UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-6669
Name of Fund: Merrill Lynch Fundamental Growth Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Merrill Lynch Fundamental Growth Fund, Inc., 800 Scudders Mill
Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011,
Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 08/31/04
Date of reporting period: 09/01/03 - 08/31/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Merrill Lynch
Fundamental Growth
Fund, Inc.
Annual Report
August 31, 2004
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.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities
is available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) at www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's Web site at
http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the
most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com and (2) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Merrill Lynch Fundamental Growth Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
A Letter From the President
Dear Shareholder
In recent months, the Federal Reserve Board (the Fed) has taken
center stage as it shifts away from its long-accommodative monetary
stance. The Fed raised the Federal Funds rate 75 basis points (.75%)
in three separate moves since June, bringing the target short-term
interest rate to 1.75% - still low by historical standards. The
Fed has been deliberate in telegraphing its intention to take a
"measured" approach to interest rate increases in order to avoid
upsetting the economy or the financial markets, while still leaving
room to move more aggressively if inflation and economic growth
accelerate more than anticipated. The forward curve currently
projects further increases in short-term interest rates before
year-end.
In addition to the monetary policy change, the financial markets
recently have had to grapple with a tense geopolitical environment,
higher oil prices and the worry and anticipation that accompanies
a presidential election. While recent months brought intermittent
equity market weakness, returns for the year remained positive.
The Standard & Poor's 500 (S&P 500) Index returned +11.46% for the
12-month period ended August 31, 2004. Supporting the stock market,
despite the aforementioned uncertainties, was continued strong
corporate earnings growth. Company reports have continued to
surprise investors, in many cases still exceeding consensus
earnings forecasts.
As always, our investment professionals are closely monitoring the
markets, the economy and the overall environment in an effort to
make well-informed decisions for the portfolios they manage. Our
goal is to provide shareholders with competitive returns, while
always keeping one eye on managing the unavoidable risk inherent in
investing.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
We are pleased to present to you the management team of
Merrill Lynch Fundamental Growth Fund, Inc.
Senior Portfolio Manager Larry Fuller joined Merrill Lynch
Investment Managers in 1992 and heads the Merrill Lynch Fundamental
Growth Fund team. He received a bachelor's degree from Bates College
and an MBA from Columbia University. He is a member of the New York
Society of Security Analysts and the American Finance Association.
In addition to Mr. Fuller, the team includes Associate Portfolio
Manager Tom Burke and Analysts Karen Uzzolino and Mike Oberdorf.
Mr. Burke received a bachelor's degree from Pace University and is a
CFA R charterholder. He is also a member of the New York Society of
Security Analysts and the Association For Investment Management and
Research. Ms. Uzzolino graduated from the Stuart School of Business
Administration. Mr. Oberdorf holds a bachelor's degree from
Georgetown University. The team has a combined 68 years of
investment experience.
Larry Fuller
Senior Portfolio Manager
Table of Contents
A Letter From the President 2
A Discussion With Your Fund's Portfolio Manager 4
Performance Data 6
Disclosure of Expenses 11
Schedule of Investments 12
Financial Statements 15
Financial Highlights 18
Notes to Financial Statements 23
Report of Independent Registered Public Accounting Firm 28
Portfolio Information 29
Officers and Directors 30
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
A Discussion With Your Fund's Portfolio Manager
The Fund provided positive results for the year, but underperformed
its market benchmarks, primarily due to disappointing results from
its largest cap information technology holdings.
How did the Fund perform during the fiscal year in light of the
existing market conditions?
For the 12-month period ended August 31, 2004, Merrill Lynch
Fundamental Growth Fund, Inc.'s Class A, Class B, Class C, Class I
and Class R Shares had total returns of +2.69%, +1.88%, +1.87%,
+2.97% and +2.37%, 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 6 - 10 of
this report to shareholders.) For the same period, the unmanaged
Standard & Poor's 500 (S&P 500) Index and the S&P 500 Barra Growth
Index had respective returns of +11.46% and +6.94%. Fund results
were more closely aligned with the average total return for actively
managed large cap growth funds, as represented by the Lipper Large
Cap Growth Funds category. The Lipper category provided a return of
+2.90% for the one-year period ended August 31, 2004.
The Fund's underperformance for the year is attributable to a
decline in comparative and absolute results in the final month
of the period, when several of the largest and highest-quality
information technology (IT) companies in the Fund suffered
substantial stock price declines. The two largest detractors
during this time were Intel Corporation and Cisco Systems Inc. Other
major IT holdings experienced more than 10 percentage points in
stock price depreciation in August. These were Agilent Technologies
Inc., Analog Devices, Inc., Hewlett-Packard Company and Corning
Incorporated. Nevertheless, we maintained our positions in these
companies based on what we believe is a compelling investment case.
The company managements have articulated ongoing prospects for
continued above-average growth in revenues and earnings, while the
stock market valuations for these same companies have declined to
below-average levels compared to the last decade. However, we did
liquidate our positions in Nortel Networks Corporation and EMC
Corporation, two IT companies that had the most negative effect on
absolute and relative performance in the second half of the fiscal
year. In the 12 months ended August 31, 2004, the IT sector declined
by more than twice as much as the consumer discretionary sector,
which was the next worst-performing sector in the S&P 500 Index.
The most favorable absolute and relative performance results for the
year came from the Fund's investments in the health care sector.
Individual stocks that provided substantial positive returns were
Alcon, Inc., Boston Scientific Corporation, WellPoint Health
Networks, Inc., Varian Medical Systems, Inc., DENTSPLY International
Inc., Genentech Inc. and UnitedHealth Group Incorporated. We
liquidated our positions in WellPoint, Genentech and UnitedHealth
Group, based on both their relatively high valuations and
anticipated changes in the companies' business fundamentals. The
poorest relative return in the health care sector came from Forest
Laboratories, Inc., which declined 2.45% for the fiscal year. The
stock price has been depressed since February 2004 on investor
worries about a U.S. Food and Drug Administration investigation of
the use of antidepressant drugs, including Forest Laboratories'
drugs, in the treatment of childhood depression. The selloff of the
company's stock was the single most negative factor in the health
care sector in the final six months of the period. However, we
maintained our position given a positive outlook for the company's
new Alzheimer's drug.
The second-largest positive contribution to performance came from
our stock selection and investment strategy in the energy sector.
The leading investments, on both an absolute and a relative basis,
were Schlumberger Limited, Apache Corporation, Devon Energy
Corporation and Baker Hughes Incorporated. Finally, the industrials
sector was the third most positive industry for the Fund this year.
Contributing most to performance in this sector were 3M Co.,
Rockwell Automation, Inc., Apollo Group, Inc., Cummins Inc. and
PACCAR Inc.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
What changes were made to the portfolio during the fiscal year?
In the first half of the fiscal year, we made no major changes in
the sector weightings or the investment strategy of the Fund. During
the second half of the year, we meaningfully reduced the Fund's
position in the consumer discretionary sector and shifted the
exposure to the industrials and energy sectors. In the consumer
discretionary sector, we eliminated our positions in Krispy Kreme
Doughnuts, Inc., Ross Stores, Inc., Tiffany & Co., PETsMart, Inc.
and Mandalay Resort Group. In the industrials sector, we introduced
positions in Cummins Inc., PACCAR and Eaton Corporation. The heavy-
duty truck market is experiencing a major cyclical growth in demand
for replacement and more environmentally safe vehicles. We expect
this trend to continue for a meaningful time period. We also added
Monster Worldwide Inc., as employment growth in the service sector
of the U.S. economy is causing a cyclical upturn in the growth
rates for employment-search and advertising services. Our increased
investment weighting in the energy sector is primarily the result of
the capital appreciation of our stock holdings in this sector.
How would you characterize the Fund's position at the close of the
period?
Entering 2004, we anticipated that real growth in the U.S. economy
would shift from being led by consumer spending to being fueled by
increased capital spending. In fact, we have seen this transition
take place. The demand for capital goods - ranging from the latest
wireless communication infrastructure to rail locomotives and heavy-
duty commercial trucks - has been in a rising trend so far in 2004.
The U.S. steel industry is in its most profitable position in
decades due to the global demand for its products for use in motor
vehicles, large crude oil carriers and new liquefied natural gas
vessels, among other things.
Overall, the levels of corporate free cash flow and reported profits
are close to record highs. Although the Federal Reserve Board (the
Fed) has started to gradually raise short-term interest rates from
their record low levels, the Fed seems committed to following a
measured pace, and it appears this tightening process is not likely
to retard capital investment plans by small businesses and
corporations.
Against this backdrop, the Fund's investment strategy remains
focused on the largest and what we believe are the highest-quality
companies in the capital goods sectors of the stock market.
Lawrence R. Fuller
Vice President and Portfolio Manager
September 14, 2004
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple
pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and an account maintenance fee of 0.25% per year (but
no distribution fee).
* 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% per year and an account maintenance fee of 0.25% per
year. These shares automatically convert to Class A Shares after
approximately eight years. (There is no initial sales charge for
automatic share conversions).
* Class C Shares are subject to a distribution fee of 0.75% per year
and an account maintenance fee of 0.25% per year. In addition, Class
C Shares are subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase.
* Class I Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class I Shares are available only to eligible
investors, as detailed in the Fund's prospectus.
* 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% per year and an account maintenance fee of
0.25% per year. Class R Shares are available only to certain
retirement plans.
None of the past results shown should be considered a representation
of future performance. Current performance may be lower or higher
than the performance data quoted. Refer to www.mlim.ml.com to obtain
more current performance information. 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 gain distributions, if any, 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., AUGUST 31, 2004
Performance Data (continued)
Recent Performance Results
10-Year/
6-Month 12-Month Since Inception
As of August 31, 2004 Total Return Total Return Total Return
ML Fundamental Growth Fund, Inc. Class A Shares* -7.72% + 2.69% +140.82%
ML Fundamental Growth Fund, Inc. Class B Shares* -8.10 + 1.88 +128.70
ML Fundamental Growth Fund, Inc. Class C Shares* -8.12 + 1.87 +122.60
ML Fundamental Growth Fund, Inc. Class I Shares* -7.58 + 2.97 +149.37
ML Fundamental Growth Fund, Inc. Class R Shares* -7.87 + 2.37 + 17.72
S&P 500r Index** -2.74 +11.46 +176.14/+181.44/+25.13
S&P 500/Barra Growth Index*** -4.73 + 6.94 +169.52/+171.00/+18.65
* 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 10-year/since inception dates are 10 years for Class A & Class C Shares,
from 10/21/94 for Class B & Class I Shares, and from 1/03/03 for Class R Shares. Class B Shares
convert to Class A Shares eight years after purchase, the "10-year/since inception"total return for
Class B Shares uses Class A Shares' performance for the period after conversion.
** This unmanaged Index covers 500 industrial, utility, transportation and financial companies of the
U.S. markets (mostly NYSE issues) representing about 75% of NYSE market capitalization and 30% of
NYSE issues. Since inception total returns are for 10 years, from 10/21/94 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 10 years,
from 10/21/94 and from 1/03/03, respectively.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class A & Class C Shares
A line graph illustrating the growth of a $10,000 investment in
ML Fundamental Growth Fund, Inc.++ Class A and Class C Shares*
compared to a similar investment in S&P 500 Index++++ and S&P
500/Barra Growth Index++++++. Values illustrated are as follows:
ML Fundamental Growth Fund, Inc.++
Class A Shares*
Date Value
August 1994 $ 9,475.00
August 1995 $11,290.00
August 1996 $13,401.00
August 1997 $18,614.00
August 1998 $19,746.00
August 1999 $27,776.00
August 2000 $40,739.00
August 2001 $25,713.00
August 2002 $20,341.00
August 2003 $22,221.00
August 2004 $22,818.00
ML Fundamental Growth Fund, Inc.++
Class C Shares*
Date Value
August 1994 $10,000.00
August 1995 $11,828.00
August 1996 $13,918.00
August 1997 $19,193.00
August 1998 $20,189.00
August 1999 $28,194.00
August 2000 $41,031.00
August 2001 $25,705.00
August 2002 $20,167.00
August 2003 $21,851.00
August 2004 $22,260.00
S&P 500 Index++++
Date Value
August 1994 $10,000.00
August 1995 $12,145.00
August 1996 $14,419.00
August 1997 $20,280.00
August 1998 $21,922.00
August 1999 $30,652.00
August 2000 $35,655.00
August 2001 $26,959.00
August 2002 $22,108.00
August 2003 $24,775.00
August 2004 $27,614.00
S&P 500/Barra Growth Index++++++
Date Value
August 1994 $10,000.00
August 1995 $12,369.00
August 1996 $14,816.00
August 1997 $21,328.00
August 1998 $24,827.00
August 1999 $35,939.00
August 2000 $43,864.00
August 2001 $27,281.00
August 2002 $22,893.00
August 2003 $25,203.00
August 2004 $26,952.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
++ ML Fundamental Growth Fund, Inc. invests primarily in equity
securities with a particular emphasis on companies that have
exhibited above-average growth rates in earnings.
++++ This unmanaged Index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets
(mostly NYSE issues) representing about 75% of NYSE market
capitalization and 30% of NYSE issues.
++++++ This unmanaged Index is a capitalization-weighted index of
all stocks in the S&P 500 Index that have higher price-to-
book ratios.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 8/31/04 +2.69% -2.70%
Five Years Ended 8/31/04 -3.86 -4.89
Ten Years Ended 8/31/04 +9.19 +8.60
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Without Return With
Sales Charge Sales Charge**
Class C Shares*
One Year Ended 8/31/04 +1.87% +0.87%
Five Years Ended 8/31/04 -4.62 -4.62
Ten Years Ended 8/31/04 +8.33 +8.33
* Maximum contingent deferred sales charge is 1% and is reduced to
0% after one year.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class B & Class I Shares
A line graph illustrating the growth of a $10,000 investment in
ML Fundamental Growth Fund, Inc.++ Class B and Class I Shares*
compared to a similar investment in S&P 500 Index++++ and S&P
500/Barra Growth Index++++++. Values illustrated are as follows:
ML Fundamental Growth Fund, Inc.++
Class B Shares*
Date Value
10/21/1994** $10,000.00
August 1995 $11,960.00
August 1996 $14,074.00
August 1997 $19,414.00
August 1998 $20,426.00
August 1999 $28,511.00
August 2000 $41,497.00
August 2001 $25,992.00
August 2002 $20,390.00
August 2003 $22,272.00
August 2004 $22,870.00
ML Fundamental Growth Fund, Inc.++
Class I Shares*
Date Value
10/21/1994** $ 9,475.00
August 1995 $11,422.00
August 1996 $13,594.00
August 1997 $18,928.00
August 1998 $20,135.00
August 1999 $28,405.00
August 2000 $41,757.00
August 2001 $26,428.00
August 2002 $20,949.00
August 2003 $22,947.00
August 2004 $23,628.00
S&P 500 Index++++
Date Value
10/21/1994** $10,000.00
August 1995 $12,378.00
August 1996 $14,696.00
August 1997 $20,670.00
August 1998 $22,343.00
August 1999 $31,241.00
August 2000 $36,340.00
August 2001 $27,477.00
August 2002 $22,533.00
August 2003 $25,251.00
August 2004 $28,144.00
S&P 500/Barra Growth Index++++++
Date Value
10/21/1994** $10,000.00
August 1995 $12,437.00
August 1996 $14,897.00
August 1997 $21,445.00
August 1998 $24,963.00
August 1999 $36,136.00
August 2000 $44,104.00
August 2001 $27,431.00
August 2002 $23,018.00
August 2003 $25,341.00
August 2004 $27,100.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
** Commencement of operations.
++ ML Fundamental Growth Fund, Inc. invests primarily in equity
securities with a particular emphasis on companies that have
exhibited above-average growth rates in earnings.
++++ This unmanaged Index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets
(mostly NYSE issues) representing about 75% of NYSE market
capitalization and 30% of NYSE issues.
++++++ This unmanaged Index is a capitalization-weighted index of
all stocks in the S&P 500 Index that have higher price-to-
book ratios.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class B Shares*
One Year Ended 8/31/04 +1.88% -2.12%
Five Years Ended 8/31/04 -4.61 -4.94
Inception (10/21/94)
through 8/31/04 +8.75 +8.75
* 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 I Shares*
One Year Ended 8/31/04 +2.97% -2.44%
Five Years Ended 8/31/04 -3.62 -4.65
Inception (10/21/94)
through 8/31/04 +9.71 +9.11
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class R Shares
A line graph illustrating the growth of a $10,000 investment in
ML Fundamental Growth Fund, Inc.++ Class R Shares* compared to a
similar investment in S&P 500 Index++++ and S&P 500/Barra Growth
Index++++++. Values illustrated are as follows:
ML Fundamental Growth Fund, Inc.++
Class R Shares*
Date Value
1/03/2003** $10,000.00
August 2003 $11,500.00
August 2004 $11,772.00
S&P 500 Index++++
Date Value
1/03/2003** $10,000.00
August 2003 $11,226.00
August 2004 $12,513.00
S&P 500/Barra Growth Index++++++
Date Value
1/03/2003** $10,000.00
August 2003 $11,095.00
August 2004 $11,865.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
** Commencement of operations.
++ ML Fundamental Growth Fund, Inc. invests primarily in equity
securities with a particular emphasis on companies that have
exhibited above-average growth rates.
++++ This unmanaged Index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets
(mostly NYSE issues), representing about 75% of NYSE market
capitalization and 30% of NYSE issues.
++++++ This unmanaged Index is a capitalization-weighted index of
all stocks in the S&P 500 Index that have higher price-to-
book ratios.
Past performance is not predictive of future results.
Aggregate Total Return
Class R Shares Return
One Year Ended 8/31/04 + 2.37%
Inception (1/03/03) through 8/31/04 +10.35
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Disclosure of Expenses
Shareholders of this Fund may incur the following charges:
(a) expenses related to transactions, including sales charges,
redemption fees and exchange fees; and (b) operating expenses
including advisory fees, distribution fees including 12(b)-1 fees,
and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on March 1, 2004 and held
through August 31, 2004) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in
comparing these expenses with similar costs of investing in other
mutual funds.
The first table below provides information about actual account
values and actual expenses. In order to estimate the expenses a
shareholder paid during the period covered by this report,
shareholders can divide their account value by $1,000 and then
multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
expenses. In order to assist shareholders in comparing the ongoing
expenses of investing in this Fund and other funds, compare the 5%
hypothetical example with the 5% hypothetical examples that appear
in other funds' shareholder reports.
The expenses shown in the table are intended to highlight
shareholders ongoing costs only and do not reflect any transactional
expenses, such as sales charges, redemption fees, or exchange fees.
Therefore, the second table is useful in comparing ongoing expenses
only, and will not help shareholders determine the relative total
expenses of owning different funds. If these transactional expenses
were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value March 1, 2004
March 1, 2004 August 31, 2004 to August 31, 2004
Actual
Class A $1,000 $ 922.80 $5.64
Class B $1,000 $ 919.00 $9.41
Class C $1,000 $ 918.80 $9.46
Class I $1,000 $ 924.20 $4.43
Class R $1,000 $ 921.30 $6.89
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,019.41 $5.92
Class B $1,000 $1,015.47 $9.88
Class C $1,000 $1,015.42 $9.93
Class I $1,000 $1,020.70 $4.65
Class R $1,000 $1,018.09 $7.24
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.16% for Class A, 1.94% for Class B, 1.95% for Class C, .91% for Class I and 1.42% for Class R),
multiplied by the average account value over the period, multiplied by 186/368 (to reflect the
one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in
the most recent fiscal half-year divided by 368.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Schedule of Investments
Industry* Shares Held Common Stocks Value
Biotechnology--2.0% 1,494,200 ++Gilead Sciences, Inc.(c) $ 103,294,046
Chemicals--2.5% 1,186,300 Air Products and Chemicals, Inc.(c) 62,138,394
1,578,800 Praxair, Inc. 64,067,704
---------------
126,206,098
Commercial Services 2,137,500 ++Monster Worldwide Inc.(c) 43,241,625
& Supplies--0.8%
Communications 1,064,900 ++Avaya Inc.(c) 12,906,588
Equipment--7.5% 11,141,408 ++Cisco Systems, Inc.(c) 209,012,814
4,962,900 ++Corning Incorporated(c) 50,224,548
20,988,900 ++Lucent Technologies Inc.(c) 65,695,257
2,938,600 Motorola, Inc. 47,458,390
---------------
385,297,597
Computers & 4,660,900 Hewlett-Packard Company 83,383,501
Peripherals--2.6% 2,093,500 ++SanDisk Corporation(c) 48,883,225
---------------
132,266,726
Consumer Finance--1.5% 1,496,700 American Express Company(c) 74,864,934
Diversified Telecommunication 155,809 Covad Telecommunications Group, Inc. 227,481
Services--0.0%
Electrical Equipment--2.9% 1,020,600 Emerson Electric Company 63,532,350
2,249,400 Rockwell Automation, Inc.(c) 87,726,600
---------------
151,258,950
Electronic Equipment 1,777,600 ++Agilent Technologies, Inc. 36,440,800
& Instruments--1.8% 1,950,100 Tektronix, Inc.(c) 55,714,357
---------------
92,155,157
Energy Equipment 2,153,600 Baker Hughes Incorporated(c) 84,701,088
& Service--4.5% 2,358,000 Schlumberger Limited 145,724,400
---------------
230,425,488
Food Products--1.0% 1,600,000 McCormick & Company Incorporated(c) 53,680,000
Health Care Equipment 1,881,600 Alcon, Inc.(c) 140,818,944
& Supplies--9.6% 3,131,500 ++Boston Scientific Corporation 111,888,495
1,159,900 DENTSPLY International Inc.(c) 59,096,905
2,720,300 Medtronic, Inc. 135,334,925
1,401,400 ++Varian Medical Systems, Inc.(c) 46,456,410
---------------
493,595,679
Hotels, Restaurants 1,101,200 Marriott International, Inc. (Class A) 52,251,940
& Leisure--3.3% 1,305,900 ++Starbucks Corporation(c) 56,467,116
1,323,200 Starwood Hotels & Resorts Worldwide, Inc.(c) 58,485,440
---------------
167,204,496
IT Services--3.1% 1,866,600 First Data Corporation 78,863,850
683,000 ++Hewitt Associates, Inc. (Class A) 18,038,030
2,072,700 Paychex, Inc.(c) 61,497,009
---------------
158,398,889
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Schedule of Investments (continued)
Industry* Shares Held Common Stocks Value
Industrial Conglomerates-- 2,954,100 3M Co.(c) $ 243,299,676
11.4% 10,394,700 General Electric Company 340,842,213
---------------
584,141,889
Internet & Catalog 1,328,500 ++eBay Inc.(c) 114,968,390
Retail--3.1% 2,041,300 ++IAC/InterActiveCorp(c) 46,562,053
---------------
161,530,443
Internet Software 1,702,600 ++Yahoo! Inc.(c) 48,541,126
& Services--0.9%
Machinery--3.8% 961,000 Cummins Inc.(c) 64,665,690
941,500 Eaton Corporation 56,819,525
1,238,100 PACCAR Inc. 74,521,239
---------------
196,006,454
Metals & Mining--2.1% 1,458,700 Freeport-McMoRan Copper & Gold, Inc. (Class B)(c) 54,890,881
645,600 Phelps Dodge Corporation(c) 52,655,136
---------------
107,546,017
Office Electronics--1.0% 1,072,000 Canon, Inc. 50,989,476
Oil & Gas--4.4% 1,704,200 Apache Corporation(c) 76,160,698
1,375,700 Devon Energy Corporation(c) 89,159,117
1,501,600 Pioneer Natural Resources Company(c) 50,228,520
1,267,100 ++TransMontaigne Inc. 8,540,254
---------------
224,088,589
Pharmaceuticals--1.8% 2,049,300 ++Forest Laboratories, Inc. 93,960,405
Semiconductors & 1,410,900 Analog Devices, Inc. 48,986,448
Semiconductor 9,980,660 Intel Corporation 212,488,251
Equipment--6.7% 4,087,600 Texas Instruments Incorporated(c) 79,871,704
---------------
341,346,403
Software--9.4% 1,156,400 Adobe Systems Incorporated 53,044,068
1,200,300 ++Electronic Arts Inc.(c) 59,750,934
10,222,500 Microsoft Corporation 279,074,250
9,204,300 ++Oracle Corporation 91,766,871
---------------
483,636,123
Specialty Retail--5.2% 1,875,900 Best Buy Co., Inc. 87,266,868
1,040,900 Lowe's Companies, Inc.(c) 51,732,730
1,651,750 ++Rent A Center Inc.(c) 49,717,675
2,656,600 Staples, Inc.(c) 76,191,288
---------------
264,908,561
Textiles, Apparel & 1,208,100 ++Coach, Inc. 50,921,415
Luxury Goods--3.4% 1,652,300 Nike, Inc. (Class B) 124,434,713
---------------
175,356,128
Total Common Stocks
(Cost--$4,740,948,555)--96.3% 4,944,168,780
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Schedule of Investments (concluded)
Beneficial Interest Short-Term Securities Value
$ 191,305,871 Merrill Lynch Liquidity Series, LLC Cash
Sweep Series I (a) $ 191,305,871
1,093,487,200 Merrill Lynch Liquidity Series, LLC Money
Market Series (a)(b) 1,093,487,200
Total Short-Term Securities
(Cost--$1,284,793,071)--25.0% 1,284,793,071
Total Investments (Cost--$6,025,741,626**)--121.3% 6,228,961,851
Liabilities in Excess of Other Assets--(21.3%) (1,095,862,985)
---------------
Net Assets--100.0% $ 5,133,098,866
===============
* 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 industry sub-classifications for
reporting ease. These industry classifications are unaudited.
** The cost and unrealized appreciation/depreciation of investments as of August 31, 2004,
as computed for federal income tax purposes were as follows:
Aggregate cost $ 6,041,974,905
================
Gross unrealized appreciation $ 567,632,443
Gross unrealized depreciation (380,645,497)
----------------
Net unrealized appreciation $ 186,986,946
================
++ Non-income producing security.
(a) 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) were as follows:
Interest/
Net Dividend
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ (19,769,097) $2,369,540
Merrill Lynch Liquidity Series, LLC
Money Market Series $ 335,398,511 $ 716,588
Merrill Lynch Premier Institutional Fund (505,392,459) $ 192,586
(b) Security was purchased with the cash proceeds from securities loans.
(c) Security, or portion of security, is on loan.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Statement of Assets and Liabilities
As of August 31, 2004
Assets
Investments in unaffiliated securities, at value (including securities
loaned of $1,061,245,713) (identified cost--$4,740,948,555) $ 4,944,168,780
Investments in affiliated securities, at value (identified cost--$1,284,793,071) 1,284,793,071
Receivables:
Securities sold $ 21,422,754
Capital shares sold 5,274,255
Dividends 4,476,561
Interest from affiliates 132,985
Securities lending--net 77,520 31,384,075
---------------
Prepaid expenses 137,016
---------------
Total assets 6,260,482,942
---------------
Liabilities
Collateral on securities loaned, at value 1,093,487,200
Payables:
Custodian bank 15,246,077
Capital shares redeemed 9,580,998
Securities purchased 4,022,141
Distributor 2,231,194
Other affiliates 2,121,514
Investment adviser 345,793 33,547,717
---------------
Accrued expenses and other liabilities 349,159
---------------
Total liabilities 1,127,384,076
---------------
Net Assets
Net assets $ 5,133,098,866
===============
Net Assets Consist of
Class A Shares of capital stock, $.10 par value, 300,000,000 shares authorized $ 10,387,806
Class B Shares of capital stock, $.10 par value, 500,000,000 shares authorized 10,269,346
Class C Shares of capital stock, $.10 par value, 300,000,000 shares authorized 4,896,260
Class I Shares of capital stock, $.10 par value, 150,000,000 shares authorized 8,950,007
Class R Shares of capital stock, $.10 par value, 500,000,000 shares authorized 71,780
Paid-in capital in excess of par 7,480,803,082
Accumulated investment loss--net $ (6,253)
Accumulated realized capital losses--net (2,585,493,387)
Unrealized appreciation--net 203,220,225
---------------
Total accumulated losses--net (2,382,279,415)
---------------
Net Assets $ 5,133,098,866
===============
Net Asset Value
Class A--Based on net assets of $1,587,994,873 and 103,878,058
shares outstanding $ 15.29
===============
Class B--Based on net assets of $1,445,257,538 and 102,693,464
shares outstanding $ 14.07
===============
Class C--Based on net assets of $692,924,367 and 48,962,598
shares outstanding $ 14.15
===============
Class I--Based on net assets of $1,396,668,370 and 89,500,070
shares outstanding $ 15.61
===============
Class R--Based on net assets of $10,253,718 and 717,805 shares outstanding $ 14.28
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Statement of Operations
For the Year Ended August 31, 2004
Investment Income
Dividends (net of $434,882 foreign withholding tax) $ 39,573,577
Interest from affiliates 2,369,540
Securities lending--net 909,174
---------------
Total income 42,852,291
---------------
Expenses
Investment advisory fees $ 33,461,447
Account maintenance and distribution fees--Class B 16,821,087
Account maintenance and distribution fees--Class C 6,911,889
Transfer agent fees--Class B 4,417,071
Account maintenance fees--Class A 4,188,527
Transfer agent fees--Class A 3,873,486
Transfer agent fees--Class I 3,324,991
Transfer agent fees--Class C 1,882,977
Professional fees 1,827,145
Accounting services 852,706
Custodian fees 312,181
Printing and shareholder reports 255,576
Registration fees 159,788
Directors' fees and expenses 137,178
Pricing fees 42,557
Account maintenance and distribution fees--Class R 28,367
Transfer agent fees--Class R 13,311
Other 174,059
---------------
Total expenses 78,684,343
---------------
Investment loss--net (35,832,052)
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss)on:
Investments--net 541,445,936
Foreign currency transactions--net (327,161) 541,118,775
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (389,525,387)
Foreign currency transactions--net 305,864 (389,219,523)
--------------- ---------------
Total realized and unrealized gain--net 151,899,252
---------------
Net Increase in Net Assets Resulting from Operations $ 116,067,200
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Statements of Changes in Net Assets
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment loss--net $ (35,832,052) $ (27,920,171)
Realized gain (loss)--net 541,118,775 (1,150,039,960)
Change in unrealized appreciation/depreciation--net (389,219,523) 1,588,985,564
--------------- ---------------
Net increase in net assets resulting from operations 116,067,200 411,025,433
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (106,236,353) (243,007,990)
--------------- ---------------
Net Assets
Total increase in net assets 9,830,847 168,017,443
Beginning of year 5,123,268,019 4,955,250,576
--------------- ---------------
End of year* $ 5,133,098,866 $ 5,123,268,019
=============== ===============
* Accumulated investment loss--net $ (6,253) $ (18,760)
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 14.89 $ 13.63 $ 17.23 $ 29.63 $ 21.77
---------- ---------- ---------- ---------- ----------
Investment income (loss)--net** (.06) (.04) (.05) .03 (.04)
Realized and unrealized gain (loss)--net .46 1.30 (3.55) (10.52) 9.80
---------- ---------- ---------- ---------- ----------
Total from investment operations .40 1.26 (3.60) (10.49) 9.76
---------- ---------- ---------- ---------- ----------
Less distributions:
Realized gain--net -- -- -- -- (1.90)
In excess of realized gain--net -- -- -- (1.91) --
---------- ---------- ---------- ---------- ----------
Total distributions -- -- -- (1.91) (1.90)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 15.29 $ 14.89 $ 13.63 $ 17.23 $ 29.63
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 2.69% 9.24% (20.89%) (36.88%) 46.67%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.16% 1.18% 1.18% 1.04% 1.01%
========== ========== ========== ========== ==========
Investment income (loss)--net (.38%) (.29%) (.33%) .14% (.17%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $1,587,995 $1,544,751 $1,384,765 $1,296,787 $1,712,701
========== ========== ========== ========== ==========
Portfolio turnover 78.23% 108.34% 92.35% 149.86% 98.71%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 13.81 $ 12.74 $ 16.24 $ 28.06 $ 20.75
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.17) (.13) (.17) (.13) (.23)
Realized and unrealized gain (loss)--net .43 1.20 (3.33) (9.95) 9.32
---------- ---------- ---------- ---------- ----------
Total from investment operations .26 1.07 (3.50) (10.08) 9.09
---------- ---------- ---------- ---------- ----------
Less distributions:
Realized gain--net -- -- -- -- (1.78)
In excess of realized gain--net -- -- -- (1.74) --
---------- ---------- ---------- ---------- ----------
Total distributions -- -- -- (1.74) (1.78)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 14.07 $ 13.81 $ 12.74 $ 16.24 $ 28.06
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 1.88% 8.40% (21.55%) (37.36%) 45.55%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.93% 1.97% 1.96% 1.81% 1.77%
========== ========== ========== ========== ==========
Investment loss--net (1.16%) (1.08%) (1.10%) (.62%) (.92%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $1,445,258 $1,685,904 $1,802,731 $2,299,511 $3,411,474
========== ========== ========== ========== ==========
Portfolio turnover 78.23% 108.34% 92.35% 149.86% 98.71%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class C
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 13.89 $ 12.82 $ 16.34 $ 28.26 $ 20.88
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.17) (.14) (.17) (.13) (.24)
Realized and unrealized gain (loss)--net .43 1.21 (3.35) (10.01) 9.39
---------- ---------- ---------- ---------- ----------
Total from investment operations .26 1.07 (3.52) (10.14) 9.15
---------- ---------- ---------- ---------- ----------
Less distributions:
Realized gain--net -- -- -- -- (1.77)
In excess of realized gain--net -- -- -- (1.78) --
---------- ---------- ---------- ---------- ----------
Total distributions -- -- -- (1.78) (1.77)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 14.15 $ 13.89 $ 12.82 $ 16.34 $ 28.26
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 1.87% 8.35% (21.54%) (37.35%) 45.53%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.94% 1.98% 1.97% 1.83% 1.78%
========== ========== ========== ========== ==========
Investment loss--net (1.17%) (1.09%) (1.11%) (.66%) (.93%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 692,924 $ 608,176 $ 596,871 $ 616,400 $ 627,021
========== ========== ========== ========== ==========
Portfolio turnover 78.23% 108.34% 92.35% 149.86% 98.71%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class I
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 15.16 $ 13.84 $ 17.46 $ 29.98 $ 21.99
---------- ---------- ---------- ---------- ----------
Investment income (loss)--net** (.02) (.01) (.02) .08 .02
Realized and unrealized gain (loss)--net .47 1.33 (3.60) (10.64) 9.91
---------- ---------- ---------- ---------- ----------
Total from investment operations .45 1.32 (3.62) (10.56) 9.93
---------- ---------- ---------- ---------- ----------
Less distributions:
Realized gain--net -- -- -- -- (1.94)
In excess of realized gain--net -- -- -- (1.96) --
---------- ---------- ---------- ---------- ----------
Total distributions -- -- -- (1.96) (1.94)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 15.61 $ 15.16 $ 13.84 $ 17.46 $ 29.98
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 2.97% 9.54% (20.73%) (36.71%) 47.01%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .91% .93% .94% .80% .76%
========== ========== ========== ========== ==========
Investment income (loss)--net (.13%) (.04%) (.09%) .35% .09%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $1,396,668 $1,284,423 $1,170,884 $ 950,922 $ 882,072
========== ========== ========== ========== ==========
Portfolio turnover 78.23% 108.34% 92.35% 149.86% 98.71%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Financial Highlights (concluded)
Class R
For the
For the Period
The following per share data and ratios have been derived Year January 3,
from information provided in the financial statements. Ended 2003++ to
August 31, August 31,
Increase (Decrease) in Net Asset Value: 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 13.95 $ 12.13
------------ ------------
Investment loss--net*** (.09) (.02)
Realized and unrealized gain--net .42 1.84
------------ ------------
Total from investment operations .33 1.82
------------ ------------
Net asset value, end of period $ 14.28 $ 13.95
============ ============
Total Investment Return**
Based on net asset value per share 2.37% 15.00%+++
============ ============
Ratios to Average Net Assets
Expenses 1.41% 1.42%*
============ ============
Investment loss--net (.60%) (.53%)*
============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 10,254 $ 14
============ ============
Portfolio turnover 78.23% 108.34%
============ ============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
++ Commencement of operations.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
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 amended,
as a diversified, open-end management investment company. The
Fund's financial statements are prepared in conformity with U.S.
generally accepted accounting principles, which may require the
use of management accruals and estimates. Actual results may differ
from these estimates. The Fund offers multiple classes of shares.
Shares of Class A and Class I 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 A, Class B, Class C 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 (except that
Class B shareholders may vote on material changes to the Class A
distribution plan). 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--Equity securities that are held by
the Fund that are traded on stock exchanges or the Nasdaq National
Market are valued at the last sale price or official close price on
the exchange, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available ask price for
short positions. In cases where equity securities are traded on
more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the
Board of Directors of the Fund. Long positions traded in the over-
the-counter ("OTC") market, Nasdaq Small Cap or Bulletin Board are
valued at the last available bid price or yield equivalent obtained
from one or more dealers or pricing services approved by the Board
of Directors of the Fund. Short positions traded in the OTC market
are valued at the last available ask price. Portfolio securities
that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
OTC market, the last ask price. Options purchased are valued at
their last sale price in the case of exchange-traded options or,
in the case of options traded in the OTC market, the last bid price.
Swap agreements are valued daily based upon quotations from market
makers. Financial futures contracts and options thereon, which are
traded on exchanges, are valued at their last sale price as of the
close of such exchanges. Obligations with remaining maturities of
60 days or less are valued at amortized cost unless the Investment
Adviser believes that this method no longer produces fair
valuations.
Repurchase agreements are valued at cost plus accrued interest. The
Fund employs pricing services to provide certain securities prices
for the Fund. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good
faith by or under the direction of the Board of Directors of the
Fund, including valuations furnished by the pricing services
retained by the Fund, which may use a matrix system for valuations.
The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the
Fund's Board of Directors. Such valuations and procedures will be
reviewed periodically by the Board of Directors of the Fund.
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed
each day at various times prior to the close of business on the New
York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as
of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and
the close of business on the NYSE that may not be reflected in the
computation of the Fund's net asset value. If events (for example, a
company announcement, market volatility or a natural disaster) occur
during such periods that are expected to materially affect the value
of such securities, those securities may be valued at their fair
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 Fund's Board of Directors.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Notes to Financial Statements (continued)
(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies both to increase the return of
the Fund and to hedge, or protect, its exposure to interest rate
movements and movements in the securities 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.
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 may 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.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Notes to Financial Statements (continued)
(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.
(i) Custodian bank--The Fund recorded an amount payable to the
custodian bank reflecting an overnight overdraft, which resulted
from a failed trade.
(j) Reclassifications--U.S. generally accepted accounting principles
require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting.
Accordingly, during the current year, $36,171,720 has been
reclassified between paid-in capital in excess of par and
accumulated net investment loss, $24,109,522 has been reclassified
between paid-in capital in excess of par and accumulated net
realized capital losses, and $327,161 has been reclassified between
accumulated net investment loss and accumulated net realized capital
losses as a result of permanent differences attributable to net
operating losses, nondeductible expenses, limitation of capital loss
carryforwards, and foreign currency transactions. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general
partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect,
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with FAM Distributors,
Inc. ("FAMD" or the "Distributor"), which is a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLIM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at the annual rate of .65% of
the average net assets of the Fund not exceeding $1 billion, .625%
of average net assets of the Fund in excess of $1 billion but not
exceeding $1.5 billion, .60% of net assets in excess of $1.5 billion
but not exceeding $5 billion, .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 A .25% --
Class B .25% .75%
Class C .25% .75%
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 A, Class B, Class C 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.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Notes to Financial Statements (continued)
For the year ended August 31, 2004, FAMD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class I Shares
as follows:
FAMD MLPF&S
Class A $ 42,600 $ 532,681
Class I $ 900 $ 13,469
For the year ended August 31, 2004, MLPF&S received contingent
deferred sales charges of $1,574,092 and $74,567 relating to
transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges
of $573 relating to transactions subject to front-end sales
charge waivers in Class A 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 August 31, 2004, the Fund lent
securities with a value of $26,424,336 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 year ended August 31, 2004, MLIM, LLC received
$406,724 in securities lending agent fees.
In addition, MLPF&S received $1,693,300 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended August 31, 2004.
For the year ended August 31, 2004, the Fund reimbursed MLIM
$113,575 for certain accounting services.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
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 year ended August 31, 2004 were $4,101,476,453 and
$4,233,498,272, respectively.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $106,236,353 and $243,007,990 for the years ended August 31,
2004 and August 31, 2003, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
Shares sold 17,766,615 $ 284,562,848
Shares issued resulting from
reorganization 303,903 5,126,703
Automatic conversion of shares 8,127,236 130,283,733
-------------- ---------------
Total issued 26,197,754 419,973,284
Shares redeemed (26,077,331) (417,131,861)
-------------- ---------------
Net increase 120,423 $ 2,841,423
============== ===============
Class A Shares for the Year Dollar
Ended August 31, 2003 Shares Amount
Shares sold 22,425,385 $ 293,619,876
Automatic conversion of shares 7,486,562 98,927,166
-------------- ---------------
Total issued 29,911,947 392,547,042
Shares redeemed (27,769,903) (363,118,102)
-------------- ---------------
Net increase 2,142,044 $ 29,428,940
============== ===============
Class B Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
Shares sold 16,590,641 $ 244,662,832
Shares issued resulting from
reorganization 3,740,939 58,381,960
-------------- ---------------
Total issued 20,331,580 303,044,792
Automatic conversion of shares (8,792,896) (130,283,733)
Shares redeemed (30,886,156) (455,863,255)
-------------- ---------------
Net decrease (19,347,472) $ (283,102,196)
============== ===============
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Notes to Financial Statements (continued)
Class B Shares for the Year Dollar
Ended August 31, 2003 Shares Amount
Shares sold 24,939,568 $ 305,264,542
Automatic conversion of shares (8,035,783) (98,927,166)
Shares redeemed (36,313,880) (443,021,423)
-------------- ---------------
Net decrease (19,410,095) $ (236,684,047)
============== ===============
Class C Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
Shares sold 13,724,469 $ 204,267,701
Shares issued resulting from
reorganization 2,519,070 39,535,287
-------------- ---------------
Total issued 16,243,539 243,802,988
Shares redeemed (11,057,204) (163,910,711)
-------------- ---------------
Net increase 5,186,335 $ 79,892,277
============== ===============
Class C Shares for the Year Dollar
Ended August 31, 2003 Shares Amount
Shares sold 8,966,905 $ 110,844,522
Shares redeemed (11,753,799) (144,506,299)
-------------- ---------------
Net decrease (2,786,894) $ (33,661,777)
============== ===============
Class I Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
Shares sold 24,896,870 $ 410,881,363
Shares issued resulting from
reorganization 147,273 2,532,155
-------------- ---------------
Total issued 25,044,143 413,413,518
Shares redeemed (20,270,196) (330,110,284)
-------------- ---------------
Net increase 4,773,947 $ 83,303,234
============== ===============
Class I Shares for the Year Dollar
Ended August 31, 2003 Shares Amount
Shares sold 29,848,049 $ 397,428,942
Shares redeemed (29,714,104) (399,533,672)
-------------- ---------------
Net increase (decrease) 133,945 $ (2,104,730)
============== ===============
Class R Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
Shares sold 872,209 $ 13,191,530
Shares redeemed (155,422) (2,362,621)
-------------- ---------------
Net increase 716,787 $ 10,828,909
============== ===============
Class R Shares for the
Period January 3, 2003++ Dollar
to August 31, 2003 Shares Amount
Shares sold 1,018 $ 13,624
-------------- ---------------
Net increase 1,018 $ 13,624
============== ===============
++ 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 28, 2003, the credit agreement was
renewed for one year under the same terms. The Fund did not borrow
under the credit agreement during the year ended August 31, 2004.
6. Acquisition of Mercury Growth Opportunity Fund:
On January 20, 2004, the Fund acquired substantially all of
the assets and the liabilities of Mercury Growth Opportunity
Fund pursuant to a plan of reorganization. The acquisition was
accomplished by a tax-free exchange of 8,550,236 shares of Common
Stock of Mercury Growth Opportunity Fund for 6,711,185 shares
of Common Stock of the Fund. Mercury Growth Opportunity Fund's
net assets on that date of $105,576,105, including $21,247,350
of net unrealized appreciation and $61,255,035 of accumulated net
realized capital losses were combined with those of the Fund.
The aggregate net assets immediately after the acquisition amounted
to $5,822,583,376.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Notes to Financial Statements (concluded)
7. Distributions to Shareholders:
As of August 31, 2004, the components of accumulated losses on a tax
basis were as follows:
Undistributed ordinary income--net $ --
Undistributed long-term capital gains--net --
----------------
Total undistributed earnings--net --
Capital loss carryforward (2,569,260,108)*
Unrealized gains--net 186,980,693**
----------------
Total accumulated losses--net $(2,382,279,415)
================
* On August 31, 2004, the Fund had a net capital loss carryforward
of $2,569,260,108, of which $98,873,827 expires in 2008,
$126,733,281 expires in 2009, $975,197,323 expires in 2010,
$1,300,237,466 expires in 2011 and $68,218,211 expires in 2012.
This amount will be available to offset like amounts of any
future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses
on wash sales and the deferral of post-October currency losses
for tax purposes.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors,
Merrill Lynch Fundamental Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities
of Merrill Lynch Fundamental Growth Fund, Inc., including the
schedule of investments, as of August 31, 2004, and the related
statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then
ended and financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial
highlights. Our procedures included confirmation of securities owned
as of August 31, 2004 by correspondence with the custodian. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Fundamental Growth Fund, Inc. at
August 31, 2004, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the
indicated periods in conformity with U.S. generally accepted
accounting principles.
(Ernst & Young LLP)
Philadelphia, Pennsylvania
October 15, 2004
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Portfolio Information (unaudited)
As of August 31, 2004
Percent of
Ten Largest Holdings Net Assets
General Electric Company 6.6%
Microsoft Corporation 5.4
3M Co. 4.7
Intel Corporation 4.1
Cisco Systems, Inc. 4.1
Schlumberger Limited 2.8
Alcon, Inc. 2.7
Medtronic, Inc. 2.6
Nike, Inc. (Class B) 2.4
eBay Inc. 2.2
Percent of
Total
Sector Representation Investments
Information Technology 27.2%
Industrials 15.6
Consumer Discretionary 12.3
Health Care 11.1
Energy 7.3
Materials 3.8
Financials 1.2
Consumer Staples 0.9
Other* 20.6
* Includes portfolio holdings in short-term investments.
Percent of
Five Largest Industries* Net Assets
Industrial Conglomerates 11.4%
Health Care Equipment & Supplies 9.6
Software 9.4
Communications Equipment 7.5
Semiconductors & Semiconductor Equipment 6.7
* For Fund compliance purposes, "Industries" 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
industry sub-classifications for reporting ease. These
industry classifications are unaudited.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. Glenn* President 1999 to President of the Merrill Lynch Investment 124 Funds None
P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 157 Portfolios
Princeton, Director Management, L.P. ("FAM")--Advised Funds
NJ 08543-9011 since 1999; Chairman (Americas Region) of
Age: 63 MLIM from 2000 to 2002; Executive Vice
President of MLIM and FAM (which terms as
used herein include their corporate
predecessors) from 1983 to 2002; President
of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991
to 2002; Executive Vice President and
Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P.
from 1989 to 2002; Director of Financial
Data Services, Inc. since 1985.
* Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
present and former positions with MLIM, FAM, FAMD, Princeton
Services and Princeton Administrators, L.P. The Director's term is
unlimited. Directors serve until their resignation, removal or
death, or until December 31 of the year in which they turn 72. As
Fund President, Mr. Glenn serves at the pleasure of the Board of
Directors.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Officers and Directors (unaudited)(continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors*
James H. Bodurtha Director 2002 to Director, The China Business Group, Inc. 38 Funds None
P.O. Box 9095 present since 1996 and Executive Vice President 55 Portfolios
Princeton, thereof from 1996 to 2003; Chairman of the
NJ 08543-9095 Board, Berkshire Holding Corporation since
Age: 60 1980; Partner, Squire, Sanders & Dempsey
from 1980 to 1993.
Joe Grills Director 1994 to Member of the Committee of Investment of 38 Funds Kimco Realty
P.O. Box 9095 present Employee Benefit Assets of the Association 55 Portfolios Corporation
Princeton, of Financial Professionals ("CIEBA") since
NJ 08543-9095 1986; Member of CIEBA's Executive Committee
Age: 69 since 1988 and its Chairman from 1991 to
1992; Assistant Treasurer of International
Business Machines Corporation ("IBM") and
Chief Investment Officer of IBM Retirement
Funds from 1986 to 1993; Member of the
Investment Advisory Committee of the State
of New York Common Retirement Fund since
1989; Member of the Investment Advisory
Committee of the Howard Hughes Medical
Institute from 1997 to 2000; Director, Duke
University Management Company from 1992 to
2004, Vice Chairman thereof from 1998 to
2004 and Director Emeritus thereof since
2004; Director, LaSalle Street Fund from
1995 to 2001; Director, Kimco Realty
Corporation since 1997; Member of the
Investment Advisory Committee of the
Virginia Retirement System since 1998 and
Vice Chairman thereof since 2002; Director,
Montpelier Foundation since 1998 and its
Vice Chairman since 2000; Member of the
Investment Committee of the Woodberry
Forest School since 2000; Member of the
Investment Committee of the National Trust
for Historic Preservation since 2000.
Herbert I. London Director 2002 to John M. Olin Professor of Humanities, New 38 Funds None
P.O. Box 9095 present York University since 1993 and Professor 55 Portfolios
Princeton, thereof since 1980; President, Hudson
NJ 08543-9095 Institute since 1997 and Trustee thereof
Age: 65 since 1980; Dean, Gallatin Division of
New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair,
Hudson Institute from 1984 to 1985;
Director, Damon Corp. from 1991 to 1995;
Overseer, Center for Naval Analyses from
1983 to 1993; Director, Level Playing Field
(education) from 2000 to 2003.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Officers and Directors (unaudited)(continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors* (concluded)
Andre F. Perold Director 2002 to Harvard Business School, George Gund 38 Funds None
P.O. Box 9095 present Professor of Finance and Banking since 55 Portfolios
Princeton, 2000; Senior Associate Dean, Director of
NJ 08543-9095 Faculty Recruiting since 2001; Finance
Age: 52 Area Chair from 1996 to 2001; Sylvan C.
Coleman Professor of Financial Management
from 1993 to 2000; Director, Genbel
Securities Limited and Gensec Bank from
1999 to 2003; Director, Stockback, Inc.
from 2000 to 2002; Director, Sanlam Limited
from 2001 to 2003; Trustee, Commonfund from
1989 to 2001; Director, Sanlam Investment
Management from 1999 to 2001; Director,
Bulldogresearch.com from 2000 to 2001;
Director, Quantec Limited from 1991 to 1999;
Director and Chairman of the Board of UNX Inc.
since 2003.
Roberta Cooper Ramo Director 2002 to Shareholder, Modrall, Sperling, Roehl, 38 Funds None
P.O. Box 9095 present Harris & Sisk, P.A. since 1993; President, 55 Portfolios
Princeton, American Bar Association from 1995 to
NJ 08543-9095 1996 and Member of the Board of Governors
Age: 62 thereof from 1994 to 1997; Shareholder,
Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director,
Coopers, Inc. since 1999; Director, ECMC
Group (service provider to students,
schools and lenders) since 2001; Director,
United New Mexico Bank (now Wells Fargo)
from 1983 to 1988; Director, First National
Bank of New Mexico (now Wells Fargo) from
1975 to 1976.
Robert S. Salomon, Jr. Director 1996 to Principal of STI Management (investment 38 Funds None
P.O. Box 9095 present adviser) since 1994; Chairman and CEO of 55 Portfolios
Princeton, Salomon Brothers Asset Management from
NJ 08543-9095 1992 to 1995; Chairman of Salomon Brothers
Age: 67 equity mutual funds from 1992 to 1995;
regular columnist with Forbes Magazine from
1992 to 2002; Director of Stock Research and
U.S. Equity Strategist at Salomon Brothers
from 1975 to 1991; Trustee, Commonfund from
1980 to 2001.
Stephen B. Swensrud Director 1992 to Chairman of Fernwood Associates (investment 39 Funds None
P.O. Box 9095 present adviser) since 1996; Principal, Fernwood 56 Portfolios
Princeton, Associates (financial consultants) since
NJ 08543-9095 1975; Chairman of R.P.P. Corporation
Age: 71 (manufacturing) since 1978; Director of
International Mobile Communications,
Incorporated (telecommunications) since
1998.
* The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Officers and Directors (unaudited)(concluded)
Position(s) Length of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since
P.O. Box 9011 President present 1999; Senior Vice President, Director and Treasurer of Princeton Services
Princeton, and and since 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
NJ 08543-9011 Treasurer 1999 to since 1990.
Age: 44 present
Robert C. Doll, Jr. Senior 1999 to President of MLIM and member of the Executive Management Committee of
P.O. Box 9011 Vice present ML & Co., Inc. since 2001; Global Chief Investment Officer and Senior
Princeton, President Portfolio Manager of MLIM since 1999; Chief Investment Officer of Equities
NJ 08543-9011 at Oppenheimer Funds, Inc. from 1990 to 1999 and Chief Investment Officer
Age: 50 thereof from 1998 to 1999; Executive Vice President of Oppenheimer Funds, Inc.
from 1991 to 1999.
Lawrence R. Fuller Vice 1992 to Managing Director of MLIM since 2000; Director (Equities) of MLIM from 1997
P.O. Box 9011 President present to 2000.
Princeton,
NJ 08543-9011
Age: 63
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice
P.O. Box 9011 Compliance present President and Chief Compliance Officer of MLIM since 2004; Global Director
Princeton, Officer of Compliance at Morgan Stanley Investment Management from 2002 to 2004;
NJ 08543-9011 Managing Director and Global Director of Compliance at Citigroup Asset
Age: 53 Management from 2000 to 2002; Chief Compliance Officer at Soros Fund
Management in 2000; Chief Compliance Officer at Prudential Financial from
1995 to 2000.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from
P.O. Box 9011 present 1999 to 2002; Attorney associated with MLIM since 1997.
Princeton,
NJ 08543-9011
Age: 44
* Officers of the Fund serve at the pleasure of the Board of
Directors.
Further information about the Fund's Officers and Directors is
available in the Fund's Statement of Additional Information, which
can be obtained without charge by calling 1-800-MER-FUND.
Custodian
J.P. Morgan Chase Bank
Global Securities Services
Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Electronic Delivery
The Fund offers electronic delivery of communications to its
shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this Web site
http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification
number (PIN). You will need this PIN should you wish to update your
e-mail address, choose to discontinue this service and/or make any
other changes to the service. This service is not available for
certain retirement accounts at this time.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., AUGUST 31, 2004
Item 2 - Code of Ethics - The registrant has adopted a code of
ethics, as of the end of the period covered by this report, that
applies to the registrant's principal executive officer, principal
financial officer and principal accounting officer, or persons
performing similar functions. A copy of the code of ethics
is available without charge upon request by calling toll-free
1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board
of directors has determined that (i) the registrant has the
following audit committee financial experts serving on its audit
committee and (ii) each audit committee financial expert is
independent: (1) Joe Grills, (2) Andre F. Perold, (3) Robert S.
Salomon, Jr., and (4) Stephen B. Swensrud.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees -
Fiscal Year Ending August 31, 2004 - $41,000
Fiscal Year Ending August 31, 2003 - $44,000
(b) Audit-Related Fees -
Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
(c) Tax Fees -
Fiscal Year Ending August 31, 2004 - $5,200
Fiscal Year Ending August 31, 2003 - $5,000
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending August 31, 2004 - $5,200
Fiscal Year Ending August 31, 2003 - $5,000
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation
S-X is compatible with maintaining the principal accountant's
independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Merrill Lynch Fundamental Growth Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Merrill Lynch Fundamental Growth Fund, Inc.
Date: October 18, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
Merrill Lynch Fundamental Growth Fund, Inc.
Date: October 18, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Fundamental Growth Fund, Inc.
Date: October 18, 2004