MERRILL LYNCH
STRATEGIC
DIVIDEND FUND
FUND LOGO
Quarterly Report
April 30, 1995
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Strategic Dividend Fund
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MERRILL LYNCH STRATEGIC DIVIDEND FUND
Officers and
Trustees
Arthur Zeikel, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Charles C. Reilly, Trustee
Kevin A. Ryan, Trustee
Richard R. West, Trustee
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Walter D. Rogers, Vice President and Portfolio Manager
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, Massachusetts 02171
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
DEAR SHAREHOLDER
Increasing signs of slowing economic growth led to higher US stock
and bond prices during the April quarter. Although gross domestic
product was reported to have increased at a revised 5.1% rate during
the final quarter of 1994, declines in other indicators such as new
home sales and durable goods orders registered thus far in 1995 have
led investors to anticipate that the economy is losing enough
momentum to keep inflation under control and preclude further
significant monetary policy tightening by the Federal Reserve Board.
A further indication of a slowing economy was the reported decline
in the Index of Leading Economic Indicators for March.
<PAGE>
As US stock and bond markets have risen, the value of the US dollar
has reached new lows relative to the yen and the Deutschemark.
Persistent trade deficits and exports of capital from the United
States have kept the US currency in a decade-long decline relative
to the Japanese and German currencies. Over the longer term, since
the United States has the highest productivity among industrialized
nations and among the lowest labor costs, demand for US dollar-
denominated assets may improve. However, a reduction of the still-
widening US trade deficit may be necessary before the US dollar
appreciates substantially relative to the yen and the Deutschemark.
The first months of 1995 were very positive for the US stock and
bond markets. Continued signs of a moderating expansion and well-
contained inflationary pressures would provide further assurance
that the peak in interest rates is behind us, creating a stronger
foundation for higher stock and bond prices. On the other hand,
indications of reaccelerating growth and further significant
monetary policy tightening by the Federal Reserve Board would be a
decided negative for the US financial markets.
Portfolio Matters
Our investment activities during the April quarter included the
purchase of six new stocks, the elimination of four and partial
reductions in 21 holdings. As stock prices climbed to record levels
during the April quarter, thus affording fewer attractively valued
investment opportunities, we chose to reduce positions in select
holdings and raise cash reserves. At April quarter-end, equity
investments totaled 86.5% of net assets, and cash reserves rose to
12.7% of net assets from 3.9% of net assets at the end of the
January quarter.
Purchases and eliminations essentially involved "swapping" stocks
within the same broad sector categories. For example, in the
consumer sector we added shares of The Clorox Co. and McGraw-Hill,
Inc., which we believe offer more dynamic growth potential through
international expansion than our holding in B.A.T. Industries PLC,
whose shares we eliminated. Clorox is an international company which
produces nondurable household cleaning products in plants in the
United States and around the world. It already has a presence in 90
countries and is pursuing a strategy of expanding its business
mainly into developing countries, in part through joint ventures and
acquisitions. Emerging markets offer attractive growth potential for
nondurable consumer products. Clorox is well-positioned to
participate in the demand dynamics of those markets, combining
extensive new products and operating efficiency through local
manufacture.
<PAGE>
McGraw-Hill is a major publisher of educational and professional
books, various magazines, including BusinessWeek, newsletters and
directories, and offers video and on-line products. The focus of the
company's financial services business is the highly profitable
Standard & Poor's Corp. (S&P), the rating agency and financial
information publisher, which accounts for about 50% of McGraw-Hill's
profits. Expansion overseas has accelerated over the last few years,
and today international operations account for 9% of the company's
profits. The S&P division has been the driving force, benefiting
from worldwide demand for financial disclosure and privatization of
government-owned businesses. Additionally, the company has been
aggressively expanding its Spanish-language school textbooks,
targeting bilingual and Central American markets. The company is
well-positioned to produce double-digit earnings growth, in our
opinion.
We eliminated our holdings in First Chicago Corp., primarily for
price reasons, realizing a two-fold appreciation on our investment.
We initiated investments in two California savings and loan
companies, H.F. Ahmanson & Co. and Great Western Financial
Corporation. With the stabilized California economy now exhibiting
signs of recovery, and with an apparent peak having occurred in
interest rates, these two financially strong and well-positioned
thrifts are likely to benefit from a renewed housing market in that
region.
We also sold the shares of one Texas electric utility and purchased
shares of another. We eliminated shares of Texas Utilities Corp.
because we did not view the current common dividend as secure.
Offering a secure 7% plus dividend yield and modest earnings growth
potential, Houston Industries Inc. shares appeared much more
attractive on a total return basis.
Finally, we purchased Hanson PLC (ADR) shares and eliminated those
of Union Camp Corp. Hanson, a UK-based multi-industry company, is
engaged in businesses which include coal production and chemicals;
building products such as lumber, cement, and aggregates materials;
and consumer products, including the second-largest cigarette and
cigar producer in the United Kingdom. Subsequent to our purchase of
these shares, the company announced the spin-off of its US consumer
operations. This announcement has positive implications, since the
company will be able to deleverage its balance sheet and improve the
profitability of its remaining operations through consolidations and
cost efficiencies. Separately, Hanson currently is experiencing a
strong cyclical upturn across most of its operations, which should
translate into better earnings comparisons going forward.
The remaining transactions in the April quarter primarily
represented cutting back our holdings in several investments that
had appreciated in value. However, a noteworthy shift did occur in
our energy sector holdings, where we reduced investments from 14.5%
of net assets to 9.3%. The decision to reduce the sector's weighting
was based purely on price, because of this sector's strong recent
stock price performance, and not related to any fundamental
concerns. In fact, we have employed this strategy of steadily
reducing our investments in the volatile energy sector for the past
year to get our energy weighting more in line with that of the
market.
<PAGE>
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, 1995
PERFORMANCE DATA
About Fund
Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 8 years.
<PAGE>
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Performance Summary", "Recent Performance Results"
and "Average Annual Total Return" tables on pages 4, 5 and 6. Data
for Class C and Class D Shares are also presented in the "Recent
Performance Results" and "Aggregate Total Return" tables on page 5.
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 April 30, 1995 and
for Class C and Class D Shares for the since inception and 3-month
periods ended April 30, 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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/95 +12.95% +7.02%
Five Years Ended 3/31/95 + 7.73 +6.57
Inception (11/29/88) through 3/31/95 + 9.27 +8.34
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/95 +11.72% +7.94%
Five Years Ended 3/31/95 + 6.61 +6.61
Inception (11/25/87) through 3/31/95 + 8.66 +8.66
[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 3/31/95 +5.65% +4.68%
[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 3/31/95 +5.97% -0.41%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
4/30/95 1/31/95 4/30/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Strategic Dividend Fund Class A Shares* $11.67 $11.07 $12.34 + 8.56%(1) + 5.42%
ML Strategic Dividend Fund Class B Shares* 11.67 11.06 12.33 + 8.65(1) + 5.52
ML Strategic Dividend Fund Class C Shares* 11.64 11.04 11.84 + 5.69(2) + 5.43
ML Strategic Dividend Fund Class D Shares* 11.67 11.07 11.85 + 5.86(2) + 5.42
Standard & Poor's 500 Index** 514.71 470.42 450.91 +14.15 + 9.41
ML Strategic Dividend Fund Class A Shares--Total Return* +12.78(3) + 6.36(4)
ML Strategic Dividend Fund Class B Shares--Total Return* +11.65(5) + 6.18(6)
ML Strategic Dividend Fund Class C Shares--Total Return* + 7.40(7) + 6.14(8)
ML Strategic Dividend Fund Class D Shares--Total Return* + 7.82(9) + 6.31(10)
Standard & Poor's 500 Index--Total Return** +17.37 +10.08
<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 $0.456 per share ordinary
income dividends and $1.596 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.102 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.327 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 $0.184 per share ordinary
income dividends and $0.798 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.077 per share ordinary
income dividends.
(9)Percent change includes reinvestment of $0.211 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>
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/29/88--12/31/88 $10.71 $10.56 $0.140 $0.156 + 1.37%
1989 10.56 12.50 -- 0.612 +24.61
1990 12.50 10.95 -- 0.725 - 6.70
1991 10.95 12.15 -- 0.516 +15.99
1992 12.15 12.75 -- 0.460 + 8.95
1993 12.75 12.74 0.645 0.456 + 8.66
1994 12.74 10.70 1.596 0.465 + 0.17
1/1/95--4/30/95 10.70 11.67 -- 0.102 +10.04
------ ------
Total $2.381 Total $3.492
Cumulative total return as of 4/30/95: +78.39%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/25/87--12/31/87 $10.00 $10.02 -- $0.047 + 0.67%
1988 10.02 10.56 $0.266 0.465 +12.81
1989 10.56 12.49 -- 0.504 +23.40
1990 12.49 10.94 -- 0.604 - 7.68
1991 10.94 12.14 -- 0.393 +14.78
1992 12.14 12.75 -- 0.328 + 7.89
1993 12.75 12.74 0.645 0.315 + 7.54
1994 12.74 10.71 1.596 0.333 - 0.82
1/1/95--4/30/95 10.71 11.67 -- 0.072 + 9.65
------ ------
Total $2.507 Total $3.061
Cumulative total return as of 4/30/95: +87.40%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
EUROPE Industries Held Common Stocks Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Kingdom Chemicals 62,000 Imperial Chemical
Industries PLC (ADR)* $ 2,744,492 $ 3,014,750 1.8%
Conglomerates 132,000 Hanson PLC (Sponsored)
(ADR)* 2,499,420 2,508,000 1.5
Oil--International 30,000 Royal Dutch Petroleum
PLC (ADR)* 1,703,965 3,720,000 2.2
Total Investments in Europe 6,947,877 9,242,750 5.5
NORTH
AMERICA
Canada Telecommunications 142,000 BC Telecom, Inc. 2,669,047 2,454,218 1.5
Total Investments in Canada 2,669,047 2,454,218 1.5
United States Aerospace & Defense 90,000 Northrop Grumman Corp. 3,190,558 4,466,250 2.7
55,000 TRW Inc. 3,029,243 4,090,625 2.5
------------ ------------ ------
6,219,801 8,556,875 5.2
Banking 60,000 The Chase Manhattan Corp. 2,110,790 2,625,000 1.6
65,000 Meridian Bancorp, Inc. 1,795,625 2,047,500 1.2
------------ ------------ ------
3,906,415 4,672,500 2.8
<PAGE>
Beverages 33,000 Anheuser-Busch
Companies, Inc. 1,779,855 1,918,125 1.2
Building Materials 37,000 Armstrong World
Industries, Inc. 1,659,757 1,683,500 1.0
Chemicals 46,000 The Dow Chemical Co. 2,739,760 3,197,000 1.9
Cosmetics 22,000 Avon Products, Inc. 1,303,320 1,391,500 0.8
Drugs 40,000 Bristol-Myers Squibb Co. 1,826,550 2,605,000 1.6
Electrical Equipment 65,000 General Electric Co. 3,140,231 3,640,000 2.2
Financial Services 80,000 American Express Co. 1,709,114 2,780,000 1.7
72,000 Beneficial Corp. 2,763,271 2,934,000 1.8
------------ ------------ ------
4,472,385 5,714,000 3.5
Hardware Products 61,000 The Stanley Works Co. 2,557,835 2,417,125 1.5
Household Products 27,000 The Clorox Co. 1,584,495 1,586,250 0.9
Information 25,000 Xerox Corp. 2,545,647 3,078,125 1.9
Processing
Insurance 135,000 American General Corp. 2,785,180 4,455,000 2.7
50,000 CIGNA Corp. 2,850,375 3,631,250 2.2
50,000 Lincoln National Corp. 2,135,530 2,037,500 1.2
30,000 Marsh & McLennan
Companies, Inc. 2,626,800 2,351,250 1.4
125,000 Ohio Casualty Corp. 3,995,937 3,640,625 2.2
------------ ------------ ------
14,393,822 16,115,625 9.7
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
NORTH AMERICA Shares Percent of
(concluded) Industries Held Common Stocks Cost Value Net Assets
<S> <S> <C> <C> <C> <C>
United States Metals 35,000 Carpenter Technology
(concluded) Corp. $ 2,225,034 $ 2,113,125 1.3%
100,000 Cyprus Amax Minerals Co. 2,627,429 2,787,500 1.7
------------ ------------ ------
4,852,463 4,900,625 3.0
Oil--International 60,000 Exxon Corp. 3,569,538 4,177,500 2.5
40,000 Mobil Corp. 1,804,050 3,795,000 2.3
55,000 Texaco Inc. 2,558,840 3,760,625 2.3
------------ ------------ ------
7,932,428 11,733,125 7.1
Paper & Forest 140,000 Federal Paper Board
Products Co., Inc. 3,051,363 4,147,500 2.5
Pharmaceuticals 40,000 Eli Lilly & Co. 2,165,088 2,990,000 1.8
Photography 75,000 Eastman Kodak Co. 3,017,171 4,312,500 2.6
Publishing/Printing 35,000 McGraw-Hill, Inc. 2,434,950 2,611,875 1.6
Real Estate 28,000 Developers Diversified
Realty Corp. 791,000 770,000 0.5
Savings & Loan 80,000 Great Western Financial
Corporation 1,685,600 1,690,000 1.0
85,000 H.F. Ahmanson & Co. 1,716,588 1,785,000 1.1
------------ ------------ ------
3,402,188 3,475,000 2.1
Transportation 35,000 Union Pacific Corp. 1,752,100 1,920,625 1.2
Utilities--Electric 85,000 American Electric Power
Co., Inc. 2,682,600 2,783,750 1.7
126,000 Consolidated Edison Co.
of N.Y., Inc. 3,559,500 3,496,500 2.1
84,000 Houston Industries Inc. 3,249,540 3,318,000 2.0
60,000 Northern States Power Co. 2,613,600 2,655,000 1.6
66,000 Public Service Co. of
Colorado 2,137,905 1,988,250 1.2
64,000 Public Service Enterprise
Group, Inc. 2,245,120 1,760,000 1.1
100,000 Wisconsin Energy Corp. 2,593,500 2,775,000 1.7
------------ ------------ ------
19,081,765 18,776,500 11.4
<PAGE>
Utilities--Gas & 135,000 The Brooklyn Union
Gas Pipeline Gas Co. 3,619,350 3,273,750 2.0
130,000 NICOR Inc. 3,698,548 3,217,500 1.9
131,000 Sonat, Inc. 2,343,064 3,979,125 2.4
------------ ------------ ------
9,660,962 10,470,375 6.3
Utilities-- 120,000 NYNEX Corp. 4,598,400 4,905,000 3.0
Telecommunications 120,000 Pacific Telesis Group 3,614,100 3,705,000 2.2
------------ ------------ ------
8,212,500 8,610,000 5.2
Total Investments in
the United States 114,483,851 131,293,750 79.5
Total Investments in
North America 117,152,898 133,747,968 81.0
Total Common Stocks 124,100,775 142,990,718 86.5
Face
Amount Short-Term Securities
Repurchase $6,541,000 HSBC Holdings PLC,
Agreement** purchased on 4/28/1995 to
yield 5.90% to 5/01/1995 6,541,000 6,541,000 4.0
US Government 3,000,000 Federal Farm Credit Bank,
& Agency 5.95% due 5/03/1995 2,997,521 2,997,521 1.8
Obligations*** Federal Home Loan Mortgage
Corporation:
3,425,000 5.96% due 5/02/1995 3,422,732 3,422,732 2.1
2,000,000 5.85% due 5/22/1995 1,992,200 1,992,200 1.2
Federal National Mortgage
Association:
4,000,000 5.86% due 6/01/1995 3,977,862 3,977,862 2.4
2,000,000 5.86% due 6/16/1995 1,984,048 1,984,048 1.2
------------ ------------ ------
14,374,363 14,374,363 8.7
Total Short-Term
Securities 20,915,363 20,915,363 12.7
Total Investments $145,016,138 163,906,081 99.2
============
Other Assets Less Liabilities 1,302,723 0.8
------------ ------
Net Assets $165,208,804 100.0%
============ ======
<PAGE>
Net Asset Class A--Based on net assets of $18,488,751
Value: and 1,584,224 shares outstanding $ 11.67
============
Class B--Based on net assets of $133,580,828
and 11,449,278 shares outstanding $ 11.67
============
Class C--Based on net assets of $510,079
and 43,820 shares outstanding $ 11.64
============
Class D--Based on net assets of $12,629,146
and 1,081,806 shares outstanding $ 11.67
============
<FN>
*American Depositary Receipt (ADR).
**Repurchase Agreements are fully collateralized by US Government
Obligations.
***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.
</TABLE>
PORTFOLIO CHANGES
For the Quarter Ended April 30, 1995
Additions
The Clorox Co.
Great Western Financial Corporation
H.F. Ahmanson & Co.
Hanson PLC (Sponsored) (ADR)
Houston Industries Inc.
McGraw-Hill, Inc.
*Repsol S.A. (ADR)
<PAGE>
Deletions
B.A.T. Industries PLC (ADR)
First Chicago Corp.
*Repsol S.A. (ADR)
Texas Utilities Corp.
Union Camp Corp.
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION
For the Quarter Ended April 30, 1995
Percent of
Ten Largest Common Stock Holdings Net Assets
NYNEX Corp. 3.0%
Northrop Grumman Corp. 2.7
American General Corp. 2.7
Eastman Kodak Co. 2.6
Exxon Corp. 2.5
Federal Paper Board Co., Inc. 2.5
TRW Inc. 2.5
Sonat, Inc. 2.4
Mobil Corp. 2.3
Texaco Inc. 2.3
