MERRILL LYNCH
STRATEGIC
DIVIDEND FUND
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
October 31, 1997
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 -- 10/97
[RECYCLE LOGO] Printed on post-consumer recycled paper
MERRILL LYNCH STRATEGIC DIVIDEND FUND
Security
Representation as a
Percentage of
Equities as of
October 31, 1997
[GRAPHIC OMITTED]
A pie chart depicting the following percentages:
Utilities - 21.4%
Capital Goods - 17.2%
Energy - 14.4%
Financial Services - 23.5%
Consumer - 14.4%
Basic Industries - 8.1%
Transportation - 1.0%
US Common Stock S&P
Investments as of Fund 500*
October 31, 1997
Average Capitalization (in billions) $21.3 $50.8
Price/Book Value 3.3 3.6
Price/Earnings Ratio** 17.8 21.1
Yield Based on Current Dividend 3.3% 1.7%
* An unmanaged broad-based index comprised of common
stocks.
** Based on trailing 12-month earnings.
Merrill Lynch Strategic Dividend Fund, October 31, 1997
DEAR SHAREHOLDER
Volatility highlighted stock and bond markets worldwide during the quarter
ended October 31, 1997. The difficulties began in Southeast Asia.
Following the currency devaluations in several Southeast Asian countries
this summer, the Hong Kong dollar -- the value of which is pegged to the
US dollar -- came under speculative attack in foreign currency markets.
Monetary authorities in Hong Kong raised interest rates to support the
currency, and the Hong Kong stock market declined sharply. This event
raised investor concerns worldwide regarding the viability of continued
global economic growth.
At first, US stock market investors focused on the challenges that would
face US multinational corporations in the wake of the poorer Asian
economic prospects. The sell-off then broadened to other stocks as well,
leading to a 554-point decline in the Dow Jones Industrial Average on
October 27. Although the decline proved to be short-lived, investor
confidence was not definitively restored, and stock market volatility
continued. Although the US bond market benefited during periods when
investors anticipated slower economic growth, the release of stronger-
than-expected economic statistics led to periods of declining bond prices.
As 1997 draws to a close, investors are likely to continue to focus on the
prospects for the US economy. Although the Federal Reserve Board did not
tighten monetary policy at its November 12 meeting, it remains to be seen
whether US economic growth remains moderate enough and inflationary
pressures sufficiently contained to preclude an increase in short-term
interest rates.
Portfolio Matters
For the three months ended October 31, 1997, Merrill Lynch Strategic
Dividend Fund's Class A, Class B, Class C and Class D Shares had total
returns of +0.24%, -0.02%, 0.00% and +0.25%, respectively. (Results shown
do not reflect sales charges; results would be lower if sales charges were
included. For complete performance information, including average annual
total returns, see pages 4 -- 7 of this report to shareholders.) These
results exceeded the -3.73% total return of the unmanaged Standard &
Poor's 500 Index (S&P 500), and the -3.21% total return for the 200
highest-yielding stocks of the S&P 500.
Our investment activities over the past several months focused on seeking
to increase the Fund's dividend yield. This was accomplished by
taking capital gains in several of our lower-yielding equities, which had
appreciated significantly in price, and redeploying the assets in more
attractively valued higher-yielding stocks. This strategy benefited Fund
performance during the October quarter since the best-performing stocks in
absolute and relative terms were in the highest-yielding stock sector of
the S&P 500. Specifically, stocks within the energy, financial and utility
sectors, which together accounted for approximately 60% of the Fund's
equity holdings, posted among the strongest relative returns during the
October quarter.
At October quarter-end, more than 88% of the Fund's equity holdings had
dividend yields above the yield of the S&P 500, and the Fund's 3.3% gross
dividend yield was almost double the S&P 500's yield of 1.7%. To achieve
and maintain a better-than-market dividend yield, we have historically
overweighted the Fund's exposure to the three highest-yielding sectors of
the market. During the October quarter, we had 24% of net assets invested
in the financial sector, 22% in utilities and 14% in energy. This was
compared to the S&P's weightings of 16%, 8% and 9%, respectively, at
October quarter-end. Moreover, to meet the Fund's primary objective of
seeking to provide long-term total returns from a diversified investment
portfolio, our investments in other sectors of the market were generally
in stocks that offer the highest dividend yield in their respective
industries. As a result, several of our holdings in the consumer and
capital goods sectors also contributed to the Fund's favorable relative
returns.
Highlighting several of our bestperforming stocks in the October quarter,
Barnett Banks, Inc. and First Commerce Corp. agreed to be acquired at
significant premiums to current market value. Two other Fund holdings,
Bankers Trust New York Corp. and CoreStates Financial Corp., became the
subject of takeover speculation which resulted in a sharp upward move in
their stock prices. Several other holdings also appreciated significantly
when the companies announced major fundamental or operational changes, or
both. More than two-thirds of our equity holdings performed in line with
or better than the overall market.
At October quarter-end, we held investments in 72 equities. Transactions
during the quarter included initiating positions in eight new investments
and increasing our investment in two existing holdings.
We also eliminated the stocks of seven companies and reduced our
investment in two others. Some of our new investments included:
[bullet] Cali Realty Corp. and Crescent Real Estate Equities Company, two
commercial office real estate investment trusts.
[bullet] Cooper Tire and Rubber Company, a producer of carbon reinforced
rubber products for the automotive industry, primarily in North America.
[bullet] Dun & Bradstreet Corp., a holding company for Moody's Investors
Service, the world's largest credit reporting agency, and R.H. Donnelly, a
publisher of Yellow Pages directories.
[bullet] Union Camp Corp., a diversified manufacturer of paper, packaging
products, chemicals and wood products.
[bullet] Union Pacific Corp., the largest railroad enterprise in North
America with 36,000 route miles in 23 primarily western states, as well as
in Canada and Mexico.
We also increased our investments in KN Energy, Inc. and Ogden
Corporation. We believe these stocks are attractive investments on a
potential total return basis and current above market dividend yield.
In Conclusion
We thank you for your investment in Merrill Lynch Strategic Dividend Fund,
and we look forward to reviewing our outlook and strategy with you in our
upcoming semi-annual report to shareholders.
Sincerely,
/S/ ARTHUR ZEIKEL
Arthur Zeikel
President
/S/ WALTER D. ROGERS
Walter D. Rogers
Vice President and Portfolio Manager
December 2, 1997
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] 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 "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" 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.
<TABLE>
<CAPTION>
Performance
Summary --
Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
11/29/88 -- 12/31/88 $10.71 $10.56 $0.140 $0.156 + 1.37%
1989 10.56 12.50 -- 0.612 +24.61
1990 12.50 10.95 -- 0.725 - 6.70
1991 10.95 12.15 -- 0.516 +15.99
1992 12.15 12.75 -- 0.460 + 8.95
1993 12.75 12.74 0.645 0.456 + 8.66
1994 12.74 10.70 1.596 0.465 + 0.17
1995 10.70 12.22 1.309 0.463 +32.08
1996 12.22 12.68 1.232 0.527 +19.08
1/1/97 -- 10/31/97 12.68 14.30 0.879 0.311 +21.85
Total $5.801 Total $4.691
Cumulative total return as of 10/31/97: +210.68%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance
Summary --
Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
11/25/87 -- 12/31/87 $10.00 $10.02 -- $0.047 + 0.67%
1988 10.02 10.56 $0.266 0.465 +12.81
1989 10.56 12.49 -- 0.504 +23.40
1990 12.49 10.94 -- 0.604 - 7.68
1991 10.94 12.14 -- 0.393 +14.78
1992 12.14 12.75 -- 0.328 + 7.89
1993 12.75 12.74 0.645 0.315 + 7.54
1994 12.74 10.71 1.596 0.333 - 0.82
1995 10.71 12.24 1.309 0.330 +30.73
1996 12.24 12.69 1.232 0.391 +17.71
1/1/97 -- 10/31/97 12.69 14.31 0.879 0.198 +20.89
Total $5.927 Total $3.908
Cumulative total return as of 10/31/97: +217.94%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance
Summary --
Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $11.84 $10.69 $0.798 $0.108 - 2.02%
1995 10.69 12.17 1.309 0.358 +30.59
1996 12.17 12.61 1.232 0.400 +17.82
1/1/97 -- 10/31/97 12.61 14.20 0.879 0.201 +20.80
Total $4.218 Total $1.067
Cumulative total return as of 10/31/97: +82.11%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance
Summary --
Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $11.85 $10.71 $0.798 $0.115 - 1.88%
1995 10.71 12.22 1.309 0.439 +31.69
1996 12.22 12.68 1.232 0.496 +18.79
1/1/97 -- 10/31/97 12.68 14.30 0.879 0.285 +21.64
Total $4.218 Total $1.335
Cumulative total return as of 10/31/97: +86.71%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Recent
Performance
Results
12 Month 3 Month
10/31/97 7/31/97 10/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Strategic Dividend Fund Class A Shares* $14.30 $15.21 $12.30 +24.24%(1) -0.55%(2)
ML Strategic Dividend Fund Class B Shares* 14.31 15.22 12.30 +24.32(1) -0.56(2)
ML Strategic Dividend Fund Class C Shares* 14.20 15.11 12.22 +24.23(1) -0.56(2)
ML Strategic Dividend Fund Class D Shares* 14.30 15.20 12.29 +24.35(1) -0.49(2)
Standard & Poor's 500 Index** 914.62 954.29 705.27 +29.68 -4.16
ML Strategic Dividend Fund Class A Shares -- Total Return* +28.02(3) +0.24(4)
ML Strategic Dividend Fund Class B Shares -- Total Return* +26.77(5) -0.02(6)
ML Strategic Dividend Fund Class C Shares -- Total Return* +26.73(7) +0.00(8)
ML Strategic Dividend Fund Class D Shares -- Total Return* +27.82(9) +0.25(10)
Standard & Poor's 500 Index -- Total Return** +32.09 -3.73
* 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.
(1) Percent change includes reinvestment of $1.007 per share capital gains distributions.
(2) Percent change includes reinvestment of $0.879 per share capital gains distributions.
(3) Percent change includes reinvestment of $0.419 per share ordinary income dividends and $1.007 per share
capital gains distributions.
(4) Percent change includes reinvestment of $0.128 per share ordinary income dividends and $0.879 per share
capital gains distributions.
(5) Percent change includes reinvestment of $0.274 per share ordinary income dividends and $1.007 per share
capital gains distributions.
(6) Percent change includes reinvestment of $0.087 per share ordinary income dividends and $0.879 per share
capital gains distributions.
(7) Percent change includes reinvestment of $0.278 per share ordinary income dividends and $1.007 per share
capital gains distributions.
(8) Percent change includes reinvestment of $0.090 per share ordinary income dividends and $0.879 per share
capital gains distributions.
(9) Percent change includes reinvestment of $0.386 per share ordinary income dividends and $1.007 per share
capital gains distributions.
(10) Percent change includes reinvestment of $0.119 per share ordinary income dividends and $0.879 per share
capital gains distributions.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/97 +36.02% +28.88%
Five Years Ended 9/30/97 +16.99 +15.73
Inception (11/29/88) through 9/30/97 +14.04 +13.35
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/97 +34.61% +30.61%
Five Years Ended 9/30/97 +15.77 +15.77
Inception (11/25/87) through 9/30/97 +12.79 +12.79
* 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 9/30/97 +34.52% +33.52%
Inception (10/21/94) through 9/30/97 +23.77 +23.77
* 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 9/30/97 +35.71% +28.58%
Inception (10/21/94) through 9/30/97 +24.79 +22.53
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Strategic Dividend Fund, October 31, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
Shares Percent of
EUROPE Industries Held Common Stocks Cost Value Net Assets
<S> <C> <C> <C> <C> <C> <C>
Netherlands Oil -- 67,200 Royal Dutch Petroleum PLC (NY Registered Shares) $982,387 $3,536,400 1.8%
International ------------ ------------ -----
Total Investments in the Netherlands 982,387 3,536,400 1.8
============ ============ =====
Spain Oil & Gas 25,000 Repsol S.A.(ADR)* 798,632 1,062,500 0.6
Producers ------------ ------------ -----
Total Investments in Spain 798,632 1,062,500 0.6
============ ============ =====
United Kingdom Oil -- 38,336 British Petroleum Co. PLC (ADR)* 1,696,341 3,363,984 1.7
International ------------ ------------ -----
Total Investments in the United Kingdom 1,696,341 3,363,984 1.7
============ ============ =====
Total Investments in Europe 3,477,360 7,962,884 4.1
============ ============ =====
LATIN
AMERICA
Brazil Banks 49,400 Uniao de Bancos Brasileiros S.A.
(Unibanco)(GDR)** 1,667,250 1,346,150 0.7
------------ ------------ -----
Total Investments in Latin America 1,667,250 1,346,150 0.7
============ ============ =====
NORTH
AMERICA
United States Aerospace 40,000 Northrop Grumman Corp. 1,435,901 4,370,000 2.2
& Defense 28,000 Rockwell International Corp. 1,365,320 1,372,000 0.7
60,000 TRW Inc. 1,663,737 3,435,000 1.8
------------ ------------ -----
4,464,958 9,177,000 4.7
Automobiles 85,000 Ford Motor Company 2,416,975 3,713,438 1.9
50,000 General Motors Corp. 2,421,750 3,209,375 1.7
------------ ------------ -----
4,838,725 6,922,813 3.6
Automotive 72,000 Arvin Industries, Inc. 1,656,934 2,695,500 1.4
Equipment 60,000 Dana Corp. 1,649,850 2,808,750 1.5
------------ ------------ -----
3,306,784 5,504,250 2.9
Banks 20,000 Bankers Trust New York Corp. 1,418,062 2,360,000 1.2
30,000 Barnett Banks, Inc. 751,762 2,070,000 1.1
74,000 CoreStates Financial Corp. 2,584,814 5,383,500 2.8
46,000 First Commerce Corp. 1,587,910 2,955,500 1.5
10,000 J.P. Morgan & Co., Inc. 897,556 1,097,500 0.6
46,000 Mellon Bank Corp. 990,205 2,371,875 1.2
34,500 Mercantile Bancorp. 1,002,055 1,675,406 0.9
------------ ------------ -----
9,232,364 17,913,781 9.3
Business 52,000 Dun & Bradstreet Corp. 1,505,435 1,485,250 0.8
Services
Capital Goods 40,000 General Electric Co. 966,225 2,582,500 1.3
28,000 Minnesota Mining & Manufacturing Co. 1,608,098 2,562,000 1.3
68,000 Ogden Corporation 1,531,759 1,717,000 0.9
------------ ------------ -----
4,106,082 6,861,500 3.5
Chemicals 23,000 The Dow Chemical Co. 1,369,880 2,087,250 1.1
61,400 E.I. du Pont de Nemours & Co. 2,060,442 3,492,125 1.8
------------ ------------ -----
3,430,322 5,579,375 2.9
Cosmetics 17,000 Avon Products, Inc. 506,260 1,113,500 0.6
Drugs 40,000 American Home Products Corp. 2,125,575 2,965,000 1.5
55,000 Bristol-Myers Squibb Co. 1,255,753 4,826,250 2.5
------------ ------------ -----
3,381,328 7,791,250 4.0
Engineering 37,000 Foster Wheeler Corp. 1,380,470 1,214,063 0.6
& Construction
Financial Services 35,000 Beneficial Corp. 1,352,468 2,684,063 1.4
Forest Products 60,000 Weyerhaeuser Co. 2,666,100 2,865,000 1.5
Household Products 24,000 The Clorox Co. 728,490 1,680,000 0.9
Industrial -- 38,000 Cooper Industries, Inc. 2,036,029 1,980,750 1.0
Consumer Goods
Insurance 95,000 American General Corp. 1,961,793 4,845,000 2.5
30,000 Lincoln National Corp. 1,275,150 2,062,500 1.1
110,000 Ohio Casualty Corp. 3,512,187 4,771,250 2.4
------------ ------------ -----
6,749,130 11,678,750 6.0
Machinery 106,200 The Manitowoc Company, Inc. 1,306,732 3,219,187 1.7
Merchandising 50,000 J.C. Penney Company, Inc. 2,315,950 2,934,375 1.5
29,000 May Department Stores Co. 1,140,994 1,562,375 0.8
------------ ------------ -----
3,456,944 4,496,750 2.3
Metals 55,000 Carpenter Technology Corp. 1,747,599 2,660,625 1.4
Oil -- Domestic 28,000 Atlantic Richfield Co. 1,584,596 2,304,750 1.2
90,000 Occidental Petroleum Corp. 2,323,525 2,508,750 1.3
62,000 Phillips Petroleum Co. 2,146,570 2,999,250 1.5
50,000 Ultramar Corp. 1,578,500 1,543,750 0.8
------------ ------------ -----
7,633,191 9,356,500 4.8
Oil -- 40,000 Exxon Corp. 1,189,846 2,457,500 1.3
International 40,000 Mobil Corp. 915,150 2,912,500 1.5
60,000 Texaco Inc. 1,407,728 3,416,250 1.7
------------ ------------ -----
3,512,724 8,786,250 4.5
Paper 66,000 Union Camp Corp. 3,963,011 3,576,375 1.8
Photography 40,000 Eastman Kodak Co. 1,624,689 2,395,000 1.2
Railroads 29,000 Union Pacific Corp. 1,932,989 1,776,250 0.9
Real Estate 38,000 Apartment Investment & Management Co. (Class A) 1,201,028 1,346,625 0.7
Investment Trusts 40,000 Avalon Properties, Inc. 830,602 1,175,000 0.6
30,000 Cali Realty Corp. 1,126,800 1,215,000 0.6
63,000 Crescent Real Estate Equities Company 1,991,111 2,268,000 1.2
35,000 Essex Property Trust, Inc. 854,486 1,198,750 0.6
60,000 Patriot American Hospitality Inc. 788,297 1,980,000 1.0
------------ ------------ -----
6,792,324 9,183,375 4.7
Telecommunications 60,000 Harris Corporation 2,600,982 2,617,500 1.4
Tires & Rubber 50,000 Cooper Tire and Rubber Company 1,202,300 1,059,375 0.6
Utilities -- 85,000 American Electric Power Co., Inc. 2,682,600 4,016,250 2.1
Electric 106,000 Boston Edison Company 2,656,360 3,345,625 1.7
63,000 Consolidated Edison Co. of New York, Inc. 1,779,750 2,157,750 1.1
105,000 Edison International, Inc. 1,759,425 2,690,625 1.4
50,000 Long Island Lighting Co. 1,120,500 1,259,375 0.6
66,000 New Century Energies, Inc. 2,137,905 2,755,500 1.4
60,000 Northern States Power Co. 2,613,600 3,022,500 1.6
------------ ------------ -----
14,750,140 19,247,625 9.9
Utilities -- Gas & 40,000 Consolidated Natural Gas Co. 1,805,775 2,162,500 1.1
Gas Pipeline 48,000 KN Energy, Inc. 1,996,896 2,088,000 1.1
50,000 Sonat Inc. 882,073 2,296,875 1.2
------------ ------------ -----
4,684,744 6,547,375 3.4
Utilities -- 46,080 Bell Atlantic Corp. 2,299,200 3,680,640 1.9
Telecommunications 40,000 GTE Corp. 1,429,930 1,697,500 0.9
90,000 Southern New England Telecommunications Corp. 3,095,355 3,858,750 2.0
55,000 U S West Communications Group, Inc. 1,852,675 2,189,687 1.1
------------ ------------ -----
8,677,160 11,426,577 5.9
Utilities -- Water 76,000 American Water Works Co., Inc. 1,429,750 1,719,500 0.9
Total Investments in North America 115,000,224 172,519,609 89.1
============ ============ =====
Total Common Stocks 120,144,834 181,828,643 93.9
============ ============ =====
<CAPTION>
Face Percent of
Amount Short-Term Securities Cost Value Net Assets
Repurchase $6,403,000 UBS Securities Inc., purchased on 10/31/1997
Agreements*** to yield 5.69% to 11/03/1997 $6,403,000 $6,403,000 3.3%
US Government 5,000,000 Federal Home Loan Mortgage Corp.,
Agency 5.44% due 11/07/1997 4,994,711 4,994,711 2.6
Obligations****
Total Short-Term Securities 11,397,711 11,397,711 5.9
============ ============ =====
Total Investments $131,542,545 193,226,354 99.8
============
Other Assets Less Liabilities 292,749 0.2
------------ -----
Net Assets $193,519,103 100.0%
============ =====
Net Asset Value: Class A -- Based on net assets of $28,650,017 and 2,003,413 shares outstanding $14.30
============
Class B -- Based on net assets of $82,514,639 and 5,765,619 shares outstanding $14.31
============
Class C -- Based on net assets of $3,093,091 and 217,769 shares outstanding $14.20
============
Class D -- Based on net assets of $79,261,356 and 5,544,305 shares outstanding $14.30
============
* American Depositary Receipts (ADR).
** Global Depositary Receipts (GDR).
*** Repurchase Agreements are fully collateralized by US Government & Agency Obligations.
**** US Government Agency Obligations are traded on a discount basis; the interest rate shown is the discount rate
paid at the time of purchase by the Fund.
</TABLE>
PORTFOLIO CHANGES
For the Quarter Ended October 31, 1997
Additions Bell Atlantic Corp. *Meritor Automotive, Inc.
Cali Realty Corp. New Century Energies, Inc.
Cooper Tire and Rubber Company Union Camp Corp.
Crescent Real Estate Equities Union Pacific Corp.
Company
Dun & Bradstreet Corp.
Deletions AGL Resources, Inc. NYNEX Corp.
Eli Lilly & Co. PaineWebber Group Inc.
Houston Industries Inc. Public Service Co. of Colorado
* Meritor Automotive, Inc. Wisconsin Energy Corp.
* Added and deleted in the same quarter.
PORTFOLIO INFORMATION
As of October 31, 1997
Percent of
Ten Largest Common Stock Holdings Net Assets
CoreStates Financial Corp. 2.8%
American General Corp. 2.5
Bristol-Myers Squibb Co. 2.5
Ohio Casualty Corp. 2.4
Northrop Grumman Corp. 2.2
American Electric Power Co., Inc. 2.1
Southern New England Telecommunications Corp. 2.0
Ford Motor Company 1.9
Bell Atlantic Corp. 1.9
Union Camp Corp. 1.8
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
Thomas D. Jones, III, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, MA 02171
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
