MERRILL
LYNCH
SPECIAL
VALUE
FUND, INC.
FUND LOGO
Semi-Annual Report September 30, 1994
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Special Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
In the September quarter, Merrill Lynch Special Value Fund, Inc.
slightly underperformed the unmanaged Russell 2000 Index. The Fund's
Class A Shares and Class B Shares returned +6.17% and +5.95%,
respectively, while the Russell 2000 Index total return was +6.94%.
(Results do not include sales charge; results would be lower if
sales charge was included. Complete performance information,
including average annual total returns, can be found on pages 4, 5
and 6 of this report to shareholders.)
The Environment
Concerns of increasing inflationary pressures continued to prompt
volatility in the US stock and bond markets during the September
quarter. In addition, the weakness of the US dollar in foreign
exchange markets prolonged stock and bond market declines during
July. While the immediate concerns regarding the US dollar had
diminished by late July, the possibility of continued tightening by
the Federal Reserve Board persisted for most of the period. However,
a lower-than-expected rate of growth reported for the US economy
during the second calendar quarter allayed inflationary concerns to
some degree, despite the fifth increase this year in short-term
interest rates made by the central bank in mid-August. Inflationary
expectations surfaced again with the announcement of significant
upward revisions in industrial production and capacity utilization
for the May--July period. When the central bank did not raise short-
term interest rates at the late September Federal Open Market
Committee meeting, financial markets rallied on the expectation that
the US economy was not overheating and therefore significant further
monetary policy tightening would not be necessary.
Despite the stronger-than-expected industrial production results,
other economic data suggest that while the economic recovery is
continuing, it is losing some momentum. Consumer spending is
increasing, but at a relatively slow pace, and existing home sales
may have peaked.
<PAGE>
Despite evidence of a moderating trend in the US economy, Chairman
Greenspan indicated in his July Humphrey-Hawkins testimony that the
central bank would prefer to err on the side of too much monetary
tightening rather than too little. In the weeks ahead, investors
will continue to assess economic data and inflationary trends in
order to gauge whether further increases in short-term interest
rates are imminent. Continued indications of moderate and
sustainable levels of economic growth would be positive for the US
capital markets.
Portfolio Matters
During the September quarter, the Fund's performance was helped by
its positions in technology and healthcare. Many healthcare stocks
rebounded from depressed prices as investors reacted favorably to
the realization that Congress would not pass any major healthcare
legislation this year. Notable performers (in order of their
positive contributions to the portfolio's total return) were Roberts
Pharmaceutical Corp. (up 32%), Boole & Babbage, Inc. (up 18%) and
Beverly Enterprises, Inc. (up 27%).
The Fund re-established a position in Roberts Pharmaceutical Corp.
after a sharp sell-off in the shares brought the price to attractive
levels. The company was an important portfolio holding and an
outstanding performer for the Fund from 1990--1993, but we sold it
when the stock appreciated to a less attractive price. Since then,
Roberts Pharmaceutical Corp. has made considerable progress in
building its product offerings and profitability. Furthermore, the
stock purchase standstill agreement with their largest shareholder,
Japan-based Yamanouchi Pharmaceutical Co., Ltd., is nearing its
December 1994 expiration. The combination of higher profitability,
an increasingly timely possibility of a buyout offer from
Yamanouchi, and a sharply lower stock price led to our purchases
this year. The volatile shares subsequently appreciated. Therefore,
we took profits and substantially reduced our position in the stock
because of the higher price and recently lowered expectations of
future earnings growth.
Boole & Babbage, Inc. benefited from growing earnings and increased
investor recognition of its improved prospects and modest valuation.
Beverly Enterprises, Inc. continued its earnings growth and made
acquisitions that appear likely to further strengthen the earnings
of its institutional pharmacy business segment.
<PAGE>
The Fund's performance was hindered by its holdings in financial
services and energy, partially reversing the positive contributions
these sectors made to the portfolio's performance (relative to the
Russell 2000 Index) in the previous quarter. Energy stocks were hurt
by soft natural gas prices. Financial services stocks gave up part
of their gains near quarter-end as investors became increasingly
concerned over traditionally interest-rate-sensitive stocks because
of the ongoing rise in interest rates. Banks and thrifts enjoyed
particularly good net interest margins in recent years, and it's
likely that those margins will contract modestly. The strong
performance of financial services stocks, both this year and since
1990, left many shareholders with opportunities to take profits. We
do not dismiss the idea that profitability growth could be harder
for these companies to generate in the year ahead. However, the very
modest valuation levels accorded even many of the better companies
in the group support our ongoing investment interest. Successful
companies with good management, strong asset quality and established
earnings growth records such as Roosevelt Financial Group, Inc.
(selling at 7.2 times estimated 1995 earnings) and Charter One
Financial, Inc. (at 7.2 times estimated 1994 earnings) are
especially attractive in a market environment where the average
stock sells at more than twice those price/earnings ratios. Also
noteworthy is the ongoing industry consolidation. Earlier this year,
portfolio holding Sterling BancShares, Inc. was acquired by Fleet
Financial.
During the September quarter, we bought shares in 18 new holdings,
received two more in spin-offs, and added to positions in 35
existing investments. Purchases spanned a wide variety of
industries. Sectors receiving emphasis included financial services,
energy, retail and textiles. In financial services, we added to our
already important positions in Charter One Financial, Inc. and
Roosevelt Financial Group, Inc., as discussed above. Also,
continuing our purchases of insurance stocks, we added to PXRE
Corp., Security--Connecticut Corp. and Harleysville Group, Inc.
Weakness in the retail and textile sectors allowed us to add to some
existing holdings at lower prices and to initiate positions in
Burlington Industries, Inc. and Farah, Inc. Within the energy
sector, we added a convertible preferred stock issued by Plains
Resources, Inc., which carries a yield of 10% payable in-kind or in
cash at the issuer's option, and convertible at $6 per common share.
We bought shares in Total Petroleum of North America, Ltd., an oil
refiner and marketer. We believe oil refining profits could grow in
upcoming years in response to increased demand for petroleum
products and the difficulty of building new refining capacity,
especially in the United States, where environmental regulations are
increasingly stringent.
<PAGE>
We eliminated holdings in 15 securities. Most sales were motivated
by stocks appreciating to our price objectives. Concerns over
companies' operating results also motivated some sales. We reduced
holdings in 20 companies. Again, most sales were motivated by the
stocks appreciating to less attractive valuation levels. In the
difficult stock market environment this year, we moved quickly to
take profits and reduce weightings in stocks that appreciated.
Cash reserves rose during the September quarter, as shareholders'
net inflows and the proceeds of the Fund's securities sales more
than offset the amount of the Fund's securities purchases. Cash
reserves were 28% of net assets at the end of the September quarter,
compared to 19.6% at June quarter-end. Including cash reserves, at
the end of the September quarter, we estimate that the Fund had
approximately 90% of the volatility of the Russell 2000 index.
The September quarter represented a rebound from the market weakness
experienced during the first half of the year. The stock market, as
measured by popular indexes such as the Russell 2000 and the
unmanaged Standard & Poor's 500, moved higher in July and August,
but was unable to reach the peaks attained in the first quarter of
1994. In September, the rebound gave way to a renewed sell-off,
which was fueled by the ongoing rise of interest rates and
corresponding weakness in the fixed-income market. Indeed, since its
high in October 1993, the bond market is nearing the end of what
could be its worst 12-month period in recent history. Despite the
stronger competition for investor funds posed by higher fixed-income
yields, the stock market indexes mentioned above are at
approximately the same levels posted at the end of 1993's third
quarter. Of course, unlike bonds, stocks can benefit from growing
economic activity through higher earnings. At this juncture,
investors are faced with the question of whether the outlook for
earnings growth is sufficiently strong to move stocks higher in the
face of increased interest rates. Undoubtedly this will prove to be
the case for some individual stocks. However, we continue our
somewhat cautious stance, characterized by the above-mentioned cash
reserves and emphasis on a value-oriented investment strategy. This
posture reflects concern about the level of overall stock market
valuation in conjunction with the interest-rate environment. On a
more positive note, we continue to find individual stocks which
offer attractive valuation and earnings prospects, as reflected in
our numerous purchases this quarter.
In Conclusion
We thank you for your continued investment in Merrill Lynch Special
Value Fund, Inc., and we look forward to reviewing our outlook and
strategy with you again in our next report to shareholders.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Dennis Stattman)
Dennis Stattman
Vice President and Portfolio Manager
October 27, 1994
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Dennis W. Stattman, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. The
"Results of a $1,000 Investment Since Inception" chart below
measures performance since inception and may not reflect results of
investments made at any other time.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL, Item 1.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/94 +9.82% +2.68%
Five Years Ended 9/30/94 +8.61 +7.16
Ten Years Ended 9/30/94 +7.06 +6.34
[FN]
*Maximum sales charge is 6.5%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/94 +8.69% +4.86%
Five Years Ended 9/30/94 +7.50 +7.50
Inception (10/21/88)through 9/30/94 +7.11 +7.11
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
5/5/78--12/31/78 $ 9.60 $ 8.70 -- $0.190 - 7.63%
1979 8.70 10.16 $0.370 0.320 +25.67
1980 10.16 12.54 0.500 0.195 +33.62
1981 12.54 10.58 0.890 0.390 - 6.27
1982 10.58 10.67 0.650 0.380 +12.70
1983 10.67 12.45 0.610 0.070 +22.40
1984 12.45 11.10 0.290 0.120 - 7.60
1985 11.10 14.29 0.340 0.090 +33.14
1986 14.29 13.97 0.620 0.050 + 1.88
1987 13.97 10.32 1.086 0.143 -18.52
1988 10.32 11.83 0.017 0.233 +17.06
1989 11.83 11.65 -- 0.237 + 0.42
1990 11.65 8.32 -- 0.148 -27.52
1991 8.32 12.80 -- 0.080 +54.87
1992 12.80 14.96 -- 0.019 +17.04
1993 14.96 15.66 0.594 0.811 +14.26
1/1/94--9/30/94 15.66 15.77 0.369 0.488 + 6.51
------ ------
Total $6.336 Total $3.964
Cumulative total return as of 9/30/94: +284.95%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/88--12/31/88 $12.01 $11.82 $0.017 $0.095 - 0.62%
1989 11.82 11.61 -- 0.140 - 0.64
1990 11.61 8.29 -- 0.050 -28.26
1991 8.29 12.69 -- 0.019 +53.32
1992 12.69 14.70 -- -- +15.84
1993 14.70 15.31 0.594 0.692 +13.07
1/1/94--9/30/94 15.31 15.31 0.369 0.460 + 5.74
------ ------
Total $0.980 Total $1.456
Cumulative total return as of 9/30/94: +50.40%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
9/30/94 6/30/94 9/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $15.77 $15.71 $16.46 +1.25%(1) +2.88%(2)
ML Special Value Fund, Inc. Class B Shares* 15.31 15.28 16.05 +0.95(1) +2.75(2)
Russell 2000 Index** 256.12 240.29 252.95 +1.25 +6.59
ML Special Value Fund, Inc. Class A Shares--Total Return* +9.82(3) +6.17(4)
ML Special Value Fund, Inc. Class B Shares--Total Return* +8.69(5) +5.95(6)
Russell 2000 Index**--Total Return +2.68 +6.94
<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 $0.851 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.369 per share capital
gains distributions.
(3)Percent change includes reinvestment of $1.298 per share ordinary
income dividends and $0.851 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.488 per share ordinary
income dividends and $0.369 per share capital gains distributions.
(5)Percent change includes reinvestment of $1.152 per share ordinary
income dividends and $0.851 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.460 per share ordinary
income dividends and $0.369 per share capital gains distributions.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industry Shares Held Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 85,000 ++Banner Aerospace, Inc. $ 585,575 $ 478,125 0.2%
65,000 ++BE Aerospace, Inc. 497,985 601,250 0.2
151,500 ++UNC, Inc. 892,162 984,750 0.4
-------------- -------------- ------
1,975,722 2,064,125 0.8
Apparel 69,800 ++Farah, Inc. 879,280 793,975 0.3
25,000 ++Jones Apparel Group, Inc. 554,625 612,500 0.2
60,000 Kellwood Co. 1,169,024 1,447,500 0.6
15,000 St. John Knits, Inc. 255,000 435,000 0.2
65,000 The Warnaco Group, Inc. (Class A) 1,956,480 2,266,875 0.9
-------------- -------------- ------
4,814,409 5,555,850 2.2
Banks & Finance 100,000 American Federal Bank, FSB 961,250 1,225,000 0.5
267,000 Bankers Corp. 2,164,922 4,555,688 1.8
40,000 Banknorth Group, Inc. 632,500 970,000 0.4
389,000 Charter One Financial, Inc. 7,372,762 7,974,500 3.1
170,000 ++Civic Bancorp, Inc. 926,250 892,500 0.3
182,000 The Co-Operative Bank of Concord (a) 2,184,877 3,139,500 1.2
20,000 ++Hamilton Bancorp, Inc. 595,000 570,000 0.2
60,000 NFS Financial Corp. 641,875 1,470,000 0.6
105,000 ONBANCorp, Inc. 3,357,159 2,861,250 1.1
440,000 Roosevelt Financial Group, Inc. 4,696,751 7,342,500 2.8
-------------- -------------- ------
23,533,346 31,000,938 12.0
<PAGE>
Biotechnology 97,100 ++Alteon, Inc. 851,509 649,356 0.3
269,000 ++Applied Immune Sciences, Inc. 3,851,747 1,883,000 0.7
42,900 ++AutoImmune, Inc. 284,213 214,500 0.1
46,000 ++COR Therapeutics, Inc. 443,715 701,500 0.3
140,000 ++Cyto Therapeutics, Inc. 1,195,550 962,500 0.4
60,000 ++Genetic Therapy, Inc. 677,651 465,000 0.2
50,000 ++Gilead Sciences, Inc. 368,750 587,500 0.2
150,000 ++The Immune Response Corp. 1,974,227 1,106,250 0.4
294,800 ++The Liposome Company, Inc. 1,594,040 2,137,300 0.8
76,100 National Patent Development Corp. 208,155 214,031 0.1
315,100 ++NeoRx Corp. 1,630,328 1,102,850 0.4
50,000 ++Sepracor, Inc. 386,875 240,625 0.1
-------------- -------------- ------
13,466,760 10,264,412 4.0
Business Services 339,900 ++Applied Bioscience International, Inc. 1,954,103 1,784,475 0.7
Cellular Telephone 115,000 ++Computervision Corp. 320,850 359,375 0.1
Computer Equipment 226,000 ++Micronics Computers, Inc. 1,198,238 875,750 0.3
Computer Services 725,000 ++Anacomp, Inc. 2,691,367 2,175,000 0.8
179,500 ++Boole & Babbage, Inc. 3,415,294 5,519,625 2.1
25,000 ++Primark Corp. 282,750 318,750 0.1
145,000 ++Symantec Corp. 1,923,450 2,165,938 0.8
-------------- -------------- ------
8,312,861 10,179,313 3.8
Computer Software 315,000 ++Cognos, Inc. 2,239,873 4,095,000 1.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held Value Percent of
Industry Face Amount Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Computers 130,000 ++Alpha Industries, Inc. $ 629,856 $ 763,750 0.3%
45,000 ++DH Technology, Inc. 610,000 1,035,000 0.4
225,000 ++SHL Systemhouse, Inc. 1,293,750 1,265,625 0.5
200,000 ++Western Digital Corp. 2,689,454 2,975,000 1.2
-------------- -------------- ------
5,223,060 6,039,375 2.4
Electrical Equipment 60,000 ++Catalina Lighting, Inc. 471,291 712,500 0.3
135,000 Comptek Research, Inc. 2,159,300 2,008,125 0.8
10,000 Core Industries, Inc. 149,550 106,250 0.0
26,300 ++WPI Group, Inc. 164,375 75,613 0.0
-------------- -------------- ------
2,944,516 2,902,488 1.1
<PAGE>
Electronics l00,000 Alden Electronics, Inc. 422,500 300,000 0.1
500,000 Automated Security Holdings PLC 1,774,832 1,437,501 0.6
27,562 ++Maxwell Laboratories, Inc. 316,726 203,270 0.1
50,000 ++VLSI Technology, Inc. 503,915 550,000 0.2
57,000 ++VTEL Corp. 244,905 327,750 0.1
-------------- -------------- ------
3,262,878 2,818,521 1.1
Energy $900,000 Swift Energy Corp., Convertible
Bonds, 6.50% due 6/30/2003 924,000 922,500 0.4
Engineering & 55,000 Blount, Inc. (Class A) 2,126,199 2,420,000 0.9
Construction
Environmental & 390,250 NSC Corp. 2,062,737 1,121,969 0.4
Environmental Control 200,000 Rollins Environmental Services, Inc. 1,023,187 1,225,000 0.5
-------------- -------------- ------
3,085,924 2,346,969 0.9
Health Care-- 62,700 ++Analogic Corp. 1,026,252 1,065,900 0.4
Products & Services 310,000 ++Beverly Enterprises, Inc. 3,743,773 4,766,250 1.8
112,100 Community Psychiatric Centers 1,378,488 1,527,363 0.6
50,000 ++Healthcare Services Group, Inc. 468,500 581,250 0.2
420,000 ++Ramsey Health Care, Inc. (a) 2,994,181 3,045,000 1.2
200,000 ++Unilab Corp. 1,106,250 1,075,000 0.4
-------------- -------------- ------
10,717,444 12,060,763 4.6
Home Builders 113,400 Washington Homes, Inc. 706,473 595,350 0.2
Home Furnishings 90,000 Crown Crafts, Inc. 1,423,387 1,462,500 0.6
Housing 269,700 ++Redman Industries, Inc. 4,445,256 5,090,587 2.0
<PAGE>
Insurance 140,000 Capital Guaranty Corp. 2,140,001 2,152,500 0.8
120,500 Harleysville Group, Inc. 2,458,586 2,997,437 1.2
255,000 PXRE Corp. (b) 5,182,685 7,395,000 2.9
202,400 Security-Connecticut Corp. 4,042,969 4,174,500 1.6
110,000 ++Transnational Re Corp. (Class A) 2,107,134 2,310,000 0.9
-------------- -------------- ------
15,931,375 19,029,437 7.4
Leasing 147,100 LDI Corp. 1,406,703 735,500 0.3
100,000 ++Sea Containers, Ltd. 2,146,996 1,612,500 0.6
-------------- -------------- ------
3,553,699 2,348,000 0.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held Value Percent of
Industry Face Amount Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Leisure 115,000 Outboard Marine Corp. $ 2,175,424 $ 2,616,250 1.0%
Manufactured Housing 70,000 ++American Homestar, Inc. 560,000 700,000 0.3
Medical 69,059 ++Coram Healthcare Corp. (c) 1,073,735 1,286,224 0.5
32,600 ++Everest & Jennings International
(Class A) 456,544 22,412 0.0
15,000 ++Fischer Imaging Corp. 288,440 75,000 0.0
-------------- -------------- ------
1,818,719 1,383,636 0.5
Metals--Non-Ferrous 76,800 Handy & Harman 1,205,929 1,238,400 0.5
<PAGE>
Natural Resources 145,000 ++Abraxas Petroleum Corp. 1,642,500 1,486,250 0.6
35,000 ++Addington Resources, Inc. 227,290 463,750 0.2
103,600 ++American Oilfield Divers, Inc. 951,150 699,300 0.3
90,900 ++Atwood Oceanics, Inc. 763,562 1,227,150 0.5
55,000 ++Tom Brown, Inc. 240,147 742,500 0.3
38,300 ++Cliffs Drilling Co. 494,562 440,450 0.2
29,000 ++Cliffs Drilling Co. (Convertible
Preferred) 774,875 754,000 0.3
282,253 ++Coho Resources, Inc. 1,990,477 1,499,469 0.6
25,000 ++Energy Ventures, Inc. 468,750 346,875 0.1
275,000 ++Gerrity Oil & Gas Corp. 3,571,250 1,925,000 0.7
65,000 ++Grant Tensor Geophysical Corp.
(Convertible Preferred) 1,103,750 893,750 0.3
359,000 ++International Petroleum Corp. 990,247 426,312 0.2
55,000 ++Mississippi Chemical Corp. 825,000 1,024,375 0.4
75,000 ++Noble Drilling Corp. 496,652 562,500 0.2
105,000 ++Nuevo Energy Co. 2,023,100 2,283,750 0.9
194,600 ++Plains Resources, Inc. 1,356,218 1,337,875 0.5
17,000 ++Plains Resources, Inc. (Convertible
Preferred) 1,700,000 1,972,000 0.8
100,000 ++Tetra Technologies, Inc. 756,272 900,000 0.3
110,000 ++Trans Texas Gas Corp. 1,265,000 1,251,250 0.5
20,000 The Wiser Oil Co. 360,000 340,000 0.1
-------------- -------------- ------
22,000,802 20,576,556 8.0
Oil--Integrated 187,100 Total Petroleum of North America,
Ltd. 2,290,176 2,502,462 1.0
Personal Care Products 50,000 ++Marietta Corp. 441,875 450,000 0.2
Pharmaceuticals 19,025 ++American Drug Co. 2,377 8,918 0.0
19,025 ++American Drug Co. (Warrants) (d) 1,189 4,162 0.0
11,500 ++Roberts Pharmaceutical Corp. 303,460 316,250 0.1
-------------- -------------- ------
307,026 329,330 0.1
Photo-Optical Instruments 80,000 Instron Corp. 1,010,849 1,000,000 0.4
Plastics 19,800 Tredegar Industries, Inc. 297,088 366,300 0.1
<PAGE>
Real Estate $1,000,000 Alexander Haagen Properties, Inc.,
7.25% due 12/27/2003 1,000,000 957,500 0.4
Real Estate Investment 75,000 Carr Realty Corp. 1,602,192 1,518,750 0.6
Trusts 180,000 Crown American Realty Trust 2,562,687 2,407,500 0.9
-------------- -------------- ------
4,164,879 3,926,250 1.5
Restaurants 380,000 ++TPI Enterprises, Inc. 2,986,946 2,470,000 1.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Value Percent of
Industry Shares Held Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Retail Stores 220,000 J. Baker, Inc. $ 3,838,294 $ 4,537,500 1.8%
222,000 ++Catherines Stores Corp. 2,662,100 2,220,000 0.9
40,000 ++Gantos, Inc. 497,275 125,000 0.1
1,063,000 ++Grossman's, Inc. 3,251,812 2,790,375 1.1
240,000 ++Just Toys, Inc. (a) 1,213,444 1,020,000 0.4
305,000 Pier 1 Imports, Inc. 2,687,712 2,440,000 0.9
40,000 ++S & K Famous Brands, Inc. 511,650 340,000 0.1
500,000 ++Service Merchandise Co., Inc. 3,668,068 3,187,500 1.2
20,000 The United States Shoe Corp. 313,887 440,000 0.2
50,000 Venture Stores, Inc. 1,130,980 875,000 0.3
756,400 ++The Wet Seal, Inc. (Class A)(a) 2,687,997 2,741,950 1.1
-------------- -------------- ------
22,463,219 20,717,325 8.1
Services 45,000 ++Pinkertons Security & Investigation
Services 894,375 708,750 0.3
Textiles 252,000 Burlington Industries, Inc. 2,905,992 2,646,000 1.0
Transportation 140,000 ++Kirby Corp. 2,553,075 2,327,500 0.9
Utilities 125,000 American Water Works Co., Inc. 1,921,196 3,296,875 1.3
Total Stocks & Convertible Bonds 183,157,943 192,428,862 74.6
<PAGE>
<CAPTION>
Face Amount Short-Term Securities
<S> <C> <S> <C> <C> <C>
Commercial Paper* $ 10,000,000 B.A.T. Capital Corp., 4.92% due
11/01/1994 9,957,633 9,957,633 3.9
Ciesco L.P.:
5,000,000 4.80% due 11/01/1994 4,979,333 4,979,333 1.9
6,000,000 4.85% due 11/02/1994 5,974,133 5,974,133 2.3
4,000,000 Daimler-Benz AG, 4.73% due 10/05/1994 3,997,898 3,997,898 1.5
10,000,000 First Boston Corp., 4.75% due
10/17/1994 9,978,889 9,978,889 3.9
11,785,000 General Electric Capital Corp., 4.95%
due 10/03/1994 11,781,759 11,781,759 4.6
8,000,000 Matterhorn Capital Corp., 4.75% due
10/14/1994 7,986,278 7,986,278 3.1
10,000,000 National Australia Funding (Delaware)
Inc., 4.76% due 10/19/1994 9,976,200 9,976,200 3.9
7,000,000 Preferred Receivable Funding Corp.,
4.97% due 11/07/1994 6,964,244 6,964,244 2.7
Total Short-Term Securities 71,596,367 71,596,367 27.8
Total Investments $ 254,754,310 264,025,229 102.4
==============
Liabilities in Excess of Other Assets (6,077,566) (2.4)
-------------- ------
Net Assets $ 257,947,663 100.0%
============== ======
<FN>
(a)Investment in companies 5% or more of whose outstanding
securities are held by the Fund (such companies are defined
as "Affiliated Companies" in section 2 (a) (3) of the Investment
Company Act of 1940) are as follows:
Net Share Net Dividend
Industry Affiliate Activity Cost Income
Banks & The Co-Operative
Finance Bank of Concord -- -- $25,120
Health Care-- Ramsey Health
Products & Care, Inc. 344,500 $2,405,758 --
Services
Retail Stores Just Toys, Inc. 93,000 256,177 --
Retail Stores The Wet Seal, Inc.(Class A) 271,400 811,962 --
<PAGE>
(b)Formerly Phoenix Re Corp.
(c)T2 Medical, Inc., Curaflex Health Services, Inc., and Medisys,
Inc., all portfolio holdings, merged on July 11, 1994 to become
Coram Healthcare Corp.
(d)Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
*Commercial Paper is traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the
Fund.
++Non-income producing securities.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of September 30, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$254,754,310) (Note 1a) $264,025,229
Receivables:
Securities sold $ 1,991,613
Capital shares sold 1,260,612
Dividends 42,048
Interest 33,800 3,328,073
------------
Prepaid registration fees and other assets (Note 1d) 38,036
------------
Total assets 267,391,338
------------
<PAGE>
Liabilities: Payables:
Securities purchased 3,622,618
Capital shares redeemed 465,720
Investment adviser (Note 2) 153,908
Distributor (Note 2) 130,484 4,372,730
------------
Accrued expenses and other liabilities 5,070,945
------------
Total liabilities 9,443,675
------------
Net Assets: Net assets $257,947,663
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 583,439
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 1,083,634
Paid-in capital in excess of par 237,958,798
Undistributed investment income--net 92,903
Undistributed realized capital gains on investments--net 8,957,970
Unrealized appreciation on investments--net 9,270,919
------------
Net assets $257,947,663
============
Net Asset Value: Class A--Based on net assets of $92,024,240 and 5,834,391 shares
outstanding $ 15.77
============
Class B--Based on net assets of $165,923,423 and 10,836,334 shares
outstanding $ 15.31
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statement of Operations for the Six Months Ended September 30, 1994
<CAPTION>
<S> <S> <C>
Investment Interest and discount earned $ 1,066,525
Income Dividends 893,440
(Notes 1b & 1c): ------------
Total income 1,959,965
------------
Expenses: Investment advisory fees (Note 2) 829,307
Distribution fees--Class B (Note 2) 682,644
Transfer agent fees--Class B (Note 2) 126,493
Transfer agent fees--Class A (Note 2) 67,429
Printing and shareholder reports 54,354
Registration fees (Note 1d) 33,504
Professional fees 24,930
Directors' fees and expenses 23,581
Custodian fees 18,567
Accounting services (Note 2) 10,511
Pricing fees 173
Other 3,838
------------
Total expenses 1,875,331
------------
Investment income--net 84,634
------------
Realized & Realized gain on investments--net 8,969,354
Unrealized Change in unrealized appreciation on investments 1,760,670
Gain on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 10,814,658
(Notes 1c & 3): ============
See Notes to Financial Statements
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 1994 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 84,634 $ 99,234
Realized gain on investments--net 8,969,354 23,450,584
Change in unrealized appreciation on investments--net 1,760,670 (6,187,920)
------------ ------------
Net increase in net assets resulting from operations 10,814,658 17,361,898
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (90,965) --
Shareholders Class B -- --
(Note 1e): Realized gain on investments--net:
Class A (4,457,732) (6,037,362)
Class B (7,319,309) (6,735,508)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (11,868,006) (12,772,870)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 67,429,097 39,880,101
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 66,375,749 44,469,129
Beginning of period 191,571,914 147,102,785
------------ ------------
End of period* $257,947,663 $191,571,914
============ ============
*Undistributed investment income--net $ 92,903 $ 99,234
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the Six
The following per share data and ratios have been derived from Months
information provided in the financial statements. Ended
Sept. 30, For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1994** 1994** 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.88 $ 15.32 $ 13.86 $ 10.84 $ 11.36
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .06 .10 .05 .10 .12
Realized and unrealized gain (loss) on
investments--net .69 1.87 1.43 3.00 (.49)
-------- -------- -------- -------- --------
Total from investment operations .75 1.97 1.48 3.10 (.37)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.02) -- (.02) (.08) (.15)
Realized gain on investments--net (.84) (1.41) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.86) (1.41) (.02) (.08) (.15)
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.77 $ 15.88 $ 15.32 $ 13.86 $ 10.84
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.04%+++ 13.14% 10.69% 28.71% (3.15%)
Return:++ ======== ======== ======== ======== ========
Ratios to Average Expenses 1.06%* 1.17% 1.28% 1.55% 1.88%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .71%* .62% .37% .83% 1.13%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 92,024 $ 78,804 $ 70,920 $ 57,056 $ 44,818
Data: ======== ======== ======== ======== ========
Portfolio turnover 35.91% 68.70% 42.25% 98.76% 73.06%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Based on an average number of shares outstanding during the period.
++Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlightlights (concluded)
<CAPTION>
Class B
For the Six
The following per share data and ratios have been derived from Months
information provided in the financial statements. Ended
Sept. 30, For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1994** 1994** 1993** 1992** 1991**
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.49 $ 15.01 $ 13.70 $ 10.77 $ 11.29
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.02) (.06) (.09) (.03) --
Realized and unrealized gain (loss) on
investments--net .67 1.83 1.40 2.98 (.47)
-------- -------- -------- -------- --------
Total from investment operations .65 1.77 1.31 2.95 (.47)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.02) (.05)
Realized gain on investments--net (.83) (1.29) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.83) (1.29) -- (.02) (.05)
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.31 $ 15.49 $ 15.01 $ 13.70 $ 10.77
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 4.51%+++ 12.03% 9.56% 27.41% (4.16%)
Return:++ ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding distribution fees 1.09%* 1.19% 1.28% 1.51% 1.95%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.09%* 2.19% 2.28% 2.51% 2.95%
======== ======== ======== ======== ========
Investment loss--net (.32%)* (.41%) (.65%) (.27%) (.04%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $165,923 $112,768 $ 76,182 $ 29,534 $ 3,783
Data: ======== ======== ======== ======== ========
Portfolio turnover 35.91% 68.70% 42.25% 98.76% 73.06%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Based on an average number of shares outstanding during the period.
++Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Special Value Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers both Class A and
Class B Shares. Class A Shares are sold with a front-end sales
charge. Class B Shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B Shares bear certain expenses related to the
distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. On
September 27, 1994, shareholders approved the implementation of the
Merrill Lynch Select PricingSM System, which will offer two new
classes of shares, Class C and Class D. The following is a summary
of significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued, or, lacking
any sales, at the mean between closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the
most recent bid prices as obtained from one or more dealers that
make markets in the securities. Securities traded on the NASDAQ
National Market System are valued at the last sale price on the day
the securities are being valued or, lacking any sales, at the
closing bid price. Portfolio 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. Short-term
securities are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good
faith by or under the direction of the Fund's Board of Directors.
(b) 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.
<PAGE>
(c) 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 date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the funds are informed of 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.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) 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 Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."). The limited
partners are ML & Co. and Fund Asset Management, Inc. ("FAMI"),
which is also an indirect wholly-owned subsidiary of ML & Co., and a
Distribution Agreement and a Distribution Plan with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Investment Management, Inc. ("MLIM").
FAM 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 0.75%, on an annual basis,
of the average daily value of the Fund's net assets. The Investment
Advisory Agreement obligates FAM to reimburse the Fund to the extent
the Fund's expenses (excluding interest, taxes, distribution fees,
brokerage fees and commissions, and extraordinary items) exceed 2.5%
of the Fund's first $30 million of average daily net assets, 2.0% of
the Fund's next $70 million of average daily net assets, and 1.5% of
the average daily net assets in excess thereof. No fee payment will
be made to the Investment Adviser during the fiscal year which will
cause such expenses to exceed the pro rata expense limitation at the
time of such payment.
Pursuant to a distribution plan (the "Distribution Plan") adopted by
the Fund in accordance with Rule 12b-1 under the Investment Company
Act of 1940, the Fund pays the Distributor an ongoing account
maintenance fee and a distribution fee, which are accrued daily and
paid monthly at the annual rates of 0.25% and 0.75%, respectively,
of the average daily net assets of the Class B Shares of the Fund.
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 shareholder and distribution
services and bearing certain distribution-related expenses of the
Fund.
<PAGE>
For the six months ended September 30, 1994, MLFD earned
underwriting discounts of $5,938, and MLPF&S earned dealer
concessions of $86,754 on sale of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $108,727
relating to transactions in Class B Shares and $9,780 in commissions
on the execution of portfolio security transactions for the Fund
during the year.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, FAMI, PSI, MLIM, MLFD, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended September 30, 1994 were $91,305,952 and
$62,840,763, respectively.
Net realized and unrealized gains as of September 30, 1994 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $8,955,876 $9,270,919
Short-term investments 233 --
Financial futures contracts 13,245 --
---------- ----------
Total $8,969,354 $9,270,919
========== ==========
As of September 30, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $9,270,919, of which $26,750,928
related to appreciated securities and $17,480,009 related to
depreciated securities. The aggregate cost of investments at
September 30, 1994 for Federal income tax purposes was $254,754,310.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $67,429,097 and $39,880,101 for the six months ended September
30, 1994 and the year ended March 31, 1994, respectively.
<PAGE>
Transactions in capital shares for Class A Shares and Class B Shares
were as follows:
NOTES TO FINANCIAL STATEMENTS (concluded)
Class A Shares for the Six Months Dollar
Ended September 30, 1994 Shares Amount
Shares sold 1,188,144 $18,564,752
Shares issued to shareholders
in reinvestment of dividends
and distributions 260,847 3,873,586
----------- -----------
Total issued 1,448,991 22,438,338
Shares redeemed (576,548) (8,938,704)
----------- -----------
Net increase 872,443 $13,499,634
=========== ===========
Class A Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
Shares sold 1,242,225 $19,995,495
Shares issued to shareholders
in reinvestment of dividends
and distributions 322,010 4,973,387
----------- -----------
Total issued 1,564,235 24,968,882
Shares redeemed (1,232,902) (19,830,929)
----------- -----------
Net increase 331,333 $ 5,137,953
=========== ===========
Class B Shares for the Six Months Dollar
Ended September 30, 1994 Shares Amount
Shares sold 4,820,717 $73,419,581
Shares issued to shareholders
in reinvestment of dividends
and distributions 460,829 6,658,985
----------- -----------
Total issued 5,281,546 80,078,566
Shares redeemed (1,724,097) (26,149,103)
----------- -----------
Net increase 3,557,449 $53,929,463
=========== ===========
<PAGE>
Class B Shares for the Year Dollar
Ended March 31,1994 Shares Amount
Shares sold 3,509,022 $55,127,981
Shares issued to shareholders
in reinvestment of dividends
and distributions 387,961 5,863,597
----------- -----------
Total issued 3,896,983 60,991,578
Shares redeemed (1,692,858) (26,249,430)
----------- -----------
Net increase 2,204,125 $34,742,148
=========== ===========
PORTFOLIO INFORMATION
Percent of
Top Ten Equity Holdings Net Assets
Charter One Financial, Inc. 3.1%
PXRE Corp. 2.9
Roosevelt Financial Group, Inc. 2.8
Boole & Babbage, Inc. 2.1
Redman Industries, Inc. 2.0
Beverly Enterprises, Inc. 1.8
Bankers Corp. 1.8
J. Baker, Inc. 1.8
Security-Connecticut Corp. 1.6
Cognos, Inc. l.6
Percent of
Ten Largest Industries Net Assets
Banks & Finance 12.0%
Retail Stores 8.1
Natural Resources 8.0
Insurance 7.4
Health Care--Products & Services 4.6
Biotechnology 4.0
Computer Services 3.8
Computers 2.4
Apparel 2.2
Housing 2.0
<PAGE>
Portfolio Changes for the Quarter Ended
September 30, 1994
Additions
American Drug Co. (a)
American Drug Co. (Warrants) (a)
American Homestar, Inc.
*Baby Superstore, Inc.
Burlington Industries, Inc.
Computervision Corp.
*Corporate Express, Inc.
*Doubletree Corp.
Farah, Inc.
Hamilton Bancorp, Inc.
*Input/Output, Inc.
Jones Apparel Group, Inc.
Mississippi Chemical Corp.
*Phillips-Van Heusen Corp.
Plains Resources, Inc. (Convertible Preferred)
*S&P 500 Futures
Symantec Corp.
Total Petroleum of North America, Ltd.
Trans Texas Gas Corp.
UNC, Inc.
Deletions
*Baby Superstore, Inc.
Cadence Design Systems, Inc.
*Corporate Express, Inc.
Delta & Pine Land Co.
*Doubletree Corp.
The Hillhaven Corp.
Informix Corp.
*Input/Output, Inc.
Medical Care America, Inc.
*Phillips-Van Heusen Corp.
Resource BancShares Mortgage Group, Inc.
*S&P 500 Futures
Sigma Designs, Inc.
Sterling Bancshares, Inc.
The Stride Rite Corp.
Varity Corp.
[FN]
*Added and deleted in the same quarter.
(a)Received as a dividend from National Patent Development Corp.
<PAGE>
APPENDIX,: GRAPHIC AND IMAGE MATERIAL.
Item 1:
Results of a $1,000 Investments Since Inception--Class A Shares
(6.5% sales charge--$935.00 net amount invested; assuming
reinvestment of all dividends and capital gains distributions)
A mountain chart depicting the growth of an investment in the
Fund's Class A Shares from $935.00 on May 5, 1978 to $3,599.28 on
September 30, 1994.
