MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
FUND LOGO
Annual Report
August 31, 2000
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 year ended August 31, 2000, Merrill Lynch Fundamental Growth
Fund, Inc.'s Class A, Class B, Class C and Class D Shares had total
returns of +47.01%, +45.55%, +45.53% and +46.67%, respectively.
(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.) The Fund's annual total returns were significantly
ahead of the Lipper Analytical Services, Inc.'s Large Cap Growth
Average return of +39.53% for the same period. Also, the Fund's
performance was meaningfully ahead of the total return for the
unmanaged Standard & Poor's 500 (S&P 500) Index of +16.32% for the
year ended August 31, 2000.
The primary positive reason for the outperformance in the year ended
August 31, 2000 was the change in investment strategy near the start
of the fiscal period. We shifted the industry structure of the
portfolio from a concentration on bank and financial, insurance,
pharmaceutical, financial services, wireline communications and
household product companies to corporations in the communications
equipment, computers and electronics industries.
We have maintained a significant investment exposure in
communications equipment for most of the fiscal year ended August
31, 2000. During the third and fourth quarters of calendar year
1999, public statements by the management of communication service
companies reflected plans to implement major capital investments in
Internet communication infrastructure and in new optical switching
and routing systems in upcoming years. These capital investments
were viewed as likely to help optimize fiber optic communications.
We have focused the technology investments of the Fund on what we
believe are the leading systems and components companies in the
communications equipment industry.
Consequently, we kept an overall weighting in technology companies
of 45%--50% of net assets for most of the fiscal year. Near the end
of August 2000, we reduced our investment weighting in the
technology sector so that it would be closer to the weighting in the
S&P 500 Index. However, we continue to focus on the corporations
that we believe are the leading suppliers of computers, software and
electronic components and communications equipment for providing the
Internet Web site and communications infrastructure around the
globe.
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
The Fund's top five equity holdings in the portfolio at fiscal year
ended August 31, 2000 contributed significantly during the fiscal
year to the investment outperformance in absolute and relative terms
to our benchmarks. These companies were: Cisco Systems, Inc., Nortel
Networks Corporation, General Electric Company, Sun Microsystems,
Inc. and Citigroup Inc.
Market Outlook
In our opinion, the outlook for the US equity market is positive.
Corporate profit growth in the second calendar quarter of 2000
appears to be around 20% above a year ago. The Federal Reserve
Board, which started to tighten monetary policy by raising the
Federal Funds target rate in late June 1999, appears to have
achieved its objective of slowing the rate of real growth of the US
economy. Real consumer spending in the second calendar quarter of
2000 was growing at less than one-half the annualized rate of gain
in the first quarter of 2000. Real consumer spending on housing,
household appliances and transportation vehicles appears to have
peaked and may be in a downtrend in absolute terms. However, service
sector employment appears strong, and levels of Government spending
have elevated as they typically do in a national election year.
Consequently, wage rate increases and the higher energy costs that
we are experiencing could be a problem going forward. It appears to
us that the strongest sector for capital spending continues to be
the communications equipment industry as households and corporations
shift their communication services from the regulated, legacy
systems to the new and evolving Internet infrastructure. Corporate
productivity could benefit substantially from these new capital
investments.
In Conclusion
We thank you for your continued investment in Merrill Lynch
Fundamental Growth Fund, Inc., and we look forward to sharing our
outlook and strategy in our upcoming semi-annual 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
September 22, 2000
5-Star Overall Morningstar Rating TM--
Domestic Equity Funds as of 8/31/00
Merrill Lynch Fundamental Growth Fund, Inc.
Class A, B, C & D Shares
Merrill Lynch Fundamental Growth Fund, Inc.'s Class A, Class B,
Class C and Class D Shares received a five-star overall rating in
the Morningstar Domestic Equity Funds class of 3,839 funds.
Morningstar proprietary ratings on US-domiciled funds reflect
historical risk-adjusted performance as of 8/31/00. The ratings are
subject to change every month. Past performance is no guarantee of
future results. The Overall Morningstar Rating TM is a weighted
average of the Fund's three-, five-, and 10-year (if applicable)
risk-adjusted performance. Morningstar ratings are calculated from a
fund's three-, five-, and 10-year (if applicable) average annual
returns in excess of 90-day US Treasury-bill returns with
appropriate fee adjustments, and a risk factor that reflects Fund
performance below 90-day US Treasury-bill returns. Merrill Lynch
Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and Class
D Shares received four stars for the three-year period and five
stars for the five-year period ended August 31, 2000. The top 10% of
the funds in a broad asset class receive five stars, the next 22.5%
receive four stars, the next 35% receive three stars, the next 22.5%
receive two stars and the last 10% receive one star. The Fund was
rated among 3,839 and 2,375 funds in the Morningstar Domestic Equity
Funds class for the three- and five-year periods, respectively.
The Fund was rated exclusively against US-domiciled funds.
All share classes of the Fund are invested in a common portfolio.
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 Jr., Senior Vice President
Lawrence R. Fuller, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Allan J. Oster, 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
Barbara G. Fraser, Secretary of Merrill Lynch Fundamental Growth
Fund, Inc. has recently retired. The Fund's Board of Directors
wishes Ms. Fraser well in her retirement.
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
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>
6 Month 12 Month Since Inception
As of August 31, 2000 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* + 4.21% +47.01% +340.71%
ML Fundamental Growth Fund, Inc. Class B Shares* + 3.70 +45.55 +314.97
ML Fundamental Growth Fund, Inc. Class C Shares* + 3.67 +45.53 +308.67
ML Fundamental Growth Fund, Inc. Class D Shares* + 4.07 +46.67 +333.83
Standard & Poor's 500 Index** +11.73 +16.32 +263.40/+304.01
*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, 2000
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment of Merrill Lynch
Fundamental Growth Fund's Class A and Class B Shares compared to
growth of the S&P 500 Total Return Index++++. Beginning and ending
values are:
10/21/94** 8/00
ML Fundamental Growth Fund--
Class A Shares* $10,000 $41,760
ML Fundamental Growth Fund--
Class B Shares* $10,000 $41,497
S&P 500 Total Return Index++++ $10,000 $36,340
A line graph depicting the growth of an investment of Merrill Lynch
Fundamental Growth Fund's Class C and Class D Shares compared to
growth of the S&P 500 Total Return Index++++. Beginning and ending
values are:
12/24/92** 8/00
ML Fundamental Growth Fund--
Class C Shares* $10,000 $40,868
ML Fundamental Growth Fund--
Class D Shares* $10,000 $41,106
S&P 500 Total Return Index++++ $10,000 $40,402
*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, 2000
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 6/30/00 +26.76% +20.10%
Five Years Ended 6/30/00 +28.89 +27.50
Inception (10/21/94)
through 6/30/00 +28.04 +26.84
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 6/30/00 +25.50% +21.50%
Five Years Ended 6/30/00 +27.55 +27.55
Inception (10/21/94)
through 6/30/00 +26.74 +26.74
*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*
One Year Ended 6/30/00 +25.46% +24.46%
Five Years Ended 6/30/00 +27.54 +27.54
Inception (12/24/92)
through 6/30/00 +19.41 +19.41
*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*
One Year Ended 6/30/00 +26.44% +19.80%
Five Years Ended 6/30/00 +28.54 +27.16
Inception (12/24/92)
through 6/30/00 +20.34 +19.48
*Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class D
Shares (formerly Class A Shares) were offered at a higher than
maximum sales charge. Thus, actual returns would have been somewhat
lower than noted for the inception period.)
**Assuming maximum sales charge.
PORTFOLIO INFORMATION
As of August 31, 2000
Percent of
Ten Largest Holdings Net Assets
Cisco Systems, Inc. 4.7%
Nortel Networks Corporation 4.6
General Electric Company 4.5
Sun Microsystems, Inc. 4.2
Citigroup Inc. 3.1
Exodus Communications, Inc. 2.9
America Online, Inc. 2.7
Enron Corp. 2.7
STMicroelectronics NV 2.5
Pfizer Inc. 2.4
Percent of
Ten Largest Industries Net Assets
Communications Equipment 12.6%
Energy 9.0
Information Processing 7.4
Computers 6.2
Oil Services 5.0
Software--Computer 4.9
Electrical Equipment 4.5
Electronics 4.3
Banking & Financial 4.1
Insurance 4.0
Percent of
Geographic Allocation Net Assets++
United States 70.4%
Canada 4.6
United Kingdom 2.7
France 2.6
Netherlands 1.6
Sweden 1.5
Japan 1.3
++Total may not equal 100%.
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industries Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Advertising 600,000 The Interpublic Group of Companies, Inc. $ 18,003,596 $ 22,950,000 0.3%
Automobile 225,000 Toyota Motor Corporation (ADR)(a) 20,726,060 19,631,250 0.3
Banking & 3,466,667 Citigroup Inc. 128,264,642 202,366,667 3.1
Financial 425,000 Northern Trust Corporation 31,220,408 35,832,812 0.5
270,000 State Street Corporation 26,972,859 31,792,500 0.5
-------------- -------------- ------
186,457,909 269,991,979 4.1
Beverages 1,425,000 The Coca-Cola Company 87,989,897 74,990,625 1.1
Biotechnology 320,000 ++Affymetrix, Inc. 26,151,406 25,300,000 0.4
1,600,000 ++Immunex Corporation 45,227,679 80,300,000 1.2
-------------- -------------- ------
71,379,085 105,600,000 1.6
Broadcasting-- 445,000 ++AMFM Inc. 20,378,648 30,274,462 0.4
Radio & Television 625,000 ++Clear Channel Communications, Inc. 28,637,184 45,234,375 0.7
1,200,000 ++Infinity Broadcasting Corporation
(Class A) 29,172,154 45,450,000 0.7
-------------- -------------- ------
78,187,986 120,958,837 1.8
Communications 1,250,000 ++3Com Corporation 9,724,876 20,703,125 0.3
Equipment 260,000 ++Alteon Websystems, Inc. 22,362,582 38,480,000 0.6
4,500,000 ++Cisco Systems, Inc. 109,036,094 309,093,750 4.7
500,000 ++JDS Uniphase Corporation 20,248,070 62,250,000 0.9
3,768,300 Nortel Networks Corporation 176,965,953 307,351,969 4.6
4,900,000 Telefonaktiebolaget LM Ericsson (ADR)(a) 47,574,993 100,450,000 1.5
-------------- -------------- ------
385,912,568 838,328,844 12.6
Computers 1,349,950 ++EMC Corporation 40,586,493 132,295,100 2.0
2,200,000 ++Sun Microsystems, Inc. 95,862,400 279,262,500 4.2
-------------- -------------- ------
136,448,893 411,557,600 6.2
Electrical 5,100,000 General Electric Company 162,364,734 299,306,250 4.5
Equipment
Electronics 1,500,000 ++LSI Logic Corporation 41,298,872 53,906,250 0.8
2,760,000 STMicroelectronics NV 68,268,551 169,320,204 2.5
950,000 Texas Instruments Incorporated 31,839,053 63,590,625 1.0
-------------- -------------- ------
141,406,476 286,817,079 4.3
Energy 500,000 Anadarko Petroleum Corporation 29,321,182 32,885,000 0.5
1,430,000 BP Amoco PLC (ADR)(a) 82,966,142 79,007,500 1.2
1,200,000 El Paso Energy Corporation 43,940,242 69,900,000 1.0
2,100,000 Enron Corp. 83,181,411 178,237,500 2.7
1,630,000 Exxon Mobil Corporation 137,253,599 133,048,750 2.0
1,300,000 Royal Dutch Petroleum Company (NY
Registered Shares) 77,558,570 79,543,750 1.2
869,300 Tosco Corporation 26,628,248 26,513,650 0.4
-------------- -------------- ------
480,849,394 599,136,150 9.0
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industries Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Entertainment 750,000 Time Warner Inc. $ 64,511,400 $ 64,125,000 1.0%
850,000 ++Viacom, Inc. (Class B) 36,563,342 57,215,625 0.9
2,000,000 The Walt Disney Company 66,982,792 77,875,000 1.2
-------------- -------------- ------
168,057,534 199,215,625 3.1
Financial Services 1,150,000 T. Rowe Price Associates, Inc. 42,981,576 52,037,500 0.8
Household Products 1,300,000 Colgate-Palmolive Company 77,923,338 66,218,750 1.0
Information 3,050,000 ++America Online, Inc. 119,292,476 178,806,250 2.7
Processing 2,805,000 ++Exodus Communications, Inc. 141,759,672 191,967,187 2.9
2,654,064 ++Palm, Inc. 62,297,243 116,612,934 1.8
-------------- -------------- ------
323,349,391 487,386,371 7.4
Insurance 1,520,000 American International Group, Inc. 112,040,897 135,470,000 2.1
2,350,900 Lincoln National Corporation 114,772,757 126,948,600 1.9
-------------- -------------- ------
226,813,654 262,418,600 4.0
Leisure 580,000 Sony Corporation (ADR)(a) 74,096,671 66,265,000 1.0
Medical Technology 540,000 Medtronic, Inc. 20,016,504 27,675,000 0.4
Oil Services 2,300,000 Baker Hughes Incorporated 69,809,430 84,093,750 1.3
720,000 Diamond Offshore Drilling, Inc. 28,140,089 32,265,000 0.5
1,200,000 Halliburton Company 61,926,199 63,600,000 0.9
1,400,000 Schlumberger Limited 85,828,412 119,437,500 1.8
675,000 ++Weatherford International, Inc. 29,994,288 31,682,813 0.5
-------------- -------------- ------
275,698,418 331,079,063 5.0
Pharmaceuticals 1,000,000 Merck & Co., Inc. 59,950,766 69,875,000 1.1
3,700,000 Pfizer Inc. 122,289,015 160,025,000 2.4
-------------- -------------- ------
182,239,781 229,900,000 3.5
Restaurants 400,000 McDonald's Corporation 13,894,474 11,950,000 0.2
Retail 1,500,000 ++Amazon.com, Inc. 90,900,881 62,250,000 0.9
Retail--Specialty 300,000 CVS Corporation 10,427,074 11,137,500 0.1
300,000 ++Staples, Inc. 5,224,129 4,612,500 0.1
400,000 Walgreen Co. 6,022,423 13,150,000 0.2
-------------- -------------- ------
21,673,626 28,900,000 0.4
Semiconductors 544,000 ++ASM Lithography Holding NV 12,238,445 20,570,502 0.3
179,400 ++ASM Lithography Holding NV (NY
Registered Shares) 6,704,112 6,839,625 0.1
410,000 ++Applied Materials, Inc. 10,963,287 35,388,125 0.5
-------------- -------------- ------
29,905,844 62,798,252 0.9
Software-- 1,450,000 ++Commerce One, Inc. 96,041,973 90,806,250 1.4
Computer 1,600,000 ++Oracle Corporation 113,098,811 145,400,000 2.2
220,000 ++Rational Software Corporation 17,415,686 28,297,500 0.4
300,000 ++Siebel Systems, Inc. 33,340,209 59,343,750 0.9
-------------- -------------- ------
259,896,679 323,847,500 4.9
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industries Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Wireless 575,000 ++Sprint Corp. (PCS Group) $ 16,948,636 $ 28,857,813 0.4%
Communications 2,500,000 Vodafone Group PLC (ADR)(a) 111,856,561 102,343,750 1.6
1,000,000 ++Western Wireless Corporation (Class A) 57,103,625 51,125,000 0.8
-------------- -------------- ------
185,908,822 182,326,563 2.8
Wireline 2,060,000 ++Infonet Services Corporation (Class B) 37,390,708 26,908,750 0.4
Communications 1,800,000 ++NorthPoint Communications Group, Inc. 52,705,535 20,475,000 0.3
3,500,000 ++WorldCom, Inc. 162,285,470 127,750,000 1.9
-------------- -------------- ------
252,381,713 175,133,750 2.6
Total Stocks 4,015,465,504 5,618,670,588 84.7
Face
Amount Short-Term Securities
Commercial American Home Products, Inc.:
Paper* $ 25,000,000 6.50% due 9/07/2000 24,972,917 24,972,917 0.4
16,674,000 6.50% due 9/21/2000 16,613,788 16,613,788 0.2
40,000,000 Bell South Capital, 6.50% due 9/20/2000 39,862,778 39,862,778 0.6
50,000,000 The CIT Group Holdings, Inc., 6.49% due
10/10/2000 49,648,458 49,648,458 0.7
30,000,000 CSW Credit, Inc., 6.48% due 9/12/2000 29,940,600 29,940,600 0.5
50,000,000 FCE Bank PLC, 6.50% due 10/06/2000 49,684,028 49,684,028 0.7
50,000,000 Ford Motor Credit Company, 6.48% due
10/12/2000 49,631,000 49,631,000 0.7
25,000,000 Gannett Company, 6.49% due 10/05/2000 24,846,764 24,846,764 0.4
99,160,000 General Motors Acceptance Corp., 6.69%
due 9/01/2000 99,160,000 99,160,000 1.5
12,609,000 Heinz (H.J.) Company, 6.47% due
9/28/2000 12,547,815 12,547,815 0.2
50,000,000 Motorola, Inc., 6.49% due 9/19/2000 49,837,750 49,837,750 0.8
20,100,000 Paccar Financial, 6.47% due 9/07/2000 20,078,325 20,078,325 0.3
45,000,000 Target Corporation, 6.48% due 10/16/2000 44,635,500 44,635,500 0.7
20,000,000 USAA Capital Corporation, 6.50% due
9/05/2000 19,985,555 19,985,555 0.3
-------------- -------------- ------
531,445,278 531,445,278 8.0
US Government Federal Home Loan Mortgage Corporation:
Agency 50,000,000 6.42% due 9/12/2000 49,901,917 49,901,917 0.8
Obligations* 10,000,000 6.40% due 9/19/2000 9,968,000 9,968,000 0.1
31,100,000 6.44% due 10/03/2000 30,921,970 30,921,970 0.5
Federal National Mortgage Association:
100,000,000 6.415% due 9/25/2000 99,570,167 99,570,167 1.5
100,000,000 6.45% due 9/29/2000 99,497,944 99,497,944 1.5
289,859,998 289,859,998 4.4
Total Short-Term Securities 821,305,276 821,305,276 12.4
Total Investments $4,836,770,780 6,439,975,864 97.1
==============
Other Assets Less Liabilities 193,292,499 2.9
-------------- ------
Net Assets $6,633,268,363 100.0%
============== ======
*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.
++Non-income producing security.
(a)American Depositary Receipts (ADR).
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$4,836,770,780) $6,439,975,864
Cash 23,955,447
Foreign cash 1,075
Receivables:
Securities sold $ 229,977,068
Capital shares sold 25,758,347
Dividends 3,114,309 258,849,724
--------------
Prepaid registration fees and other assets 219,065
--------------
Total assets 6,723,001,175
--------------
Liabilities: Payables:
Securities purchased 69,867,453
Capital shares redeemed 10,588,129
Distributor 3,575,540
Investment adviser 2,819,377 86,850,499
--------------
Accrued expenses and other liabilities 2,882,313
--------------
Total liabilities 89,732,812
--------------
Net Assets: Net assets $6,633,268,363
==============
Net Assets Class A Shares of capital stock, $.10 par value, 100,000,000 shares
Consist of: authorized $ 2,941,834
Class B Shares of capital stock, $.10 par value, 250,000,000 shares
authorized 12,155,976
Class C Shares of capital stock, $.10 par value, 100,000,000 shares
authorized 2,218,440
Class D Shares of capital stock, $.10 par value, 100,000,000 shares
authorized 5,779,830
Paid-in capital in excess of par 4,584,576,903
Undistributed realized capital gains on investments--net 422,411,190
Unrealized appreciation on investments--net 1,603,184,190
--------------
Net assets $6,633,268,363
==============
Net Asset Value: Class A--Based on net assets of $882,072,040 and 29,418,341
shares outstanding $ 29.98
==============
Class B--Based on net assets of $3,411,474,588 and 121,559,761
shares outstanding $ 28.06
==============
Class C--Based on net assets of $627,021,108 and 22,184,399
shares outstanding $ 28.26
==============
Class D--Based on net assets of $1,712,700,627 and 57,798,298
shares outstanding $ 29.63
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended August 31, 2000
<S> <S> <C> <C>
Investment Dividends (net of $562,569 foreign withholding tax) $ 27,565,513
Income: Interest and discount earned 15,723,555
--------------
Total income 43,289,068
--------------
Expenses: Investment advisory fees $ 31,124,064
Account maintenance and distribution fees--Class B 27,067,662
Account maintenance and distribution fees--Class C 4,434,385
Transfer agent fees--Class B 3,483,298
Account maintenance fees--Class D 3,188,884
Transfer agent fees--Class D 1,428,698
Transfer agent fees--Class A 755,553
Transfer agent fees--Class C 599,098
Registration fees 543,280
Accounting services 372,148
Custodian fees 360,378
Printing and shareholder reports 220,910
Professional fees 193,970
Directors' fees and expenses 100,430
Pricing fees 30,864
Other 88,657
--------------
Total expenses 73,992,279
--------------
Investment loss--net (30,703,211)
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 454,404,633
(Loss) on Foreign currency transactions--net (936,792) 453,467,841
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation:
Transactions-- Investments--net 1,358,803,401
Net: Foreign currency transactions--net (20,894) 1,358,782,507
-------------- --------------
Net Increase in Net Assets Resulting from Operations $1,781,547,137
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment loss--net $ (30,703,211) $ (2,747,160)
Realized gain on investments--net 453,467,841 323,151,944
Change in unrealized appreciation/depreciation on
investments--net 1,358,782,507 223,488,173
-------------- --------------
Net increase in net assets resulting from operations 1,781,547,137 543,892,957
-------------- --------------
Distributions to Realized gain on investments--net:
Shareholders: Class A (43,750,779) (9,138,117)
Class B (170,903,218) (28,020,289)
Class C (26,261,623) (5,194,883)
Class D (79,730,301) (7,743,304)
-------------- --------------
Net decrease in net assets resulting from distributions to
shareholders (320,645,921) (50,096,593)
-------------- --------------
Capital Share Net increase in net assets derived from capital share
Transactions: transactions 1,595,773,254 1,985,425,196
-------------- --------------
Net Assets: Total increase in net assets 3,056,674,470 2,479,221,560
Beginning of year 3,576,593,893 1,097,372,333
-------------- --------------
End of year $6,633,268,363 $3,576,593,893
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A++
from information provided in the financial statements. For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 21.99 $ 16.19 $ 17.37 $ 13.60 $ 11.66
Operating ---------- ---------- ---------- --------- ---------
Performance: Investment income--net .02 .13 .07 .07 .07
Realized and unrealized gain on
investments and foreign currency
transactions--net 9.91 6.37 1.09 4.95 2.13
---------- ---------- ---------- --------- ---------
Total from investment operations 9.93 6.50 1.16 5.02 2.20
---------- ---------- ---------- --------- ---------
Less distributions from realized
gain on investments--net (1.94) (.70) (2.34) (1.25) (.26)
---------- ---------- ---------- --------- ---------
Net asset value, end of year $ 29.98 $ 21.99 $ 16.19 $ 17.37 $ 13.60
========== ========== ========== ========= =========
Total Investment Based on net asset value per share 47.01% 41.08% 6.37% 39.24% 19.02%
Return:* ========== ========== ========== ========= =========
Ratios to Average Expenses .76% .81% .87% .99% 1.12%
Net Assets: ========== ========== ========== ========= =========
Investment income--net .09% .60% .37% .47% .51%
========== ========== ========== ========= =========
Supplemental Net assets, end of year (in
Data: thousands) $ 882,072 $ 472,464 $ 167,133 $ 62,049 $ 47,048
========== ========== ========== ========= =========
Portfolio turnover 98.71% 52.72% 40.27% 94.38% 82.10%
========== ========== ========== ========= =========
*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, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived Class B++
from information provided in the financial statements. For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 20.75 $ 15.39 $ 16.69 $ 13.14 $ 11.40
Operating ---------- ---------- ---------- --------- ---------
Performance: Investment loss--net (.23) (.08) (.11) (.09) (.07)
Realized and unrealized gain on
investmentsand foreign currency
transactions--net 9.32 6.05 1.05 4.79 2.07
---------- ---------- ---------- --------- ---------
Total from investment operations 9.09 5.97 .94 4.70 2.00
---------- ---------- ---------- --------- ---------
Less distributions from realized
gain on investments--net (1.78) (.61) (2.24) (1.15) (.26)
---------- ---------- ---------- --------- ---------
Net asset value, end of year $ 28.06 $ 20.75 $ 15.39 $ 16.69 $ 13.14
========== ========== ========== ========= =========
Total Investment Based on net asset value per share 45.55% 39.58% 5.21% 37.95% 17.68%
Return:* ========== ========== ========== ========= =========
Ratios to Average Expenses 1.77% 1.83% 1.88% 2.02% 2.16%
Net Assets: ========== ========== ========== ========= =========
Investment loss--net (.92%) (.41%) (.64%) (.59%) (.54%)
========== ========== ========== ========= =========
Supplemental Net assets, end of year (in
Data: thousands) $3,411,474 $2,000,535 $ 641,688 $ 216,636 $ 116,641
========== ========== ========== ========= =========
Portfolio turnover 98.71% 52.72% 40.27% 94.38% 82.10%
========== ========== ========== ========= =========
<CAPTION>
The following per share data and ratios have been derived Class C++
from information provided in the financial statements. For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 20.88 $ 15.45 $ 16.72 $ 13.14 $ 11.40
Operating ---------- ---------- ---------- --------- ---------
Performance: Investment loss--net (.24) (.09) (.11) (.09) (.07)
Realized and unrealized gain on
investments and foreign currency
transactions--net 9.39 6.10 1.05 4.79 2.07
---------- ---------- ---------- --------- ---------
Total from investment operations 9.15 6.01 .94 4.70 2.00
---------- ---------- ---------- --------- ---------
Less distributions from realized
gain on investments--net (1.77) (.58) (2.21) (1.12) (.26)
---------- ---------- ---------- --------- ---------
Net asset value, end of year $ 28.26 $ 20.88 $ 15.45 $ 16.72 $ 13.14
========== ========== ========== ========= =========
Total Investment Based on net asset value per share 45.53% 39.65% 5.19% 37.90% 17.68%
Return:* ========== ========== ========== ========= =========
Ratios to Average Expenses 1.78% 1.83% 1.89% 2.02% 2.15%
Net Assets: ========== ========== ========== ========= =========
Investment loss--net (.93%) (.43%) (.63%) (.58%) (.57%)
========== ========== ========== ========= =========
Supplemental Net assets, end of year (in
Data: thousands) $ 627,021 $ 307,988 $ 130,652 $ 74,732 $ 54,052
========== ========== ========== ========= =========
Portfolio turnover 98.71% 52.72% 40.27% 94.38% 82.10%
========== ========== ========== ========= =========
*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, 2000
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived Class D++
from information provided in the financial statements. For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 21.77 $ 16.06 $ 17.27 $ 13.54 $ 11.64
Operating ---------- ---------- ---------- --------- ---------
Performance: Investment income(loss)--net (.04) .08 .02 .03 .03
Realized and unrealized gain on
investmentsand foreign currency
transactions--net 9.80 6.31 1.09 4.93 2.13
---------- ---------- ---------- --------- ---------
Total from investment operations 9.76 6.39 1.11 4.96 2.16
---------- ---------- ---------- --------- ---------
Less distributions from realized
gain on investments--net (1.90) (.68) (2.32) (1.23) (.26)
---------- ---------- ---------- --------- ---------
Net asset value, end of year $ 29.63 $ 21.77 $ 16.06 $ 17.27 $ 13.54
========== ========== ========== ========= =========
Total Investment Based on net asset value per share 46.67% 40.67% 6.08% 38.90% 18.70%
Return:* ========== ========== ========== ========= =========
Ratios to Average Expenses 1.01% 1.05% 1.11% 1.24% 1.37%
Net Assets: ========== ========== ========== ========= =========
Investment income(loss)--net (.17%) .36% .12% .17% .24%
========== ========== ========== ========= =========
Supplemental Net assets, end of year (in
Data: thousands) $1,712,701 $ 795,607 $ 157,899 $ 53,101 $ 22,892
========== ========== ========== ========= =========
Portfolio turnover 98.71% 52.72% 40.27% 94.38% 82.10%
========== ========== ========== ========= =========
*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, 2000
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 accounting
principles generally accepted in the United States of America, 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 investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. 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, 2000
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
$30,703,211 have been reclassified between undistributed net
realized capital gains and accumulated net investment loss. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general
partner of MLIM 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 FAM Distributors,
Inc. ("FAMD" or the "Distributor"), which is a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLIM 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, .60% of net assets in excess of $1.5 billion
but not exceeding $5 billion and .575% of net assets in excess of $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, 2000, FAMD 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:
FAMD MLPF&S
Class A $ 1,264 $ 17,304
Class D $85,151 $1,265,020
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
For the year ended August 31, 2000, MLPF&S received contingent
deferred sales charges of $2,803,938 and $113,340 relating to
transactions in Class B and Class C Shares, respectively. Further-
more, MLPF&S received contingent deferred sales charges of $198,968
and $54,503 relating to transactions subject to front-end sales
charge waivers in Class A and Class D Shares, respectively.
In addition, MLPF&S received $947,213 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended August 31, 2000.
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 MLIM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, FDS, PSI, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 2000 were $5,117,137,203 and
$4,640,408,479, respectively.
Net realized gains (losses) for the year ended August 31, 2000 and
net unrealized gains (losses) as of August 31, 2000 were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $454,426,883 $1,603,205,084
Short-term investments (22,250) --
Foreign currency
transactions (936,792) (20,894)
------------ --------------
Total $453,467,841 $1,603,184,190
============ ==============
As of August 31, 2000, net unrealized appreciation for Federal
income tax purposes aggregated $1,603,101,888, of which
$1,795,728,192 related to appreciated securities and $192,626,304
related to depreciated securities. At August 31, 2000, the aggregate
cost of investments for Federal income tax purposes was
$4,836,873,976.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $1,595,773,254 and $1,985,425,196 for the years ended August 31,
2000 and August 31, 1999, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 2000 Shares Amount
Shares sold 13,954,826 $ 374,057,263
Shares issued to share-
holders in reinvestment
of distributions 1,247,247 30,869,352
------------ --------------
Total issued 15,202,073 404,926,615
Shares redeemed (7,273,977) (192,459,722)
------------ --------------
Net increase 7,928,096 $ 212,466,893
============ ==============
Class A Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 16,482,160 $ 342,447,904
Shares issued to share-
holders 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 B Shares for the Year Dollar
Ended August 31, 2000 Shares Amount
Shares sold 46,742,875 $1,183,282,271
Shares issued to share-
holders in reinvestment
of distributions 6,702,197 156,429,267
------------ --------------
Total issued 53,445,072 1,339,711,538
Automatic conversion
of shares (6,990,131) (171,422,234)
Shares redeemed (21,307,246) (528,575,323)
------------ --------------
Net increase 25,147,695 $ 639,713,981
============ ==============
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 share-
holders 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
============ ==============
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended August 31, 2000 Shares Amount
Shares sold 9,791,460 $ 253,121,222
Shares issued to share-
holders in reinvestment
of distributions 1,005,364 23,636,119
------------ --------------
Total issued 10,796,824 276,757,341
Shares redeemed (3,363,502) (83,902,865)
------------ --------------
Net increase 7,433,322 $ 192,854,476
============ ==============
Class C Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 9,035,252 $ 183,385,732
Shares issued to share-
holders 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 D Shares for the Year Dollar
Ended August 31, 2000 Shares Amount
Shares sold 21,376,393 $ 562,677,915
Automatic conversion of
shares 6,644,211 171,422,234
Shares issued to share-
holders in reinvestment
of distributions 2,964,749 72,666,009
------------ --------------
Total issued 30,985,353 806,766,158
Shares redeemed (9,735,407) (256,028,254)
------------ --------------
Net increase 21,249,946 $ 550,737,904
============ ==============
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 share-
holders 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
============ ==============
5. Commitments:
At August 31, 2000, the Fund had entered into foreign exchange
contracts, under which it had agreed to sell various foreign
currencies with an approximate value of $4,128,000.
6. Short-Term Borrowings:
On December 3, 1999, the Fund, along with certain other funds
managed by MLIM and its affiliates, entered into a one-year,
unsecured $1,000,000,000 credit agreement with Bank of America and
other lenders. The funds may borrow money for temporary or emergency
purposes to meet shareholder redemptions. Each fund may borrow up to
the maximum amount allowable under the fund's current prospectus and
statement of additional information, subject to various other legal,
regulatory or contractual limits. The funds collectively pay a
commitment fee of .09% per annum on the available portion of the
facility. Amounts borrowed under the facility bear interest at the
Federal Funds rate plus .50%. The Fund did not borrow from the
facility during the year ended August 31, 2000.
Merrill Lynch Fundamental Growth Fund, Inc.
August 31, 2000
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, 2000, 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 auditing standards
generally accepted in the United States. 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, 2000 by
correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Fundamental Growth Fund, Inc. at
August 31, 2000, 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 accounting principles generally
accepted in the United States.
Ernst & Young LLP
MetroPark, New Jersey
October 5, 2000
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch Fundamental Growth Fund, Inc. during its
taxable year ended August 31, 2000:
<TABLE>
<CAPTION>
Record Payable Qualifying Non-Qualifying Total Long-Term
Date Date Ordinary Income Ordinary Income Ordinary Income Capital Gains*
<S> <C> <C> <C> <C> <C>
Class A Shares
12/06/99 12/10/99 $.141427 $.742988 $ .88445 $1.052744
Class B Shares
12/06/99 12/10/99 $.116448 $.611756 $.728204 $1.052744
Class C Shares
12/06/99 12/10/99 $.114628 $.602195 $.716823 $1.052744
Class D Shares
12/06/99 12/10/99 $.135836 $.713611 $.849447 $1.052744
*This entire distribution is subject to a maximum 20% tax rate.
The qualifying ordinary income qualifies for the dividends received
deduction for corporations.
Please retain this information for your records.
</TABLE>
