MERRILL LYNCH
STRATEGIC
DIVIDEND FUND
FUND LOGO
Annual Report
July 31, 1995
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, MA 02171
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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
MERRILL LYNCH STRATEGIC DIVIDEND FUND
Important Tax
Information
All of the ordinary income distributions paid quarterly by Merrill
Lynch Strategic Dividend Fund during its taxable year ended July 31,
1995 qualify for the dividends received deduction for corporations.
Additionally, the following information summarizes the long-term
capital gains distributions paid by the Fund during the taxable year
ended July 31, 1995:
Record Payable Long-Term
Date Date Capital Gains
Class A Shares: 10/06/94 10/14/94 $.797341
12/14/94 12/22/94 $.798347
Class B Shares: 10/06/94 10/14/94 $.797341
12/14/94 12/22/94 $.798347
Class C Shares: 12/14/94 12/22/94 $.798347
Class D Shares: 12/14/94 12/22/94 $.798347
Please retain this information for your records.
Portfolio Information
(unaudited)
As of July 31, 1995
Percent of
Ten Largest Common Stock Holdings Net Assets
Exxon Corp. 2.6%
NYNEX Corp. 2.5
Sonat, Inc. 2.4
Mobil Corp. 2.4
General Electric Co. 2.3
Royal Dutch Petroleum PLC (ADR) 2.3
Federal Paper Board Co., Inc. 2.3
Ohio Casualty Corp. 2.3
Houston Industries Inc. 2.2
Texaco Inc. 2.2
DEAR SHAREHOLDER
In the July quarter, economic data generally showed evidence of
slowing activity. Gross domestic product growth for the first three
months of 1995 was reported at 2.7%, the weakest showing in the past
18 months. Other signs of a sluggish economy included lackluster
durable goods orders, slowing growth in the manufacturing sector,
and three consecutive months of declines in the Index of Leading
Economic Indicators, an occurrence which has often (but not always)
forecast recessions. As a result, concerns arose that the economic
"soft landing" could turn into an actual recession. However, at the
same time there were also expectations that a few months of very
slow or zero growth would be followed by a pickup in economic
activity later in the year. This view was supported by the stronger-
than-expected employment data for June and an upward revision in
May's employment figures, as well as improving housing activity
measures and consumer confidence surveys.
Thus far in 1995, economic developments have been very positive for
the US stock and bond markets, and most US stock market averages
recently have attained record levels. In contrast, the US dollar has
been persistently weak, especially relative to the yen. Following
the Federal Reserve Board's cut in short-term interest rates in
early July, continued signs of a moderating expansion and well-
contained inflationary pressures could provide further assurance
that the peak in US interest rates is behind us, creating a stronger
foundation for higher stock and bond prices. On the other hand,
indications of reaccelerating growth and increasing inflationary
pressures would likely suggest that higher interest rates are on the
horizon, a negative development for the US financial markets. The
outcome of the current deliberations on reducing the Federal budget
deficit will also play a role in the investment outlook for the US
capital markets.
Portfolio Matters
During the quarter ended July 31, 1995, the yield of the Standard &
Poor's 500 Index (S&P 500) dropped to 2.4%, its lowest level ever.
While the overall stock market continued to rise to record levels--
propelled by growth stocks which typically offer little or no
dividend income--Merrill Lynch Strategic Dividend Fund's higher-
yielding stocks lagged the US equity market by a wide margin. Stocks
with yields less than that of the S&P 500 outperformed by a ratio of
three to one those stocks with yields at or above the S&P 500.
Although the Fund's investment universe rarely includes any growth
stocks, we found rewarding investment opportunities among stocks
with above-average yields during the July quarter. Structural and
regulatory changes in the banking industry, impending major
legislative changes in the telecommunications industry, and the
deeply depressed values in the energy sector, led us to reassess the
Fund's weightings in these and other areas. During the three-month
period ended July 31, 1995, we established 23 new positions. Our new
investments were funded by eliminating eight of the Fund's holdings
and reducing nine others. (For a complete listing of the Fund's
additions and deletions, see page 19 of this report to
shareholders.)
During the quarter ended July 31, 1995, a major part of our
investment activities centered on financial stocks. We emphasized
the banking industry, and deemphasized the insurance group. The
banking group generated the best returns among higher-yielding
stocks in 1995, while offering dividend yields that are generally
above the market's average yield. The industry is financially
strong, with large reserves of excess capital, low levels of problem
loans and growing profits. These compelling fundamentals, coupled
with imminent elimination of barriers to banking and industry
consolidation currently underway, led us to increase the Fund's
weighting in this group to 8% of net assets, which is double the S&P
500 weighting.
We purchased seven bank stocks across the spectrum in terms of asset
size, market capitalization and regional market penetration.
However, in each case we placed heavy emphasis on financial
strength, credit quality and value. Our purchases included Barnett
Banks, Inc., Boatmen's Bancshares, Inc., Chemical Banking Corp.,
CoreStates Financial Corp., Integra Financial Corp., Mellon Bank
Corp., and Mercantile Bancorporation. We believe these companies
offer attractive prospects for earnings and dividend growth, which
should continue to produce attractive returns. The Fund's increased
exposure to bank stocks contributed positively to returns for the
July quarter.
Also within the financial sector, we increased our holdings in real
estate investment trusts (REITs) with the addition of Avalon
Properties, Inc., and Simon Property Group, Inc. At current price
levels, these two REITs are attractively valued while offering very
high dividend yields.
We also established four new positions in the energy sector by
buying four integrated oil stocks: two domestic and two foreign-
based companies. Performance of this group had lagged both the stock
market and the energy sector. With the additions of Atlantic
Richfield Co., Phillips Petroleum Co., British Petroleum Co. PLC
(ADS) and Repsol S.A. (ADS), our energy exposure increased to 16% of
net assets, which is more in line with the higher-yielding stock
universe weighting and our historical weighting in this sector.
The prospect of telecommunications legislation--which, if enacted,
may open new areas of opportunity for local telephone companies and
increase competition in long distance service--led us to restructure
our holdings in this industry during the July quarter. We acted
decisively and positioned the Fund strategically for these changes
should they occur. We also established new positions in GTE Corp.,
Sprint Corporation and Southern New England Telecommunications
Corp., while we pared back our position in NYNEX Corp., and
eliminated our investments in Pacific Telesis Group and BC Telecom
Group.
We initiated three new positions in the consumer sector, where the
Fund was underweighted, with the purchase of shares of Lance, Inc.,
May Department Stores Co., and Sears, Roebuck & Co. Our investment
in May Department Stores, one of the nation's largest retailing
companies, represents an attractively valued entry into the
department store group. This group continues to gain market share at
the expense of other retailers, yet its shares still sell at a
discount to the stock market and other retailers. Sears completed
the divestiture of its financial services businesses, and is now
exclusively a general merchandise retailer. We also took a small
position in Lance, Inc., a manufacturer and distributor of a variety
of snack foods with no debt and product distribution in 36 states.
Our three final new positions were capital goods companies,
Minnesota Mining & Manufacturing Company (3M), Dana Corp. and Arvin
Industries, Inc. At 3M, new product development is a high priority
for the company, with 30% of sales revenues coming from products no
older than four years. Arvin and Dana are worldwide manufacturers
and suppliers of automotive components and parts to the automotive
original equipment and replacement markets.
Fiscal Year in Review
The primary investment objective of Merrill Lynch Strategic Dividend
Fund is to invest in a diversified portfolio of common stocks whose
yields are greater than that of the unmanaged S&P 500 Index. During
the fiscal year ended July 31, 1995, as the stock market reached
record levels, this group of stocks underperformed the S&P 500 Index
by nearly 50%. Total returns for the Fund during the fiscal year
ended July 31, 1995 were in line with the higher-yielding stock
universe. The Fund's Class A and Class B Shares had total returns of
+14.04% and +12.82%, respectively, during the year ended July 31,
1995, while the S&P 500 Index had a total return of +26.06%. The
Fund's Class C and Class D Shares since inception (October 21, 1994)
through July 31, 1995 had total returns of +13.30% and +13.98%,
respectively. (Results shown are before the deduction of sales
charges; results would be lower if sales charges were included. For
complete performance information, seepages 4--7 of this report to
shareholders.)
About two-thirds of the Fund's assets were invested in utilities,
financials and energy. During the last 12 months, we repositioned
our investments in these three sectors. For example, we increased
our exposure to banking stocks in the finance-related sector,
reduced our large overweighting in natural gas stocks, increased
electric and telecommunications stocks in the utility sector,
sharply pared back our holdings in international oil stocks, and
established positions among the domestic integrated oil stocks. We
continue to seek investment opportunities that offer solid or
improving fundamentals and are attractively valued, while providing
an attractive and growing dividend yield.
In Conclusion
We thank you for your investment in Merrill Lynch Strategic Dividend
Fund, and we look forward to reviewing our outlook and strategy with
you again in our upcoming quarterly report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Walter D. Rogers)
Walter D. Rogers
Vice President and Portfolio Manager
August 31, 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 PricingSM 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 approximately 8 years.
* 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 all of the Fund's Shares are presented in the
"Total Return Based on a $10,000 Investment" graphs on pages 6 and
7, and the "Recent Performance Results" table below and on page 5.
Data for the Fund's Class A and Class B Shares are presented in the
"Performance Summary" and "Average Annual Total Return" tables on
pages 5 and 7. Data for Class C and Class D Shares are also
presented in the "Aggregate Total Return" tables on page 7.
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 July 31, 1995 and
for Class C and Class D Shares for the since inception and 3-month
periods ended July 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.
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
7/31/95 4/30/95 7/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Strategic Dividend Fund Class A Shares* $12.24 $11.67 $12.78 + 9.95%(1) +4.88%
ML Strategic Dividend Fund Class B Shares* 12.23 11.67 12.77 + 9.94(1) +4.80
ML Strategic Dividend Fund Class C Shares* 12.20 11.64 11.84 +10.77(2) +4.81
ML Strategic Dividend Fund Class D Shares* 12.24 11.67 11.85 +11.03(2) +4.88
Standard & Poor's 500 Index** 562.06 514.71 458.26 +22.65 +9.20
ML Strategic Dividend Fund Class A Shares--Total Return* +14.04(3) +5.78(4)
ML Strategic Dividend Fund Class B Shares--Total Return* +12.82(5) +5.42(6)
ML Strategic Dividend Fund Class C Shares--Total Return* +13.30(7) +5.49(8)
ML Strategic Dividend Fund Class D Shares--Total Return* +13.98(9) +5.72(10)
Standard & Poor's 500 Index--Total Return** +26.06 +9.94
<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 $0.435 per share ordinary
income dividends and $1.596 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.104 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.308 per share ordinary
income dividends and $1.596 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.072 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.263 per share ordinary
income dividends and $0.798 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.078 per share ordinary
income dividends.
(9)Percent change includes reinvestment of $0.307 per share ordinary
income dividends and $0.798 per share capital gains distributions.
(10)Percent change includes reinvestment of $0.096 per share
ordinary income dividends.
</TABLE>
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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--7/31/95 10.70 12.24 -- 0.205 +16.40
------ ------
Total $2.381 Total $3.595
Cumulative total return as of 7/31/95:+88.69%**
<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**
<S> <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--7/31/95 10.71 12.23 -- 0.144 +15.59
------ ------
Total $2.507 Total $3.133
Cumulative total return as of 7/31/95:+97.55%**
<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>
PERFORMANCE DATA (concluded)
Total Return
Based on a
$10,000
Investment
A line graph depicting the growth of an investment in the Fund's
Class A, Class B, Class C and Class D Shares compared to the growth
of an investment in the S & P 500 Index and the HighYield Index.
Beginning and ending values are:
11/29/88** 7/95
ML Strategic Dividend Fund++--
Class A Shares* $ 9,600 $17,879
S & P 500 Index++++ $10,000 $25,507
High Yield Index++++++ $10,000 $15,121
11/25/87** 7/95
ML Strategic Dividend Fund++--
Class B Shares* $10,000 $19,755
S & P 500 Index++++ $10,000 $29,369
High Yield Index++++++ $10,000 $14,704
10/21/94** 7/95
ML Strategic Dividend Fund++--
Class C Shares* $10,000 $11,230
ML Strategic Dividend Fund++--
Class D Shares $ 9,600 $10,800
S & P 500 Index++++ $10,000 $12,344
High Yield Index++++++ $10,000 $11,398
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Strategic Dividend Fund invests primarily in companies with a
continuous record of paying dividends.
++++This unmanaged broad-based Index consists of the fist quintile
of the highest-yielding stocks of the S & P 500. This Index does not
include reinvestment of all dividends and capital gains
distributions.
Past performance is not predictive of future performance.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/95 +15.71% +9.64%
Five Years Ended 6/30/95 + 8.36 +7.20
Inception (11/29/88) through 6/30/95 + 9.80 +8.91
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/95 +14.46% +10.53%
Five Years Ended 6/30/95 + 7.24 + 7.24
Inception (11/25/87) through 6/30/95 + 9.11 + 9.11
[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 6/30/95 +11.18% +10.18%
[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 6/30/95 +11.88% +6.01%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<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>
Spain Oil & Gas Producers 52,000 Repsol S.A. (ADS)** $ 1,661,156 $ 1,735,500 1.0%
Total Investments in Spain 1,661,156 1,735,500 1.0
United Chemicals 62,000 Imperial Chemical Industries PLC
Kingdom (ADR)* 2,744,492 3,123,250 1.9
Oil--International 19,000 British Petroleum Co. PLC (ADS)** 1,676,727 1,724,250 1.1
30,000 Royal Dutch Petroleum PLC (ADR)* 1,703,965 3,810,000 2.3
------------ ------------ ------
3,380,692 5,534,250 3.4
Total Investments in the
United Kingdom 6,125,184 8,657,500 5.3
Total Investments in Europe 7,786,340 10,393,000 6.3
NORTH
AMERICA
United Aerospace & Defense 62,000 Northrop Grumman Corp. 2,214,602 3,534,000 2.1
States 40,000 TRW Inc. 2,218,088 2,985,000 1.8
------------ ------------ ------
4,432,690 6,519,000 3.9
Automotive 72,000 Arvin Industries, Inc. 1,656,934 1,674,000 1.0
Equipment 60,000 Dana Corp. 1,649,850 1,770,000 1.1
------------ ------------ ------
3,306,784 3,444,000 2.1
Banks 20,000 Barnett Banks, Inc. 1,002,350 1,110,000 0.7
28,000 Boatmen's Bancshares, Inc. 1,004,500 1,018,500 0.6
60,000 The Chase Manhattan Corp. 2,110,790 3,217,500 2.0
22,000 Chemical Banking Corp. 1,036,396 1,135,750 0.7
49,000 CoreStates Financial Corp. 1,677,064 1,788,500 1.1
16,000 Integra Financial Corp. 862,960 850,000 0.5
23,000 Mellon Bank Corp. 990,205 922,875 0.6
23,000 Mercantile Bancorporation 1,002,055 1,037,875 0.6
65,000 Meridian Bancorp, Inc. 1,795,625 2,486,250 1.5
------------ ------------ ------
11,481,945 13,567,250 8.3
Chemicals 23,000 The Dow Chemical Co. 1,369,880 1,704,875 1.0
Cosmetics & 22,000 Avon Products, Inc. 1,303,320 1,496,000 0.9
Household Products 42,000 The Clorox Co. 2,495,107 2,756,250 1.7
------------ ------------ ------
3,798,427 4,252,250 2.6
Drugs 40,000 Bristol-Myers Squibb Co. 1,826,550 2,770,000 1.7
40,000 Eli Lilly & Co. 2,165,088 3,130,000 1.9
------------ ------------ ------
3,991,638 5,900,000 3.6
Electrical Equipment 65,000 General Electric Co. 3,140,231 3,835,000 2.3
Financial Services 80,000 American Express Co. 1,709,114 3,080,000 1.9
72,000 Beneficial Corp. 2,763,271 3,411,000 2.1
------------ ------------ ------
4,472,385 6,491,000 4.0
Food Merchandising 20,000 Lance, Inc. 360,000 350,000 0.2
Hardware Products 51,000 The Stanley Works 2,138,235 2,020,875 1.2
Information 25,000 Xerox Corp. 2,545,646 2,978,125 1.8
Processing
Insurance 95,000 American General Corp. 1,961,793 3,455,625 2.1
50,000 Lincoln National Corp. 2,135,530 2,056,250 1.2
115,000 Ohio Casualty Corp. 3,672,969 3,708,750 2.3
------------ ------------ ------
7,770,292 9,220,625 5.6
Metals 35,000 Carpenter Technology Corp. 2,225,034 2,581,250 1.6
100,000 Cyprus Amax Minerals Co. 2,627,429 2,787,500 1.7
------------ ------------ ------
4,852,463 5,368,750 3.3
Miscellaneous 28,000 Minnesota Mining & Manufacturing
Technology Company 1,671,180 1,585,500 1.0
Oil--Domestic 30,000 Atlantic Richfield Co. 3,395,562 3,457,500 2.1
96,000 Phillips Petroleum Co. 3,323,722 3,396,000 2.1
------------ ------------ ------
6,719,284 6,853,500 4.2
Oil--International 60,000 Exxon Corp. 3,569,538 4,350,000 2.6
40,000 Mobil Corp. 1,804,050 3,910,000 2.4
55,000 Texaco Inc. 2,558,840 3,657,500 2.2
------------ ------------ ------
7,932,428 11,917,500 7.2
Paper & Forest 100,000 Federal Paper Board Co., Inc. 2,178,963 3,737,500 2.3
Products
Photography 50,000 Eastman Kodak Co. 2,030,861 2,881,250 1.8
Publishing/Printing 35,000 McGraw-Hill, Inc. 2,434,950 2,690,625 1.6
Real Estate 40,000 Avalon Properties, Inc. 846,650 800,000 0.5
28,000 Developers Diversified Realty Corp. 791,000 850,500 0.5
35,000 Simon Property Group, Inc. 886,200 857,500 0.5
------------ ------------ ------
2,523,850 2,508,000 1.5
Retail 29,000 May Department Stores Co. 1,257,489 1,257,875 0.8
36,000 Sears, Roebuck & Co. 1,208,160 1,174,500 0.7
------------ ------------ ------
2,465,649 2,432,375 1.5
Savings & Loan 80,000 Great Western Financial Corporation 1,685,600 1,710,000 1.0
85,000 H.F. Ahmanson & Co. 1,716,588 1,901,875 1.2
------------ ------------ ------
3,402,188 3,611,875 2.2
Transportation 35,000 Union Pacific Corp. 1,752,100 2,279,375 1.4
Utilities--Electric 85,000 American Electric Power Co., Inc. 2,682,600 2,932,500 1.8
126,000 Consolidated Edison Co. of
N.Y., Inc. 3,559,500 3,654,000 2.2
84,000 Houston Industries Inc. 3,249,540 3,675,000 2.2
60,000 Northern States Power Co. 2,613,600 2,655,000 1.6
66,000 Public Service Co. of Colorado 2,137,905 2,087,250 1.3
64,000 Public Service Enterprise
Group, Inc. 2,245,120 1,776,000 1.1
100,000 Wisconsin Energy Corp. 2,593,500 2,800,000 1.7
------------ ------------ ------
19,081,765 19,579,750 11.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value Percent of
EUROPE Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Utilities--Gas & 135,000 The Brooklyn Union Gas Co. $ 3,619,350 $ 3,290,625 2.0%
States Gas Pipeline 130,000 NICOR Inc. 3,698,548 3,298,750 2.0
(concluded) 131,000 Sonat, Inc. 2,343,064 3,930,000 2.4
------------ ------------ ------
9,660,962 10,519,375 6.4
Utilities-- 69,000 GTE Corp. 2,455,578 2,449,500 1.5
Telecommunications 101,000 NYNEX Corp. 3,870,320 4,166,250 2.5
100,000 Southern New England
Telecommunications Corp. 3,431,713 3,425,000 2.1
58,000 Sprint Corporation 2,091,570 1,986,500 1.2
------------ ------------ ------
11,849,181 12,027,250 7.3
Total Investments in
North America 127,363,977 148,275,625 90.2
Total Common Stocks 135,150,317 158,668,625 96.5
Face
Amount Short-Term Securities
US Government $2,057,000 Federal Home Loan Mortgage
& Agency Corporation, 5.84% due 8/04/1995 2,055,665 2,055,665 1.3
Obligations*** Federal National Mortgage
Association:
2,870,000 5.63% due 8/02/1995 2,869,102 2,869,102 1.7
1,525,000 5.60% due 8/14/1995 1,521,679 1,521,679 0.9
Total Short-Term Securities 6,446,446 6,446,446 3.9
Total Investments $141,596,763 165,115,071 100.4
============
Liabilities in Excess of Other Assets (708,051) (0.4)
------------ ------
Net Assets $164,407,020 100.0%
============ ======
<FN>
*American Depositary Receipt (ADR).
**American Depositary Share (ADS).
***Certain US Government & Agency Obligations are traded on a
discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Fund.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of July 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$141,596,763)(Note 1a) $165,115,071
Receivables:
Securities sold $ 2,170,842
Dividends 357,574
Beneficial interest sold 92,930 2,621,346
------------
Prepaid expenses and other assets (Note 1f) 69,527
------------
Total assets 167,805,944
------------
Liabilities: Payables:
Securities purchased 1,091,996
Beneficial interest redeemed 450,858
Distributor (Note 2) 111,336
Investment adviser (Note 2) 84,289 1,738,479
------------
Accrued expenses and other liabilities 1,660,445
------------
Total liabilities 3,398,924
------------
Net Assets: Net assets $164,407,020
============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 152,688
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 1,070,102
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 6,649
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 114,264
Paid-in capital in excess of par 125,645,624
Undistributed investment income--net 8,064
Undistributed realized capital gains on investments and
foreign currency transactions--net 13,891,277
Unrealized appreciation on investments and foreign
currency transactions--net 23,518,352
------------
Net assets . $164,407,020
============
Net Asset Class A--Based on net assets of $18,687,144 and 1,526,875
Value: shares of beneficial interest outstanding $ 12.24
============
Class B--Based on net assets of $130,920,666 and 10,701,025
shares of beneficial interest outstanding $ 12.23
============
Class C--Based on net assets of $811,088 and 66,491 shares of
beneficial interest outstanding $ 12.20
============
Class D--Based on net assets of $13,988,122 and 1,142,637
shares of beneficial interest outstanding $ 12.24
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended July 31, 1995
<S> <S> <C> <C>
Investment Dividends (net of $101,249 foreign withholding tax) $ 6,824,508
Income Interest and discount earned 726,726
(Notes 1d & 1e): ------------
Total income 7,551,234
------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 1,432,996
Investment advisory fees (Note 2) 1,019,890
Transfer agent fees--Class B (Note 2) 338,594
Printing and shareholder reports 170,420
Registration fees (Note 1f) 85,586
Professional fees 84,060
Accounting services (Note 2) 41,617
Transfer agent fees--Class A (Note 2) 38,737
Custodian fees 21,970
Trustees' fees and expenses 18,444
Account maintenance fees--Class D (Note 2) 17,716
Transfer agent fees--Class D (Note 2) 16,587
Account maintenance and distribution fees--Class C (Note 2) 3,071
Transfer agent fees--Class C (Note 2) 907
Pricing fees 781
Other 7,765
------------
Total expenses 3,299,141
------------
Investment income--net 4,252,093
------------
Realized & Realized gain from:
Unrealized Gain Investments--net 25,347,941
(Loss) on Foreign currency transactions--net 294 25,348,235
Investments & ------------
Foreign Currency Change in unrealized appreciation on:
Transactions--Net Investments--net (9,619,340)
(Notes 1b, 1c, Foreign currency transactions--net (332) (9,619,672)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and
foreign currency transactions 15,728,563
------------
Net Increase in Net Assets Resulting from Operations $ 19,980,656
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 4,252,093 $ 5,797,119
Realized gain on investments and foreign currency
transactions--net 25,348,235 13,163,104
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net (9,619,672) (16,546,436)
------------ ------------
Net increase in net assets resulting from operations 19,980,656 2,413,787
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (668,538) (987,005)
Shareholders Class B (3,464,874) (4,814,245)
(Note 1g): Class C (8,975) --
Class D (247,242) --
Realized gain on investments--net:
Class A (2,560,061) (1,506,196)
Class B (19,570,649) (10,287,745)
Class C (13,005) --
Class D (470,632) --
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (27,003,976) (17,595,191)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (18,312,516) (56,392,747)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (25,335,836) (71,574,151)
Beginning of year 189,742,856 261,317,007
------------ ------------
End of year* $164,407,020 $189,742,856
============ ============
<FN>
*Undistributed investment income--net (Note 1h) $ 8,064 $ 192,681
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios
have been derived from information
provided in the financial statements. Class A
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 year $ 12.78 $ 13.60 $ 12.79 $ 11.90 $ 11.80
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .39 .41 .44 .44 .55
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.10 (.12) .81 .93 .14
-------- -------- -------- -------- --------
Total from investment operations 1.49 .29 1.25 1.37 .69
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.42) (.46) (.44) (.48) (.59)
Realized gain on investments--net (1.61) (.65) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (2.03) (1.11) (.44) (.48) (.59)
-------- -------- -------- -------- --------
Net asset value, end of year $ 12.24 $ 12.78 $ 13.60 $ 12.79 $ 11.90
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 14.04% 2.38% 10.03% 11.96% 6.25%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.05% .85% .81% .88% .88%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 3.39% 3.42% 3.38% 3.75% 4.83%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 18,687 $ 21,854 $ 34,228 $ 31,512 $ 33,916
Data: ======== ======== ======== ======== ========
Portfolio turnover 52.69% 22.75% 25.23% 29.17% 10.50%
======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios
have been derived from information
provided in the financial statements. For the Period
Class B October 21, 1994++ to
Increase (Decrease) in Net For the Year Ended July 31, July 31, 1995
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
Operating of period $ 12.77 $ 13.59 $ 12.78 $ 11.88 $ 11.78 $ 11.84 $ 11.85
Performance: -------- -------- -------- -------- -------- -------- --------
Investment income--net .29 .33 .31 .34 .45 .21 .26
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net 1.07 (.18) .81 .91 .12 1.21 1.23
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations 1.36 .15 1.12 1.25 .57 1.42 1.49
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net (.29) (.32) (.31) (.35) (.47) (.25) (.29)
Realized gain on
investments--net (1.61) (.65) -- -- -- (.81) (.81)
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions (1.90) (.97) (.31) (.35) (.47) (1.06) (1.10)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 12.23 $ 12.77 $ 13.59 $ 12.78 $ 11.88 $ 12.20 $ 12.24
======== ======== ======== ======== ======== ======== ========
Total Based on net asset value
Investment per share 12.82% 1.30% 8.90% 10.85% 5.14% 13.30%+++ 13.98%+++
Return:** ======== ======== ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding
Net Assets: account maintenance and
distribution fees 1.09% .88% .84% .91% .90% 1.19%* 1.13%*
======== ======== ======== ======== ======== ======== ========
Expenses 2.09% 1.88% 1.84% 1.91% 1.90% 2.19%* 1.38%*
======== ======== ======== ======== ======== ======== ========
Investment income--net 2.36% 2.39% 2.37% 2.74% 3.81% 1.94%* 2.93%*
======== ======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $130,921 $167,889 $227,089 $239,048 $284,869 $ 811 $ 13,988
======== ======== ======== ======== ======== ======== ========
Portfolio turnover 52.69% 22.75% 25.23% 29.17% 10.50% 52.69% 52.69%
======== ======== ======== ======== ======== ======== ========
<FN>
*Annualized.
++Commencement of Operations.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
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. 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 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 Trustees as the
primary market. Securities which 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 are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. 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 quotations are not available are valued at fair
value as determined in good faith by or under the direction of the
Fund's Board of 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.
* Financial futures contracts--The Fund may purchase or sell
interest rate 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.
NOTES TO FINANCIAL STATEMENTS (continued)
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* 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.
* Options--The Fund is authorized to write and purchase put and call
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 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.
(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.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles
require that certain differences between undistributed net
investment income for financial reporting and tax purposes, if
permanent, be reclassified to undistributed net realized capital
gains. Accordingly, current year's permanent book/tax differences of
$47,081 have been reclassified from undistributed net investment
income to undistributed net realized capital gains. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch 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.
For the year ended July 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 $628 $10,401
Class D $673 $ 8,854
For the year ended July 31, 1995, MLPF&S received contingent
deferred sales charges of $139,714 and $627 relating to transactions
in Class B and Class C Shares, respectively.
In addition, MLPF&S received $7,026 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
July 31, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1995 were $82,135,952 and $118,932,929,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1995 were
as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $25,347,978 $ 23,518,308
Short-term investments (37) --
Foreign currency transactions 294 44
----------- ------------
Total $25,348,235 $ 23,518,352
=========== ============
As of July 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $23,518,308, of which $25,366,088 related to
appreciated securities and $1,847,780 related to depreciated
securities. At July 31, 1995, the aggregate cost of investments for
Federal income tax purposes was $141,596,763.
4. Shares of Beneficial Interest:
Net decrease in net assets derived from capital share transactions
was $18,312,516 and $56,392,747 for the year ended July 31, 1995 and
July 31, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 181,563 $ 2,155,978
Shares issued to shareholders in
reinvestment of dividends and
distributions 222,923 2,499,626
----------- -------------
Total issued 404,486 4,655,604
Shares redeemed (587,662) (7,012,619)
----------- -------------
Net decrease (183,176) $ (2,357,015)
=========== =============
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 Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 1,056,552 $ 12,463,967
Shares issued to shareholders in
reinvestment of dividends and
distributions 1,658,976 18,600,026
----------- -------------
Total issued 2,715,528 31,063,993
Shares redeemed (3,932,552) (46,733,450)
Automatic conversion of shares (1,228,326) (14,212,015)
----------- -------------
Net decrease (2,445,350) $ (29,881,472)
=========== =============
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 July 31, 1995 Shares Amount
Shares sold 76,521 $ 887,173
Shares issued to shareholders in
reinvestment of dividends and
distributions 963 10,674
----------- -------------
Total issued 77,484 897,847
Shares redeemed (10,993) (128,548)
----------- -------------
Net increase 66,491 $ 769,299
=========== =============
<FN>
++Commencement of Operations.
Class D Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 118,404 $ 1,359,401
Automatic conversion of shares 1,226,771 14,212,015
Shares issued to shareholders in
reinvestment of dividends and
distributions 54,447 595,598
----------- -------------
Total issued 1,399,622 16,167,014
Shares redeemed (256,985) (3,010,342)
----------- -------------
Net increase 1,142,637 $ 13,156,672
=========== =============
<FN>
++Commencement of Operations.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Strategic Dividend Fund:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Strategic Dividend Fund as of July 31, 1995, the related statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at July 31,
1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Strategic Dividend Fund as of July 31, 1995, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 31, 1995
</AUDIT-REPORT>
PORTFOLIO CHANGES (unaudited)
For the Quarter Ended July 31, 1995
Additions
Arvin Industries, Inc.
Atlantic Richfield Co.
Avalon Properties, Inc.
Barnett Banks, Inc.
Boatmen's Bancshares, Inc.
British Petroleum Co. PLC (ADS)
Chemical Banking Corp.
CoreStates Financial Corp.
Dana Corp.
GTE Corp.
Integra Financial Corp.
Lance, Inc.
May Department Stores Co.
Mellon Bank Corp.
Mercantile Bancorporation
Minnesota Mining & Manufacturing
Company
Phillips Petroleum Co.
Repsol S.A. (ADS)
Sears, Roebuck & Co.
Simon Property Group, Inc.
Southern New England Telecommunications
Corp.
Sprint Corporation
*US Industries, Inc.
Deletions
Anheuser-Busch Companies, Inc.
Armstrong World Industries, Inc.
BC Telecom Group.
CIGNA Corp.
Hanson PLC (Sponsored) (ADR)
Marsh & McLennan Companies, Inc.
Pacific Telesis Group
*US Industries, Inc.
<FN>
*Acquired in the quarter through a spin-off of Hanson PLC (ADR).
</TABLE>
