MERRILL LYNCH
STRATEGIC
DIVIDEND FUND
STRATEGIC
Performance
[GRAPHIC OMITTED]
Quarterly Report
October 31, 1999
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MERRILL LYNCH STRATEGIC DIVIDEND FUND
[A pie graph depicting sector representations
as a percentage of equities as of October 31, 1999]
Sector Representation as a Percentage of Equities as of October 31, 1999
Utilities--29.0%
Capital Goods--6.0%
Energy--14.2%
Financial Services--29.9%
Basic Industries--7.1%
Consumer--13.8%
US Common Stock Investments as of October 31, 1999
S&P
Fund 500**
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Average Capitalization (in billions) $ 34.6 $ 116.1
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Price/Book Value 3.7 4.9
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Price/Earnings Ratio*** 22.7 29.4
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Yield Based on Current Dividend 2.4%* 1.3%
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* Net yield after expenses for 12-months ended 10/31/99, according to Lipper
Analytical Services.
** An unmanaged broad-based index comprised of common stocks.
***Based on trailing 12-month earnings.
<PAGE>
Merrill Lynch Strategic Dividend Fund, October 31, 1999
DEAR SHAREHOLDER
During the quarter ended October 31, 1999, the US economy enjoyed continued
strong growth while inflation and labor costs pressures remained completely
contained. The US financial markets exhibited volatility, as stock prices
declined for the third consecutive month in September. By late October, the
stock market began to rebound, gaining some momentum by the end of the period.
The US bond market improved over the October quarter as well. Fixed-income
investors had reacted poorly to evidence of incipient inflationary pressures and
the prospect of higher interest rates in the early part of the quarter. However,
a significant rally ensued in September driven by a slowdown in average hourly
earnings and extremely benign inflation reports. By the end of October, the bond
market had retraced the recent price lows reached during the summer.
After the Federal Reserve Board raised short-term interest rates in August,
investor psychology was mixed as to whether there would be an increase for the
third time this year. The central bank announced its move to tighten 25 basis
points (0.25%) on November 16, 1999, essentially putting short-term interest
rates back to where they were before the three quarter-point cuts that were made
last fall. Investors seem confident that there will not be any additional moves
before the advent of the Year 2000.
Portfolio Matters
For the three months ended October 31, 1999, Merrill Lynch Strategic Dividend
Fund's Class A, Class B, Class C and Class D Shares had total returns of +0.06%,
- - 0.21%, - 0.21% and - 0.08%, respectively. (Results shown do not reflect sales
charges and would be lower if sales charges were included. Complete performance
information can be found on pages 4 and 5 of this report to shareholders.) These
returns were slightly better than the return for Lipper Analytical Services
Inc.'s peer group of Equity Income Funds, which had an average of - 2.97% for
the same three-month period. The Fund's performance for the October quarter also
outperformed the - 5.79% total return of the 200 highest-yielding stocks in the
unmanaged Standard & Poor's 500 (S&P 500) Index.
The Fund's performance in the quarter was helped by our holdings in financial
stocks, which at October quarter-end accounted for 26% of net assets. Financial
stocks surged during October after Congress reached a compromise agreement for
the Financial Services Modernization Bill (which was signed into law after
quarter-end). Additionally, stocks in the electric utility, capital goods and
consumer sectors helped overall Fund performance. Once again, high-yielding
stocks underperformed the broad market by a wide margin. The only stocks to show
relative outperformance in the quarter were those with yields well below the
yield of the S&P 500 Index. The appeal in value style investing was short-lived,
and growth style investing returned to favor with a powerful surge. Over the
last 12 months, growth stocks led the overall market in relative outperformance,
with the technology sector achieving the largest relative gains in market
history.
Our investment style has remained unchanged. Our focus is primarily on
dividend-paying common stocks that yield more than the S&P 500 Index. We seek to
provide investors with an attractive total return over the longer term, offering
both appreciation and growth of income with low volatility through a diversified
portfolio of stocks. Our investment activities during the October quarter
continued to center on improving the Fund's overall dividend yield by focusing
our investment activities on individual stocks with attractive valuations that
we believe offer generous dividend yields but also are attractively priced on
other valuation ratios.
Transactions during the October quarter included initiating two new positions
and eliminating seven. We acquired the shares of Carolina Power & Light Company,
an electric utility located in one of the fastest growing US markets, which is
comprised of North Carolina and South Carolina. Earlier this summer, the company
completed its acquisition of North Carolina Natural Gas, and during the October
quarter agreed to acquire Florida Progress Corp., a Florida electric utility,
for stock and cash. We expect these acquisitions to be accretive to earnings in
the first year after closing, the result of cost savings and improved revenue
growth. Selling at a discount to the electric utility group, we believe the
share is attractive on a total return basis. We also purchased shares of
Columbia Energy Group, a well-run natural gas transmission and distribution
company operating in several eastern states, because the shares appeared to be
attractively valued based on future earnings and strong industry fundamentals.
During the October quarter, we sold our investments in United Water Resources
Inc. and U S WEST, Inc. With the shares of both companies in the process of
being acquired, we believed there remained limited upside potential in both
stocks. We eliminated an additional five holdings because the stocks no longer
met our investment criteria.
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 semi-annual report to shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Walter D. Rogers
Walter D. Rogers
Senior Vice President and Portfolio Manager
December 3, 1999
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To reduce shareholders' expenses, Merrill Lynch Strategic Dividend Fund will no
longer be printing and mailing quarterly reports to shareholders. We will
continue to provide you with reports on a semi-annual and annual basis.
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2 & 3
<PAGE>
Merrill Lynch Strategic Dividend Fund, October 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/
3 Month 12 Month Since Inception
As of October 31, 1999 Total Return Total Return Total Return
==============================================================================================
<S> <C> <C> <C>
ML Strategic Dividend Fund Class A Shares* +0.06% +12.64% +229.23%
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ML Strategic Dividend Fund Class B Shares* -0.21 +11.47 +197.14
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ML Strategic Dividend Fund Class C Shares* -0.21 +11.46 +127.78
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ML Strategic Dividend Fund Class D Shares* -0.08 +12.29 +137.03
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Standard & Poor's 500 Index** +2.90 +25.67 +415.25/+223.08
==============================================================================================
</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 ten years
for Class A & Class B Shares and from 10/21/94 for Class C & Class D Shares.
**An unmanaged broad-based index comprised of common stocks. Ten years/since
inception total return periods are ten years and from 10/21/94, respectively.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
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Class A Shares*
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Year Ended 9/30/99 +11.94% + 6.06%
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Five Years Ended 9/30/99 +18.10 +16.84
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Ten Years Ended 9/30/99 +11.92 +11.32
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* Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
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Class B Shares*
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Year Ended 9/30/99 +10.75% + 7.06%
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Five Years Ended 9/30/99 +16.89 +16.89
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Ten Years Ended 9/30/99 +10.78 +10.78
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* 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*
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Year Ended 9/30/99 +10.80% + 9.88%
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Inception (10/21/94) through 9/30/99 +17.19 +17.19
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* 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**
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Class D Shares*
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Year Ended 9/30/99 +11.66% + 5.80%
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Inception (10/21/94) through 9/30/99 +18.14 +16.85
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* Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
4 & 5
<PAGE>
Merrill Lynch Strategic Dividend Fund, October 31, 1999
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Shares Percent of
EUROPE Industries Held Common Stocks Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Netherlands Oil--International 125,000 Royal Dutch Petroleum Company
(NY Registered Shares) $ 7,492,187 3.3%
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Total Investments in the Netherlands 7,492,187 3.3
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United Kingdom Banking 200,000 National Westminster Bank PLC 4,511,117 2.0
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Oil--International 61,008 BP Amoco PLC (ADR) (a) 3,523,212 1.5
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Steel 700,000 Corus Group PLC 1,332,979 0.6
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Total Investments in the United Kingdom 9,367,308 4.1
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Total Investments in Europe 16,859,495 7.4
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NORTH AMERICA
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United States Aerospace & Defense 20,000 Rockwell International Corporation 968,750 0.4
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Automobile 70,000 Ford Motor Company 3,841,250 1.7
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Automotive 72,000 Arvin Industries, Inc. 2,052,000 0.9
Equipment & Tires 60,000 Dana Corporation 1,773,750 0.8
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3,825,750 1.7
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Automotive Parts 60,000 TRW Inc. 2,572,500 1.1
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Banking 145,000 The Bank of New York Company, Inc. 6,071,875 2.7
90,000 The Chase Manhattan Corporation 7,863,750 3.4
72,139 Firstar Corporation 2,119,083 0.9
92,000 Mellon Financial Corporation 3,398,250 1.5
60,000 National City Corporation 1,770,000 0.8
78,000 PNC Bank Corp. 4,650,750 2.0
40,000 State Street Corporation 3,045,000 1.3
26,880 SunTrust Banks, Inc. 1,967,280 0.9
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30,885,988 13.5
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Business Services 52,000 The Dun & Bradstreet Corporation 1,527,500 0.7
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Capital Goods 30,000 General Electric Company 4,066,875 1.8
28,000 Minnesota Mining and Manufacturing Company (3M) 2,661,750 1.1
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6,728,625 2.9
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Chemicals 23,000 The Dow Chemical Company 2,719,750 1.2
23,343 E.I. du Pont de Nemours and Company 1,504,165 0.7
----------- ----
4,223,915 1.9
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Consumer--Durables 63,000 Whirlpool Corporation 4,390,312 1.9
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Drugs 50,000 American Home Products Corporation 2,612,500 1.1
52,000 Bristol-Myers Squibb Company 3,994,250 1.8
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6,606,750 2.9
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Foods 40,000 General Mills, Inc. 3,487,500 1.5
55,000 The Quaker Oats Company 3,850,000 1.7
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7,337,500 3.2
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Household Products 48,000 The Clorox Company 1,965,000 0.9
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Insurance 65,000 American General Corporation 4,822,188 2.1
58,000 The Chubb Corporation 3,182,750 1.4
60,000 Lincoln National Corporation 2,767,500 1.2
170,000 Ohio Casualty Corporation 2,836,875 1.2
100,000 The St. Paul Companies, Inc. 3,200,000 1.4
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16,809,313 7.3
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Oil--Domestic 28,000 Atlantic Richfield Company (ARCO) 2,609,250 1.1
49,138 Conoco Inc. (Class B) 1,332,868 0.6
90,000 Occidental Petroleum Corporation 2,053,125 0.9
50,000 Phillips Petroleum Company 2,325,000 1.0
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8,320,243 3.6
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Oil--International 30,000 Exxon Corporation 2,221,875 1.0
40,000 Mobil Corporation 3,860,000 1.7
50,000 Texaco Inc. 3,068,750 1.3
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9,150,625 4.0
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Paper & Forest 98,023 International Paper Company 5,158,460 2.2
Products 60,000 Weyerhaeuser Company 3,581,250 1.6
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8,739,710 3.8
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Real Estate 38,000 Apartment Investment & Management Company
Investment Trusts (Class A) 1,429,750 0.6
19,207 Avalonbay Communities, Inc. 620,626 0.3
40,000 Colonial Properties Trust 1,020,000 0.4
64,000 Developers Diversified Realty Corporation 912,000 0.4
52,000 Duke Realty Investments, Inc. 1,020,500 0.5
35,000 Essex Property Trust, Inc. 1,139,688 0.5
35,000 Highwoods Properties, Inc. 846,563 0.4
30,000 Mack-Cali Realty Corporation 772,500 0.3
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7,761,627 3.4
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Utilities 77,000 Reliant Energy, Inc. 2,098,250 0.9
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Utilities--Electric 40,000 American Electric Power Company, Inc. 1,380,000 0.6
60,000 Carolina Power & Light Company 2,070,000 0.9
60,000 Central & South West Corporation 1,331,250 0.6
63,000 Consolidated Edison, Inc. 2,405,813 1.1
105,000 Edison International 3,110,625 1.4
56,000 FPL Group, Inc. 2,817,500 1.2
44,000 KeySpan Corporation 1,237,500 0.5
50,000 NSTAR 1,903,125 0.8
96,000 New Century Energies, Inc. 3,126,000 1.4
120,000 Northern States Power Company 2,580,000 1.1
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21,961,813 9.6
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</TABLE>
6 & 7
<PAGE>
Merrill Lynch Strategic Dividend Fund, October 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Shares Percent of
NORTH AMERICA Industries Held Common Stocks Value Net Assets
(concluded)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States Utilities--Gas Pipeline 69,000 Columbia Energy Group $ 4,485,000 2.0%
(concluded) 50,000 El Paso Energy Corporation 2,050,000 0.9
----------- ----
6,535,000 2.9
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Utilities--Natural Gas 40,000 Consolidated Natural Gas Company 2,560,000 1.1
88,000 Enron Corp. 3,514,500 1.5
78,197 Sempra Energy 1,598,151 0.7
35,000 The Williams Companies, Inc. 1,312,500 0.6
----------- ----
8,985,151 3.9
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Utilities-- 50,000 Bell Atlantic Corporation 3,246,875 1.4
Telecommunications 52,000 BellSouth Corporation 2,340,000 1.0
40,000 GTE Corporation 3,000,000 1.3
102,648 SBC Communications Inc. 5,228,632 2.3
----------- ----
13,815,507 6.0
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Utilities--Water 76,000 American Water Works Company, Inc. 2,218,250 1.0
25,000 E'Town Corporation 1,151,563 0.5
55,500 Philadelphia Suburban Corporation 1,276,500 0.5
----------- ----
4,646,313 2.0
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Total Investments in North America 183,697,392 80.2
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Total Investments in Common Stocks
(Cost--$141,583,952) 200,556,887 87.6
====================================================================================================================================
<CAPTION>
Face
Amount Short-Term Securities
===================================================================================================================================
Repurchase $ 2,354,000 Warburg Dillon Read LLC, purchased on
Agreements* 10/29/1999 to yield 5.21% to 11/01/1999 2,354,000 1.0
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US Government 17,000,000 Federal Home Loan Mortgage Corporation,
Agency 5.21% due 11/12/1999 16,965,556 7.4
Obligations** 5,000,000 Federal National Mortgage Association,
5.22% due 11/03/1999 4,996,375 2.2
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Total Investments in Short-Term Securities
(Cost--$24,315,931) 24,315,931 10.6
===================================================================================================================================
Total Investments (Cost--$165,899,883) 224,872,818 98.2
Other Assets Less Liabilities 4,078,433 1.8
----------- ----
Net Assets $228,951,251 100.0%
============ =====
===================================================================================================================================
Net Asset Class A-- Based on net assets of $24,357,187 and 1,798,145
Value: shares of beneficial interest outstanding $ 13.55
============
Class B -- Based on net assets of $73,627,177 and 5,427,191
shares of beneficial interest outstanding $ 13.57
============
Class C -- Based on net assets of $5,375,626 and 400,674
shares of beneficial interest outstanding $ 13.42
============
Class D -- Based on net assets of $125,591,261 and 9,275,766
shares of beneficial interest outstanding $ 13.54
============
===================================================================================================================================
</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.
8 & 9
<PAGE>
Merrill Lynch Strategic Dividend Fund, October 31, 19998
PORTFOLIO INFORMATION
As of October 31, 1999
Ten Largest Common Percent of
Stock Holdings Net Assets
The Chase Manhattan Corporation .................... 3.4%
Royal Dutch Petroleum Company
(NY Registered Shares) ........................... 3.3
The Bank of New York Company, Inc. ................. 2.7
SBC Communications Inc. ............................ 2.3
International Paper Company ........................ 2.2
American General Corporation ....................... 2.1
PNC Bank Corp. ..................................... 2.0
National Westminster Bank PLC ...................... 2.0
Columbia Energy Group .............................. 2.0
Whirlpool Corporation .............................. 1.9
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Charles C. Reilly, Trustee
Kevin A. Ryan, Trustee
Richard R. West, Trustee
Arthur Zeikel, Trustee
Robert C. Doll, Senior 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
10 & 11
<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
08543-9011 10561--10/99
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