MERRILL LYNCH
STRATEGIC
DIVIDEND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1999
<PAGE>
MERRILL LYNCH STRATEGIC DIVIDEND FUND
Sector Representation as a Percentage of Equities as of January 31, 1999
[GRAPHIC OMITTED]
[The following table was depicted as a pie graph in the printed material.]
Utilities 32.1%
Capital Goods 7.4%
Energy 10.8%
Financial Services 25.5%
Basic Industries 7.5%
Consumer 16.7%
US Common Stock Investments as of January 31, 1999
S&P
Fund 500*
------------------------------------------------------------------------------
Average Capitalization (in billions) $26.5 $98.1
------------------------------------------------------------------------------
Price/Book Value 3.3 4.7
------------------------------------------------------------------------------
Price/Earnings Ratio** 21.3 28.7
------------------------------------------------------------------------------
Yield Based on Current Dividend 3.4% 1.3%
------------------------------------------------------------------------------
* An unmanaged broad-based index comprised of common stocks.
** Based on trailing 12-month earnings.
<PAGE>
Merrill Lynch Strategic Dividend Fund, January 31, 1999
DEAR SHAREHOLDER
In 1998, stock and bond market volatility reflected shifting investor
perceptions regarding global economic prospects. In the latter half of the year,
investor optimism gave way to expectations of deteriorating corporate profits
and signs of a weakening economy. Further concerns arose from the precarious
state of the Russian and other emerging market economies. However, when the US
Federal Reserve Board and other central banks responded to the uncertain
economic outlook through a series of monetary policy easings, investor
confidence was restored as 1998 drew to a close and 1999 began. Nevertheless,
volatility soon returned to the capital markets as uncertainty regarding
economic prospects again began to cloud the investment outlook. At the same
time, with stronger-than-expected economic results, prospects dimmed for further
Federal Reserve Board monetary policy easings in the near future.
The weakening of the US dollar relative to the Japanese yen was one of the more
surprising developments that occurred during 1998. Since a stronger yen would
have a negative impact on the important export sector of Japan's fragile
economy, the Japanese central bank intervened in the currency markets in
January. For the overall global economy, the deepening recession in Japan is of
great concern. At the same time, the difficulties in emerging economies such as
Russia and Brazil remain. As 1999 unfolds, progress in easing strains within the
global financial system would likely provide an important element of stability
to the volatile investment environment.
Portfolio Matters
For the three months ended January 31, 1999, Merrill Lynch Strategic Dividend
Fund's Class A, Class B, Class C and Class D Shares had total returns of +4.06%,
+3.79%, +3.76% and +3.92%, respectively. (Results shown are before sales charges
and would be lower if sales charges were included. For complete performance
information, see pages 4 and 5 of this report to shareholders.)
The Fund's primary investment focus is on stocks whose yields are above the
yield of the unmanaged Standard & Poor's 500 (S&P 500) Index. Stocks with
above-market dividend yields did not fare well in the January quarter. The 200
highest-yielding stocks in the S&P 500 underperformed the broad market by one of
the widest margins since the Fund's inception. In fact, the only relative
outperformance in the January quarter was among stocks whose yields fell within
the 200 lowest-yielding stocks of the S&P 500. The clear performance standouts
in the January quarter were the technology stocks within the capital goods
sector, which are generally non-dividend paying, while the shares of energy,
basic industries and electric utility companies significantly underperformed the
S&P 500. Even though Merrill Lynch Strategic Dividend Fund's performance lagged
the broad market's performance during the January quarter, the Fund outperformed
the +1.19% total return of an unmanaged index of the 200 highest-yielding stocks
in the S&P 500.
We do not just invest in stocks with the highest dividend yields. We seek to
enhance the Fund's returns through careful stock selection, with requirements
for inclusion in the Fund being diversification, large capitalization and strong
financial position. We buy individual stocks based on attractive valuations with
attractive dividend yields relative to their respective industry and that often
include attractive price/earnings and price/book ratios.
While diversification is one of our top priorities for the Fund, we recognize
that the market's highest-yielding sectors have been and continue to be
utilities, financials and energy. We continue to maintain the Fund's
historically heavy weighting in these three sectors, which at January
quarter-end accounted for 61% of the Fund's net assets (utilities, 29%;
financials, 22%; and energy, 10%). We believe that stocks in the utility sector,
particularly the electric utility sector, are significantly undervalued relative
to the S&P 500 on a price/earnings ratio and dividend yield basis. We also
believe attractive investment opportunities exist within the energy sector. Both
sectors underperformed the broad market during most of 1998. Based on 1999
consensus earnings estimates, electric utilities, on average, are currently
trading at less than half the market's price/earnings multiple, which is at the
bottom end of its 20-year range. As deregulation of the industry continues to
move forward, this sector has become less influenced by the direction of
interest rates than in the past. The sale of electric-generating assets is being
done at above book value and managements of these companies have become more
shareholder focused. Also, merger and acquisition activity in the sector has
begun to have a positive impact for investors. We remain committed to the group
and continue to selectively add to our holdings. The stocks of energy companies
have come under pressure as the price of the commodity approaches a 20-year low,
which to a large extent reflects the economic turmoil in Asia. With demand
expectation for oil reduced, virtually every major oil company has scaled back
its budget for exploration and production. We believe the spending cutbacks are
probably greater than the slower demand forecasts. With only slight increases in
demand and/or modest hikes in oil prices, we believe these companies are well
positioned to show positive earnings surprise in the near future.
Investment activities during the January quarter included initiating new
positions in three banks, one electric utility and one natural gas company, and
eliminating one of our smaller positions. We also added to our holdings in two
existing positions. Our largest acquisition during the January quarter was The
Chase Manhattan Corporation, a major domestic and global bank holding company
with $350 billion in assets. The company had enormous leverage from improving
profitability, and we expect revenues and earnings to experience double-digit
growth. The stock is attractively valued on a price/earnings ratio and dividend
yield basis. We added the shares of PNC Bank Corp., a major regional bank
holding company with operations in Pennsylvania, New Jersey, Indiana, Kentucky,
Ohio, Delaware, Massachusetts and Florida, and National Westminster Bank PLC, a
UK-based bank holding, because we believed they offered attractive total return
potential. FPL Group, Inc. is an electric utility serving most of the territory
along Florida's east and lower west coasts. The shares of this well-managed
company offer attractive total return potential, in our view. We also acquired
the shares of AGL Resources Inc., the largest natural gas distribution company
in the Southeast, serving customers in Georgia and portions of Tennessee. The
stock offers a very generous dividend yield and the potential for price
appreciation given its leverage to natural gas prices that are currently
depressed. We increased our weightings in The Bank of New York Company, Inc. and
Royal Dutch Petroleum Company because we believed both stocks offer very
attractive total return opportunities. Finally, we sold our shares of Conexant
Systems, Inc., a non-dividend paying company, which we acquired during the
January quarter as a result of a spin-off from Rockwell International
Corporation, a Fund holding.
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,
/s/ Terry K. Glenn
Terry K. Glenn
Executive Vice President
/s/ Walter D. Rogers
Walter D. Rogers
Senior Vice President and
Portfolio Manager
March 4, 1999
2 & 3
<PAGE>
Merrill Lynch Strategic Dividend Fund, January 31, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
o 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.
o 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. (There is no initial sales charge for automatic
share conversions.)
o 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.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the ex-dividend
date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer agency
fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
Recent Performance Results
<TABLE>
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
===================================================================================================
<S> <C> <C> <C>
ML Strategic Dividend Fund Class A Shares* +12.20% + 4.06% +246.06%
- ---------------------------------------------------------------------------------------------------
ML Strategic Dividend Fund Class B Shares* +11.12 + 3.79 +212.19
- ---------------------------------------------------------------------------------------------------
ML Strategic Dividend Fund Class C Shares* +11.03 + 3.76 +112.04
- ---------------------------------------------------------------------------------------------------
ML Strategic Dividend Fund Class D Shares* +11.92 + 3.92 +119.36
- ---------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index** +32.49 +16.86 +462.67/+200.44
===================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Fund's ten-year/since inception periods
are Class A & Class B Shares, for the ten years ended 1/31/99 and Class C
& Class D Shares, from 10/21/94 to 1/31/99.
** An unmanaged broad-based index comprised of common stocks. Ten years/since
inception total returns are for the ten years ended 1/31/99 and from
10/21/94 to 1/31/99, respectively.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
===============================================================================
Class A Shares*
===============================================================================
Year Ended 12/31/98 +14.59% + 8.57%
- -------------------------------------------------------------------------------
Five Years Ended 12/31/98 +18.33 +17.06
- -------------------------------------------------------------------------------
Ten Years Ended 12/31/98 +13.99 +13.38
- -------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
===============================================================================
Class B Shares*
===============================================================================
Year Ended 12/31/98 +13.41% + 9.64%
- -------------------------------------------------------------------------------
Five Years Ended 12/31/98 +17.12 +17.12
- -------------------------------------------------------------------------------
Ten Years Ended 12/31/98 +12.83 +12.83
- -------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after 4
years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 12/31/98 +13.41% +12.47%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 12/31/98 +20.35 +20.35
- --------------------------------------------------------------------------------
* 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*
================================================================================
Year Ended 12/31/98 +14.31% + 8.31%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 12/31/98 +21.32 +19.77
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
- --------------------------------------------------------------------------------
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
Walter D. Rogers, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Thomas D. Jones, III, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, MA 02171
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer and Norman R. Harvey, Senior Vice President of
Merrill Lynch Strategic Dividend Fund have recently retired. Their colleagues at
Merrill Lynch Asset Management, L.P. join the Fund's Board of Trustees in
wishing Mr. Richard and Mr. Harvey well in their retirements.
- --------------------------------------------------------------------------------
4 & 5
<PAGE>
Merrill Lynch Strategic Dividend Fund, January 31, 1999
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Shares Value Percent of
EUROPE Industries Held Common Stocks Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Netherlands Oil--International 125,000 Royal Dutch Petroleum Company
(NY Registered Shares) $ 4,284,613 $ 5,007,813 2.3%
-----------------------------------------------------------------------------------------------------------------
Total Investments in the Netherlands 4,284,613 5,007,813 2.3
====================================================================================================================================
United Kingdom Banking 200,000 National Westminster Bank PLC 3,791,943 3,665,390 1.7
-----------------------------------------------------------------------------------------------------------------
Oil--International 30,525 BP Amoco PLC (ADR) (a) 1,372,451 2,476,317 1.1
-----------------------------------------------------------------------------------------------------------------
Steel 700,000 British Steel PLC 1,938,756 1,537,510 0.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in the United Kingdom 7,103,150 7,679,217 3.5
====================================================================================================================================
Total Investments in Europe 11,387,763 12,687,030 5.8
====================================================================================================================================
NORTH
AMERICA
====================================================================================================================================
United States Aerospace & Defense 20,000 Rockwell International Corporation 803,055 868,750 0.4
60,000 TRW Inc. 1,663,737 2,883,750 1.3
----------- ----------- -----
2,466,792 3,752,500 1.7
-----------------------------------------------------------------------------------------------------------------
Automobile 70,000 Ford Motor Company 1,318,007 4,300,625 2.0
-----------------------------------------------------------------------------------------------------------------
Automotive 72,000 Arvin Industries, Inc. 1,656,934 2,848,500 1.3
Equipment & 50,000 Cooper Tire & Rubber Company 1,202,300 1,071,875 0.5
Tires 60,000 Dana Corporation 1,649,850 2,467,500 1.1
----------- ----------- -----
4,509,084 6,387,875 2.9
-----------------------------------------------------------------------------------------------------------------
Banking 145,000 The Bank of New York Company, Inc. 4,329,860 5,147,500 2.3
90,000 The Chase Manhattan Corporation 5,600,772 6,924,375 3.2
46,000 Mellon Bank Corporation 990,205 3,082,000 1.4
34,500 Mercantile Bancorporation Inc. 1,002,055 1,550,344 0.7
30,000 National City Corporation 2,011,800 2,131,875 1.0
78,000 PNC Bank Corp. 4,070,243 3,992,625 1.8
32,000 State Street Corporation 1,952,758 2,288,000 1.0
26,880 SunTrust Banks, Inc. 1,447,180 1,893,360 0.9
----------- ----------- -----
21,404,873 27,010,079 12.3
-----------------------------------------------------------------------------------------------------------------
Business Services 52,000 The Dun & Bradstreet Corporation 1,378,715 1,586,000 0.7
-----------------------------------------------------------------------------------------------------------------
Capital Goods 30,000 General Electric Company 724,669 3,146,250 1.4
28,000 Minnesota Mining and Manufacturing
Company (3M) 1,608,098 2,173,500 1.0
68,000 Ogden Corporation 1,531,759 1,768,000 0.8
----------- ----------- -----
3,864,526 7,087,750 3.2
-----------------------------------------------------------------------------------------------------------------
Chemicals 23,000 The Dow Chemical Company 1,369,880 2,025,437 0.9
40,000 E.I. du Pont de Nemours and Company 1,329,525 2,047,500 1.0
----------- ----------- -----
2,699,405 4,072,937 1.9
-----------------------------------------------------------------------------------------------------------------
Drugs 100,000 American Home Products Corporation 3,031,175 5,868,750 2.7
40,000 Bristol-Myers Squibb Company 913,275 5,127,500 2.3
----------- ----------- -----
3,944,450 10,996,250 5.0
-----------------------------------------------------------------------------------------------------------------
Foods 40,000 General Mills, Inc. 2,938,894 3,357,500 1.5
55,000 The Quaker Oats Company 2,983,189 3,059,375 1.4
----------- ----------- -----
5,922,083 6,416,875 2.9
-----------------------------------------------------------------------------------------------------------------
Household Products 24,000 The Clorox Company 728,490 3,003,000 1.4
-----------------------------------------------------------------------------------------------------------------
Insurance 65,000 American General Corporation 1,346,718 4,635,312 2.1
30,000 Lincoln National Corporation 1,275,150 2,499,375 1.2
85,000 Ohio Casualty Corporation 2,708,281 3,357,500 1.5
----------- ----------- -----
5,330,149 10,492,187 4.8
-----------------------------------------------------------------------------------------------------------------
Merchandising 25,000 J.C. Penney Company, Inc. 1,157,975 979,688 0.5
-----------------------------------------------------------------------------------------------------------------
Oil--Domestic 28,000 Atlantic Richfield Company (ARCO) 1,584,596 1,606,500 0.7
90,000 Occidental Petroleum Corporation 2,323,525 1,355,625 0.6
50,000 Phillips Petroleum Company 1,731,105 1,931,250 0.9
----------- ----------- -----
5,639,226 4,893,375 2.2
-----------------------------------------------------------------------------------------------------------------
Oil--International 40,000 Exxon Corporation 1,189,846 2,817,500 1.3
40,000 Mobil Corporation 915,150 3,507,500 1.6
50,000 Texaco Inc. 1,177,506 2,368,750 1.1
----------- ----------- -----
3,282,502 8,693,750 4.0
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products 66,000 Union Camp Corporation 3,963,011 4,071,375 1.8
60,000 Weyerhaeuser Company 2,666,100 3,247,500 1.5
----------- ----------- -----
6,629,111 7,318,875 3.3
-----------------------------------------------------------------------------------------------------------------
Real Estate Investment 38,000 Apartment Investment & Management
Trusts Company (Class A) 1,201,028 1,420,250 0.6
19,207 Avalonbay Communities, Inc. 514,336 615,824 0.3
40,000 Colonial Properties Trust 1,256,788 1,095,000 0.5
20,000 Crescent Real Estate Equities Company 632,078 423,750 0.2
64,000 Developers Diversified Realty Corporation 1,296,294 1,064,000 0.5
52,000 Duke Realty Investments, Inc. 1,267,708 1,196,000 0.5
35,000 Essex Property Trust, Inc. 854,486 1,001,875 0.5
35,000 Highwoods Properties, Inc. 1,132,663 844,375 0.4
30,000 Mack-Cali Realty Corporation 1,126,800 896,250 0.4
----------- ----------- -----
9,282,181 8,557,324 3.9
-----------------------------------------------------------------------------------------------------------------
Steel 55,000 Carpenter Technology Corporation 1,747,599 1,636,250 0.7
-----------------------------------------------------------------------------------------------------------------
Tobacco 78,000 UST Inc. 2,105,181 2,457,000 1.1
-----------------------------------------------------------------------------------------------------------------
Utilities--Electric 40,000 American Electric Power Company, Inc. 1,262,400 1,752,500 0.8
50,000 BEC Energy 1,253,000 1,912,500 0.9
60,000 Central & South West Corporation 1,598,600 1,586,250 0.7
63,000 Consolidated Edison, Inc. 1,779,750 3,114,562 1.4
105,000 Edison International 1,759,425 2,920,312 1.3
56,000 FPL Group, Inc. 3,155,764 3,073,000 1.4
44,000 KeySpan Energy 1,120,500 1,190,750 0.6
66,000 New Century Energies, Inc. 2,137,905 2,904,000 1.3
120,000 Northern States Power Company 2,613,600 3,232,500 1.5
50,000 PECO Energy Company 987,130 1,909,375 0.9
----------- ----------- -----
17,668,074 23,595,749 10.8
-----------------------------------------------------------------------------------------------------------------
</TABLE>
6 & 7
<PAGE>
Merrill Lynch Strategic Dividend Fund, January 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
NORTH AMERICA Shares Value Percent of
(concluded) Industries Held Common Stocks Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Utilities--Natural Gas 97,000 AGL Resources Inc. $ 2,102,933 $ 1,952,125 0.9%
(concluded) 40,000 Consolidated Natural Gas Company 1,805,775 2,052,500 0.9
44,000 Enron Corporation 2,026,319 2,904,000 1.3
78,197 Sempra Energy 2,037,272 1,798,531 0.8
50,000 Sonat Inc. 882,073 1,287,500 0.6
65,000 The Williams Companies, Inc. 2,185,643 2,145,000 1.0
----------- ----------- -----
11,040,015 12,139,656 5.5
-----------------------------------------------------------------------------------------------------------------
Utilities-- 78,000 Ameritech Corporation 3,008,167 5,079,750 2.3
Telecommunications 92,160 Bell Atlantic Corporation 2,299,200 5,529,600 2.5
120,000 Frontier Corporation 3,101,508 4,335,000 2.0
40,000 GTE Corporation 1,429,930 2,700,000 1.2
55,000 U S WEST, Inc. 1,852,675 3,392,813 1.6
----------- ----------- -----
11,691,480 21,037,163 9.6
-----------------------------------------------------------------------------------------------------------------
Utilities--Water 76,000 American Water Works Company, Inc. 1,429,750 2,256,250 1.0
25,000 E'Town Corporation 1,010,729 1,035,937 0.5
55,500 Philadelphia Suburban Corporation 1,203,656 1,408,313 0.7
53,000 United Water Resources Inc. 983,294 1,129,563 0.5
----------- ----------- -----
4,627,429 5,830,063 2.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in North America 128,437,347 182,244,971 83.1
====================================================================================================================================
Total Common Stocks 139,825,110 194,932,001 88.9
====================================================================================================================================
<CAPTION>
Face
Amount Short-Term Securities
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Repurchase $8,061,000 Warburg Dillion Read LLC, purchased on
Agreements* 1/29/1999 to yield 4.73% to 2/01/1999 8,061,000 8,061,000 3.7
-----------------------------------------------------------------------------------------------------------------
US Government Federal Home Loan Mortgage Corporation:
Agency Obligations** 7,000,000 4.77% due 2/02/1999 6,996,290 6,996,290 3.2
3,000,000 4.68% due 2/11/1999 2,994,930 2,994,930 1.4
6,000,000 4.73% due 2/16/1999 5,985,810 5,985,810 2.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term
Securities 24,038,030 24,038,030 11.0
====================================================================================================================================
Total Investments $163,863,140 218,970,031 99.9
============
Other Assets Less Liabilities 273,396 0.1
------------ -----
Net Assets $219,243,427 100.0%
============ =====
====================================================================================================================================
</TABLE>
(a) American Depositary Receipts (ADR).
* Repurchase Agreements are fully collateralized by US Government & Agency
Obligations.
** US Government Agency Obligations are traded on a discount basis; the
interest rates shown reflect the discount rates paid at the time of
purchase by the Fund.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of January 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$163,863,140) (Note 1a) ............................ $218,970,031
Foreign cash (Note 1d) ..................................................................... 138,915
Receivables:
Dividends .................................................................................. $516,870
Beneficial interest sold ................................................................... 419,225 936,095
--------
Prepaid registration fees and other assets (Note 1g) ....................................... 44,558
------------
Total assets ............................................................................... 220,089,599
------------
====================================================================================================================================
Liabilities: Payables:
Beneficial interest redeemed ............................................................. 493,884
Investment adviser (Note 2) .............................................................. 103,396
Distributor (Note 2) ..................................................................... 89,000
Securities purchased ..................................................................... 23,168 709,448
--------
Accrued expenses and other liabilities ..................................................... 136,724
------------
Total liabilities .......................................................................... 846,172
------------
====================================================================================================================================
Net Assets: Net assets ................................................................................. $219,243,427
============
====================================================================================================================================
Net Assets Class A Shares of beneficial interest, $0.10 par value, unlimited number of
Consist of: shares authorized ........................................................................ $ 189,167
Class B Shares of beneficial interest, $0.10 par value, unlimited number of
shares authorized ........................................................................ 610,749
Class C Shares of beneficial interest, $0.10 par value, unlimited number of
shares authorized ........................................................................ 38,827
Class D Shares of beneficial interest, $0.10 par value, unlimited number of
shares authorized ........................................................................ 804,823
Paid-in capital in excess of par............................................................ 161,647,609
Undistributed investment income--net ....................................................... 316,596
Undistributed realized capital gains on investments and foreign currency
transactions--net ........................................................................ 529,475
Unrealized appreciation on investments and foreign currency transactions--net .............. 55,106,181
------------
Net assets ................................................................................. $219,243,427
============
====================================================================================================================================
Net Asset Class A--Based on net assets of $25,231,938 and 1,891,670 shares of beneficial
Value: interest outstanding ....................................................................... $ 13.34
============
Class B--Based on net assets of $81,569,099 and 6,107,487 shares of beneficial
interest outstanding ....................................................................... $ 13.36
============
Class C--Based on net assets of $5,132,922 and 388,265 shares of beneficial
interest outstanding ....................................................................... $ 13.22
============
Class D--Based on net assets of $107,309,468 and 8,048,231 shares of beneficial
interest outstanding ....................................................................... $ 13.33
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Merrill Lynch Strategic Dividend Fund, January 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended January 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Investment Dividends (net of $18,669 foreign withholding tax) ................................... $ 2,895,117
Income
(Notes 1e & Interest and discount earned ......................................................... 603,005
1f): -----------
Total income ......................................................................... 3,498,122
-----------
====================================================================================================================================
Expenses: Investment advisory fees (Note 2) .................................................... $ 602,029
Account maintenance and distribution fees--Class B(Note 2) 367,423
Account maintenance fees--Class D(Note 2) ............................................ 123,786
Transfer agent fees--Class D(Note 2) ................................................. 66,953
Transfer agent fees--Class B(Note 2) ................................................. 57,456
Registration fees (Note 1g) .......................................................... 34,694
Printing and shareholder reports ..................................................... 33,000
Professional fees .................................................................... 31,887
Accounting services(Note 2) .......................................................... 23,853
Account maintenance and distribution fees--Class C(Note 2) 21,462
Transfer agent fees--Class A(Note 2) ................................................. 16,128
Custodian fees ....................................................................... 12,994
Trustees' fees and expenses .......................................................... 12,570
Transfer agent fees--Class C(Note 2) ................................................. 3,615
Pricing fees ......................................................................... 70
Other ................................................................................ 4,666
Total expenses ....................................................................... ----------- 1,412,586
-----------
Investment income--net ............................................................... 2,085,536
-----------
====================================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Investments--net ................................................................... 4,271,358
Gain (Loss) Foreign currency transactions--net ................................................. (9,582) 4,261,776
On Invest- -----------
ments & Change in unrealized appreciation/depreciation on:
Foreign Investments--net ................................................................... 3,478,263
Currency Foreign currency transactions--net ................................................. 1,190 3,479,453
Trans- ----------- -----------
actions--
Net (Notes Net realized and unrealized gain on investments and
1c, 1d, 1f foreign currency transactions ...................................................... 7,741,229
& 3): -----------
Net Increase in Net Assets Resulting from Operations ................................. $ 9,826,765
===========
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1999 1998
=========================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ............................................ $ 2,085,536 $ 4,057,003
Realized gain on investments and foreign currency transactions--net 4,261,776 33,543,282
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net ................................ 3,479,453 (15,046,769)
------------- -------------
Net increase in net assets resulting from operations .............. 9,826,765 22,553,516
------------- -------------
=========================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ................................... ..................... (321,547) (687,382)
Shareholders Class B ......................................................... (615,207) (1,178,158)
(Note 1h): Class C ......................................................... (35,792) (58,545)
Class D ......................................................... (1,202,777) (2,102,336)
Realized gain on investments--net:
Class A ......................................................... (3,916,159) (2,370,162)
Class B ......................................................... (11,960,245) (6,786,151)
Class C ......................................................... (691,392) (257,657)
Class D ......................................................... (16,343,239) (6,550,432)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ................................... (35,086,358) (19,990,823)
------------- -------------
=========================================================================================================================
Beneficial Interest Net increase (decrease) in net assets derived from
Transactions beneficial interest transactions .................................. 42,182,290 (292,936)
(Note 4): ------------- -------------
=========================================================================================================================
Net Assets: Total increase in net assets ...................................... 16,922,697 2,269,757
Beginning of period ............................................... 202,320,730 200,050,973
------------- -------------
End of period* .................................................... $ 219,243,427 $ 202,320,730
============= =============
=========================================================================================================================
* Undistributed investment income--net .............................. $ 316,596 $ 406,383
============= =============
=========================================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Merrill Lynch Strategic Dividend Fund, January 31, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
The following per share data and ratios have For the
been derived from information provided in the Six Months
financial statements. Ended For the Year Ended July 31,
January 31, -----------------------------------------
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............... $ 15.36 $ 15.21 $ 12.43 $ 12.24 $ 12.78
Operating ------- ------- ------- ------- --------
Performance: Investment income--net ............................. .18 .39 .38 .38 .39
Realized and unrealized gain on investments and
foreign currency transactions--net ................. .49 1.37 4.17 1.55 1.10
------- ------- ------- ------- --------
Total from investment operations ................... .67 1.76 4.55 1.93 1.49
------- ------- ------- ------- --------
Less dividends and distributions:
Investment income--net ........................... (.19) (.39) (.39) (.36) (.42)
Realized gain on investments--net ................ (2.50) (1.22) (1.38) (1.38) (1.61)
------- ------- ------- ------- --------
Total dividends and distributions .................. (2.69) (1.61) (1.77) (1.74) (2.03)
------- ------- ------- ------- --------
Net asset value, end of period ..................... $ 13.34 $ 15.36 $ 15.21 $ 12.43 $ 12.24
======= ======= ======= ======= ========
=================================================================================================================================
Total Investment Based on net asset value per share ................. 5.52%+++ 12.03% 40.42% 16.98% 14.04%
Return:** ======= ======= ======= ======= ========
=================================================================================================================================
Ratios to Average Expenses ........................................... .89%* .88% .90% 1.04% 1.05%
Net Assets: ======= ======= ======= ======= ========
Investment income--net ............................. 2.60%* 2.51% 2.87% 3.04% 3.39%
======= ======= ======= ======= ========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands) ........... $25,232 $24,233 $28,940 $18,106 $ 18,687
Data: ======= ======= ======= ======= ========
Portfolio turnover ................................. 9.25% 32.66% 14.29% 26.42% 52.69%
======= ======= ======= ======= ========
=================================================================================================================================
<CAPTION>
Class B
--------------------------------------------------------
The following per share data and ratios have For the
been derived from information provided in the Six Months
financial statements. Ended For the Year Ended July 31,
January 31, -----------------------------------------
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............... $ 15.38 $ 15.22 $ 12.44 $ 12.23 $ 12.77
Operating ------- ------- ------- ------- --------
Performance: Investment income--net ............................. .11 .23 .25 .26 .29
Realized and unrealized gain on investments and
foreign currency transactions--net ................. .49 1.38 4.16 1.55 1.07
------- ------- ------- ------- --------
Total from investment operations ................... .60 1.61 4.41 1.81 1.36
------- ------- ------- ------- --------
Less dividends and distributions:
Investment income--net ........................... (.12) (.23) (.25) (.22) (.29)
Realized gain on investments--net ................ (2.50) (1.22) (1.38) (1.38) (1.61)
------- ------- ------- ------- --------
Total dividends and distributions .................. (2.62) (1.45) (1.63) (1.60) (1.90)
------- ------- ------- ------- --------
Net asset value, end of period ..................... $ 13.36 $ 15.38 $ 15.22 $ 12.44 $ 12.23
======= ======= ======= ======= ========
=================================================================================================================================
Total Investment Based on net asset value per share ................. 4.96%+++ 10.94% 38.90% 15.89% 12.82%
Return:** ======= ======= ======= ======= ========
=================================================================================================================================
Ratios to Average Expenses ........................................... 1.91%* 1.90% 1.94% 2.08% 2.09%
Net Assets: ======= ======= ======= ======= ========
Investment income--net ............................. 1.57%* 1.50% 1.89% 2.06% 2.36%
======= ======= ======= ======= ========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands) ........... $81,569 $73,067 $93,509 $96,461 $130,921
Data: ======= ======= ======= ======= ========
Portfolio turnover ................................. 9.25% 32.66% 14.29% 26.42% 52.69%
======= ======= ======= ======= ========
=================================================================================================================================
<CAPTION>
Class C
--------------------------------------------------------
For the For the
The following per share data and ratios have Six Period
been derived from information provided in the Months For the Year Oct. 21,
financial statements. Ended Ended July 31, 1994+ to
January 31, ----------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............... $ 15.25 $ 15.11 $ 12.37 $ 12.20 $ 11.84
Operating ------- ------- ------- ------- --------
Performance: Investment income--net ............................. .11 .23 .24 .24 .21
Realized and unrealized gain on investments and
foreign currency transactions--net ................. .48 1.37 4.13 1.55 1.21
------- ------- ------- ------- --------
Total from investment operations ................... .59 1.60 4.37 1.79 1.42
------- ------- ------- ------- --------
Less dividends and distributions:
Investment income--net ........................... (.12) (.24) (.25) (.24) (.25)
Realized gain on investments--net ................ (2.50) (1.22) (1.38) (1.38) (.81)
------- ------- ------- ------- --------
Total dividends and distributions .................. (2.62) (1.46) (1.63) (1.62) (1.06)
------- ------- ------- ------- --------
Net asset value, end of period ..................... $ 13.22 $ 15.25 $ 15.11 $ 12.37 $ 12.20
======= ======= ======= ======= ========
================================================================================================================================
Total Investment Based on net asset value per share ................. 4.93%+++ 10.96% 38.84% 15.78% 13.30%+++
Return:** ======= ======= ======= ======= ========
================================================================================================================================
Ratios to Average Expenses ........................................... 1.92%* 1.90% 1.95% 2.08% 2.19%*
Net Assets: ======= ======= ======= ======= ========
Investment income--net ............................. 1.56%* 1.47% 1.83% 1.91% 1.94%*
======= ======= ======= ======= ========
================================================================================================================================
Supplemental Net assets, end of period (in thousands) ........... $ 5,133 $ 4,379 $ 3,025 $ 1,953 $ 811
Data: ======= ======= ======= ======= ========
Portfolio turnover ................................. 9.25% 32.66% 14.29% 26.42% 52.69%
======= ======= ======= ======= ========
================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
See Notes to Financial Statements.
12 & 13
<PAGE>
Merrill Lynch Strategic Dividend Fund, January 31, 1999
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class D
------------------------------------------------------------
For the For the
The following per share data and ratios have Six Period
been derived from information provided in the Months For the Year Oct. 21,
financial statements. Ended Ended July 31, 1994+ to
January 31, ------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .......... $ 15.36 $ 15.20 $ 12.43 $ 12.24 $ 11.85
Operating -------- -------- ------- ------- -------
Performance: Investment income--net ........................ .16 .35 .35 .34 .26
Realized and unrealized gain on investments and
foreign currency transactions--net ............ .49 1.38 4.16 1.57 1.23
-------- -------- ------- ------- -------
Total from investment operations .............. .65 1.73 4.51 1.91 1.49
-------- -------- ------- ------- -------
Less dividends and distributions:
Investment income--net ...................... (.18) (.35) (.36) (.34) (.29)
Realized gain on investments--net ........... (2.50) (1.22) (1.38) (1.38) (.81)
-------- -------- ------- ------- -------
Total dividends and distributions ............. (2.68) (1.57) (1.74) (1.72) (1.10)
-------- -------- ------- ------- -------
Net asset value, end of period ................ $ 13.33 $ 15.36 $ 15.20 $ 12.43 $ 12.24
======== ======== ======= ======= =======
================================================================================================================================
Total Investment Based on net asset value per share ............ 5.31%+++ 11.84% 39.99% 16.73% 13.98%+++
Return:** ======== ======== ======= ======= =======
================================================================================================================================
Ratios to Average Expenses ...................................... 1.14%* 1.12% 1.15% 1.28% 1.38
Net Assets: ======== ======== ======= ======= =======
Investment income--net ........................ 2.35%* 2.25% 2.62% 2.62% 2.93%*
======== ======== ======= ======= =======
================================================================================================================================
Supplemental Net assets, end of period (in thousands) ...... $107,309 $100,642 $74,577 $44,691 $13,988
Data: ======== ======== ======= ======= =======
Portfolio turnover ............................ 9.25% 32.66% 14.29% 26.42% 52.69%
======== ======== ======= ======= =======
================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ 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's financial statements are prepared in accordance with
generally accepted accounting principles which may require the use of management
accruals and estimates. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund offers four classes of shares under
the Merrill Lynch Select Pricing(SM) System. Shares of Class A and Class D are
sold with a front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities 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
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market 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) Repurchase agreements--The Fund invests in money market securities pursuant
to repurchase agreements. Under such agreements, the counterparty agrees to
repurchase the security at a mutually agreed upon time and price. The Fund takes
possession of the underlying securities, marks to market such securities and, if
necessary, receives additional securities daily to ensure that the contract is
fully collateralized.
(c) 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.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a
14 & 15
<PAGE>
Merrill Lynch Strategic Dividend Fund, January 31, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
specific future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o 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.
o 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.
o Options--The Fund is authorized to write call and put options 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.
(d) 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.
(e) 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.
(f) 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 dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(g) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(h) 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 ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is 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.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account 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 Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended January 31, 1999, 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 .............................. $ 36 $ 598
Class D .............................. $554 $8,368
- --------------------------------------------------------------------------------
For the six months ended January 31, 1999, MLPF&S received contingent deferred
sales charges of $49,200 and $1,571 relating to transactions in Class B and
Class C Shares, respectively.
In addition, MLPF&S received $18,180 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended January
31, 1999.
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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended January 31, 1999 were $25,574,620 and $16,766,218, respectively.
Net realized gains (losses) for the six months ended January 31, 1999 and net
unrealized gains (losses) as of January 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Gains Unrealized
(Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments .......... $4,269,972 $ 55,106,891
Short-term investments ......... 1,386 --
Foreign currency transactions .. (9,582) (710)
---------- ------------
Total .......................... $4,261,776 $ 55,106,181
========== ============
- --------------------------------------------------------------------------------
As of January 31, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $55,106,891, of which $58,818,532 related to appreciated
securities and $3,711,641 related to depreciated securities. At January 31,
1999, the aggregate cost of investments for Federal income tax purposes was
$163,863,140.
16 & 17
<PAGE>
Merrill Lynch Strategic Dividend Fund, January 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $42,182,290 and $(292,936) for the six months ended January 31,
1999 and for the year ended July 31, 1998, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended January 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 216,542 $ 2,954,344
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 282,774 3,620,456
---------- ------------
Total issued ............................. 499,316 6,574,800
Shares redeemed .......................... (185,061) (2,573,872)
---------- ------------
Net increase ............................. 314,255 $ 4,000,928
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 514,315 $ 7,854,695
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 161,266 2,431,803
---------- ------------
Total issued ............................. 675,581 10,286,498
Shares redeemed .......................... (1,001,374) (15,674,992)
---------- ------------
Net decrease ............................. (325,793) $ (5,388,494)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended January 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 1,574,255 $ 21,375,436
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 776,797 9,967,819
---------- ------------
Total issued ............................. 2,351,052 31,343,255
Automatic conversion of shares ........... (277,190) (3,851,123)
Shares redeemed .......................... (718,380) (9,898,178)
---------- ------------
Net increase ............................. 1,355,482 $ 17,593,954
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 1,170,952 $ 17,989,341
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 397,438 6,004,482
---------- ------------
Total issued ............................. 1,568,390 23,993,823
Automatic conversion of shares ........... (1,761,378) (26,630,593)
Shares redeemed .......................... (1,200,240) (18,345,326)
---------- ------------
Net decrease ............................. (1,393,228) $(20,982,096)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended January 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 135,954 $ 1,829,024
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 48,416 615,002
---------- ------------
Total issued ............................. 184,370 2,444,026
Shares redeemed .......................... (83,293) (1,146,623)
---------- ------------
Net increase ............................. 101,077 $ 1,297,403
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 269,716 $ 4,117,807
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 15,921 238,604
---------- ------------
Total issued ............................. 285,637 4,356,411
Shares redeemed .......................... (198,582) (3,033,238)
---------- ------------
Net increase ............................. 87,055 $ 1,323,173
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended January 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 746,499 $ 10,092,761
Automatic conversion of shares ........... 277,570 3,851,123
Shares issued to shareholders in
reinvestment of dividends
and distributions ........................ 1,134,518 14,524,498
---------- ------------
Total issued ............................. 2,158,587 28,468,382
Shares redeemed .......................... (664,053) (9,178,377)
---------- ------------
Net increase ............................. 1,494,534 $ 19,290,005
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 294,437 $ 4,567,752
Automatic conversion of shares ........... 1,762,950 26,630,593
Shares issued to shareholders in
reinvestment of dividends
and distributions ........................ 436,035 6,579,795
---------- ------------
Total issued ............................. 2,493,422 37,778,140
Shares redeemed .......................... (845,433) (13,023,659)
---------- ------------
Net increase ............................. 1,647,989 $ 24,754,481
========== ============
PORTFOLIO CHANGES
For the Quarter Ended January 31, 1999
================================================================================
Additions AGL Resources Inc.
The Chase Manhattan Corporation
* Conexant Systems, Inc.
FPL Group, Inc.
National Westminster Bank PLC
PNC Bank Corp.
SunTrust Banks, Inc.
================================================================================
Deletions * Conexant Systems, Inc.
Crestar Financial Corporation
General Motors Corporation
================================================================================
* Added and deleted in the same quarter.
PORTFOLIO INFORMATION
As of January 31, 1999
================================================================================
Percent of
Ten Largest Common Stock Holdings Net Assets
The Chase Manhattan Corporation ....................................... 3.2%
American Home Products Corporation .................................... 2.7
Bell Atlantic Corporation ............................................. 2.5
The Bank of New York Company, Inc. .................................... 2.3
Bristol-Myers Squibb Company .......................................... 2.3
Ameritech Corporation ................................................. 2.3
Royal Dutch Petroleum Company
(NY Registered Shares) .............................................. 2.3
American General Corporation .......................................... 2.1
Frontier Corporation .................................................. 2.0
Ford Motor Company .................................................... 2.0
18 & 19
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
Strategic Dividend Fund
Box 9011
Princeton, NJ
8543-9011 #10561--1/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
