for corporations.
Please retain this information for your records.
</TABLE>
