(BULL LOGO)
Merrill Lynch Investment Managers
Semi-Annual Report
February 28, 2003
Merrill Lynch
Fundamental Growth
Fund, Inc.
www.mlim.ml.com
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch Fundamental Growth Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
DEAR SHAREHOLDER
For the six-month period ended February 28, 2003, Merrill Lynch
Fundamental Growth Fund, Inc.'s Class A, Class B, Class C and
Class D Shares had total returns of -9.90%, -10.36%, -10.45% and
- -10.05%, respectively. (Fund 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.) This compares with a total return of -7.60% for
the Lipper Large Cap Growth Funds Average for the same period. The
Fund underperformed the unmanaged Standard & Poor's (S&P) 500
Index, which had a total return of -7.29% and the unmanaged S&P
Barra Growth Index, which had a total return of -6.67%.
During the six-month period ended February 28, 2003, major global
stock markets continued in a downward trend with overall market
indexes almost touching new lows in early October 2002. News media
reports and investment community commentators almost continuously
focused on the impending military confrontation with Iraq. It
appears that this emphasis imposed a negative discount on overall
equity valuations.
The Fund continued to be overweighted in the consumer discretionary
and consumer staples sectors. Overall, the negative stock investment
returns in both of these sectors underperformed the total investment
return for the S&P 500 Index. Some of the best comparative
investment returns in the Fund during the period were Clear Channel
Communications, Inc. and Fox Entertainment Group, Inc. in the media
and entertainment industry and eBay Inc., Bed Bath & Beyond Inc.,
Lowe's Companies, Inc. and Brinker International, Inc. in retailing
and restaurants. Stocks added to the Fund included Starbucks
Corporation, eBay Inc., Autozone, Inc. and Fox Entertainment Group,
Inc., Archer-Daniels-Midland Company and The Clorox Company. We sold
Brown-Forman Corporation after the company reported an unanticipated
lower earnings level and a decreased outlook for future earnings.
In the biotechnology industry, shares of Amgen Inc., as well as
companies in the health care equipment and supplies industries
including Alcon, Inc., Boston Scientific Corporation, Stryker
Corporation and Zimmer Holdings, Inc., had positive investment
returns. We also added Medtronic, Inc. and Varian Medical Systems,
Inc. to the Fund's investments. The Fund remained underweighted in
the largest ethical drug companies because we anticipated further
deterioration in pricing conditions as Federal and state officials
attempted to reduce the soaring costs of government reimbursements
for health care. Thus, we sold the Fund's holdings in Pfizer Inc.
The Fund became relatively underweighted in the information
technology sector where there was a broad-based and substantial
improvement in stock prices during the six-month period ended
February 28, 2003. Intel Corporation, International Business
Machines Corporation and Cisco Systems, Inc., which were three of
the largest investments in the Fund, had positive investment
returns. We reduced the Fund's overall investment weighting by
liquidating investment holdings in QUALCOMM Incorporated, Sun
Microsystems, Inc., Applied Materials, Inc., KLA-Tencor Corporation,
STMicroelectronics NV, Texas Instruments Incorporated, Oracle
Corporation, SAP AG and Siebel Systems, Inc. After reporting the
most recent quarterly financial results, the managements of
International Business Machines Corporation, Intel Corporation,
Microsoft Corporation and Cisco Systems, Inc. painted an uncertain
and modest growth outlook for corporate and public sector spending
on technology equipment and software. We continue to invest in the
equities of these companies since we believe they are the best-
managed technology companies for the long term. However, a
substantial amount of time may pass before there is a robust
cyclical upturn in capital spending on technology globally. There
has been a cyclical upturn in U.S. capital spending on information
technology equipment and software since the recession ended at the
completion of the third quarter of 2001. In retrospect, there has
been so much capacity to supply equipment and software services on a
global basis that the cyclical upturn in spending has not evolved
into an overall improvement in the growth of profits for information
technology companies.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
We sold the Fund's investments in the residential mortgage financing
and consumer credit industries because of our concern about
deteriorating credit quality reports. Fund equity investments in
H & R Block, Inc., American Express Company, Fannie Mae, MBNA
Corporation, Wells Fargo Company and Target Corporation were
subsequently sold. Target Corporation is a multiline retailer that
has derived a substantial percentage of its growth in earnings from
the expansion of a credit card business to customers, but we are
concerned about a potential deterioration in credit quality and
rising loan loss expenses. In the insurance sector, we sold American
International Group, Inc. and Lincoln National Corporation. After
American International announced a surprising increase in loss
reserves, we became aware of the potential for continued
unanticipated increases in loss reserves in several important
commercial insurance lines of business that historically had been
very profitable. With respect to Lincoln National, we sold the
holding after its management announced a substantial increase in
reserves to support guaranteed returns on various life insurance
annuity products. The life insurance industry in Europe, England and
the United States for some time has been experiencing the necessity
to continually reduce earnings estimates by using increased reserves
because of the more than three-year downward trend in stock values
around the world.
In the media industry, we sold the Fund's holdings in The
Interpublic Group of Companies, Inc. after its management announced
that investments in commercial ventures in Europe and Asia were
unprofitable. The advertising industry in the United States and
Europe has experienced a cyclical upturn from the U.S. recession in
2001. However, this historically well-managed company was not
reaping benefits from the turnaround. We sold the Fund's equity
investment in The Walt Disney Company since there appeared to be a
lack of any meaningful progress in corporate restructuring by
management during the prior fiscal year. We sold Univision
Communications Inc. (Class A) and Viacom, Inc. (Class B) because of
our concerns about slower rates of growth in upcoming quarters as
the geopolitical situation in the Middle East and the involvement of
the United States caused corporations to reduce advertising budgets.
Nextel Communications, Inc. (Class A) and Sprint Corporation (PCS
Group) were sold after the unenthusiastic consumer response to new
mobile phone service offerings and lower-than-anticipated per
subscriber monthly service revenues. We added Verizon Communications
to the Fund since we found the valuation very reasonable and believe
that there will be further U.S. court action to deregulate wireline
communication services and improve the corporate rates of return to
previously relatively high levels.
Market Outlook
We anticipate that a resolution to the confrontation between the
United States and Iraq may result in an upward trend in U.S. equity
prices. (Similar developments took place shortly after the start of
the Gulf War in 1991.) Alan Greenspan, Chairman of the Federal
Reserve Board of Governors, stated in a recent public speech that it
was likely that Americans raised $200 billion of liquidity in 2002
from the refinancing of residential mortgage obligations on
appreciated homes. It would seem that consumers did not spend this
increased liquidity during the year-end holiday season. Military
conflict or the prospect for conflict has dampened consumer spending
in the past. Therefore, we believe that a resolution to the
confrontation will provide a boost to the rate of real growth of
consumer spending and economic growth as well as higher corporate
profits. These developments may be beneficial to the value of
stocks, particularly given that the increased focus of an armed
conflict in Iraq by the media and investment community appears to
have been destructive to stock market values.
Consequently, we focused on stock investments that we believe should
benefit from a recovery in household spending. The last quarter of
the period ended February 28, 2003, from a comparative investment
return perspective for the Fund, was one of our recent best compared
to other actively managed large cap growth funds. In our opinion,
the results reflected our change in strategy during the period.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
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 with you again in our next report to
shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Lawrence R. Fuller)
Lawrence R. Fuller
Vice President and
Portfolio Manager
March 31, 2003
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through five
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.
* Effective June 1, 2001, Class B Shares are subject to a maximum
contingent deferred sales charge of 4% declining to 0% after six
years. All Class B Shares purchased prior to June 1, 2001 will
maintain the four-year schedule. 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).
* Class R Shares do not incur a maximum sales charge (front-end
load) or deferred sales charge. These shares are subject to a
distribution fee of 0.25% and an account maintenance fee of 0.25%.
Class R Shares are available only to certain retirement plans.
None of the past results shown should be considered a representation
of future performance. Performance results do not reflect the
deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Figures shown in
each of the following tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the
ex-dividend date. Investment return and principal value of shares
will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Dividends paid to each class of
shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
PERFORMANCE DATA (concluded)
Recent Performance Results
Ten-Year/
6-Month 12-Month Since Inception
As of February 28, 2003 Total Return Total Return Total Return
ML Fundamental Growth Fund, Inc. Class A Shares* - 9.90% -28.46% +99.21%
ML Fundamental Growth Fund, Inc. Class B Shares* -10.36 -29.20 +82.78
ML Fundamental Growth Fund, Inc. Class C Shares* -10.45 -29.27 +79.87
ML Fundamental Growth Fund, Inc. Class D Shares* -10.05 -28.64 +94.84
ML Fundamental Growth Fund, Inc. Class R Shares* -- -- - 5.61
Standard & Poor's 500 Index** - 7.29 -22.68 +129.29/+105.48/-1.50
Standard & Poor's Barra Growth Index*** - 6.67 -23.34 +130.06/+111.82/-0.30
*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 ten year/since inception dates are from 10/21/94 for Class A
& Class B Shares, ten years for Class C & Class D Shares and from
1/03/03 for Class R Shares.
**An unmanaged broad-based Index comprised of common stocks. Since
inception total returns are for ten years from 10/31/94 and from
1/03/03, respectively.
***This unmanaged index is a capitalization-weighted index of all
the stocks in the Standard & Poor's 500 Index that have higher price-
to-book ratios. Since inception total returns are for ten years,
from 10/31/94 and from 1/31/03, respectively.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 2/28/03 -28.46% -32.21%
Five Years Ended 2/28/03 - 2.75 - 3.80
Inception (10/21/94) through 2/28/03 + 8.60 + 7.90
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class B Shares*
One Year Ended 2/28/03 -29.20% -32.03%
Five Years Ended 2/28/03 - 3.75 - 4.07
Inception (10/21/94) through 2/28/03 + 7.48 + 7.48
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after six years.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class C Shares*
One Year Ended 2/28/03 -29.27% -29.97%
Five Years Ended 2/28/03 - 3.76 - 3.76
Ten Years Ended 2/28/03 + 6.57 + 6.57
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after four years.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
One Year Ended 2/28/03 -28.64% -32.38%
Five Years Ended 2/28/03 - 3.00 - 4.04
Ten Years Ended 2/28/03 + 7.41 + 6.84
*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.
Aggregate Total Return
% Return Without
Sales Charge
Class R Shares
Inception (1/03/03) through 2/28/03 -5.61%
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
PORTFOLIO INFORMATION
As of February 28, 2003
Percent of
Ten Largest Holdings Net Assets
Microsoft Corporation 6.3%
Wal-Mart Stores, Inc. 5.3
The Proctor & Gamble Company 3.7
International Business Machines Corporation 3.4
The Coca-Cola Company 3.3
Amgen Inc. 3.3
Intel Corporation 3.1
Verizon Communications 2.9
HCA Inc. 2.8
Cisco Systems, Inc. 2.6
Percent of
Geographic Allocation Net Assets++
United States 96.1%
Netherlands 2.0
Switzerland 1.2
Canada 0.7
++Total may not equal 100%.
Percent of
Five Largest Industries* Net Assets
Health Care Equipment & Supplies 8.6%
Software 7.6
Beverages 7.0
Multiline Retail 6.3
Household Products 6.1
*For Fund compliance purposes, "Industry" means any one or more of
the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
SCHEDULE OF INVESTMENTS
Shares Percent of
Industry* Held Common Stocks Value Net Assets
Aerospace & 935,000 General Dynamics Corporation $ 55,408,100 1.3%
Defense
Air Freight & 1,571,600 United Parcel Service, Inc. (Class B) 90,429,864 2.1
Logistics
Banks 2,223,900 Northern Trust Corporation 71,164,800 1.6
Beverages 2,226,800 Anheuser-Busch Companies, Inc. 103,546,200 2.4
3,635,100 The Coca-Cola Company 146,203,722 3.3
2,918,100 Coca-Cola Enterprises Inc. 58,887,258 1.3
-------------- ------
308,637,180 7.0
Biotechnology 2,673,600 ++Amgen Inc. 145,898,352 3.3
Chemicals 1,130,600 Ecolab Inc. 55,455,930 1.3
Commercial 256,900 ++Apollo Group, Inc. (Class A) 11,909,884 0.3
Services & 2,319,300 First Data Corporation 80,363,745 1.8
Supplies -------------- ------
92,273,629 2.1
Communications 8,269,008 ++Cisco Systems, Inc. 115,518,042 2.6
Equipment
Computers & 1,891,500 International Business Machines Corporation 147,442,425 3.4
Peripherals
Containers & 292,600 Ball Corporation 15,589,728 0.4
Packaging
Diversified 3,083,200 State Street Corporation 113,615,920 2.6
Financials 2,079,100 T. Rowe Price Group Inc. 53,474,452 1.2
-------------- ------
167,090,372 3.8
Diversified 3,614,700 Verizon Communications 124,996,326 2.9
Telecommunication
Services
Energy Equipment & 532,600 ++BJ Services Company 18,305,462 0.4
Services 1,829,300 Baker Hughes Incorporated 56,744,886 1.3
-------------- ------
75,050,348 1.7
Food & Drug 2,393,700 SYSCO Corporation 64,917,144 1.5
Retailing
Food Products 920,300 Archer-Daniels-Midland Company 10,031,270 0.2
1,552,400 Unilever NV (NY Registered Shares) 87,990,032 2.0
-------------- ------
98,021,302 2.2
Health Care 1,391,700 ++Alcon, Inc. 54,485,055 1.2
Equipment & 2,513,200 ++Boston Scientific Corporation 111,008,044 2.5
Supplies 1,982,600 Medtronic, Inc. 88,622,220 2.0
846,000 Stryker Corporation 55,159,200 1.3
234,600 ++Varian Medical Systems, Inc. 11,859,030 0.3
1,237,000 ++Zimmer Holdings, Inc. 54,910,430 1.3
-------------- ------
376,043,979 8.6
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
SCHEDULE OF INVESTMENTS (continued)
Shares Percent of
Industry* Held Common Stocks Value Net Assets
Health Care 2,962,600 HCA Inc. $ 122,177,624 2.8%
Providers & 3,066,800 Health Management Associates, Inc. (Class A) 54,957,056 1.2
Services 2,339,500 ++Tenet Healthcare Corporation 42,508,715 1.0
-------------- ------
219,643,395 5.0
Hotels, 860,800 ++Brinker International, Inc. 23,861,376 0.6
Restaurants & 980,400 ++Starbucks Corporation 23,000,184 0.5
Leisure 3,156,800 ++YUM! Brands, Inc. 75,163,408 1.7
-------------- ------
122,024,968 2.8
Household Products 1,290,700 The Clorox Company 54,609,517 1.2
1,014,900 Colgate-Palmolive Company 51,059,619 1.2
1,985,300 The Procter & Gamble Company 162,516,658 3.7
-------------- ------
268,185,794 6.1
Industrial 857,000 3M Co. 107,442,090 2.5
Conglomerates
Insurance 1,634,000 Everest Re Group, Ltd. 87,255,600 2.0
1,326,900 Marsh & McLennan Companies, Inc. 54,004,830 1.2
-------------- ------
141,260,430 3.2
Internet & 299,500 ++eBay Inc. 23,480,800 0.5
Catalog Retail
Media 7,675,600 ++AOL Time Warner Inc. 86,887,792 2.0
2,589,100 ++Clear Channel Communications, Inc. 94,528,041 2.2
1,817,400 ++Fox Entertainment Group, Inc. (Class A) 48,579,102 1.1
3,347,600 ++Rogers Communications, Inc. 'B' 30,896,429 0.7
-------------- ------
260,891,364 6.0
Multiline Retail 856,600 ++Kohl's Corporation 41,887,740 1.0
4,838,000 Wal-Mart Stores, Inc. 232,514,280 5.3
-------------- ------
274,402,020 6.3
Oil & Gas 2,762,800 ++TransMontaigne Inc. (a) 10,774,920 0.2
Semiconductor 7,832,960 Intel Corporation 135,118,560 3.1
Equipment &
Products
Software 1,106,700 ++Electronic Arts Inc. 58,422,693 1.3
11,678,200 Microsoft Corporation 276,890,122 6.3
-------------- ------
335,312,815 7.6
Specialty Retail 337,900 ++AutoZone, Inc. 22,233,820 0.5
1,635,100 ++Bed Bath & Beyond Inc. 54,007,353 1.2
2,350,400 Lowe's Companies, Inc. 92,370,720 2.1
2,733,700 The TJX Companies, Inc. 43,930,559 1.0
-------------- ------
212,542,452 4.8
Total Common Stocks (Cost--$4,992,113,047) 4,115,017,129 93.9
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
SCHEDULE OF INVESTMENTS (concluded)
Shares Percent of
Held Short-Term Securities Value Net Assets
411,716,610 Merrill Lynch Premier Institutional Fund (b)(c) $ 411,716,610 9.4%
Beneficial
Interest
$ 302,488,803 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (c) 302,488,803 6.9
503,209,191 Merrill Lynch Liquidity Series, LLC Money Market Series (b)(c) 503,209,191 11.5
-------------- ------
805,697,994 18.4
Total Short-Term Securities (Cost--$1,217,414,604) 1,217,414,604 27.8
Total Investments (Cost--$6,209,527,651) 5,332,431,733 121.7
Liabilities in Excess of Other Assets (948,024,858) (21.7)
-------------- ------
Net Assets $4,384,406,875 100.0%
============== ======
*For Fund compliance purposes, "Industry" means any one or more of
the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease.
++Non-income producing security.
(a)Investments in companies 5% or more of whose outstanding
securities are held by the Fund (such companies are defined as
"Affiliated Companies" in Section 2(a)(3) of the Investment Company
Act of 1940) are as follows:
Net Share Net Dividend
Industry Affiliate Activity Cost Income
Oil & Gas TransMontaigne Inc. (154,400) $(849,200) ++
++Non-income producing security.
(b)Security was purchased with the cash proceeds from securities
loans.
(c)Investments in companies considered to be an affiliate of the
Fund (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as
follows:
Dividend/
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $302,488,803 $853,446
Merrill Lynch Liquidity Series,
LLC Money Market Series $503,209,191 16,667
Merrill Lynch Premier Institutional Fund 411,716,610 18,136
See Notes to Financial Statements.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of February 28, 2003
Assets: Investments, at value (including securities loaned of $897,325,221)
(identified cost--$6,209,527,651) $ 5,332,431,733
Cash 2,939
Foreign cash (cost--$270,818) 298,956
Receivables:
Securities sold $ 5,195,131
Capital shares sold 3,956,082
Dividends 3,076,031
Interest 296,572
Security lending--net 34,803 12,558,619
---------------
Prepaid registration fees 132,879
---------------
Total assets 5,345,425,126
---------------
Liabilities: Collateral on securities loaned, at value 914,925,801
Payables:
Securities purchased 28,967,431
Capital shares redeemed 9,513,357
Investment adviser 2,066,392
Distributor 1,790,185 42,337,365
---------------
Accrued expenses and other liabilities 3,755,085
---------------
Total liabilities 961,018,251
---------------
Net Assets: Net assets $ 4,384,406,875
===============
Net Assets Class A Shares of capital stock, $.10 par value, 150,000,000
Consist of: shares authorized $ 8,925,220
Class B Shares of capital stock, $.10 par value, 500,000,000
shares authorized 13,059,001
Class C Shares of capital stock, $.10 par value, 300,000,000
shares authorized 4,547,838
Class D Shares of capital stock, $.10 par value, 300,000,000
shares authorized 10,265,571
Class R Shares of capital stock, $.10 par value, 500,000,000
shares authorized 1
Paid-in capital in excess of par 7,812,273,778
Accumulated investment loss--net $ (13,985,068)
Accumulated realized capital losses on investments and foreign
currency transactions--net (2,573,611,686)
Unrealized depreciation on investments and foreign currency
transactions--net (877,067,780)
---------------
Total accumulated losses--net (3,464,664,534)
---------------
Net assets $ 4,384,406,875
===============
Net Asset Class A--Based on net assets of $1,112,629,028 and 89,252,201
Value: shares outstanding $ 12.47
===============
Class B--Based on net assets of $1,491,149,955 and 130,590,005
shares outstanding $ 11.42
===============
Class C--Based on net assets of $522,280,220 and 45,478,383
shares outstanding $ 11.48
===============
Class D--Based on net assets of $1,258,347,578 and 102,655,713
shares outstanding $ 12.26
===============
Class R--Based on net assets of $94.38 and 8.244 shares outstanding $ 11.45
===============
See Notes to Financial Statements.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (continued)
Statement of Operations for the Six Months Ended February 28, 2003
Investment Dividends (net of $133,375 foreign withholding tax) $ 19,242,322
Income: Interest 1,619,799
Securities lending--net 643,895
---------------
Total income 21,506,016
---------------
Expenses: Investment advisory fees $ 14,340,216
Account maintenance and distribution fees--Class B 8,180,669
Account maintenance and distribution fees--Class C 2,798,012
Transfer agent fees--Class B 2,655,478
Transfer agent fees--Class D 1,885,392
Account maintenance fees--Class D 1,660,924
Transfer agent fees--Class A 1,632,196
Transfer agent fees--Class C 940,044
Accounting services 389,587
Professional fees 365,290
Printing and shareholder reports 146,619
Custodian fees 118,971
Directors' fees and expenses 62,837
Registration fees 57,810
Pricing fees 46,080
Other 103,861
---------------
Total expenses 35,383,986
---------------
Investment loss--net (13,877,970)
---------------
Realized & Realized losson:
Unrealized Investments--net (633,475,334)
Gain (Loss) on Foreign currency transactions--net (181,625) (633,656,959)
Investments & ---------------
Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net 140,706,624
Transactions-- Foreign currency transactions--net 18,762 140,725,386
Net: --------------- ---------------
Total realized and unrealized loss on investments and
foreign currency transactions--net (492,931,573)
---------------
Net Decrease in Net Assets Resulting from Operations $ (506,809,543)
===============
See Notes to Financial Statements.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 2003 2002
Operations: Investment loss--net $ (13,877,970) $ (38,864,498)
Realized loss on investments and foreign currency transactions--net (633,656,959) (929,479,009)
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net 140,725,386 (429,942,276)
--------------- ---------------
Net decrease in net assets resulting from operations (506,809,543) (1,398,285,783)
--------------- ---------------
Capital Share Net increase (decrease) in net assets derived from capital share
Transactions: transactions (64,034,158) 1,189,916,446
--------------- ---------------
Net Assets: Total decrease in net assets (570,843,701) (208,369,337)
Beginning of period 4,955,250,576 5,163,619,913
--------------- ---------------
End of period* $ 4,384,406,875 $ 4,955,250,576
=============== ===============
*Accumulated investment loss--net $ (13,985,068) $ (107,098)
=============== ===============
See Notes to Financial Statements.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights
Class A
The following per share data and ratios For the
have been derived from information Six Months
provided in the financial statements. Ended
Feb. 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of period $ 13.84 $ 17.46 $ 29.98 $ 21.99 $ 16.19
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net++ --+++++ (.02) .08 .02 .13
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (1.37) (3.60) (10.64) 9.91 6.37
---------- ---------- ---------- ---------- ----------
Total from investment operations (1.37) (3.62) (10.56) 9.93 6.50
---------- ---------- ---------- ---------- ----------
Less distributions:
Realized gain on investments--net -- -- -- (1.94) (.70)
In excess of realized gain on
investments--net -- -- (1.96) -- --
---------- ---------- ---------- ---------- ----------
Total distributions -- -- (1.96) (1.94) (.70)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 12.47 $ 13.84 $ 17.46 $ 29.98 $ 21.99
========== ========== ========== ========== ==========
Total Based on net asset value per share (9.90%)+++ (20.73%) (36.71%) 47.01% 41.08%
Investment ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses .95%* .94% .80% .76% .81%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income (loss)--net (.03%)* (.09%) .35% .09% .60%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $1,112,629 $1,170,884 $ 950,922 $ 882,072 $ 472,464
Data: ========== ========== ========== ========== ==========
Portfolio turnover 44.13% 92.35% 149.86% 98.71% 52.72%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class B
The following per share data and ratios For the
have been derived from information Six Months
provided in the financial statements. Ended
Feb. 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of period $ 12.74 $ 16.24 $ 28.06 $ 20.75 $ 15.39
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment loss--net++ (.06) (.17) (.13) (.23) (.08)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (1.26) (3.33) (9.95) 9.32 6.05
---------- ---------- ---------- ---------- ----------
Total from investment operations (1.32) (3.50) (10.08) 9.09 5.97
---------- ---------- ---------- ---------- ----------
Less distributions:
Realized gain on investments--net -- -- -- (1.78) (.61)
In excess of realized gain on
investments--net -- -- (1.74) -- --
---------- ---------- ---------- ---------- ----------
Total distributions -- -- (1.74) (1.78) (.61)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.42 $ 12.74 $ 16.24 $ 28.06 $ 20.75
========== ========== ========== ========== ==========
Total Based on net asset value per share (10.36%)+++ (21.55%) (37.36%) 45.55% 39.58%
Investment ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses 1.99%* 1.96% 1.81% 1.77% 1.83%
Average ========== ========== ========== ========== ==========
Net Assets: Investment loss--net (1.08%)* (1.10%) (.62%) (.92%) (.41%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $1,491,150 $1,802,731 $2,299,511 $3,411,474 $2,000,535
Data: ========== ========== ========== ========== ==========
Portfolio turnover 44.13% 92.35% 149.86% 98.71% 52.72%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class C
The following per share data and ratios For the
have been derived from information Six Months
provided in the financial statements. Ended
Feb. 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of period $ 12.82 $ 16.34 $ 28.26 $ 20.88 $ 15.45
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment loss--net++ (.07) (.17) (.13) (.24) (.09)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (1.27) (3.35) (10.01) 9.39 6.10
---------- ---------- ---------- ---------- ----------
Total from investment operations (1.34) (3.52) (10.14) 9.15 6.01
---------- ---------- ---------- ---------- ----------
Less distributions:
Realized gain on investments--net -- -- -- (1.77) (.58)
In excess of realized gain on
investments--net -- -- (1.78) -- --
---------- ---------- ---------- ---------- ----------
Total distributions -- -- (1.78) (1.77) (.58)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.48 $ 12.82 $ 16.34 $ 28.26 $ 20.88
========== ========== ========== ========== ==========
Total Based on net asset value per share (10.45%)+++ (21.54%) (37.35%) 45.53% 39.65%
Investment ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses 2.00%* 1.97% 1.83% 1.78% 1.83%
Average ========== ========== ========== ========== ==========
Net Assets: Investment loss--net (1.09%)* (1.11%) (.66%) (.93%) (.43%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 522,280 $ 596,871 $ 616,400 $ 627,021 $ 307,988
Data: ========== ========== ========== ========== ==========
Portfolio turnover 44.13% 92.35% 149.86% 98.71% 52.72%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class D
The following per share data and ratios For the
have been derived from information Six Months
provided in the financial statements. Ended
Feb. 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of period $ 13.63 $ 17.23 $ 29.63 $ 21.77 $ 16.06
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net++ (.02) (.05) .03 (.04) .08
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (1.35) (3.55) (10.52) 9.80 6.31
---------- ---------- ---------- ---------- ----------
Total from investment operations (1.37) (3.60) (10.49) 9.76 6.39
---------- ---------- ---------- ---------- ----------
Less distributions:
Realized gain on investments--net -- -- -- (1.90) (.68)
In excess of realized gain on
investments--net -- -- (1.91) -- --
---------- ---------- ---------- ---------- ----------
Total distributions -- -- (1.91) (1.90) (.68)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 12.26 $ 13.63 $ 17.23 $ 29.63 $ 21.77
========== ========== ========== ========== ==========
Total Based on net asset value per share (10.05%)+++ (20.89%) (36.88%) 46.67% 40.67%
Investment ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses 1.20%* 1.18% 1.04% 1.01% 1.05%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income (loss)--net (.28%)* (.33%) .14% (.17%) .36%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $1,258,348 $1,384,765 $1,296,787 $1,712,701 $ 795,607
Data: ========== ========== ========== ========== ==========
Portfolio turnover 44.13% 92.35% 149.86% 98.71% 52.72%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
Class R
For the
Period
January 3,
The following per share data and ratios have been derived 2003++ to
from information provided in the financial statements. February 28,
Increase (Decrease) in Net Asset Value: 2003
Per Share Net asset value, beginning of period $ 12.13
Operating ----------
Performance: Investment loss--net++++ --+++++
Realized and unrealized loss on investments and foreign currency
transactions--net (.68)
----------
Total from investment operations (.68)
----------
Net asset value, end of period $ 11.45
==========
Total Based on net asset value per share (5.61%)+++
Investment ==========
Return:**
Ratios to Expenses 1.44%*
Average ==========
Net Assets: Investment loss--net (.47%)*
==========
Supplemental Net assets, end of period (in thousands) $ --++++++
Data: ==========
Portfolio turnover 44.13%
==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding.
++++++Amount is less than $1,000.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
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 conformity with accounting
principles generally accepted in the United States of America, 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 five classes of
shares. 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. Class R Shares are sold only to
certain retirement plans. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms
and conditions, except that Class B, Class C, Class D and Class R
Shares bear certain expenses related to the account maintenance of
such shares, and Class B, Class C and Class R 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. Income,
expenses (other than expenses attributable to a specific class) and
realized and unrealized gains and losses on investments and foreign
currency transactions are allocated daily to each class based on its
relative net assets. 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. Occasionally, events affecting the values of
securities and other assets may occur between the times at which
valuations of such securities are determined (that is, close of the
market on which such security trades) and the close of business on
the NYSE. If events (for example, company announcement, natural
disasters, market volatility) occur during such periods that are
expected to materially affect the value for such securities, those
securities may be valued at their fair market value as determined in
good faith by the Fund's Board of Directors or by the investment
adviser using a pricing service and/or procedures approved by the
Board of Directors of the Fund.
(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.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
NOTES TO FINANCIAL STATEMENTS (continued)
* 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 U.S. 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). Realized gains and losses on security
transactions are determined on the identified cost basis. 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 is recognized on the accrual 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) Securities lending--The Fund may lend securities to financial
institutions that provide cash or securities issued or guaranteed by
the U.S. government as collateral, which will be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities. The market value of the loaned
securities is determined at the close of business of the Fund and
any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral
for the loaned securities, it collects a fee from the borrower. The
Fund typically receives the income on loaned securities but does not
receive the income on the collateral. Where the Fund receives cash
collateral, it may invest such collateral and retain the amount
earned on such investment, net of any amount rebated to the
borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities
within five business days. The Fund may pay reasonable finder's,
lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation
to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access
to the collateral. The Fund also could suffer a loss where the value
of the collateral falls below the market value of the borrowed
securities, in the event of borrower default or in the event of
losses on investments made with cash collateral.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
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, .575% of net assets in excess of
$5 billion but not exceeding $7.5 billion and .55% of net assets in
excess of $7.5 billion. MLIM has entered into a Sub-Advisory
Agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K."), an affiliate of MLIM, pursuant to which MLAM U.K. provides
investment advisory services to MLIM with respect to the Fund. There
is no increase in the aggregate fees paid by the Fund for these
services.
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% --
Class R .25% .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, Class D and Class R
shareholders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and distribution-
related services to Class B, Class C and Class R shareholders.
For the six months ended February 28, 2003, 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 $ 1,293 $ 6,491
Class D $10,268 $159,156
For the six months ended February 28, 2003, MLPF&S received
contingent deferred sales charges of $1,141,844 and $103,564
relating to transactions in Class B and Class C Shares,
respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $535 relating to transactions subject to front-end sales
charge waivers in Class D Shares.
The Fund has received an exemptive order from the Securities and
Exchange Commission permitting it to lend portfolio securities to
MLPF&S or its affiliates. As of February 28, 2003, the Fund lent
securities with a value of $295,325,196 to MLPF&S or its affiliates.
Pursuant to that order, the Fund also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of MLIM, as the
securities lending agent for a fee based on a share of the returns
on investment of cash collateral. MLIM, LLC may, on behalf of the
Fund, invest cash collateral received by the Fund for such loans,
among other things, in a private investment company managed by MLIM,
LLC or in registered money market funds advised by MLIM or its
affiliates. For the six months ended February 28, 2003, MLIM, LLC
received $235,075 in securities lending agent fees.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
In addition, MLPF&S received $770,783 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended February 28, 2003.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the six months ended February 28, 2003, the Fund reimbursed MLIM
$52,787 for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, FDS, PSI, MLAM U.K., FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 2003 were $1,995,511,255 and
$2,246,347,644, respectively.
Net realized gains (losses) for the six months ended February 28,
2003 and net unrealized gains (losses) as of February 28, 2003 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ (633,506,819) $ (877,095,918)
Short-term investments 31,485 --
Foreign currency
transactions (181,625) 28,138
--------------- ---------------
Total $ (633,656,959) $ (877,067,780)
=============== ===============
As of February 28, 2003, net unrealized depreciation for Federal
income tax purposes aggregated $886,376,365, of which $60,168,816
related to appreciated securities and $946,545,181 related to
depreciated securities. At February 28, 2003, the aggregate cost of
investments for Federal income tax purposes was $5,303,882,297.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(64,034,158) for the six months ended February 28,
2003, and $1,189,916,446 for the year ended August 31, 2002.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended February 28, 2003 Shares Amount
Shares sold 18,248,692 $ 240,380,032
Automatic conversion of shares 324 4,359
--------------- ---------------
Total issued 18,249,016 240,384,391
Shares redeemed (13,588,993) (176,846,305)
--------------- ---------------
Net increase 4,660,023 $ 63,538,086
=============== ===============
Class A Shares for the Year Dollar
Ended August 31, 2002 Shares Amount
Shares sold 34,717,222 $ 583,277,596
Shares issued resulting
from reorganization 19,487,126 344,060,907
--------------- ---------------
Total issued 54,204,348 927,338,503
Shares redeemed (24,076,905) (388,632,466)
--------------- ---------------
Net increase 30,127,443 $ 538,706,037
=============== ===============
Class B Shares for the Six Months Dollar
Ended February 28, 2003 Shares Amount
Shares sold 13,558,506 $ 163,333,752
Automatic conversion of shares (4,070,976) (49,539,681)
Shares redeemed (20,348,556) (244,053,215)
--------------- ---------------
Net decrease (10,861,026) $ (130,259,144)
=============== ===============
Class B Shares for the Year Dollar
Ended August 31, 2002 Shares Amount
Shares sold 30,347,369 $ 469,938,109
Shares issued resulting
from reorganization 28,546,496 467,486,105
--------------- ---------------
Total issued 58,893,865 937,424,214
Automatic conversion of shares (11,431,398) (177,848,673)
Shares redeemed (47,590,133) (720,768,369)
--------------- ---------------
Net increase (decrease) (127,666) $ 38,807,172
=============== ===============
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
Class C Shares for the Six Months Dollar
Ended February 28, 2003 Shares Amount
Shares sold 5,324,156 $ 64,918,858
Shares redeemed (6,408,930) (77,220,325)
--------------- ---------------
Net decrease (1,084,774) $ (12,301,467)
=============== ===============
Class C Shares for the Year Dollar
Ended August 31, 2002 Shares Amount
Shares sold 18,368,346 $ 288,911,732
Shares issued resulting
from reorganization 2,529,131 41,661,129
--------------- ---------------
Total issued 20,897,477 330,572,861
Shares redeemed (12,062,719) (181,589,481)
--------------- ---------------
Net increase 8,834,758 $ 148,983,380
=============== ===============
Class D Shares for the Six Months Dollar
Ended February 28, 2003 Shares Amount
Shares sold 12,420,361 $ 159,943,038
Automatic conversion of shares 3,800,615 49,539,681
--------------- ---------------
Total issued 16,220,976 209,482,719
Shares redeemed (15,180,526) (194,490,093)
Automatic conversion of shares (328) (4,359)
--------------- ---------------
Net increase 1,040,122 $ 14,988,267
=============== ===============
Class D Shares for the Year Dollar
Ended August 31, 2002 Shares Amount
Shares sold 23,587,473 $ 385,998,425
Automatic conversion of shares 10,735,327 177,848,673
Shares issued resulting
from reorganization 20,927,326 364,424,777
--------------- ---------------
Total issued 55,250,126 928,271,875
Shares redeemed (28,888,207) (464,852,018)
--------------- ---------------
Net increase 26,361,919 $ 463,419,857
=============== ===============
Class R Shares for the
Period January 3, 2003++ Dollar
to February 28, 2003 Shares Amount
Shares sold 8 $ 100
--------------- ---------------
Net increase 8 $ 100
=============== ===============
++Commencement of operations.
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by MLIM and its
affiliates, is a party to a $500,000,000 credit agreement with Bank
One, N.A. and certain other lenders. The Fund may borrow under the
credit agreement to fund shareholder redemptions and for other
lawful purposes other than for leverage. The 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 Fund pays a commitment fee of
..09% per annum based on the Fund's pro rata share of the unused
portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election,
the Federal Funds rate plus .50% or a base rate as determined by
Bank One, N.A. On November 29, 2002, the credit agreement was
renewed for one year under the same terms, except that the total
commitment was reduced from $1,000,000,000 to $500,000,000. The Fund
did not borrow under the credit agreement during the six months
ended February 28, 2003.
6. Capital Loss Carryforward:
On August 31, 2002, the Fund had a net capital loss carryforward of
$1,168,023,497, of which $98,873,827 expires in 2008, $99,588,881
expires in 2009 and $969,560,789 expires in 2010. This amount will
be used to offset like amounts of any future taxable gains.
Merrill Lynch Fundamental Growth Fund, Inc., February 28, 2003
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Joe Grills, Director
Herbert I. London, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Stephen B. Swensrud, Director
Robert C. Doll, Jr., Senior Vice President
Lawrence R. Fuller, Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Susan B. Baker, Secretary
Melvin R. Seiden, Director of Merrill Lynch Fundamental Growth Fund,
Inc. has recently retired. The Fund's Board of Directors wishes
Mr. Seiden well in his retirement.
Custodian
J.P. Morgan Chase Bank
4 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