MERRILL
LYNCH
STRATEGIC
DIVIDEND
FUND
FUND LOGO
Quarterly Report April 30, 1994
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 per-
formance. 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
Officers and
Trustees
<PAGE>
Arthur Zeikel, President and Trustee
Ronald W. Forbes, 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
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
Portfolio
Information
As of 4/30/94
Percent of
Ten Largest Common Stock Holdings Net Assets
Northrop Corp. 5.4%
Texaco Inc. 5.0
Enron Corp. 4.4
Royal Dutch Petroleum PLC (ADR) 4.3
du Pont (E.I.) de Nemours & Co. 4.2
Southwestern Bell Corp. 4.1
Sonat, Inc. 3.5
Mobil Corp. 3.3
Bell Atlantic Corp. 3.2
B.A.T. Industries PLC (ADR) 3.1
DEAR SHAREHOLDER
<PAGE>
Inflationary expectations and investor sentiment changed for the
worse during the April quarter. Following stronger-than-expected
economic results through year-end 1993, the Federal Reserve Board
broke with tradition on February 4, 1994 and publicly announced a
modest 25 basis point (0.25%) increase in short-term interest
rates. At the March 22 meeting of the Federal Open Market Commit-
tee, the Federal Reserve Board again raised the Federal Funds rate
by 25 basis points, followed by another 25 basis point increase on
April 18.
Rather than view the Federal Reserve Board's first tightening move
as a preemptive strike against inflation, fixed-income investors
focused on Chairman Greenspan's implicit promise of further tighten-
ing should the rate of inflation accelerate, and bond prices declined
sharply. The setback in the bond market was also reflected in greater
stock market volatility. While the second and third increases in the
Federal Funds rate were less of a surprise, investors remained con-
cerned that interest rates would trend upward sharply as the central
bank aggressively attempted to contain the inflationary pressures of
an improving economy. At the same time, highly leveraged investors
were forced to liquidate positions in the face of declining stock and
bond prices. Investor confidence was not restored with the announce-
ment of the surprisingly slow 2.6% gross domestic product growth rate
for the first calendar quarter of 1994. Instead, investors focused
on the higher-than-expected (but still moderate) broad inflation mea-
sures and became concerned that business activity was beginning to
stagnate as inflationary pressures were increasing.
The volatility in the US capital markets was mirrored in interna-
tional markets during the period. Political and economic develop-
ments, along with concerns of heightened global inflationary pres-
sures, led to a sell-off in most capital markets, especially the
emerging markets that had appreciated strongly in 1993.
Portfolio Matters
Since we believe that the economic recovery will proceed in an
orderly manner in which corporate profit growth will sustain equity
share prices, we have moved the Fund toward stocks with significant
components of cyclical exposure and foreign earnings over the past
several quarters. Accordingly, we took a new position in General
Electric Co. shares, reduced two holdings and eliminated five
others during the April quarter.
The capital goods and basic industries sectors are now market-weigh-
ted, with 28% of the Fund's net assets. This weighting is the se-
cond highest representation in the Fund, with the utilities sector
accounting for 30% of net assets. About 17% of the Fund's net assets
are allocated to financials, while energy stocks remain at 15%. The
highest-yielding sectors of the market continue to be utilities and
energy.
<PAGE>
Our overweighting in energy stocks relative to the Standard & Poor's
500 Index proved to be a sound strategy since the energy sector was
the best performing in the S&P 500 during the April quarter. Oil is
very sensitive to increasing world economic activity, and its price
is responsive to commodity-led inflationary forces. Our energy stocks
provide an exposure to the economic expansion, as do our investments
in basic materials and capital goods. These areas now include chem-
icals, paper and forest products, metals, aerospace technology, office
equipment, tools and hardware.
In line with the Fund's objective of investing in stocks with yields
greater than the S&P 500, exposure to the utility sector has always
been significant. In fact, utility stocks currently represent 22% of
the capitalization of all stocks with yields greater than the S & P
500.
Natural gas and telecommunication stocks currently account for over
three-quarters of the Fund's utility holdings, reflecting our opti-
mistic view of these specific areas. Electric utilities have the small-
est representation in the Fund's utility holdings. While the Fund's
exposure to the electrics is greater than their weighting in the S&P
500, the Fund is significantly underweighted in that sector if one
considers the universe of stocks with yields greater than the market.
This underweighting has been beneficial to the Fund since the electrics
have been by far the worst-performing industry in the utility sector,
hard hit by rising interest rates.
As noted above, the sole addition to the Fund during the April quarter
was General Electric, which was purchased after its stock price had
returned to lows not seen since the fourth quarter of 1993. General
Electric epitomizes our interest in quality cyclical stocks. With its
varied industrial activities in the United States and abroad, the com-
pany is poised to enjoy numerous benefits from a broadening of the
US economic recovery as well as the expected near-term turn-arounds
in Europe and Asia. In March, worldwide orders for the company's di-
verse products, which include plastics, appliances, motors, lighting,
electrical distribution and controls, were up strongly. We believe
it is possible for the company to experience double-digit earnings
growth in the years ahead. General Electric's stock currently offers
a dividend yield of 3%, and we expect its price/earnings ratio to ex-
pand over the next 12 months as investors' perceptions regarding the
strength of the global economic recovery solidify. Over one-quarter
of General Electric's profits and sales is derived from foreign oper-
ations.
<PAGE>
To provide additional funds for current and future purchases and to
capture some of the gains in Northrop Corp. and Bristol-Myers Squibb
Co., we modestly reduced our positions in these two stocks. We also
eliminated our investments in Alexander & Alexander Services, Inc.,
American Home Products Corp., Great Western Financial Corp., GTE Corp.,
and Meridian Bancorp., Inc. With the exception of Alexander & Alex-
ander Services, all of these holdings were sold because they had
reached our price objective. Only Alexander & Alexander presented a
company-specific deteriorating change in fundamentals which put the
current high dividend payout in jeopardy.
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 annual report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Walter D. Rogers)
Walter D. Rogers
Vice President and
Portfolio Manager
May 23, 1994
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of Class A
and Class B Shares will fluctuate so that shares, when redeemed, may
be worth more or less than their original cost.
<PAGE>
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/29/88--12/31/88 $10.71 $10.56 $0.140 $0.156 + 1.37%
1989 10.56 12.50 -- 0.612 +24.61
1990 12.50 10.95 -- 0.725 - 6.70
1991 10.95 12.15 -- 0.516 +15.99
1992 12.15 12.75 -- 0.460 + 8.95
1993 12.75 12.74 0.645 0.456 + 8.66
1/1/94--4/30/94 12.74 12.34 -- 0.110 - 2.26
------ ------
Total $0.785 Total $3.035
Cumulative total return as of 4/30/94: +58.18%**
<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>
<PAGE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/25/87--12/31/87 $10.00 $10.02 -- $0.047 + 0.67%
1988 10.02 10.56 $0.266 0.465 +12.81
1989 10.56 12.49 -- 0.504 +23.40
1990 12.49 10.94 -- 0.604 - 7.68
1991 10.94 12.14 -- 0.393 +14.78
1992 12.14 12.75 -- 0.328 + 7.89
1993 12.75 12.74 0.645 0.315 + 7.54
1/1/94--4/30/94 12.74 12.33 -- 0.079 - 2.59
------ ------
Total $0.911 Total $2.735
Cumulative total return as of 4/30/94: +67.84%**
<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>
<PAGE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
4/30/94 1/31/94 4/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Strategic Dividend Fund Class A Shares $ 12.34 $ 13.17 $ 13.37 -2.95%(1) -6.30%
ML Strategic Dividend Fund Class B Shares 12.33 13.16 13.36 -2.96 (1) -6.31
Standard & Poor's 500 Index** 450.91 481.61 440.19 +2.44 -6.37
ML Strategic Dividend Fund Class A Shares--Total Return +0.51 (2) -5.45(3)
ML Strategic Dividend Fund Class B Shares--Total Return -0.54 (4) -5.70(5)
Standard & Poor's 500 Index--Total Return +5.28 -5.76
<FN>
* Investment results shown for the 3-month and 12-month periods
are before the deduction of any sales charges.
** An unmanaged broad-based index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
(1) Percent change includes reinvestment of $0.645 per share capital
gains distributions.
(2) Percent change includes reinvestment of $0.353 per share ordinary
income dividends and $0.645 per share capital gains distributions.
(3) Percent change includes reinvestment of $0.110 per share ordinary
income dividends.
(4) Percent change includes reinvestment of $0.325 per share ordinary
income dividends and $0.645 per share capital gains distributions.
(5) Percent change includes reinvestment of $0.079 per share ordinary
income dividends.
</TABLE>
Average
Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/94 -2.14% -8.50%
Five Years Ended 3/31/94 +7.80 +6.36
Inception (11/29/88) through 3/31/94 +8.59 +7.23
<PAGE>
[FN]
* Maximum sales charge is 6.5%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/94 -3.18% -6.76%
Five Years Ended 3/31/94 +6.69 +6.69
Inception (11/25/87) through 3/31/94 +8.19 +8.19
[FN]
* Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
PORTFOLIO CHANGES
For the Quarter Ended April 30, 1994
Addition
General Electric Co.
Deletions
Alexander & Alexander Services, Inc.
American Home Products Corp.
GTE Corp.
Great Western Financial Corp.
Meridian Bancorp., Inc.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
EUROPE Industries Held Common Stocks Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Chemicals 62,000 Imperial Chemical Industries PLC (ADR)* $ 2,744,492 $ 3,084,500 1.5%
Kingdom
Consumer Products 450,000 B.A.T. Industries PLC (ADR)* 5,777,483 6,356,250 3.1
Oil--International 80,000 Royal Dutch Petroleum PLC (ADR)* 4,437,215 8,720,000 4.3
Total Investments in Europe 12,959,190 18,160,750 8.9
NORTH
AMERICA
Canada Telecommunications 142,000 BC Telecom, Inc. 2,669,047 2,647,719 1.3
Total Investments in Canada 2,669,047 2,647,719 1.3
United Aerospace & Defense 285,000 Northrop Corp. 10,035,022 10,901,250 5.4
States 95,000 TRW Inc. 5,165,162 6,198,750 3.1
------------ ------------ ------
15,200,184 17,100,000 8.5
Banking 90,000 The Chase Manhattan Corp. 3,166,154 3,060,000 1.5
70,000 First Chicago Corp. 1,966,210 3,701,250 1.8
120,000 National City Corp. 3,195,088 3,210,000 1.6
------------ ------------ ------
8,327,452 9,971,250 4.9
Chemicals 46,000 The Dow Chemical Co. 2,739,760 2,886,500 1.4
150,000 du Pont (E.I.) de Nemours & Co. 5,976,108 8,568,750 4.2
------------ ------------ ------
8,715,868 11,455,250 5.6
Drugs 82,000 Bristol-Myers Squibb Co. 3,744,428 4,417,750 2.2
<PAGE>
Electrical Equipment 40,000 General Electric Co. 3,864,900 3,805,000 1.9
Financial Services 200,000 American Express Co. 4,997,760 5,925,000 2.9
72,000 Beneficial Corp. 2,763,271 2,736,000 1.4
------------ ------------ ------
7,761,031 8,661,000 4.3
Hardware Products 61,000 The Stanley Works Co. 2,557,835 2,379,000 1.2
Information Processing 20,000 Xerox Corp. 1,963,262 1,977,500 1.0
Insurance 150,000 American General Corp. 3,096,836 3,825,000 1.9
65,000 CIGNA Corp. 3,705,487 3,802,500 1.9
30,000 Marsh & McLennan Companies, Inc. 2,626,800 2,535,000 1.3
166,000 Ohio Casualty Corp. 5,308,000 5,021,500 2.5
------------ ------------ ------
14,737,123 15,184,000 7.6
Metals 50,000 Carpenter Technology Corp. 3,167,183 2,931,250 1.4
100,000 Cyprus Amax Minerals Co. 2,627,429 2,812,500 1.4
------------ ------------ ------
5,794,612 5,743,750 2.8
Oil--International 85,000 Mobil Corp. 3,804,075 6,651,250 3.3
157,800 Texaco Inc. 7,430,088 10,158,375 5.0
------------ ------------ ------
11,234,163 16,809,625 8.3
Oil Services 135,000 Halliburton Co. 4,039,632 3,999,375 2.0
Paper & Forest Products 163,100 Federal Paper Board Co., Inc. 3,555,174 3,465,875 1.7
115,000 Union Camp Corp. 5,486,615 5,103,125 2.5
------------ ------------ ------
9,041,789 8,569,000 4.2
Photographic 100,000 Eastman Kodak Co. 3,975,843 4,150,000 2.1
Retail 120,000 Sears, Roebuck & Co. 3,300,919 5,640,000 2.8
Telecommunications 124,000 Bell Atlantic Corp. 4,583,953 6,417,000 3.2
200,000 Southwestern Bell Corp. 5,281,000 8,300,000 4.1
------------ ------------ ------
9,864,953 14,717,000 7.3
<PAGE>
Utilities--Electric 126,000 Consolidated Edison Co. N.Y., Inc. 3,559,500 3,858,750 1.9
86,000 Public Service Co. of Colorado 2,768,078 2,547,750 1.3
150,000 Public Service Enterprise Group, Inc. 5,262,000 4,331,250 2.1
92,000 Texas Utilities Corp. 3,335,000 3,243,000 1.6
------------ ------------ ------
14,924,578 13,980,750 6.9
Utilities--Gas & 200,000 The Brooklyn Union Gas Co. 5,363,746 4,800,000 2.4
Gas Pipeline 300,000 Enron Corp. 3,121,930 8,887,500 4.4
160,000 NICOR Inc. 4,536,876 4,260,000 2.1
236,000 Sonat, Inc. 4,263,114 7,168,500 3.5
------------ ------------ ------
17,285,666 25,116,000 12.4
Total Investments in the United States 146,334,238 173,676,250 86.0
Total Investments in North America 149,003,285 176,323,969 87.3
PACIFIC
BASIN
Hong Kong Airlines 1,525,000 Cathay Pacific Airways Ltd. 2,733,414 2,211,290 1.1
Total Investments in the Pacific Basin 2,733,414 2,211,290 1.1
Total Common Stocks 164,695,889 196,696,009 97.3
<PAGE>
<CAPTION>
Face
Amount Short-Term Securities
<S> <C> <S> <C> <C> <C>
Repurchase $ 5,478,000 Swiss Bank Corp., purchased on 4/29/1994
Agreement** to yield 3.55% to 5/02/1994 5,478,000 5,478,000 2.7
Total Short-Term Securities 5,478,000 5,478,000 2.7
Total Investments $170,173,889 202,174,009 100.0
============
Liabilities in Excess of Other Assets (70,449) (0.0)
------------ ------
Net Assets $202,103,560 100.0%
============ ======
Net Asset Class A--Based on net assets of $23,499,830 and 1,904,707
Value: shares outstanding $ 12.34
============
Class B--Based on net assets of $178,603,730 and 14,487,918
shares outstanding $ 12.33
============
<FN>
* American Depositary Receipt (ADR).
** Repurchase Agreements are fully collateralized by US
Government Obligations.
</TABLE>
