As filed with the Securities and Exchange Commission on July 23, 2001
Securities Act File No. 333-__________
Investment Company Act File No. 811-6669
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-----------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
[_] Pre-Effective Amendment No.
[_] Post-Effective Amendment No.
(Check appropriate box or boxes)
-----------------
Merrill Lynch Fundamental Growth Fund, Inc.
(Exact Name of Registrant as Specified in its Charter)
-----------------
(609) 282-2800
(Area Code and Telephone Number)
-----------------
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
-----------------
Terry K. Glenn
Merrill Lynch Fundamental Growth Fund, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey 08536
Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
-----------------
Copies to:
Frank P. Bruno, Esq. Michael J. Hennewinkel, Esq.
SIDLEY AUSTIN BROWN & WOOD LLP Merrill Lynch investment Managers, L.P.
One World Trade Center 800 Scudders Mill Road
New York, New York 10048-0557 Plainsboro, New Jersey 08536
-----------------
It is proposed that this filing will become effective on August 22, 2001
pursuant to Rule 488.
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
Title of Securities Being Registered: Common Stock, Par Value $.10 per
share.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
================================================================================
MERRILL LYNCH GROWTH FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
-----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-----------------
To Be Held On October 15, 2001
TO THE SHAREHOLDERS OF
MERRILL LYNCH GROWTH FUND:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Meeting") of Merrill Lynch Growth Fund ("Growth Fund") will be held at the
offices of Merrill Lynch Investment Managers, L.P., 800 Scudders Mill Road,
Plainsboro, New Jersey, on October 15, 2001 at 10:00 a.m., Eastern time, for
the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization (the
"Agreement and Plan") providing for the acquisition by Merrill Lynch
Fundamental Growth Fund, Inc. ("Fundamental Growth") of substantially all of
the assets, and the assumption by Fundamental Growth of substantially all of
the liabilities, of Growth Fund, in return solely for an equal aggregate value
of newly-issued shares of common stock of Fundamental Growth. The Agreement and
Plan also provides for distribution of such shares of common stock of
Fundamental Growth to shareholders of Growth Fund in liquidation of Growth
Fund. A vote in favor of the approval of the Agreement and Plan will constitute
a vote in favor of the liquidation and dissolution of Growth Fund under the
laws of the Commonwealth of Massachusetts and the termination of Growth Fund's
registration under the Investment Company Act of 1940, as amended; and
(2) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
Shareholders of Growth Fund are not entitled to appraisal rights in
connection with the transaction.
The Board of Trustees of Growth Fund has fixed the close of business on
August 17, 2001 as the record date for the determination of shareholders of
Growth Fund entitled to notice of, and to vote at, the Meeting or any
adjournment thereof.
A complete list of the shareholders of Growth Fund entitled to vote at the
Meeting will be available and open to the examination of any shareholder of
Growth Fund for any purpose germane to the Meeting during ordinary business
hours from and after October 1, 2001 at the offices of Growth Fund, 800
Scudders Mill Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meeting. Shareholders of Growth
Fund who do not expect to attend the Meeting in person are requested to
complete, date and sign the enclosed form of proxy and return it promptly in
the envelope provided for that purpose. If you have been provided with the
opportunity on your proxy card or voting instruction form to provide voting
instructions via telephone or the internet, please take advantage of these
prompt and efficient voting options. The enclosed proxy is being solicited on
behalf of the Board of Trustees of Growth Fund.
[If you have any questions regarding the enclosed proxy material or need
assistance in voting your shares, please contact our proxy solicitor, Georgeson
Shareholder Communications Inc., at 1-___-___-____.]
By Order of the Board of Trustees,
LORI A. MARTIN
Secretary
Merrill Lynch Growth Fund
Plainsboro, New Jersey
Dated: August __, 2001
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND
PROSPECTUS DATED JULY 23, 2001
PROXY STATEMENT OF
MERRILL LYNCH GROWTH FUND
FOR USE AT A SPECIAL MEETING OF SHAREHOLDERS
To Be Held On October 15, 2001
---------------------
PROSPECTUS OF
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
---------------------
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Trustees of Merrill Lynch
Growth Fund, a Massachusetts business trust ("Growth Fund"), for use at the
Special Meeting of Shareholders of Growth Fund (the "Meeting") called to
approve or disapprove the proposed reorganization whereby Merrill Lynch
Fundamental Growth Fund, Inc., a Maryland corporation ("Fundamental Growth"),
will acquire substantially all of the assets, and will assume substantially all
of the liabilities, of Growth Fund, in return solely for an equal aggregate
value of newly-issued shares of common stock of Fundamental Growth (the
"Reorganization"). Immediately upon the acquisition by Fundamental Growth of
the assets of Growth Fund and the assumption by Fundamental Growth of the
liabilities of Growth Fund, Growth Fund will distribute the shares of common
stock of Fundamental Growth received in the Reorganization to the shareholders
of Growth Fund. Thereafter, Growth Fund will terminate its registration under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and will be terminated in accordance with the laws of the Commonwealth of
Massachusetts.
Holders of shares of beneficial interest of Growth Fund will receive that
class of shares of common stock of Fundamental Growth having the same letter
designation (i.e., Class A, Class B, Class C or Class D) and the same
distribution fees, account maintenance fees, and sales charges (including
contingent deferred sales charges ("CDSCs")), if any (the "Corresponding
Shares"), as the shares of beneficial interest of Growth Fund held by them
immediately prior to the Reorganization. The aggregate net asset value of the
Corresponding Shares of Fundamental Growth to be issued to the shareholders of
Growth Fund will equal the aggregate net asset value of the outstanding shares
of beneficial interest of Growth Fund as set forth in the Agreement and Plan of
Reorganization. Growth Fund and Fundamental Growth sometimes are referred to in
this Proxy Statement and Prospectus collectively as the "Funds" and
individually as a "Fund," as the context requires. The fund resulting from the
Reorganization is sometimes referred to in this Proxy Statement and Prospectus
as the "Combined Fund."
This Proxy Statement and Prospectus serves as a prospectus of Fundamental
Growth under the Securities Act of 1933, as amended (the "Securities Act"), in
connection with the issuance of shares of Fundamental Growth to Growth Fund
pursuant to the terms of the Reorganization.
(continued on next page)
---------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Proxy Statement and Prospectus.
Any representation to the contrary is a criminal offense.
---------------------
The date of this Proxy Statement and Prospectus is August __, 2001
Both Growth Fund and Fundamental Growth are open-end management investment
companies that seek to provide shareholders with growth of capital. The
investment objective of Fundamental Growth is to seek long-term growth of
capital. Fundamental Growth tries to achieve its investment objective by
investing primarily in a portfolio of common stocks of U.S. companies that
Fundamental Growth management believes have shown above-average rates of
earnings growth over the long-term. The investment objective of Growth Fund is
to seek growth of capital and, secondarily, income. Growth Fund invests
primarily in common stock of companies that Growth Fund management believes
have the potential to achieve above average growth rates in earnings, revenues,
cash flow or earnings before interest, taxes, depreciation and amortization. No
assurance can be given that the Combined Fund will achieve its investment
objective after the Reorganization.
This Proxy Statement and Prospectus sets forth concisely the information
about Fundamental Growth that shareholders of Growth Fund should know as they
consider the Reorganization and should be retained for future reference. Growth
Fund authorized the solicitation of proxies in connection with the
Reorganization solely on the basis of this Proxy Statement and Prospectus and
the accompanying documents. The Board of Trustees of Growth Fund has fixed the
close of business on August 17, 2001 as the record date (the "Record Date") for
the determination of shareholders of Growth Fund entitled to notice of and to
vote at the Meeting and at any adjournment thereof. Each shareholder of Growth
Fund on the Record Date will be entitled to one vote for each share of Growth
Fund held, with no share having cumulative voting rights. As of the Record
Date, Growth Fund had ___________ shares outstanding.
The current prospectus relating to Fundamental Growth, dated December 11,
2000, as amended and supplemented to date (the "Fundamental Growth
Prospectus"), accompanies this Proxy Statement and Prospectus and is
incorporated herein by reference. The Annual Report to Stockholders of
Fundamental Growth for the fiscal year ended August 31, 2000 and the
Semi-Annual Report to Stockholders of Fundamental Growth for the six months
ended February 28, 2001 also accompany this Proxy Statement and Prospectus. A
statement of additional information relating to Fundamental Growth, dated
December 11, 2000, as amended and supplemented to date (the "Fundamental Growth
Statement"), a prospectus relating to Growth Fund, dated February 16, 2001
(the "Growth Fund Prospectus"), and a statement of additional information
relating to Growth Fund, dated February 16, 2001 (the "Growth Fund
Statement"), have been filed with the Securities and Exchange Commission (the
"Commission"). Such documents may be obtained, without charge, by writing
either Growth Fund or Fundamental Growth at the address above, or by calling
1-800-456-4587, ext. 123. The Growth Fund Prospectus, as amended and
supplemented to date, is incorporated herein by reference.
TABLE OF CONTENTS
Page
INTRODUCTION.................................................................1
SUMMARY......................................................................1
The Reorganization.......................................................1
What Shareholders of Growth Fund Will Receive in the
Reorganization...........................................................2
Reasons for the Reorganization...........................................2
Fee Tables...............................................................3
RISK FACTORS AND SPECIAL CONSIDERATIONS.....................................13
COMPARISON OF THE FUNDS.....................................................18
Financial Highlights....................................................18
Investment Objectives...................................................26
Investment Policies.....................................................26
Other Investment Policies...............................................27
Information Regarding Options, Futures and Foreign Exchange
Transactions............................................................29
Investment Restrictions.................................................29
Management..............................................................29
Purchase of Shares......................................................31
Redemption of Shares....................................................31
Performance.............................................................31
Code of Ethics..........................................................32
Shareholder Rights......................................................32
Dividends...............................................................33
Automatic Dividend Reinvestment Plan....................................33
Tax Information.........................................................33
Portfolio Transactions..................................................33
Portfolio Turnover......................................................33
Additional Information..................................................34
THE REORGANIZATION..........................................................35
General.................................................................35
Procedure...............................................................35
Terms of the Agreement and Plan.........................................36
Potential Benefits to Shareholders as a Result of the
Reorganization.......................................................37
Tax Consequences of the Reorganization..................................38
Appraisal Rights........................................................39
Capitalization..........................................................39
INFORMATION CONCERNING THE MEETING..........................................40
Date, Time and Place of Meeting.........................................40
Solicitation, Revocation and Use of Proxies.............................40
Record Date and Outstanding Shares......................................40
Security Ownership of Certain Beneficial and Registered
Owners and Management of Growth Fund and Fundamental
Growth...............................................................40
Voting Rights and Required Vote.........................................40
ADDITIONAL INFORMATION......................................................41
LEGAL PROCEEDINGS...........................................................41
LEGAL OPINIONS..............................................................42
EXPERTS.....................................................................42
EXHIBIT I - AGREEMENT AND PLAN OF REORGANIZATION...........................I-1
EXHIBIT II - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL AND REGISTERED
OWNERS OF SHARES OF FUNDAMENTAL GROWTH AND GROWTH FUND.....II-1
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Trustees of Growth Fund for
use at the Meeting to be held at the offices of Merrill Lynch Investment
Managers, L.P. ("MLIM"), 800 Scudders Mill Road, Plainsboro, New Jersey on
October 15, 2001, at 10:00 a.m., Eastern time. The mailing address for Growth
Fund is P.O. Box 9011, Princeton, New Jersey 08543-9011. The approximate
mailing date of this Proxy Statement and Prospectus is August 31, 2001.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation of
such proxy to the Secretary of Growth Fund at the address indicated above or by
voting in person at the Meeting. All properly executed proxies received prior
to the Meeting will be voted at the Meeting in accordance with the instructions
marked thereon or otherwise as provided therein. Unless instructions to the
contrary are marked, properly executed proxies will be voted "FOR" the proposal
to approve the Agreement and Plan of Reorganization between Growth Fund and
Fundamental Growth (the "Agreement and Plan").
Approval of the Agreement and Plan will require the affirmative vote of
Growth Fund shareholders representing not less than two-thirds of the total
number of votes entitled to be cast thereon. Shareholders of Growth Fund will
vote as a single class on the proposal to approve the Agreement and Plan. See
"Information Concerning the Meeting."
Fundamental Growth is incorporated as a Maryland corporation while Growth
Fund is organized as a Massachusetts business trust. In each jurisdiction,
nomenclature varies. For ease of reference and clarity of presentation, shares
of beneficial interest of Growth Fund and shares of common stock of Fundamental
Growth are each referred to herein as "shares"; holders of shares are referred
to herein as "shareholders"; the Trustees of Growth Fund and the Directors of
Fundamental Growth are each referred to herein as "Board Members"; the Board of
Trustees of Growth Fund and the Board of Directors of Fundamental Growth are
each referred to herein as a "Board" and collectively as the "Boards"; the
Declaration of Trust of Growth Fund and the Articles of Incorporation of
Fundamental Growth, each as amended and supplemented, are each referred to
herein as a "Charter"; MLIM, in its capacity as Investment Adviser for Growth
Fund and in its capacity as Manager for Fundamental Growth, is referred to
herein as the "Investment Adviser"; and the Investment Advisory Agreement for
Growth Fund and the Management Agreement for Fundamental Growth, each as
amended, are each referred to herein as an "Investment Advisory Agreement."
The Board of Growth Fund knows of no business other than that discussed
above that will be presented for consideration at the Meeting. If any other
matter is properly presented, it is the intention of the persons named in the
enclosed proxy to vote in accordance with their best judgment.
This Proxy Statement and Prospectus serves as a prospectus of Fundamental
Growth under the Securities Act in connection with the issuance of shares of
Fundamental Growth to Growth Fund pursuant to the terms of the Agreement and
Plan.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus (including documents incorporated by
reference) and is qualified in its entirety by reference to the more complete
information contained in this Proxy Statement and Prospectus and in the
Agreement and Plan, attached hereto as Exhibit I.
The Reorganization
At a meeting of the Board of Growth Fund held on June 20, 2001 and a
meeting of the Board of Fundamental Growth held on July 11, 2001, the Boards
approved the proposal pursuant to which Fundamental Growth would acquire
substantially all of the assets of Growth Fund and assume substantially all of
the liabilities of Growth Fund in return for newly issued shares of Fundamental
Growth to be distributed to the shareholders of Growth Fund in proportion to
such shareholders' interest in Growth Fund in liquidation of Growth Fund.
What Shareholders of Growth Fund Will Receive in the Reorganization
If the Agreement and Plan is approved and the Reorganization is
consummated:
o Fundamental Growth will acquire the assets and assume the liabilities
of Growth Fund;
o You will become a shareholder of Fundamental Growth; and
o You will receive Corresponding Shares that have the same aggregate net
asset value as the shares of Growth Fund held by you immediately prior
to the Reorganization.
You should consult your tax advisors regarding the effect of the
Reorganization in light of your individual circumstances.
Reasons for the Reorganization
The Board of Growth Fund has approved the Agreement and Plan and
recommends that you vote to approve the Agreement and Plan. The Board of Growth
Fund has determined that Growth Fund shareholders are likely to benefit from
the Reorganization and believe that the Reorganization is in the best interests
of Growth Fund and its shareholders and that the interests of Growth Fund
shareholders will not be diluted as a result of the Reorganization.
In reaching their conclusion, the Board of Growth Fund considered a number
of factors, including the following:
o After the Reorganization, it is expected that Growth Fund shareholders
will be invested in a substantially larger open-end fund (for example,
as of February 28, 2001, the net assets of Growth Fund were $1.8
billion while the net assets of the Combined Fund would have been
approximately $7.7 billion on a pro forma basis);
o After the Reorganization, it is expected that Growth Fund shareholders
will experience a lower operating expense ratio on a pro forma basis;
o After the Reorganization, it is expected that Growth Fund shareholders
will experience improved economies of scale;
o After the Reorganization, it is expected that Growth Fund shareholders
will benefit from greater flexibility in portfolio management;
o After the Reorganization, Growth Fund shareholders will be invested in
a diversified fund;
o After the Reorganization, it is expected that Fundamental Growth will
not sell or otherwise dispose of any of the assets of Growth Fund
acquired in the Reorganization, except for dispositions made in the
ordinary course of business, because the securities currently held in
the portfolio of Growth Fund are consistent with the investment
objective and policies of Fundamental Growth and are not prohibited by
the investment restrictions of Fundamental Growth; and
o After the Reorganization, Growth Fund shareholders can still redeem
their shares or exchange them into certain other Merrill Lynch mutual
funds.
See "Fee Tables" below and "The Reorganization--Potential Benefits to
Shareholders as a Result of the Reorganization."
If all of the required approvals are obtained, it is anticipated that the
Reorganization will occur as soon as practicable thereafter, provided that
Growth Fund and Fundamental Growth have obtained prior to that time an opinion
of counsel concerning the tax consequences of the Reorganization as set forth
in the Agreement and Plan. See "The Reorganization--Tax Consequences of the
Reorganization." The Agreement and Plan may be terminated, and the
Reorganization abandoned, whether before or after approval by the shareholders
of Growth Fund, at any time prior to the Closing Date (as defined below), (i)
by mutual consent of the Board of Growth Fund and the Board of Fundamental
Growth; (ii) by Growth Fund if any condition to Growth Fund's obligations has
not been fulfilled or waived by such Fund; or (iii) by Fundamental Growth if
any condition to Fundamental Growth's obligations has not been fulfilled or
waived by such Fund.
Fee Tables
The fee tables set forth below provide information about the fees and
expenses attributable to shares of each class of Growth Fund and Fundamental
Growth as of February 28, 2001 and, assuming the Reorganization had taken place
on February 28, 2001, the estimated pro forma annualized fees and expenses
attributable to shares of each class of the Combined Fund. Future fees and
expenses may be greater or less than those indicated below.
Fee Table for Class A and Class B Shareholders of Growth Fund,
Fundamental Growth and the Combined Fund* as of February 28, 2001
(Unaudited)
Class A Shares Class B Shares (b)
---------------------------------- -----------------------------------
Actual Pro Forma Actual Pro Forma
---------------------- --------- ---------------------- ---------
Growth Fundamental Combined Growth Fundamental Combined
Fund Growth Fund* Fund Growth Fund*
---- ------ ----- ---- ------ -----
Shareholder Fees (fees paid
directly from shareholder's
investment)(a):
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of
offering price)...................... 5.25%(c) 5.25%(c) 5.25%(c) None None None
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is lower)............................ None(d) None(d) None(d) 4.00%(c) 4.00%(c) 4.00%(c)
Maximum Sales Charge (Load)
Imposed on Dividend
Reinvestments........................ None None None None None None
Redemption Fee......................... None None None None None None
Exchange Fee........................... None None None None None None
Annual Fund Operating Expenses
(expenses that are deducted from
fund assets):
Investment Advisory Fee................ 0.65%(e) 0.61%(f) 0.60%(g) 0.65%(e) 0.61%(f) 0.60%(g)
Distribution and/or Service (12b-1)
Fees(h).............................. None None None 1.00% 1.00% 1.00%
Other Expenses (including transfer
agency fees)(i)...................... 0.36% 0.14% 0.14% 0.36% 0.15% 0.14%
---------- -------------- ---------- --------- ------------- -----------
Total Annual Fund Operating Expenses 1.01% 0.75% 0.74% 2.01% 1.76% 1.74%
========== ============== ========== ========= ============= ===========
_______________
Footnotes appear on the next page.
Fee Table for Class C and Class D Shareholders of Growth Fund,
Fundamental Growth and the Combined Fund* as of February 28, 2001
(Unaudited)
Class C Shares Class D Shares
------------------------------------ -----------------------------------
Actual Pro Forma Actual Pro Forma
---------------------- --------- ---------------------- ---------
Growth Fundamental Combined Growth Fundamental Combined
Fund Growth Fund* Fund Growth Fund*
---- ------ ----- ---- ------ -----
Shareholder Fees (fees paid
directly from shareholder's
investment)(a):
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of
offering price)..................... None None None 5.25%(c) 5.25%(c) 5.25%(c)
Maximum Deferred Sales Charge (Load)
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower)....... 1.00%(c) 1.00%(c) 1.00%(c) None(d) None(d) None(d)
Maximum Sales Charge (Load)
Imposed on Dividend
Reinvestments....................... None None None None None None
Redemption Fee......................... None None None None None None
Exchange Fee........................... None None None None None None
Annual Fund Operating Expenses
(expenses that are deducted
from fund assets):
Investment Advisory Fee................ 0.65%(e) 0.61%(f) 0.60%(g) 0.65%(e) 0.61%(f) 0.60%(g)
Distribution and/or Service (12b-1)
Fees(h)............................. 1.00% 1.00% 1.00% 0.25% 0.25% 0.25%
Other Expenses (including transfer
agency fees)(i)..................... 0.36% 0.16% 0.14% 0.36% 0.13% 0.14%
---------- -------------- ----------- --------- ------------- -----------
Total Annual Fund Operating Expenses... 2.01% 1.77% 1.74% 1.26% 0.99% 0.99%
========== ============== =========== ========= ============= ===========
- ---------------
* The expenses for the Combined Fund represent the estimated annualized expenses assuming Fundamental Growth had
acquired the assets and assumed the liabilities of Growth Fund as of February 28, 2001.
(a) In addition, Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("Merrill Lynch") may charge clients a
processing fee (currently $5.35) when a client buys or sells shares.
(b) Class B shares convert to Class D shares automatically approximately eight years after initial purchase and
will no longer be subject to distribution fees.
(c) Some investors may qualify for reductions in the sales charge (load).
(d) A shareholder may pay a deferred sales charge if such shareholder purchases $1 million or more and redeems
within one year.
(e) Growth Fund pays MLIM a monthly investment advisory fee at the annual rate of 0.65% of the average daily net
assets of Growth Fund. MLIM has voluntarily agreed to reduce its fee as Fund assets grow. The reduced
investment advisory fee is equal to 0.65% of the average daily net assets of Growth Fund not exceeding $1.0
billion; 0.625% of the average daily net assets of Growth Fund from $1.0 billion to $1.5 billion; 0.60% of the
average daily net assets of Growth Fund from $1.5 billion to $10 billion; and 0.575% of the average daily net
assets of Growth Fund in excess of $10 billion. For the fiscal year ended October 31, 2000, MLIM received a
monthly investment advisory fee equal to 0.62% of the average daily net assets of Growth Fund. For the six
month period ended February 28, 2001, MLIM received a monthly investment advisory fee equal to 0.63% of the
average daily net assets of Growth Fund. The Investment Advisory Fee and Total Annual Fund Operating Expenses
in the table above have been restated for Growth Fund to assume the absence of such voluntary waiver because
MLIM may reduce or discontinue such voluntary waiver of investment advisory fees at any time without notice.
After taking such waiver into account, Growth Fund's Total Annual Fund Operating Expenses as of February 28,
2001 are 0.99%, 1.99%, 1.99% and 1.24% for Classes A, B, C and D, respectively.
(Footnotes continued on next page)
(footnotes continued from preceding page)
(f) Fundamental Growth has agreed to pay MLIM a monthly investment advisory fee at the annual rate of 0.65% of the
average daily net assets of Fundamental Growth not exceeding $1.0 billion; 0.625% of the average daily net
assets of Fundamental Growth from $1.0 billion to $1.5 billion; 0.60% of the average daily net assets of
Fundamental Growth from $1.5 billion to $5 billion; 0.575% of the average daily net assets of Fundamental
Growth from $5 billion to $7.5 billion; and 0.55% of the average daily net assets of Fundamental Growth in
excess of $7.5 billion. For the fiscal year ended August 31, 2000, MLIM received a monthly investment advisory
fee equal to 0.61% of the average daily net assets of Fundamental Growth. [For the six month period ended
February 28, 2001, MLIM received a monthly investment advisory fee equal to 0.61% of the average daily net
assets of Fundamental Growth.]
(g) After the Reorganization, the investment advisory fee paid by the Combined Fund will be at Fundamental
Growth's contractual rate. Assuming the Reorganization had taken place on February 28, 2001, the Combined Fund
would have paid, on a pro forma basis, a monthly investment advisory fee at the annual rate of 0.60% of the
average daily net assets of the Combined Fund.
(h) The Funds call the "Service Fee" an "Account Maintenance Fee." Account Maintenance Fee is the term used in the
Prospectuses of the Funds and all other Fund materials. If a shareholder holds Class B or Class C shares over
time, it may cost that shareholder more in distribution (12b-1) fees than the maximum sales charge that such
shareholder would have paid if he or she had bought one of the other classes.
(i) Each Fund pays Financial Data Services, Inc. (the "Transfer Agent") $11.00 for each Class A and Class D
shareholder account and $14.00 for each Class B and Class C shareholder account and reimburses the Transfer
Agent's out-of-pocket expenses. Each Fund pays a 0.10% fee for certain accounts that participate in the
Merrill Lynch Mutual Fund Advisor program. Each Fund also pays a $0.20 monthly closed account charge, which is
assessed upon all accounts that close during the year. This fee begins the month following the month the
account is closed and ends at the end of the calendar year. For the fiscal year ended August 31, 2000,
Fundamental Growth paid the Transfer Agent fees totaling $6,266,647. For the fiscal year ended October 31,
2000, Growth Fund paid the Transfer Agent fees totaling $6,983,015.
Examples:
These examples assume that you invest $10,000 in the relevant Fund for the
time periods indicated, that your investment has a 5% return each year, that
you pay the sales charges, if any, that apply to the particular class and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
---
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------------------
Growth Fund..................... $623 $830 $1,054 $1,696
Fundamental Growth.............. $598 $752 $920 $1,406
Combined Fund+.................. $597 $749 $915 $1,395
- ----------------------------------------------------------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------------------------------------------------------
Growth Fund..................... $604 $931 $1,283 $2,144*
Fundamental Growth.............. $579 $854 $1,154 $1,875*
Combined Fund+.................. $577 $848 $1,144 $1,853*
- ----------------------------------------------------------------------------------------------------------------------
Class C
- ----------------------------------------------------------------------------------------------------------------------
Growth Fund..................... $304 $631 $1,083 $2,338
Fundamental Growth.............. $280 $557 $959 $2,084
Combined Fund+.................. $277 $548 $944 $2,052
- ----------------------------------------------------------------------------------------------------------------------
Class D
- ----------------------------------------------------------------------------------------------------------------------
Growth Fund..................... $647 $904 $1,180 $1,968
Fundamental Growth.............. $621 $824 $1,043 $1,674
Combined Fund+.................. $621 $824 $1,043 $1,674
- ---------------
+ Assumes the Reorganization had taken place on February 28, 2001.
* Assumes the conversion of Class B shares to Class D
shares approximately eight years after initial purchase.
EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
-------
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------------------
Growth Fund..................... $623 $830 $1,054 $1,696
Fundamental Growth.............. $598 $752 $920 $1,406
Combined Fund+.................. $597 $749 $915 $1,395
- ----------------------------------------------------------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------------------------------------------------------
Growth Fund..................... $204 $631 $1,083 $2,144*
Fundamental Growth.............. $179 $554 $954 $1,875*
Combined Fund+.................. $177 $548 $944 $1,853*
- ---------------------------------------------------------------------------------------------------------------------
Class C
- ----------------------------------------------------------------------------------------------------------------------
Growth Fund..................... $204 $631 $1,083 $2,338
Fundamental Growth.............. $180 $557 $959 $2,084
Combined Fund+.................. $177 $548 $944 $2,052
- ----------------------------------------------------------------------------------------------------------------------
Class D
- ----------------------------------------------------------------------------------------------------------------------
Growth Fund..................... $647 $904 $1,180 $1,968
Fundamental Growth.............. $621 $824 $1,043 $1,674
Combined Fund+.................. $621 $824 $1,043 $1,674
- ---------------
+ Assumes the Reorganization had taken place on February 28, 2001.
* Assumes conversion of Class B shares to Class D shares approximately eight years after initial purchase.
The foregoing Fee Tables and Examples are intended to assist investors in
understanding the costs and expenses that a Growth Fund or Fundamental Growth
shareholder bears directly or indirectly as compared to the costs and expenses
that would be borne by such investors taking into account the Reorganization.
The Examples set forth above assume reinvestment of all dividends and utilize a
5% annual rate of return as mandated by Commission regulations. The Examples
should not be considered a representation of past or future expenses or annual
rates of return, and actual expenses or annual rates of return may be more or
less than those assumed for purposes of the Examples. See "Summary," "The
Reorganization--Potential Benefits to Shareholders as a Result of the
Reorganization" and "Comparison of the Funds--Management," "--Purchase of
Shares" and "--Redemption of Shares."
Growth Fund............... Growth Fund was organized under the laws of the
Commonwealth of Massachusetts on December 11, 1986
under the name Merrill Lynch Retirement Equity
Fund. On March 1, 1991, the name of Growth Fund
was changed to Merrill Lynch Growth Fund for
Investment and Retirement. On June 27, 1996, the
name was changed to Merrill Lynch Growth Fund.
Growth Fund is a non-diversified, open-end
management investment company.
As of May 31, 2001, Growth Fund had aggregate net
assets of approximately $1.7 billion.
Fundamental Growth........ Fundamental Growth was incorporated under the laws
of the State of Maryland on April 30, 1992.
Fundamental Growth is a diversified, open-end
management investment company.
As of May 31, 2001, Fundamental Growth had
aggregate net assets of approximately $5.9
billion.
Comparison of the Funds... Investment Objective and Policies. The Funds have
similar, though not identical, investment
objectives. The investment objective of
Fundamental Growth is to seek long-term growth of
capital. The investment objective of Growth Fund
is to seek growth of capital and, secondarily,
income.
Fundamental Growth tries to achieve its investment
objective by investing in a diversified portfolio
consisting primarily of common stocks. Fundamental
Growth will generally invest at least 65% of its
total assets in the following equity securities:
common stock, convertible preferred stock,
securities convertible into common stock, and
rights to subscribe to common stock. In selecting
securities, Fundamental Growth management
emphasizes common stocks of companies that have
above-average rates of earnings growth. Some, but
not all, of the factors that may cause a company
to have an above-average rate of earnings growth
include: above average growth rate in sales,
improvement in its profit margin, providing
proprietary or niche products or services, leading
market share, and strong industry growth.
Fundamental Growth may invest in companies of any
size but emphasizes common stocks of companies
having a medium to large stock market
capitalization ($500 million or more). Fundamental
Growth may also invest up to 10% of its total
assets in the securities of foreign companies.
Securities of foreign companies may be in the form
of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other securities
convertible into securities of foreign companies.
Fundamental Growth's restriction limiting
investments in foreign securities to 10% of its
total assets does not include ADRs. Fundamental
Growth may use derivatives to hedge its portfolio
against market and currency risks and may also
lend its portfolio securities.
Fundamental Growth will normally invest a portion
of its assets in short-term debt securities, such
as commercial paper. Fundamental Growth may also
invest without limitation in short-term debt
securities (including repurchase agreements),
non-convertible preferred stocks and bonds or
government and money market securities when
Fundamental Growth management is unable to find
enough attractive equity investments and to reduce
exposure to equities when Fundamental Growth
management believes it is advisable to do so on a
temporary basis. Investment in these securities
may also be used to meet redemptions. Fundamental
Growth will generally invest in investment grade
debt securities.
Growth Fund tries to achieve its investment
objective by investing primarily in equity
securities. Growth Fund will generally invest at
least 65% of its total assets in equity
securities. Equity securities consist of: common
stock, preferred stock, securities convertible
into common stock, derivatives the value of which
is based on a common stock or group of common
stocks. In selecting securities, Growth Fund
management emphasizes stocks of companies that it
believes have the potential to achieve above
average growth rates in earnings, revenues, cash
flow or earnings before interest, taxes,
depreciation and amortization ("EBITDA"). A
company may achieve growth from: introducing
promising new products, exploiting new
technologies or developing new distribution
channels, achieving strong growth in sales of
existing products through improved pricing or
increasing sales volume, developing operating
efficiencies, and increasing market share. Growth
Fund employs a fundamental "bottom up" investment
style. This means that Growth Fund seeks to
identify individual companies with attractive
business attributes and does not place substantial
weight on other security selection techniques,
such as sector allocation or technical market
analysis.
Growth Fund will focus on investments in common
stock of large and mid-size companies having stock
market capitalizations of $2 billion or more.
Growth Fund invests mainly in U.S. companies, but
may invest up to 40% of its total assets in
securities of foreign companies. Growth Fund may
invest in securities from any country, including
emerging market countries. Growth Fund may invest
in securities denominated in currencies other than
the U.S. dollar.
In addition to Growth Fund's principal investment
strategies described above, Growth Fund may also
use derivatives for hedging purposes, including
anticipatory hedges, and may use options on
securities to seek increased return. Growth Fund
may also invest in when issued securities, delayed
delivery securities, forward commitments,
restricted and illiquid securities and standby
commitment agreements.
Under normal market conditions, Growth Fund may
invest up to 35% of its assets in debt securities.
Growth Fund will normally invest a portion of its
assets in short term debt securities, such as
commercial paper. Growth Fund invests in short
term debt securities when Growth Fund management
is unable to find enough attractive long term
investments, to reduce exposure to equities when
Growth Fund management believes it is advisable to
do so or to meet redemptions. As a temporary
measure for defensive purposes, Growth Fund may
invest more heavily in short term debt securities,
without limitation. Growth Fund also may invest up
to 5% of its total assets in debt securities rated
below investment grade by a nationally recognized
rating agency (e.g., rated below Baa by Moody's
Investors Services, Inc. ("Moody's") or BBB by
Standard & Poor's Ratings Services ("S&P")) or in
unrated debt securities that, in the judgment of
Growth Fund management, possess credit
characteristics similar to debt securities rated
investment grade or debt securities rated below
investment grade (commonly known as "junk bonds").
Growth Fund will not invest in debt securities
rated in the lowest rating categories (Ca or lower
for Moody's and CC or lower for S&P) unless Growth
Fund management believes that the financial
condition of the issuer or the protection afforded
the particular securities is stronger than would
otherwise be indicated by such low ratings.
Diversification. Growth Fund is classified as
non-diversified within the meaning of the
Investment Company Act, which means that the Fund
is not limited by the Investment Company Act with
respect to the proportion of its assets that it
may invest in securities of a single issuer.
However, in order to qualify as a regulated
investment company (a "RIC") under the Internal
Revenue Code of 1986, as amended (the "Code"),
Growth Fund must limit its investments so that at
the close of each quarter of the taxable year (i)
not more than 25% of the market value of the
Fund's total assets are invested in the securities
of a single issuer, or any two or more issuers
which are controlled by the Fund and engaged in
the same, similar or related businesses, and (ii)
with respect to 50% of the market value of its
total assets, not more than 5% of the market value
of its total assets are invested in the securities
or a single issuer, and the Fund does not own more
than 10% of the outstanding voting securities of a
single issuer.
Fundamental Growth is classified as a diversified
fund within the meaning of the Investment Company
Act. Accordingly, as a fundamental restriction,
with respect to 75% of its assets, Fundamental
Growth may invest no more than 5% of its assets in
the securities of any one issuer and may not
purchase more than 10% of the outstanding voting
securities of any one company.
Portfolio Management. MLIM serves as the
Investment Adviser for each of Fundamental Growth
and Growth Fund pursuant to separate Investment
Advisory Agreements between each Fund and MLIM.
With the exception of fees, the Investment
Advisory Agreements are substantially similar.
Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K.") acts as sub-adviser to both Growth Fund and
Fundamental Growth. Lawrence R. Fuller has served
as portfolio manager of Fundamental Growth since
1993. Stephen I. Silverman has served as portfolio
manager of Growth Fund since 1999. After the
Reorganization, Mr. Fuller will serve as the
portfolio manager of the Combined Fund.
Investment Advisory Fees. Pursuant to an
Investment Advisory Agreement between Fundamental
Growth and MLIM, Fundamental Growth pays MLIM a
monthly investment advisory fee at the annual rate
of 0.65% of the average daily net assets of
Fundamental Growth not exceeding $1.0 billion;
0.625% of the average daily net assets of
Fundamental Growth from $1 billion to $1.5
billion; 0.60% of the average daily net assets of
Fundamental Growth from $1.5 billion to $5
billion; 0.575% of the average daily net assets of
Fundamental Growth from $5.0 billion to $7.5
billion; and 0.55% of the average daily net assets
of Fundamental Growth in excess of $7.5 billion.
Pursuant to an Investment Advisory Agreement
between Growth Fund and MLIM, Growth Fund pays
MLIM a monthly investment advisory fee at the
annual rate of 0.65% of its average daily net
assets. MLIM has voluntarily agreed to reduce its
fees as Fund assets grow. The reduced investment
advisory fee is equal to 0.65% of the average
daily net assets of Growth Fund not exceeding $1.0
billion; 0.625% of the average daily net assets of
Growth Fund from $1.0 billion to $1.5 billion;
0.60% of the average daily net assets of Growth
Fund from $1.5 billion to $10 billion; and 0.575%
of the average daily net assets of Growth Fund in
excess of $10 billion. MLIM may reduce or
discontinue such voluntary waiver of investment
advisory fees at any time without notice. After
the Reorganization, the fee paid by the Combined
Fund would be at Fundamental Growth's lower
contractual rate. MLAM U.K.'s fees are paid by
MLIM and not by the Funds.
Class Structure. Each Fund uses the Merrill Lynch
Select PricingSM System under which four classes
of shares are offered with different sales charge
arrangements. The Class A, Class B, Class C and
Class D shares issued by Fundamental Growth are
substantially similar in all material respects to
the Class A, Class B, Class C and Class D shares
issued by Growth Fund, except that such shares
represent ownership interests in a different
investment portfolio. See "Comparison of the
Funds--Purchase of Shares" and "--Additional
Information--Shareholder Services."
Overall Operating Expense Ratio. The table below
shows the operating expense ratio for each class
of shares of Fundamental Growth and Growth Fund as
of February 28, 2001 and, assuming the
Reorganization had taken place on February 28,
2001, the estimated pro forma annualized expense
ratio for each class of shares of the Combined
Fund (in each case, including class specific
distribution fees and account maintenance fees
with respect to Fundamental Growth, Growth Fund
and the Combined Fund and excluding any voluntary
waiver of investment advisory fees due from the
Growth Fund).
Overall Operating Expense Ratio
-----------------------------------
Actual Pro Forma
--------------------- ---------
Class of Fundamental Growth Combined
Shares Growth Fund Fund
---------- ----------- ------ ---------
A......... 0.75% 1.01% 0.74%
B......... 1.76% 2.01% 1.74%
C......... 1.77% 2.01% 1.74%
D......... 0.99% 1.26% 0.99%
See "Fee Tables" above.
Purchase of Shares. Shares of Fundamental Growth
are offered continuously for sale to the public in
substantially the same manner as shares of Growth
Fund. See "Comparison of the Funds--Purchase of
Shares."
Redemption of Shares. The redemption procedures
for shares of Fundamental Growth are the same as
the redemption procedures for shares of Growth
Fund. For purposes of computing any CDSC that may
be payable upon disposition of Corresponding
Shares of Fundamental Growth acquired by
shareholders of Growth Fund in the Reorganization,
the holding period of Growth Fund shares
outstanding on the date the Reorganization takes
place will be "tacked" onto the holding period of
the Corresponding Shares of Fundamental Growth
acquired in the Reorganization. See "Comparison of
the Funds--Redemption of Shares." Class B shares
of the Combined Fund received in return for Class
B shares of Growth Fund purchased prior to June 1,
2001 will continue to be subject to the four-year
CDSC schedule in effect prior to June 1, 2001.
Class B shares of the Combined Fund received in
return for Class B shares of Growth Fund purchased
on or after June 1, 2001 will be subject to the
six-year CDSC schedule currently in effect. Class
B shares of the Combined Fund purchased on or
after June 1, 2001 will also be subject to the
six-year CDSC schedule currently in effect. See
"Your Account--Merrill Lynch Select PricingSM
System," "--Participation in Fee Based Programs"
and "--How to Buy, Sell, Transfer and Exchange
Shares" in the Fundamental Growth Prospectus.
Dividends. Growth Fund's policies with respect to
dividends are substantially the same as those of
Fundamental Growth. See "Comparison of the
Funds--Dividends."
Net Asset Value. Both Growth Fund and Fundamental
Growth determine net asset value of each class of
shares once daily as of the close of business on
the New York Stock Exchange (the "NYSE") on each
day the NYSE is open for trading based on prices
at the time of closing. The NYSE generally closes
at 4:00 p.m., Eastern time. Both Funds compute net
asset value per share in the same manner. See
"Comparison of the Funds--Additional
Information--Net Asset Value."
Voting Rights. The corresponding voting rights of
the holders of shares of each Fund are
substantially the same. See "Comparison of the
Funds--Additional Information--Capital Stock."
Other Significant Considerations. Shareholder
services available to Growth Fund shareholders,
such as providing the annual and semi-annual
reports, are the same as those available to
Fundamental Growth shareholders. See "Comparison
of the Funds--Additional Information--Shareholder
Services." An automatic dividend reinvestment plan
is available to shareholders of each Fund. These
plans are identical. See "Comparison of the
Funds--Automatic Dividend Reinvestment Plan" and
"--Additional Information--Shareholder Services."
Litigation................ In November, 2000, a putative class action lawsuit
was filed in Federal Court in the Middle District
of Florida on behalf of Florida investors against
Growth Fund, MLIM, certain present and former
individual Board Members of Growth Fund and
Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") seeking damages. The substance
of the claims is that Growth Fund and the other
defendants misrepresented and omitted material
facts regarding the "true nature of the Fund and
its holdings." The defendants, including Growth
Fund, have filed a motion to dismiss the
plaintiffs' complaint for lack of subject matter
jurisdiction. There has been no decision yet with
respect to this motion. Growth Fund and the other
defendants believe that the lawsuit is without
merit and intend to defend vigorously against the
claims. A second, nearly identical action was
filed in Florida state court by one of the
original plaintiffs in the federal action. This
lawsuit has been removed to federal court.
Plaintiffs have made a motion to remand this
action to state court, which defendants have
opposed. An oral argument in this matter has been
scheduled for August 13, 2001. Growth Fund and the
other defendants also believe that this second
lawsuit is without merit and have moved to have
the complaint dismissed. See "Legal Proceedings."
Tax Considerations........ Fundamental Growth and Growth Fund will receive an
opinion of counsel to the effect that, among other
things, neither Fundamental Growth nor Growth Fund
will recognize gain or loss in the Reorganization,
and Growth Fund shareholders will not recognize
gain or loss upon the receipt of shares of
Fundamental Growth in the Reorganization.
Consummation of the Reorganization is subject to
the receipt of such an opinion. The Reorganization
will not affect the status of Fundamental Growth
as a regulated investment company.
As of February 28, 2001, each of Growth Fund and
Fundamental Growth had significant net realized
capital losses and significant net unrealized
capital losses. After the Reorganization, and
subject to certain limitations, the shareholders
of each Fund may benefit from the ability of the
Combined Fund to use such capital losses to offset
any realized capital gains. See "The
Reorganization--Tax Consequences of the
Reorganization."
Shareholders of Growth Fund should consult their
tax advisors concerning their individual
circumstances.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Many of the investment risks associated with an investment in Fundamental
Growth are substantially similar to the investment risks associated with an
investment in Growth Fund. The investment risks associated with an investment
in Fundamental Growth also will apply to an investment in the Combined Fund
after the Reorganization. Such risks include market and selection risk, growth
securities risk, foreign market risk, and borrowing and leverage risk. The
principal differences in risk between an investment in Growth Fund and an
investment in Fundamental Growth are: (i) Fundamental Growth may be more
subject to the risks associated with investing in companies with a medium stock
market capitalization, (ii) Growth Fund may be more subject to foreign market
risks than Fundamental Growth, and (iii) to the extent Growth Fund, as a
non-diversified fund, may invest in fewer issuers than Fundamental Growth, as a
diversified fund, Growth Fund may be more subject to selection and credit risks
associated with a single issuer than Fundamental Growth.
The risk factors to which an investment in Fundamental Growth is subject
are set forth below and in the Fundamental Growth Prospectus that accompanies
this Proxy Statement and Prospectus under the caption "Details about the Fund -
Investment Risks." It is expected that the Reorganization itself will not
adversely affect the rights of shareholders of any Fund or create additional
risks.
Except where noted, each Fund is subject to the following risks:
Market and Selection Risk. Each Fund is subject to market risk and
selection risk. Market risk is the risk that the stock market in one or more
countries in which a Fund invests will go down in value, including the
possibility that the markets will go down sharply and unpredictably. Selection
risk is the risk that the securities that Fund management selects will
underperform other funds with similar investment objectives and investment
strategies. Because Growth Fund invests in a smaller number of issuers and
economic sectors than some other funds, including Fundamental Growth, Growth
Fund's selection risk is increased.
Growth Securities. As set forth above, the investment objective of
Fundamental Growth is to seek long-term growth of capital while the investment
objective of Growth Fund is to seek growth of capital and, secondarily, income.
In selecting securities, each Fund generally emphasizes common stocks of
companies that have above-average rates of earnings growth. These "growth
securities" may be particularly sensitive to changes in earnings, interest rate
increases or adverse market developments because they typically have relatively
high price-to-earnings ratios. Moreover, the growth securities held by each
Fund may never reach what Fund management believes their fair value to be and
may even decrease in price.
Mid-Cap Securities. Fundamental Growth may emphasize common stocks of
companies having smaller market capitalizations than companies emphasized by
Growth Fund. As a result, Fundamental Growth may be more subject to risks
associated with investing in mid-cap securities than Growth Fund. Investments
in companies with lower market capitalizations, especially those with market
capitalizations under $1 billion, may involve special risks, including limited
product lines, market or financial resources or a limited management group. The
securities of mid-cap companies generally trade in lower volumes and are
generally subject to greater and less predictable price changes than the
securities of larger capitalization companies.
Non-Diversification Risk. Growth Fund is subject to non-diversification
risk. As set forth above, Growth Fund is a non-diversified fund. To the extent
Growth Fund may invest in a smaller number of issues, Growth Fund is more
exposed to adverse developments affecting a single issuer than is a fund, like
Fundamental Growth, that invests more widely.
Foreign Market Risks. Since each Fund may invest in foreign securities,
they offer the potential for more diversification than an investment only in
the United States. This is because securities traded on foreign markets have
often (though not always) performed differently than securities in the United
States. However, such investments involve special risks not present in U.S.
investments that can increase the chances that a Fund will lose money. In
particular, investment in foreign securities involves the risks set forth
below, which are generally greater for investments in emerging markets. Growth
Fund may be more subject to these risks because it may invest up to 40% of its
total assets in the securities of foreign companies. By contrast, Fundamental
Growth may invest only up to 10% of its total assets in the securities of
foreign companies. Securities of foreign companies may be in the form of ADRs,
EDRs, or other securities convertible into securities of foreign companies.
Fundamental Growth's restriction limiting investments in foreign securities to
10% of its total assets does not include ADRs.
o The economies of some foreign markets often do not compare
favorably with that of the United States in areas such as growth
of gross domestic product, reinvestment of capital, resources
and balance of payments. Some of these economies may rely
heavily on particular industries or foreign capital. They may be
more vulnerable to adverse diplomatic developments, the
imposition of economic sanctions against a particular country or
countries, changes in international trading patterns, trade
barriers, and other protectionist or retaliatory measures.
o Investments in foreign markets may be adversely affected by
governmental actions such as the imposition of capital controls,
nationalization of companies or industries, expropriation of
assets, or the imposition of punitive taxes.
o The governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital
markets or in certain industries. Any of these actions could
severely affect security prices. They could also impair a Fund's
ability to purchase or sell foreign securities or transfer its
assets or income back into the United States, or otherwise
adversely affect the Fund's operations.
o Other foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign
government securities, difficulties in enforcing favorable legal
judgments in foreign courts, and political and social
instability. Legal remedies available to investors in certain
foreign countries may be less extensive than those available to
investors in the United States or other foreign countries.
o Because there are generally fewer investors on foreign exchanges
and a smaller number of shares traded each day, it may be
difficult for a Fund to buy and sell securities on those
exchanges. In addition, prices of foreign securities may go up
and down more than prices of securities traded in the United
States.
o Foreign markets may have different clearance and settlement
procedures. In certain markets, settlements may be unable to
keep pace with the volume of securities transactions. If this
occurs, settlement may be delayed and a Fund's assets may be
uninvested and not earning returns. A Fund may miss investment
opportunities or be unable to dispose of a security because of
these delays.
Certain Risks of Holding Fund Assets Outside the United States. Each Fund
generally holds its foreign securities and cash in foreign banks and securities
depositories. Some foreign banks and securities depositories may be recently
organized or new to the foreign custody business. In addition, there may be
limited or no regulatory oversight over their operations. Also, the laws of
certain countries may put limits on a Fund's ability to recover its assets if a
foreign bank, depository or issuer of a security, or any of their agents, goes
bankrupt. In addition, it is often more expensive for a Fund to buy, sell and
hold securities in certain foreign markets than in the United States. The
increased expense of investing in foreign markets reduces the amount a Fund can
earn on its investments and typically results in a higher operating expense
ratio for the Funds than for investment companies invested only in the United
States.
European Economic and Monetary Union (EMU). A number of European countries
entered into EMU in an effort to reduce trade barriers among themselves and
eliminate fluctuations in their currencies. EMU established a single European
currency (the euro), that was introduced on January 1, 1999 and is expected to
replace the existing national currencies of all initial EMU participants by
July 1, 2002. Certain securities (beginning with government and corporate
bonds) have been redenominated in the euro and are traded and make dividend and
other payments only in euros. Like other investment companies and business
organizations, including the companies in which a Fund invests, a Fund could be
adversely affected if the transition to the euro, or EMU as a whole, does not
proceed as planned or if a participating country withdraws from EMU.
Debt Securities. Each Fund may invest in debt securities, and each Fund is
therefore subject to the risks of such securities, including the risks that
prices of bonds generally increase when interest rates decline and decrease
when interest rates increase and that prices of longer term securities
generally change more in response to interest rate changes than prices of
shorter term securities (interest rate risk); and that issuers may be unable to
pay interest or principal when due (credit risk). Under normal market
conditions, Growth Fund may invest up to 35% of its assets in debt securities
as part of its investment strategy. Fundamental Growth will normally invest a
portion of its assets in short-term debt securities, such as commercial paper.
Borrowing and Leverage Risk. Each Fund, as a fundamental restriction, may
borrow from banks in an amount up to 33-1/3% of its total assets. As a
non-fundamental restriction, each Fund's borrowings are limited to 20% of its
total assets. Each Fund may borrow for temporary emergency purposes, including
to meet redemptions. Borrowing may exaggerate changes in the net asset value of
Fund shares and in the return on a Fund's portfolio. Borrowing will cost a Fund
interest expense and other fees. The cost of borrowing may reduce a Fund's
return.
Risks associated with certain types of securities in which each Fund may
invest include:
Convertibles. Each Fund may invest in convertible securities. Convertibles
are generally debt securities or preferred stocks that may be converted into
common stock. Convertibles typically pay current income as either interest
(debt security convertibles) or dividends (preferred stocks). A convertible's
value usually reflects both the stream of current income payments and the value
of the underlying common stock. The market value of a convertible performs like
that of a regular debt security; that is, if market interest rates rise, the
value of a convertible usually falls. Since it is convertible into common
stock, the convertible also has the same types of market and issuer risks as
the underlying common stock.
Derivatives. Each Fund may use derivative instruments including futures,
forwards and options. In addition, Fundamental Growth may use indexed
securities and inverse securities. Derivatives allow a Fund to increase or
decrease its risk exposure more quickly and efficiently than other types of
instruments.
Derivatives are volatile and involve significant risks, including:
Credit risk -- the risk that the counterparty (the party on the other
side of the transaction) on a derivative transaction will be unable
to honor its financial obligation to the Fund.
Currency risk -- the risk that changes in the exchange rate between
currencies will adversely affect the value (in U.S. dollar terms) of
an investment.
Leverage risk -- the risk, associated with certain types of
investments or trading strategies (such as borrowing money to
increase the amount of investments), that relatively small market
movements may result in large changes in the value of an investment.
Certain investments or trading strategies that involve leverage can
result in losses that greatly exceed the amount originally invested.
Liquidity risk -- the risk that certain securities may be difficult
or impossible to sell at the time that the seller would like or at
the price that the seller believes the security is currently worth.
Each Fund may use derivatives for hedging purposes, including anticipatory
hedges. Growth Fund may also use options on securities to seek increased
return. Hedging is a strategy in which a Fund uses a derivative to offset the
risk that other Fund holdings may decrease in value. While hedging can reduce
losses, it can also reduce or eliminate gains or cause losses if the market
moves in a different manner than anticipated by the Fund or if the cost of the
derivative outweighs the benefit of the hedge. Hedging also involves the risk
that changes in the value of the derivative will not match those of the
holdings being hedged as expected by a Fund, in which case any losses on the
holdings being hedged may not be reduced. No assurance can be given that a
Fund's hedging strategy will reduce risk or that hedging transactions will be
either available or cost effective. Neither Fund is required to use hedging and
may choose not to do so.
Illiquid Securities. Each Fund may invest up to 15% of its net assets in
illiquid securities that it cannot easily resell within seven days at current
value or that have contractual or legal restrictions on resale. If a Fund buys
illiquid securities it may be unable to quickly resell them or may be able to
sell them only at a price below current value.
Restricted Securities. Each Fund may invest in restricted securities.
Restricted securities have contractual or legal restrictions on their resale.
They may include private placement securities that a Fund buys directly from
the issuer. Private placement and other restricted securities may not be listed
on an exchange and may have no active trading market. Restricted securities may
be illiquid. A Fund may be unable to sell them on short notice or may be able
to sell them only at a price below current value. A Fund may get only limited
information about the issuer, so it may be less able to predict a loss. In
addition, if Fund management receives material adverse nonpublic information
about the issuer, the Fund will not be able to sell the security.
Rule 144A Securities. Each Fund may also invest in Rule 144A securities.
Rule 144A securities are restricted securities that can be resold to qualified
institutional buyers but not to the general public. Rule 144A securities may
have an active trading market, but carry the risk that the active trading
market may not continue.
Securities Lending. Each Fund may lend securities with a value not
exceeding 33-1/3% of its total assets to financial institutions that provide
cash or securities issued or guaranteed by the U.S. Government as collateral.
Securities lending involves the risk that the borrower may fail to return the
securities in a timely manner or at all. As a result, a Fund may lose money and
there may be a delay in recovering the loaned securities. A Fund could also
lose money if it does not recover the securities and the value of the
collateral falls. These events could trigger adverse tax consequences to a
Fund.
An investment in Fundamental Growth is subject to the additional risks
described below that are not applicable to an investment in Growth Fund.
Indexed and Inverse Floating Rate Securities. Fundamental Growth may
invest in securities whose potential returns are directly related to changes in
an underlying index or interest rate, known as indexed securities. The return
on indexed securities will rise when the underlying index or interest rate
rises and fall when the index or interest rate falls. Fundamental Growth may
also invest in securities whose return is inversely related to changes in an
interest rate (inverse floaters). In general, income on inverse floaters will
decrease when interest rates increase and increase when interest rates
decrease. Investments in inverse floaters may subject Fundamental Growth to the
risks of reduced or eliminated interest payments and losses of principal. In
addition, inverse floaters may increase or decrease in value at a greater rate
than the underlying interest rate, which effectively leverages Fundamental
Growth's investment. Inverse floaters are derivative securities and can be
considered speculative. Inverse securities involve credit risk and may involve
currency risk, leverage risk and liquidity risk.
Warrants. A warrant gives Fundamental Growth the right to buy a quantity
of stock. The warrant specifies the amount of underlying stock, the purchase
(or "exercise") price, and the date the warrant expires. Fundamental Growth has
no obligation to exercise the warrant and buy the stock. A warrant has value
only if Fundamental Growth can exercise it before it expires. If the price of
the underlying stock does not rise above the exercise price before the warrant
expires, the warrant generally expires without any value and Fundamental Growth
loses any amount it paid for the warrant. Thus, investments in warrants may
involve substantially more risk than investments in common stock. Warrants may
trade in the same markets as their underlying stock; however, the price of the
warrant does not necessarily move with the price of the underlying stock.
An investment in Growth Fund is subject to the additional risks described
below that are not applicable to an investment in Fundamental Growth and will
not be applicable to an investment in the Combined Fund.
Junk Bonds. As set forth above, junk bonds are debt securities that are
rated below investment grade by the major rating agencies or are unrated
securities that Growth Fund management believes are of comparable quality.
Although junk bonds generally pay higher rates of interest than investment
grade bonds, they are high risk investments that may cause income and principal
losses for Growth Fund. The major risks associated with junk bond investments
include the following:
Junk bonds may be issued by less creditworthy companies. These securities
are vulnerable to adverse changes in the issuer's industry and to general
economic conditions. Issues of junk bonds may be unable to meet their interest
or principal payment obligations because of an economic downturn, specific
issuer development or the unavailability of additional financing.
The issuers of junk bonds may have a larger amount of outstanding debt
relative to their assets than issuers of investment grade bonds. If the issuer
experiences financial stress, it may be unable to meet its debt obligations.
The issuer's ability to pay its debt obligations also may be lessened by
specific issuer developments, or the unavailability of additional financing.
Junk bonds are frequently ranked junior in claims by other creditors. If
the issuer cannot meet its obligations, the senior obligations are generally
paid off before the junior obligations.
Junk bonds frequently have redemption features that permit an issuer to
repurchase the security from the Fund before it matures. If the issuer redeems
the junk bonds, Growth Fund may have to invest the proceeds in bonds with lower
yields and may lose income.
Prices of junk bonds are subject to extreme price fluctuations. Negative
economic developments may have a greater impact on the prices of junk bonds
than on other higher rated fixed income securities.
Junk bonds may be less liquid than higher rated fixed income securities
even under normal economic conditions. There are fewer dealers in the junk bond
market, and there may be significant differences in the prices quoted for junk
bonds by the dealers. Because they are less liquid, judgment may play a greater
role in valuing certain of Growth Fund's portfolio securities than in the case
of securities trading in a more liquid market.
Growth Fund may incur expenses to the extent necessary to seek recovery
upon default or to negotiate new terms with a defaulting issuer.
Standby Commitment Agreements. Growth Fund may enter into standby
commitment agreements. Standby commitment agreements involve the risk that the
security will lose value prior to its delivery to a Fund. These agreements also
involve the risk that if the security goes up in value, the counterparty will
decide not to issue the security, in which case a Fund has lost the investment
opportunity for assets it had set aside to pay for the security and any gain in
the security's price.
COMPARISON OF THE FUNDS
Financial Highlights
Fundamental Growth. The Financial Highlights table is intended to help you
understand Fundamental Growth's financial performance for each of its past five
fiscal years and for the six months ended February 28, 2001. Certain
information reflects financial results for a single Fundamental Growth share.
The total returns in the table represent the rate an investor would have earned
or lost on an investment in shares of Fundamental Growth (assuming reinvestment
of all dividends). The information for each of Fundamental Growth's last five
fiscal years has been audited by Ernst & Young LLP whose report, along with
Fundamental Growth's financial statements, is included in Fundamental Growth's
Annual Report to Shareholders that accompanies this Proxy Statement and
Prospectus. The information for the six months ended February 28, 2001 is
unaudited. Fundamental Growth's Semi-Annual Report to Shareholders also
accompanies this Proxy Statement and Prospectus.
The following per share data and ratios have been derived from information
provided in the financial statements.
Class A
----------------------------------------------------------------------------
For the Six
Months
Ended
February 28, For the Year Ended August 31,
2001 -----------------------------------------------------------
Increase (Decrease) in Net Asset Value: (unaudited) 2000 1999 1998 1997 1996
Per Share Operating Performance: ----------- ---- ---- ---- ---- ----
Net asset value, beginning of period $29.98 $21.99 $16.19 $17.37 $13.60 $11.66
----------- --------- -------- -------- ------- -------
Investment income-- net+............ .07 .02 .13 .07 .07 .07
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net....... (7.15) 9.91 6.37 1.09 4.95 2.13
----------- --------- -------- -------- ------- -------
Total from investment operations.... (7.08) 9.93 6.50 1.16 5.02 2.20
----------- --------- -------- -------- ------- -------
Less distributions from realized gain
on investments-- net (1.96) (1.94) (.70) (2.34) (1.25) (.26)
----------- --------- -------- -------- ------- -------
Net asset value, end of period...... $20.94 $29.98 $21.99 $16.19 $17.37 $13.60
=========== ========= ======== ======== ======= =======
Total Investment Return:*
Based on net asset value per share.. (24.10)%** 47.01% 41.08% 6.37% 39.24% 19.02%
=========== ========= ======== ======== ======= =======
Ratios to Average Net Assets:
Expenses............................ .75%*** .76% .81% .87% .99% 1.12%
=========== ========= ======== ======== ======= =======
Investment income-- net............. .60%*** .09% .60% .37% .47% .51%
=========== ========= ======== ======== ======= =======
Supplemental Data:
Net assets, end of period (in
thousands).......................... $1,028,535 $882,072 $472,464 $167,133 $62,049 $47,048
=========== ========= ======== ======== ======= =======
Portfolio turnover.................. 58.06% 98.71% 52.72% 40.27% 94.38% 82.10%
=========== ========= ======== ======== ======= =======
- ---------------
* Total investment returns exclude the effects of sales charges.
** Aggregate total investment return.
*** Annualized.
+ Based on average shares outstanding.
Fundamental Growth -- Financial Highlights (continued)
Class B
----------------------------------------------------------------------------
For the Six
Months
Ended
February 28, For the Year Ended August 31,
2001 -----------------------------------------------------------
Increase (Decrease) in Net Asset Value: (unaudited) 2000 1999 1998 1997 1996
Per Share Operating Performance: ----------- ---- ---- ---- ---- ----
Net asset value, beginning of period $ 28.06 $20.75 $15.39 $16.69 $13.14 $11.40
------------- --------- ---------- --------- --------- ----------
Investment loss-- net+.............. (.05) (.23) (.08) (.11) (.09) (.07)
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net....... (6.69) 9.32 6.05 1.05 4.79 2.07
------------- --------- ---------- --------- --------- ----------
Total from investment operations.... (6.74) 9.09 5.97 .94 4.70 2.00
------------- --------- ---------- --------- --------- ----------
Less distributions from realized gain
on investments-- net (1.74) (1.78) (.61) (2.24) (1.15) (.26)
------------- --------- ---------- --------- --------- ----------
Net asset value, end of period...... $ 19.58 $28.06 $20.75 $15.39 $16.69 $13.14
============= ========= ========== ========= ========= ==========
Total Investment Return:*
Based on net asset value per share.. (24.48)%** 45.55% 39.58% 5.21% 37.95% 17.68%
============= ========= ========== ========= ========= ==========
Ratios to Average Net Assets:
Expenses............................ 1.76%*** 1.77% 1.83% 1.88% 2.02% 2.16%
============= ========= ========== ========= ========= ==========
Investment loss-- net............... (.40)%*** (.92)% (.41)% (.64)% (.59)% (.54)%
============= ========= ========== ========= ========= ==========
Supplemental Data:
Net assets, end of period (in
thousands).......................... $2,800,424 $3,411,474 $2,000,535 $641,688 $216,636 $116,641
============= ========== ========== ========= ========= ==========
Portfolio turnover.................. 58.06% 98.71% 52.72% 40.27% 94.38% 82.10%
============= ========== ========== ========= ========= ==========
- ---------------
* Total investment returns exclude the effects of sales charges.
** Aggregate total investment return.
*** Annualized.
+ Based on average shares outstanding.
Fundamental Growth -- Financial Highlights (continued)
Class C
----------------------------------------------------------------------------
For the Six
Months
Ended
February 28, For the Year Ended August 31,
2001 -----------------------------------------------------------
Increase (Decrease) in Net Asset Value: (unaudited) 2000 1999 1998 1997 1996
Per Share Operating Performance: ----------- ---- ---- ---- ---- ----
Net asset value, beginning of period $ 28.26 $20.88 $15.45 $16.72 $13.14 $11.40
------------- -------- --------- --------- -------- --------
Investment loss-- net+.............. (.05) (.24) (.09) (.11) (.09) (.07)
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net....... (6.74) 9.39 6.10 1.05 4.79 2.07
------------- -------- --------- --------- -------- --------
Total from investment operations.... (6.79) 9.15 6.01 .94 4.70 2.00
------------- -------- --------- --------- -------- --------
Less distributions from realized gain
on investments-- net (1.78) (1.77) (.58) (2.21) (1.12) (.26)
------------- -------- --------- --------- -------- --------
Net asset value, end of period...... $ 19.69 $28.26 $20.88 $15.45 $16.72 $13.14
============= ======== ========= ========= ======== ========
Total Investment Return:*
Based on net asset value per share.. (24.51)%** 45.53% 39.65% 5.19% 37.90% 17.68%
============= ======== ========= ========= ======== ========
Ratios to Average Net Assets:
Expenses............................ 1.77%*** 1.78% 1.83% 1.89% 2.02% 2.15%
============= ======== ========= ========= ======== ========
Investment loss-- net............... (.41)%*** (.93)% (.43)% (.63)% (.58)% (.57)%
============= ======== ========= ========= ======== ========
Supplemental Data:
Net assets, end of period (in
thousands).......................... $619,473 $627,021 $307,988 $130,652 $74,732 $54,052
============= ======== ========= ========= ======== ========
Portfolio turnover.................. 58.06% 98.71% 52.72% 40.27% 94.38% 82.10%
============= ======== ========= ========= ======== ========
- ---------------
* Total investment returns exclude the effects of sales charges.
** Aggregate total investment return.
*** Annualized.
+ Based on average shares outstanding.
Fundamental Growth -- Financial Highlights (continued)
Class D
----------------------------------------------------------------------------
For the Six
Months
Ended
February 28, For the Year Ended August 31,
2001 -----------------------------------------------------------
Increase (Decrease) in Net Asset Value: (unaudited) 2000 1999 1998 1997 1996
Per Share Operating Performance: ----------- ---- ---- ---- ---- ----
Net asset value, beginning of period $ 29.63 $21.77 $16.06 $17.27 $13.54 $11.64
----------- ---------- -------- -------- -------- --------
Investment income (loss)-- net+..... .04 (.04) .08 .02 .03 .03
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net....... (7.07) 9.80 6.31 1.09 4.93 2.13
----------- ---------- -------- -------- -------- --------
Total from investment operations.... (7.03) 9.76 6.39 1.11 4.96 2.16
----------- ---------- -------- -------- -------- --------
Less distributions from realized gain
on investments-- net (1.91) (1.90) (.68) (2.32) (1.23) (.26)
----------- ---------- -------- -------- -------- --------
Net asset value, end of period...... $ 20.69 $29.63 $21.77 $16.06 $17.27 $13.54
=========== ========== ======== ======== ======== ========
Total Investment Return:*
Based on net asset value per share.. (24.21)%** 46.67% 40.67% 6.08% 38.90% 18.70%
=========== ========== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses............................ .99%*** 1.01% 1.05% 1.11% 1.24% 1.37%
=========== ========== ======== ======== ======== ========
Investment income (loss)-- net...... .37%*** (.17)% .36% .12% .17% .24%
=========== ========== ======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in
thousands).......................... $1,472,654 $1,712,701 $795,607 $157,899 $53,101 $22,892
=========== ========== ======== ======== ======== ========
Portfolio turnover.................. 58.06% 98.71% 52.72% 40.27% 94.38% 82.10%
=========== ========== ======== ======== ======== ========
- ---------------
* Total investment returns exclude the effects of sales charges.
** Aggregate total investment return.
*** Annualized.
+ Based on average shares outstanding.
Growth Fund. The Financial Highlights table is intended to help you
understand Growth Fund's financial performance for each of its past five fiscal
years and for the six months ended April 30, 2001. Certain information reflects
financial results for a single Growth Fund share. The total returns in the
table represent the rate an investor would have earned or lost on an investment
in shares of Growth Fund (assuming reinvestment of all dividends). The
information for each of Growth Fund's last five fiscal years has been audited
by Deloitte & Touche LLP whose report, along with Growth Fund's financial
statements, is included in Growth Fund's Annual Report which is available upon
request. The information for the six months ended April 30, 2001 is unaudited.
The following per share data and ratios have been derived from information
provided in the financial statements:
Class A
----------------------------------------------------------------------------
For the Six
Months
Ended
April 30, For the Year Ended October 31,
2001 -----------------------------------------------------------
Increase (Decrease) in Net Asset Value: (unaudited) 2000 1999 1998 1997 1996
Per Share Operating Performance: ----------- ---- ---- ---- ---- ----
Net asset value, beginning of period $26.25 $23.18 $22.71 $33.13 $26.87 $23.13
----------- --------- -------- ---------- ---------- ----------
Investment income (loss)-- net+...... (.02) (.11) (.01) .46 .53 .31
----------- --------- -------- ---------- ---------- ----------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions-- net............... (5.96) 3.18 .69 (8.47) 7.98 5.63
----------- --------- -------- ---------- ---------- ----------
Total from investment operations.... (5.98) 3.07 .68 (8.01) 8.51 5.94
----------- --------- -------- ---------- ---------- ----------
Less dividends and distributions:
Investment income-- net -- -- -- (.48) (.44) (.35)
In excess of investment income-- net -- -- (.21) -- -- --
Realized gain on investments-- net (1.71) -- -- (1.70) (1.81) (1.85)
In excess of realized gain on
investments-- net -- -- -- (.23) -- --
----------- --------- -------- ---------- ---------- ----------
Total dividends and distributions... (1.71) -- (.21) (2.41) (2.25) (2.20)
----------- --------- -------- ---------- ---------- ----------
Net asset value, end of period...... $18.56 $26.25 $23.18 $22.71 $33.13 $26.87
=========== ========= ======== ========== ========== ==========
Total Investment Return:*
Based on net asset value per share.. (23.79)%** 13.24% 3.09% (25.83)% 34.03% 28.15%
=========== ========= ======== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of reimbursement...... .96%*** .88% .96% .81% .77% .80%
Expenses............................ .98%*** .91% .99% .85% .81% .84%
Investment income (loss)-- net...... (.21)%*** (.38)% (.03)% 1.72% 1.84% 1.28%
Supplemental Data:
Net assets, end of period (in
thousands).......................... $467,011 $701,997 $774,287 $1,111,166 $1,769,296 $1,056,870
=========== ========= ======== ========== ========== ==========
Portfolio turnover.................. 17.35% 66.49% 101.71% 24.41% 24.75% 30.01%
=========== ========= ======== ========== ========== ==========
- ---------------
* Total investment returns exclude the effects of sales charges.
** Aggregate total investment return.
*** Annualized.
+ Based on average shares outstanding.
Growth Fund -- Financial Highlights (continued)
Class B
----------------------------------------------------------------------------
For the Six
Months
Ended
April 30, For the Year Ended October 31,
2001 -----------------------------------------------------------
Increase (Decrease) in Net Asset Value: (unaudited) 2000 1999 1998 1997 1996
Per Share Operating Performance: ----------- ---- ---- ---- ---- ----
Net asset value, beginning of period $23.77 $21.21 $20.88 $30.63 $25.03 $21.60
----------- ---------- ---------- ----------- ---------- ----------
Investment income (loss)-- net+..... (.11) (.35) (.19) .17 .22 .06
----------- ---------- ---------- ----------- ---------- ----------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions-- net............... (5.37) 2.91 .61 (7.80) 7.39 5.26
----------- ---------- ---------- ----------- ---------- ----------
Total from investment operations.... (5.48) 2.56 .42 (7.63) 7.61 5.32
----------- ---------- ---------- ----------- ---------- ----------
Less dividends and distributions:
Investment income-- net -- -- -- (.19) (.20) (.04)
In excess of investment income-- net -- -- (.09) -- -- --
Realized gain on investments-- net (1.71) -- -- (1.70) (1.81) (1.85)
In excess of realized gain on
investments-- net -- -- -- (.23) -- --
----------- ---------- ---------- ----------- ---------- ----------
Total dividends and distributions... (1.71) -- (.09) (2.12) (2.01) (1.89)
----------- ---------- ---------- ----------- ---------- ----------
Net asset value, end of period...... $16.58 $23.77 $21.21 $20.88 $30.63 $25.03
=========== ========== ========== =========== ========== ==========
Total Investment Return:*
Based on net asset value per share.. (24.20)%** 12.07% 2.06% (26.57)% 32.62% 26.84%
=========== ========== ========== =========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of reimbursement...... 1.99%*** 1.90% 1.99% 1.83% 1.79% 1.82%
----------- ---------- ---------- ----------- ---------- ----------
Expenses............................ 2.01%*** 1.93% 2.02% 1.87% 1.83% 1.85%
----------- ---------- ---------- ----------- ---------- ----------
Investment income (loss)-- net...... (1.24)%*** (1.40)% (.98)% .70% .82% .26%
----------- ---------- ---------- ----------- ---------- ----------
Supplemental Data:
Net assets, end of period (in
thousands).......................... $703,369 $1,052,705 $1,247,547 $2,544,979 $4,687,523 $2,916,507
=========== ========== ========== =========== ========== ==========
Portfolio turnover.................. 17.35% 66.49% 101.71% 24.41% 24.75% 30.01%
=========== ========== ========== =========== ========== ==========
- ---------------
* Total investment returns exclude the effects of sales charges.
** Aggregate total investment return.
*** Annualized.
+ Based on average shares outstanding.
Growth Fund -- Financial Highlights (continued)
Class C
----------------------------------------------------------------------------
For the Six
Months
Ended
April 30, For the Year Ended October 31,
2001 -----------------------------------------------------------
Increase (Decrease) in Net Asset Value: (unaudited) 2000 1999 1998 1997 1996
Per Share Operating Performance: ----------- ---- ---- ---- ---- ----
Net asset value, beginning of period $23.60 $21.05 $20.72 $30.43 $24.89 $21.59
----------- -------- --------- -------- -------- --------
Investment income (loss)-- net+..... (.12) (.36) (.18) .17 .22 .06
----------- -------- --------- -------- -------- --------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions-- net............... (5.32) 2.91 .59 (7.75) 7.34 5.23
----------- -------- --------- -------- -------- --------
Total from investment operations.... (5.44) 2.55 .41 (7.58) 7.56 5.29
----------- -------- --------- -------- -------- --------
Less dividends and distributions:
Investment income-- net -- -- -- (.20) (.21) (.14)
In excess of investment income-- net -- -- (.08) -- -- --
Realized gain on investments-- net (1.71) -- -- (1.70) (1.81) (1.85)
In excess of realized gain on
investments-- net -- -- -- (.23) -- --
----------- -------- --------- -------- -------- --------
Total dividends and distributions... (1.71) -- (.08) (2.13) (2.02) (1.99)
----------- -------- --------- -------- -------- --------
Net asset value, end of period...... $16.45 $23.60 $21.05 $20.72 $30.43 $24.89
=========== ======== ========= ======== ======== ========
Total Investment Return:*
Based on net asset value per share.. (24.20)%** 12.11% 2.04% (26.60)% 32.63% 26.84%
=========== ======== ========= ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement...... 2.01%*** 1.92% 2.02% 1.84% 1.80% 1.84%
----------- -------- --------- -------- -------- --------
Expenses............................ 2.03%*** 1.95% 2.05% 1.88% 1.84% 1.87%
----------- -------- --------- -------- -------- --------
Investment income (loss)-- net...... (1.27)%*** (1.42)% (.96)% .68% .81% .25%
----------- -------- --------- -------- -------- --------
Supplemental Data:
Net assets, end of period (in
thousands).......................... $62,105 $93,549 $106,797 $239,445 $427,377 $187,221
=========== ======== ========= ======== ======== ========
Portfolio turnover.................. 17.35% 66.49% 101.71% 24.41% 24.75% 30.01%
=========== ======== ========= ======== ======== ========
- ---------------
* Total investment returns exclude the effects of sales charges.
** Aggregate total investment return.
*** Annualized.
+ Based on average shares outstanding.
Growth Fund -- Financial Highlights (continued)
Class D
----------------------------------------------------------------------------
For the Six
Months
Ended
April 30, For the Year Ended October 31,
2001 -----------------------------------------------------------
Increase (Decrease) in Net Asset Value: (unaudited) 2000 1999 1998 1997 1996
Per Share Operating Performance: ----------- ---- ---- ---- ---- ----
Net asset value, beginning of period $26.07 $23.07 $22.63 $33.01 $26.79 $23.06
----------- -------- --------- -------- -------- --------
Investment income (loss)-- net+..... (.05) (.17) (.06) .39 .46 .24
----------- -------- --------- -------- -------- --------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions-- net............... (5.92) 3.17 .68 (8.43) 7.95 5.63
----------- -------- --------- -------- -------- --------
Total from investment operations.... (5.97) 3.00 .62 (8.04) 8.41 5.87
----------- -------- --------- -------- -------- --------
Less dividends and distributions:
Investment income-- net -- -- -- (.41) (.38) (.29)
In excess of investment income-- net -- -- (.18) -- -- --
Realized gain on investments-- net (1.71) -- -- (1.70) (1.81) (1.85)
In excess of realized gain on
investments-- net -- -- -- (.23) -- --
----------- -------- --------- -------- -------- --------
Total dividends and distributions... (1.71) -- (.18) (2.34) (2.19) (2.14)
----------- -------- --------- -------- -------- --------
Net asset value, end of period...... $18.39 $26.07 $23.07 $22.63 $33.01 $26.79
=========== ======== ========= ======== ======== ========
Total Investment Return:*
Based on net asset value per share.. (23.93)%** 13.00% 2.82% (26.00)% 33.67% 27.83%
=========== ======== ========= ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement...... 1.21*** 1.13% 1.21% 1.06% 1.02% 1.05%
----------- -------- --------- -------- -------- --------
Expenses............................ 1.23%*** 1.16% 1.24% 1.10% 1.06% 1.08%
----------- -------- --------- -------- -------- --------
Investment income (loss)-- net...... (.46)%*** (.63)% (.26)% 1.47% 1.59% 1.03%
----------- -------- --------- -------- -------- --------
Supplemental Data:
Net assets, end of period (in
thousands).......................... $507,955 $732,495 $744,151 $1,082,627 $1,642,665 $932,811
=========== ======== ========= ======== ======== ========
Portfolio turnover.................. 17.35% 66.49% 101.71% 24.41% 24.75% 30.01%
=========== ======== ========= ======== ======== ========
- ---------------
* Total investment returns exclude the effects of sales charges.
** Aggregate total investment return.
*** Annualized.
+ Based on average shares outstanding.
Investment Objectives
The Funds have similar, though not identical, investment objectives. The
investment objective of Fundamental Growth is to seek long-term growth of
capital. The investment objective of Growth Fund is to seek growth of capital
and, secondarily, income. The investment objective of each Fund described in
this paragraph is a fundamental policy of the applicable Fund and may not be
changed without the approval of the holders of a majority of that Fund's
outstanding voting securities (which, for this purpose, means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented, or (ii) more than 50% of the outstanding
shares). No assurance can be given that the Combined Fund will achieve its
investment objective after the Reorganization.
Investment Policies
General. Fundamental Growth tries to achieve its investment objective by
investing in a diversified portfolio consisting primarily of common stocks.
Fundamental Growth will generally invest at least 65% of its total assets in
the following equity securities: common stock, convertible preferred stock,
securities convertible into common stock, and rights to subscribe to common
stock. In selecting securities, Fundamental Growth management emphasizes common
stocks of companies that have above-average rates of earnings growth. Some, but
not all, of the factors that may cause a company to have an above-average rate
of earnings growth include: above average growth rate in sales, improvement in
its profit margin, providing proprietary or niche products or services, leading
market share, and strong industry growth. Fundamental Growth may invest in
companies of any size but emphasizes common stocks of companies having a medium
to large stock market capitalization ($500 million or more).
Growth Fund tries to achieve its investment objective by investing
primarily in equity securities. Growth Fund will generally invest at least 65%
of its total assets in equity securities. Equity securities consist of: common
stock, preferred stock, securities convertible into common stock, derivatives,
the value of which is based on a common stock or group of common stocks. In
selecting securities, Growth Fund management emphasizes stocks of companies
that it believes have the potential to achieve above average growth rates in
earnings, revenues, cash flow or EBITDA. A company may achieve growth from:
introducing promising new products, exploiting new technologies or developing
new distribution channels, achieving strong growth in sales of existing
products through improved pricing or increasing sales volume, developing
operating efficiencies, and increasing market share. Growth Fund employs a
fundamental "bottom up" investment style. This means that Growth Fund seeks to
identify individual companies with attractive business attributes and does not
place substantial weight on other security selection techniques, such as sector
allocation or technical market analysis. Growth Fund will focus on investments
in common stock of large and mid-size companies having stock market
capitalizations of $2 billion or more.
Securities of Foreign Companies and Depositary Receipts. Fundamental
Growth may also invest up to 10% of its total assets in the securities of
foreign companies. Securities of foreign companies may be in the form of ADRs,
EDRs, or other securities convertible into securities of foreign companies.
Fundamental Growth's restriction limiting investments in foreign securities to
10% of its total assets does not include ADRs. Growth Fund invests mainly in
U.S. companies, but may invest up to 40% of its total assets in securities of
foreign companies. Growth Fund may invest in securities from any country,
including emerging market countries. Each Fund may invest in securities
denominated in currencies other than the U.S. dollar.
Debt Securities/Temporary Investments. Fundamental Growth will normally
invest a portion of its assets in short-term debt securities, such as
commercial paper. Fundamental Growth may also invest without limitation in
short-term debt securities (including repurchase agreements), non-convertible
preferred stocks and bonds or government and money market securities when
Fundamental Growth management is unable to find enough attractive equity
investments and to reduce exposure to equities when Fund management believes it
is advisable to do so on a temporary basis. Investment in these securities may
also be used to meet redemptions. Fundamental Growth may also invest in debt
securities rated investment grade by a nationally recognized statistical
ratings organization as a defensive measure. Under normal market conditions,
Growth Fund may invest up to 35% of its assets in debt securities. Growth Fund
will normally invest a portion of its assets in short term debt securities,
such as commercial paper. Growth Fund invests in short term debt securities
when Growth Fund management is unable to find enough attractive long term
investments, to reduce exposure to equities when management believes it is
advisable to do so or to meet redemptions. As a temporary measure for defensive
purposes, Growth Fund may invest more heavily in short term debt securities,
without limitation. Growth Fund may invest up to 5% of its total assets in junk
bonds or in unrated debt securities that, in the judgment of Growth Fund
management, possess credit characteristics similar to junk bonds. Growth Fund
will not invest in debt securities rated in the lowest rating categories (Ca or
lower for Moody's and CC or lower for S&P) unless Growth Fund management
believes that the financial condition of the issuer or the protection afforded
the particular securities is stronger than would otherwise be indicted by such
low ratings.
Investment in Other Investment Companies. Each Fund may invest in other
investment companies whose investment objectives and policies are consistent
with those of each Fund. In accordance with the Investment Company Act, a Fund
may invest up to 10% of its total assets in securities of other investment
companies. In addition, under the Investment Company Act, a Fund may not own
more than 3% of the total outstanding voting stock of any investment company
and not more than 5% of the value of the Fund's total assets may be invested in
the securities of any investment company. If a Fund acquires shares in
investment companies, shareholders would bear both their proportionate share of
expenses in the Fund (including advisory fees) and, indirectly, the expenses of
such investment companies (including advisory fees). Investments by a Fund in
wholly owned investment entities created under the laws of certain countries
will not be deemed an investment in other investment companies.
Other Investment Policies
Fundamental Growth and Growth Fund have adopted certain other investment
policies as set forth below:
Borrowing and Leverage. Each Fund is subject to a fundamental investment
restriction, which provides that each Fund may borrow from banks in amounts up
to 33-1/3% of its total assets taken at market value and may borrow an
additional 5% of its total assets for temporary purposes. As a non-fundamental
restriction, each Fund's borrowings are limited to 20% of its total assets. As
a non-fundamental restriction, each Fund is further limited and may not borrow
money or pledge its assets, except that either Fund may borrow money from banks
as a temporary measure for extraordinary or emergency purposes or to meet
redemptions.
Hedging Techniques. Both Fundamental Growth and Growth Fund may engage in
various portfolio strategies to hedge their respective portfolios against
investment, interest rate and currency risks. Growth Fund may also use options
on securities to seek increased return. Each Fund is not required to use
hedging techniques and may not do so. For a description of hedging instruments
and risks associated with investment in such instruments, see "Details About
the Fund - Investment Risks - Derivatives" in the Fundamental Growth
Prospectus.
Standby Commitment Agreements. Growth Fund may enter into standby
commitment agreements. These agreements commit Growth Fund, for a stated period
of time, to purchase a stated amount of securities which may be issued and sold
at the option of the issuer. The price of the security is fixed at the time of
the commitment. At the time of entering into the agreement, Growth Fund is paid
a commitment fee, regardless of whether or not the security is ultimately
issued. Growth Fund will enter into such agreements for the purpose of
investing in the security underlying the commitment at a price that is
considered advantageous to Growth Fund. Growth Fund will not enter into a
standby commitment with a remaining term in excess of 90 days and will limit
its investment in such commitments so that the aggregate purchase price of
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at the time of the
commitment. Growth Fund segregates liquid securities in an aggregate amount
equal to the purchase price of the securities underlying the commitment.
No assurance can be given that the securities subject to a standby
commitment will be issued, and the value of the securities, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance
of the security underlying the commitment is at the option of the issuer,
Growth Fund may bear the risk of a decline in the value of such security and
may not benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of Growth Fund's net asset
value. The cost basis of the security will be adjusted by the amount of the
commitment fee. In the event the security is not issued, the commitment fee
will be recorded as income on the expiration date of the standby commitment.
Repurchase Agreements. Each Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S.
Government securities or an affiliate thereof. Under such agreements, the bank
or primary dealer or an affiliate thereof agrees, on entering into the
contract, to repurchase the security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period.
Such agreements usually cover short periods, such as under a week. To the
extent the repurchase agreement is not denominated in U.S. dollars, a Fund's
return may be affected by currency fluctuations. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured by
the securities transferred to the purchaser. A Fund will require the seller to
provide additional collateral if the market value of the securities falls below
the repurchase price at any time during the term of the repurchase agreement.
In the event of a default by the seller, a Fund ordinarily will retain
ownership of the securities underlying the repurchase agreement, and instead of
a contractually fixed rate of return, the rate of return to a Fund shall be
dependent upon intervening fluctuations of the market value of such securities
and the accrued interest on the securities. In such event, a Fund would have
rights against the seller for breach of contract with respect to any losses
arising from market fluctuations following the failure of the seller to
perform. A Fund may suffer time delays and incur costs or possible losses in
connection with the disposition of the securities underlying a repurchase
agreement in the event of the counterparty's default. Each Fund may not invest
more than 15% of its net assets in repurchase agreements maturing in more than
seven days, together with all other illiquid securities.
Purchase and Sale Contracts. From time to time, Fundamental Growth also
may invest in securities pursuant to purchase and sale contracts. While
purchase and sale contracts are similar to repurchase agreements, purchase and
sale contracts are structured so as to be in substance more like a purchase and
sale of the underlying security than is the case with repurchase agreements.
When-Issued Securities and Delayed Delivery Transactions. Each Fund may
purchase or sell securities on a delayed delivery basis or a when issued basis
at fixed purchase terms. These transactions arise when securities are purchased
or sold by a Fund with payment and delivery taking place in the future. The
purchase will be recorded on the date a Fund enters into the commitment and the
value of the obligation will thereafter be reflected in the calculation of the
Fund's net asset value. The value of the obligation on the delivery date may be
more or less than its purchase price. A separate account of a Fund will be
established with its custodian consisting of cash, cash equivalents or high
grade, liquid debt securities having a market value at all times at least equal
to the amount of the forward commitment. No assurance can be given that a
security purchased on a when issued basis will be issued or that a security
purchased or sold through a forward commitment will be delivered. The value of
securities in these transactions on the delivery date may be more or less than
a Fund's purchase price. Each Fund may bear the risk of a decline in the value
of the security in these transactions and may not benefit from an appreciation
in the value of the security during the commitment period.
Lending of Portfolio Securities. Each Fund may from time to time lend
securities from its portfolio with a value not exceeding 33-1/3% of its total
assets to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government.
In the event that the borrower defaults on its obligation to return borrowed
securities because of insolvency or for any other reason, that Fund could
experience delays and costs in gaining access to the collateral and could
suffer a loss to the extent the value of the collateral falls below the market
value of the borrowed securities.
Non-Diversified Status. Growth Fund is classified as a non-diversified
fund under the Investment Company Act, which means that it may invest more of
its assets in securities of a single issuer than if it were a diversified fund.
If a Fund invests in a smaller number of issuers, the Fund's risk is increased
because developments affecting an individual issuer may have a greater impact
on the Fund's performance. Fundamental Growth is a diversified fund, which
means it is required to invest in a greater number of issuers. This lessens the
impact an individual issuer may have on Fundamental Growth's performance.
Suitability. The economic benefit of an investment in each Fund depends
upon many factors beyond the control of that Fund. Because of each Fund's
emphasis on growth securities, the Funds should be considered a vehicle for
diversification and not as a balanced investment program. The suitability for
any particular investor of a purchase of shares in a Fund will depend upon,
among other things, investment objectives and an ability to accept the risks
associated with investing in growth securities, including the risk of loss of
principal.
Information Regarding Options, Futures and Foreign Exchange Transactions
Each Fund may engage in certain investment practices including the use of
options, futures and foreign exchange. Each Fund may utilize these strategies
for hedging purposes, including anticipatory hedges. Growth Fund may also use
options on securities to seek increased return. Each Fund has authority to
write (i.e., sell) put or call options, purchase put or call options on
securities and engage in transactions in stock index options, stock index
futures and financial futures, and related options on such futures.
For a detailed discussion of the Funds' investment policies regarding
futures and options, including the risks associated therewith, see "Details
About the Fund -- Investment Risks -- Derivatives" in the Fundamental Growth
Prospectus.
Investment Restrictions
Other than as noted above, Fundamental Growth and Growth Fund have
substantially similar investment restrictions.
Management
Board Members. The Board of each of Fundamental Growth and Growth Fund
consists of six individuals, five of whom are not "interested persons" of the
applicable Fund as defined in the Investment Company Act. One individual, Terry
K. Glenn, serves on each Board. After the Reorganization, the Board of
Fundamental Growth will serve as the Board of the Combined Fund. The Board
Members are responsible for the overall supervision of the operation of their
Fund and perform the various duties imposed on the directors/trustees of
investment companies by the Investment Company Act.
Information about the Board Members and officers of Fundamental Growth,
including their ages and their principal occupations for at least the last five
years, is set forth below. Unless otherwise noted, the address of each Board
Member and officer is P.O. Box 9011, Princeton, New Jersey 08543-9011.
TERRY K. GLENN (60) -- President and Director (1)(2) -- Executive Vice
President of MLIM and Fund Asset Management, L.P. ("FAM") (which terms as used
herein include their corporate predecessors) since 1983; Executive Vice
President and Director of Princeton Services, Inc. ("Princeton Services") since
1993; President of FAM Distributors, Inc. ("FAMD") since 1986 and Director
thereof since 1991; President of Princeton Administrators, L.P. since 1988;
Director of Financial Data Services, Inc. ("FDS") since 1985.
JOE GRILLS (66) -- Director (2)(3) -- P.O. Box 98, Rapidan, Virginia
22733. Member of the Committee of Investment of Employee Benefit Assets of the
Financial Executives Institute (now associated with the Association of
Financial Professionals) ("CIEBA") since 1986; Member of CIEBA's Executive
Committee 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 until 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 Management Company since 1992 and
elected Vice Chairman in May 1998; Director, LaSalle Street Fund since 1995;
Trustee of Mercury HW Funds, Mercury HW Variable Trust and Fund Asset
Management Master Trust and Director of Merrill Lynch Investment Managers
Funds, Inc. since 1996; Director, Kimco Realty Corporation since 1997; Member
of the Investment Advisory Committee of the Virginia Retirement System since
1998; Director, Montpelier Foundation since December 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.
WALTER MINTZ (72) -- Director (2)(3) -- 1114 Avenue of the Americas, New
York, New York 10036. Special Limited Partner of Cumberland Associates
(investment partnership) since 1982.
ROBERT S. SALOMON, JR. (64) -- Director (2)(3) -- 106 Dolphin Cove Quay,
Stamford, Connecticut 06902. Principal of STI Management (investment adviser)
since 1994; Trustee, Commonfund since 1980; Chairman and CEO of Salomon
Brothers Asset Management from 1992 until 1995; Chairman of Salomon Brothers
equity mutual funds from 1992 until 1995; regular columnist with Forbes
magazine since 1992; Director of Stock Research and U.S. Equity Strategist at
Salomon Brothers from 1975 until 1991.
MELVIN R. SEIDEN (70) -- Director (2)(3) -- 780 Third Avenue, Suite 2502,
New York, New York 10017. Director of Silbanc Properties, Ltd. (real estate,
investment and consulting) since 1987; Chairman and President of Seiden & de
Cuevas, Inc (private investment firm) from 1964 to 1987.
STEPHEN B. SWENSRUD (67) -- Director (2)(3) -- 88 Broad Street, 2nd floor,
Boston, Massachusetts 02110. Chairman of Fernwood Advisors (investment adviser)
since 1996; Principal, Fernwood Associates (financial consultant) since 1975;
Chairman of RPP Corporation (manufacturing) since 1978; Director of
International Mobile Communications, Inc. (telecommunications) since 1998.
ROBERT C. DOLL, JR. (46) -- Senior Vice President (1)(2) -- First Vice
President of MLIM and FAM since 2000 and Senior Vice President thereof from
1999 to 2000; Senior Vice President of Princeton Services since 1999; Chief
Investment Officer of Oppenheimer Funds, Inc. in 1999 and Executive Vice
President thereof from 1991 to 1999.
LAWRENCE R. FULLER (60) -- Senior Vice President and Portfolio Manager
(1)(2) -- First Vice President of MLIM since 1997 and Vice President of MLIM
from 1992 to 1997.
DONALD C. BURKE (40) -- Vice President and Treasurer (1)(2) -- First Vice
President of MLIM and FAM since 1997 and Treasurer thereof since 1999; Senior
Vice President and Treasurer of Princeton Services since 1999; Vice President
of FAMD since 1999; Vice President of MLIM and FAM from 1990 to 1997; Director
of Taxation of MLIM since 1990.
ALLAN J. OSTER (37) -- Secretary (1)(2) -- Vice President of MLIM since
2000; Attorney with MLIM from 1999 to 2000; Associate with Drinker, Biddle &
Reath LLP from 1996 to 1999; Senior Counsel with the U.S. Securities and
Exchange Commission from 1991 to 1996.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of each
Fund.
(2) Such Board Member or officer is a director, trustee or officer of certain
other investment companies for which MLIM or FAM acts as the investment
adviser or manager.
(3) Member of each Fund's Audit and Nominating Committee, which is
responsible for the selection of the independent auditors and the
selection and nomination of non-interested Board Members.
Investment Advisory Arrangements. MLIM serves as the Investment Adviser
for each Fund. Pursuant to an Investment Advisory Agreement between Fundamental
Growth and MLIM, Fundamental Growth pays MLIM a monthly investment advisory fee
at an annual rate of 0.65% of the average daily net assets of Fundamental
Growth not exceeding $1 billion; 0.625% of the average daily net assets of
Fundamental Growth from $1 billion to $1.5 billion; 0.60% of the average daily
net assets of Fundamental Growth from $1.5 billion to $5 billion; 0.575% of the
average daily net assets of Fundamental Growth from $5 billion to $7.5 billion;
and 0.55% of the average daily net assets of Fundamental Growth in excess of
$7.5 billion. Pursuant to an Investment Advisory Agreement between Growth Fund
and MLIM, Growth Fund pays MLIM a monthly investment advisory fee at an annual
rate of 0.65% of the average daily net assets of Growth Fund. MLIM has
voluntarily agreed to reduce its investment advisory fee as Fund assets grow.
The reduced investment advisory fee is equal to 0.65% of the average daily net
assets of Growth Fund not exceeding $1.0 billion; 0.625% of the average daily
net assets of Growth Fund from $1.0 billion to $1.5 billion; 0.60% of the
average daily net assets of Growth Fund from $1.5 billion to $10 billion; and
0.575% of the average daily net assets of Growth Fund in excess of $10 billion.
MLIM may reduce or discontinue or reduce such voluntary waiver of investment
advisory fees at any time without notice.
MLAM U.K. acts as sub-adviser to both Fundamental Growth and Growth Fund.
Pursuant to separate sub-advisory agreements between MLIM and MLAM U.K., MLIM
pays MLAM U.K. a fee for providing investment advisory services to MLIM with
respect to the Funds, in amounts to be determined from time to time by MLIM and
MLAM U.K. but in no event in excess of the amount MLIM actually receives for
providing services to the applicable Fund pursuant to its Investment Advisory
Agreement. The address of MLAM U.K. is 33 King William Street, London EC4R 9AS,
England.
Purchase of Shares
The class structure and purchase and distribution procedures for shares of
Growth Fund are substantially the same as those of Fundamental Growth. For a
complete discussion of the four classes of shares and the purchase and
distribution procedures related thereto see "Your Account--Merrill Lynch Select
PricingSM System," "--Participation in Fee-Based Programs" and "--How to Buy,
Sell, Transfer and Exchange Shares" in the Fundamental Growth Prospectus.
Redemption of Shares
The procedure for redeeming shares of Fundamental Growth is the same as
the procedure for redeeming shares of Growth Fund. For purposes of computing
any CDSC that may be payable upon disposition of Corresponding Shares of
Fundamental Growth acquired by Growth Fund shareholders in the Reorganization,
the holding period of Growth Fund shares outstanding on the date the
Reorganization takes place will be tacked onto the holding period of the
Corresponding Shares of Fundamental Growth acquired in the Reorganization.
Class B shares of the Combined Fund received in return for Class B shares of
Growth Fund purchased prior to June 1, 2001 will continue to be subject to the
four-year CDSC schedule in effect prior to June 1, 2001. Class B shares of the
Combined Fund received in return for Class B shares of Growth Fund purchased on
or after June 1, 2001 will be subject to the six-year CDSC schedule currently
in effect. Class B shares of the Combined Fund purchased on or after June 1,
2001 will also be subject to the six-year CDSC schedule currently in effect.
See "Your Account--Merrill Lynch Select PricingSM System," "--Participation in
Fee-Based Programs" and "--How to Buy, Sell, Transfer and Exchange Shares" in
the Fundamental Growth Prospectus.
Performance
General. The following tables provide performance information for each
class of shares of Fundamental Growth and Growth Fund, including and excluding
maximum applicable sales charges, for the periods indicated. Past performance
is not indicative of future performance.
Fundamental Growth
Average Annual Total Return
Class A Shares Class B Shares Class C Shares Class D Shares
-------------- -------------- -------------- --------------
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Period Charge* Charge Charge* Charge Charge* Charge Charge* Charge
- ------ ------- ------ ------- ------ ------- ------ ------- ------
One Year Ended May 31, 2001...... (20.27)% (15.85)% (19.74)% (16.70)% (17.49)% (16.73)% (20.47)% (16.07)%
Five Years Ended May 31, 2001.... 16.16% 17.42% 16.21%+ 16.21% 16.20% 16.20% 15.85% 17.11%
Inception** through
May 31, 2001................... 18.25% 19.22% 18.00% 18.00% 13.64% 13.64% 13.80% 14.53%
- ---------------
* Assumes the maximum applicable sales charge. The maximum initial sales charge on Class A and Class D shares is 5.25%.
The maximum CDSC on Class B shares, in effect during the periods, is 4.0% and is reduced to 0% after four years. Class
C shares are subject to a 1.0% CDSC for one year.
** Class A and Class B shares commenced operations on October 21, 1994. Class C and Class D shares commenced operations on
December 24, 1992.
+ The CDSC on Class B shares currently in effect is 4.0% and is reduced to 0% after six years. If the six-year CDSC schedule
had been in effect for this period, returns would have been lower.
Growth Fund
Average Annual Total Return*
Class A Shares Class B Shares Class C Shares Class D Shares
-------------- -------------- -------------- --------------
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Period Charge* Charge Charge* Charge Charge* Charge Charge* Charge
- ------ ------- ------ ------- ------ ------- ------ ------- ------
One Year Ended May 31, 2001...... (30.84)% (27.00)% (30.40)% (27.79)% (28.44)% (27.79)% (31.03)% (27.21)%
Five Years Ended May 31, 2001.... (2.30)% (1.24)% (2.25)%+ (2.25)% (2.27)% (2.27)% (2.55)% (1.49)%
Ten Years Ended May 31, 2001 6.67% 7.25% 6.15% 6.15% --- --- --- ---
Inception through May 31,
2001***.......................... --- --- --- --- 4.22% 4.22% 4.20% 5.05%
- ---------------
* The Average Annual Total Return figures presented have been calculated based on actual sales charge and expense levels
for the time periods indicated. MLIM waived a portion of the investment advisory fee due from Growth Fund.
** Assumes the maximum applicable sales charge. The maximum initial sales charge on Class A and Class D shares is 5.25%.
The maximum CDSC on Class B shares, in effect during the periods, is 4.0% and is reduced to 0% after four years. Class C
shares are subject to a 1.0% CDSC for one year.
*** Class C and Class D shares commenced operations on October 21, 1994.
+ The CDSC on Class B shares currently in effect is 4.0% reduced to 0% after six years. If the six-year CDSC schedule had
been in effect for this period, the return would have been lower for this period.
Code of Ethics
The Boards of Fundamental Growth and Growth Fund have approved the same
Code of Ethics (the "Code of Ethics") pursuant to Rule 17j-1 under the
Investment Company Act that covers the Funds, MLIM, MLAM U.K. and FAMD. The
Code of Ethics establishes procedures for personal investing and restricts
certain transactions. Employees subject to the Code of Ethics may invest in
securities for their personal investment accounts, including securities that
may be purchased or held by the respective Fund.
Shareholder Rights
Shareholders of Fundamental Growth are entitled to one vote for each share
held and fractional votes for fractional shares held and will vote on the
election of Board Members and any other matter submitted to a shareholder vote.
Fundamental Growth does not intend to hold meetings of shareholders in any year
in which the Investment Company Act does not require shareholders to act upon
any of the following matters: (i) election of Board Members; (ii) approval of
an investment advisory agreement; (iii) approval of a distribution agreement or
plan of distribution; and (iv) ratification of selection of independent
auditors. However, Fundamental Growth will be required to call special meetings
of shareholders in accordance with the requirements of the Investment Company
Act to seek approval of new investment advisory arrangements or of a change in
the fundamental investment policies, investment objective or investment
restrictions of Fundamental Growth. Fundamental Growth also would be required
to hold a shareholders' meeting to elect new Board Members at such time as less
than a majority of the Board Members holding office have been elected by
shareholders. In addition, Fundamental Growth may hold shareholder meetings for
approval of certain other matters as required by the Articles of Incorporation
of Fundamental Growth. The by-laws of Fundamental Growth require that a special
meeting of shareholders be held on the written request of the holders of at
least 10% of the outstanding shares of Fundamental Growth entitled to vote at
the meeting, if such request is in compliance with applicable Maryland law. The
voting rights for Board Members are not cumulative. Shares of Fundamental
Growth to be issued to Growth Fund shareholders in the Reorganization will be
fully paid and non-assessable, will have no preemptive rights and will have the
conversion rights described in this Prospectus and Proxy Statement and in the
Fundamental Growth Prospectus. Each share of Fundamental Growth is entitled to
participate equally in dividends declared by Fundamental Growth and in its net
assets on liquidation or dissolution after satisfaction of outstanding
liabilities, except that Class B, Class C and Class D shares bear certain
additional expenses. Rights attributable to shares of Growth Fund are similar
to those described above.
Dividends
The current policy of Growth Fund with respect to dividends is
substantially identical to the policy of Fundamental Growth. It is each Fund's
intention to distribute substantially all of its net investment income, if any.
Dividends from such net investment income will be paid at least annually. In
addition, each Fund distributes all net realized capital gains, if any, to
shareholders at least annually.
Automatic Dividend Reinvestment Plan
Each Fund offers its shareholders an Automatic Dividend Reinvestment Plan
(each, a "Plan" and collectively, the "Plans") with substantially similar
terms. Pursuant to the Plans, dividends will be automatically reinvested,
without sales charge, in additional full and fractional shares of the relevant
Fund unless a shareholder has elected to receive such dividends in cash. For
further information about the Plans, see "Shareholder Services--Automatic
Dividend Reinvestment Plan" in the Fundamental Growth Statement of Additional
Information.
After the Reorganization, a shareholder of Growth Fund who has elected to
receive dividends in cash will receive dividends of the Combined Fund in cash;
all other Growth Fund shareholders will have their dividends automatically
reinvested in shares of the Combined Fund. However, if a shareholder owns
shares of both Funds, after the Reorganization the shareholder's election with
respect to the dividends of Fundamental Growth will control unless the
shareholder specifically elects a different option at that time.
Tax Information
The tax consequences associated with an investment in shares of Growth
Fund are substantially similar to the tax consequences associated with an
investment in shares of Fundamental Growth. See "Dividends and Taxes" in the
Fundamental Growth Prospectus.
Portfolio Transactions
The procedures for engaging in portfolio transactions are generally the
same for both Growth Fund and Fundamental Growth. For a discussion of these
procedures, see "Portfolio Transactions and Brokerage" in the Fundamental
Growth Statement.
Each Fund may effect portfolio transactions on foreign securities
exchanges and may incur settlement delays on certain of such exchanges. In
addition, costs associated with transactions in foreign securities are
generally higher than such costs associated with transactions in U.S.
securities. Moreover, there generally is less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Fundamental Growth's ability and decisions to purchase and sell portfolio
securities may be affected by foreign laws and regulations relating to the
convertibility and repatriation of assets.
Portfolio Turnover
Generally, Fundamental Growth does not purchase securities for short-term
trading profits. However, either Fund may dispose of securities without regard
to the time that they have been held when such action, for defensive or other
reasons, appears advisable to MLIM. Neither Fund has any limit on its rate of
portfolio turnover. The portfolio turnover rates for Fundamental Growth for the
fiscal years ended August 31, 2000, 1999 and 1998 were 98.71%, 52.72% and
40.27%, respectively. The portfolio turnover rates for Growth Fund for its
fiscal years ended October 31, 2000, 1999 and 1998 were 66.49%, 101.71% and
24.41%, respectively. A high portfolio turnover involves certain tax
consequences such as an increase in capital gain dividends or an increase in
ordinary income dividends of accrued market discount, and correspondingly
greater transaction costs in the form of dealer spreads and brokerage
commissions which are borne directly by the Fund.
Additional Information
Net Asset Value. Both Fundamental Growth and Growth Fund determine net
asset value of each class of its shares once daily as of the close of business
on the NYSE on each day during which the NYSE is open for trading based on
prices at the time of closing. The NYSE generally closes at 4:00 p.m., Eastern
time. Net asset value is computed by dividing the value of the securities held
by the Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time.
Shareholder Services. Fundamental Growth offers a number of shareholder
services and investment plans designed to facilitate investment in shares of
the Fund. In addition, U.S. shareholders of each class of shares of Fundamental
Growth have an exchange privilege with certain other funds utilizing the
Merrill Lynch Select Pricing SystemSM. Shareholder services available to
shareholders of Growth Fund are identical to the shareholder services of
Fundamental Growth. For a description of these services, see "Shareholder
Services" in the Fundamental Growth Statement.
Custodian. State Street Bank and Trust Company ("State Street") acts as
custodian of the cash and securities of Growth Fund. The principal business
address of State Street in such capacity is One Heritage Drive P2N, North
Quincy, Massachusetts 02171. The Chase Manhattan Bank, N.A. acts as custodian
of the cash and securities of Fundamental Growth. The principal business
address of The Chase Manhattan Bank, N.A., in such capacity is Global
Securities Services, Chase MetroTech Center, 18th Floor, Brooklyn, New York
11245. It is presently anticipated that The Chase Manhattan Bank, N.A. will
serve as the custodian of the Combined Fund.
Accounting Services. Each Fund entered into an agreement with State Street
effective January 1, 2001, pursuant to which State Street provides certain
accounting services to each Fund. Each Fund pays a fee for these services.
Prior to January 1, 2001, MLIM provided accounting services to each Fund and
was reimbursed by the Fund at its cost in connection with such services. MLIM
continues to provide certain accounting services to each Fund and each Fund
reimburses MLIM for the cost of these services.
The tables below show the amounts paid by each Fund to State Street and to
MLIM for the periods indicated:
Fundamental Growth Growth Fund
- ------------------------------------------------------------- ----------------------------------------------------------------
Paid to Paid to Paid to Paid to
Period State Street MLIM Period State Street MLIM
- --------------------------------- ------------ -------- ---------------------------------- ------------ --------
Fiscal year ended August 31, 1999 N/A $143,457 Fiscal year ended October 31, 1999 N/A $342,943
Fiscal year ended August 31, 2000 N/A $372,148 Fiscal year ended October 31, 2000 N/A $254,181
Six months ended February 28, 2001 $123,883* $240,526 Six months ended April 30, 2001 $129,778* $71,419
- ---------------
* Represents payments pursuant to the agreement between the applicable Fund
and State Street commencing January 1, 2001.
Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing Agent.
Financial Data Services, Inc. ("FDS"), 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, an affiliate of MLIM, serves as the transfer agent,
dividend disbursing agent and shareholder servicing agent with respect to each
Fund (in such capacity, the "Transfer Agent"), at the same fee schedule,
pursuant to separate agreements with each Fund. The mailing address for FDS is
P.O. Box 45289, Jacksonville, Florida 32232-5289. For the fiscal year ended
August 31, 2000, Fundamental Growth paid the Transfer Agent fees totaling
$6,266,647. For the fiscal year ended October 31, 2000, Growth Fund paid the
Transfer Agent fees totaling $6,983,015. FDS will serve as the transfer agent,
dividend disbursing agent and shareholder servicing agent for the Combined
Fund.
Capital Stock. Fundamental Growth has an authorized capital of
1,000,000,000 shares, par value $.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock. Class A Common
Stock and Class C Common Stock each consist of 100,000,000 shares, Class B
Common Stock consists of 500,000,000 shares, and Class D Common Stock consists
of 300,000,000 shares. Growth Fund's shares are divided into Class A, Class B,
Class C and Class D shares. Under Growth Fund's Charter, the Board Members of
Growth Fund have the authority to issue an unlimited number of full and
fractional shares of beneficial interest, par value $0.10 per share, of
different classes and to divide or combine the shares of each class into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interest in Growth Fund. The rights, preferences and expenses
attributable to the Class A, Class B, Class C and Class D shares of Growth Fund
are substantially similar in all material respects to those of the Class A,
Class B, Class C and Class D shares of Fundamental Growth.
Shareholder Inquiries. Shareholder inquiries with respect to Growth Fund
and Fundamental Growth may be addressed to either Fund by telephone at (609)
282-2800 or at the address set forth on the cover page of this Proxy Statement
and Prospectus.
THE REORGANIZATION
General
Under the Agreement and Plan (attached hereto as Exhibit I), Fundamental
Growth will acquire substantially all of the assets of Growth Fund and assume
substantially all of the liabilities of Growth Fund and will simultaneously
distribute to Growth Fund shares of Fundamental Growth. Such shares will then
be distributed on a proportionate basis to the shareholders of Growth Fund in
liquidation of Growth Fund.
Generally, the assets transferred by Growth Fund to Fundamental Growth
will equal (a) all investments of Growth Fund held in its portfolio as of the
Valuation Time (as defined in the Agreement and Plan), and (b) all other assets
owned directly or indirectly by Growth Fund as of such time.
Growth Fund will distribute the shares of Fundamental Growth received by
it pro rata to its shareholders in return for such shareholders' proportional
interests in Growth Fund. The shares of Fundamental Growth received by Growth
Fund shareholders will be of the same class and have the same aggregate net
asset value as each such shareholder's interest in Growth Fund as of the
Valuation Time (previously defined as the "Corresponding Shares"). (See "Your
Account - How Shares are Priced" in the Fundamental Growth Prospectus for
information concerning the calculation of net asset value.) The distribution of
the Corresponding Shares will be accomplished by opening new accounts on the
books of Fundamental Growth in the names of all shareholders of Growth Fund,
including shareholders holding Growth Fund shares in certificate form, and
transferring to each shareholder's account the Corresponding Shares of
Fundamental Growth representing such shareholder's interest previously credited
to the account of Growth Fund. Shareholders holding Growth Fund shares in
certificate form may receive certificates representing the Corresponding Shares
of Fundamental Growth credited to their account in respect of such Growth Fund
shares by sending the certificates to the Transfer Agent accompanied by a
written request for such exchange.
Since the Corresponding Shares of Fundamental Growth will be issued at net
asset value and the shares of Growth Fund will be valued at net asset value for
purposes of the Reorganization, the holders of shares of Growth Fund will not
be diluted as a result of the Reorganization. However, as a result of the
Reorganization, a shareholder of Growth Fund or Fundamental Growth would hold a
reduced percentage of ownership in the Combined Fund than he or she did in
Growth Fund or Fundamental Growth, respectively, prior to the Reorganization.
Procedure
On June 20, 2001, the Board of Growth Fund, including all of the Board
Members who are not "interested persons" of Growth Fund as defined in the
Investment Company Act, approved the Agreement and Plan and the submission of
such Agreement and Plan to Growth Fund shareholders for approval. The Board of
Fundamental Growth, including all of the Board Members who are not "interested
persons" of Fundamental Growth as defined in the Investment Company Act,
approved the Agreement and Plan on July 11, 2001.
If the shareholders of Growth Fund approve the Reorganization at the
Meeting, all required regulatory approvals are obtained and certain conditions
are either met or waived, it is presently anticipated that the Reorganization
will take place during the fourth calendar quarter of 2001.
The Board of Growth Fund recommends that Growth Fund shareholders approve
the Agreement and Plan.
Terms of the Agreement and Plan
The following is a summary of the significant terms of the Agreement and
Plan. This summary is qualified in its entirety by reference to the Agreement
and Plan, attached hereto as Exhibit I.
Valuation of Assets and Liabilities. The respective assets of Growth Fund
and Fundamental Growth will be valued as of the Valuation Time. The assets in
each Fund will be valued according to the procedures set forth under "Your
Account - How Shares are Priced" in the Fundamental Growth Prospectus. Purchase
orders for shares of Growth Fund which have not been confirmed as of the
Valuation Time will be treated as assets of Growth Fund for purposes of the
Reorganization; redemption requests with respect to Growth Fund shares which
have not settled as of the Valuation Time will be treated as liabilities of
Growth Fund for purposes of the Reorganization.
Distribution of Shares of Fundamental Growth. On the next full business
day following the Valuation Time (the "Closing Date"), Fundamental Growth will
issue to Growth Fund a number of shares the aggregate net asset value of which
will equal the aggregate net asset value of shares of Growth Fund as of the
Valuation Time. Each holder of Growth Fund shares will receive, in return for
his or her proportionate interest in Growth Fund, Corresponding Shares of
Fundamental Growth of the same class and having the same aggregate net asset
value as the Growth Fund shares held by such shareholder as of the Valuation
Time.
Expenses. The expenses of the Reorganization that are directly
attributable to Growth Fund and the conduct of its business will be deducted
from the assets of Growth Fund as of the Valuation Time. These expenses are
expected to include the expenses incurred in preparing, printing and mailing
the proxy materials to be utilized in connection with the Meeting and the
expenses related to the solicitation of proxies to be voted at the Meeting.
MLIM has agreed to bear all Reorganization expenses that are directly
attributable to Fundamental Growth and the conduct of its business. These
expenses are expected to include the costs of printing sufficient copies of its
Prospectus and its most recent Annual Report to accompany the Proxy Statement
and Prospectus. Certain additional expenses of the Reorganization, including,
but not limited to, expenses in connection with obtaining an opinion of counsel
with respect to the tax consequences of the Reorganization, the preparation of
the Agreement and Plan, legal fees, transfer agent fees, and audit fees, will
be borne equally by Growth Fund and MLIM, which has agreed to bear such
expenses on behalf of Fundamental Growth. The expenses of the Reorganization
attributable to Growth Fund are currently estimated to be $1,835,600 and the
expenses of the Reorganization attributable to Fundamental Growth (which will
be borne by MLIM) are currently estimated to be $211,200.
Required Approvals. Under Growth Fund's Charter, shareholder approval of
the Agreement and Plan requires the affirmative vote of Growth Fund
shareholders representing not less than two-thirds of the total number of votes
entitled to be cast thereon.
Deregistration and Dissolution. Following the transfer of the assets and
liabilities of Growth Fund to Fundamental Growth, each Growth Fund shareholder
will receive Corresponding Shares of Fundamental Growth. In addition, Growth
Fund will terminate its registration under the Investment Company Act and its
existence as a business trust under Massachusetts law and will withdraw its
authority to do business in any state where it is required to do so.
Amendments and Conditions. The Agreement and Plan may be amended at any
time prior to the Closing Date with respect to any of the terms therein. The
obligations of Growth Fund and Fundamental Growth pursuant to the Agreement and
Plan are subject to various conditions, including a registration statement on
Form N-14 being declared effective by the Commission, approval of the
Reorganization by Growth Fund shareholders, an opinion of counsel being
received with respect to certain tax matters, opinions of counsel being
received with respect to certain securities and other matters and the
continuing accuracy of various representations and warranties of Growth Fund
and Fundamental Growth being confirmed by the respective parties.
Termination, Postponement and Waivers. The Agreement and Plan may be
terminated, and the Reorganization abandoned at any time, whether before or
after approval thereof by the Growth Fund shareholders, prior to the Closing
Date, or the Closing Date may be postponed: (i) by consent of the Boards of
Growth Fund and Fundamental Growth; (ii) by Growth Fund if any condition to
Growth Fund's obligations has not been fulfilled or waived by such Fund; or
(iii) by Fundamental Growth if any condition to Fundamental Growth's
obligations has not been fulfilled or waived by such Fund.
Potential Benefits to Shareholders as a Result of the Reorganization
The Board of Growth Fund believes that shareholders of Growth Fund are
likely to benefit from the Reorganization. Following the Reorganization, Growth
Fund shareholders will remain invested in an open-end fund that has capital
growth as its investment objective and a portfolio of equity securities. In
addition, Growth Fund shareholders are likely to experience certain additional
benefits, including lower expenses per share, economies of scale and greater
flexibility in portfolio management.
Specifically, after the Reorganization the pro forma operating expense
ratio of the Combined Fund, as a percentage of its net assets, is expected to
be lower than the current operating expense ratio for Growth Fund (excluding
any voluntary waiver of investment advisory fees due from Growth Fund). See
"Summary -- The Reorganization -- Fee Tables." In addition, certain fixed
costs, such as costs of printing shareholder reports and proxy statements,
legal expenses, audit fees, registration fees, mailing costs and other expenses
would be spread across a larger asset base, thereby lowering the operating
expense ratio borne by Growth Fund shareholders. To illustrate the economies of
scale that may be achieved as a result of the Reorganization, the table below
shows the operating expense ratio of each class of shares for Fundamental
Growth and Growth Fund as of February 28, 2001 and, assuming the Reorganization
had taken place on February 28, 2001, the estimated pro forma operating expense
ratio for each class of shares of the Combined Fund (in each case, including
class specific distribution fees and account maintenance fees with respect to
Fundamental Growth, Growth Fund and the Combined Fund, and excluding any
voluntary waiver of investment advisory fees due from Growth Fund).
Overall Operating Expense Ratio
---------------------------------------------------
Actual Pro Forma
---------------------------- ---------
Fundamental Growth Combined
Class of Shares Growth Fund Fund
----------- ------ ---------
A................... 0.75% 1.01% 0.74%
B................... 1.76% 2.01% 1.74%
C................... 1.77% 2.01% 1.74%
D................... 0.99% 1.26% 0.99%
The following table sets forth (i) the net assets of Fundamental Growth as
of its last three fiscal year ends and as of May 31, 2001, and (ii) the net
assets of Growth Fund as of its last three fiscal year ends and as of May 31,
2001.
Fundamental Growth Growth Fund
- ------------------------------------------ ------------------------------------------
Date Net Assets Date Net Assets
- --------------------- ---------------- ---------------------- ----------------
As of August 31, 1998 $ 1,097,372,333 As of October 31, 1998 $ 4,978,217,224
As of August 31, 1999 $ 3,576,593,893 As of October 31, 1999 $ 2,872,781,812
As of August 31, 2000 $ 6,633,268,363 As of October 31, 2000 $ 2,580,746,160
As of May 31, 2001 $ 5,865,595,670 As of May 31, 2001 $ 1,673,811,829
- --------------------------------------------------------------------------------
This table illustrates that the net assets of Fundamental Growth have been
generally increasing for the period August 31, 1998 through May 31, 2001, while
the net assets of Growth Fund have been decreasing for the period October 31,
1998 through May 31, 2001. If these trends were to continue, MLIM anticipates
that Fundamental Growth would experience increased economies of scale which, as
a result, would reduce Fundamental Growth's overall operating expense ratio,
while Growth Fund would experience a higher operating expense ratio due to the
continuing reduction in its net assets. No assurance can be given that the
foregoing would in fact occur. MLIM believes that the economies of scale that
may be realized by the Combined Fund as a result of the Reorganization would be
beneficial to Growth Fund shareholders.
Based on the foregoing, the Board of Growth Fund concluded that the
Reorganization presents no significant risks or costs (including legal,
accounting and administrative costs) that would outweigh the benefits discussed
above. In approving the Reorganization, the Board of Fundamental Growth and the
Board of Growth Fund determined that the interests of the existing shareholders
of the applicable Fund would not be diluted as a result of the Reorganization
and that the Reorganization was in the best interests of the applicable Fund.
Tax Consequences of the Reorganization
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Growth Fund and Fundamental Growth have
elected and qualified for the special tax treatment afforded "regulated
investment companies" under the Code, and Fundamental Growth intends to
continue to so qualify after the Reorganization. Growth Fund and Fundamental
Growth shall have received an opinion of Sidley Austin Brown & Wood LLP,
counsel to Fundamental Growth and special tax counsel to Growth Fund, to the
effect that for Federal income tax purposes: (i) the transfer of all of the
assets of Growth Fund to Fundamental Growth in return solely for shares of
Fundamental Growth as provided in the Agreement and Plan will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the Code, and
Growth Fund and Fundamental Growth will each be deemed to be a "party" to the
Reorganization within the meaning of Section 368(b) of the Code; (ii) in
accordance with Section 361(a) of the Code, no gain or loss will be recognized
to Growth Fund as a result of the asset transfer solely in return for
Fundamental Growth shares or on the distribution of the Fundamental Growth
stock to Growth Fund shareholders under Section 361(c)(1) of the Code; (iii)
under Section 1032 of the Code, no gain or loss will be recognized to
Fundamental Growth on the receipt of assets of Growth Fund in return for
Fundamental Growth shares; (iv) in accordance with Section 354(a)(1) of the
Code, no gain or loss will be recognized to the shareholders of Growth Fund on
the receipt of Corresponding Shares of Fundamental Growth in return for their
shares of Growth Fund; (v) in accordance with Section 362(b) of the Code, the
tax basis of Growth Fund's assets in the hands of Fundamental Growth will be
the same as the tax basis of such assets in the hands of Growth Fund
immediately prior to the consummation of the Reorganization; (vi) in accordance
with Section 358 of the Code, immediately after the Reorganization, the tax
basis of the Corresponding Shares of Fundamental Growth received by the
shareholders of Growth Fund in the Reorganization will be equal to the tax
basis of the shares of Growth Fund surrendered; (vii) in accordance with
Section 1223 of the Code, a shareholder's holding period for the Corresponding
Shares of Fundamental Growth will be determined by including the period for
which such shareholder held the shares of Growth Fund exchanged therefor
provided, that such Growth Fund shares were held as a capital asset; (viii) in
accordance with Section 1223 of the Code, Fundamental Growth's holding period
with respect to the Growth Fund assets transferred will include the period for
which such assets were held by Growth Fund; and (ix) the taxable year of Growth
Fund will end on the effective date of the Reorganization, and pursuant to
Section 381(a) of the Code and regulations thereunder, Fundamental Growth will
succeed to and take into account certain tax attributes of Growth Fund, such as
earnings and profits, capital loss carryovers and method of accounting.
Under Section 381(a) of the Code, Fundamental Growth will succeed to and
take into account certain tax attributes of Growth Fund, including but not
limited to, earnings and profits, any net operating loss carryovers, any
capital loss carryovers and method of accounting. The Code, however, contains
special limitations with regard to the use of net operating losses, capital
losses and other similar items in the context of certain reorganizations,
including a tax-free reorganization pursuant to Section 368(a)(1)(C) of the
Code, which would reduce the benefit of these attributes to Fundamental Growth.
As of February 28, 2001, each of Growth Fund and Fundamental Growth had
significant net realized capital losses and significant net unrealized capital
losses. As of such date, the amount of each Fund's net realized capital losses
and net unrealized capital losses as a percentage of its net asset value was
substantially similar. After the Reorganization, and subject to certain
limitations, the shareholders of each Fund may benefit from the ability of the
Combined Fund to use such capital losses to offset any realized capital gains.
Shareholders should consult their tax advisors regarding the effect of the
Reorganization in light of their individual circumstances. As the foregoing
relates only to Federal income tax consequences, shareholders also should
consult their tax advisors as to the foreign, state and local tax consequences
of the Reorganization.
Status as a Regulated Investment Company. Both Growth Fund and Fundamental
Growth have elected and qualified to be taxed as regulated investment companies
under Sections 851-855 of the Code, and after the Reorganization, Fundamental
Growth intends to continue to so qualify.
Appraisal Rights
Shareholders of Growth Fund are not entitled to appraisal rights in
connection with the acquisition.
Capitalization
The following table sets forth as of February 28, 2001, (i) the
capitalization of Growth Fund, (ii) the capitalization of Fundamental Growth,
and (iii) the pro forma capitalization of the Combined Fund as adjusted to give
effect to the Reorganization.
Capitalization of Fundamental Growth and Growth Fund
and Pro Forma Capitalization of the
Combined Fund as of February 28, 2001 (unaudited)
Fundamental Growth
Class A Class B Class C Class D
-------------- -------------- ------------ --------------
Total Net Assets:.............. $1,028,534,852 $2,800,424,387 $619,472,942 $1,472,654,237
Shares Outstanding............. 49,126,759 143,042,022 31,454,824 71,176,520
Net Asset Value Per Share:.. $20.94 $19.58 $19.69 $20.69
Growth Fund
Class A Class B Class C Class D
-------------- -------------- ------------ --------------
Total Net Assets:.............. $496,550,053 $733,113,643 $64,708,637 $519,916,886
Shares Outstanding............. 26,840,672 44,277,693 3,940,191 28,346,073
Net Asset Value Per Share:.. $18.50 $16.56 $16.42 $18.34
Combined Fund*
Class A Class B Class C Class D
-------------- -------------- ------------ --------------
Total Net Assets:.............. $1,498,851,525 $3,479,931,973 $675,130,002 $1,960,511,400
Shares Outstanding............. 72,431,401 179,837,297 34,683,357 95,868,151
Net Asset Value Per Share:.. $20.69 $19.35 $19.47 $20.45
- ---------------
* Total Net Assets and Net Asset Value Per Share include the aggregate value of Growth Fund's net
assets which would have been transferred to Fundamental Growth had the Reorganization taken place on
February 28, 2001. Assumes distribution of undistributed realized capital gains and foreign currency
transactions and the charge for estimated Reorganization expenses of $1,835,600 attributable to
Growth Fund. No assurance can be given as to how many shares of Fundamental Growth the Growth Fund
shareholders will receive on the date the Reorganization takes place, and the foregoing should not be
relied upon to reflect the number of shares of Fundamental Growth that actually will be received on
or after such date.
INFORMATION CONCERNING THE MEETING
Date, Time and Place of Meeting
The Meeting will be held on October 15, 2001, at the offices of MLIM, 800
Scudders Mill Road, Plainsboro, New Jersey at 10:00 a.m., Eastern time.
Solicitation, Revocation and Use of Proxies
A shareholder executing and returning a proxy has the power to revoke it
at any time prior to its exercise by executing a superseding proxy or by
submitting a notice of revocation to the Secretary of Growth Fund. Although
mere attendance at the Meeting will not revoke a proxy, a shareholder present
at the Meeting may withdraw his or her proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated on a properly
executed proxy, such shares will be voted "FOR" the approval of the Agreement
and Plan.
It is not anticipated that any matters other than the adoption of the
Agreement and Plan will be brought before the Meeting. If, however, any other
business properly is brought before the Meeting, proxies will be voted in
accordance with the judgment of the persons designated on such proxies.
Record Date and Outstanding Shares
Only holders of record of shares of Growth Fund at the close of business
on August 17, 2001 (the "Record Date") are entitled to vote at the Meeting or
any adjournment thereof. At the close of business on the Record Date, there
were _________________ shares of Growth Fund issued and outstanding and
entitled to vote.
Security Ownership of Certain Beneficial and Registered Owners and
Management of Growth Fund and Fundamental Growth
To the knowledge of Growth Fund, except as set forth in Exhibit II to this
Proxy Statement and Prospectus, no person or entity owned of record or
beneficially 5% or more of any class of Growth Fund's outstanding shares as of
the Record Date.
At the Record Date, the Board Members and officers of Growth Fund as a
group (10 persons) owned an aggregate of less than 1% of the outstanding shares
of Growth Fund and owned less than 1% of the outstanding shares of common stock
of ML & Co.
To the knowledge of Fundamental Growth, except as set forth in Exhibit II
to this Proxy Statement and Prospectus, no person or entity owned of record or
beneficially 5% or more of any class of Fundamental Growth's outstanding shares
as of the Record Date.
At the Record Date, the Board Members and officers of Fundamental Growth
as a group (10 persons) owned an aggregate of less than 1% of the outstanding
shares of Fundamental Growth and owned less than 1% of the outstanding shares
of common stock of ML & Co.
Voting Rights and Required Vote
For purposes of this Proxy Statement and Prospectus, each share of each
class of Growth Fund is entitled to one vote. Approval of the Agreement and
Plan requires the affirmative vote of Growth Fund shareholders representing not
less than two-thirds of the total votes entitled to be cast thereon, with all
shares voting as a single class.
Shareholders of Growth Fund are not entitled to demand the fair value of
their shares upon a transfer of assets and will be bound by the terms of the
Reorganization if approved at the Meeting. However, any shareholder of Growth
Fund may redeem his or her Growth Fund shares prior to the Reorganization.
A quorum for purposes of the Meeting consists of one-third of the
outstanding shares of Growth Fund, present in person or by proxy, at the
Meeting. If, by the time scheduled for the Meeting, a quorum of Growth Fund's
shareholders is not present or if a quorum is present but sufficient votes in
favor of the Agreement and Plan are not received from the shareholders of
Growth Fund, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies from shareholders. Any
such adjournment will require the affirmative vote of a majority of the shares
of Growth Fund present in person or by proxy and entitled to vote at the
session of the Meeting to be adjourned. The persons named as proxies will vote
in favor of any such adjournment if they determine that adjournment and
additional solicitation are reasonable and in the interests of the shareholders
of Growth Fund.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus and the
expenses related to solicitation of proxies to be voted at the Meeting will be
borne by Growth Fund. Growth Fund will reimburse banks, brokers and others for
their reasonable expenses in forwarding proxy solicitation materials to the
beneficial owners of shares of Growth Fund and will reimburse certain persons
that Growth Fund may employ for their reasonable expenses in assisting in the
solicitation of proxies from such beneficial owners of shares of Growth Fund.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of Growth Fund. [Growth Fund has retained Georgeson Shareholder
Communications Inc., 17 State Street, New York, New York 10004, 1-___-___-____,
to aid in the solicitation of proxies, at a cost to be borne by Growth Fund of
approximately $__________ plus out-of-pocket expenses, which are estimated to
be $__________.]
Broker-dealer firms, including Merrill Lynch, holding shares of Growth
Fund in "street name" for the benefit of their customers and clients will
request the instructions of such customers and clients on how to vote their
shares before the Meeting. Broker-dealer firms, including Merrill Lynch, will
not be permitted to vote without instructions with respect to the approval of
the Agreement and Plan. Properly executed proxies that are returned but that
are marked "abstain" or with respect to which a broker-dealer has received no
instructions and therefore has declined to vote on the proposal ("broker
non-votes") will be counted as present for the purposes of determining a
quorum. However, abstentions and broker non-votes will have the same effect as
a vote against approval of the Agreement and Plan.
This Proxy Statement and Prospectus does not contain all of the
information set forth in the registration statements and the exhibits relating
thereto, which Growth Fund and Fundamental Growth, respectively, have filed
with the Commission under the Securities Act and the Investment Company Act, to
which reference is hereby made.
Growth Fund and Fundamental Growth file reports and other information with
the Commission. Reports, proxy statements, registration statements and other
information filed by Growth Fund, and Fundamental Growth can be inspected and
copied at the public reference facilities of the Commission in Washington, D.C.
and at the New York Regional Office of the Commission at Seven World Trade
Center, New York, New York 10048. Copies of such materials also can be obtained
by mail from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains the Fundamental Growth Prospectus, the
Fundamental Growth Statement, the Growth Fund Prospectus, the Growth Fund
Statement, other material incorporated herein by reference and other
information regarding the Funds.
LEGAL PROCEEDINGS
In November, 2000, a putative class action lawsuit was filed in Federal
Court in the Middle District of Florida on behalf of Florida investors against
Growth Fund, MLIM, certain present and former individual Board Members of
Growth Fund and Merrill Lynch seeking damages. The plaintiffs, who are trustees
of and participants in certain 401(k) profit sharing plans, purport to assert
claims against the defendants on their own behalf and on behalf of the plans,
the plans' participants and all similarly situated shareholders of Growth Fund
who invested in Florida. The alleged class consists of "all persons and
entities who purchased or sold the Growth Fund in Florida through Merrill
Lynch, or any related entity . . . at any time from November 1, 1997, up
through and including April 30, 1999." The lawsuit involves two claims based on
the Florida Securities and Investor Protection Act and the Florida Deceptive
and Unfair Trade Practices Act, respectively. The substance of both claims is
that Growth Fund and the other defendants misrepresented and omitted material
facts regarding the "true nature of the Fund and its holdings." The defendants,
including Growth Fund, have filed a motion to dismiss the plaintiffs' complaint
for lack of subject matter jurisdiction. There has been no decision yet with
respect to this motion. Growth Fund and the other defendants believe that the
lawsuit is without merit and intend to defend vigorously against the claims. A
second, nearly identical action was filed in Florida state court by one of the
original plaintiffs in the federal action. This lawsuit has been removed under
the Securities Litigation Uniform Standards Act to federal court. Plaintiffs
have made a motion to remand this action to state court, which defendants have
opposed. An oral argument has been scheduled in this matter for August 13,
2001. Growth Fund and the other defendants also believe that this second
lawsuit is without merit and have moved to have the complaint dismissed. The
two actions have not been consolidated, although both are pending before the
same district court judge. There are no material legal proceedings to
which Fundamental Growth is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for Fundamental Growth by Sidley Austin Brown & Wood LLP, One World Trade
Center, New York, New York 10048. Certain legal matters in connection with the
Reorganization will be passed upon for Growth Fund by Shearman & Sterling, 599
Lexington Avenue, New York, New York 10022. Shearman & Sterling will rely as to
matters of Massachusetts law on the opinion of Bingham Dana LLP, 150 Federal
Street, Boston, Massachusetts 02110-1726. Certain tax matters will be passed
upon for Growth Fund by Sidley Austin Brown & Wood LLP, special tax counsel to
Growth Fund, One World Trade Center, New York, New York 10048.
EXPERTS
The financial highlights of Growth Fund and Fundamental Growth included in
this Proxy Statement and Prospectus have been so included in reliance on the
reports of Deloitte & Touche LLP and Ernst & Young LLP, respectively,
independent auditors, given on their authority as experts in auditing and
accounting. The principal business address of Deloitte & Touche LLP is Two
World Financial Center, New York, New York, 10281-1008. The principal address
of Ernst & Young LLP is 99 Wood Avenue South, Iselin, New Jersey 08830-0471.
Ernst & Young LLP will serve as the independent auditors for the Combined Fund
after the Reorganization.
SHAREHOLDER PROPOSALS
A shareholder proposal intended to be presented at any subsequent meetings
of shareholders of Growth Fund must be received by Growth Fund in a reasonable
time before the solicitation relating to such meeting is to be made by the
Board of Growth Fund in order to be considered in Growth Fund's proxy statement
and form of proxy relating to the meeting. Any shareholder of Growth Fund who
desires to bring a proposal at any subsequent meeting of the shareholders of
Growth Fund without including such proposal in Growth Fund's proxy statement
relating to the meeting must deliver notice of such proposal to Growth Fund in
a reasonable time before Growth Fund begins to print and mail the proxy
solicitation materials to be used in connection with such meeting.
By Order of the Board of Trustees,
LORI A. MARTIN
Secretary, Merrill Lynch Growth Fund
EXHIBIT I
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
MERRILL LYNCH GROWTH FUND
AND
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
DATED AS OF AUGUST 21, 2001
Table of Contents
Page No.
1.Defined Terms; Sections and Exhibits; Miscellaneous Terms................5
a. Definitions........................................................5
b. Use of Defined Terms...............................................7
c. Sections and Exhibits..............................................7
d. Miscellaneous Terms................................................7
2.The Reorganization.......................................................8
a. Transfer of Assets.................................................8
b. Assumption of Liabilities..........................................8
c. Issuance and Valuation of Corresponding Shares in the
Reorganization.....................................................8
d. Distribution of Corresponding Shares to Growth Fund
Shareholders.......................................................8
e. Interest; Proceeds.................................................8
f. Valuation Time.....................................................8
g. Evidence of Transfer...............................................8
h. Dissolution and Deregistration.....................................8
3.Representations and Warranties of Growth Fund............................8
a. Formation and Qualification........................................8
b. Licenses...........................................................9
c. Authority..........................................................9
d. Financial Statements...............................................9
e. Semi-Annual Report to Shareholders.................................9
f. Prospectus and Statement of Additional Information.................9
g. Litigation.........................................................9
h. Material Contracts.................................................9
i. No Conflict.......................................................10
j. Undisclosed Liabilities...........................................10
k. Taxes.............................................................10
l. Assets............................................................10
m. Consents..........................................................10
n. N-14 Registration Statement.......................................10
o. Capitalization....................................................10
p. Books and Records.................................................11
4.Representations and Warranties of Fundamental Growth....................11
a. Incorporation and Qualification...................................11
b. Licenses..........................................................11
c. Authority.........................................................11
d. Financial Statements..............................................11
e. Semi-Annual Report to Stockholders................................11
f. Prospectus and Statement of Additional Information................12
g. Litigation........................................................12
h. Material Contracts................................................12
i. No Conflict.......................................................12
j. Undisclosed Liabilities...........................................12
k. Taxes.............................................................12
l. Consents..........................................................12
m. N-l4 Registration Statement.......................................12
n. Capitalization....................................................13
o. Corresponding Shares..............................................13
5.Covenants of Growth Fund and Fundamental Growth.........................13
a. Special Shareholders' Meeting.....................................13
b. Unaudited Financial Statements....................................13
c. Share Ledger Records of Fundamental Growth........................14
d. Conduct of Business...............................................14
e. Dissolution and Deregistration of Growth Fund.....................14
f. Filing of N-l4 Registration Statement.............................14
g. Corresponding Shares..............................................14
h. Tax Returns.......................................................14
i. Combined Proxy Statement and Prospectus Mailing...................14
j. Confirmation of Tax Basis.........................................15
k. Shareholder List..................................................15
l. Fundamental Growth's Continued Existence..........................15
6.Closing Date............................................................15
7.Growth Fund Conditions..................................................15
a. Representations and Warranties....................................15
b. Performance.......................................................15
c. Shareholder Approval..............................................15
d. Approval of Board of Directors of Fundamental Growth..............15
e. Deliveries by Fundamental Growth..................................16
f. No Adverse Change.................................................18
g. Absence of Litigation.............................................18
h. Proceedings and Documents.........................................18
i. N-l4 Registration Statement.......................................18
j. Compliance with Laws; No Adverse Action or Decision...............18
k. Commission Orders or Interpretations..............................18
8.Fundamental Growth Conditions...........................................18
a. Representations and Warranties....................................18
b. Performance.......................................................19
c. Shareholder Approval..............................................19
d. Approval of Board of Trustees of Growth Fund......................19
e. Deliveries by Growth Fund.........................................19
f. No Adverse Change.................................................21
g. Absence of Litigation.............................................21
h. Proceedings and Documents.........................................21
i. N-l4 Registration Statement.......................................21
j. Compliance with Laws; No Adverse Action or Decision...............21
k. Commission Orders or Interpretations..............................21
l. Dividends.........................................................21
9.Termination, Postponement and Waivers...................................22
a. Termination of Agreement..........................................22
b. Commission Order..................................................22
c. Effect of Termination.............................................22
d. Waivers; Non-Material Changes.....................................22
10.Survival of Representations and Warranties.............................23
11.Other Matters..........................................................23
a. Legend............................................................23
b. Obligations.......................................................23
c. Further Assurances................................................23
d. Notices...........................................................23
e. Entire Agreement..................................................24
f. Amendment.........................................................24
g. Governing Law.....................................................24
h. Assignment........................................................24
i. Fees and Expenses.................................................24
j. Severability......................................................24
k. Headings..........................................................24
l. Counterparts......................................................24
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 21st day of August 2001, by and between MERRILL LYNCH GROWTH FUND, a
Massachusetts business trust ("Growth Fund"), and MERRILL LYNCH FUNDAMENTAL
GROWTH FUND, INC., a Maryland corporation ("Fundamental Growth").
PLAN OF REORGANIZATION
The reorganization will consist of (i) the acquisition of the Assets (as
defined herein), and assumption of the Assumed Liabilities (as defined herein),
by Fundamental Growth solely in return for an equal aggregate value of newly
issued Corresponding Shares (as defined herein) of Fundamental Growth equal to
the net asset value of the Assets (after deducting the Assumed Liabilities)
determined in accordance with Section 2(c) hereof, (ii) the subsequent
distribution by Growth Fund of the Corresponding Shares to its shareholders in
proportion to such shareholders' interest in Growth Fund in liquidation of
Growth Fund, and (iii) the dissolution and deregistration of Growth Fund, all
upon and subject to the terms hereinafter set forth (the "Reorganization"). In
the course of the Reorganization, shares of Fundamental Growth will be
distributed to Growth Fund shareholders as follows: each holder of Growth Fund
shares will be entitled to receive shares of Fundamental Growth common stock,
par value $.10 per share, of the same class (i.e., Class A, Class B, Class C or
Class D) (collectively, "Corresponding Shares"), as the shares of Growth Fund
owned by such shareholder on the Closing Date (as defined herein). The same
distribution fees, account maintenance fees and sales charges (including
contingent deferred sales charges), if any, shall apply to the Corresponding
Shares as applied to shares of Growth Fund on the Closing Date. The aggregate
net asset value of the Corresponding Shares to be received by each shareholder
of Growth Fund will equal the aggregate net asset value of the Growth Fund
shares owned by such shareholder as of the Valuation Time (as defined herein).
It is intended that the Reorganization described herein shall be a
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
As promptly as practicable after the liquidation of Growth Fund pursuant
to the Reorganization, Growth Fund shall be dissolved in accordance with the
laws of the Commonwealth of Massachusetts and shall terminate its registration
under the Investment Company Act of 1940, as amended (the "Investment Company
Act").
AGREEMENT
NOW, THEREFORE, in order to consummate the Reorganization and in
consideration of the premises and the covenants and agreements hereinafter set
forth, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, and intending to be legally bound, Growth
Fund and Fundamental Growth hereby agree as follows:
1. Defined Terms; Sections and Exhibits; Miscellaneous Terms
a. Definitions. As used herein the following terms have the following
respective meanings (such definitions to be equally applicable to both the
singular and plural forms of the terms defined):
"Agreement" has the meaning ascribed thereto in the introduction
hereof.
"Assets" has the meaning ascribed thereto in Section 2(a) hereof.
"Assumed Liabilities" has the meaning ascribed thereto in Section
2(b) hereof.
"Closing Date" has the meaning ascribed thereto in Section 6 hereof.
"Code" has the meaning ascribed thereto in the first paragraph under
the heading "Plan of Reorganization" hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Corresponding Shares" has the meaning ascribed thereto in the first
paragraph under the heading "Plan of Reorganization" hereof.
"Credit Agreement" shall mean the Amended and Restated Credit
Agreement dated as of December 1, 2000, as amended or supplemented, by and
among Growth Fund, Fundamental Growth, other investment companies, various
banks, The Bank of New York, as syndication agent, National Australia Bank
Limited, as co-documentation agent, State Street Bank and Trust Company,
as co-documentation agent, Bank One, NA, as administrative agent for the
Banks, and Banc One Capital Markets, Inc., as Sole Lead Arranger and Sole
Book Manager.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fundamental Growth" has the meaning ascribed thereto in the
introduction hereof.
"Fundamental Growth Articles of Incorporation" shall mean the
Articles of Incorporation of Fundamental Growth dated as of April 30,
1992, as amended from time to time.
"Fundamental Growth Prospectus" shall mean the prospectus of
Fundamental Growth dated as of December 11, 2000, as amended or
supplemented.
"Fundamental Growth Statement of Additional Information" shall mean
the statement of additional information of Fundamental Growth dated as of
December 11, 2000, as amended or supplemented.
"Governmental Authority" shall mean any governmental or
quasi-governmental authority including, without limitation, any federal,
state, territorial, country, municipal or other governmental or
quasi-governmental agency, board, branch, bureau, commission, court,
arbitral body, department or other instrumentality or political unit or
subdivision, whether domestic or foreign.
"Growth Fund" has the meaning ascribed thereto in the introduction
hereof.
"Growth Fund Declaration of Trust" shall mean the Declaration of
Trust of Growth Fund dated as of December 11, 1986, as amended from time
to time.
"Growth Fund Prospectus" shall mean the prospectus of Growth Fund
dated as of February 16, 2001, as amended or supplemented.
"Growth Fund Statement of Additional Information" shall mean the
statement of additional information of Growth Fund dated as of February
16, 2001, as amended or supplemented.
"Investment Company Act" has the meaning ascribed thereto in the
second paragraph under the heading "Plan of Reorganization."
"Investments" shall mean, with respect to any Person, (i) the
investments of such Person shown on the schedule of its investments as of
the date set forth therein, with such additions thereto and deletions
therefrom as may have arisen in the course of such Person's business up to
such date; and (ii) all other assets owned by such Person or liabilities
incurred as of such date.
"Licenses" has the meaning ascribed thereto in Section 3(b) hereof.
"Lien" shall mean any security agreement, financing statement
(whether or not filed), mortgage, lien (statutory or otherwise), charge,
pledge, hypothecation, conditional sales agreement, adverse claim, title
retention agreement or other security interest, encumbrance, restriction,
deed of trust, indenture, option, limitation, exception to or other title
defect in or on any interest or title of any vendor, lessor, lender or
other secured party to or of such Person under any conditional sale,
lease, consignment or bailment given for security purposes, trust receipt
or other title retention agreement with respect to any property or asset
of such Person, whether direct, indirect, accrued or contingent.
"Material Adverse Effect" shall mean, with respect to any Person, any
event, circumstance or condition that, individually or when aggregated
with all other similar events, circumstances or conditions could
reasonably be expected to have, or has had, a material adverse effect on:
(i) the business, property, operations, condition (financial or
otherwise), results of operations or prospects of such Person or (ii) the
ability of such Person to consummate the transactions contemplated
hereunder in the manner contemplated hereby, other than, in each case, any
change relating to the economy or securities markets in general.
"MLIM" shall mean Merrill Lynch Investment Managers, L.P.
"N-l4 Registration Statement" has the meaning ascribed thereto in
Section 3(n) hereof.
"Permitted Liens" shall mean, with respect to any Person, any Lien
arising by reason of (i) taxes, assessments, governmental charges or
claims that are either not yet delinquent, or being contested in good
faith for which adequate reserves have been recorded, (ii) the Federal or
state securities laws, and (iii) imperfections of title or encumbrances as
do not materially detract from the value or use of the Assets or
materially affect title thereto.
"Person" any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint stock
company, trust, unincorporated organization, or government or any agency
or political subdivision thereof.
"Reorganization" has the meaning ascribed thereto in the first
paragraph under the heading "Plan of Reorganization" hereof.
"RICs" has the meaning ascribed thereto in Section 3(b) hereof.
"SAB&W" shall mean Sidley Austin Brown & Wood LLP, counsel to
Fundamental Growth.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"S&S" shall mean Shearman & Sterling, counsel to Growth Fund.
"Valuation Time" has the meaning ascribed thereto in Section 2(f)
hereof.
b. Use of Defined Terms. Any defined term used in the plural shall refer
to all members of the relevant class, and any defined term used in the singular
shall refer to any one or more of the members of the relevant class. The use of
any gender shall be applicable to all genders.
c. Sections and Exhibits. References in this Agreement to Sections,
Exhibits and Schedules are to Sections, Exhibits and Schedules of and to this
Agreement. The Exhibits and Schedules to this Agreement are hereby incorporated
herein by this reference as if fully set forth herein.
d. Miscellaneous Terms. The term "or" shall not be exclusive. The terms
"herein," "hereof," "hereto," "hereunder" and other terms similar to such terms
shall refer to this Agreement as a whole and not merely to the specific
article, section, paragraph or clause where such terms may appear. The term
"including" shall mean "including, but not limited to."
2. The Reorganization
a. Transfer of Assets. Subject to receiving the requisite approval of the
shareholders of Growth Fund, and to the other terms and conditions contained
herein, on the Closing Date, Growth Fund shall convey, transfer and deliver to
Fundamental Growth, and Fundamental Growth shall purchase, acquire and accept
from Growth Fund, free and clear of all Liens (other than Permitted Liens),
substantially all of the assets (including interest accrued as of the Valuation
Time on debt instruments) of Growth Fund (collectively, the "Assets").
b. Assumption of Liabilities. Subject to receiving the requisite approval
of the shareholders of Growth Fund, and to the other terms and conditions
contained herein, on the Closing Date, Fundamental Growth will assume and agree
to pay, perform and discharge when due substantially all of the obligations and
liabilities of Growth Fund then existing, whether absolute, accrued, contingent
or otherwise (collectively, the "Assumed Liabilities").
c. Issuance and Valuation of Corresponding Shares in the Reorganization.
Full Corresponding Shares, and to the extent necessary, a fractional
Corresponding Share, of an aggregate net asset value equal to the net asset
value of the Assets (after deducting the Assumed Liabilities) acquired by
Fundamental Growth hereunder, determined as hereinafter provided shall be
issued by Fundamental Growth to Growth Fund in return for the Assets and
assumption of the Assumed Liabilities. The net asset value of each of Growth
Fund and Fundamental Growth shall be determined in accordance with the
procedures described in the Fundamental Growth Statement of Additional
Information as of the Valuation Time. Such valuation and determination shall be
made by Fundamental Growth in cooperation with Growth Fund.
d. Distribution of Corresponding Shares to Growth Fund Shareholders.
Pursuant to this Agreement, as soon as practicable after the Valuation Time,
Growth Fund will distribute all Corresponding Shares received by it from
Fundamental Growth in connection with the Reorganization to its shareholders in
proportion to such shareholders' interest in Growth Fund. Such distribution
shall be accomplished by the opening of shareholder accounts on the share
ledger records of Fundamental Growth in the amounts due the shareholders of
Growth Fund based on their respective holdings in Growth Fund as of the
Valuation Time.
e. Interest; Proceeds. Growth Fund will pay or cause to be paid to
Fundamental Growth any interest or proceeds it receives on or after the Closing
Date with respect to the Assets.
f. Valuation Time. The Valuation Time shall be 4:00 P.M., New York time,
on __________, 2001, or such earlier or later day and time as may be mutually
agreed upon in writing between the parties hereto (the "Valuation Time").
g. Evidence of Transfer. Fundamental Growth and Growth Fund will jointly
file any instrument as may be required by the State of Maryland and the
Commonwealth of Massachusetts to effect the transfer of the Assets to
Fundamental Growth.
h. Dissolution and Deregistration. Growth Fund will dissolve and terminate
its existence as a business trust as soon as practicable following the Closing
Date by making any required filings with the Commonwealth of Massachusetts and
will terminate its qualification to do business in any other states where it is
presently qualified. As soon as practicable following the Closing Date, Growth
Fund also will take the steps necessary to terminate its status as a registered
investment company under the Investment Company Act and will terminate
registration of its securities under the Securities Act.
3. Representations and Warranties of Growth Fund.
Growth Fund represents and warrants to Fundamental Growth as follows:
a. Formation and Qualification. Growth Fund is a business trust duly
organized, validly existing and in good standing in conformity with the laws of
the Commonwealth of Massachusetts, and has all requisite power and authority to
own all of its properties or assets and carry on its business as presently
conducted, is duly qualified, registered or licensed to do business and is in
good standing in each jurisdiction in which the ownership of its properties or
assets or the character of its present operations makes such qualification,
registration or licensing necessary, except where the failure to so qualify or
be in good standing would not have a Material Adverse Effect on Growth Fund.
b. Licenses. Growth Fund holds all permits, consents, registrations,
certificates, authorizations and other approvals (collectively, "Licenses")
required for the conduct of its business as now being conducted; all such
Licenses are in full force and effect and no suspension or cancellation of any
of them is pending or threatened; and none of such Licenses will be affected by
the consummation of the transactions contemplated by this Agreement in a manner
that would have a Material Adverse Effect on Growth Fund. Growth Fund is duly
registered under the Investment Company Act as a non-diversified, open-end
management investment company (File No. 811-4934), and such registration has
not been revoked or rescinded and is in full force and effect. Growth Fund has
elected and qualified for the special tax treatment afforded regulated
investment companies ("RICs") under Sections 851-855 of the Code at all times
since its inception and intends to continue to so qualify for its taxable year
ending upon the liquidation of Growth Fund.
c. Authority. Growth Fund has full power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on the part of Growth Fund and no other proceedings on the
part of Growth Fund are necessary to authorize this Agreement or the
consummation of the transactions contemplated hereby, except for the approval
of Growth Fund shareholders as provided in Section 7(c) hereof. This Agreement
has been duly and validly executed by Growth Fund and, subject to receipt of
the requisite shareholder approval, this Agreement constitutes a legal, valid
and binding obligation of Growth Fund enforceable against Growth Fund in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
moratorium, fraudulent conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto and the
remedy of specific performance and injunctive and other forms of equitable
relief.
d. Financial Statements. Fundamental Growth has been furnished with an
audited statement of assets and liabilities and a schedule of Investments of
Growth Fund, each as of October 31, 2000, said financial statements having been
audited by Deloitte & Touche LLP, independent public accountants. Such audited
financial statements fairly present in all material respects the financial
position of Growth Fund as of the dates and for the periods referred to therein
and in conformity with generally accepted accounting principles applied on a
consistent basis.
e. Semi-Annual Report to Shareholders. Fundamental Growth has been
furnished with Growth Fund's Semi-Annual Report to Shareholders for the six
months ended April 30, 2001, and the unaudited financial statements appearing
therein fairly present in all material respects the financial position of
Growth Fund as of the dates and for the periods referred to therein and in
conformity with generally accepted accounting principles applied on a
consistent basis.
f. Prospectus and Statement of Additional Information. Fundamental Growth
has been furnished with the Growth Fund Prospectus and the Growth Fund
Statement of Additional Information, and said Prospectus and Statement of
Additional Information do not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
g. Litigation. Except as disclosed in the N-14 Registration Statement,
there are no material claims, actions, suits or legal, administrative or other
proceedings pending or, to the knowledge of Growth Fund, threatened against
Growth Fund that could reasonably be expected to have a Material Adverse Effect
on Growth Fund. Growth Fund is not charged with or, to its knowledge,
threatened with any violation, or investigation of any possible violation, of
any provisions of any Federal, state or local law or regulation or
administrative ruling relating to any aspect of its business that could
reasonably be expected to have a Material Adverse Effect on Growth Fund.
h. Material Contracts. There are no material contracts outstanding to
which Growth Fund is a party that have not been disclosed in the N-14
Registration Statement, the Growth Fund Prospectus, the Growth Fund Statement
of Additional Information or which will not otherwise be disclosed to
Fundamental Growth prior to the Valuation Time.
i. No Conflict. The execution and delivery of this Agreement by Growth
Fund and the consummation of the transactions contemplated hereby will not
contravene or constitute a default under or violation of (i) Growth Fund's
Declaration of Trust or by-laws, each as amended and in effect as of the date
hereof, (ii) any agreement or contract (or require the consent of any Person
under any agreement or contract that has not been obtained) to which Growth
Fund is a party or to which its assets or properties are subject, or (iii) any
judgment, injunction, order or decree, or other instrument binding upon Growth
Fund or any of its assets or properties, except where such contravention,
default or violation would not have a Material Adverse Effect on Growth Fund.
j. Undisclosed Liabilities. Growth Fund has no material liabilities,
contingent or otherwise, other than those shown on Growth Fund's statements of
assets and liabilities referred to herein, those incurred in the ordinary
course of its business as an investment company since April 30, 2001, and those
incurred in connection with the Reorganization.
k. Taxes. Growth Fund has filed (or caused to be filed), or has obtained
extensions to file, all Federal, state and local tax returns which are required
to be filed by it, and has paid (or caused to be paid) or has obtained
extensions to pay, all taxes shown on said returns to be due and owing and all
assessments received by it, up to and including the taxable year in which the
Closing Date occurs. All tax liabilities of Growth Fund have been adequately
provided for on its books, and no tax deficiency or liability of Growth Fund
has been asserted and no question with respect thereto has been raised by the
Internal Revenue Service or by any state or local tax authority for taxes in
excess of those already paid, up to and including the taxable year in which the
Closing Date occurs.
l. Assets. Growth Fund has good and marketable title to the Assets, free
and clear of all Liens, except for Permitted Liens. Growth Fund is the direct
sole and exclusive owner of the Assets. At the Closing Date, upon consummation
of the transactions contemplated hereby, Fundamental Growth will have good and
marketable title to the Assets, free and clear of all Liens, except for
Permitted Liens.
m. Consents. No filing or registration with, or consent, approval,
authorization or order of, any Person is required for the consummation by
Growth Fund of the Reorganization, except for (i) such as may be required under
the Securities Act, the Exchange Act, and the Investment Company Act (including
the determinations of the Board of Trustees of Growth Fund as required by Rule
17a-8(a) under the Investment Company Act ("Rule 17a-8(a)")) or state
securities laws (which term as used herein shall include the laws of the
District of Columbia and Puerto Rico), (ii) any approval required under the
Credit Agreement, (iii) the approval of not less than two-thirds of the total
votes entitled to be cast at a meeting of shareholders of Growth Fund by the
holders of shares entitled to vote thereon, and (iv) the approval of the Board
of Trustees of Growth Fund.
n. N-14 Registration Statement. The registration statement filed, or to be
filed, by Fundamental Growth on Form N-14 relating to the Corresponding Shares
to be issued pursuant to this Agreement, which includes the proxy statement of
Growth Fund and the prospectus of Fundamental Growth with respect to the
transactions contemplated hereby, and any supplement or amendment thereto or to
the documents therein (as amended and supplemented, the "N-14 Registration
Statement"), on the effective date of the N-14 Registration Statement, at the
time of the shareholders' meeting referred to in Section 5(a) hereof and on the
Closing Date, insofar as it relates to Growth Fund (i) complied, or will
comply, as the case may be, in all material respects, with the applicable
provisions of the Securities Act, the Exchange Act and the Investment Company
Act and the rules and regulations promulgated thereunder, and (ii) did not, or
will not, as the case may be, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the representations and
warranties in this subsection shall apply only to statements in or omissions
from the N-14 Registration Statement made in reliance upon and in conformity
with information furnished by Growth Fund for use in the N-14 Registration
Statement as provided in Section 5(f) hereof.
o. Capitalization. Under its Declaration of Trust, Growth Fund is
authorized to issue an unlimited number of full and fractional shares of
beneficial interest, par value $0.10 per share, divided into four classes
designated Class A, Class B, Class C and Class D shares. All issued and
outstanding shares of Growth Fund are duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights. Except for (i) the right
of Class B shares of Growth Fund to automatically convert to Class D shares of
Growth Fund approximately eight years after the purchase thereof, or (ii) in
connection with any automatic dividend reinvestment plan available to Growth
Fund shareholders, there are no options warrants, subscriptions, calls or other
rights, agreements or commitments obligating Growth Fund to issue any of its
shares or securities convertible into its shares.
p. Books and Records. The books and records of Growth Fund made available
to Fundamental Growth and/or its counsel are substantially true and correct and
contain no material misstatements or omissions with respect to the operations
of Growth Fund.
4. Representations and Warranties of Fundamental Growth.
Fundamental Growth represents and warrants to Growth Fund as follows:
a. Incorporation and Qualification. Fundamental Growth is a corporation
duly organized, validly existing and in good standing in conformity with the
laws of the State of Maryland, and has all requisite power and authority to own
all of its properties or assets and carry on its business as presently
conducted, is duly qualified, registered or licensed as a foreign corporation
to do business and is in good standing in each jurisdiction in which the
ownership of its properties or assets or the character of its present
operations makes such qualification, registration or licensing necessary,
except where the failure to so qualify or be in good standing would not have a
Material Adverse Effect on Fundamental Growth.
b. Licenses. Fundamental Growth holds all Licenses required for the
conduct of its business as now being conducted; all such Licenses are in full
force and effect and no suspension or cancellation of any of them is pending or
threatened; and none of such Licenses will be affected by the consummation of
the transactions contemplated by this Agreement in a manner that would have a
Material Adverse Effect on Fundamental Growth. Fundamental Growth is duly
registered under the Investment Company Act as a diversified, open-end
management investment company (File No. 811-6669), and such registration has
not been revoked or rescinded and is in full force and effect. Fundamental
Growth has elected and qualified for the special tax treatment afforded to RICs
under Sections 851-855 of the Code at all times since its inception and intends
to continue to so qualify both until consummation of the Reorganization and
thereafter.
c. Authority. Fundamental Growth has full power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of Fundamental Growth and no other proceedings
on the part of Fundamental Growth are necessary to authorize this Agreement or
the consummation of the transactions contemplated hereby. This Agreement has
been duly and validly executed by Fundamental Growth and constitutes a legal,
valid and binding obligation of Fundamental Growth enforceable against
Fundamental Growth in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto and the remedy of specific performance and injunctive and other
forms of equitable relief.
d. Financial Statements. Growth Fund has been furnished with an audited
statement of assets and liabilities and a schedule of Investments of
Fundamental Growth, each as of August 31, 2000, said financial statements
having been audited by Ernst & Young LLP, independent public accountants. Such
audited financial statements fairly present in all material respects the
financial position of Fundamental Growth as of the dates and for the periods
referred to therein and in conformity with generally accepted accounting
principles applied on a consistent basis.
e. Semi-Annual Report to Stockholders. Growth Fund has been furnished with
Fundamental Growth's Semi-Annual Report to Stockholders for the six months
ended February 28, 2001, and the unaudited financial statements appearing
therein fairly present in all material respects the financial position of
Fundamental Growth as of the dates and for the periods referred to therein and
in conformity with generally accepted accounting principles applied on a
consistent basis.
f. Prospectus and Statement of Additional Information. Growth Fund has
been furnished with the Fundamental Growth Prospectus and the Fundamental
Growth Statement of Additional Information, and said Prospectus and Statement
of Additional Information do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
g. Litigation. There are no material claims, actions, suits or legal,
administrative or other proceedings pending or, to the knowledge of Fundamental
Growth, threatened against Fundamental Growth that could reasonably be expected
to have a Material Adverse Effect on Fundamental Growth. Fundamental Growth is
not charged with or, to its knowledge, threatened with any violation, or
investigation of any possible violation, of any provisions of any Federal,
state or local law or regulation or administrative ruling relating to any
aspect of its business that could reasonably be expected to have a Material
Adverse Effect on Fundamental Growth.
h. Material Contracts. There are no material contracts outstanding to
which Fundamental Growth is a party that have not been disclosed in the N-14
Registration Statement, the Fundamental Growth Prospectus, the Fundamental
Growth Statement of Additional Information or which will not otherwise be
disclosed to Growth Fund prior to the Valuation Time.
i. No Conflict. The execution and delivery of this Agreement by
Fundamental Growth and the consummation of the transactions contemplated hereby
will not contravene or constitute a default under or violation of (i)
Fundamental Growth's Articles of Incorporation or by-laws, each as amended and
in effect as of the date hereof, (ii) any agreement or contract (or require the
consent of any Person under any agreement or contract that has not been
obtained) to which Fundamental Growth is a party or to which its assets or
properties are subject, or (iii) any judgment, injunction, order or decree, or
other instrument binding upon Fundamental Growth or any of its assets or
properties, except where such contravention, default or violation would not
have a Material Adverse Effect on Fundamental Growth.
j. Undisclosed Liabilities. Fundamental Growth has no material
liabilities, contingent or otherwise, other than those shown on Fundamental
Growth's statements of assets and liabilities referred to herein, those
incurred in the ordinary course of its business as an investment company since
February 28, 2001 and those incurred in connection with the Reorganization.
k. Taxes. Fundamental Growth has filed (or caused to be filed), or has
obtained extensions to file, all Federal, state and local tax returns which are
required to be filed by it, and has paid (or caused to be paid) or has obtained
extensions to pay, all taxes shown on said returns to be due and owing, and all
assessments received by it, up to and including the taxable year in which the
Closing Date occurs. All tax liabilities of Fundamental Growth have been
adequately provided for on its books, and no tax deficiency or liability of
Fundamental Growth has been asserted and no question with respect thereto has
been raised by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid, up to and including the
taxable year in which the Closing Date occurs.
l. Consents. No filing or registration with, or consent, approval,
authorization or order of, any Person is required for the consummation by
Fundamental Growth of the Reorganization, except for (i) such as may be
required under the Securities Act, the Exchange Act, and the Investment Company
Act (including the determinations of the Board of Directors of Fundamental
Growth as required by Rule 17a-8(a) thereunder) or state securities laws (which
term as used herein shall include the laws of the District of Columbia and
Puerto Rico), (ii) any approval required under the Credit Agreement and (iii)
the approval of the Board of Directors of Fundamental Growth.
m. N-l4 Registration Statement. The N-14 Registration Statement, on its
effective date, at the time of the shareholders' meeting referred to in Section
5(a) hereof and on the Closing Date, insofar as it relates to Fundamental
Growth (i) complied, or will comply, as the case may be, in all material
respects, with the applicable provisions of the Securities Act, the Exchange
Act and the Investment Company Act and the rules and regulations promulgated
thereunder, and (ii) did not, or will not, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall apply
only to statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by Fundamental
Growth for use in the N-14 Registration Statement as provided in Section 5(f)
hereof.
n. Capitalization. Fundamental Growth is authorized to issue 1,000,000,000
shares of common stock, par value $0.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock. Class A Common
Stock consists of 100,000,000 authorized shares, Class B Common Stock consists
of 500,000,000 authorized shares, Class C Common Stock consists of 100,000,000
authorized shares and Class D Common Stock consists of 300,000,000 authorized
shares. All issued and outstanding shares of Fundamental Growth are duly
authorized, validly issued, fully paid and non-assessable and free of
preemptive rights. Except for (i) the right of Class B shares of Fundamental
Growth to automatically convert to Class D shares of Fundamental Growth
approximately eight years after the purchase thereof or (ii) in connection with
any automatic dividend reinvestment plan available to Fundamental Growth
shareholders, there are no options, warrants, subscriptions, calls or other
rights, agreements or commitments obligating Fundamental Growth to issue any of
its shares or securities convertible into its shares.
o. Corresponding Shares.
i. The Corresponding Shares to be issued by Fundamental Growth to
Growth Fund and subsequently distributed by Growth Fund to its shareholders as
provided in this Agreement have been duly and validly authorized and, when
issued and delivered pursuant to this Agreement, will be legally and validly
issued and will be fully paid and nonassessable and will have full voting
rights, and no shareholder of Fundamental Growth will have any preemptive right
of subscription or purchase in respect thereof.
ii. At or prior to the Closing Date, the Corresponding Shares to be
issued by Fundamental Growth to Growth Fund on the Closing Date will be duly
qualified for offering to the public in all states of the United States in
which the sale of shares of Fundamental Growth presently are qualified, and
there are a sufficient number of such shares registered under the Securities
Act, the Investment Company Act and with each pertinent state securities
commission to permit the transfers contemplated by this Agreement to be
consummated.
5. Covenants of Growth Fund and Fundamental Growth.
a. Special Shareholders' Meeting. Growth Fund agrees to call a special
meeting of its shareholders to be held as soon as practicable after the
effective date of the N-14 Registration Statement for the purpose of
considering the Reorganization as described in this Agreement.
b. Unaudited Financial Statements.
i. Growth Fund hereby agrees to furnish or cause its agents to
furnish to Fundamental Growth, at or prior to the Closing Date, for the purpose
of determining the number of Corresponding Shares to be issued by Fundamental
Growth to Growth Fund pursuant to Section 2(c) hereof, an accurate, correct and
complete unaudited statement of assets and liabilities of Growth Fund with
values determined in accordance with Section 2(c) hereof and an unaudited
schedule of Investments of Growth Fund (including the respective dates and
costs of acquisition thereof), each as of the Valuation Time. Such unaudited
financial statements will fairly present in all material respects the financial
position of Growth Fund as of the dates and for the periods referred to therein
and in conformity with generally accepted accounting principles applied on a
consistent basis.
ii. Fundamental Growth hereby agrees to furnish or cause its agents
to furnish to Growth Fund, at or prior to the Closing Date, for the purpose of
determining the number of Corresponding Shares to be issued by Fundamental
Growth to Growth Fund pursuant to Section 2(c) hereof, an accurate, correct and
complete unaudited statement of assets and liabilities of Fundamental Growth
with values determined in accordance with Section 2(c) hereof and an unaudited
schedule of Investments of Fundamental Growth (including the respective dates
and costs of acquisition thereof), each as of the Valuation Time. Such
unaudited financial statements will fairly present in all material respects the
financial position of Fundamental Growth as of the dates and for the periods
referred to therein and in conformity with generally accepted accounting
principles applied on a consistent basis.
c. Share Ledger Records of Fundamental Growth. Fundamental Growth agrees,
as soon as practicable after the Valuation Time, to open shareholder accounts
on its share ledger records for the shareholders of Growth Fund in connection
with the distribution of Corresponding Shares by Growth Fund to such
shareholders in accordance with Section 2(d) hereof.
d. Conduct of Business. Growth Fund and Fundamental Growth each covenants
and agrees to operate its respective business in the ordinary course as
presently conducted between the date hereof and the Closing Date.
e. Dissolution and Deregistration of Growth Fund. Growth Fund agrees that
following the consummation of the Reorganization, (i) it will dissolve and
terminate its existence as a business trust in accordance with the laws of the
Commonwealth of Massachusetts and any other applicable law; (ii) it will not
make any distributions of any Corresponding Shares other than to the
shareholders of Growth Fund and without first paying or adequately providing
for the payment of all of Growth Fund's liabilities not assumed by Fundamental
Growth, if any; (iii) it will file an application pursuant to Section 8(f) of
the Investment Company Act for an order declaring that Growth Fund has ceased
to be a registered investment company; and (iv) on and after the Closing Date
it shall not conduct any business except in connection with its dissolution and
deregistration.
f. Filing of N-l4 Registration Statement. Fundamental Growth will file or
cause its agents to file the N-14 Registration Statement with the Commission
and will use its best efforts to cause the N-14 Registration Statement to
become effective as promptly as practicable after the filing thereof. Growth
Fund and Fundamental Growth agree to cooperate fully with each other, and each
will furnish to the other the information relating to itself to be set forth in
the N-14 Registration Statement as required by the Securities Act, the Exchange
Act, the Investment Company Act, and the rules and regulations thereunder and
the state securities or blue sky laws (if applicable).
g. Corresponding Shares. Growth Fund will not sell or otherwise dispose of
any of the Corresponding Shares to be received by it from Fundamental Growth in
connection with the Reorganization, except in distribution to the shareholders
of Growth Fund in accordance with the terms hereof.
h. Tax Returns. Growth Fund and Fundamental Growth each agrees that by the
Closing Date all of its Federal and other tax returns and reports required to
be filed on or before such date shall have been filed and all taxes shown as
due on said returns either shall have been paid or adequate liability reserves
shall have been provided for the payment of such taxes. In connection with this
provision, Fundamental Growth and Growth Fund agree to cooperate with each
other in filing any tax return, amended return or claim for refund, determining
a liability for taxes or a right to a refund of taxes or participating in or
conducting any audit or other proceeding in respect of taxes. Fundamental
Growth agrees to retain for a reasonable period following the Closing Date all
returns, schedules and work papers and all material records or other documents
relating to tax matters of Fundamental Growth for its taxable period first
ending after the Closing Date and for all prior taxable periods. Any
information obtained under this subsection shall be kept confidential except as
otherwise may be necessary in connection with the filing of returns or claims
for refund or in conducting an audit or other proceeding. After the Closing
Date, Growth Fund shall prepare, or cause its agents to prepare, any Federal,
state or local tax returns, including any Forms 1099, required to be filed by
Growth Fund with respect to Growth Fund's final taxable year ending with its
complete liquidation and for any prior periods or taxable years and further
shall cause such tax returns and Forms 1099 to be duly filed with the
appropriate taxing authorities. Notwithstanding any of the foregoing, any
expenses incurred by Growth Fund (other than for payment of taxes) in
connection with the preparation and filing of said tax returns and Forms 1099
after the Closing Date shall be borne by Growth Fund to the extent such
expenses have been accrued by Growth Fund in the ordinary course of business
without regard to the Reorganization; any excess expenses shall be borne by
MLIM at the time such tax returns and Forms 1099 are prepared.
i. Combined Proxy Statement and Prospectus Mailing. Growth Fund agrees to
mail to its shareholders of record entitled to vote at the special meeting of
shareholders at which action is to be considered regarding this Agreement, in
sufficient time to comply with requirements as to notice thereof, a combined
Proxy Statement and Prospectus which complies in all material respects with the
applicable provisions of Section 14(a) of the Exchange Act and Section 20(a) of
the Investment Company Act, and the rules and regulations promulgated
thereunder.
j. Confirmation of Tax Basis. Growth Fund will deliver to Fundamental
Growth on the Closing Date confirmations or other adequate evidence as to the
tax basis of each of the Assets delivered to Fundamental Growth hereunder.
k. Shareholder List. As soon as practicable after the close of business on
the Closing Date, Growth Fund shall deliver to Fundamental Growth a list of the
names and addresses of all of the shareholders of record of Growth Fund on the
Closing Date and the number of shares of Growth Fund owned by each such
shareholder as of such date.
l. Fundamental Growth's Continued Existence. Following the consummation of
the Reorganization, Fundamental Growth expects, and agrees to use all
reasonable efforts, to stay in existence and continue its business as an
open-end management investment company registered under the Investment Company
Act. Fundamental Growth has no plan or intention to sell or otherwise dispose
of the Assets, except for dispositions made in the ordinary course of business.
6. Closing Date.
The closing of the transactions contemplated by this Agreement shall be at
the offices of ____________________________________ at ______ on the next full
business day following the Valuation Time, or at such other place, time and
date agreed to by Growth Fund and Fundamental Growth. The date and time upon
which such closing is to take place shall be referred to herein as the "Closing
Date." To the extent that any Assets, for any reason, are not transferable on
the Closing Date, Growth Fund shall cause such Assets to be transferred to
Fundamental Growth's custody account with The Chase Manhattan Bank, N.A. at the
earliest practicable date thereafter.
7. Growth Fund Conditions.
The obligations of Growth Fund hereunder shall be subject to the
satisfaction, at or before the Closing Date (or such other date specified
herein), of the conditions set forth below. The benefit of these conditions is
for Growth Fund only and may be waived, in whole or in part, by Growth Fund at
any time in its sole discretion.
a. Representations and Warranties. The representations and warranties of
Fundamental Growth made in this Agreement shall be true and correct in all
material respects when made, as of the Valuation Time and as of the Closing
Date all with the same effect as if made at and as of such dates, except that
any representations and warranties that relate to a particular date or period
shall be true and correct in all material respects as of such date or period.
b. Performance. Fundamental Growth shall have performed, satisfied and
complied with all covenants, agreements and conditions required to be
performed, satisfied or complied with by it under this Agreement at or prior to
the Closing Date.
c. Shareholder Approval. This Agreement shall have been adopted, and the
Reorganization shall have been approved, by the affirmative vote of the holders
of not less than two-thirds of the total votes entitled to be cast at a meeting
of shareholders of Growth Fund by the holders of shares entitled to vote
thereon, voting together as a single class.
d. Approval of Board of Directors of Fundamental Growth. This Agreement
shall have been adopted and the Reorganization shall have been approved by the
Board of Directors of Fundamental Growth, including a majority of the Directors
who are not "interested persons" of Fundamental Growth as defined in Section
2(a)(19) of the Investment Company Act, which shall have found, as required by
Rule 17a-8(a), that (i) participation in the Reorganization is in the best
interests of Fundamental Growth and (ii) the interests of the existing
shareholders of Fundamental Growth will not be diluted as a result of the
Reorganization.
e. Deliveries by Fundamental Growth. At or prior to the Closing Date,
Fundamental Growth shall deliver to Growth Fund, against receipt of the Assets
in accordance with Section 2(a) hereof, the following:
i. a certificate executed by the President (or a Vice President) and
the Treasurer of Fundamental Growth, dated as of the Closing Date, certifying
that the conditions specified in Sections 7(a), (b), and (f) have been
fulfilled;
ii. the unaudited financial statements of Fundamental Growth required
by Section 5(b)(ii) hereof;
iii. an opinion of SAB&W, as counsel to Fundamental Growth, dated as
of the Closing Date, in form and substance satisfactory to Growth Fund as to
the matters set forth below: (a) Fundamental Growth is a corporation duly
organized, validly existing and in good standing in conformity with the laws of
the State of Maryland; (b) the Corresponding Shares to be issued by Fundamental
Growth to Growth Fund and subsequently distributed by Growth Fund to its
shareholders as provided for by the Agreement have been duly and validly
authorized and, when issued and delivered pursuant to the Agreement, will be
legally and validly issued and will be fully paid and nonassessable and will
have full voting rights, and no shareholder of Fundamental Growth will have any
preemptive right of subscription or purchase in respect thereof (pursuant to
Fundamental Growth's Articles of Incorporation, as amended, or the by-laws of
Fundamental Growth or, to the best of such counsel's knowledge, otherwise); (c)
the execution and delivery of the Agreement and the consummation of the
transactions contemplated thereby have been duly and validly authorized by all
necessary action on the part of Fundamental Growth and no other proceedings on
the part of Fundamental Growth are necessary to authorize the Agreement or the
consummation of the transactions contemplated thereby; (d) the Agreement has
been duly and validly executed by Fundamental Growth and constitutes a legal,
valid and binding obligation of Fundamental Growth enforceable against
Fundamental Growth in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto; provided, that such counsel shall express no opinion with
respect to the application of equitable principles in any proceeding, whether
at law or in equity, or as to the choice of law provisions; (e) the execution
and delivery of the Agreement by Fundamental Growth and the consummation of the
transactions contemplated thereby will not contravene or constitute a default
under or violation of the Articles of Incorporation or by-laws of Fundamental
Growth, each as amended and in effect as of the date of the Agreement, or
Maryland law; (f) to such counsel's knowledge, no filing or registration with,
or consent, approval, authorization or order of, any Person is required for the
consummation by Fundamental Growth of the Reorganization, except for such as
have been obtained from the Board of Directors of Fundamental Growth and under
the Securities Act, the Exchange Act and the Investment Company Act and the
rules and regulations promulgated thereunder and any applicable state
securities laws, and under the Credit Agreement; (g) the N-14 Registration
Statement has become effective under the Securities Act, and, to such counsel's
knowledge, no stop order suspending the effectiveness of the N-14 Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities Act, and the
N-14 Registration Statement, as of its effective date, appears on its face in
respect of Fundamental Growth to be appropriately responsive in all material
respects to the requirements of the Securities Act, the Exchange Act and the
Investment Company Act and the rules and regulations promulgated thereunder;
(h) such counsel does not know of any federal statutes, legal or governmental
proceedings or contracts or other documents related to the Reorganization of a
character required to be described in the N-14 Registration Statement which are
not described therein or, if required to be filed, filed as required; (i) the
execution and delivery of the Agreement by Fundamental Growth and the
consummation of the transactions contemplated thereby will not contravene or
constitute a default under or violation of any agreement or contract filed as
an exhibit to the currently effective registration statement on Form N-1A of
Fundamental Growth (or require the consent of any Person under any agreement or
contract known to such counsel that has not been obtained), except where such
contravention, default or violation would not have a Material Adverse Effect on
Fundamental Growth; and (j) such opinion is solely for the benefit of Growth
Fund and its Trustees and officers. Such opinion also shall state that (AA)
while such counsel cannot make any representation as to the accuracy or
completeness of statements of fact in the N-14 Registration Statement, nothing
has come to their attention that would lead them to believe that, on its
effective date, (1) the N-14 Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading;
and (2) the prospectus included in the N-14 Registration Statement included any
untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (BB) such counsel
does not express any opinion or belief as to the financial statements or other
financial or statistical data relating to Fundamental Growth contained or
incorporated by reference in the N-14 Registration Statement. In giving the
opinion set forth above, SAB&W may state that it is relying on certificates of
officers of Fundamental Growth and of MLIM with regard to matters of fact and
certain certificates and written statements of government officials with
respect to the organization, existence and good standing of Fundamental Growth.
iv. an opinion of SAB&W, counsel to Fundamental Growth and special
tax counsel to Growth Fund, in form and substance satisfactory to Growth Fund,
to the effect that, for Federal income tax purposes, (i) the transfer of the
Assets to Fundamental Growth in return solely for the Corresponding Shares and
the assumption by Fundamental Growth of the Assumed Liabilities as provided for
in the Agreement will constitute a reorganization within the meaning of Section
368(a)(l)(C) of the Code, and Growth Fund and Fundamental Growth will each be
deemed to be a "party" to the Reorganization within the meaning of Section
368(b) of the Code; (ii) in accordance with Section 361 of the Code, no gain or
loss will be recognized to Growth Fund as a result of the asset transfer solely
in return for the Corresponding Shares and the assumption by Fundamental Growth
of the Assumed Liabilities or on the distribution of the Corresponding Shares
to Growth Fund shareholders as provided for in the Agreement; (iii) under
Section 1032 of the Code, no gain or loss will be recognized to Fundamental
Growth on the receipt of the Assets in return for the Corresponding Shares and
the assumption by Fundamental Growth of the Assumed Liabilities as provided for
in the Agreement; (iv) in accordance with Section 354(a)(1) of the Code, no
gain or loss will be recognized to the shareholders of Growth Fund on the
receipt of Corresponding Shares in return for their shares of Growth Fund; (v)
in accordance with Section 362(b) of the Code, the tax basis of the Assets in
the hands of Fundamental Growth will be the same as the tax basis of such
Assets in the hands of Growth Fund immediately prior to the consummation of the
Reorganization; (vi) in accordance with Section 358 of the Code, immediately
after the Reorganization, the tax basis of the Corresponding Shares received by
the shareholders of Growth Fund in the Reorganization will be equal, in the
aggregate, to the tax basis of the shares of Growth Fund surrendered in return
therefore; (vii) in accordance with Section 1223 of the Code, a shareholder's
holding period for the Corresponding Shares will be determined by including the
period for which such shareholder held the shares of Growth Fund exchanged
therefore; provided, that such Growth Fund shares were held as a capital asset;
(viii) in accordance with Section 1223 of the Code, Fundamental Growth's
holding period with respect to the Assets acquired by it will include the
period for which such Assets were held by Growth Fund; and (ix) the taxable
year of Growth Fund will end on the effective date of the Reorganization and
pursuant to Section 381(a) of the Code and regulations thereunder, Fundamental
Growth will succeed to and take into account certain tax attributes of Growth
Fund, such as earnings and profits, capital loss carryovers and method of
accounting.
v. a letter from Ernst & Young LLP dated within three days prior to
the effective date of the N-14 Registration Statement and a similar letter
dated within five days prior to the Closing Date, in form and substance
satisfactory to Growth Fund, to the effect that (i) they are independent public
accountants with respect to Fundamental Growth within the meaning of the
Securities Act and the applicable published rules and regulations thereunder;
(ii) in their opinion, the financial statements and supplementary information
of Fundamental Growth included or incorporated by reference in the N-14
Registration Statement and reported on by them comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act and the published rules and regulations thereunder; and (iii) on the basis
of limited procedures agreed upon by Growth Fund and Fundamental Growth and
described in such letter (but not an examination in accordance with generally
accepted auditing standards) consisting of a reading of any unaudited interim
financial statements and unaudited supplementary information of Fundamental
Growth included in the N-14 Registration Statement, and inquiries of certain
officials of Fundamental Growth responsible for financial and accounting
matters, nothing came to its attention that caused them to believe that (a)
such unaudited financial statements and related unaudited supplementary
information do not comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the published
rules and regulations thereunder, (b) such unaudited financial statements are
not fairly presented in conformity with generally accepted accounting
principles, applied on a basis substantially consistent with that of the
audited financial statements, or (c) such unaudited supplementary information
is not fairly stated in all material respects in relation to the unaudited
financial statements taken as a whole; and (iv) on the basis of limited
procedures agreed upon by Growth Fund and Fundamental Growth and described in
such letter (but not an examination in accordance with generally accepted
auditing standards), the information relating to Fundamental Growth appearing
in the N-14 Registration Statement, which information is expressed in dollars
(or percentages derived from such dollars)(with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records of
Fundamental Growth or from schedules prepared by officials of Fundamental
Growth having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations made
therefrom.
f. No Adverse Change. There shall have occurred no material adverse
change in the financial position of Fundamental Growth since February 28, 2001
other than changes in its portfolio securities since that date or changes in
the market value of its portfolio securities, each in the ordinary course of
business.
g. Absence of Litigation. There shall not be pending before any
Governmental Authority any material litigation with respect to the matters
contemplated by this Agreement.
h. Proceedings and Documents. All proceedings contemplated by this
Agreement, the Reorganization, and all of the other documents incident thereto,
shall be reasonably satisfactory to Growth Fund and its counsel, and Growth
Fund and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as Growth Fund or its counsel may
reasonably request.
i. N-l4 Registration Statement. The N-14 Registration Statement shall have
become effective under the Securities Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of Fundamental
Growth or Growth Fund, contemplated by the Commission.
j. Compliance with Laws; No Adverse Action or Decision. Since the date
hereof, (i) no law, statute, ordinance, code, rule or regulation shall have
been promulgated, enacted or entered that restrains, enjoins, prevents,
materially delays, prohibits or otherwise makes illegal the performance of this
Agreement, the Reorganization or the consummation of any of the transactions
contemplated hereby and thereby; (ii) the Commission shall not have issued an
unfavorable advisory report under Section 25(b) of the Investment Company Act,
nor instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Reorganization under Section 25(c) of the Investment
Company Act, and (iii) no other legal, administrative or other proceeding shall
be instituted or threatened by any Governmental Authority which would
materially affect the financial condition of Fundamental Growth or that seeks
to restrain, enjoin, prevent, materially delay, prohibit or otherwise make
illegal the performance of this Agreement, the Reorganization or the
consummation of any of the transactions contemplated hereby or thereby.
k. Commission Orders or Interpretations. Growth Fund shall have received
from the Commission such orders or interpretations as S&S, as counsel to Growth
Fund, deems reasonably necessary or desirable under the Securities Act and the
Investment Company Act in connection with the Reorganization; provided, that
such counsel shall have requested such orders or interpretations as promptly
its practicable, and all such orders shall be in full force and effect.
8. Fundamental Growth Conditions.
The obligations of Fundamental Growth hereunder shall be subject to the
satisfaction, at or before the Closing Date (or such other date specified
herein), of the conditions set forth below. The benefit of these conditions is
for Fundamental Growth only and may be waived, in whole or in part, by
Fundamental Growth at any time in its sole discretion.
a. Representations and Warranties. The representations and warranties of
Growth Fund made in this Agreement shall be true and correct in all material
respects when made, as of the Valuation Time and as of the Closing Date all
with the same effect as if made at and as of such dates, except that any
representations and warranties that relate to a particular date or period shall
be true and correct in all material respects as of such date or period.
b. Performance. Growth Fund shall have performed, satisfied and complied
with all covenants, agreements and conditions required to be performed,
satisfied or complied with by it under this Agreement at or prior to the
Closing Date.
c. Shareholder Approval. This Agreement shall have been adopted, and the
Reorganization shall have been approved, by the affirmative vote of the holders
of not less than two-thirds of the total votes entitled to be cast at a meeting
of shareholders of Growth Fund by the holders of shares entitled to vote
thereon, voting together as a single class.
d. Approval of Board of Trustees of Growth Fund. This Agreement shall have
been adopted and the Reorganization shall have been approved by the Board of
Trustees of Growth Fund, including a majority of the Trustees who are not
"interested persons" of Growth Fund within the meaning of Section 2(a)(19) of
the Investment Company Act, which shall have found, as required by Rule
17a-8(a), that (i) participation in the Reorganization is in the best interests
of Growth Fund and (ii) the interests of the existing shareholders of Growth
Fund will not be diluted as a result of the Reorganization.
e. Deliveries by Growth Fund. At or prior to the Closing Date, Growth Fund
shall deliver to Fundamental Growth, against the assumption by Fundamental
Growth of the Assumed Liabilities and the receipt of the Corresponding Shares
in accordance with Sections 2(b) and (c) hereof, respectively, the following:
i. a certificate executed by the President (or a Vice President) and
the Treasurer of Growth Fund, dated as of the Closing Date, certifying that the
conditions specified in Sections 8(a), (b), (c) and (f) have been fulfilled;
ii. the unaudited financial statements of Growth Fund required by
Section 5(b)(i) hereof;
iii. Fundamental Growth shall have received an opinion of S&S, as
counsel to Growth Fund, dated as of the Closing Date, in form and substance
satisfactory to Fundamental Growth, as to the matters set forth below: (a) to
such counsel's knowledge, no filing or registration with, or consent, approval,
authorization or order of, any Person is required for the consummation by
Growth Fund of the Reorganization, except for such as have been obtained from
the Board of Trustees and shareholders of Growth Fund and under the Securities
Act, the Exchange Act and the Investment Company Act and the rules and
regulations promulgated thereunder, applicable state securities laws, and under
the Credit Agreement; (b) the proxy statement of Growth Fund contained in the
N-14 Registration Statement, as of its effective date, appears on its face to
be appropriately responsive in all material respects to the requirements of the
Exchange Act and the Investment Company Act and the rules and regulations
promulgated thereunder; (c) such counsel does not know of any federal statutes,
legal or governmental proceedings or contracts or other documents in respect of
Growth Fund related to the Reorganization of a character required to be
described in the N-14 Registration Statement which are not described therein
or, if required to be filed, filed as required; (d) the execution and delivery
of the Agreement by Growth Fund and the consummation of the transactions
contemplated thereby will not contravene or constitute a default under or
violation of any agreement or contract filed as an exhibit to the currently
effective registration statement on Form N-1A of Growth Fund (or require the
consent of any Person under any agreement or contract known to such counsel
that has not been obtained), except where such contravention, default or
violation would not have a Material Adverse Effect on Growth Fund; (e) the
Agreement constitutes a legal, valid and binding obligation of Growth Fund
enforceable against Growth Fund in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto; provided, that such counsel shall express no
opinion with respect to the application of equitable principles in any
proceeding, whether at law or in equity, or as to the choice of law provisions;
and (f) such opinion is solely for the benefit of Fundamental Growth and its
Directors and officers. Such opinion also shall state that (AA) while such
counsel cannot make any representation as to the accuracy or completeness of
statements of fact in the N-14 Registration Statement, nothing has come to
their attention that would lead them to believe that, on the effective date of
the N-14 Registration Statement, the proxy statement of Growth Fund contained
in the N-14 Registration Statement contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and (BB) such counsel does not express any opinion or belief as
to the financial statements or other financial or statistical data relating to
Growth Fund contained or incorporated by reference in the N-14 Registration
Statement. In giving the opinion set forth above, S&S may state that it is
relying on certificates of officers of Growth Fund and of MLIM with regard to
matters of fact, and that it is not opining as to any matters under
Massachusetts law, as to which Bingham Dana LLP shall provide an opinion, and
that to the extent the opinion set forth in clause (e) is premised on matters
of Massachusetts law, it is relying on such opinion of Bingham Dana LLP.
iv. an opinion of Bingham Dana LLP as special Massachusetts counsel
to Growth Fund, dated as of the Closing Date, in form and substance
satisfactory to Fundamental Growth, as to the matters set forth below: (a)
Growth Fund is a trust with transferable shares of beneficial interest validly
existing and in good standing in conformity with the laws of the Commonwealth
of Massachusetts; (b) the execution and delivery of the Agreement and the
consummation of the transactions contemplated thereby have been duly authorized
by Growth Fund; (c) the Agreement has been duly authorized and, to the extent
Massachusetts law applies, has been duly executed by Growth Fund; (d) the
execution and delivery of the Agreement by Growth Fund and the consummation of
the transactions contemplated thereby do not violate Growth Fund's Declaration
of Trust or by-laws, each as amended and in effect on the date of the
Agreement, or, to the best of such counsel's knowledge, Massachusetts law; (e)
to the best of such counsel's knowledge, no filing or registration with, or
consent, approval, authorization or order of, any Massachusetts state court or
governmental authority, is required under Massachusetts law for the
consummation by Growth Fund of the Reorganization, except (i) a filing with the
Secretary of the Commonwealth of Massachusetts to terminate Growth Fund, (ii)
such as have been obtained from the Board of Trustees and shareholders of
Growth Fund and (iii) such as may be required under Massachusetts state
securities law, about which we express no opinion; and (f) that such opinion is
solely for the benefit of Fundamental Growth and its Directors and officers;
provided that S&S shall be permitted to rely on such opinion for purposes of
its opinion as set forth in the preceding paragraph. In giving the opinion set
forth above, Bingham Dana LLP may state that it is relying on certificates of
officers of Growth Fund with regard to matters of fact and certain certificates
and written statements of government officials with respect to the
organization, existence and good standing of Growth Fund.
v. an opinion of SAB&W, as counsel to Fundamental Growth and special
tax counsel to Growth Fund, in form and substance satisfactory to Fundamental
Growth, with respect to the matters specified in Section 7(e)(iv) hereof.
vi. a letter from Deloitte & Touche LLP, dated the Closing Date,
stating that such firm has performed a limited review of the Federal, state
and local income tax returns of Growth Fund for the period ended October 31,
2000 (which returns originally were prepared and filed by Growth Fund), and
that based on such limited review, nothing came to their attention which
caused them to believe that such returns did not properly reflect, in all
material respects, the Federal, state and local income taxes of Growth Fund
for the period covered thereby; and that for the period from November 1, 2000,
to and including the Closing Date and for any taxable year of Growth Fund
ending upon the termination of Growth Fund, such firm has performed a limited
review to ascertain the amount of applicable Federal, state and local taxes,
and has determined that either such amount has been paid or reserves
established for payment of such taxes, this review to be based on unaudited
financial data; and that based on such limited review, nothing has come to
their attention which caused them to believe that the taxes paid or reserves
set aside for payment of such taxes were not adequate in all material respects
for the satisfaction of Federal, state and local taxes for the period from
November 1, 2000, to and including the Closing Date and for any taxable year
of Growth Fund ending upon the termination of Growth Fund or that Growth Fund
would not continue to qualify as a regulated investment company for Federal
income tax purposes.
vii. a letter from Deloitte & Touche LLP dated within three days
prior to the effective date of the N-14 Registration Statement and a similar
letter dated within five days prior to the Closing Date, in form and substance
satisfactory to Fundamental Growth, to the effect that (i) they are independent
public accountants with respect to Growth Fund within the meaning of the
Securities Act and the applicable published rules and regulations thereunder;
(ii) in their opinion, the financial statements and supplementary information
of Growth Fund included or incorporated by reference in the N-14 Registration
Statement and reported on by them comply as to form in all material respects
with the applicable accounting requirements of the Securities Act and the
published rules and regulations thereunder; (iii) on the basis of limited
procedures agreed upon by Growth Fund and Fundamental Growth and described in
such letter (but not an examination in accordance with generally accepted
auditing standards) consisting of a reading of any unaudited interim financial
statements and unaudited supplementary information of Growth Fund included in
the N-14 Registration Statement, and inquiries of certain officials of Growth
Fund responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as to
form in all material respects with the applicable accounting requirements of
the Securities Act and the published rules and regulations thereunder, (b) such
unaudited financial statements are not fairly presented in conformity with
generally accepted accounting principles, applied on a basis substantially
consistent with that of the audited financial statements, or (c) such unaudited
supplementary information is not fairly stated in all material respects in
relation to the unaudited financial statements taken as a whole; and (iv) on
the basis of limited procedures agreed upon by Growth Fund and Fundamental
Growth and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the information relating to Growth Fund
appearing in the N-14 Registration Statement, which information is expressed in
dollars (or percentages derived from such dollars) (with the exception of
performance comparisons, if any), if any, has been obtained from the accounting
records of Growth Fund or from schedules prepared by officials of Growth Fund
having responsibility for financial and reporting matters and such information
is in agreement with such records, schedules or computations made therefrom.
f. No Adverse Change. There shall have occurred no material adverse change
in the financial position of Growth Fund since April 30, 2001 other than
changes in its portfolio securities since that date or changes in the market
value of its portfolio securities, each in the ordinary course of business.
g. Absence of Litigation. There shall not be pending before any
Governmental Authority any material litigation with respect to the matters
contemplated by this Agreement.
h. Proceedings and Documents. All proceedings contemplated by this
Agreement, the Reorganization, and all of the other documents incident thereto,
shall be reasonably satisfactory to Fundamental Growth and its counsel, and
Fundamental Growth and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as Fundamental Growth
or its counsel may reasonably request.
i. N-l4 Registration Statement. The N-14 Registration Statement shall have
become effective under the Securities Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of Growth Fund or
Fundamental Growth, contemplated by the Commission.
j. Compliance with Laws; No Adverse Action or Decision. Since the date
hereof, (i) no law, statute, ordinance, code, rule or regulation shall have
been promulgated, enacted or entered that restrains, enjoins, prevents,
materially delays, prohibits or otherwise makes illegal the performance of this
Agreement, the Reorganization or the consummation of any of the transactions
contemplated hereby and thereby; (ii) the Commission shall not have issued an
unfavorable advisory report under Section 25(b) of the Investment Company Act,
nor instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Reorganization under Section 25(c) of the Investment
Company Act, and (iii) no other legal, administrative or other proceeding shall
be instituted or threatened by any Governmental Authority which would
materially affect the financial condition of Growth Fund or that seeks to
restrain, enjoin, prevent, materially delay, prohibit or otherwise make illegal
the performance of this Agreement, the Reorganization or the consummation of
any of the transactions contemplated hereby or thereby.
k. Commission Orders or Interpretations. Fundamental Growth shall have
received from the Commission such orders or interpretations as SAB&W, as
counsel to Fundamental Growth, deems reasonably necessary or desirable under
the Securities Act and the Investment Company Act in connection with the
Reorganization; provided, that such counsel shall have requested such orders or
interpretations as promptly as practicable, and all such orders shall be in
full force and effect.
l. Dividends. Prior to the Closing Date, Growth Fund shall have declared a
dividend or dividends which, together with all such previous dividends, shall
have the effect of distributing to its shareholders all of its investment
company taxable income as of the Closing Date, if any (computed without regard
to any deduction for dividends paid), and all of its net capital gain, if any,
realized as of the Closing Date.
9. Termination, Postponement and Waivers.
a. Termination of Agreement. Notwithstanding anything contained in this
Agreement to the contrary, subject to Section 10 hereof, this Agreement may be
terminated and the Reorganization abandoned at any time (whether before or
after approval thereof by the shareholders of Growth Fund) prior to the Closing
Date, or the Closing Date may be postponed, by notice in writing prior to the
Closing Date
i. by Growth Fund or Fundamental Growth if:
(1) the Board of Trustees of Growth Fund and the Board of
Directors of Fundamental Growth so mutually agree in
writing;
(2) a material breach occurs by the other of any
representation, warranty or covenant contained herein to be
performed at or prior to the Closing Date; or
(3) any Governmental Authority of competent jurisdiction shall
have issued any judgment, injunction, order, ruling or
decree or taken any other action restraining, enjoining or
otherwise prohibiting this Agreement, the Reorganization or
the consummation of any of the transactions contemplated
hereby or thereby and such judgment, injunction, order,
ruling, decree or other action becomes final and
non-appealable; provided, that the party seeking to
terminate this Agreement pursuant to this Section
9(a)(i)(3) shall have used its reasonable best efforts to
have such judgment, injunction, order, ruling, decree or
other action lifted, vacated or denied.
ii. by Growth Fund if any condition of Growth Fund's obligations set
forth in Section 7 of this Agreement has not been fulfilled or waived by it; or
iii. by Fundamental Growth if any condition of Fundamental Growth's
obligations set forth in Section 8 of this Agreement has not been fulfilled or
waived by it.
b. Commission Order. If any order or orders of the Commission with respect
to this Agreement, the Reorganization or any of the transactions contemplated
hereby or thereby shall be issued prior to the Closing Date and shall impose
any terms or conditions which are determined by action of the Board of Trustees
of Growth Fund and Board of Directors of Fundamental Growth to be acceptable,
such terms and conditions shall be binding as if a part of this Agreement
without further vote or approval of the shareholders of Growth Fund, unless
such terms and conditions shall result in a change in the method of computing
the number of Corresponding Shares to be issued by Fundamental Growth to Growth
Fund in which event, unless such terms and conditions shall have been included
in the proxy solicitation materials furnished to the shareholders of Growth
Fund prior to the meeting at which the Reorganization shall have been approved,
this Agreement shall not be consummated and shall terminate unless Growth Fund
promptly shall call a special meeting of shareholders at which such conditions
so imposed shall be submitted for approval and the requisite approval of such
conditions shall be obtained.
c. Effect of Termination. In the event of termination of this Agreement
pursuant to the provisions hereof, the same shall become null and void and have
no further force or effect, and there shall not be any liability on the part of
either Growth Fund or Fundamental Growth or Persons who are their directors,
trustees, officers, agents or shareholders in respect of this Agreement.
d. Waivers; Non-Material Changes. At any time prior to the Closing Date,
any of the terms or conditions of this Agreement may be waived by the party
that is entitled to the benefit thereof if such action or waiver will not have
a material adverse effect on the benefits intended under this Agreement to the
shareholders of such party on behalf of which such action is taken. In
addition, the Board of Trustees of Growth Fund and the Board of Directors of
Fundamental Growth have delegated to MLIM, as the investment adviser to each,
the ability to make non-material changes to this Agreement if MLIM deems it to
be in the best interests of that Fund to do so.
10. Survival of Representations and Warranties.
The respective representations and warranties contained in Sections 3 and
4 hereof shall expire with, and be terminated by, the consummation of the
Reorganization, and neither Growth Fund nor Fundamental Growth nor any of their
officers or directors, trustee agents or shareholders shall have any liability
with respect to such representations or warranties after the Closing Date. This
provision shall not protect any officer, director, trustee or agent of Growth
Fund or Fundamental Growth against any liability to the entity for which such
Person serves in such capacity, or to its shareholders, to which such Person
would be subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties in the conduct of such office.
11. Other Matters.
a. Legend. Pursuant to Rule 145 under the Securities Act, and in
connection with the issuance of any shares to any persons who at the time of
the Reorganization is, to its knowledge, an affiliate of a party to the
Reorganization pursuant to Rule 145(c), Fundamental Growth will cause to be
affixed upon the certificate(s) issued to such person (if any) a legend as
follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT
TO MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. (OR ITS STATUTORY
SUCCESSOR) OR ITS PRINCIPAL UNDERWRITER UNLESS (i) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF
1933 OR (ii) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
FUND, SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to
Fundamental Growth's transfer agent with respect to such shares. Growth
Fund will provide Fundamental Growth on the Closing Date with the name of
any shareholder who is to the knowledge of Growth Fund an affiliate of
Growth Fund on such date.
b. Obligations. A copy of Growth Fund's Declaration of Trust is on file
with the Secretary of State of the Commonwealth of Massachusetts. Fundamental
Growth acknowledges that the obligations of or arising out of this instrument
are not binding upon any of Growth Fund's trustees, officers, employees, agents
or shareholders individually, but are binding solely upon the assets and
property of Growth Fund.
c. Further Assurances. Each party hereto covenants and agrees to provide
the other party hereto and its agents and counsel with any and all
documentation, information, assistance and cooperation that may become
necessary from time to time with respect to the transactions contemplated by
this Agreement.
d. Notices. Any notice, report or other communication hereunder shall be
in writing and shall be given to the Person entitled thereto by hand delivery,
prepaid certified mail or overnight service, addressed to Growth Fund or
Fundamental Growth, as applicable, at the addresses set forth below. If the
notice is sent by certified mail, it shall be deemed to have been given to the
Person entitled thereto five (5) business days after being deposited in the
United States mail and if the notice is sent by overnight service, it shall be
deemed to have been given to the Person entitled thereto one (1) business day
after it was deposited with the courier service for delivery to that Person.
Notice of any change in any address listed below also shall be given in the
manner set forth above. Whenever the giving of notice is required, the giving
of such notice may be waived by the party entitled to receive such notice.
If to Growth Fund, to: 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: Terry K. Glenn
With a copy to: Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Margery K. Neale, Esq.
If to Fundamental Growth, to: 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: Terry K. Glenn
With a copy to: Sidley Austin Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
Attention: Frank P. Bruno, Esq.
e. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the matters contemplated herein and
supersedes all previous agreements or understandings between the parties
related to such matters.
f. Amendment. Except as set forth in Section 9(d) hereof, this Agreement
may be amended, modified, superseded, canceled, renewed or extended, and the
terms or covenants hereof may be waived, only by a written instrument executed
by all of the parties hereto or, in the case of a waiver, by the party waiving
compliance. Except as otherwise specifically provided in this Agreement, no
waiver by either party hereto of any breach by the other party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar provision or condition at
the same or at any prior or subsequent time.
g. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of New York applicable to agreements made and to be performed in
said state, without giving effect to the principles of conflict of laws
thereof.
h. Assignment. This Agreement shall not be assigned by any of the parties
hereto, in whole or in part, whether by operation of law or otherwise, without
the prior written consent of the other party hereto. Any purported assignment
contrary to the terms hereof shall be null, void and of no effect.
i. Fees and Expenses. With respect to expenses incurred in connection with
the Reorganization, (i) MLIM has agreed to pay all Reorganization expenses
incurred which are directly attributable to Fundamental Growth and the conduct
of its business, including the costs of printing sufficient copies of its
prospectus, and its most recent Annual Report to accompany the proxy statement
and prospectus, in connection with the N-14 Registration Statement, (ii) Growth
Fund shall pay all expenses incurred which are directly attributable to Growth
Fund and the conduct of its business, including the expenses incurred in
preparing, printing and mailing the proxy materials to be utilized in
connection with the special meeting of Growth Fund shareholders and the
expenses related to the solicitation of proxies to be voted at such meeting and
(iii) Growth Fund and MLIM, on behalf of Fundamental Growth, shall pay all
other expenses incurred in connection with the Reorganization equally,
including, but not limited to, expenses in connection with obtaining an opinion
of counsel with respect to the tax consequences of the Reorganization, the
preparation of the Agreement, legal fees, transfer agent fees and audit fees.
j. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms and
provisions of this Agreement in any other jurisdiction.
k. Headings. Headings to sections in this Agreement are intended solely
for convenience and no provision of this Agreement is to be construed by
reference to the heading of any section.
l. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be deemed to be
an original but all such counterparts together shall constitute but one
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
Merrill Lynch Growth Fund
By: ___________________________
Name:
Title:
Attest:
By:__________________________
Name:
Title:
Merrill Lynch Fundamental Growth
Fund, Inc.
By: ___________________________
Name:
Title:
Attest:
By:__________________________
Name:
Title:
Exhibit II
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL AND
RECORD OWNERS OF SHARES OF FUNDAMENTAL GROWTH AND GROWTH FUND
The following tables provide information about the persons or entities
who, to the knowledge of the relevant Fund, owned beneficially or of record 5%
or more of any class of that Fund's outstanding shares as of June 29, 2001:
Fundamental Growth
Percentage Percentage
Name Address of Class of Fund
- ------------------------------------------------- ---------------------------------- ---------------------- -----------------
MERRILL LYNCH TRUST COMPANY(1) 800 Scudders Mill Road 19.88% of Class A 3.35%
TRUSTEE FBO THE KROGER CO SAVINGS PLAN Plainsboro, New Jersey 08536 shares
MERRILL LYNCH TRUST COMPANY(2) 800 Scudders Mill Road 13.88% of Class A 2.34%
TRUSTEE FBO MLSIP INVESTMENT ACCOUNT Plainsboro, New Jersey 08536 shares
Growth Fund
Percentage Percentage
Name Address of Class of Fund
- ------------------------------------------------- ---------------------------------- ---------------------- -----------------
MERRILL LYNCH TRUST COMPANY(2) FBO MLSIP 800 Scudders Mill Road 16.51% of Class A 4.24%
INVESTMENT ACCOUNT Plainsboro, New Jersey 08536 shares
MERRILL LYNCH TRUST COMPANY(1) FBO THE LEE 800 Scudders Mill Road 6.05% of Class A 1.55%
ENTERPRISES INC. EMPLOYEES' RETIREMENT Plainsboro, New Jersey 08536 shares
- ----------------------------
(1) Represents ownership by pension, 401(k) or similar retirement
plans. Merrill Lynch Trust Company is the record owner only. The plan
sponsor has the authority to vote and to dispose of the shares.
(2) Represents ownership by pension, 401(k) or similar retirement
plans. Merrill Lynch Trust Company is the record owner only. The
underlying plan participants have the authority to vote and to dispose
of the shares. To the knowledge of the relevant Fund, no underlying plan
participant is the beneficial owner of 5% or more of any class of shares
of the Fund.
* Shareholder information will be provided as of the Record Date in a
subsequent filing.
The information in this statement of additional information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
statement of additional information is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED JULY 23, 2001
__________________
STATEMENT OF ADDITIONAL INFORMATION
__________________
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
MERRILL LYNCH GROWTH FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
This Statement of Additional Information is not a prospectus and should be
read in conjunction with Exchange the Proxy Statement and Prospectus of Merrill
Lynch Growth Fund ("Growth Fund") and Merrill Lynch Commission Fundamental
Growth Fund, Inc. ("Fundamental Growth") dated August ___, 2001 (the "Proxy
Statement and is Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without effective. charge, by calling
Fundamental Growth at 1-800-MER-FUND, or by writing to Fundamental Growth at
the above This address. This Statement of Additional Information has been
incorporated by reference into the Proxy statement Statement and Prospectus.
Further information about Fundamental Growth is contained in and
incorporated by reference to its Statement of Additional Information, dated
December 11, 2000, as amended and supplemented to date, which is incorporated
by reference into and accompanies this Statement of Additional Information.
The Commission maintains a web site (http://www.sec.gov) that contains the
prospectus and statement of additional information of each of Growth Fund and
Fundamental Growth, other material incorporated by reference herein, and other
information regarding Growth Fund and Fundamental Growth.
The date of this Statement of Additional Information is August __, 2001
TABLE OF CONTENTS
General Information...................................................... 2
Financial Statements..................................................... 2
Pro Forma Combined Schedules of Investments (unaudited).................. F-1
Pro Forma Combined Schedules of Assets and Liabilities (unaudited)....... F-4
Pro Forma Combined Statement of Operations (unaudited)................... F-5
Notes to Financial Statements............................................ F-6
GENERAL INFORMATION
The shareholders of Growth Fund are being asked to approve the acquisition
by Fundamental Growth of substantially all of the assets, and the assumption by
Fundamental Growth of substantially all of the liabilities, of Growth Fund in
return solely for an equal aggregate value of newly-issued shares of
Fundamental Growth (the "Reorganization"). Fundamental Growth is an open-end
management investment company organized as a Maryland corporation. A Special
Meeting of Shareholders of Growth Fund to consider the Reorganization will be
held at 800 Scudders Mill Road, Plainsboro, New Jersey, on October 15, 2001 at
10:00 a.m., Eastern time.
For detailed information about the Reorganization, shareholders of Growth
Fund should refer to the Proxy Statement and Prospectus. For further
information about Fundamental Growth, shareholders should refer to Fundamental
Growth's Statement of Additional Information, dated December 11, 2000, which
accompanies this Statement of Additional Information and is incorporated by
reference herein.
FINANCIAL STATEMENTS
Pro forma financial statements reflecting consummation of the
Reorganization are included herein.
Fundamental Growth
Audited financial statements and accompanying notes for the fiscal year
ended August 31, 2000, and the independent auditor's report thereon, dated
October 5, 2000, of Fundamental Growth are incorporated herein by reference
from Fundamental Growth's Annual Report to Stockholders. Unaudited financial
statements and accompanying notes of Fundamental Growth for the six-month
period ended February 28, 2001 are incorporated herein by reference from
Fundamental Growth's Semi-Annual Report to Stockholders.
Growth Fund
Audited financial statements and accompanying notes for the fiscal year
ended October 31, 2000, and the independent auditor's report thereon, dated
December 15, 2000, of Growth Fund are incorporated herein by reference from
Growth Fund's October 31, 2000 Annual Report. Unaudited financial statements
and accompanying notes of Growth Fund for the six-month period ended April 30,
2001 are incorporated herein by reference from Growth Fund's April 30, 2001
Semi-Annual Report.
Combined Schedule of Investments for
Merrill Lynch Fundamental Growth Fund, Inc. and
Merrill Lynch Growth Fund
As of February 28, 2001 (unaudited)
Value
----------------------------------------------------------
Pro Forma
for
Shares Fundamental Growth Combined
Industries Held Stocks Growth Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
Banks 735,000 BB&T Corporation $26,555,550 - $26,555,550
1,280,000 Northern Trust Corporation 90,960,000 - 90,960,000
750,000 PNC Bank Corp. 52,125,000 - 52,125,000
3,825,000 Wells Fargo Company 189,873,000 - 189,873,000
------------- ------------- -------------
359,513,550 - 359,513,550
- --------------------------------------------------------------------------------------------------------------------------------
Beverages 3,579,000 The Coca-Cola Company 153,787,000 $36,007,370 189,794,370
4,590,000 PepsiCo, Inc. 179,251,200 32,256,000 211,507,200
----------- ---------- -----------
333,038,200 68,263,370 401,301,570
- --------------------------------------------------------------------------------------------------------------------------------
Biotechnology 1,750,000 +Amgen Inc. 126,000,000 - 126,000,000
- --------------------------------------------------------------------------------------------------------------------------------
Communications 1,915,308 +Cisco Systems, Inc. - 45,368,858 45,368,858
Equipment
648,200 +Comverse Technology, Inc. - 48,574,488 48,574,488
1,527,450 Corning Incorporated - 41,393,895 41,393,895
650,000 +Finisar Corporation - 7,637,500 7,637,500
579,500 +Metawave Communications
Corporation - 6,410,719 6,410,719
1,026,500 Motorola, Inc. - 15,572,005 15,572,005
500,000 +Netro Corporation - 3,281,250 3,281,250
--------- --------- ---------
- 168,238,715 168,238,715
- --------------------------------------------------------------------------------------------------------------------------------
Computers & 834,900 +EMC Corporation - 33,195,624 33,195,624
Peripherals
387,200 International Business
Machines Corporation - 38,681,280 38,681,280
30,730 +McDATA Corporation (Class - 549,300 549,300
A)
420,800 +Palm, Inc. 7,285,100 - 7,285,100
--------- ---------- ---------
7,285,100 72,426,204 79,711,304
- --------------------------------------------------------------------------------------------------------------------------------
Diversified 2,231,736 Citigroup Inc. - 109,756,776 109,756,776
Financials
1,000,000 Countrywide Credit 44,230,000 - 44,230,000
Industries , Inc.
720,000 State Street Corporation 72,324,000 - 72,324,000
1,524,700 T. Rowe Price Group Inc. 54,317,437 - 54,317,437
---------- ----------- ----------
170,871,437 109,756,776 280,628,213
- --------------------------------------------------------------------------------------------------------------------------------
Diversified
Telecommunication
Services
4,120,000 Infonet Services Corporation 21,712,400 - 21,712,400
(Class B)
4,705,600 +McLeodUSA Incorporated
(Class A) - 61,466,900 61,466,900
---------- ---------- ----------
21,712,400 61,466,900 83,179,300
- --------------------------------------------------------------------------------------------------------------------------------
Electric Utilities 460,000 +Amgen Inc. - 33,120,000 33,120,000
- --------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment 974,100 +Active Power, Inc. - 19,238,475 19,238,475
600,000 +Beacon Power Corporation - 4,462,500 4,462,500
100,000 +Capstone Turbine - 2,443,750 2,443,750
Corporation
742,300 +Proton Energy Systems, Inc. - 7,051,850 7,051,850
---------- --------- ---------
- 33,196,575 33,196,575
- --------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & 2,800,000 Baker Hughes Incorporated 109,760,000 - 109,760,000
Service
574,000 +Bookham Technology PLC
(ADR)(a) - 4,430,562 4,430,562
1,620,000 Diamond Offshore Drilling, 67,878,000 - 67,878,000
Inc.
251,000 +FuelCell Energy, Inc. - 11,765,625 11,765,625
3,025,000 Halliburton Company 120,455,500 - 120,455,500
680,000 +Noble Drilling Corporation 31,654,000 - 31,654,000
2,050,000 +Rowan Companies, Inc. 58,527,500 - 58,527,500
1,310,000 +Sanmina Corporation - 38,972,500 38,972,500
1,988,889 +Solectron Corporation - 54,197,225 54,197,225
1,340,000 Transocean Sedco Forex Inc. 64,494,200 - 64,494,200
2,415,000 +Weatherford International, Inc. 125,652,450 - 125,652,450
----------- ----------- -----------
578,421,650 109,365,912 687,787,562
- --------------------------------------------------------------------------------------------------------------------------------
Food & Drug Retailing 2,640,920 CVS Corporation 161,096,120 - 161,096,120
2,135,000 Koninklijke Ahold NV 68,795,644 - 68,795,644
2,822,500 Walgreen Co. 125,093,200 - 125,093,200
----------- ----------- -----------
354,984,964 - 354,984,964
- --------------------------------------------------------------------------------------------------------------------------------
Food Products 300,000 The Quaker Oats Company 29,256,000 - 29,256,000
- --------------------------------------------------------------------------------------------------------------------------------
Gas Utilities 2,105,000 El Paso Corporation 147,981,500 - 147,981,500
- --------------------------------------------------------------------------------------------------------------------------------
Health Care 1,033,300 Medtronic, Inc. - 52,884,294 52,884,294
Equipment & Supplies
- --------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants
& Leisure 730,000 McDonald's Corporation 21,462,000 - 21,462,000
- --------------------------------------------------------------------------------------------------------------------------------
Household Durables 1,526,850 Sony Corporation (ADR)(a) 109,185,044 - 109,185,044
- --------------------------------------------------------------------------------------------------------------------------------
Household Products 750,000 Colgate-Palmolive Company 44,287,500 - 44,287,500
- --------------------------------------------------------------------------------------------------------------------------------
Industrial 8,996,400 General Electric Company 290,917,950 127,414,650 418,332,600
Conglomerates
- --------------------------------------------------------------------------------------------------------------------------------
Insurance 835,000 AFLAC Incorporated 50,233,600 - 50,233,600
3,168,000 American International 202,455,000 56,687,400 259,142,400
Group, Inc.
900,000 Everest Re Group, Ltd. 56,925,000 - 56,925,000
3,240,000 Lincoln National Corporation 142,138,800 - 142,138,800
13,700 +Markel Corporation 2,462,575 - 2,462,575
477,000 Marsh & McLennan Companies,
Inc. 51,039,000 - 51,039,000
----------- ----------- -----------
505,253,975 56,687,400 561,941,375
- --------------------------------------------------------------------------------------------------------------------------------
Internet & Catalog
Retail 250,000 +Amazon.com, Inc. 2,531,250 - 2,531,250
- --------------------------------------------------------------------------------------------------------------------------------
Internet Software & 2,050,000 +Commerce One, Inc. 35,746,875 - 35,746,875
Services
3,485,000 +Exodus Communications, Inc. 50,968,125 - 50,968,125
----------- ----------- -----------
86,715,000 - 86,715,000
- --------------------------------------------------------------------------------------------------------------------------------
Media 6,986,900 +AOL Time Warner Inc. 242,165,000 65,468,207 307,633,207
1,243,300 +Clear Channel
Communications, Inc. 71,054,595 - 71,054,595
1,660,300 +Hispanic Broadcasting
Corporation 37,356,750 - 37,356,750
350,000 The Interpublic Group of
Companies, Inc. 13,160,000 - 13,160,000
1,237,100 +Viacom, Inc. (Class B) 61,483,870 - 61,483,870
3,412,300 The Walt Disney Company 105,610,685 - 105,610,685
----------- ----------- -----------
530,830,900 65,468,207 596,299,107
- --------------------------------------------------------------------------------------------------------------------------------
Multi - Utilities 4,042,100 Enron Corp. 194,135,850 82,748,000 276,883,850
- --------------------------------------------------------------------------------------------------------------------------------
Multiline Retail 1,100,000 +Kohl's Corporation 72,501,000 - 72,501,000
5,780,800 Wal-Mart Stores, Inc. 213,633,850 75,926,422 289,560,272
----------- ----------- -----------
286,134,850 75,926,422 362,061,272
- --------------------------------------------------------------------------------------------------------------------------------
Oil & Gas 3,848,434 +TransMontaigne Inc.(b) - 14,162,237 14,162,237
- --------------------------------------------------------------------------------------------------------------------------------
Personal Products 725,000 The Estee Lauder Companies 28,014,000 - 28,014,000
Inc. (Class A)
800,000 The Gillette Company 26,008,000 - 26,008,000
----------- ----------- -----------
54,022,000 - 54,022,000
- --------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 435,000 Abbott Laboratories - 21,310,650 21,310,650
662,950 American Home Products
Corporation - 40,950,422 40,950,422
1,100,000 Aventis SA 88,612,656 - 88,612,656
2,603,900 Bristol-Myers Squibb Company 165,113,299 - 165,113,299
1,904,000 Eli Lilly and Company 107,271,000 44,020,840 151,291,840
2,835,000 +Immunex Corporation 92,137,500 - 92,137,500
3,540,300 Merck & Co., Inc. 220,149,000 63,783,060 283,932,060
6,998,580 Pfizer Inc. 273,384,000 41,552,100 314,936,100
3,586,310 Pharmacia Corporation 129,255,170 56,157,057 185,412,227
1,500,000 Sanofi-Synthelabo SA 80,832,840 - 80,832,840
500,000 Schering-Plough Corporation - 20,125,000 20,125,000
----------- ----------- -----------
1,156,755,465 287,899,129 1,444,654,594
- --------------------------------------------------------------------------------------------------------------------------------
Semiconductor 400,000 +ASM Lithography Holding NV 8,721,486 - 8,721,486
Equipment & Products
1,962,060 Intel Corporation - 56,041,339 56,041,339
500,000 +International Rectifier - 16,500,000 16,500,000
Corp.
1,150,000 +Lattice Semiconductor - 21,203,125 21,203,125
Corporation
467,000 +Transmeta Corporation 9,515,125 - 9,515,125
519,000 +Xilinx, Inc. - 20,176,125 20,176,125
----------- ----------- -----------
18,236,611 113,920,589 132,157,200
- --------------------------------------------------------------------------------------------------------------------------------
Software 1,480,000 +Microsoft Corporation - 87,227,500 87,227,500
450,000 +Quest Software, Inc. - 11,643,750 11,643,750
1,290,000 +Rational Software 45,069,375 - 45,069,375
Corporation
270,000 +VERITAS Software - 17,533,125 17,533,125
Corporation
----------- ----------- -----------
45,069,375 116,404,375 161,473,750
- --------------------------------------------------------------------------------------------------------------------------------
Specialty Retail 5,635,600 The Home Depot, Inc. 239,513,000 - 239,513,000
734,400 Lowe's Companies, Inc. - 41,038,272 41,038,272
----------- ----------- -----------
239,513,000 41,038,272 280,551,272
- --------------------------------------------------------------------------------------------------------------------------------
Telecommunications & 66,100 +Corvis Corporation - 685,788 685,788
Equipment
77,100 +TyCom, Ltd. - 1,522,725 1,522,725
----------- ----------- -----------
- 2,208,513 2,208,513
- --------------------------------------------------------------------------------------------------------------------------------
Wireless
Telecommunications
Services 13,056,786 Vodafone Group PLC (ADR)(a) 27,310,000 32,648,791 59,958,791
- --------------------------------------------------------------------------------------------------------------------------------
Total Stocks 5,741,425,571 1,725,245,331 7,466,670,902
- --------------------------------------------------------------------------------------------------------------------------------
Face
Amount Short-Term Securities
- --------------------------------------------------------------------------------------------------------------------------------
Commercial Paper* $50,000,000 CBA (Delaware) Finance,
5.46% due 3/05/2001 49,969,667 - 49,969,667
70,000,000 CIT Group Holdings, 5.52%
due 3/01/2001 - 70,000,000 70,000,000
63,681,000 General Motors Acceptance
Corp., 5.56% due
3/01/2001 39,887,000 23,794,000 63,681,000
50,000,000 J.P. Morgan Securities
Inc., 5.50% due
3/01/2001 50,000,000 - 50,000,000
45,000,000 Verizon Global Funding,
5.33% due 4/16/2001 44,693,525 - 44,693,525
-------------- --------------- -----------------
Total Short-Term Securities 184,550,192 93,794,000 278,344,192
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost - 5,925,975,763 1,819,039,331 7,745,015,094
$8,097,197,043)-100.0%
Liabilities in Excess of
Other Assets-0.0% (4,889,345) (4,750,112) (130,590,194)**
-------------- --------------- -----------------
Net Assets-100.0% 5,921,086,418 1,814,289,219 7,614,424,900**
+ Non-income producing security.
(a) American Depositary Receipts (ADR).
(b) Investment in an affiliated company.
* Commercial Paper and certain US Government Agency Obligations are traded on a discount basis; the
interest rates shown reflect the discount rates paid at the time of purchase by the Fund.
** Amounts reflect Pro Forma adjustments to the Statement of Assets and Liabilities.
See Notes to Financial Statements.
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
FOR MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AND
MERRILL LYNCH GROWTH FUND
As of February 28, 2001
(Unaudited)
The following unaudited pro forma Combined Statement of Assets and
Liabilities has been derived from the Statements of Assets and Liabilities of
Merrill Lynch Fundamental Growth Fund, Inc. and Merrill Lynch Growth Fund at
February 28, 2001 and such information has been adjusted to give effect to the
Reorganization as if the Reorganization had occurred at February 28, 2001. The
pro forma Combined Statement of Assets and Liabilities is presented for
informational purposes only and does not purport to be indicative of the
financial condition that actually would have resulted if the Reorganization
had been consummated at February 28, 2001. The pro forma Combined Statement of
Assets and Liabilities should be read in conjunction with the financial
statements of Merrill Lynch Fundamental Growth Fund, Inc. included in its
Annual Report to Stockholders for the fiscal year ended August 31, 2000 and
the financial statements and related notes from the unaudited financial
statements of Merrill Lynch Fundamental Growth Fund, Inc. included in its
Semi-Annual Report to Stockholders for the six-month period ended February 28,
2001, which are incorporated herein by reference, and the financial statements
and related notes from the audited financial statements of Merrill Lynch
Growth Fund included in its October 31, 2000 Annual Report and the financial
statements and related notes from the unaudited financial statements of Merrill
Lynch Growth Fund included in its April 30, 2001 Semi-Annual Report, which are
incorporated herein by reference.
Pro Forma
for
Fundamental Growth Combined
Growth Fund Adjustments(1) Fund(1)
-------------- -------------- -------------- ---------------
Assets:
Investments, at value* $5,925,975,763 $1,819,039,330 $7,745,015,093
Cash 773,119 - 773,119
Foreign cash 1,279 576,709 577,988
Receivables:
Securities sold 52,050,553 95,153,000 147,203,553
Capital shares sold 45,630,052 959,655 46,589,707
Dividends 3,567,786 708,508 4,276,294
Prepaid registrations fees and other assets 219,065 130,854 349,919
-------------- -------------- -------------- ---------------
Total assets 6,028,217,617 1,916,568,056 7,944,785,673
Liabilities:
Payables:
Securities purchased 86,823,876 93,779,592 180,603,468
Distributions to shareholders - - $119,115,137 119,115,137
Capital shares redeemed 11,823,493 3,926,778 15,750,271
Distributor 2,960,935 790,565 3,751,500
Investment adviser 2,596,036 897,666 3,493,702
Accrued expenses and other liabilities 2,926,859 2,884,236 1,835,600 7,646,695
-------------- -------------- -------------- ---------------
Total liabilities 107,131,199 102,278,837 120,950,737 330,360,773
-------------- -------------- -------------- ---------------
Net Assets:
Net Assets $5,921,086,418 $1,814,289,219 $(120,950,737) $7,614,424,900
============== ============== ============== ==============
Net Assets Consist of:
Class A Common Stock, $.10 par value,
100,000,000 shares authorized $4,912,676 $2,684,067 $(353,603) $7,243,140
Class B Common Stock, $.10 par value,
250,000,000 shares authorized 14,304,202 4,427,769 (748,242) 17,983,729
Class C Common Stock, $.10 par value,
100,000,000 shares authorized 3,145,482 394,019 (71,166) 3,468,335
Class D Common Stock, $.10 par value,
100,000,000 shares authorized 7,117,652 2,834,607 (365,444) 9,586,815
Paid-in capital in excess of par 6,010,413,779 1,952,692,223 (297,145) 7,962,808,857
Accumulated investment loss - net (1,736,840) (32,739,765) 34,476,605
Undistributed realized capital gains on
investments and foreign currency
transactions - net 68,707,240 50,407,897 (119,115,137) -
Unrealized depreciation on investments-net (185,777,773) (166,411,598) (352,189,371)
-------------- -------------- -------------- ---------------
Net assets $5,921,086,418 $1,814,289,219 $(120,950,737) $7,614,424,900
============== ============== ============== ==============
Net Asset Value:
Class A:
Net assets $1,028,534,852 $496,550,053 $(26,233,380) $1,498,851,525
Shares outstanding 49,126,759 26,840,672 (3,536,030) 72,431,401
Net Asset Value $20.94 $18.50 $20.69
Class B:
Net assets $2,800,424,387 $733,113,643 $(53,606,057) $3,479,931,973
Shares outstanding 143,042,022 44,277,693 (7,482,418) 179,837,297
Net Asset Value $19.58 $16.56 $19.35
Class C:
Net Assets $619,472,942 $64,708,637 $(9,051,577) $675,130,002
Shares outstanding 31,454,824 3,940,191 (711,658) 34,683,357
Net Asset Value $19.69 $16.42 $19.47
Class D:
Net Assets $1,472,654,237 $519,916,886 $(32,059,723) $1,960,511,400
Shares outstanding 71,176,520 28,346,073 (3,654,442) 95,868,151
Net Asset Value $20.69 $18.34 $20.45
*identified cost $6,111,753,536 $1,985,443,507 $8,097,197,043
- ---------------
(1) Reflects the charge for estimated Reorganization expenses of $1,835,600
attributable to Growth Fund. The estimated Reorganization expenses of $211,200
attributable to Fundamental Growth will be paid by Merrill Lynch Investment
Managers, L.P.
See Notes to Financial Statements.
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC AND
MERRILL LYNCH GROWTH FUND
For the Six Months Ended February 28, 2001
(Unaudited)
The following unaudited pro forma Combined Statement of Operations has
been derived from the Statements of Operations of Merrill Lynch Fundamental
Growth Fund, Inc. and Merrill Lynch Growth Fund for the period March 1, 2000
to February 28, 2001, and such information has been adjusted to give effect to
the Reorganization as if the Reorganization had occurred at March 1, 2000. The
pro forma Combined Statement of Operations is presented for informational
purposes only and does not purport to be indicative of the financial
operations that actually would have resulted if the Reorganization had been
consummated at February 28, 2001 nor which may result from future operations.
The pro forma Combined Statement of Operations should be read in conjunction
with the financial statements of Merrill Lynch Fundamental Growth Fund, Inc.
included in its Annual Report to Stockholders for the fiscal year ended August
31, 2000 and the financial statements and related notes from the unaudited
financial statements of Merrill Lynch Fundamental Growth Fund, Inc. included
in its Semi-Annual Report to Stockholders for the six-month period ended
February 28, 2001, which are incorporated herein by reference, and the
financial statements and related notes from the audited financial statements
of Merrill Lynch Growth Fund included in its October 31, 2000 Annual Report
and the financial statements and related notes from the unaudited financial
statements of Merrill Lynch Growth Fund included in its April 30, 2001
Semi-Annual Report, which are incorporated herein by reference.
Pro Forma
for
Fundamental Growth Combined
Growth Fund Adjustments(1) Fund(2)
---------------- --------------- -------------- ----------------
Investment Income:
Dividends** $20,713,186 $4,169,611 $24,882,797
Interest and discount earned 19,673,898 3,079,890 22,753,788
---------------- --------------- ----------------
Total income 40,387,084 7,249,501 47,636,585
---------------- --------------- ----------------
Expenses:
Investment advisory fees 18,001,215 8,302,689 $(1,700,824) 24,603,080
Account maintenance and distribution
fees -Class B 14,798,487 4,782,276 19,580,763
Account maintenance and distribution
fees -Class C 2,957,010 424,592 3,381,602
Transfer agent fees - Class B 1,817,312 1,128,492 2,945,804
Account maintenance fees - Class D 1,912,333 837,677 2,750,010
Transfer agent fees - Class D 798,728 694,164 1,492,892
Transfer agent fees - Class A 453,157 669,455 1,122,612
Accounting services 364,409 151,853 516,262
Transfer agent fees - Class C 386,007 107,431 493,438
Registration fees 231,208 32,113 (30,197) 233,124
Printing and shareholder reports 95,780 104,801 (84,911) 115,670
Custodian fees 125,628 59,097 184,725
Professional fees 67,714 63,770 (63,209) 68,275
Directors' fees and expenses 45,440 40,975 (23,915) 62,500
Pricing fees 16,038 14,684 (13,712) 17,010
Other 53,458 30,006 (18,589) 64,875
---------------- --------------- ------------ ----------------
Total expenses 42,123,924 17,444,075 (1,935,357) 57,632,642
Reimbursement of expenses -- (943,188) (943,188)
---------------- --------------- ------------ ----------------
Total expenses, net of reimbursement 42,123,924 16,500,887 (1,935,357) 56,689,454
---------------- --------------- ------------ ----------------
Investment income (loss) - net (1,736,840) (9,251,386) 1,935,357 (9,052,869)
---------------- --------------- ------------ ----------------
Realized and Unrealized Gain (Loss) on
Investments & Foreign Currency Transactions -
Net:
Realized gain (loss) from:
Investments - net 91,376,206 56,089,253 147,465,459
Foreign currency transactions - net (1,102,204) (1,625) (1,103,829)
Change in unrealized
appreciation/depreciation on:
Investments - net (1,788,982,857) (1,040,183,058) (2,829,165,915)
Foreign currency transactions - net 20,894 32,458 53,352
---------------- --------------- ------------ ----------------
Net Decrease in Net Assets Resulting $(1,700,424,801) $(993,314,358) $1,935,357 $(2,691,803,802)
from Operations ---------------- --------------- ------------ ----------------
** Net foreign withholding tax on dividends $ -- $ 13,131
(1) Reflects the anticipated savings as a result of the Reorganization through consolidation of printing, legal
and other services.
(2) This Pro Forma Combined Statement of Operations excludes non-recurring aggregate estimated Reorganization
expenses of $2,046,800, and of which $1,835,600 is attributable to Growth Fund and $211,200 is attributable to
Fundamental Growth and will be paid by Merrill Lynch Investment Managers, L.P. and of which $1,835,600 is
attributable to Growth Fund.
Merrill Lynch Fundamental Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Fundamental Growth Fund, Inc. ("Fundamental Growth" or the
"Fund," which terms are used herein shall refer to Merrill Lynch Fundamental
Growth Fund, Inc., after giving effect to the reorganization with Merrill
Lynch Growth Fund ("Growth Fund" and together with the Fund, the "Funds") is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund's financial statements are prepared in
conformity with accounting principles generally accepted in the United States
of America, which may require the use of management accruals and estimates.
These unaudited financial statements reflect all adjustments, which are, in
the opinion of management, necessary to a fair statement of the results for
the interim period presented. All such adjustments are of a normal, recurring
nature. The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a contingent
deferred sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class B, Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments -- Portfolio securities that are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available
bid price. Securities traded in the over-the-counter market are valued at
the last available bid price prior to the time of valuation. In cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board
of Directors as the primary market. Securities that are traded both in
the over-the-counter market and on a stock exchange are valued according
to the broadest and most representative market. Options written or
purchased are valued at the last sale price in the case of
exchange-traded options. In the case of options traded in the
over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Short-term securities
are valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are stated
at market value. Securities and assets for which market value quotations
are not available are valued at their fair value as determined in good
faith by or under the direction of the Fund's Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio investment strategies to increase or decrease the level of risk
to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. Losses may arise due to
changes in the value of the contract or if the counterparty does not
perform under the contract.
o Financial futures contracts -- The Fund may purchase or sell
financial futures contracts and options on such futures contracts for
the purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and
are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
o Options -- The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized.
Assets and liabilities denominated in foreign currencies are valued at
the exchange rate at the end of the period. Foreign currency transactions
are the result of settling (realized) or valuing (unrealized) assets or
liabilities expressed in foreign currencies into U.S. dollars. Realized
and unrealized gains or losses from investments include the effects of
foreign exchange rates on investments.
(d) Income taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute substantially all of its taxable income to its
shareholders. Therefore, no Federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be imposed on
interest, dividends, and capital gains at various rates.
(e) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade
dates). Realized gains and losses on security transactions are determined
on the identified cost basis. Dividend income is recorded on the
ex-dividend dates. Dividends from foreign securities where the
ex-dividend date may have passed are subsequently recorded when the Fund
has determined the ex-dividend date. Interest income is recognized on the
accrual basis. The Fund will adopt the provisions to amortize all
premiums and discounts on debt securities effective September 1, 2001, as
now required under the new AICPA Audit and Accounting Guide for
Investment Companies. The cumulative effect of this accounting change
will have no impact on the total net assets of the Fund. The impact of
this accounting change has not been determined, but will result in an
adjustment to the cost of securities and a corresponding adjustment to
net unrealized appreciation/depreciation, based on securities held as of
August 31, 2001.
(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) Security loans -- The Fund receives compensation in the form of fees, or
it retains a portion of the interest on the investment of any cash
received as collateral. The Fund also continues to receive interest or
dividends on the securities loaned. The loans are secured by collateral
at least equal, at all times, to the fair value of the securities loaned
plus accrued interest. Gain or loss in the fair value of the securities
loaned that may occur during the term of the loan will be for the account
of the Fund.
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 the average net assets of the Fund in excess of $1 billion
but not exceeding $1.5 billion, .60% of the average net assets of the Fund in
excess of $1.5 billion but not exceeding $5 billion, .575% of the average net
assets of the Fund in excess of $5 billion but not exceeding $7.5 billion and
.55% of the average net assets of the Fund in excess of $7.5 billion.
Pursuant to the Distribution Plans adopted by the Funds in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Funds pay the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- -------------------------------------------------------------------------------
Account Maintenance Distribution
Fee Fee
- -------------------------------------------------------------------------------
Class B .25% .75%
- -------------------------------------------------------------------------------
Class C .25% .75%
- -------------------------------------------------------------------------------
Class D .25% --
- -------------------------------------------------------------------------------
Pursuant to sub-agreements 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 Funds. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended February 28, 2001, FAMD earned underwriting discounts
and direct commissions and MLPF&S earned dealer concessions on sales of the
Funds' Class A and Class D Shares as follows:
- ------------------------------------------------------------------------
FAMD MLPF&S
- ------------------------------------------------------------------------
Fundamental Growth
- ------------------------------------------------------------------------
Class A $1,057 $15,107
- ------------------------------------------------------------------------
Class D $79,139 $1,189,409
- ------------------------------------------------------------------------
Growth Fund
- ------------------------------------------------------------------------
Class A $264 $3,876
- ------------------------------------------------------------------------
Class D $2,327 $33,550
- ------------------------------------------------------------------------
For the six months ended February 28, 2001, MLPF&S received contingent deferred
sales charges relating to transactions in Class B and Class C Shares as
follows.
- ------------------------------------------------------------------------
Fundamental Growth
- ------------------------------------------------------------------------
Class B $1,047,558
- ------------------------------------------------------------------------
Class C $61,132
- ------------------------------------------------------------------------
Growth Fund
- ------------------------------------------------------------------------
Class B $367,976
- ------------------------------------------------------------------------
Class C $5,146
- ------------------------------------------------------------------------
Furthermore, MLPF&S received contingent deferred sales charges relating to
transactions subject to front-end sales charge waivers with respect to Class A
and Class D Shares as follows.
- ------------------------------------------------------------------------
Fundamental Growth
- ------------------------------------------------------------------------
Class A $0
- ------------------------------------------------------------------------
Class D $1,474
- ------------------------------------------------------------------------
Growth Fund
- ------------------------------------------------------------------------
Class A $0
- ------------------------------------------------------------------------
Class D $23
- ------------------------------------------------------------------------
In addition, MLPF&S received $855,409 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended February
28, 2001.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co.,
is the Funds' transfer agent.
Accounting services were provided to the Funds by MLIM through December 31,
2000. Up to this date, Fundamental Growth and Growth Fund reimbursed MLIM
$226,724 and $220,738, respectively, for these services. As of January 1, 2001,
accounting services are provided for the Funds by State Street Bank and Trust
Company ("State Street") pursuant to an agreement between State Street and the
Funds. The Funds will pay the cost of these services. In addition, the Funds
will reimburse MLIM for the cost of certain additional accounting services.
Certain officers and/or directors of the Funds are officers and/or directors of
MLIM, FDS, PSI, FAMD, and/or ML & Co.
PART C
OTHER INFORMATION
Item 15. Indemnification.
Reference is made to Article VI of the Articles of Incorporation of
Merrill Lynch Fundamental Growth Fund, Inc. (the "Registrant"), Article VI of
Registrant's By-Laws, Section 2-418 of the Maryland General Corporation Law and
Section 9 of the Distribution Agreement.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or
any shareholder thereof to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office. Absent a
court determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office, the decision by the Registrant to indemnify such person must be
based upon the reasonable determination of independent legal counsel or the
vote of a majority of a quorum of the directors who are neither "interested
persons," as defined in section 2(a)(19) of the Investment Company Act of 1940,
as amended, nor parties to the proceeding ("non-party independent directors"),
after review of the facts, that such officer or director is not guilty of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
Each officer and director of the Registrant claiming indemnification
within the scope of Article VI of the By-Laws shall be entitled to advances
from the Registrant for payment of the reasonable expenses incurred by him or
her in connection with proceedings to which he or she is a party in the manner
and to the full extent permitted under the General Laws of the State of
Maryland without a preliminary determination as to his or her ultimate
entitlement to indemnification (except as set forth below); provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his or her good faith belief that the standard of
conduct necessary for indemnification by the Registrant has been met and a
written undertaking to repay any such advance, if it should ultimately be
determined that the standard of conduct has not been met, and provided further
that at least one of the following additional conditions is met: (a) the person
seeking indemnification shall provide a security in form and amount acceptable
to the Registrant for his or her undertaking; (b) the Registrant is insured
against losses arising by reason of the advance; (c) a majority of a quorum of
non-party independent directors, or independent legal counsel in a written
opinion, shall determine, based on a review of facts readily available to the
Registrant at the time the advance is proposed to be made, that there is reason
to believe that the person seeking indemnification will ultimately be found to
be entitled to indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his or her activities as an
officer or director of the Registrant. The Registrant, however, may not
purchase insurance on behalf of any officer or director of the Registrant that
protects or purports to protect such person from liability to the Registrant or
to its shareholders to which such officer or director would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Distribution Agreement relating to the securities
being offered hereby, the Registrant agrees to indemnify the Distributor and
each person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "1933 Act"), against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus
and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Directors, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Director, officer,
or controlling person of the Registrant and the principal underwriter in
connection with the successful defense of any action, suit or proceeding) is
asserted by such Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of
such issue.
Item 16. Exhibits.
1(a) -- Articles of Incorporation of the Registrant, dated April 29, 1992. (a)
1(b) -- Articles of Amendment to Articles of Incorporation of the Registrant, dated July 7, 1992. (a)
1(c) -- Articles of Amendment to the Articles of Incorporation of the Registrant, dated October 17, 1994.(a)
1(d) -- Articles Supplementary to the Articles of Incorporation of the Registrant, dated October 17,
1994.(a)
1(e) -- Articles Supplementary to the Articles of Incorporation of the Registrant, dated October 17,
1994.(a)
1(f) -- Articles Supplementary to the Articles of Incorporation of the Registrant, dated November 17,
1999.(b)
1(g) -- Articles Supplementary to the Articles of Incorporation of the Registrant, dated October 20,
2000.(c)
2 -- By-Laws of the Registrant. (a)
3 -- Not applicable.
4 -- Form of Agreement and Plan of Reorganization between the Registrant and Merrill Lynch Growth Fund.
(d)
5 -- Copies of instruments defining the rights of stockholders, including the relevant portions of the
Articles of Incorporation, as amended, and the By-Laws of the Registrant.(e)
6(a) -- Management Agreement, as amended, between the Registrant and Merrill Lynch Investment Managers,
L.P. (the "Manager").(c)
6(b) -- Sub-Advisory Agreement between the Manager and Merrill Lynch Asset Management U.K. Limited.(f)
7 -- Form of Distribution Agreement between the Registrant and FAM Distributors, Inc. (the
"Distributor").(g)
8 -- None.
9(a) -- Form of Custody Agreement between the Registrant and The Chase Manhattan Bank.(a)
9(b) -- Amended and Restated Credit Agreement between the Registrant and a syndicate of banks.(h)
10(a) -- Form of Amended and Restated Class B Distribution Plan of the Registrant.(i)
10(b) -- Form of Amended and Restated Class C Distribution Plan of the Registrant.(i)
10(c) -- Form of Amended and Restated Class D Distribution Plan of the Registrant.(i)
10(d) -- Merrill Lynch Select PricingSM System Plan pursuant to Rule l8f-3.(j)
11 -- Opinion of Sidley Austin Brown & Wood LLP, counsel for the Registrant.
12 -- Opinion of Sidley Austin Brown & Wood LLP, counsel for the Registrant and special tax counsel for
Merrill Lynch Growth Fund.*
13 -- Not applicable.
14(a) -- Consent of Ernst & Young LLP, independent auditors for the Registrant.
14(b) -- Consent of Deloitte & Touche LLP, independent auditors for Merrill Lynch Growth Fund.
15 -- Not applicable.
16 -- Power of Attorney.(k)
17(a) -- Prospectus dated December 11, 2000, and Statement of Additional Information dated
December 11, 2000, of the Registrant.
17(b) -- Prospectus dated February 16, 2001, and Statement of Additional Information dated
February 16, 2001, of Merrill Lynch Growth Fund.
17(c) -- Annual Report to Stockholders of the Registrant for the year ended August 31, 2000.
17(d) -- Semi-Annual Report to Stockholders of the Registrant for the six months ended February 28, 2001.
17(e) -- Annual Report to Shareholders of Merrill Lynch Growth Fund for the year ended October 31, 2000.
17(f) -- Semi-Annual Report to Shareholders of Merrill Lynch Growth Fund for the six months ended April 30, 2001.
17(g) -- Form of Proxy.
- ---------------
(a) Re-Filed on December 21, 1995, as an Exhibit to Post Effective
Amendment No. 4 to the Registrant's Registration Statement on Form N-1A (the
"Registration Statement") pursuant to the Electronic Data Gathering Analysis
and Retrieval ("Edgar") requirements.
(b) Filed on December 1, 1999, as an exhibit to Post-Effective Amendment
No. 9 to the Registrant's Registration Statement.
(c) Filed on November 30, 2000, as an exhibit to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement.
(d) Included as Exhibit I to the Proxy Statement and Prospectus contained
in the Registration Statement.
(e) Reference is made to Article II, Article IV, Article V (sections 2, 3,
4 and 6), Article VI, Article VII and Article IX of the Registrant's Articles
of Incorporation, previously filed as Exhibit (1), to the Registration
Statement, and to Article II, Article III (sections 1, 3, 5, 6 and 17), Article
VI, Article VII, Article XII, Article XIII and Article XIV of the Registrant's
By-Laws previously filed as Exhibit (2) to the Registration Statement
(f) Filed on December 23, 1996, as an exhibit to Post-Effective Amendment
No. 5 to the Registrant's Registration Statement.
(g) Incorporated by reference to Exhibit 5 of Post-Effective Amendment No.
12 to the Registration Statement on Form N-1A of Merrill Lynch Adjustable Rate
Securities Fund, Inc. (File No. 33-40322), filed on July 5, 2000.
(h) Incorporated by reference to Exhibit B to Issuer Tender Offer
Statement on Schedule TO of Merrill Lynch Senior Floating Rate Fund, Inc. (File
No. 333-15973), filed December 14, 2000.
(i) Incorporated by reference to Exhibit 13 of Post-Effective Amendment
No. 14 to the Registration Statement on Form N-1A of Merrill Lynch Adjustable
Rate Securities Fund, Inc. (File No. 33-40322), filed on September 28, 2000.
(j) Incorporated by reference to Exhibit 18 to Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A of Merrill Lynch New York
Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust filed
on January 25, 1996.
(k) Included on the signature page of this Registration Statement.
* To be filed by amendment.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as
amended, the reoffering prospectus will contain information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of securities at
that time shall be deemed to be the initial bona fide offering of them.
(3) The Registrant undertakes to file, by post-effective amendment, a copy
of the opinion of counsel as to certain tax matters, within a reasonable time
after receipt of such opinion.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the Township of Plainsboro and
State of New Jersey, on the 23rd day of July, 2001.
Merrill Lynch Fundamental Growth Fund, Inc.
(Registrant)
By /s/ TERRY K. GLENN
--------------------------------------
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K.
Glenn, Donald C. Burke and Alan J. Oster or any of them, as attorney-in-fact,
to sign on his behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective amendments)
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
/s/ TERRY K. GLENN President and Director July 23, 2001
- ------------------------------------------- (Principal Executive Officer)
(Terry K. Glenn)
/s/ DONALD C. BURKE Vice President and Treasurer July 23, 2001
- ------------------------------------------- (Principal Financial
(Donald C. Burke) and Accounting Officer)
/s/ JOE GRILLS Director July 23, 2001
- -------------------------------------------
(Joe Grills)
/s/ WALTER MINTZ Director July 23, 2001
- -------------------------------------------
(Walter Mintz)
/s/ ROBERT S. SALOMON, JR. Director July 23, 2001
- -------------------------------------------
(Robert S. Salomon, Jr.)
/s/ MELVIN R. SEIDEN Director July 23, 2001
- -------------------------------------------
(Melvin R. Seiden)
/s/ STEPHEN B. SWENSRUD Director July 23, 2001
- -----------------------------------------------
(Stephen B. Swensrud)
EXHIBIT INDEX
Exhibit Number Description
11 -- Opinion of Sidley Austin Brown & Wood LLP, counsel for the Registrant
14(a) -- Consent of Ernst & Young LLP, independent auditors for the Registrant.
14(b) -- Consent of Deloitte & Touche LLP, independent auditors for Merrill Lynch Growth Fund.
17(a) -- Prospectus dated December 11, 2000, and Statement of Additional Information dated
December 11, 2000, of the Registrant.
17(b) -- Prospectus dated February 16, 2001, and Statement of Additional Information dated
February 16, 2001, of Merrill Lynch Growth Fund.
17(c) -- Annual Report to Stockholders of the Registrant for the year ended August 31, 2000.
17(d) -- Semi-Annual Report to Stockholders of the Registrant for the six months ended February
28, 2001.
17(e) Annual Report to Shareholders of Merrill Lynch Growth Fund for the year ended October
31, 2000.
17(f) -- Semi-Annual Report to Shareholders of Merrill Lynch Growth Fund for the six months
ended April 30, 2001.
17(g) -- Form of Proxy.