MERRILL LYNCH
STRATEGIC
DIVIDEND FUND
FUND LOGO
Semi-Annual Report
January 31, 1997
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
<PAGE>
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
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
Printed on post-consumer recycled paper
MERRILL LYNCH STRATEGIC DIVIDEND FUND
Security
Representation as a
Percentage of
Equities as of
January 31, 1997
<PAGE>
A pie chart depicting the following percentages:
Financial Services 21.0%
Energy 14.7%
Basic Industries 5.8%
Utilities 28.2%
Capital Goods 14.0%
Consumer 16.3%
US Common Stock
Investments as of
January 31, 1997
S&P
Fund 500*
Average Capitalization (in billions) $19.8 $40.9
Price/Book Value 2.8 3.3
Price/Earnings Ratio** 15.8 19.6
Yield Based on Current Dividend 3.8% 1.9%
[FN]
*An unmanaged broad-based index comprised of common stocks.
**Based on trailing 12-month earnings.
DEAR SHAREHOLDER
The relatively benign economic environment that prevailed throughout
1996 continued into the new year. Highlighting year-end economic
results were stronger industrial production and greater-than-
expected gross domestic product growth for the final quarter of the
year. Underscoring the moderating growth trend were some signs of
softening in the labor market, and initial indications suggested a
respectable but unremarkable holiday selling season.
On balance, US economic fundamentals appear to be the most positive
they have been for many years. However, as 1997 begins, the dilemma
facing investors is how long the economic expansion can continue at
a steady, noninflationary pace. At this late stage of the current
economic recovery, investor expectations can quickly change from
positive to negative with the release of surprising economic
results. Therefore, continued reassurance of steady, noninflationary
economic growth would be a very positive development for the stock
and bond markets in the new year.
<PAGE>
On the international front, the US dollar continued its strong
advance relative to the yen and the Deutschemark, raising concerns
about the outlook for US trade. In early February, the leading
industrialized nations expressed apparent agreement that it was time
to seek a lower dollar and less volatility in the foreign exchange
markets. It remains to be seen whether these stated intentions will
be acted upon, or if the US dollar continues to rise relative to
other major currencies.
Portfolio Matters
For the three months ended January 31, 1997, Merrill Lynch Strategic
Dividend Fund's Class A, Class B, Class C and Class D Shares' total
returns were +8.46%, +8.25%, +8.24% and +8.48%, respectively.
(Results shown do not reflect sales charges; results would be lower
if sales charges were included. For complete performance
information, see pages 4--6 of this report to shareholders.) The
Fund underperformed the +12.03% total return of the unmanaged
Standard & Poor's 500 Index (S&P 500).
The Fund's primary investment focus is on stocks whose yields are
above the S&P 500 yield.
In the January quarter, the Fund's returns modestly lagged the +9.0%
total return for the 200 highest-yielding stocks in the S&P 500.
Because of the Fund's emphasis on a better-than-market yield,
holdings in the three highest-yielding sectors of the S&P 500
(utilities, energy and financials) accounted for 62% of the Fund's
net assets. The shares of utilities and energy companies
underperformed the S&P 500, while financials, which accounted for
20% of net assets, continued their two-year rally and outperformed.
The dividend yield on the Fund's equity holdings at January 31, 1997
was 3.8%, double the dividend yield of the S&P 500 of 1.9%, and 50
basis points above the 3.3% average dividend yield for the 200
highest-yielding stocks in the S&P 500.
The Fund employs a conservative investment strategy, which includes
investing in companies that are financially sound and whose shares
are attractively valued on a price/earnings, price/book and dividend
yield basis. We seek out companies that have strong leadership
positions in their main lines of business or hold attractive market
niche positions. Most of our holdings have S&P ratings of B+ or
better, and are perceived, in our opinion, to have defensive and low-
volatility characteristics. In the January quarter, stocks with
these investment characteristics generally posted poor relative
returns. The Fund's performance was negatively impacted by our
holdings in basic industries, natural gas, electric utilities,
certain energy companies, and consumer cyclicals such as autos and
general merchandising. All posted weak relative returns in the
quarter. The Fund's weightings in these holdings accounted for
nearly 40% of net assets.
<PAGE>
In addition to financial stocks, the Fund's performance was
favorably impacted by positive relative returns of specific
individual investments. These included our holdings of drug,
household products and cosmetics, and specific holdings in the
capital goods and telecommunications industries. Our weightings in
these investments represented 29% of net assets.
During the January quarter, we initiated new investments in four
stocks while eliminating three from the portfolio. In addition, we
increased the Fund's holdings in one company while reducing
positions in two. During the quarter, we obtained, as a result of a
corporate distribution, the shares of The Boeing Co. and NCR
Corporation, which were sold at a gain. Neither of these companies
offered an adequate yield for the Fund.
The largest of our four new investments was Foster Wheeler Corp., an
engineering and construction company which derives over half of its
revenues and profits outside of North America. The company
specializes in the construction of hydrocarbon-based facilities for
the petrochemical, pharmaceutical, power generation, and
environmental remediation industries. A sharp decline in the market
value of the company's shares in late 1996, because of an earnings
shortfall at a waste-to-energy facility, presented an attractive
investment opportunity. The company's business fundamentals remain
sound and orders are strong.
J.P. Morgan & Co., Inc. is a bank holding company whose assets
include Morgan Guaranty Trust, the fourth largest bank in the United
States. Its business activities are global in scope and include
asset management, brokerage services, finance/advisory services and
asset/liability management. The shares of this financially strong
and well-capitalized company were attractive based on the
price/earnings multiple, dividend yield and anticipated earnings
growth.
We acquired shares of Long Island Lighting Co. (LILCO) and sold our
investment in Brooklyn Union Gas Co., as the two companies announced
their agreement to merge. We believe an investment in LILCO is more
attractive on a total return basis as we await the closing of the
transaction, which may take up to two years. The generous 7%
dividend yield is very attractive.
Our final purchase was in shares of Rockwell International Corp., a
diversified, high-technology company with worldwide leadership
market positions principally in electronics and to a lesser degree
in automotive components. As the company announced the sale of its
aerospace and defense businesses to The Boeing Co. in the fall of
1996, it became apparent that the company's focus was its faster-
growing commercial electronics businesses, specifically avionics and
semiconductors. These businesses should show considerable margin
improvement as the company continues to grow internationally and
generate solid low teens earnings per share growth. The shares offer
attractive upside potential.
<PAGE>
In addition to The Brooklyn Union Gas Co., we eliminated shares of
Philip Morris Companies, Inc. and Tambrands Inc. because we believed
our purchases offered more attractive long-term returns. Proceeds
from the partial sales of our investments in The Clorox Co. and
Sprint Corp. were used to fund the addition to our existing
investment in First Commerce Corp.
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,
(Arthur Zeikel)
Arthur Zeikel
President
(Walter D. Rogers)
Walter D. Rogers
Vice President and Portfolio Manager
March 7, 1997
PERFORMANCE DATA
About Fund
Performance
<PAGE>
Investors are 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 approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* 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).
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.
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
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--1/31/97 12.68 13.09 -- -- + 3.23
------ ------
Total $4.922 Total $4.380
<PAGE>
Cumulative total return as of 1/31/97: +163.21%**
<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**
<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--1/31/97 12.69 13.10 -- -- + 3.23
------ ------
Total $5.048 Total $3.710
Cumulative total return as of 1/31/97: +171.50%**
<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>
Performance
Summary--
Class C Shares
<CAPTION>
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--1/31/97 12.61 13.01 -- -- + 3.17
------ ------
Total $3.339 Total $0.866
Cumulative total return as of 1/31/97: +55.53%**
<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>
Performance
Summary--
Class D Shares
<CAPTION>
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--1/31/97 12.68 13.09 -- -- + 3.23
------ ------
Total $3.339 Total $1.050
Cumulative total return as of 1/31/97: +58.46%**
<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>
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Strategic Dividend Fund Class A Shares* $13.09 $12.30 $12.56 +14.87%(1) + 7.52%(2)
ML Strategic Dividend Fund Class B Shares* 13.10 12.30 12.56 +14.94(1) + 7.60(2)
ML Strategic Dividend Fund Class C Shares* 13.01 12.22 12.50 +14.77(1) + 7.57(2)
ML Strategic Dividend Fund Class D Shares* 13.09 12.29 12.56 +14.87(1) + 7.61(2)
Standard & Poor's 500 Index** 786.16 705.27 636.02 +23.61 +11.47
ML Strategic Dividend Fund Class A Shares--Total Return* +19.60(3) + 8.46(4)
ML Strategic Dividend Fund Class B Shares--Total Return* +18.42(5) + 8.25(6)
ML Strategic Dividend Fund Class C Shares--Total Return* +18.35(7) + 8.24(8)
ML Strategic Dividend Fund Class D Shares--Total Return* +19.31(9) + 8.48(10)
Standard & Poor's 500 Index--Total Return** +26.35 +12.03
<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.
(1)Percent change includes reinvestment of $1.232 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.128 per share capital
gains distributions.
(3)Percent change includes reinvestment of $0.527 per share ordinary
income dividends and $1.232 per share capital gains distributions..
(4)Percent change includes reinvestment of $0.109 per share ordinary
income dividends and $0.128 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.391 per share ordinary
income dividends and $1.232 per share capital gains distributions..
(6)Percent change includes reinvestment of $0.075 per share ordinary
income dividends and $0.128 per share capital gains distributions.
(7)Percent change includes reinvestment of $0.400 per share ordinary
income dividends and $1.232 per share capital gains distributions..
(8)Percent change includes reinvestment of $0.077 per share ordinary
income dividends and $0.128 per share capital gains distributions.
(9)Percent change includes reinvestment of $0.496 per share ordinary
income dividends and $1.232 per share capital gains distributions.
(10)Percent change includes reinvestment of $0.101 per share
ordinary income dividends and $0.128 per share capital gains
distributions.
</TABLE>
<PAGE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +19.08% +12.83%
Five Years Ended 12/31/96 +13.28 +12.06
Inception (11/29/88) through 12/31/96 +12.27 +11.52
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +17.71% +13.71%
Five Years Ended 12/31/96 +12.11 +12.11
Inception (11/25/87) through 12/31/96 +11.21 +11.21
[FN]
*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 12/31/96 +17.82% +16.82%
Inception (10/21/94) through 12/31/96 +20.57 +20.57
[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**
<PAGE>
Class D Shares*
Year Ended 12/31/96 +18.79% +12.56%
Inception (10/21/94) through 12/31/96 +21.56 +18.61
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Value Percent of
EUROPE Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Netherlands Oil--International 16,800 Royal Dutch Petroleum PLC (NY
Registered Shares) $ 982,387 $ 2,914,800 1.7%
Total Investments in the Netherlands 982,387 2,914,800 1.7
Spain Oil & Gas Producers 50,000 Repsol S.A. (ADR)* 1,597,265 1,981,250 1.1
Total Investments in Spain 1,597,265 1,981,250 1.1
United Oil--International 19,168 British Petroleum Co. PLC (ADR)* 1,696,341 2,714,668 1.5
Kingdom
Total Investments in the United
Kingdom 1,696,341 2,714,668 1.5
Total Investments in Europe 4,275,993 7,610,718 4.3
NORTH
AMERICA
United Aerospace & Defense 40,000 Northrop Grumman Corp. 1,435,901 3,125,000 1.8
States 28,000 Rockwell International Corp. 1,565,072 1,841,000 1.1
60,000 TRW Inc. 1,663,738 3,045,000 1.7
------------ ------------ ------
4,664,711 8,011,000 4.6
<PAGE>
Automobiles 85,000 Ford Motor Company 2,416,975 2,730,625 1.5
50,000 General Motors Corp. 2,421,750 2,950,000 1.7
------------ ------------ ------
4,838,725 5,680,625 3.2
Automotive Equipment 72,000 Arvin Industries, Inc. 1,656,934 1,737,000 1.0
60,000 Dana Corp. 1,649,850 1,957,500 1.1
------------ ------------ ------
3,306,784 3,694,500 2.1
Banks 20,000 Bankers Trust New York Corp. 1,418,062 1,700,000 1.0
40,000 Barnett Banks, Inc. 1,002,350 1,760,000 1.0
74,000 CoreStates Financial Corp. 2,584,814 3,681,500 2.1
46,000 First Commerce Corp. 1,587,910 1,828,500 1.0
23,000 Mellon Bank Corp. 990,205 1,716,375 1.0
23,000 Mercantile Bancorp. 1,002,055 1,224,750 0.7
20,000 Morgan (J.P.) & Co., Inc. 1,795,112 2,060,000 1.2
------------ ------------ ------
10,380,508 13,971,125 8.0
Chemicals 23,000 The Dow Chemical Co. 1,369,880 1,773,875 1.0
30,700 du Pont (E.I.) de Nemours & Co. 2,060,442 3,365,488 1.9
------------ ------------ ------
3,430,322 5,139,363 2.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
NORTH AMERICA Shares Value Percent of
(concluded) Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Cosmetics & Household 34,000 Avon Products, Inc. $ 1,009,895 $ 2,133,500 1.2%
States Products 32,000 The Clorox Co. 1,908,257 3,796,000 2.2
(concluded) ------------ ------------ ------
2,918,152 5,929,500 3.4
Drugs 40,000 American Home Products Corp. 2,125,575 2,535,000 1.5
40,000 Bristol-Myers Squibb Co. 1,826,550 5,080,000 2.9
35,000 Lilly (Eli) & Co. 951,993 3,049,375 1.7
------------ ------------ ------
4,904,118 10,664,375 6.1
Electrical Equipment 38,600 General Electric Co. 1,864,814 3,975,800 2.3
Engineering & 37,000 Foster Wheeler Corp. 1,380,470 1,429,125 0.8
Construction
Financial Services 60,000 Beneficial Corp. 2,305,713 4,035,000 2.3
30,000 PaineWebber Group Inc. 713,100 1,046,250 0.6
------------ ------------ ------
3,018,813 5,081,250 2.9
<PAGE>
Insurance 95,000 American General Corp. 1,961,793 3,788,125 2.2
50,000 Lincoln National Corp. 2,135,530 2,681,250 1.5
110,000 Ohio Casualty Corp. 3,512,187 4,097,500 2.3
------------ ------------ ------
7,609,510 10,566,875 6.0
Machinery 70,800 The Manitowoc Company, Inc. 1,306,732 2,531,100 1.4
Metals 55,000 Carpenter Technology Corp. 1,747,599 1,980,000 1.1
Miscellaneous 28,000 Minnesota Mining & Manufacturing Co. 1,608,098 2,387,000 1.4
Technology
Oil--Domestic 14,000 Atlantic Richfield Co. 1,584,596 1,851,500 1.1
50,000 Occidental Petroleum Corp. 1,318,625 1,275,000 0.7
62,000 Phillips Petroleum Co. 2,146,570 2,735,750 1.6
50,000 Ultramar Corp. 1,578,500 1,468,750 0.8
------------ ------------ ------
6,628,291 7,331,000 4.2
Oil--International 40,000 Exxon Corp. 2,379,692 4,145,000 2.4
20,000 Mobil Corp. 915,150 2,625,000 1.5
30,000 Texaco Inc. 1,407,728 3,176,250 1.8
------------ ------------ ------
4,702,570 9,946,250 5.7
Paper & Forest 60,000 Weyerhaeuser Co. 2,666,100 2,730,000 1.6
Products
Photography 40,000 Eastman Kodak Co. 1,624,689 3,470,000 2.0
Real Estate 40,000 Avalon Properties, Inc. 840,138 1,105,000 0.6
Investment Trusts 35,000 Essex Property Trust, Inc. 867,275 1,023,750 0.6
30,000 Patriot American Hospitality Inc. 716,256 1,410,000 0.8
------------ ------------ ------
2,423,669 3,538,750 2.0
Retail 29,000 May Department Stores Co. 1,140,994 1,290,500 0.7
50,000 Penney (J.C.) Company Inc. 2,315,950 2,368,750 1.4
------------ ------------ ------
3,456,944 3,659,250 2.1
Savings & Loan 80,000 Great Western Financial
Corporation 1,685,600 2,530,000 1.4
<PAGE>
Utilities--Electric 85,000 American Electric Power Co., Inc. 2,682,600 3,516,875 2.0
106,000 Boston Edison Company 2,656,360 2,875,250 1.6
126,000 Consolidated Edison Co. of New
York, Inc. 3,559,500 3,906,000 2.2
105,000 Edison International, Inc. 1,759,425 2,244,375 1.3
100,000 Houston Industries Inc. 1,934,250 2,262,500 1.3
40,000 IPALCO Enterprises, Inc. 1,067,000 1,110,000 0.6
50,000 Long Island Lighting Co. 1,120,500 1,137,500 0.6
60,000 Northern States Power Co. 2,613,600 2,767,500 1.6
66,000 Public Service Co. of Colorado 2,137,905 2,574,000 1.5
100,000 Wisconsin Energy Corp. 2,593,500 2,587,500 1.5
------------ ------------ ------
22,124,640 24,981,500 14.2
Utilities--Gas & 149,000 AGL Resources, Inc. 2,790,407 3,110,375 1.8
Gas Pipeline 40,000 Consolidated Natural Gas Co. 1,805,775 2,225,000 1.3
50,000 Sonat Inc. 882,073 2,662,500 1.5
------------ ------------ ------
5,478,255 7,997,875 4.6
Utilities-- 22,000 AT&T Corp. 829,342 866,250 0.5
Telecommunications 69,000 GTE Corp. 2,455,578 3,243,000 1.9
60,000 NYNEX Corp. 2,299,200 3,037,500 1.7
90,000 Southern New England
Telecommunications Corp. 3,095,355 3,352,500 1.9
23,000 Sprint Corp. 672,778 937,250 0.5
55,000 US West Communications Group,
Inc. 1,852,675 1,808,125 1.0
------------ ------------ ------
11,204,928 13,244,625 7.5
Utilities--Water 76,000 American Water Works Co., Inc. 1,429,750 1,767,000 1.0
Total Investments in North
America 116,404,792 162,237,888 92.5
Total Common Stocks 120,680,785 169,848,606 96.8
<CAPTION>
Face
Amount Short-Term Securities
Repurchase $5,527,000 SBC Warburg Inc., purchased on
Agreements** 1/31/1997 to yield 5.56% to
2/03/1997 5,527,000 5,527,000 3.1
Total Short-Term Securities 5,527,000 5,527,000 3.1
Total Investments $126,207,785 175,375,606 99.9
============
Other Assets Less Liabilities 103,595 0.1
------------ ------
Net Assets $175,479,201 100.0%
============ ======
<PAGE>
<FN>
*American Depositary Receipts (ADR).
**Repurchase Agreements are fully collateralized by US Government &
Agency Obligations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of January 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$126,207,785) (Note 1a) $175,375,606
Cash 1,318
Receivables:
Dividends $ 482,482
Beneficial interest sold 309,622 792,104
------------
Prepaid registration and other assets (Note 1f) 51,786
------------
Total assets 176,220,814
------------
Liabilities: Payables:
Beneficial interest redeemed 383,403
Distributor (Note 2) 95,812
Investment adviser (Note 2) 88,862 568,077
------------
Accrued expenses and other liabilities 173,536
------------
Total liabilities 741,613
------------
Net Assets: Net assets $175,479,201
============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 166,252
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 738,369
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 19,465
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 416,341
Paid-in capital in excess of par 123,766,733
Undistributed investment income--net 207,272
Undistributed realized capital gains on investments--net 996,948
Unrealized appreciation on investments--net 49,167,821
------------
Net assets $175,479,201
============
<PAGE>
Net Asset Class A--Based on net assets of $21,760,868 and 1,662,517
Value: shares of beneficial interest outstanding $ 13.09
============
Class B--Based on net assets of $96,702,065 and 7,383,687
shares of beneficial interest outstanding $ 13.10
============
Class C--Based on net assets of $2,532,037 and 194,650
shares of beneficial interest outstanding $ 13.01
============
Class D--Based on net assets of $54,484,231 and 4,163,405
shares of beneficial interest outstanding $ 13.09
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended January 31, 1997
<S> <S> <C> <C>
Investment Dividends (net of $14,455 foreign withholding tax) $ 3,139,318
Income Interest and discount earned 206,380
(Notes 1d & 1e): ------------
Total income 3,345,698
------------
Expenses: Investment advisory fees (Note 2) $ 513,493
Account maintenance and distribution fees--Class B (Note 2) 491,925
Transfer agent fees--Class B (Note 2) 101,236
Account maintenance fees--Class D (Note 2) 63,684
Printing and shareholder reports 59,771
Registration fees (Note 1f) 44,494
Transfer agent fees--Class D (Note 2) 44,453
Professional fees 33,906
Transfer agent fees--Class A (Note 2) 17,057
Account maintenance and distribution fees--Class C (Note 2) 11,533
Custodian fees 10,754
Trustees' fees and expenses 10,355
Accounting services (Note 2) 4,596
Transfer agent fees--Class C (Note 2) 2,519
Pricing fees 58
Other 3,745
------------
Total expenses 1,413,579
------------
Investment income--net 1,932,119
------------
<PAGE>
Realized & Realized gain on investments--net 2,877,023
Unrealized Gain Change in unrealized appreciation on investments--net 24,303,693
on Investments ------------
(Notes 1b, 1c, Net Increase in Net Assets Resulting from Operations $ 29,112,835
1e & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 1,932,119 $ 3,835,631
Realized gain on investments and foreign currency transactions
--net 2,877,023 19,882,622
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 24,303,693 1,345,776
------------ ------------
Net increase in net assets resulting from operations 29,112,835 25,064,029
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (302,070) (535,935)
Shareholders Class B (1,019,194) (1,991,833)
(Note 1g): Class C (25,496) (30,000)
Class D (742,364) (921,650)
Realized gain on investments--net:
Class A (1,974,335) (2,003,328)
Class B (10,210,077) (13,717,932)
Class C (237,095) (122,417)
Class D (5,178,309) (2,210,481)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (19,688,940) (21,533,576)
------------ ------------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial
Transactions interest transactions 4,844,777 (6,726,944)
(Note 4): ------------ ------------
<PAGE>
Net Assets: Total increase (decrease) in net assets 14,268,672 (3,196,491)
Beginning of period 161,210,529 164,407,020
------------ ------------
End of period* $175,479,201 $161,210,529
============ ============
<FN>
*Undistributed investment income--net $ 207,272 $ 364,277
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<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
January 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1997++++ 1996++++ 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.43 $ 12.24 $ 12.78 $ 13.60 $ 12.79
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .19 .38 .39 .41 .44
Realized and unrealized gain (loss) on
investments and foreign currency
transactions --net 2.06 1.55 1.10 (.12) .81
-------- -------- -------- -------- --------
Total from investment operations 2.25 1.93 1.49 .29 1.25
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.21) (.36) (.42) (.46) (.44)
Realized gain on investments--net (1.38) (1.38) (1.61) (.65) --
-------- -------- -------- -------- --------
Total dividends and distributions (1.59) (1.74) (2.03) (1.11) (.44)
-------- -------- -------- -------- --------
Net asset value, end of period $ 13.09 $ 12.43 $ 12.24 $ 12.78 $ 13.60
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 19.25%++ 16.98% 14.04% 2.38% 10.03%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .97%* 1.04% 1.05% .85% .81%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 2.93%* 3.04% 3.39% 3.42% 3.38%
======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of period (in thousands) $ 21,761 $ 18,106 $ 18,687 $ 21,854 $ 34,228
Data: ======== ======== ======== ======== ========
Portfolio turnover 8.21% 26.42% 52.69% 22.75% 25.23%
======== ======== ======== ======== ========
Average commission rate paid+++ $ .0631 $ .0576 -- -- --
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Aggregate total investment return.
++++Based on average shares outstanding during the period.
+++For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity securities.
The "Average Commission Rate Paid" includes commissions
paid in foreign currencies, which have been converted into
US dollars using the prevailing exchange rate on the date of
the transaction. Such conversions may significantly affect
the rate shown.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<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
January 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1997++++ 1996++++ 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.44 $ 12.23 $ 12.77 $ 13.59 $ 12.78
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .12 .26 .29 .33 .31
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.06 1.55 1.07 (.18) .81
-------- -------- -------- -------- --------
Total from investment operations 2.18 1.81 1.36 .15 1.12
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.14) (.22) (.29) (.32) (.31)
Realized gain on investments--net (1.38) (1.38) (1.61) (.65) --
-------- -------- -------- -------- --------
Total dividends and distributions (1.52) (1.60) (1.90) (.97) (.31)
-------- -------- -------- -------- --------
Net asset value, end of period $ 13.10 $ 12.44 $ 12.23 $ 12.77 $ 13.59
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 18.59%+++ 15.89% 12.82% 1.30% 8.90%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.00%* 2.08% 2.09% 1.88% 1.84%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 1.92%* 2.06% 2.36% 2.39% 2.37%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 96,702 $ 96,461 $130,921 $167,889 $227,089
Data: ======== ======== ======== ======== ========
Portfolio turnover 8.21% 26.42% 52.69% 22.75% 25.23%
======== ======== ======== ======== ========
Average commission rate paid+++++ $ .0631 $ .0576 -- -- --
======== ======== ======== ======== ========
<CAPTION>
Class C Class D
The following per share data and For the For the
ratios have been derived from For the For the Period For the For the Period
information provided in the Six Months Year Oct. 21, Six Months Year Oct. 21,
financial statements. Ended Ended 1994++ to Ended Ended 1994++ to
January 31, July 31, July 31, January 31, July 31, July 31,
Increase (Decrease) in Net Asset 1997++++ 1996++++ 1995 1997++++ 1996++++ 1995
Value:
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.37 $ 12.20 $ 11.84 $ 12.43 $ 12.24 $ 11.85
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net .12 .24 .21 .17 .34 .26
Realized and unrealized gain on
investments and foreign currency
transactions--net 2.04 1.55 1.21 2.06 1.57 1.23
-------- -------- -------- -------- -------- --------
Total from investment operations 2.16 1.79 1.42 2.23 1.91 1.49
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.14) (.24) (.25) (.19) (.34) (.29)
Realized gain on investments--net (1.38) (1.38) (.81) (1.38) (1.38) (.81)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (1.52) (1.62) (1.06) (1.57) (1.72) (1.10)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 13.01 $ 12.37 $ 12.20 $ 13.09 $ 12.43 $ 12.24
======== ======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 18.57%+++ 15.78% 13.30%+++ 19.10%+++ 16.73% 13.98%+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.01%* 2.08% 2.19%* 1.22%* 1.28% 1.38%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 1.87%* 1.91% 1.94%* 2.67%* 2.62% 2.93%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 2,532 $ 1,953 $ 811 $ 54,484 $ 44,691 $ 13,988
======== ======== ======== ======== ======== ========
Portfolio turnover 8.21% 26.42% 52.69% 8.21% 26.42% 52.69%
======== ======== ======== ======== ======== ========
Average commission rate paid+++++ $ .0631 $ .0576 -- $ .0631 $ .0576 --
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission rate
per share for purchases and sales of equity securities. The
"Average Commission Rate Paid" includes commissions paid in
foreign currencies, which have been converted into US dollars
using the prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect the
rate shown.
See Notes to Financial Statements.
</TABLE>
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. 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.
<PAGE>
(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 are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. 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) 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.
* Financial futures contracts--The Fund may purchase or sell
interest rate 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 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.
<PAGE>
* 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.
* 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. Premium or discount is amortized over the life of the
contracts.
* Options--The Fund is authorized to write call 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.
(c) 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.
<PAGE>
(d) 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.
(e) 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.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) 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, Inc. ("MLFD" or "Distributor"), 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 (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
<PAGE>
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 Inc. ("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, 1997, 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 $173 $14,918
Class D $575 $ 8,820
For the six months ended January 31, 1997, MLPF&S received
contingent deferred sales charges of $48,971 and $367 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $7,180 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended January 31, 1997.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 1997 were $13,265,481 and
$23,133,544, respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
<PAGE>
Net realized and unrealized gains as of January 31, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 2,877,021 $49,167,821
Short-term investments 2 --
----------- -----------
Total $ 2,877,023 $49,167,821
=========== ===========
As of January 31, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $49,167,821, of which $49,371,746
related to appreciated securities and $203,925 related to
depreciated securities. At January 31,1997, the aggregate cost of
investments for Federal income tax purposes was $126,207,785.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $4,844,777 and $(6,726,944) for the six
months ended January 31, 1997 and for the year ended July 31, 1996,
respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 321,334 $ 4,046,923
Shares issued to shareholders in
reinvestment of dividends and
distributions 47,748 585,277
------------ ------------
Total issued 369,082 4,632,200
Shares redeemed (162,841) (2,081,172)
------------ ------------
Net increase 206,241 $ 2,551,028
============ ============
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
<PAGE>
Shares sold 180,887 $ 2,269,224
Shares issued to shareholders in
reinvestment of dividends and
distributions 178,596 2,119,723
------------ ------------
Total issued 359,483 4,388,947
Shares redeemed (430,082) (5,371,607)
------------ ------------
Net decrease (70,599) $ (982,660)
============ ============
Class B Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 929,501 $ 11,545,217
Shares issued to shareholders in
reinvestment of dividends and
distributions 198,721 2,439,465
------------ ------------
Total issued 1,128,222 13,984,682
Automatic conversion of shares (517,434) (6,329,690)
Shares redeemed (983,451) (12,858,411)
------------ ------------
Net decrease (372,663) $ (5,203,419)
============ ============
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 1,123,504 $ 14,059,381
Shares issued to shareholders in
reinvestment of dividends and
distributions 1,073,934 12,682,001
------------ ------------
Total issued 2,197,438 26,741,382
Automatic conversion of shares (2,767,942) (34,512,602)
Shares redeemed (2,374,171) (29,558,902)
------------ ------------
Net decrease (2,944,675) $(37,330,122)
============ ============
Class C Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 76,963 $ 968,976
Shares issued to shareholders in
reinvestment of dividends and
distributions 4,009 48,944
------------ ------------
Total issued 80,972 1,017,920
Shares redeemed (44,274) (558,547)
------------ ------------
Net increase 36,698 $ 459,373
============ ============
<PAGE>
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 145,930 $ 1,818,959
Shares issued to shareholders in
reinvestment of dividends and
distributions 9,105 107,703
------------ ------------
Total issued 155,035 1,926,662
Shares redeemed (63,574) (801,102)
------------ ------------
Net increase 91,461 $ 1,125,560
============ ============
Class D Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 330,832 $ 4,045,556
Automatic conversion of shares 494,611 6,329,690
Shares issued to shareholders in
reinvestment of dividends and
distributions 120,959 1,482,837
------------ ------------
Total issued 946,402 11,858,083
Shares redeemed (378,240) (4,820,288)
------------ ------------
Net increase 568,162 $ 7,037,795
============ ============
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 512,946 $ 6,437,453
Automatic conversion of shares 2,765,284 34,512,602
Shares issued to shareholders in
reinvestment of dividends and
distributions 214,959 2,586,011
------------ ------------
Total issued 3,493,189 43,536,066
Shares redeemed (1,040,583) (13,075,788)
------------ ------------
Net increase 2,452,606 $ 30,460,278
============ ============
<PAGE>
PORTFOLIO CHANGES
For the Quarter Ended January 31, 1997
Additions
*The Boeing Co.
Foster Wheeler Corp.
Long Island Lighting Co.
Morgan (J.P.) & Co., Inc.
*NCR Corp.
Rockwell International Corp.
Deletions
*The Boeing Co.
The Brooklyn Union Gas Co.
*NCR Corp.
Philip Morris Companies, Inc.
Tambrands Inc.
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION
As of January 31, 1997
Percent of
Ten Largest Common Stock Holdings Net Assets
Bristol-Myers Squibb Co. 2.9%
Exxon Corp. 2.4
Ohio Casualty Corp. 2.3
Beneficial Corp. 2.3
General Electric Co. 2.3
Consolidated Edison Co. of New York, Inc. 2.2
The Clorox Co. 2.2
American General Corp. 2.2
CoreStates Financial Corp. 2.1
American Electric Power Co., Inc. 2.0
<PAGE>
