MERRILL LYNCH
FUNDAMENTAL
GROWTH
FUND, INC.
FUND LOGO
Semi-Annual Report
February 29, 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
Portfolio Matters
For the six months ended February 29, 2000, Merrill Lynch
Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and Class
D Shares had total returns of +41.07%, +40.36%, +40.38% and +40.93%,
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 and 4 of this report
to shareholders.) The total returns of the Fund were significantly
ahead of the Lipper Analytical Services, Inc.'s Large Cap Growth
Fund Average and the unmanaged Standard & Poor's 500 Index, which
had returns of +30.16% and +4.11%, respectively, for the same
period. In addition, as of February 29, 2000 the Fund's Class A,
Class B, Class C and Class D Shares achieved a Morningstar Overall
Ratingtm of five stars as outlined below.
The positive absolute and relative investment performance is the
result of the change in our investment strategy in July 1999. The
industry structure of the Fund was changed from a concentration of
investments in companies in the banking and financial services,
insurance, financial services and consumer non-durable goods sectors
to companies in the communications equipment, electronics and
computer industries.
As of February 29, 2000, the five-largest industry sectors as a
percentage of net assets were communications equipment, 21.5%;
electronics, 10.2%; wireline communication, 9.1%; energy, 8.4%; and
computers, 7.9%. For the six-month period ended February 29, 2000,
eight of the Fund's top ten equity holdings had total returns
greater than the overall investment returns for the Fund. These
companies have benefited from a growth of business in the capital
investment on a global basis through telecommunications service
companies and private corporations in Internet communications
infrastructure. (For complete listings of the Fund's ten largest
industries and holdings, see page 19 of this report to
shareholders.)
Market Outlook
We believe the outlook is positive for the US equity market during
the coming months. Overall US corporate profit increases were better
than anticipated at over 20% above a year ago for the fourth quarter
of 1999.
A review of recent business and economic data suggests we may
anticipate a gain in real growth and corporate profits for the first
quarter of 2000. The recent decreases in stock prices appear to be a
result of investor concerns about how fast and how high the Federal
Reserve Board will raise the Federal Funds target rate. Recent
measures of labor employment, worker productivity and real wage
gains appear to us to support a relatively positive environment for
overall growth in real incomes and consumer spending. We believe
that the current upturn in productivity-enhancing capital investment
in Internet-oriented communications infrastructure will continue and
become a more important component of real growth in the US economy.
We also believe that these enhancements may assist major
corporations in producing meaningful increases in administrative
productivity in the future.
In Conclusion
We thank you for your continued investment in Merrill Lynch
Fundamental Growth Fund, Inc., and we look forward to discussing our
outlook and strategy in our upcoming 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
March 29, 2000
To reduce shareholder expenses, Merrill Lynch Fundamental Growth
Fund, Inc. will no longer be printing and mailing quarterly reports
to shareholders. We will continue to provide you with reports on a
semi-annual and annual basis.
Five-Star Morningstar Overall Rating TM--
Domestic Equity Funds as of 2/29/00
* * * * *
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 3,559 funds.
Morningstar proprietary ratings performances are as of February 29,
2000. The ratings are subject to change every month. Past
performance is no guarantee of future results. Morningstar ratings
are calculated from the Fund's three-, five-, and ten-year average
annual returns (if applicable) in excess of 90-day Treasury-bill
returns with appropriate fee adjustments and a risk factor that
reflects Fund performance below 90-day 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 February 29,
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 bottom 10% receive
one star. The Fund's Class A, Class B, Class C and Class D Shares
were rated against 3,559 and 2,233 funds in the Morningstar Domestic
Equity Funds class for the three- and five-year periods,
respectively.
All share classes of the Fund are invested in a common portfolio.
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
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.
February 29, 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 February 29, 2000 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Fundamental Growth Fund, Inc. Class A Shares* +41.07% +43.89% +322.92%
ML Fundamental Growth Fund, Inc. Class B Shares* +40.36 +42.35 +300.18
ML Fundamental Growth Fund, Inc. Class C Shares* +40.38 +42.36 +294.21
ML Fundamental Growth Fund, Inc. Class D Shares* +40.93 +43.50 +316.84
Standard & Poor's 500 Index** + 4.11 +11.73 +225.25/+261.59
<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.
February 29, 2000
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/99 +36.31% +29.15%
Five Years Ended 12/31/99 +31.03 +29.62
Inception (10/21/94)
through 12/31/99 +29.57 +28.23
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/99 +34.98% +30.98%
Five Years Ended 12/31/99 +29.70 +29.70
Inception (10/21/94)
through 12/31/99 +28.26 +28.26
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/99 +34.95% +33.95%
Five Years Ended 12/31/99 +29.69 +29.69
Inception (12/24/92)
through 12/31/99 +19.96 +19.96
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/99 +35.99% +28.85%
Five Years Ended 12/31/99 +30.71 +29.31
Inception (12/24/92)
through 12/31/99 +20.89 +19.97
[FN]
*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.
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industries Held Stocks Value Net Assets
<S> <C> <S> <C> <C>
Advertising 600,000 The Interpublic Group of Companies, Inc. $ 24,112,500 0.4%
Automobile 150,000 Toyota Motor Corporation (ADR)(a) 12,196,875 0.2
Banking & Financial 1,200,000 Bank of America Corporation 55,275,000 1.0
2,600,000 Citigroup Inc. 134,387,500 2.4
65,000 State Street Corporation 4,736,875 0.1
-------------- ------
194,399,375 3.5
Beverages 1,425,000 The Coca-Cola Company 69,023,437 1.2
Biotechnology 800,000 ++Amgen Inc. 54,500,000 1.0
115,000 ++Biogen, Inc. 12,412,812 0.2
500,000 ++Immunex Corporation 98,687,500 1.8
-------------- ------
165,600,312 3.0
Broadcasting-- 445,000 ++AMFM Inc. 27,311,875 0.5
Radio & Television 500,000 ++CBS Corporation 29,781,250 0.5
625,000 ++Clear Channel Communications, Inc. 41,640,625 0.8
1,200,000 ++Infinity Broadcasting Corporation (Class A) 38,325,000 0.7
-------------- ------
137,058,750 2.5
Communications 1,000,000 ++3Com Corporation 98,187,500 1.8
Equipment 130,000 ++Alteon Websystems, Inc. 11,586,250 0.2
2,025,000 ++Cisco Systems, Inc. 267,553,125 4.8
445,000 ++E-Tek Dynamics, Inc. 121,457,187 2.2
750,000 ++JDS Uniphase Corporation 197,671,875 3.5
1,170,000 Lucent Technologies Inc. 69,615,000 1.2
845,000 Motorola, Inc. 144,072,500 2.6
135,000 Nokia Oyj (ADR)(a) 26,772,188 0.5
1,280,000 Nortel Networks Corporation 142,720,000 2.6
1,225,000 Telefonaktiebolaget LM Ericsson (ADR)(a) 117,523,438 2.1
-------------- ------
1,197,159,063 21.5
Computers 1,500,000 ++EMC Corporation 178,500,000 3.2
670,000 International Business Machines Corporation 68,340,000 1.2
2,000,000 ++Sun Microsystems, Inc. 190,500,000 3.5
-------------- ------
437,340,000 7.9
Electrical 60,000 Emerson Electric Co. 2,733,750 0.1
Equipment 1,350,000 General Electric Company 178,453,125 3.2
-------------- ------
181,186,875 3.3
Electronics 200,000 ++Broadcom Corporation (Class A) 39,462,500 0.7
1,380,000 ++LSI Logic Corporation 88,406,250 1.6
920,000 STMicroelectronics 182,469,856 3.3
1,409,000 Texas Instruments Incorporated 234,598,500 4.2
310,000 ++Xilinx, Inc. 24,722,500 0.4
-------------- ------
569,659,606 10.2
Energy 1,430,000 BP Amoco PLC (ADR)(a) 67,210,000 1.2
300,000 Duke Energy Corporation 14,550,000 0.3
1,200,000 El Paso Energy Corporation 44,475,000 0.8
2,100,000 Enron Corp. 144,900,000 2.6
1,630,000 Exxon Mobil Corporation 122,759,375 2.2
1,300,000 Royal Dutch Petroleum Company (NY Registered Shares) 68,250,000 1.2
300,000 UtiliCorp United Inc. 4,912,500 0.1
-------------- ------
467,056,875 8.4
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industries Held Stocks Value Net Assets
<S> <C> <S> <C> <C>
Entertainment 847,100 ++AT&T Corp.--Liberty Media Group (Class A) $ 44,260,975 0.8%
2,000,000 The Walt Disney Company 67,000,000 1.2
-------------- ------
111,260,975 2.0
Financial Services 900,000 T. Rowe Price Associates, Inc. 29,643,750 0.5
Household Products 740,000 Colgate-Palmolive Company 38,618,750 0.7
730,000 The Procter & Gamble Company 64,240,000 1.2
-------------- ------
102,858,750 1.9
Information 2,050,000 ++America Online, Inc. 120,950,000 2.2
Processing 753,000 ++At Home Corporation (Series A) 25,790,250 0.5
150,050 ++China.Com Corporation (Class A) 18,371,747 0.3
-------------- ------
165,111,997 3.0
Insurance 900,000 American International Group, Inc. 79,593,750 1.4
Leisure 220,000 Sony Corporation (ADR)(a) 68,942,500 1.2
Medical Technology 24,266 Johnson & Johnson 1,741,085 0.0
540,000 Medtronic, Inc. 26,156,250 0.5
-------------- ------
27,897,335 0.5
Oil Services 1,300,000 Baker Hughes Incorporated 33,637,500 0.6
180,000 Diamond Offshore Drilling, Inc. 5,715,000 0.1
1,160,000 Schlumberger Limited 85,695,000 1.5
-------------- ------
125,047,500 2.2
Pharmaceuticals 1,000,000 Bristol-Myers Squibb Company 56,812,500 1.0
870,000 Merck & Co., Inc. 53,559,375 1.0
1,800,000 Pfizer Inc. 57,825,000 1.0
-------------- ------
168,196,875 3.0
Photography 500,000 Eastman Kodak Company 28,656,250 0.5
Restaurants 400,000 McDonald's Corporation 12,625,000 0.2
Retail 500,000 ++Amazon.com, Inc. 34,375,000 0.6
89,000 ++eBay Inc. 12,754,813 0.3
-------------- ------
47,129,813 0.9
Retail--Specialty 270,000 ++Best Buy Co., Inc. 14,681,250 0.2
300,000 CVS Corporation 10,500,000 0.2
400,000 Walgreen Co. 10,325,000 0.2
-------------- ------
35,506,250 0.6
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Percent of
Industries Held Stocks Value Net Assets
<S> <C> <S> <C> <C>
Semiconductors 275,100 ++ASM Lithography Holding NV $ 35,028,566 0.6%
830,000 ++Applied Materials, Inc. 151,786,250 2.7
920,000 ++KLA-Tencor Corporation 71,702,500 1.3
-------------- ------
258,517,316 4.6
Software--Computer 40,000 ++BEA Systems, Inc 5,062,500 0.1
155,000 ++Commerce One, Inc. 32,317,500 0.6
120,000 ++Siebel Systems, Inc. 16,642,500 0.3
-------------- ------
54,022,500 1.0
Travel & Lodging 400,000 Carnival Corporation 11,525,000 0.2
Wireless 177,000 ++Sonera Oyj (ADR)(a) 13,861,313 0.3
Communication 500,000 ++Sprint Corp. (PCS Group) 25,875,000 0.5
1,885,000 Vodafone AirTouch PLC (ADR)(a) 108,740,937 1.9
-------------- ------
148,477,250 2.7
Wireline 1,550,000 AT&T Corp. 76,628,125 1.4
Communication 1,195,000 ++Covad Communications Group, Inc. 107,101,875 1.9
925,000 ++Equant (NY Registered Shares) 103,368,750 1.8
1,060,000 ++Infonet Services Corporation (Class B) 29,282,500 0.5
1,350,000 ++MCI WorldCom Inc. 60,243,750 1.1
1,700,000 ++NorthPoint Communications Group, Inc. 38,568,750 0.7
2,000,000 ++Qwest Communications International Inc. 92,750,000 1.7
-------------- ------
507,943,750 9.1
Total Stocks (Cost--$3,796,617,242) 5,437,750,229 97.6
Face
Amount Short-Term Securities
<S> <C> <S> <C> <C>
Commercial $52,966,000 General Motors Acceptance Corp., 5.94% due 3/01/2000 52,966,000 0.9
Paper* 10,000,000 Hertz Corporation, 5.75% due 3/16/2000 9,976,042 0.2
Total Short-Term Securities (Cost--$62,942,042) 62,942,042 1.1
Total Investments (Cost--$3,859,559,284) 5,500,692,271 98.7
Other Assets Less Liabilities 74,435,844 1.3
-------------- ------
Net Assets $5,575,128,115 100.0%
============== ======
++Non-income producing security.
(a)American Depositary Receipts (ADR).
*Commercial Paper is traded on a discount basis; the interest rates
shown reflect the discount rates paid at the time of purchase by the
Fund.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 29, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$3,859,559,284) $5,500,692,271
Cash 67,843
Foreign cash 1,164
Receivables:
Securities sold $ 88,264,335
Capital shares sold 17,859,196
Dividends 2,545,201 108,668,732
--------------
Prepaid registration fees and other assets 178,196
--------------
Total assets 5,609,608,206
--------------
Liabilities: Payables:
Securities purchased 17,420,010
Capital shares redeemed 11,158,405
Distributor 2,863,991
Investment adviser 2,227,841 33,670,247
--------------
Accrued expenses and other liabilities 809,844
--------------
Total liabilities 34,480,091
--------------
Net Assets: Net assets $5,575,128,115
==============
Net Assets Class A Shares of capital stock, $.10 par value,
Consist of: 100,000,000 shares authorized $ 2,575,513
Class B Shares of capital stock, $.10 par value,
250,000,000 shares authorized 10,974,552
Class C Shares of capital stock, $.10 par value,
100,000,000 shares authorized 1,732,302
Class D Shares of capital stock, $.10 par value,
100,000,000 shares authorized 4,889,730
Paid-in capital in excess of par 3,791,890,029
Accumulated investment loss--net (11,567,350)
Undistributed realized capital gains on investments--net 133,500,430
Unrealized appreciation on investments--net 1,641,132,909
--------------
Net assets $5,575,128,115
==============
Net Asset Value: Class A--Based on net assets of $740,909,445 and 25,755,126 shares
outstanding $ 28.77
==============
Class B--Based on net assets of $2,970,119,604 and 109,745,516 shares
outstanding $ 27.06
==============
Class C--Based on net assets of $472,179,847 and 17,323,016 shares
outstanding $ 27.26
==============
Class D--Based on net assets of $1,391,919,219 and 48,897,303 shares
outstanding $ 28.47
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended February 29, 2000
<S> <S> <C> <C>
Investment Dividends (net of $97,658 foreign withholding tax) $ 12,957,654
Income: Interest and discount earned 7,065,763
--------------
Total income 20,023,417
--------------
Expenses: Investment advisory fees $ 13,356,863
Account maintenance and distribution fees--Class B 11,760,251
Account maintenance and distribution fees--Class C 1,834,552
Transfer agent fees--Class B 1,359,404
Account maintenance fees--Class D 1,319,664
Transfer agent fees--Class D 515,054
Registration fees 448,124
Transfer agent fees--Class A 281,104
Transfer agent fees--Class C 224,143
Custodian fees 160,993
Accounting services 114,520
Printing and shareholder reports 75,019
Professional fees 62,073
Directors' fees and expenses 42,489
Pricing fees 4,979
Other 31,535
--------------
Total expenses 31,590,767
--------------
Investment loss--net (11,567,350)
--------------
Realized & Realized gain (loss)from:
Unrealized Gain Investments--net 134,787,793
(Loss) on Foreign currency transactions--net (933,923) 133,853,870
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation:
Transactions-- Investments--net 1,396,731,304
Net: Foreign currency transactions--net (78) 1,396,731,226
-------------- --------------
Net Increase in Net Assets Resulting from Operations $1,519,017,746
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Year Ended
Increase (Decrease) in Net Assets: Feb. 29, 2000 Aug. 31, 1999
<S> <S> <C> <C>
Operations: Investment loss--net $ (11,567,350) $ (2,747,160)
Realized gain on investments--net 133,853,870 323,151,944
Change in unrealized appreciation/depreciation on
investments--net 1,396,731,226 223,488,173
-------------- --------------
Net increase in net assets resulting from operations 1,519,017,746 543,892,957
-------------- --------------
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 800,162,397 1,985,425,196
-------------- --------------
Net Assets: Total increase in net assets 1,998,534,222 2,479,221,560
Beginning of period 3,576,593,893 1,097,372,333
-------------- --------------
End of period $5,575,128,115 $3,576,593,893
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Feb. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 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 8.70 6.37 1.09 4.95 2.13
-------- -------- -------- -------- --------
Total from investment operations 8.72 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 period $ 28.77 $ 21.99 $ 16.19 $ 17.37 $ 13.60
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 41.07%+++ 41.08% 6.37% 39.24% 19.02%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .75%* .81% .87% .99% 1.12%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .17%* .60% .37% .47% .51%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $740,909 $472,464 $167,133 $ 62,049 $ 47,048
Data: ======== ======== ======== ======== ========
Portfolio turnover 51.54% 52.72% 40.27% 94.38% 82.10%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Feb. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 20.75 $ 15.39 $ 16.69 $ 13.14 $ 11.40
Operating ---------- --------- -------- -------- --------
Performance: Investment loss--net (.10) (.08) (.11) (.09) (.07)
Realized and unrealized gain on
investmentsand foreign currency
transactions--net 8.19 6.05 1.05 4.79 2.07
--------- --------- -------- -------- --------
Total from investment operations 8.09 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 period $ 27.06 $ 20.75 $ 15.39 $ 16.69 $ 13.14
========== ========== ======== ======== ========
Total Investment Based on net asset value per share 40.36%+++ 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 (.85%)* (.41%) (.64%) (.59%) (.54%)
========== ========== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $2,970,120 $2,000,535 $641,688 $216,636 $116,641
Data: ========== ========== ======== ======== ========
Portfolio turnover 51.54% 52.72% 40.27% 94.38% 82.10%
========== ========== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Feb. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 20.88 $ 15.45 $ 16.72 $ 13.14 $ 11.40
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.10) (.09) (.11) (.09) (.07)
Realized and unrealized gain on
investmentsand foreign currency
transactions--net 8.25 6.10 1.05 4.79 2.07
-------- -------- -------- -------- --------
Total from investment operations 8.15 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 period $ 27.26 $ 20.88 $ 15.45 $ 16.72 $ 13.14
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 40.38%+++ 39.65% 5.19% 37.90% 17.68%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.77%* 1.83% 1.89% 2.02% 2.15%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (.85%)* (.43%) (.63%) (.58%) (.57%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $472,180 $307,988 $130,652 $ 74,732 $ 54,052
Data: ======== ======== ======== ======== ========
Portfolio turnover 51.54% 52.72% 40.27% 94.38% 82.10%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Feb. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 21.77 $ 16.06 $ 17.27 $ 13.54 $ 11.64
Operating ---------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.01) .01 .02 .03 .03
Realized and unrealized gain on
investmentsand foreign currency
transactions--net 8.61 6.38 1.09 4.93 2.13
---------- -------- -------- -------- --------
Total from investment operations 8.60 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 period $ 28.47 $ 21.77 $ 16.06 $ 17.27 $ 13.54
========== ======== ======== ======== ========
Total Investment Based on net asset value per share 40.93%+++ 40.67% 6.08% 38.90% 18.70%
Return:** ========== ======== ======== ======== ========
Ratios to Average Expenses 1.00%* 1.05% 1.11% 1.24% 1.37%
Net Assets: ========== ======== ======== ======== ========
Investment income (loss)--net (.09%)* .36% .12% .17% .24%
Supplemental Net assets, end of period (in thousands) $1,391,919 $795,607 $157,899 $ 53,101 $ 22,892
Data: ========== ======== ======== ======== ========
Portfolio turnover 51.54% 52.72% 40.27% 94.38% 82.10%
========== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 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 generally
accepted accounting principles, which may require the use of
management accruals and estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select Pricingsm System. Shares of Class A and Class D
are sold with a front-end sales charge. Shares of Class B and Class
C may be subject to a contingent deferred sales charge. All classes
of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that Class B, Class
C and Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments--Portfolio securities 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.
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
NOTES TO FINANCIAL STATEMENTS (continued)
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(f) 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.
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, .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.
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
For the six months ended February 29, 2000, 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 $ 340 $ 5,076
Class D $32,864 $472,026
For the six months ended February 29, 2000, MLPF&S received
contingent deferred sales charges of $1,433,265 and $61,591 relating
to transactions in Class B and Class C Shares, respectively. Further-
more, MLPF&S received contingent deferred sales charges of $2,073
relating to transactions subject to front-end sales charge waivers
in Class D Shares.
In addition, MLPF&S received $398,033 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended February 29, 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 MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, FDS, PSI, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 29, 2000 were $2,636,590,245 and
$2,059,081,818, respectively.
Net realized gains (losses) for the six months ended February 29,
2000 and net unrealized gains (losses) as of February 29, 2000 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $134,808,092 $1,641,132,987
Short-term investments (20,299) --
Foreign currency
transactions (933,923) (78)
------------ --------------
Total $133,853,870 $1,641,132,909
============ ==============
As of February 29, 2000, net unrealized appreciation for Federal
income tax purposes aggregated $1,641,132,987, of which
$1,829,190,177 related to appreciated securities and $188,057,190
related to depreciated securities. At February 29, 2000, the
aggregate cost of investments for Federal income tax purposes was
$3,859,559,284.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
were $800,162,397 and $1,985,425,196 for the six months ended
February 29, 2000 and for the year ended August 31, 1999,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
February 29, 2000 Shares Amount
Shares sold 6,511,596 $ 165,487,570
Shares issued to shareholders
in reinvestment of
distributions 1,247,247 30,869,352
------------ -------------
Total issued 7,758,843 196,356,922
Shares redeemed (3,493,963) (87,699,416)
------------ -------------
Net increase 4,264,880 $ 108,657,506
============ =============
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 B Shares for the
Six Months Ended Dollar
February 29, 2000 Shares Amount
Shares sold 21,956,678 $ 527,062,739
Shares issued to shareholders
in reinvestment of
distributions 6,702,197 156,429,267
------------ -------------
Total issued 28,658,875 683,492,006
Automatic conversion
of shares (3,766,075) (85,713,802)
Shares redeemed (11,559,350) (271,352,552)
------------ -------------
Net increase 13,333,450 $ 326,425,652
============ =============
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
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 C Shares for the
Six Months Ended Dollar
February 29, 2000 Shares Amount
Shares sold 3,484,115 $ 84,982,613
Shares issued to shareholders
in reinvestment of
distributions 1,005,364 23,636,119
------------ -------------
Total issued 4,489,479 108,618,732
Shares redeemed (1,917,540) (45,523,177)
------------ -------------
Net increase 2,571,939 $ 63,095,555
============ =============
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 D Shares for the
Six Months Ended Dollar
February 29, 2000 Shares Amount
Shares sold 10,612,819 $ 262,876,888
Automatic conversion of
shares 3,585,616 85,713,802
Shares issued to shareholders
in reinvestment of
distributions 2,964,749 72,666,009
------------ -------------
Total issued 17,163,184 421,256,699
Shares redeemed (4,814,233) (119,273,015)
------------ -------------
Net increase 12,348,951 $ 301,983,684
============ =============
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
============ =============
Merrill Lynch Fundamental Growth Fund, Inc.
February 29, 2000
PORTFOLIO INFORMATION
Percent of
Ten Largest Holdings Net Assets
Cisco Systems, Inc. 4.8%
Texas Instruments Incorporated 4.2
JDS Uniphase Corporation 3.5
Sun Microsystems, Inc. 3.5
STMicroelectronics 3.3
EMC Corporation 3.2
General Electric Company 3.2
Applied Materials, Inc. 2.7
Enron Corp. 2.6
Motorola, Inc. 2.6
Percent of
Geographic Allocation Net Assets++
United States 82.2%
France 3.3
United Kingdom 3.1
Canada 2.6
Sweden 2.1
Netherlands 1.8
Japan 1.4
Finland 0.8
China 0.3
++Total may not equal 100%.
Percent of
Ten Largest Industries Net Assets
Communications Equipment 21.5%
Electronics 10.2
Wireline Communication 9.1
Energy 8.4
Computers 7.9
Semiconductors 4.6
Banking & Financial 3.5
Electrical Equipment 3.3
Pharmaceuticals 3.0
Biotechnology 3.0
