MERRILL LYNCH
STRATEGIC
DIVIDEND FUND
FUND LOGO
Semi-Annual Report
January 31, 1995
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Strategic Dividend Fund
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MERRILL LYNCH STRATEGIC DIVIDEND FUND
Officers and
Trustees
Arthur Zeikel, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Charles C. Reilly, Trustee
Kevin A. Ryan, Trustee
Richard R. West, Trustee
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Walter D. Rogers, Vice President and Portfolio Manager
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, Massachusetts 02171
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
Portfolio Information
As of 1/31/95
Percent of
Ten Largest Common Stock Holdings Net Assets
Mobil Corp. 4.2%
Texaco Inc. 4.2
Royal Dutch Petroleum Co. (ADR) 3.8
Ohio Casualty Corp. 3.1
NYNEX Corp. 2.9
Union Camp Corp. 2.9
B.A.T. Industries PLC (ADR) 2.6
Pacific Telesis Group 2.6
American General Corp. 2.5
General Electric Co. 2.5
<PAGE>
Additions
Developers Diversified
Realty Corp.
NYNEX Corp.
Deletions
Enron Corp.
Halliburton Co.
National City Corp.
Sears, Roebuck & Co.
DEAR SHAREHOLDER
The combination of heightened inflationary concerns, anticipation of
further tightening of monetary policy by the Federal Reserve Board
and the turmoil of the Mexican currency crisis all exerted negative
influences on the US financial markets during the January quarter.
On the positive side, increasing signs that the US economy may be
losing momentum suggested that most of the interest rate increases
for this economic cycle may be behind us. As a result of these
economic crosscurrents, the US stock and bond markets continued to
be volatile during the period.
The manufacturing sector proved to be the driving force behind the
US economy through the final quarter of 1994, making an important
contribution to the substantial increase in corporate earnings. US
companies have been successful at containing labor costs, which are
an important component of the inflation outlook. Growth in the
economy has not been translated into higher wages and benefits for
US workers. Consumer spending is growing at a slower pace than in
previous economic recoveries, but households are nonetheless
spending more than saving, as the personal savings rate fell to an
all-time annual low in 1994.
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether further increases
in short-term interest rates are likely as 1995 unfolds. Despite the
widespread concerns about rising prices for raw materials and
incipient inflationary pressures, 1994's inflation results were as
positive as those in 1993, creating the best sustained inflation
performance in 30 years. However, it is not likely that such
positive inflation results will be duplicated in 1995. Investors
will also focus on the progress that the new Congress makes on both
reducing spending and the Federal budget deficit and passing tax
cuts that promote savings and investment. Legislative progress,
combined with continued indications of moderate and sustainable
levels of economic growth, would be positive for the US capital
markets. However, the lagged effects of higher interest rates could
slow the economy sharply and with it, the growth of corporate
profits.
<PAGE>
Portfolio Matters
During the quarter ended January 31, 1995, our investment activity
centered on increasing the Fund's weighting in stocks in the highest-
yielding sectors of the Standard & Poor's 500. (S&P 500), which
included two telephone utilities and a real estate investment trust.
Initially, we were underweighted in these two interest-sensitive
sectors, which were among the worst-performing groups in the S&P 500
during the past 12 months. During this period of poor performance,
our underweighted representation greatly benefited the Fund's
performance. At year-end 1994, we became convinced that share prices
for many issuers in the highest-yielding sectors of the equity
market had discounted most of the Federal Reserve Board's current
and prospective credit tightening actions, and represented
attractive values based on per-share price/book value and
price/earnings ratios. As a result, we decided to increase our
exposure to stocks in the highest-yielding sectors. We purchased two
new stocks (Developers Diversified Realty Corp. and NYNEX Corp.) and
added to an existing position, Pacific Telesis Group, since their
dividend yields exceeded 6%.
Developers Diversified is a real estate investment trust which
acquires, develops and manages primarily shopping centers in 21
states. A large concentration of its properties is in Florida, Ohio,
North Carolina and Minnesota. Its shopping centers are usually
anchored by a major discount retailer, such as Wal-Mart and Kmart,
with a supermarket, drugstore and smaller department store as
additional anchors. The company currently owns 91 properties,
comprising over 13 million gross leasable square feet of space. Wal-
Mart and Kmart are among its largest tenants and account for nearly
21% of total leased space. Developers Diversified's focus is on
stores that provide day-to-day necessities rather than luxury items.
The company has a fairly aggressive acquisition program, buying
newer properties anchored similarly by big deep discounters and
supermarkets. In addition, its development activity is increasing,
both in new construction and existing property expansion. Their
overall occupancy rate is currently 96%. We expect low double-digit
growth in operating earnings over the next several years, coming
from both acquisitions and core growth from existing properties.
Given the company's skilled management team, the relatively low
dividend payout ratio, solid fundamentals and nearly 8% dividend
yield, these shares offer attractive total return potential.
NYNEX Corp., the nation's fifth-largest telephone holding company
based on access lines, operates in seven Northeast states. Over 85%
of operating revenues is generated by the telephone subsidiaries,
with New York state accounting for the largest portion. The earnings
outlook at this regional Bell operating company has improved
significantly over the past several months for a variety of reasons.
Regulation of the New York subsidiary's assets will move to an
incentive plan and away from rate of return regulation, encouraging
efficiency and productivity. In light of this development, the
company announced a 33% workforce reduction. Revenue growth resumed
in recent quarters, with cellular subscriber growth posting healthy
rates and access lines in service now growing at industry rates.
Finally, with new, but experienced, management now in place, many of
the company's past problems are not likely to return. The shares are
attractively valued on a price/earnings basis and offer a generous
dividend yield of almost 6%.
<PAGE>
Our final purchase during the January quarter was the addition to
our Pacific Telesis holding. We doubled our investment in this West
Coast telephone holding company. The shares offer the highest (7.3%)
dividend yield in the Standard & Poor's telephone industry group. In
addition, significant potential growth is possible once proposed
legislation permitting entry into the lucrative long distance
telephone business is passed.
We eliminated Enron Corp., Halliburton Co., National City Corp., and
Sears, Roebuck & Co., for a variety of fundamental and valuation
reasons. These stocks had appreciated in value where the dividend
yields had moved below the 5% level. Except for National City, we
realized attractive capital gains. Proceeds from these sales were
used to fund our acquisitions of the higher-yielding stocks.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Walter D. Rogers)
Walter D. Rogers
Vice President and Portfolio Manager
March 9, 1995
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 8 years.
<PAGE>
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Performance Summary," "Recent Performance Results"
and "Average Annual Total Return" tables on pages 4 and 5. Data for
Class C and Class D Shares are also presented in the "Recent
Performance Results" and "Aggregate Total Return" tables on page 4.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended January 31, 1995
and for Class C and Class D Shares for the since inception and 3-
month periods ended January 31, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
PERFORMANCE DATA (concluded)
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/94 +0.17% -5.09%
Five Years Ended 12/31/94 +5.12 +3.99
Inception (11/29/88) through 12/31/94 +8.26 +7.30
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/94 -0.82% -4.15%
Five Years Ended 12/31/94 +4.05 +4.05
Inception (11/25/87) through 12/31/94 +7.84 +7.84
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Aggregate
Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94) through 12/31/94 -2.02% -2.93%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94) through 12/31/94 -1.88% -7.03%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
1/31/95 10/31/94 1/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Strategic Dividend Fund Class A Shares* $11.07 $12.00 $13.17 -3.51%(1) -0.84%(2)
ML Strategic Dividend Fund Class B Shares* 11.06 11.99 13.16 -3.52(1) -0.85(2)
ML Strategic Dividend Fund Class C Shares* 11.04 11.99 11.84 +0.24(2) -1.01(2)
ML Strategic Dividend Fund Class D Shares* 11.07 12.01 11.85 +0.41(2) -0.92(2)
Standard & Poor's 500 Index** 470.42 472.35 481.61 -2.32 -0.41
ML Strategic Dividend Fund Class A Shares--Total Return* +0.25(3) +0.19(4)
ML Strategic Dividend Fund Class B Shares--Total Return* -0.84(5) -0.10(6)
ML Strategic Dividend Fund Class C Shares--Total Return* +1.18(7) -0.08(7)
ML Strategic Dividend Fund Class D Shares--Total Return* +1.42(8) +0.07(8)
Standard & Poor's 500 Index--Total Return** +0.51 +0.31
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
**An unmanaged broad-based index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $1.596 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.798 per share capital
gains distributions.
(3)Percent change includes reinvestment of $0.465 per share ordinary
income dividends and $1.596 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.118 per share ordinary
income dividends and $0.798 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.333 per share ordinary
income dividends and $1.596 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.086 per share ordinary
income dividends and $0.798 per share capital gains distributions.
(7)Percent change includes reinvestment of $0.108 per share ordinary
income dividends and $0.798 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.115 per share ordinary
income dividends and $0.798 per share capital gains distributions.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/29/88--12/31/88 $10.71 $10.56 $0.140 $0.156 + 1.37%
1989 10.56 12.50 -- 0.612 +24.61
1990 12.50 10.95 -- 0.725 - 6.70
1991 10.95 12.15 -- 0.516 +15.99
1992 12.15 12.75 -- 0.460 + 8.95
1993 12.75 12.74 0.645 0.456 + 8.66
1994 12.74 10.70 1.596 0.465 + 0.17
1/1/95--1/31/95 10.70 11.07 -- -- + 3.46
------ ------
Total $2.381 Total $3.390
Cumulative total return as of 1/31/95: +67.72%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance
Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/25/87--12/31/87 $10.00 $10.02 -- $0.047 + 0.67%
1988 10.02 10.56 $0.266 0.465 +12.81
1989 10.56 12.49 -- 0.504 +23.40
1990 12.49 10.94 -- 0.604 - 7.68
1991 10.94 12.14 -- 0.393 +14.78
1992 12.14 12.75 -- 0.328 + 7.89
1993 12.75 12.74 0.645 0.315 + 7.54
1994 12.74 10.71 1.596 0.333 - 0.82
1/1/95--1/31/95 10.71 11.06 -- -- +3.27
------ ------
Total $2.507 Total $2.989
Cumulative total return as of 1/31/95: +76.49%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
EUROPE Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Kingdom Chemicals 62,000 Imperial Chemical Industries
PLC (ADR)* $ 2,744,492 $ 2,890,750 1.8%
Consumer Products 300,000 B.A.T. Industries PLC (ADR)* 3,820,375 4,237,500 2.6
Oil--International 55,000 Royal Dutch Petroleum Co. (ADR)* 3,070,590 6,153,125 3.8
Total Investments in Europe 9,635,457 13,281,375 8.2
NORTH
AMERICA
Canada Telecommunications 142,000 BC Telecom, Inc. 2,669,047 2,397,626 1.5
Total Investments in Canada 2,669,047 2,397,626 1.5
United States Aerospace & 95,000 Northrop Grumman Corp. 3,363,147 3,835,625 2.3
Defense 55,000 TRW Inc. 3,029,243 3,526,875 2.2
------------ ------------ ------
6,392,390 7,362,500 4.5
Banking 90,000 The Chase Manhattan Corp. 3,166,154 2,981,250 1.8
64,000 First Chicago Corp. 1,795,392 3,008,000 1.8
65,000 Meridian Bancorp, Inc. 1,795,625 1,844,375 1.1
------------ ------------ ------
6,757,171 7,833,625 4.7
Beverages 33,000 Anheuser-Busch Companies, Inc. 1,779,855 1,806,750 1.1
Building 42,000 Armstrong World Industries, Inc. 1,883,842 1,858,500 1.1
Materials
<PAGE>
Chemicals 46,000 The Dow Chemical Co. 2,739,760 2,869,250 1.8
Cosmetics 22,000 Avon Products, Inc. 1,303,320 1,256,750 0.8
Drugs 40,000 Bristol-Myers Squibb Co. 1,826,550 2,460,000 1.5
Electrical 80,000 General Electric Co. 3,864,900 4,120,000 2.5
Equipment
Financial 130,000 American Express Co. 2,777,310 4,095,000 2.5
Services 72,000 Beneficial Corp. 2,763,271 2,889,000 1.8
------------ ------------ ------
5,540,581 6,984,000 4.3
Hardware Products 61,000 The Stanley Works Co. 2,557,835 2,310,375 1.4
Information 30,000 Xerox Corp. 3,036,462 3,281,250 2.0
Processing
Insurance 140,000 American General Corp. 2,888,143 4,147,500 2.5
60,000 CIGNA Corp. 3,420,450 4,057,500 2.5
60,000 Lincoln National Corp. 2,565,720 2,190,000 1.3
30,000 Marsh & McLennan Companies, Inc. 2,626,800 2,392,500 1.5
160,000 Ohio Casualty Corp. 5,117,500 5,080,000 3.1
------------ ------------ ------
16,618,613 17,867,500 10.9
Metals 50,000 Carpenter Technology Corp. 3,167,183 2,756,250 1.7
100,000 Cyprus Amax Minerals Co. 2,627,429 2,687,500 1.6
------------ ------------ ------
5,794,612 5,443,750 3.3
Oil-- 60,000 Exxon Corp. 3,569,538 3,750,000 2.3
International 80,000 Mobil Corp. 3,581,850 6,910,000 4.2
110,000 Texaco Inc. 5,107,249 6,778,750 4.2
------------ ------------ ------
12,258,637 17,438,750 10.7
Paper & Forest 143,100 Federal Paper Board Co., Inc. 3,118,974 4,006,800 2.5
Products 100,000 Union Camp Corp. 4,787,720 4,712,500 2.9
------------ ------------ ------
7,906,694 8,719,300 5.4
Pharmaceuticals 40,000 Eli Lilly & Co. 2,165,088 2,635,000 1.6
Photography 80,000 Eastman Kodak Co. 3,213,841 3,920,000 2.4
Real Estate 28,000 Developers Diversified
Realty Corp. 791,000 791,000 0.5
<PAGE>
Transportation 35,000 Union Pacific Corp. 1,752,100 1,758,750 1.1
Utilities-- 85,000 American Electric Power Co.,
Electric Inc. 2,682,600 2,975,000 1.8
126,000 Consolidated Edison Co. of
N.Y., Inc. 3,559,500 3,559,500 2.2
60,000 Northern States Power Co. 2,613,600 2,775,000 1.7
86,000 Public Service Co. of Colorado 2,768,077 2,601,500 1.6
80,000 Public Service Enterprise
Group, Inc. 2,806,400 2,310,000 1.4
92,000 Texas Utilities Corp. 3,335,000 3,197,000 2.0
100,000 Wisconsin Energy Corp. 2,593,500 2,800,000 1.7
------------ ------------ ------
20,358,677 20,218,000 12.4
Utilities--Gas & 160,000 The Brooklyn Union Gas Co. 4,287,226 3,880,000 2.4
Gas Pipeline 155,000 NICOR Inc. 4,397,154 3,700,625 2.3
131,000 Sonat, Inc. 2,343,064 3,520,625 2.2
------------ ------------ ------
11,027,444 11,101,250 6.9
Utilities-- 120,000 NYNEX Corp. 4,598,400 4,740,000 2.9
Telecommunications 140,000 Pacific Telesis Group 4,238,750 4,287,500 2.6
------------ ------------ ------
8,837,150 9,027,500 5.5
Total Investments in the
United States 128,406,522 141,063,800 86.4
Total Investments in
North America 131,075,569 143,461,426 87.9
Total Common Stocks 140,711,026 156,742,801 96.1
Face
Amount Short-Term Securities
Repurchase $ 6,362,000 SBC Capital Markets, Inc.,
Agreement** purchased on 1/31/1995 to yield
5.80% to 2/01/1995 6,362,000 6,362,000 3.9
Total Short-Term Securities 6,362,000 6,362,000 3.9
Total Investments $147,073,026 163,104,801 100.0
============
Liabilities in Excess of Other Assets (58,769) 0.0
------------ ------
Net Assets $163,046,032 100.0%
============ ======
<PAGE>
<FN>
*American Depositary Receipt (ADR).
**Repurchase Agreements are fully collateralized by
US Government Obligations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of January 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$147,073,026) (Note 1a) $163,104,801
Cash 9,454
Receivables:
Dividends $ 577,054
Beneficial interest sold 232,277 809,331
------------
Prepaid expenses and other assets (Note 1f) 58,037
------------
Total assets 163,981,623
------------
Liabilities: Payables:
Beneficial interest redeemed 629,171
Distributor (Note 2) 120,946
Investment adviser (Note 2) 85,027 835,144
------------
Accrued expenses and other liabilities 100,447
------------
Total liabilities 935,591
------------
Net Assets: Net assets $163,046,032
============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 166,181
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 1,237,791
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 2,494
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 67,479
Paid-in capital in excess of par 140,809,956
Undistributed investment income--net 213,598
Undistributed realized capital gains on investments and
foreign currency transactions--net 4,516,152
Unrealized appreciation on investments and foreign currency
transactions--net 16,032,381
------------
Net assets . $163,046,032
============
<PAGE>
Net Asset Class A--Based on net assets of $18,388,285 and 1,661,804
Value: shares of beneficial interest outstanding $ 11.07
============
Class B--Based on net assets of $136,913,349 and 12,377,910
shares of beneficial interest outstanding $ 11.06
============
Class C--Based on net assets of $275,365 and 24,942
shares of beneficial interest outstanding $ 11.04
============
Class D--Based on net assets of $7,469,033 and 674,788
shares of beneficial interest outstanding $ 11.07
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended January 31, 1995
<S> <S> <C> <C>
Investment Dividends (net of $54,706 foreign withholding tax) $ 3,635,236
Income Interest and discount earned 273,206
(Notes 1d & 1e): ------------
Total income 3,908,442
------------
Expenses: Distribution fees--Class B (Note 2) $ 765,955
Investment advisory fees (Note 2) 528,550
Transfer agent fees--Class B (Note 2) 177,917
Printing and shareholder reports 53,580
Registration fees (Note 1f) 34,687
Professional fees 34,321
Transfer agent fees--Class A (Note 2) 19,711
Accounting services (Note 2) 16,927
Custodian fees 9,830
Trustees' fees and expenses 8,197
Account maintenance fees--Class D (Note 2) 3,543
Transfer agent fees--Class D (Note 2) 3,249
Distribution fees--Class C (Note 2) 409
Pricing fees 167
Transfer agent fees--Class C (Note 2) 109
Other 2,266
------------
Total expenses 1,659,418
------------
Investment income--net 2,249,024
------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 16,020,195
(Loss) on Foreign currency transactions--net (16) 16,020,179
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (17,105,873)
(Notes 1b, 1c, 1e Foreign currency transactions--net 231 (17,105,642)
& 3): ------------ ------------
Net realized and unrealized loss on investments and
foreign currency transactions (1,085,463)
------------
Net Increase in Net Assets Resulting from Operations $ 1,163,561
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 2,249,024 $ 5,797,119
Realized gain on investments and foreign currency
transactions--net 16,020,179 13,163,104
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net (17,105,642) (16,546,436)
------------ ------------
Net increase in net assets resulting from operations 1,163,561 2,413,787
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (344,421) (987,005)
Shareholders Class B (1,823,573) (4,814,245)
(Note 1g): Class C (1,506) --
Class D (58,607) --
Realized gain on investments--net:
Class A (2,560,061) (1,506,196)
Class B (19,570,639) (10,287,745)
Class C (13,005) --
Class D (470,631) --
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (24,842,443) (17,595,191)
------------ ------------
<PAGE>
Beneficial Interest Net decrease in net assets derived from beneficial
Transactions interest transactions (3,017,942) (56,392,747)
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (26,696,824) (71,574,151)
Beginning of period 189,742,856 261,317,007
------------ ------------
End of period* $163,046,032 $189,742,856
============ ============
*Undistributed investment income--net $ 213,598 $ 192,681
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the
The following per share data and ratios Six
have been derived from information Months
provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.78 $ 13.60 $ 12.79 $ 11.90 $ 11.80
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .21 .41 .44 .44 .55
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.09) (.12) .81 .93 .14
-------- -------- -------- -------- --------
Total from investment operations .12 .29 1.25 1.37 .69
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.22) (.46) (.44) (.48) (.59)
Realized gain on investments--net (1.61) (.65) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.83) (1.11) (.44) (.48) (.59)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.07 $ 12.78 $ 13.60 $ 12.79 $ 11.90
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 1.37%++ 2.38% 10.03% 11.96% 6.25%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .98%* .85% .81% .88% .88%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 3.46%* 3.42% 3.38% 3.75% 4.83%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 18,388 $ 21,854 $ 34,228 $ 31,512 $ 33,916
Data: ======== ======== ======== ======== ========
Portfolio turnover 20.47% 22.75% 25.23% 29.17% 10.50%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect
of sales loads.
++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class B
The following per share data and For the
ratios have been derived from For the Period
information provided in the Six October 21,
financial statements. Months 1994++ to
Ended January 31,
Increase (Decrease) in Jan. 31, For the Year Ended July 31, 1995
Net Asset Value: 1995 1994 1993 1992 1991 Class C Class D
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $ 12.77 $ 13.59 $ 12.78 $ 11.88 $ 11.78 $ 11.84 $ 11.85
Performance: -------- -------- -------- -------- -------- -------- --------
Investment income--net .15 .33 .31 .34 .45 .06 .08
Realized and unrealized gain
(loss) on investments and foreign
currency transactions--net (.10) (.18) .81 .91 .12 .04 .05
<PAGE> -------- -------- -------- -------- -------- -------- --------
Total from investment operations .05 .15 1.12 1.25 .57 .10 .13
-------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.15) (.32) (.31) (.35) (.47) (.09) (.10)
Realized gain on
investments--net (1.61) (.65) -- -- -- (.81) (.81)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (1.76) (.97) (.31) (.35) (.47) (.90) (.91)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 11.06 $ 12.77 $ 13.59 $ 12.78 $ 11.88 $ 11.04 $ 11.07
======== ======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per
Return:** share .79%+++ 1.30% 8.90% 10.85% 5.14% 1.18%+++ 1.42%+++
======== ======== ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding account
Net Assets: maintenance and distribution
fees 1.01%* .88% .84% .91% .90% 1.08%* 1.04%*
======== ======== ======== ======== ======== ======== ========
Expenses 2.01%* 1.88% 1.84% 1.91% 1.90% 2.08%* 1.29%*
======== ======== ======== ======== ======== ======== ========
Investment income--net 2.43%* 2.39% 2.37% 2.74% 3.81% 1.84%* 3.00%*
======== ======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $136,913 $167,889 $227,089 $239,048 $284,869 $ 275 $ 7,469
======== ======== ======== ======== ======== ======== ========
Portfolio turnover 20.47% 22.75% 25.23% 29.17% 10.50% 20.47% 20.47%
======== ======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect
of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Strategic Dividend Fund (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. 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 which are traded
on stock exchanges are valued at the last sale price 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
in the over-the-counter market prior to the time of valuation.
Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued based upon the prices or
quotes according to the broadest and most representative market.
Short-term securities are valued at amortized cost, which
approximates market value. Options which are traded on exchanges are
valued at their last sale price as of the close of such exchanges
or, lacking any sales, at the last available bid price. Securities
for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of
the Fund's Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to enter
into forward foreign exchange contracts as a hedge against either
specific transactions or portfolio positions. Such contracts are not
entered on the Fund's records. However, the effect on operations is
recorded from the date the Fund enters into such contracts. Premium
or discount is amortized over the life of the contracts.
<PAGE>
* Options--When the Fund sells 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 market 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 US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
NOTES TO FINANCIAL STATEMENTS (concluded)
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
<PAGE>
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee of 0.60%, on an annual basis,
of the average daily value of the Fund's net assets. The Investment
Advisory Agreement obligates MLAM to reimburse the Fund to the
extent the Fund's expenses (excluding interest, taxes, distribution
fees, brokerage fees and commissions, and extraordinary items)
exceed 2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess thereof. No fee
payment will be made to the Investment Adviser during any fiscal
year which will cause such expenses to exceed the pro rata expense
limitation at the time of such payment.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
<PAGE>
For the six months ended January 31, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $457 $7,991
Class D $241 $2,662
MLPF&S received contingent deferred sales charges of $67,367
relating to transactions in Class B Shares, $1 relating to
transactions in Class C Shares, and $2,640 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended January 31, 1995.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 1995 were $32,840,418 and
$54,748,903, respectively.
Net realized and unrealized gains (losses) as of January 31, 1995
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $16,020,195 $ 16,031,775
Foreign currency transactions (16) 606
----------- ------------
Total $16,020,179 $ 16,032,381
=========== ============
As of January 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $16,031,775, of which $19,845,878
related to appreciated securities and $3,814,103 related to
depreciated securities. At January 31, 1995, the aggregate cost of
investments for Federal income tax purposes was $147,073,026.
<PAGE>
4. Shares of Beneficial Interest:
Net decrease in net assets derived from capital share transactions
for the six months ended January 31, 1995 and the year ended July
31, 1994 were $(3,017,942) and $(56,392,747), respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1995 Shares Amount
Shares sold 85,615 $ 1,033,010
Shares issued to shareholders in
reinvestment of dividends and
distributions 200,904 2,240,668
----------- ------------
Total issued 286,519 3,273,678
Shares redeemed (334,766) (4,052,147)
----------- ------------
Net decrease (48,247) $ (778,469)
=========== ============
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 565,272 $ 7,579,456
Shares issued to shareholders in
reinvestment of dividends and
distributions 126,113 1,592,528
----------- ------------
Total issued 691,385 9,171,984
Shares redeemed (1,497,859) (19,449,269)
----------- ------------
Net decrease (806,474) $(10,277,285)
=========== ============
Class B Shares for the Six Months Dollar
Ended January 31, 1995 Shares Amount
Shares sold 465,865 $ 5,588,659
Shares issued to shareholders in
reinvestment of dividends and
distributions 1,547,080 17,284,964
----------- ------------
Total issued 2,012,945 22,873,623
Shares redeemed (2,116,287) (25,499,366)
Conversion of shares (665,123) (7,652,408)
----------- ------------
Net decrease (768,465) $(10,278,151)
=========== ============
<PAGE>
Class B Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 1,342,236 $ 17,730,479
Shares issued to shareholders in
reinvestment of dividends and
distributions 963,577 12,154,097
----------- ------------
Total issued 2,305,813 29,884,576
Shares redeemed (5,872,428) (76,000,038)
----------- ------------
Net decrease (3,566,615) $(46,115,462)
=========== ============
Class C Shares for the Period Dollar
Oct. 21, 1994++ to Jan. 31, 1995 Shares Amount
Shares sold 24,500 $ 278,690
Shares issued to shareholders in
reinvestment of dividends and
distributions 602 6,407
----------- ------------
Total issued 25,102 285,097
Shares redeemed (160) (1,724)
----------- ------------
Net increase 24,942 $ 283,373
=========== ============
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
Oct. 21, 1994++ to Jan. 31, 1995 Shares Amount
Shares sold 12,389 $ 141,079
Conversion of shares 664,086 7,652,408
Shares issued to shareholders in
reinvestment of dividends and
distributions 41,470 442,075
----------- ------------
Total issued 717,945 8,235,562
Shares redeemed (43,157) (480,257)
----------- ------------
Net increase 674,788 $ 7,755,305
=========== ============
[FN]
++Commencement of Operations.
