MERRILL
LYNCH
SPECIAL
VALUE
FUND, INC.
FUND LOGO
Quarterly Report June 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
MERRILL LYNCH SPECIAL VALUE FUND, INC.
<PAGE>
DEAR SHAREHOLDER
The expectation of increasing inflationary pressures and higher
interest rates initially heightened investor concerns and increased
financial market volatility during the June quarter. However, by the
quarter's close, it was the weakness of the US dollar in foreign
exchange markets that dominated the financial news and prolonged
stock and bond market declines.
The US dollar's weakness relative to other major currencies reflects
the deteriorating US trade deficit and widening net long-term
capital outflows. In 1993, an expanding US economy and recession in
other industrial countries led to a higher level of imports and
weaker export growth, widening the US trade deficit further. In
addition, global investors favored non-US dollar denominated assets
throughout 1993, which has further depressed the dollar's value.
This trend is not improving significantly thus far in 1994 since
foreign inflows into US capital markets continue to decline,
although US investors are investing outside of the United States to
a lesser degree.
Over the longer term, if the economies of the United States' major
trading partners expand (improving the prospects for US export
growth), the outlook for the US dollar is likely to improve. In the
near term, central banks have attempted to reverse the dollar's
decline through currency market intervention. These efforts have met
with limited success thus far, giving rise to the concern that the
Federal Reserve Board will be forced to continue to raise short-term
interest rates to attract investment capital back to the United
States and bolster the dollar's value. However, further interest
rate increases may jeopardize the US economic expansion. In the
weeks ahead, investors will continue to assess economic data and
inflationary trends as they focus on the US dollar in order to gauge
whether further increases in short-term interest rates are imminent.
Portfolio Matters
During the June quarter, Merrill Lynch Special Value Fund, Inc.
outperformed the unmanaged Russell 2000 Index. The Fund's Class A
and Class B Shares returned -1.07% and -1.36%, respectively, while
the Russell 2000 Index total return was -3.89%. (Complete
performance information, including average annual total returns, can
be found on pages 3, 4 and 5 of this report to shareholders.)
<PAGE>
During the three-month period ended June 30, 1994, the Fund's
performance was helped by its positions in the financial and energy
industries. Energy companies benefited from a sharp increase in
crude oil prices that reversed most of the steep decline experienced
last year. Notable performers in order of their positive contribu-
tions to the portfolio's total return were Transnational Re Corp.
(up 42%), PXRE Corp. (up 27%) and Security-Connecticut Corp. (up 19%).
The three notable contributors to the Fund's performance listed
above are all insurance companies, and each was highlighted in our
most recent shareholder report. Until recently, the Fund has had
relatively little exposure to the insurance industry. During the
first and second quarters of the year, the Fund's exposure in a
variety of insurance stocks was increased. Investor concern over
higher interest rates had depressed the prices of many companies in
the industry and led to attractive valuations in terms of low
price/earnings ratios or low price/book value ratios, or both. We
believe that the outlook favors higher earnings for these companies
next year. Coupled with their current modest valuations, improved
earnings could be expected to lead to good stock price appreciation
even in the absence of a fundamental change in investor sentiment
toward the group or an improved product pricing cycle. The ongoing
possibility of a favorable shift in sentiment toward the stocks or
improved pricing further enhances the group's attraction.
Transnational Re Corp. and PXRE Corp. provide specialized reinsur-
ance to the property catastrophe insurance market. Transnational
Re Corp. concentrates in "retrocessional" reinsurance, which is
reinsurance provided to other reinsurance companies. Major
insured risks include hurricanes, earthquakes, and to a lesser
extent, aviation. Generally, these companies provide reinsurance,
which pays claims only in the event of major losses, after the
primary insurance carrier has paid substantial claims. The heavy
losses associated with Hurricane Andrew and the Northridge
earthquake as well as problems suffered by Lloyds of London have
sharply shifted supply and demand in the reinsurance field. Much
more attractive pricing has resulted. While it is impossible to
predict relevant catastrophes and their impact on earnings, with
current pricing and historical catastrophe experience, Transnational
Re Corp. and PXRE Corp. would enjoy very attractive returns on
equity and rapid growth in book value. Security-Connecticut Corp.
provides life insurance products, primarily to higher income
customers. Despite growing earnings, the stock sells below book
value and at a recent price of $22.75, it is valued at 8.1 and 7.3
times estimated 1994 and 1995 per share earnings of $2.80 and $3.10,
respectively. Certain life insurance products are among the few tax-
advantaged investments remaining after income tax law changes in the
1980s.
<PAGE>
The Fund's other financial services stocks also helped performance
by providing modest gains in a weak stock market environment. We con-
tinue to believe that the combination of low price/earnings ratios
and growing earnings makes the bank and thrift industries attractive.
For a number of companies there is the added possibility of higher
returns from the ongoing trend toward industry consolidation but, at
the same time, we remain committed to buying companies whose current
prices are also justified by their earnings or assets or both.
The Fund's performance was hindered by its holdings in retail
sectors and business services. Both retail and business services
were hurt by the perception that higher interest rates could slow
the economy and reduce profitability in these sectors.
During the June quarter we bought shares in 15 new holdings and
added to positions in 41 existing investments. Purchases spanned a
wide variety of industries. Sectors receiving emphasis included
healthcare, technology, and retail and apparel companies in addition
to the insurance sector. Weakness in the retail and apparel sectors
allowed us to add to some existing holdings at lower prices. Many
healthcare stocks came under pressure from ongoing concern about
government-imposed changes in the industry. Within this sector, we
added to a number of biotechnology holdings. Investors have become
pessimistic about future biotechnology industry profitability, and
many companies can expect much more difficulty obtaining financing.
The Fund has accumulated a group of companies generally with strong
financial resources and promising technologies. We believe there is
substantial appreciation potential from product development,
potential improvement in investor sentiment and possible acqui-
sitions by larger companies. We also increased the Fund's holdings
in nursing homes and hospitals based on our view of their attractive
valuations and expected earnings growth.
We eliminated holdings in 18 securities. Most sales were motivated
by stocks appreciating to the Fund's price objectives. Concerns over
companies' operating results also motivated some sales. We reduced
the Fund's holdings in 22 companies. Again, most sales were moti-
vated by the stocks appreciating to less attractive valuation levels.
In the difficult stock market environment of the June quarter, we
moved more quickly than usual to take profits and reduce weightings
in stocks that appreciated.
Cash reserves fluctuated during the June quarter as a result of
shareholders' net inflows and the Fund's purchases and sales of
securities. During much of the quarter, we decreased the Fund's cash
reserves through purchases of securities, despite receiving sub-
stantial amounts of cash from subscriptions and sales of securities.
However, in the period of improved stock prices from mid-May until
late June, we decreased the Fund's purchase activity and increased
its sales of securities so that cash reserves rose above their 15%
intra-quarter low point by quarter-end. Cash reserves made
up 19.6% of net assets of the portfolio at the end of the June
quarter, compared to 24.5% at the March quarter-end. Including the
cash reserves, at the end of the June quarter we estimate that the
Fund had approximately 97% of the volatility of the Russell 2000
Index.
In an important respect, this quarter represented an extension of
the previous quarter. The central factor remained investor concerns
over higher interest rates and their negative implications for stock
valuations and earnings. After the Federal Reserve Board increased
the discount and Federal Funds target rates each by one-half of one
percent in mid-May, many investors were encouraged to hope that
interest rate increases had come to an end for at least a period of
months. However, an extended bout of weakness for the dollar in
foreign exchange markets fueled new concerns about interest rates.
Furthermore, fixed-income securities now offer investors sufficient
yield to slow the flow of funds into stocks. As we noted in previous
reports, our concern about the high valuations accorded the overall
stock market has led us to maintain cash reserves in the Fund for a
number of quarters. Also, we have stressed our value-oriented
approach to stock selection to a greater degree than our growth
approach in recent quarters. We believe that these strategies have
served to reduce somewhat the impact of the weak stock market on the
Fund. Fortunately, market weakness has been providing a number of
buying opportunities, especially in relatively illiquid small
stocks, and the Fund's cash reserves have allowed us to take
advantage of them.
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.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Dennis Stattman)
Dennis Stattman
Vice President and Portfolio Manager
July 20, 1994
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 on page 4
measures performance since inception and may not reflect results of
investments made at any other time.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/94 +10.49% + 3.31%
Five Years Ended 6/30/94 + 7.28 + 5.85
Ten Years Ended 6/30/94 + 7.04 + 6.32
[FN]
*Maximum sales charge is 6.5%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/94 + 9.35% + 5.35%
Five Years Ended 6/30/94 + 6.18 + 6.18
Inception (10/21/88) through 6/30/94 + 6.35 + 6.35
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
PERFORMANCE DATA (continued)
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: ITEM 1.
<PAGE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
6/30/94 3/31/94 6/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares $15.71 $15.88 $15.52 + 5.14%(1) -1.07%
ML Special Value Fund, Inc. Class B Shares 15.28 15.49 15.17 + 4.71(1) -1.36
Russell 2000 Index** 240.29 251.06 233.35 + 2.97 -4.29
ML Special Value Fund, Inc. Class A Shares--Total Return +10.49(2) -1.07
ML Special Value Fund, Inc. Class B Shares--Total Return + 9.35(3) -1.36
Russell 2000 Index**--Total Return + 4.40 -3.89
<FN>
*Investment results shown for the 3-month and 12-month periods are
before the deduction of any sales charges.
**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 $0.594 per share capital
gains distributions.
(2) Percent change includes reinvestment of $0.811 per share
ordinary income dividends and $0.594 per share capital gains
distributions.
(3) Percent change includes reinvestment of $0.692 per share
ordinary income dividends and $0.594 per share capital gains
distributions.
</TABLE>
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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---6/30/94 15.66 15.71 -- -- + 0.32
------ ------
Total $5.967 Total $3.476
Cumulative total return as of 6/30/94: +262.57%**
<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>
<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--6/30/94 15.31 15.28 -- -- - 0.20
------ ------
Total $0.611 Total $0.996
Cumulative total return as of 6/30/94: +41.96%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if sales
charge was deducted.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industries Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 85,000 Banner Aerospace, Inc. $ 585,575 $ 435,625 0.2%
100,000 BE Aerospace, Inc. 796,999 875,000 0.4
------------- ------------ ------
1,382,574 1,310,625 0.6
Agriculture 35,000 Delta & Pine Land Co. 452,501 616,875 0.3
<PAGE>
Apparel 60,000 Kellwood Co. 1,169,024 1,282,500 0.6
15,000 St. John Knits, Inc. 255,000 416,250 0.2
65,000 The Warnaco Group, Inc. (Class A) 1,956,480 1,909,375 0.9
------------- ------------ ------
3,380,504 3,608,125 1.7
Banks & Finance 70,000 American Federal Bank, FSB 612,500 770,000 0.4
222,500 Bankers Corp. 2,164,922 3,921,563 1.8
40,000 Banknorth Group, Inc. 632,500 822,500 0.4
365,000 Charter One Financial, Inc. 6,748,118 7,391,250 3.4
170,000 Civic Bancorp, Inc. 926,250 892,500 0.4
182,000 The Co-Operative Bank of Concord 2,184,877 3,412,500 1.6
60,000 NFS Financial Corp. 641,875 1,155,000 0.5
80,000 ONBANCorp, Inc. 2,648,784 2,440,000 1.1
52,500 Resource Bancshares Mortgage Group, Inc. 418,750 498,750 0.2
300,000 Roosevelt Financial Group, Inc. 2,435,501 4,800,000 2.2
55,000 Sterling BancShares, Inc. 1,088,750 2,145,000 1.0
------------- ------------ ------
20,502,827 28,249,063 13.0
Biotechnology 50,000 Alteon, Inc. 633,550 293,750 0.1
269,000 Applied Immune Sciences, Inc. 3,851,747 2,017,500 0.9
42,900 AutoImmune, Inc. 284,213 284,213 0.1
86,000 COR Therapeutics, Inc. 917,240 1,010,500 0.5
110,000 Cyto Therapeutics, Inc. 1,030,550 618,750 0.3
60,000 Genetic Therapy, Inc. 677,651 585,000 0.3
110,000 Gilead Sciences, Inc. 848,750 935,000 0.4
150,000 The Immune Response Corp. 1,974,227 1,500,000 0.7
303,800 The Liposome Company, Inc. 1,699,846 1,746,850 0.8
76,100 National Patent Development Corp. 208,155 214,031 0.1
315,100 NeoRx Corp. 1,630,328 866,525 0.4
50,000 Sepracor, Inc. 386,875 281,250 0.1
------------- ------------ ------
14,143,132 10,353,369 4.7
Business Services 249,700 Applied Bioscience International, Inc. 1,425,381 1,435,775 0.7
Computer Equipment 105,000 Cadence Design Systems, Inc. 1,395,614 1,758,750 0.8
226,000 Micronics Computers, Inc. 1,198,238 960,500 0.4
------------- ------------ ------
2,593,852 2,719,250 1.2
Computer Products 20,000 Sigma Designs, Inc. 62,500 150,000 0.1
<PAGE>
Computer Services 725,000 Anacomp, Inc. 2,691,367 2,175,000 1.0
181,500 Boole & Babbage, Inc. 3,465,844 4,719,000 2.2
70,000 Informix Corp. 1,056,013 1,085,000 0.5
25,000 Primark Corp. 282,750 281,250 0.1
------------- ------------ ------
7,495,974 8,260,250 3.8
Computer 271,500 Cognos, Inc. 1,712,435 2,850,750 1.3
Software
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Percent of
Industries Face Amount Stocks & Convertible Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Computers 130,000 Alpha Industries, Inc. $ 629,856 $ 503,750 0.2%
45,000 DH Technology, Inc. 610,000 911,250 0.4
135,000 SHL Systemhouse, Inc. 843,750 860,625 0.4
300,000 Western Digital Corp. 4,372,557 3,825,000 1.8
------------- ------------ ------
6,456,163 6,100,625 2.8
Cosmetics 1,317 Alfin, Inc. (Preferred) 0 0 0.0
Electrical 60,000 Catalina Lighting, Inc. 471,291 592,500 0.3
Equipment 135,000 Comptek Research, Inc. 2,159,300 1,822,500 0.8
10,000 Core Industries, Inc. 149,550 101,250 0.1
26,300 WPI Group, Inc. 164,375 85,475 0.0
------------- ------------ ------
2,944,516 2,601,725 1.2
Electronics 100,000 Alden Electronics, Inc. 422,500 262,500 0.1
324,200 Automated Security Holdings PLC l,238,076 l,094,175 0.5
27,562 Maxwell Laboratories, Inc. 316,726 210,160 0.1
50,000 VLSI Technology, Inc. 503,915 684,375 0.3
57,000 VTEL Corp. 244,905 306,375 0.1
------------- ------------ ------
2,726,122 2,557,585 1.1
Energy $ 900,000 Swift Energy Corp., Convertible Bonds, 6.50%
due 6/30/2003 924,000 884,250 0.4
<PAGE>
Engineering & 45,000 Blount, Inc. (Class A) 1,689,325 1,755,000 0.8
Construction
Environmental & 390,250 NSC Corp. 2,062,737 1,219,531 0.6
Environmental 200,000 Rollins Environmental Services, Inc. 1,023,187 950,000 0.4
Control ------------- ------------ ------
3,085,924 2,169,531 1.0
Health Care-- 62,700 Analogic Corp. 1,026,252 1,003,200 0.5
Products & 210,000 Beverly Enterprises, Inc. 2,379,961 2,546,250 1.2
Services 70,000 Community Psychiatric Centers 853,137 831,250 0.4
95,500 Curaflex Health Services, Inc. 581,508 483,469 0.2
50,000 Healthcare Services Group, Inc. 468,500 618,750 0.3
65,000 The Hillhaven Corp. 1,050,239 1,170,000 0.5
100,000 Medical Care America, Inc. 2,336,976 2,712,500 1.3
6,000 Medisys, Inc. 24,240 23,250 0.0
375,000 Ramsay Health Care, Inc. 2,701,681 2,531,250 1.2
130,000 T2 Medical, Inc. 1,504,386 1,348,750 0.6
275,000 Unilab Corp. 1,528,125 1,598,438 0.7
------------- ------------ ------
14,455,005 14,867,107 6.9
Home Builders 45,000 Washington Homes, Inc. 347,775 286,875 0.1
Home Furnishings 30,000 Crown Crafts, Inc. 524,300 566,250 0.3
Housing 226,000 Redman Industries, Inc. 3,613,555 3,729,000 1.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Percent of
Industries Face Amount Stocks & Convertible Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Insurance 88,900 Capital Guaranty Corp. $ 1,359,809 $ 1,355,725 0.6%
61,500 Harleysville Group Inc. 1,252,711 1,260,750 0.6
230,000 PXRE Corp. (a) 4,661,849 6,037,500 2.8
150,000 Security-Connecticut Corp. 2,929,213 3,412,500 1.6
190,000 Transnational Re Corp. (Class A) 3,843,862 4,750,000 2.2
------------- ------------ ------
14,047,444 16,816,475 7.8
<PAGE>
Leasing 167,100 LDI Corp. 1,682,660 626,625 0.3
100,000 Sea Containers, Ltd. 2,146,996 1,462,500 0.7
------------- ------------ ------
3,829,656 2,089,125 1.0
Leisure 110,000 Outboard Marine Corp. 2,079,499 2,200,000 1.0
Machinery & 39,000 Varity Corp. 1,304,133 1,418,625 0.7
Machine Tools
Medical 32,600 Everest & Jennings International (Class A) 456,544 30,563 0.0
15,000 Fischer Imaging Corp. 288,440 69,375 0.0
------------- ------------ ------
744,984 99,938 0.0
Metals-- 76,800 Handy & Harman 1,205,929 1,075,200 0.5
Non-Ferrous
Natural 145,000 Abraxas Petroleum Corp. 1,642,500 1,740,000 0.8
Resources 35,000 Addington Resources, Inc. 227,290 568,750 0.3
103,600 American Oilfield Divers, Inc. 951,150 777,000 0.4
90,900 Atwood Oceanics, Inc. 763,563 1,158,975 0.5
55,000 Tom Brown, Inc. 240,147 811,250 0.4
38,300 Cliffs Drilling Co. 494,563 440,450 0.2
29,000 Cliffs Drilling Co. (Convertible Preferred) 774,875 754,000 0.4
282,253 Coho Resources, Inc. l,990,477 1,340,702 0.6
25,000 Energy Ventures, Inc. 468,750 318,750 0.2
275,000 Gerrity Oil & Gas Corp. 3,571,250 2,509,375 1.2
65,000 Grant Tensor Geophysical Corp.
(Convertible Preferred) 1,103,750 885,625 0.4
359,000 International Petroleum Corp. 990,247 403,875 0.2
75,000 Noble Drilling Corp. 496,652 600,000 0.3
125,000 Nuevo Energy Co. 2,458,100 2,453,125 1.1
266,200 Plains Resources, Inc. 2,174,772 1,530,650 0.7
57,500 Tetra Technologies, Inc. 419,885 495,937 0.2
20,000 The Wiser Oil Co. 360,000 320,000 0.2
------------- ------------ ------
19,127,971 17,108,464 8.1
Personal Care 50,000 Marietta Corp. 441,875 443,750 0.2
Products
<PAGE>
Pharmaceuticals 130,000 Roberts Pharmaceutical Corp. 3,441,418 2,697,500 1.2
Photo-Optical 80,000 Instron Corp. 1,010,849 780,000 0.4
Instruments
Plastics 19,800 Tredegar Industries, Inc. 297,088 287,100 0.1
Real Estate $1,000,000 Alexander Haagen Properties, Inc., 7.25%
due 12/27/2003 1,000,000 980,000 0.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Percent of
Industries Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Real Estate 47,000 Carr Realty Corp. $ 1,034,000 $ 1,016,375 0.5%
Investment 70,000 Crown American Realty Trust 983,200 936,250 0.4
Trusts ------------- ------------ ------
2,017,200 1,952,625 0.9
Restaurants 315,000 TPI Enterprises, Inc. 2,596,169 1,929,375 0.9
Retail Stores 295,000 J. Baker, Inc. 5,101,419 5,715,625 2.6
222,000 Catherines Stores Corp. 2,662,100 2,053,500 1.0
40,000 Gantos, Inc. 497,276 115,000 0.1
1,063,000 Grossman's, Inc. 3,251,812 2,790,375 1.3
247,400 Just Toys, Inc. 1,261,544 1,546,250 0.7
297,000 Pier 1 Imports, Inc. 2,630,312 2,264,625 1.0
40,000 S & K Famous Brands, Inc. 511,650 420,000 0.2
475,000 Service Merchandise Co., Inc. 3,523,068 3,028,125 1.4
95,000 The Stride Rite Corp. 1,446,146 1,235,000 0.6
80,000 The United States Shoe Corp. 892,812 1,520,000 0.7
30,000 Venture Stores, Inc. 784,580 592,500 0.3
756,400 The Wet Seal, Inc. (Class A) 2,687,998 2,363,750 1.1
------------- ------------ ------
25,250,717 23,644,750 11.0
Services 90,000 Pinkertons Security & Investigation Services 1,815,280 1,440,000 0.7
Transportation 125,000 Kirby Corp. 2,312,175 2,046,875 0.9
<PAGE>
Utilities 105,000 American Water Works Co., Inc. 1,394,797 2,848,125 1.3
Total Stocks & Convertible Bonds 173,835,549 174,929,957 80.9
<CAPTION>
Face
Amount Short-Term Securities
<S> <C> <S> <C> <C> <C>
Commercial $ 5,000,000 Ciesco L.P., 4.25% due 7/14/1994 4,992,326 4,992,326 2.3
Paper* 8,843,000 General Electric Capital Corp., 4.30% due 7/01/1994 8,843,000 8,843,000 4.0
10,000,000 Matterhorn Capital Corp., 4.25% due 7/01/1994 10,000,000 10,000,000 4.6
10,000,000 Preferred Receivable Funding Corp.,
4.27% due 7/20/1994 9,977,463 9,977,463 4.6
9,000,000 Xerox Credit Corp., 4.28% due 7/18/1994 8,981,810 8,981,810 4.1
Total Short-Term Securities 42,794,599 42,794,599 19.6
Total Investments $216,630,148 217,724,556 100.5
============
Liabilities in Excess of Other Assets (970,966) (0.5)
------------ ------
Net Assets $216,753,590 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $83,097,811 and
5,290,790 shares outstanding $ 15.71
============
Class B--Based on net assets of $133,655,779 and
8,745,930 shares outstanding $ 15.28
============
<FN>
(a)Formerly Phoenix Re Corp.
*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.
</TABLE>
<PAGE>
PORTFOLIO INFORMATION
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Charter One Financial, Inc. 3.4%
PXRE Corp. 2.8
J. Baker, Inc. 2.6
Roosevelt Financial Group, Inc. 2.2
Transnational Re Corp. (Class A) 2.2
Boole & Babbage, Inc. 2.2
Bankers Corp. 1.8
Western Digital Corp. 1.8
Redman Industries, Inc. 1.7
The Co-Operative Bank of Concord 1.6
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Banks & Finance 13.0%
Retail Stores 11.0
Natural Resources 8.1
Insurance 7.8
Health Care--Products & Services 6.9
Biotechnology 4.7
Computer Services 3.8
Computers 2.8
Housing 1.7
Apparel 1.7
<PAGE>
Portfolio Changes for the Quarter Ended
June 30, 1994
Additions
*American Eagle Outfitters, Inc.
Blount, Inc. (Class A)
*C-Cube Microsystems, Inc.
Capital Guaranty Corp.
Curaflex Health Services, Inc.
Harleysville Group, Inc.
Informix Corp.
Kirby Corp.
*Lear Seating Corp.
Medisys, Inc.
*Mikasa, Inc.
Roberts Pharmaceutical Corp.
T2 Medical, Inc.
VTEL Corp.
*Winston Hotels, Inc.
Deletions
Amdahl Corp.
*American Eagle Outfitters, Inc.
Amylin Pharmaceuticals, Inc.
Attwoods PLC (ADR)
Bradlees, Inc.
*C-Cube Microsystems, Inc.
Calgene, Inc.
Coast Savings Financial, Inc.
Comptronix Enterprises, Inc.
Computer Task Group, Inc.
Health Equity Properties, Inc.
Input/Output, Inc.
*Lear Seating Corp.
*Mikasa, Inc.
Simmons First National Corp.
Somatogen, Inc.
Thermo Cardiosystems, Inc.
*Winston Hotels, Inc.
[FN]
*Added and deleted in the same quarter.
<PAGE>
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
APPENDIX: GRAPHIC AND IMAGE MATERIAL.
Item 1:
Results of a $1,000 Investment Since Inception--Class A Shares
(6.5% sales charge--$935 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 on May 5, 1978 to $3,390.03 on June
30, 1994.
