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 811-06669
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: Robert C. Doll, Jr., Chief Executive
Officer, 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: 08/31/05
Date of reporting period: 09/01/04 - 08/31/05
Item 1 - Report to Stockholders
Merrill Lynch
Fundamental Growth
Fund, Inc.
Annual Report
August 31, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.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.
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
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A Letter From the President
Dear Shareholder
Amid what we've coined a "muddle through" year for the financial markets, the
major market benchmarks managed to post positive results for the current
reporting period:
Total Returns as of August 31, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) +2.33% +12.56%
Small-cap U.S. equities (Russell 2000 Index) +5.75% +23.10%
International equities (MSCI Europe Australasia Far East Index) +1.98% +23.58%
Fixed income (Lehman Brothers Aggregate Bond Index) +2.85% + 4.15%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +2.85% + 5.31%
High yield bonds (Credit Suisse First Boston High Yield Index) +1.35% + 8.98%
Since June 2004, the Federal Reserve Board (the Fed) has tirelessly advanced
its interest rate-hiking program, bringing the federal funds rate to 3.5%
by August 31 (and to 3.75% on September 20). Economists and investors have
struggled to project the Fed's future moves, vacillating from expectations for
an impending end to monetary tightening to fears that the central bank may
increase interest rates more than is necessary to moderate economic growth and
keep inflation in check. Most recently, the devastation of Hurricane Katrina
added a new element of ambiguity in terms of its impact on the economy and Fed
sentiment. Many now believe the Fed will suspend its interest rate-hiking
campaign at some point this year.
Equity market returns over the past several months have reflected a degree of
investor uncertainty. After a strong finish to 2004, the S&P 500 Index posted
gains in four of the first eight months of 2005. Up to this point, strong
corporate earnings reports and low long-term bond yields have worked in favor
of equities. Factors that pose the greatest risks to stocks include record-
high oil prices, continued interest rate hikes and the possibility for
disappointing earnings for the remainder of the year.
Fixed income markets have fared relatively well in the face of monetary
tightening. As the short end of the yield curve moved in concert with Fed
interest rate hikes, long-term bond yields remained low, perpetuating the
yield curve flattening trend. Because bond prices move in the opposite
direction of yields, the result has been that longer-term bonds have
outperformed short-term bonds. At period end, the spread between two-year and
10-year Treasury yields was just 18 basis points (.18%).
Financial markets are likely to face continued crosscurrents for the remainder
of 2005, particularly as the economy digests the impact of Hurricane Katrina.
Nevertheless, opportunities do exist and we encourage you to work with your
financial advisor to diversify your portfolio among a variety of asset types.
This can help to diffuse risk while also tapping into the potential benefits
of a broader range of investment alternatives. As always, we thank you for
trusting Merrill Lynch Investment Managers with your investment assets.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Director
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
We are pleased to present to you the management team of
Merrill Lynch Fundamental Growth Fund, Inc.
Larry Fuller, who joined Merrill Lynch Investment Managers in 1992, is the
Senior Portfolio Manager of Merrill Lynch Fundamental Growth Fund. 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. Mr. Fuller's 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 and is a CFA charterholder.
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 9
Portfolio Information 10
Schedule of Investments 11
Financial Statements 13
Financial Highlights 16
Notes to Financial Statements 19
Report of Independent Registered Public Accounting Firm 24
Officers and Directors 25
CFA (R) and Chartered Financial Analyst (R) are trademarks owned by the
Association for Investment Management and Research.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
A Discussion With Your Fund's Portfolio Manager
The Fund meaningfully outperformed both its benchmarks and its Lipper category
average for the fiscal year, benefiting from favorable sector weightings and
good stock selection.
How did the Fund perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended August 31, 2005, Merrill Lynch Fundamental
Growth Fund, Inc.'s Class A, Class B, Class C, Class I and Class R Shares had
total returns of +16.42%, +15.57%, +15.55%, +16.72% and +16.25%, 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 - 8 of this report to shareholders.) The Fund outperformed the +12.56%
return of the unmanaged Standard & Poor's 500 (S&P 500) Index and the +10.29%
return of the S&P 500 Barra Growth Index for the same period. Fund returns
also exceeded the +13.73% average return of the Lipper Large Cap Growth Funds
category, which represents the performance of actively managed large cap
growth funds.
The equity, bond and commodity markets followed a roller coaster path during
the 12 months ended August 31, 2005. The large cap value style of investing
continued to outpace the large cap growth style, with greater outperformance
in the second half of the fiscal year than in the first half. Small cap and
mid cap benchmarks also provided significantly better investment returns than
their large cap counterparts.
Several factors contributed to the Fund's above-average returns for the year,
but most significant was favorable stock selection and an overweight exposure
to the health care sector. The top performers in health care were Alcon Inc.,
Gilead Sciences, Inc., WellPoint Inc., Celgene Corp., Humana, Inc., Amgen,
Inc. and Caremark Rx, Inc. Our avoidance of major pharmaceutical companies,
such as Pfizer Inc., Merck & Co. Inc. and Eli Lilly & Co., also proved
beneficial to relative results.
Another positive was our overweight exposure to the energy sector, where we
focused on energy services and equipment companies, which provide for
exploration and development operations around the world. Positions that
contributed most to performance were Transocean, Inc., Schlumberger Ltd.,
Halliburton Co., Baker Hughes, Inc., National Oilwell Varco, Inc., Grant
Prideco, Inc. Devon Energy Corp. and Apache Corp.
Also additive to performance was stock selection and overweight positions in
consumer discretionary and industrials. In these sectors, the Fund enjoyed
positive results from Coach, Inc., Marriott International, Inc., eBay Inc.,
Starwood Hotels & Resorts Worldwide, Inc., Best Buy Co. Inc., KB Home, PACCAR,
Inc., Monster Worldwide Inc., Rockwell Automation, Inc., Boeing Co., Wolseley
Plc (U.K.), Lockheed Martin Corp. and ITT Industries, Inc. Finally, our
underweight position in information technology (IT) also aided relative
results.
Detracting most from relative performance for the year was the absence of a
position in the strong performing Exxon Mobil Corp., which became part of the
S&P 500 Barra Growth Index in December 2004. We added Exxon Mobil to the
portfolio during the last week of the fiscal year as we grew more confident in
the company's prospects. Also hindering relative performance was our position
in Doral Financial Corp., which we sold in the second half of the fiscal year.
Doral's management had engaged in financial futures hedging transactions, the
details of which were not disclosed to shareholders. In retrospect, it
appeared the potential losses on these transactions were not understood by the
company's senior management. Other investments in financials also detracted
from performance for the year.
What changes were made to the portfolio during the period?
In the first half of the fiscal year, as outlined in the semi-annual report to
shareholders dated February 28, 2005, we reduced the Fund's exposure to the
consumer discretionary, energy, industrials and IT sectors. At the same time,
we increased our weightings in the financials, health care and materials
sectors.
During the second half of the period, we added to the Fund's already
overweight position in health care and increased our underweighting in IT.
Within IT, we liquidated our position in Intel Corp. given concerns about a
possible secular decline in the company's profitability as communication
products become a higher percentage of overall semiconductor revenues. We also
are concerned about a slowdown of revenue growth in Asian markets as market
penetration becomes more mature. We trimmed our exposure to Microsoft Corp.
and liquidated our position in Paychex, Inc., one of the leading business
payroll and employee benefit information processors. Paychex's valuation was
relatively high and, we believe, a slowdown in U.S. employment growth as the
Federal Reserve Board (the Fed) continues to tighten monetary policy creates
the potential for a disappointing earnings report. We also liquidated our
position in Accenture Ltd. - Class A, based on concerns about increasing
competition in the IT consulting arena from major firms based in India that
offer much lower costs for skilled technology engineers.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
In the health care sector, we initiated a position in Johnson & Johnson after
the company announced an agreement to acquire Guidant Corp. Despite quality
problems with some of Guidant's products, we have confidence in Johnson &
Johnson's ability to deal with the problems and increase the earnings growth
potential of the combined companies with a higher valuation ratio. We
liquidated, at a significant capital gain, a meaningful position in Gilead
Sciences, based on its relatively high valuation. The proceeds were reinvested
in Amgen, where enhanced revenue growth from new products over the next three
years appears attractive. We also sold, at gains, Zimmer Holdings, Inc. on
concerns about the potential for significant downward pricing pressure on
implant products from hospitals and governmental reimbursement agencies, and
Celgene Corp., a leading biopharmaceutical company, based on its relatively
high valuation. Conversely, we added to our positions in the HMO subsector of
health care with the purchase of Humana, Inc. and Sierra Health Services. In
addition to Amgen, we added Genzyme Corp. and MGI Pharma, Inc. in
biotechnology.
In other sectors, we meaningfully reduced the Fund's overweight in financials
during the second half of the fiscal year after having increased our exposure
in January 2005. In addition to the previously mentioned Doral Financial, we
liquidated our position in consumer credit card company MBNA Corp. at a
capital loss as the company's business fundamentals appeared to be turning
negative while prospects for most competitors turned upward. We also
liquidated our position in Washington Mutual Inc., one of the largest
financial services companies, on concerns about the possible increase in
delinquent residential mortgage loans as the Fed continues to increase
interest rates.
We reduced exposure to the consumer discretionary sector with the liquidation
of Carnival Corp. at a capital gain. Our holding in Avon Products, Inc. was
sold at a capital loss after management announced a surprising deterioration
in the company's revenue growth rate. The Fund realized profits on the partial
sale of successful investments in Marriott International - Class A and Coach,
Inc., and the total liquidation of KB Home.
How would you characterize the Fund's position at the close of the period?
We believe the Fed may decide to halt its monetary tightening policy before
year-end 2005 given the slowdown in consumer spending on autos, housing and
related electronic goods and appliances. On the fiscal front, the U.S.
Congress may pass some consumer tax cuts, while easing monetary policy and
tax cuts in other nations could restimulate global economic growth.
Against this backdrop, the Fund ended the period overweight in energy and
materials. Energy prices rose substantially during the second half of the
fiscal year while global economic growth rates began to slow, possibly
reflecting a gradually growing shortage of energy products. Consequently, we
increased the Fund's exposure to energy at the end of August by purchasing
Exxon Mobil and Sunoco, Inc. In light of the prospect for economic
reacceleration, energy prices could remain at the recent elevated levels, a
positive for the profits of companies in the industry.
The Fund's overweight in the materials sector reflects investments in the
major U.S. chemical and industrial gas companies, which also are well
positioned for a recovery in global economic activity. In addition, these
companies should benefit from their investments in new ventures in China,
where the government continues to build its investments in the industrial and
technology manufacturing sectors. In industrials, the Fund's investments in
General Electric Co., Boeing Co., Caterpillar, Inc. and 3M Co. are based on
the expectation that these companies could enjoy growth in sales and
profitability as the Chinese government continues to invest in public
infrastructure and manufacturing capabilities.
Finally, the Fund is overweight in health care, where we see attractive
opportunities in the HMO, selected medical device and biotechnology
specialties. HMOs have the potential to be very profitable over the next few
years as they help federal and state governments to more effectively deliver
healthcare services to the public. In the medical device specialty,
corporations have developed mechanical and electro-mechanical devices for
treating life-threatening or disabling conditions, while in biotechnology, new
technologies and scientific discoveries are aimed at curing some of the most
devastating diseases. Demand for such innovations is growing as populations
age. As such, the health care sector is likely to remain an investment focus.
Lawrence R. Fuller
Vice President and Portfolio Manager
September 14, 2005
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
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. 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). All returns for periods greater than eight years reflect
this conversion.
* 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. Prior to inception, Class R Share
performance results are those of Class I Shares (which have no distribution or
account maintenance fees) restated for Class R Share fees.
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 performance data current to
the most recent month-end. 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.
Recent Performance Results
6-Month 12-Month 10-Year
As of August 31, 2005 Total Return Total Return Total Return
ML Fundamental Growth Fund, Inc. Class A Shares* +4.15% +16.42% +135.29%
ML Fundamental Growth Fund, Inc. Class B Shares* +3.77 +15.57 +120.93
ML Fundamental Growth Fund, Inc. Class C Shares* +3.74 +15.55 +117.46
ML Fundamental Growth Fund, Inc. Class I Shares* +4.29 +16.72 +141.46
ML Fundamental Growth Fund, Inc. Class R Shares* +4.08 +16.25 +131.29
S&P 500 (R) Index** +2.33 +12.56 +155.92
S&P 500/Barra Growth Index*** +1.51 +10.29 +140.30
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge
was included. Cumulative 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.
** 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 the stocks in the Standard & Poor's 500
Index that have higher price-to-book ratios.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class A & Class B Shares
A line graph illustrating the growth of a $10,000 investment in ML Fundamental
Growth Fund, Inc.++ Class A and Class B 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 1995 $ 9,475.00
August 1996 $11,247.00
August 1997 $15,623.00
August 1998 $16,572.00
August 1999 $23,312.00
August 2000 $34,191.00
August 2001 $21,580.00
August 2002 $17,071.00
August 2003 $18,649.00
August 2004 $19,150.00
August 2005 $22,294.00
ML Fundamental Growth Fund, Inc.++
Class B Shares*
Date Value
August 1995 $10,000.00
August 1996 $11,768.00
August 1997 $16,233.00
August 1998 $17,079.00
August 1999 $23,840.00
August 2000 $34,698.00
August 2001 $21,733.00
August 2002 $17,049.00
August 2003 $18,481.00
August 2004 $18,978.00
August 2005 $22,093.00
S&P 500 Index++++
Date Value
August 1995 $10,000.00
August 1996 $11,873.00
August 1997 $16,699.00
August 1998 $18,051.00
August 1999 $25,239.00
August 2000 $29,358.00
August 2001 $22,198.00
August 2002 $18,204.00
August 2003 $20,400.00
August 2004 $22,737.00
August 2005 $25,592.00
S&P 500/Barra Growth Index++++++
Date Value
August 1995 $10,000.00
August 1996 $11,978.00
August 1997 $17,243.00
August 1998 $20,071.00
August 1999 $29,055.00
August 2000 $35,462.00
August 2001 $22,055.00
August 2002 $18,507.00
August 2003 $20,375.00
August 2004 $21,789.00
August 2005 $24,030.00
* 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 8/31/05 +16.42% +10.30%
Five Years Ended 8/31/05 - 8.20 - 9.18
Ten Years Ended 8/31/05 + 8.93 + 8.35
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Without Return With
CDSC CDSC**
Class B Shares*
One Year Ended 8/31/05 +15.57% +11.57%
Five Years Ended 8/31/05 - 8.91 - 9.25
Ten Years Ended 8/31/05 + 8.25 + 8.25
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after six years.
** Assuming payment of applicable contingent deferred sales
charge.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class C, Class I & Class R Shares
A line graph illustrating the growth of a $10,000 investment in ML Fundamental
Growth Fund, Inc.++ Class C, Class I and 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 C Shares*
Date Value
August 1995 $10,000.00
August 1996 $11,768.00
August 1997 $16,227.00
August 1998 $17,069.00
August 1999 $23,838.00
August 2000 $34,691.00
August 2001 $21,733.00
August 2002 $17,051.00
August 2003 $18,474.00
August 2004 $18,820.00
August 2005 $21,746.00
ML Fundamental Growth Fund, Inc.++
Class I Shares*
Date Value
August 1995 $ 9,475.00
August 1996 $11,277.00
August 1997 $15,702.00
August 1998 $16,703.00
August 1999 $23,564.00
August 2000 $34,640.00
August 2001 $21,924.00
August 2002 $17,378.00
August 2003 $19,036.00
August 2004 $19,601.00
August 2005 $22,878.00
ML Fundamental Growth Fund, Inc.++
Class R Shares*
Date Value
August 1995 $10,000.00
August 1996 $11,843.00
August 1997 $16,408.00
August 1998 $17,367.00
August 1999 $24,379.00
August 2000 $35,661.00
August 2001 $22,456.00
August 2002 $17,711.00
August 2003 $19,437.00
August 2004 $19,896.00
August 2005 $23,129.00
S&P 500 Index++++
Date Value
August 1995 $10,000.00
August 1996 $11,873.00
August 1997 $16,699.00
August 1998 $18,051.00
August 1999 $25,239.00
August 2000 $29,358.00
August 2001 $22,198.00
August 2002 $18,204.00
August 2003 $20,400.00
August 2004 $22,737.00
August 2005 $25,592.00
S&P 500/Barra Growth Index++++++
Date Value
August 1995 $10,000.00
August 1996 $11,978.00
August 1997 $17,243.00
August 1998 $20,071.00
August 1999 $29,055.00
August 2000 $35,462.00
August 2001 $22,055.00
August 2002 $18,507.00
August 2003 $20,375.00
August 2004 $21,789.00
August 2005 $24,030.00
* 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
CDSC CDSC**
Class C Shares*
One Year Ended 8/31/05 +15.55% +14.55%
Five Years Ended 8/31/05 - 8.92 - 8.92
Ten Years Ended 8/31/05 + 8.08 + 8.08
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year.
** Assuming payment of applicable contingent deferred sales
charge.
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 8/31/05 +16.72% +10.59%
Five Years Ended 8/31/05 - 7.96 - 8.95
Ten Years Ended 8/31/05 + 9.22 + 8.63
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Class R Shares Return
One Year Ended 8/31/05 +16.25%
Five Years Ended 8/31/05 - 8.30
Ten Years Ended 8/31/05 + 8.75
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
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, 2005 and
held through August 31, 2005) 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, 2005
March 1, August 31, to August 31,
2005 2005 2005
Actual
Class A $1,000 $1,041.50 $ 5.97
Class B $1,000 $1,037.70 $ 9.96
Class C $1,000 $1,037.40 $10.01
Class I $1,000 $1,042.90 $ 4.69
Class R $1,000 $1,040.80 $ 7.25
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,019.35 $5.90
Class B $1,000 $1,015.42 $9.86
Class C $1,000 $1,015.37 $9.91
Class I $1,000 $1,020.61 $4.63
Class R $1,000 $1,018.09 $7.17
* 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 1.41% for Class R),
multiplied by the average account value over the period, multiplied by 184/365 (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 365.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Portfolio Information
As of August 31, 2005
Percent of
Ten Largest Holdings Net Assets
General Electric Co. 6.4%
Microsoft Corp. 4.9
Alcon, Inc. 4.9
Exxon Mobil Corp. 4.8
3M Co. 4.2
Johnson & Johnson 3.4
Procter & Gamble Co. 2.6
WellPoint, Inc. 2.6
Amgen, Inc. 2.4
The Dow Chemical Co. 2.3
Percent of
Total
Sector Representation Investments
Health Care 21.9%
Producer Durables 15.5
Energy 14.2
Information Technology 10.8
Consumer Discretionary 9.2
Materials & Processing 6.6
Consumer Staples 5.3
Financial Services 4.2
Other* 12.3
* Includes portfolio holdings in short-term investments.
Percent of
Five Largest Industries Net Assets
Industrial Conglomerates 10.6%
Energy Equipment & Services 9.8
Health Care Equipment & Supplies 8.8
Health Care Providers & Services 7.6
Chemicals 7.3
For Fund compliance purposes, sector and industry classifications refer to any
one or more of the sector and 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 sector and industry sub-classifications for reporting ease.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Schedule of Investments
Shares
Industry Common Stocks Held Value
Aerospace & Defense--2.9%
Boeing Co. 1,196,600 $ 80,196,132
Lockheed Martin Corp. (e) 1,106,100 68,843,664
---------------
149,039,796
Beverages--1.0%
PepsiCo, Inc. 958,800 52,590,180
Biotechnology--4.0%
Amgen, Inc. (a)(e) 1,544,300 123,389,570
Genzyme Corp. (a) 1,196,900 85,183,373
---------------
208,572,943
Capital Markets--1.2%
Franklin Resources, Inc. (e) 791,800 63,692,392
Chemicals--7.3%
Air Products & Chemicals, Inc. 1,350,700 74,828,780
The Dow Chemical Co. 2,723,000 117,633,600
E.I. du Pont de Nemours & Co. 1,606,600 63,573,162
Nalco Holding Co. (a)(e) 1,780,700 32,586,810
Praxair, Inc. (e) 1,798,000 86,843,400
---------------
375,465,752
Commercial Banks--2.4%
Bank of America Corp. 1,548,400 66,627,652
U.S. Bancorp 1,892,200 55,290,084
---------------
121,917,736
Communications Equipment--2.6%
Corning, Inc. (a) 3,190,400 63,680,384
Telefonaktiebolaget LM Ericsson (b)(e) 1,970,300 68,763,470
---------------
132,443,854
Diversified Financial Services--1.1%
Citigroup, Inc. 1,260,100 55,154,577
Energy Equipment & Services--9.8%
Baker Hughes, Inc. (e) 1,367,300 80,328,875
Grant Prideco, Inc. (a) 749,800 27,637,628
Halliburton Co. (e) 1,834,600 113,690,162
National Oilwell Varco, Inc. (a)(e) 1,091,800 70,104,478
Schlumberger Ltd. (e) 1,252,700 108,020,321
Transocean, Inc. (a)(e) 1,782,800 105,256,512
---------------
505,037,976
Food Products--2.3%
McCormick & Co., Inc. 1,823,800 61,845,058
Wm. Wrigley Jr. Co. (e) 817,400 58,076,270
---------------
119,921,328
Health Care Equipment & Supplies--8.8%
Alcon, Inc. (e) 2,128,500 251,269,425
Medtronic, Inc. 1,892,200 107,855,400
Varian Medical Systems, Inc. (a)(e) 1,697,900 67,610,378
Waters Corp. (a) 633,600 28,809,792
---------------
455,544,995
Shares
Industry Common Stocks Held Value
Health Care Providers & Services--7.6%
Caremark Rx, Inc. (a) 1,280,700 $ 59,847,111
Covance, Inc. (a) 248,400 12,991,320
Humana, Inc. (a) 1,236,500 59,549,840
Sierra Health Services (a) 373,200 25,116,360
UnitedHealth Group, Inc. 2,005,300 103,272,950
WellPoint, Inc. (a) 1,781,700 132,291,225
---------------
393,068,806
Hotels, Restaurants & Leisure--5.3%
Starbucks Corp. (a)(e) 1,445,700 70,897,128
Starwood Hotels & Resorts
Worldwide, Inc. 1,506,300 87,817,290
Station Casinos, Inc. 215,400 14,393,028
Wynn Resorts Ltd. (a)(e) 967,500 46,169,100
Yum! Brands, Inc. 1,138,700 53,951,606
---------------
273,228,152
Household Products--2.6%
Procter & Gamble Co. (e) 2,401,800 133,251,864
IT Services--1.6%
First Data Corp. 1,473,600 61,228,080
Hewitt Associates, Inc. Class A (a)(e) 777,600 22,550,400
---------------
83,778,480
Industrial Conglomerates--10.6%
3M Co. 3,071,500 218,537,225
General Electric Co. 9,792,100 329,112,481
---------------
547,649,706
Internet Software & Services--2.9%
Google, Inc. (a)(e) 204,400 58,458,400
Yahoo!, Inc. (a) 2,770,600 92,371,804
---------------
150,830,204
Machinery--3.4%
Caterpillar, Inc. 1,150,700 63,852,343
ITT Industries, Inc. 550,700 60,092,384
Pall Corp. (e) 1,805,200 51,628,720
---------------
175,573,447
Media--1.1%
Walt Disney Co. (e) 2,148,900 54,130,791
Oil, Gas & Consumable Fuels--6.0%
Exxon Mobil Corp. 4,148,300 248,483,170
Sunoco, Inc. 806,000 58,596,200
---------------
307,079,370
Pharmaceuticals--3.8%
Johnson & Johnson 2,791,500 176,953,185
MGI Pharma, Inc. (a) 643,800 17,356,848
---------------
194,310,033
Software--4.9%
Microsoft Corp. 9,227,800 252,841,720
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Schedule of Investments (concluded)
Shares
Industry Common Stocks Held Value
Specialty Retail--1.8%
Staples, Inc. 4,110,500 $ 90,266,580
Textiles, Apparel & Luxury Goods--2.1%
Coach, Inc. (a) 1,804,100 59,878,079
Nike, Inc. Class B 630,400 49,744,864
---------------
109,622,943
Trading Companies & Distributors--0.3%
MSC Industrial Direct Co. Class A 409,300 14,325,500
Total Common Stocks
(Cost--$4,330,779,544)--97.4% 5,019,339,125
Beneficial
Interest Short-Term Securities Value
$ 55,457,553 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (c) $ 55,457,553
646,157,350 Merrill Lynch Liquidity Series, LLC
Money Market Series (c)(d) 646,157,350
Total Short-Term Securities
(Cost--$701,614,903)--13.6% 701,614,903
Total Investments
(Cost--$5,032,394,447*)--111.0% 5,720,954,028
Liabilities in Excess of Other Assets--(11.0%) (565,041,165)
---------------
Net Assets--100.0% $ 5,155,912,863
===============
* The cost and unrealized appreciation (depreciation) of investments as of August 31,
2005, as computed for federal income tax purposes, were as follows:
Aggregate cost $ 5,035,747,834
================
Gross unrealized appreciation $ 789,467,278
Gross unrealized depreciation (104,261,084)
----------------
Net unrealized appreciation $ 685,206,194
================
(a) Non-income producing security.
(b) Depositary Receipts.
(c) Investments in companies considered to be an affiliate of the Fund, for purposes of
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 $(135,848,318) $3,543,993
Merrill Lynch Liquidity Series, LLC
Money Market Series (447,329,850) $ 530,436
Merrill Lynch Premier Institutional Fund -- $ 249
(d) Security was purchased with the cash proceeds from securities loans.
(e) Security, or portion of security, is on loan.
For Fund compliance purposes, the Fund's industry classifications refer to 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. Industries are shown as a percentage of net
assets. These industry classifications are unaudited.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Statement of Assets and Liabilities
As of August 31, 2005
Assets
Investments in unaffiliated securities, at value (including securities loaned
of $640,785,386) (identified cost--$4,330,779,544) $ 5,019,339,125
Investments in affiliated securities, at value (identified cost--$701,614,903) 701,614,903
Cash 42,379
Receivables:
Securities sold $ 93,138,532
Dividends 5,691,360
Capital shares sold 4,559,695
Interest from affiliates 349,855
Securities lending 41,925 103,781,367
---------------
Prepaid expenses 93,744
---------------
Total assets 5,824,871,518
---------------
Liabilities
Collateral on securities loaned, at value 646,157,350
Payables:
Capital shares redeemed 14,802,165
Other affiliates 2,872,890
Investment adviser 2,255,538
Distributor 2,189,586 22,120,179
---------------
Accrued expenses and other liabilities 681,126
---------------
Total liabilities 668,958,655
---------------
Net Assets
Net assets $ 5,155,912,863
===============
Net Assets Consist of
Class A Shares of capital stock, $.10 par value, 300,000,000 shares authorized $ 9,274,243
Class B Shares of capital stock, $.10 par value, 500,000,000 shares authorized 7,338,426
Class C Shares of capital stock, $.10 par value, 300,000,000 shares authorized 4,783,243
Class I Shares of capital stock, $.10 par value, 300,000,000 shares authorized 8,277,359
Class R Shares of capital stock, $.10 par value, 500,000,000 shares authorized 126,939
Paid-in capital in excess of par 6,710,739,563
Undistributed investment income--net $ 24,939,367
Accumulated realized capital losses--net (2,298,125,858)
Unrealized appreciation--net 688,559,581
---------------
Total accumulated losses--net (1,584,626,910)
---------------
Net Assets $ 5,155,912,863
===============
Net Asset Value
Class A--Based on net assets of $1,651,135,473 and 92,742,426 shares outstanding $ 17.80
===============
Class B--Based on net assets of $1,193,441,725 and 73,384,259 shares outstanding $ 16.26
===============
Class C--Based on net assets of $782,172,181 and 47,832,426 shares outstanding $ 16.35
===============
Class I--Based on net assets of $1,508,097,903 and 82,773,592 shares outstanding $ 18.22
===============
Class R--Based on net assets of $21,065,581 and 1,269,386 shares outstanding $ 16.60
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Statement of Operations
For the Year Ended August 31, 2005
Investment Income
Dividends (net of $485,936 foreign withholding tax) $ 95,239,825
Interest from affiliates 3,543,993
Securities lending--net 530,685
---------------
Total income 99,314,503
---------------
Expenses
Investment advisory fees $ 32,370,069
Account maintenance and distribution fees--Class B 13,463,605
Account maintenance and distribution fees--Class C 7,539,628
Account maintenance fees--Class A 4,159,976
Transfer agent fees--Class I 3,832,403
Transfer agent fees--Class B 3,525,613
Transfer agent fees--Class A 3,505,046
Transfer agent fees--Class C 2,030,727
Professional fees 1,943,177
Accounting services 839,369
Printing and shareholder reports 285,666
Custodian fees 247,924
Directors' fees and expenses 139,859
Account maintenance and distribution fees--Class R 83,687
Pricing fees 47,572
Transfer agent fees--Class R 38,386
Other 67,882
---------------
Total expenses 74,120,589
---------------
Investment income--net 25,193,914
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 287,367,529
Foreign currency transactions--net (293,243) 287,074,286
---------------
Change in unrealized appreciation on investments--net 485,339,356
---------------
Total realized and unrealized gain--net 772,413,642
---------------
Net Increase in Net Assets Resulting from Operations $ 797,607,556
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Statements of Changes in Net Assets
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income (loss)--net $ 25,193,914 $ (35,832,052)
Realized gain--net 287,074,286 541,118,775
Change in unrealized appreciation--net 485,339,356 (389,219,523)
--------------- ---------------
Net increase in net assets resulting from operations 797,607,556 116,067,200
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (774,793,559) (106,236,353)
--------------- ---------------
Net Assets
Total increase in net assets 22,813,997 9,830,847
Beginning of year 5,133,098,866 5,123,268,019
--------------- ---------------
End of year* $ 5,155,912,863 $ 5,133,098,866
=============== ===============
* Undistributed investment income (accumulated investment loss)--net $ 24,939,367 $ (6,253)
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Financial Highlights
Class A
The following per share data and ratios have been derived For the Year Ended August 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 15.29 $ 14.89 $ 13.63 $ 17.23 $ 29.63
----------- ----------- ----------- ----------- -----------
Investment income (loss)--net** .12 (.06) (.04) (.05) .03
Realized and unrealized gain (loss)--net 2.39 .46 1.30 (3.55) (10.52)
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.51 .40 1.26 (3.60) (10.49)
----------- ----------- ----------- ----------- -----------
Less distributions in excess of realized gain--net -- -- -- -- (1.91)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 17.80 $ 15.29 $ 14.89 $ 13.63 $ 17.23
=========== =========== =========== =========== ===========
Total Investment Return*
Based on net asset value per share 16.42% 2.69% 9.24% (20.89%) (36.88%)
=========== =========== =========== =========== ===========
Ratios to Average Net Assets
Expenses 1.16% 1.16% 1.18% 1.18% 1.04%
=========== =========== =========== =========== ===========
Investment income (loss)--net .71% (.38%) (.29%) (.33%) .14%
=========== =========== =========== =========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 1,651,135 $ 1,587,995 $ 1,544,751 $ 1,384,765 $ 1,296,787
=========== =========== =========== =========== ===========
Portfolio turnover 87.68% 78.23% 108.34% 92.35% 149.86%
=========== =========== =========== =========== ===========
Class B
For the Year Ended August 31,
2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 14.07 $ 13.81 $ 12.74 $ 16.24 $ 28.06
----------- ----------- ----------- ----------- -----------
Investment loss--net** (.01) (.17) (.13) (.17) (.13)
Realized and unrealized gain (loss)--net 2.20 .43 1.20 (3.33) (9.95)
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.19 .26 1.07 (3.50) (10.08)
----------- ----------- ----------- ----------- -----------
Less distributions in excess of realized gain--net -- -- -- -- (1.74)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 16.26 $ 14.07 $ 13.81 $ 12.74 $ 16.24
=========== =========== =========== =========== ===========
Total Investment Return*
Based on net asset value per share 15.57% 1.88% 8.40% (21.55%) (37.36%)
=========== =========== =========== =========== ===========
Ratios to Average Net Assets
Expenses 1.94% 1.93% 1.97% 1.96% 1.81%
=========== =========== =========== =========== ===========
Investment loss--net (.05%) (1.16%) (1.08%) (1.10%) (.62%)
=========== =========== =========== =========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 1,193,442 $ 1,445,258 $ 1,685,904 $ 1,802,731 $ 2,299,511
=========== =========== =========== =========== ===========
Portfolio turnover 87.68% 78.23% 108.34% 92.35% 149.86%
=========== =========== =========== =========== ===========
* 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, 2005
Financial Highlights (continued)
Class C
The following per share data and ratios have been derived For the Year Ended August 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 14.15 $ 13.89 $ 12.82 $ 16.34 $ 28.26
----------- ----------- ----------- ----------- -----------
Investment loss--net** (.01) (.17) (.14) (.17) (.13)
Realized and unrealized gain (loss)--net 2.21 .43 1.21 (3.35) (10.01)
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.20 .26 1.07 (3.52) (10.14)
----------- ----------- ----------- ----------- -----------
Less distributions in excess of realized gain--net -- -- -- -- (1.78)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 16.35 $ 14.15 $ 13.89 $ 12.82 $ 16.34
=========== =========== =========== =========== ===========
Total Investment Return*
Based on net asset value per share 15.55% 1.87% 8.35% (21.54%) (37.35%)
=========== =========== =========== =========== ===========
Ratios to Average Net Assets
Expenses 1.95% 1.94% 1.98% 1.97% 1.83%
=========== =========== =========== =========== ===========
Investment loss--net (.10%) (1.17%) (1.09%) (1.11%) (.66%)
=========== =========== =========== =========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 782,172 $ 692,924 $ 608,176 $ 596,871 $ 616,400
=========== =========== =========== =========== ===========
Portfolio turnover 87.68% 78.23% 108.34% 92.35% 149.86%
=========== =========== =========== =========== ===========
Class I
For the Year Ended August 31,
2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 15.61 $ 15.16 $ 13.84 $ 17.46 $ 29.98
----------- ----------- ----------- ----------- -----------
Investment income (loss)--net** .17 (.02) (.01) (.02) .08
Realized and unrealized gain (loss)--net 2.44 .47 1.33 (3.60) (10.64)
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.61 .45 1.32 (3.62) (10.56)
----------- ----------- ----------- ----------- -----------
Less distributions in excess of realized gain--net -- -- -- -- (1.96)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 18.22 $ 15.61 $ 15.16 $ 13.84 $ 17.46
=========== =========== =========== =========== ===========
Total Investment Return*
Based on net asset value per share 16.72% 2.97% 9.54% (20.73%) (36.71%)
=========== =========== =========== =========== ===========
Ratios to Average Net Assets
Expenses .91% .91% .93% .94% .80%
=========== =========== =========== =========== ===========
Investment income (loss)--net .96% (.13%) (.04%) (.09%) .35%
=========== =========== =========== =========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 1,508,098 $ 1,396,668 $ 1,284,423 $ 1,170,884 $ 950,922
=========== =========== =========== =========== ===========
Portfolio turnover 87.68% 78.23% 108.34% 92.35% 149.86%
=========== =========== =========== =========== ===========
* 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, 2005
Financial Highlights (concluded)
Class R
For the Period
January 3,
For the Year Ended 2003++ to
The following per share data and ratios have been derived August 31, August 31,
from information provided in the financial statements. 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 14.28 $ 13.95 $ 12.13
------------ ------------ ------------
Investment income (loss)--net*** .06 (.09) (.02)
Realized and unrealized gain--net 2.26 .42 1.84
------------ ------------ ------------
Total from investment operations 2.32 .33 1.82
------------ ------------ ------------
Net asset value, end of period $ 16.60 $ 14.28 $ 13.95
============ ============ ============
Total Investment Return**
Based on net asset value per share 16.25% 2.37% 15.00%+++
============ ============ ============
Ratios to Average Net Assets
Expenses 1.41% 1.41% 1.42%*
============ ============ ============
Investment income (loss)--net .39% (.60%) (.53%)*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 21,066 $ 10,254 $ 14
============ ============ ============
Portfolio turnover 87.68% 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, 2005
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 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
asked 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 asked 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
asked 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 based upon quoted fair
valuations received daily by the Fund from a pricing service or counterparty.
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, 2005
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.
(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. AUGUST 31, 2005
Notes to Financial Statements (continued)
(i) 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, $293,243 has been reclassified between undistributed net
investment income and accumulated net realized capital losses and $44,949 has
been reclassified between paid-in capital in excess of par and undistributed
net investment income as a result of permanent differences attributable to
foreign currency transactions and non-deductible expenses. 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 Plan 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"), an affiliate of MLIM, 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.
For the year ended August 31, 2005, 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 $52,793 $674,327
Class I $ 510 $ 6,538
For the year ended August 31, 2005, MLPF&S received contingent deferred sales
charges of $1,108,100 and $99,290 relating to transactions in Class B and
Class C Shares, respectively.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Notes to Financial Statements (continued)
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, 2005, the Fund lent securities with a value of
$49,105,569 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, 2005, MLIM, LLC received $226,581 in securities lending agent
fees.
In addition, MLPF&S received $959,635 in commissions on the execution of
portfolio security transactions for the Fund for the year ended August 31,
2005.
For the year ended August 31, 2005, the Fund reimbursed MLIM $120,043 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, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 2005 were $4,516,729,490 and $5,211,579,439,
respectively.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$774,793,559 and $106,236,353 for the years ended August 31, 2005 and August
31, 2004, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares sold 16,184,766 $ 271,957,651
Automatic conversion of shares 7,528,380 127,252,940
--------------- -----------------
Total issued 23,713,146 399,210,591
Shares redeemed (34,848,778) (588,888,158)
--------------- -----------------
Net decrease (11,135,632) $ (189,677,567)
=============== =================
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 B Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares sold 11,204,965 $ 172,917,581
--------------- -----------------
Automatic conversion of shares (8,207,396) (127,252,940)
Shares redeemed (32,306,774) (499,319,170)
--------------- -----------------
Total redeemed (40,514,170) (626,572,110)
--------------- -----------------
Net decrease (29,309,205) $ (453,654,529)
=============== =================
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)
--------------- -----------------
Total redeemed (39,679,052) (586,146,988)
--------------- -----------------
Net decrease (19,347,472) $ (283,102,196)
=============== =================
Class C Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares sold 14,049,842 $ 217,937,491
Shares redeemed (15,180,014) (235,799,878)
--------------- -----------------
Net decrease (1,130,172) $ (17,862,387)
=============== =================
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 I Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares sold 21,213,921 $ 359,847,700
Shares redeemed (27,940,399) (482,078,390)
--------------- -----------------
Net decrease (6,726,478) $ (122,230,690)
=============== =================
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Notes to Financial Statements (concluded)
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 R Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares sold 953,895 $ 15,021,287
Shares redeemed (402,314) (6,389,673)
--------------- -----------------
Net increase 551,581 $ 8,631,614
=============== =================
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
=============== =================
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 a group of lenders, which
expires November 2005. 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 .07% 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 defined in the credit agreement. The Fund did not
borrow under the credit agreement during the year ended August 31, 2005.
6. Distributions to Shareholders:
As of August 31, 2005, the components of accumulated losses on a tax basis
were as follows:
Undistributed ordinary income--net $ 24,939,367
Undistributed long-term capital gains--net --
-----------------
Total undistributed earnings--net 24,939,367
Capital loss carryforward (2,294,772,471)*
Unrealized gains--net 685,206,194**
-----------------
Total accumulated losses--net $ (1,584,626,910)
=================
* On August 31, 2005, the Fund had a net capital loss carryforward
of $2,294,772,471, of which $19,341,544 expires in 2009,
$906,975,250 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.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
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, 2005, 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 the 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. We were not engaged to perform an audit of the Fund's internal
controls over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Fund's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of August 31, 2005 by
correspondence with the custodian. 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, 2005, 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 17, 2005
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Officers and Directors
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
Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds since 130 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 2001; 175 Portfolios
Princeton, Director Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 to 2001 and Senior Vice President from 1999
Age: 51 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since
2001; President of Princeton Administrators,
L.P. ("Princeton Administrators") since 2001;
Chief Investment Officer of Oppenheimer Funds,
Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
* Mr. Doll 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. Doll
is an "interested person," as defined in the Investment Company Act, of the Fund
based on his current positions with MLIM, FAM, Princeton Services and Princeton
Administrators. Directors serve until their resignation, removal or death, or
until December 31 of the year in which they turn 72. As Fund President, Mr. Doll
serves at the pleasure of the Board of Directors.
Independent Directors*
James H. Bodurtha** Director 2002 to Director, The China Business Group, Inc. since 39 Funds None
P.O. Box 9095 present 1996 and Executive Vice President thereof from 59 Portfolios
Princeton, 1996 to 2003; Chairman of the Board, Berkshire
NJ 08543-9095 Holding Corporation since 1980; Partner, Squire,
Age: 61 Sanders & Dempsey from 1980 to 1993.
Kenneth A. Froot Director 2005 to Professor, Harvard University since 1992; 39 Funds None
P.O. Box 9095 present Professor, Massachusetts Institute of Technology 59 Portfolios
Princeton, from 1986 to 1992.
NJ 08543-9095
Age: 48
Joe Grills** Director 1994 to Member of the Committee of Investment of 39 Funds Kimco Realty
P.O. Box 9095 present Employee Benefit Assets of the Association 59 Portfolios Corporation
Princeton, of Financial Professionals ("CIEBA") since
NJ 08543-9095 1986; Member of CIEBA's Executive Committee
Age: 70 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, Vice Chairman thereof from
2002 to 2005, and Chairman thereof since 2005;
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.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Officers and Directors (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)
Herbert I. London Director 2002 to John M. Olin Professor of Humanities, New 39 Funds None
P.O. Box 9095 present York University since 1993 and Professor thereof 59 Portfolios
Princeton, since 1980; President, Hudson Institute since
NJ 08543-9095 1997 and Trustee thereof since 1980; Dean,
Age: 66 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.
Roberta Cooper Ramo Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 39 Funds None
P.O. Box 9095 present Sisk, P.A. since 1993; President, American Bar 59 Portfolios
Princeton, Association from 1995 to 1996 and Member of
NJ 08543-9095 the Board of Governors thereof from 1994 to
Age: 63 1997; Shareholder, Poole, Kelly & Ramo, Attorneys
at Law, P.C. from 1977 to 1993; Director of 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; Vice President,
American Law Institute since 2004.
Robert S. Salomon, Jr. Director 1996 to Principal of STI Management (investment adviser) 39 Funds None
P.O. Box 9095 present since 1994; Chairman and CEO of Salomon 59 Portfolios
Princeton, Brothers Asset Management Inc. from 1992 to
NJ 08543-9095 1995; Chairman of Salomon Brothers Equity
Age: 68 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 Inc. from 1975 to
1991; Trustee, Commonfund from 1980 to 2001.
Stephen B. Swensrud Director 1992 to Chairman of Fernwood Advisors, Inc. (investment 40 Funds None
P.O. Box 9095 present adviser) since 1996; Principal, Fernwood 60 Portfolios
Princeton, Associates (financial consultants) since 1975;
NJ 08543-9095 Chairman of R.P.P. Corporation (manufacturing
Age: 72 company) since 1978; Director of International
Mobile Communications, Inc. (telecommunications)
since 1998.
* Directors serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
** Co-Chairman of the Board and the Audit Committee.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AUGUST 31, 2005
Officers and Directors (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 1999;
P.O. Box 9011 President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
Princeton, and and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
NJ 08543-9011 Treasurer 1999 to President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIMfrom
Age: 45 present 1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
Lawrence R. Fuller Vice 1992 to Managing Director (Equities) of MLIM since 2000; Director of MLIM from 1997
P.O. Box 9011 President present to 2000.
Princeton,
NJ 08543-9011
Age: 64
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director
Age: 54 and Global Director of Compliance at Citigroup Asset Management from 2000
to 2002; Chief Compliance Officer at Soros Fund Management in 2000; Chief
Compliance Officer at Prudential Financial from 1995 to 2000; Senior Counsel in
the Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 45
* 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
JPMorgan Chase Bank, N.A.
3 Chase MetroTech Center
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
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.
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 at 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, 2005
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 (resigned as of October 1, 2004),
(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, 2005 - $43,000
Fiscal Year Ending August 31, 2004 - $41,000
(b) Audit-Related Fees - Fiscal Year Ending August 31, 2005 - $0
Fiscal Year Ending August 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending August 31, 2005 - $5,700
Fiscal Year Ending August 31, 2004 - $5,200
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2005 - $0
Fiscal Year Ending August 31, 2004 - $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, 2005 - $5,700
Fiscal Year Ending August 31, 2004 - $5,200
(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) - $0, 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 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Fundamental Growth Fund, Inc.
Date: October 19, 2005
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/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Fundamental Growth Fund, Inc.
Date: October 19, 2005
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Fundamental Growth Fund, Inc.
Date: October 19, 2005