MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
FUND LOGO
Semi-Annual Report
September 30, 1995
<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
90 Washington Street
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Special Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
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, Class B, Class C and Class D Shares returned +8.27%,
+8.00%, +7.98% and +8.15%, respectively, while the Russell 2000
Index's total return was +9.88%. (Results shown do not reflect sales
charges; results would be lower if sales charges were included.
Complete performance information, including average annual and
aggregate total returns, can be found on pages 4-6 of this report to
shareholders.)
The Environment
After losing momentum through the second calendar quarter, it now
appears that the US economy has resumed a moderate growth trend.
Gross domestic product growth for the three months ended June 30 was
revised to show that the economy expanded at a 1.1% pace, rather
than the 0.5% rate that was originally reported. The employment
report for August exceeded consensus expectations, although most of
the new jobs created were in the service sector, reflecting the
ongoing sluggishness in manufacturing. However, durable goods orders
rebounded somewhat in August, supported by stronger automobile
sales. Reflecting the trend of renewed economic growth--and
continued containment of inflationary pressures--the Federal Reserve
Board signaled no shift in monetary policy following its September
meeting.
<PAGE>
One of the major developments during the September quarter was the
strengthening of the US dollar relative to the yen and the
Deutschemark. Improving interest rate differentials favoring the US
currency, combined with coordinated central bank intervention and
more positive investor sentiment, have helped to bolster the dollar
in foreign exchange markets. Other factors that appear to be
improving the US dollar's outlook in the near term are a pick-up in
capital flows to the United States and the prospect of increased
capital outflows from Japan. However, it remains to be seen if the
US dollar's strengthening trend can continue without significant
improvements in the US budget and trade deficits.
In the weeks ahead, investor interest will continue to focus on US
economic activity. Clear signs of a moderate, noninflationary
expansion could further benefit the US stock and bond markets. In
addition, should the current Federal budget deficit reduction
efforts now underway in Washington prove successful, the
implications would likely be positive for the US financial markets.
Portfolio Matters
During the September quarter, the Fund's performance was helped by
its positions in consumer nondurables (apparel, housewares),
financial services (savings and loans, insurers) and healthcare
companies. Several of the Fund's consumer nondurable stocks
performed well despite generally poor performance of the overall
industry sector, with the Fund's apparel stocks distinguishing
themselves from the general malaise in the apparel industry by
having successful niches. Savings and loan stocks performed well in
an environment with generally stable interest rates and further
acceleration of the pace of mergers and takeovers in the industry.
Selected healthcare stocks, primarily biotechnology issues,
responded positively to takeover announcements and a more favorable
regulatory environment. The reasonably stable interest rate
environment and increased confidence in reserve levels helped the
Fund's holdings in insurance stocks, which added importantly to the
Fund's performance this quarter.
Notable performers (in order of their positive contributions to the
portfolio's total return) were SHL Systemhouse, Inc. (up 79%),
Duracraft Corp. (up 69%), Norton McNaughton, Inc. (up 44%) and Char-
ter One Financial, Inc. (up 21%). Our top performer, SHL
Systemhouse, Inc., is a leading systems integration and outsourcing
company. The company has agreed to be acquired by MCI Communications
Inc.
<PAGE>
Duracraft Corp., a manufacturer of home comfort products such as
humidifiers, fans and air cleaners, continued to show sales and
earnings gains despite the weakness being experienced at several
other home products manufacturers. During the September quarter,
the company announced several expansion efforts, including a
licensing agreement with Fisher-Price Inc., to produce and market
home-comfort appliances under the Fisher-Price brand name, and the
acquisition of a producer and distributor of consumer appliances in
Austria. By the end of the quarter, Duracraft Corp. stock had
appreciated to our targeted level, and we sold the position.
During the September quarter, we added to our position in Norton
McNaughton, Inc., which distinguished itself by delivering strong
sales and earnings growth in a very difficult environment for most
apparel companies. Norton McNaughton has benefited from growing
sales to existing customers as retailers increasingly focused their
orders on fewer apparel manufacturers, and took advantage of
troubles in the industry by adding design teams from other firms so
as to broaden its product line. Norton McNaughton designs, contracts
for the manufacture of, and markets a line of moderately priced
women's career apparel primarily sold in department stores. The
company has developed excellent relationships with their department
store customers. The company offers a high level of service, and
their apparel has helped retailers generate sales in a tough
environment for apparel sales.
Charter One Financial, Inc., a savings and loan headquartered in
Cleveland, benefited from greater recognition of its attractive
valuation and fundamental characteristics in an industry that
received increased attention during the September quarter for its
takeover potential. Investors also focused on the potential earnings
growth anticipated from Charter One Financial's announced
acquisition of First Fed Michigan Corporation, which is expected to
close in December 1995. In the past, Charter One Financial's
management has been successful at making acquisitions that were
accretive to earnings. It is expected that they will be able to
broaden the product line offered through First Fed Michigan
Corporation's branch system and reduce costs by streamlining its
back office. Early in the September quarter, the Fund increased its
position in Charter One Financial, and later pared back its holdings
slightly as the stock price rose.
The Fund was hindered by holdings in energy, retail, real estate
investment trusts and technology. While several of the Fund's retail
holdings rose in value, the sector in general was hampered by
lackluster consumer spending during the summer. Energy stocks were
volatile during the September quarter as investors initially
expected price increases for oil and gas that did not materialize,
causing many energy stocks to sell off by late September. Technology
was problematic in the September quarter as certain small companies
were especially hard hit by component shortages in the face of
strong demand. Early in the quarter, investor demand--based on
expected earnings increases and excitement over the introduction of
Microsoft Corp.'s "Windows 95"--continued to propel technology
stocks higher. The group largely stalled during late July and early
August, and then began to trend down in September, as several
bellwether technology companies announced lower-than-expected growth
in sales and earnings.
<PAGE>
Similar to the technology sector, stock prices of many of the growth-
oriented industries, with high price/ earnings ratios, peaked by mid-
August, plateaued, and then started to weaken. As September
progressed, investors seemed to become less receptive toward the
mushrooming number of initial public offerings, and many of the more
speculative sectors of the stock market began to decline. By late
September, investors started to focus on the increasing number of
companies that began pre-announcing expected sales and earnings
disappointments. These disappointments were not restricted to any
one industry, but spanned a broad range of industries.
By late in the September quarter, many companies in the financial
sector that had appreciated in part in response to takeover
speculation (primarily banks and savings and loans), appeared fully
priced based on their fundamentals and historical valuation ranges.
More specifically, during the first calendar quarter, stocks of many
savings and loan companies were selling at 1.0 times--1.2 times book
value per share and price/earnings multiples of 7 times--9 times
1996 estimated per share earnings. By September, many of these
stocks had risen to valuations of 1.4 times--1.6 times price/book
and price/earnings multiples of 10 times--12 times next year's
projected earnings. At the same time, earnings prospects have not
been improving. Many stock prices could be justified only by
assuming that the companies would be acquired at 2.0 times book
value per share. The Fund used the opportunity to sell into the
strong market for financial stocks and pare back some positions in
the savings and loan and insurance industries.
The September quarter was active from the Fund's standpoint. Cash
inflows continued strong, but at the same time, rising stock prices
meant that many investments reached their target prices and were
pared back. During the September quarter, we bought shares in 48 new
holdings. The Fund also added to positions in 32 existing holdings.
Purchases spanned a wide variety of industries. Sectors receiving
emphasis included some that were leading the market, such as
technology and biotechnology/healthcare. Other purchases focused on
industries that were more attractive in terms of relative
valuations, including real estate investment trusts, energy and
pollution control. The Fund added to existing positions in
insurance, technology and healthcare. Weakness early in the quarter
in a few financial stocks also enabled us to add to our holdings.
We eliminated holdings in 38 positions. Most sales were motivated by
stocks appreciating to our price objectives aided by the strong rise
in the market. Concerns over companies' operating results also
prompted some sales. We reduced positions in 21 companies. Again,
most sales were driven by the stocks appreciating to less attractive
valuation levels.
<PAGE>
For most of the September quarter, cash reserves as a percentage of
the portfolio remained approximately constant. However, near
September quarter-end as many small market capitalization stock
prices declined, thereby making many securities somewhat more
attractive, the Fund slightly reduced its percentage in cash
reserves. The Fund started the September quarter with a cash
position of 26.6% of net assets and ended the quarter with 24.8% in
cash. 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 stock market, as measured by popular indexes such as the Russell
2000 and Standard & Poor's 500, moved higher during July, August and
most of September, before declining during the last half of
September. The technology sector and several other growth-oriented
sectors peaked earlier. They stalled during mid-August and began to
trend downward during September. By the last few days of the
September quarter, the overall small stock capitalization sector of
the stock market began to sell off, fueled primarily by a growing
number of pre-announced earnings disappointments. Following the
Federal Reserve Board's early July reduction in the discount rate,
interest rates during the September quarter moved down very slightly
from the beginning to the end of the quarter, reversing a modest
rise in long-term interest rates during the middle of the quarter.
Investors seemed to alternate almost daily between their concerns
over the economy's perceived excessive strength or the economy's
perceived signs of weakening, depending upon which government
statistic was released on any particular day. We continue our
somewhat cautious stance, characterized by the above-mentioned cash
reserves and emphasis on a value-oriented investment strategy. On a
more positive note, the decline in the stock market during the last
week of the September quarter and first few days of October has
provided us with several opportunities to purchase individual stocks
at more attractive valuations than were available during the
increasingly speculative market of July and August.
In Conclusion
We thank you for your continued investment in Merrill Lynch Special
Value Fund, Inc. We look forward to reviewing our outlook and
strategy with you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
(Dennis Stattman)
Dennis Stattman
Vice President and Portfolio Manager
October 27, 1995
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been 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.
* 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).
<PAGE>
Performance data for the Fund's Class A and Class B Shares are
presented in the "Performance Summary" and "Average Annual Total
Return" tables on pages 5 and 6. The "Results of a $1,000 Investment
Since Inception--Class A Shares" chart on page 5 illustrates the
performance of a $1,000 investment in Class A Shares made at the
Fund's inception (assuming the maximum sales charge of 5.25%)
through September 30, 1995. "Aggregate Total Return" tables for
Class C and Class D Shares are presented on page 5. Data for all of
the Fund's shares are presented in the "Recent Performance Results"
table below.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended September 30, 1995
and for Class C and Class D Shares for the since inception and 3-
month periods ended September 30, 1995. All data in this table
assume imposition of the actual total expenses incurred by each
class of shares during the relevant period.
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>
Recent Performance Results
<CAPTION>
12 Month 3 Month
9/30/95 6/30/95 9/30/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $17.15 $15.84 $15.77 +11.28%(1) +8.27%
ML Special Value Fund, Inc. Class B Shares* 16.61 15.38 15.31 +11.08(1) +8.00
ML Special Value Fund, Inc. Class C Shares* 16.51 15.29 15.06 +12.26(1) +7.98
ML Special Value Fund, Inc. Class D Shares* 17.12 15.83 15.52 +12.87(1) +8.15
Russell 2000 Index** 310.38 283.63 256.12 +21.19 +9.43
ML Special Value Fund, Inc. Class A Shares--Total Return* +17.29(2) +8.27
ML Special Value Fund, Inc. Class B Shares--Total Return* +16.09(3) +8.00
ML Special Value Fund, Inc. Class C Shares--Total Return* +18.02(4) +7.98
ML Special Value Fund, Inc. Class D Shares--Total Return* +18.83(5) +8.15
Russell 2000 Index**--Total Return +23.37 +9.88
<PAGE>
<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.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.343 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.800 per share ordinary
income dividends and $0.343 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.650 per share ordinary
income dividends and $0.343 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.734 per share ordinary
income dividends and $0.343 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.780 per share ordinary
income dividends and $0.343 per share capital gains distributions.
</TABLE>
PERFORMANCE DATA (continued)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% sales charge--$947.50 net amount invested; assuming
reinvestment of all dividends and capital gains distributions)
A mountain chart depicting the performance of a $1,000 investment in
the Fund's Class A Shares since inception (5/5/78) through 9/30/95.
Beginning and ending values are $947.50 and $4,278.11.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/95 +17.29% +11.13%
Five Years Ended 9/30/95 +20.10 +18.81
Ten Years Ended 9/30/95 + 7.92 + 7.34
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/95 +16.09% +12.09%
Five Years Ended 9/30/95 +18.89 +18.89
Inception (10/21/88) through 9/30/95 + 8.35 + 8.35
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 9/30/95 +18.02% +17.02%
[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**
Class D Shares*
Inception (10/21/94)
through 9/30/95 +18.83% +12.59%
[FN]
*Maximum sales charge is 5.25%
**Assuming maximum sales charge.
<PAGE>
PERFORMANCE DATA (concluded)
<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
1994 15.66 14.70 0.561 0.940 + 3.81
1/1/95--9/30/95 14.70 17.15 0.151 0.349 +20.34
------ ------
Total $6.679 Total $4.765
Cumulative total return as of 9/30/95: +351.52%**
<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
1994 15.31 14.30 0.561 0.828 + 2.79
1/1/95--9/30/95 14.30 16.61 0.151 0.283 +19.42
------ ------
Total $1.323 Total $2.107
Cumulative total return as of 9/30/95: +74.59%**
<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>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industries Shares Held Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 86,800 ++Banner Aerospace, Inc. $ 592,640 $ 455,700 0.1%
257,800 ++UNC, Inc. 1,466,514 1,611,250 0.3
------------ ------------ ------
2,059,154 2,066,950 0.4
Apparel 804,200 ++Farah, Inc. (h) 6,613,367 5,930,975 1.1
233,000 Kellwood Co. 4,270,366 4,805,625 0.9
84,000 ++Marisa Christina, Inc. 862,660 1,344,000 0.3
470,000 ++Norton McNaughton, Inc. (h) 7,009,095 10,457,500 1.9
75,000 The Warnaco Group, Inc. (Class A) 1,142,930 1,800,000 0.3
------------ ------------ ------
19,898,418 24,338,100 4.5
Automotive 153,800 Smith (A.O.) Corp. 3,546,633 3,979,575 0.7
Banks & Finance 60,000 American Federal Bank, FSB 611,250 915,000 0.2
246,900 Bankers Corp. 2,096,399 4,444,200 0.8
20,000 Banknorth Group, Inc. 365,000 665,000 0.1
479,500 Charter One Financial, Inc. 9,589,390 14,145,250 2.6
170,000 ++Civic Bancorp, Inc. 926,250 1,253,750 0.2
28,000 Collective Bancorp., Inc. 492,909 724,500 0.1
83,000 The Co-Operative Bank of Concord 1,198,949 1,545,875 0.3
165,000 ++FirstFed Financial Corp. 2,272,739 2,578,125 0.5
205,000 Roosevelt Financial Group, Inc. 3,215,002 3,613,125 0.7
------------ ------------ ------
20,767,888 29,884,825 5.5
<PAGE>
Beverages 76,000 ++Celestial Seasonings, Inc. 1,159,395 1,368,000 0.3
Biotechnology 40,000 ++Alteon, Inc. 181,731 510,000 0.1
206,000 ++Applied Immune Sciences, Inc. 2,870,234 1,545,000 0.3
25,000 ++Athena Neurosciences, Inc. 228,125 298,438 0.1
147,000 ++COR Therapeutics, Inc. 1,614,345 1,635,375 0.3
173,500 ++CytoTherapeutics, Inc. 1,354,051 1,691,625 0.3
45,000 The Liposome Company, Inc.
(Convertible Preferred) 992,998 1,518,750 0.3
76,100 National Patent Development Corp. 208,155 147,444 0.0
50,000 ++Neurogen Corporation 802,292 1,112,500 0.2
10,000 ++SangStat Medical Corp. 76,375 76,250 0.0
530,000 ++Scios Nova, Inc. 2,347,838 2,186,250 0.4
215,000 ++Univax Biologics, Inc. 1,511,440 1,451,250 0.3
------------ ------------ ------
12,187,584 12,172,882 2.3
Building & 70,000 ++American Homestar, Inc. 560,000 1,093,750 0.2
Building Materials 210,300 ++Giant Cement Holding, Inc. 2,487,961 2,549,888 0.5
413,000 ++Redman Industries, Inc. (h) 7,241,169 10,738,000 2.0
135,300 Ryland Group, Inc. 1,884,618 2,097,150 0.4
150,200 ++Washington Homes, Inc. 872,781 751,000 0.1
------------ ------------ ------
13,046,529 17,229,788 3.2
Business Services 621,400 ++Applied Bioscience
International, Inc. 3,407,877 3,961,425 0.7
76,500 Banta Corp. 2,333,080 3,251,250 0.6
------------ ------------ ------
5,740,957 7,212,675 1.3
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Value Percent of
Industries Shares Held Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Chemicals 50,000 Lesco, Inc. $ 705,682 $ 725,000 0.1%
Computer Services 240,500 Boole & Babbage, Inc. 3,101,038 7,245,063 1.3
35,000 ++Primark Corp. 593,975 870,625 0.2
------------ ------------ ------
3,695,013 8,115,688 1.5
Computers 145,000 ++Amdahl Corp. 1,312,250 1,395,625 0.3
4,000 Cellnet Data Systems,
Inc., 13%++++ due 6/15/2005
(Units) (e) 2,210,006 2,240,000 0.4
25,000 ++DH Technology, Inc. 295,000 800,000 0.2
251,300 ++Radius, Inc. 2,400,646 1,790,513 0.3
165,000 ++Storage Technology Corp. 3,628,278 4,042,500 0.8
315,000 ++Stratus Computer, Inc. 9,130,517 8,268,750 1.5
100,000 ++Tandem Computers, Inc. 1,293,500 1,225,000 0.2
------------ ------------ ------
20,270,197 19,762,388 3.7
Cosmetics 1,317 Alfin, Inc. (Preferred) (d) 0 0 0.0
Data Processing 100,000 ++Cognos, Inc. 829,250 3,425,000 0.6
78,800 ++Consilium, Inc. 575,018 1,073,650 0.2
525,800 ++Control Data Systems, Inc. 5,213,024 6,375,325 1.2
71,500 ++Hyperion Software Corp. 3,005,624 4,057,625 0.8
464,000 ++Information Resources, Inc. 6,368,064 6,206,000 1.1
80,000 ++ParcPlace Systems, Inc. 675,593 840,000 0.1
120,000 ++Platinum Technology, Inc. 2,480,451 2,490,000 0.5
39,000 ++Progress Software Corp. 2,325,251 2,613,000 0.5
200,000 ++SHL Systemhouse, Inc. 1,040,625 2,500,000 0.5
123,800 ++Software Spectrum, Inc. 2,749,149 3,048,575 0.6
115,000 ++Sterling Software, Inc. 4,053,646 5,232,500 1.0
115,000 ++VMARK Software, Inc. 1,994,451 1,739,375 0.3
------------ ------------ ------
31,310,146 39,601,050 7.4
Electrical Equipment 60,000 ++Catalina Lighting, Inc. 471,291 315,000 0.1
138,000 ++Comptek Research, Inc. 2,204,043 2,397,750 0.4
26,300 ++WPI Group, Inc. 164,375 78,900 0.0
------------ ------------ ------
2,839,709 2,791,650 0.5
<PAGE>
Electronics 100,000 ++Alden Electronics, Inc. 422,500 225,000 0.0
500,011 ++Automated Security Holdings
PLC (ADR)* 1,774,832 750,017 0.1
20,100 ++Benchmark Electronics, Inc. 415,769 565,313 0.1
55,000 ++Dovatron International, Inc. 1,599,650 1,904,375 0.4
27,562 ++Maxwell Laboratories, Inc. 316,726 268,730 0.0
226,000 ++Micronics Computers, Inc. 1,198,238 1,045,250 0.2
55,000 ++Sheldahl, Inc. 789,095 1,058,750 0.2
33,800 Technitrol, Inc. 551,278 566,150 0.1
40,000 ++VLSI Technology, Inc. 448,125 1,370,000 0.3
------------ ------------ ------
7,516,213 7,753,585 1.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Value Percent of
Industries Shares Held Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Environmental & 390,250 NSC Corp. $ 2,062,737 $ 829,281 0.2%
Environmental Control 110,000 ++Rollins Environmental Services,
Inc. 546,187 536,250 0.1
------------ ------------ ------
2,608,924 1,365,531 0.3
Fertilizers 33,000 ++Arcadian Corp. 511,500 672,375 0.1
Fragrance Distributor 205,000 ++Model Imperial, Inc. 1,349,000 563,750 0.1
Healthcare-- 215,000 ++Beverly Enterprises, Inc. 2,869,712 2,956,250 0.5
Products & Services 330,000 ++Charter Medical Corp. 5,885,321 6,765,000 1.3
485,000 Community Psychiatric Centers 5,643,286 5,698,750 1.1
50,000 ++Healthcare Services Group, Inc. 468,500 537,500 0.1
504,500 ++Ramsey Health Care, Inc. (h) 3,537,506 1,765,750 0.3
131,644 ++Ramsey Managed Care (a) 296,199 296,199 0.0
200,000 ++Unilab Corp. 1,106,250 850,000 0.2
------------ ------------ ------
19,806,774 18,869,449 3.5
Home Furnishings 150,000 Crown Crafts, Inc. 2,442,748 1,950,000 0.4
<PAGE>
Insurance 358,000 Ace, Ltd. 8,997,258 12,306,250 2.3
32,000 American National Insurance Co. 1,873,745 1,864,000 0.3
215,000 Capital Guaranty Corp. 3,254,364 4,783,750 0.9
56,000 First Colony Corp. 1,462,923 1,512,000 0.3
194,700 Harleysville Group, Inc. 4,260,949 5,792,325 1.1
190,200 ++Omni Insurance Group, Inc. 1,217,398 1,331,400 0.2
610,300 PXRE Corp. (h) 13,256,396 16,630,675 3.1
457,700 Security-Connecticut Corp. 10,877,608 12,643,962 2.4
57,700 ++Transnational Re Corp. (Class A) 1,110,547 1,327,100 0.3
------------ ------------ ------
46,311,188 58,191,462 10.9
Leasing 244,000 Sea Containers, Ltd. 4,237,586 4,819,000 0.9
Machinery 40,000 AGCO Corp. 1,792,525 1,820,000 0.3
Medical 183,500 Analogic Corp. 3,250,002 3,715,875 0.7
80,000 ++Utah Medical Products, Inc. 1,208,440 1,280,000 0.2
------------ ------------ ------
4,458,442 4,995,875 0.9
Metals--Non-Ferrous 76,800 Handy & Harman 1,205,929 1,152,000 0.2
Miscellaneous 45,000 PHH Corp. 1,541,238 2,025,000 0.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Amount/ Value Percent of
Industries Shares Held Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Natural Resources 145,000 ++Abraxas Petroleum Corp. $ 1,642,500 $ 1,169,062 0.2%
90,900 ++Atwood Oceanics, Inc. 763,562 1,880,494 0.3
115,000 ++Tom Brown, Inc. 1,386,651 1,566,875 0.3
29,000 Cliffs Drilling Co. (Convertible
Preferred) 774,875 826,500 0.1
299,254 ++Coho Resources, Inc. 2,075,477 1,533,677 0.3
122,000 ++Core Laboratories N.V. 1,493,375 1,464,000 0.3
153,500 ++Gerrity Oil & Gas Corp. 1,865,787 479,687 0.1
270,000 ++Global Natural Resources, Inc. 2,681,614 2,666,250 0.5
70,700 ++Grant Tensor Geophysical Corp.
(Convertible
Preferred) 1,175,940 1,175,387 0.2
155,000 ++Input/Output, Inc. 4,900,000 5,948,125 1.1
359,000 ++International Petroleum Corp. 990,247 1,032,125 0.2
2,625 NS Group, Inc., 13.50% due
7/15/2003 (Units) (f) 2,504,356 2,506,875 0.5
168,000 ++Newpark Resources, Inc. 3,057,550 2,940,000 0.5
120,000 ++Noble Drilling Corp. 735,714 930,000 0.2
105,000 ++Nuevo Energy Co. 2,023,100 2,362,500 0.4
50,000 Plains Resources, Inc. 402,500 396,875 0.1
308,391 Plains Resources, Inc. (g) 1,806,983 2,409,305 0.4
$ 900,000 Swift Energy Corp., Convertible
Bonds, 6.50% due 6/30/2003 924,000 850,500 0.2
192,100 Total Petroleum of North America,
Ltd. 2,342,351 1,969,025 0.4
346,500 ++Trans Texas Gas Corp. 4,359,375 6,280,312 1.2
2,876 Transamerican Refining Corp.,
18.29%++++ due 2/15/2002 (Units)
(c) 1,888,353 2,157,000 0.4
20,000 The Wiser Oil Co. 360,000 275,000 0.1
------------ ------------ ------
40,154,310 42,819,574 8.0
<PAGE>
Paper/Forest Products 136,100 ++Duplex Products, Inc. 985,667 1,020,750 0.2
140,000 Pope & Talbot, Inc. 2,335,976 2,170,000 0.4
------------ ------------ ------
3,321,643 3,190,750 0.6
Personal Care Products 50,000 ++Marietta Corp. 441,875 406,250 0.1
Pharmaceuticals 30,000 ++Agouron Pharmaceuticals, Inc. 761,164 862,500 0.2
19,025 ++American Drug Co. 2,377 4,756 0.0
19,025 ++American Drug Co. (Warrants) (b) 1,189 1,189 0.0
300,000 ++Ariad Pharmaceuticals, Inc. 1,322,811 1,387,500 0.3
182,000 ++Cytel Corp. 967,186 1,274,000 0.2
240,000 ++Gensia, Inc. 1,115,000 1,320,000 0.3
170,700 ++NeoRx Corp. 1,085,976 1,184,231 0.2
45,000 ++Regeneron Pharmaceuticals, Inc. 155,700 703,125 0.1
143,000 ++Vical, Inc. 1,154,202 1,680,250 0.3
------------ ------------ ------
6,565,605 8,417,551 1.6
Photo-Optical Instruments 80,000 Instron Corp. 1,010,849 1,080,000 0.2
Real Estate & $1,000,000 Alexander Haagen Properties,
Real Estate Inc., 7.25% due 12/27/2003 1,000,000 942,500 0.2
Investment Trusts 105,000 Bay Apartment Communities, Inc. 1,901,462 2,257,500 0.4
23,000 Cali Realty Corp. 364,567 465,750 0.1
110,000 Carr Realty Corp. 2,223,480 2,062,500 0.4
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Value Percent of
Industries Shares Held Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Real Estate & 88,000 Catellus Development Corp.
Real Estate (Convertible Preferred) $ 3,200,250 $ 3,608,000 0.7%
Investment Trusts 315,000 Crown American Realty Trust 4,268,387 2,598,750 0.5
(concluded) 25,000 Developers Diversified Realty Corp. 701,563 753,125 0.1
23,200 Duke Realty Investments, Inc. 645,629 722,100 0.1
60,000 Manufactured Home Communities, Inc. 887,550 1,035,000 0.2
40,000 Merry Land & Investment Co., Inc. 772,400 845,000 0.2
50,000 ++Mid-America Apartment Communities,
Inc. 1,253,000 1,237,500 0.2
40,000 Spieker Properties, Inc. 804,350 960,000 0.2
------------ ------------ ------
18,022,638 17,487,725 3.3
Restaurants 60,000 ++Shoney's, Inc. 640,500 660,000 0.1
1,114,900 ++TPI Enterprises, Inc. (h) 5,314,035 4,877,687 0.9
------------ ------------ ------
5,954,535 5,537,687 1.0
Retailing 468,500 J. Baker, Inc. 7,047,889 3,806,562 0.7
140,000 ++The Bombay Company, Inc. 1,074,500 1,137,500 0.2
236,200 ++Bon-Ton Stores, Inc. 2,471,959 1,801,025 0.3
313,800 ++Catherines Stores Corp. 3,404,710 3,687,150 0.7
58,000 ++Consolidated Stores Corporation 1,011,230 1,341,250 0.3
13,000 ++Dress Barn, Inc. 127,387 134,875 0.0
20,000 ++Gantos, Inc. 497,275 55,000 0.0
1,063,000 ++Grossman's, Inc. 3,251,812 1,860,250 0.3
300,000 Hancock Fabrics, Inc. 2,706,004 3,000,000 0.6
110,000 ++OfficeMax, Inc. 1,637,633 2,667,500 0.5
320,250 Pier 1 Imports, Inc. 2,687,712 3,242,531 0.6
102,000 ++REX Stores Corp. 1,315,670 1,912,500 0.4
40,000 ++S&K Famous Brands, Inc. 511,650 350,000 0.1
700,000 ++Service Merchandise Co., Inc. 4,260,435 4,987,500 0.9
144,000 Venture Stores, Inc. 2,407,682 828,000 0.2
711,100 ++The Wet Seal, Inc. (Class A) (h) 2,501,757 4,355,487 0.8
100,000 ++Whole Foods Market, Inc. 1,237,500 1,312,500 0.2
------------ ------------ ------
38,152,805 36,479,630 6.8
<PAGE>
Telecommunications 250,000 ++General DataComm Industries, Inc. 3,249,388 3,687,500 0.7
Textiles 300,000 ++Burlington Industries, Inc. 3,384,602 3,787,500 0.7
Toy Manufacturing 389,000 ++Just Toys, Inc. (h) 1,738,722 875,250 0.2
Transportation 400,000 ++Kirby Corp. 6,331,700 6,200,000 1.2
Utilities 125,000 American Water Works Co., Inc. 1,921,197 3,828,125 0.7
80,000 Wicor, Inc. 2,227,100 2,420,000 0.5
------------ ------------ ------
4,148,297 6,248,125 1.2
Total Stocks & Convertible Bonds 363,486,341 409,644,140 76.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Face Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Paper** $ 20,000,000 Corporate Receivables Corp.,
5.70% due 10/24/1995 $ 19,924,000 $ 19,924,000 3.7%
1,237,000 General Electric Capital Corp.,
6.45% due 10/02/1995 1,236,557 1,236,557 0.2
20,000,000 H.J. Heinz Co., 5.70% due 10/23/1995 19,927,167 19,927,167 3.7
20,000,000 Matterhorn Capital Corp., 5.71%
due 10/24/1995 19,923,867 19,923,867 3.7
------------ ------------ ------
61,011,591 61,011,591 11.3
US Government & 5,000,000 Federal Farm Credit Bank, 5.64%
Agency Obligations** due 10/02/1995 4,998,433 4,998,433 1.0
20,000,000 Federal Home Loan Bank, 5.59%
due 10/23/1995 19,928,572 19,928,572 3.7
7,000,000 Federal Home Loan Mortgage Corp.,
5.62% due 10/06/1995 6,993,443 6,993,443 1.3
40,000,000 Federal National Mortgage Association,
5.66% due 10/16/1995 39,899,378 39,899,378 7.5
------------ ------------ ------
71,819,826 71,819,826 13.5
<PAGE>
Total Short-Term Securities 132,831,417 132,831,417 24.8
Total Investments $496,317,758 542,475,557 101.2
============
Liabilities in Excess of Other Assets (6,309,113) (1.2)
------------ ------
Net Assets $536,166,444 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper and certain US Government & Agency Obligations
are 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 security.
++++Represents the yield to maturity on this zero coupon bond.
(a)The Fund received shares of Ramsey Managed Care as a result of
the spinoff of Ramsey Health Care, Inc.
(b)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.
(c)Each unit consists of a $1,000 bond plus 17.09 warrants. Each
warrant can be exercised for 1 share of common stock.
(d)Security represents 14.5% Cumulative Preferred Stock. For each
share of Preferred Stock, the Fund will receive an annual dividend
of approximately 9.43 shares of Common Stock.
(e)Each unit consists of a $1,000 par senior discount note plus 4
warrants.
(f)Each unit consists of a $1,000 bond plus 1 warrant.
(g)Restricted securities as to resale. The value of the Fund's
investments in restricted securities was approximately $2,409,000,
representing 0.4% of net assets.
Acquisition Value
Issue Dates Cost (Note 1a)
Plains Resources, Inc. 5/25/1992-- $1,806,983 $2,409,305
1/18/1995
Total $1,806,983 $2,409,305
========== ==========
<PAGE>
(h)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
Apparel Farah, Inc. 119,400 $ 815,197 --
Apparel Norton McNaughton, Inc. 317,900 4,866,427
Building &
Building Materials Redman Industries, Inc. 13,000 458,538 --
Health Care--
Products & Services Ramsey Health Care, Inc. -- -- --
Insurance PXRE Corp. 215,300 4,894,497 $168,795
Restaurants TPI Enterprises, Inc. 578,500 2,117,844 --
Retailing The Wet Seal, Inc. (Class A) (34,300) (141,488) --
Toy Manufacturing Just Toys, Inc. -- -- --
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of September 30, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$496,317,758) (Note 1a) $542,475,557
Receivables:
Securities sold $ 1,959,357
Capital shares sold 1,493,356
Dividends 201,918
Interest 94,970 3,749,601
------------
Prepaid registration fees and other assets (Note 1e) 45,083
------------
Total assets 546,270,241
------------
Liabilities: Payables:
Securities purchased 8,074,370
Capital shares redeemed 1,347,877
Investment adviser (Note 2) 325,846
Distributor (Note 2) 283,883 10,031,976
------------
Accrued expenses and other liabilities 71,821
------------
Total liabilities 10,103,797
------------
Net Assets: Net assets $536,166,444
============
<PAGE>
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 988,031
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 1,923,040
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 149,940
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 132,110
Paid-in capital in excess of par 469,070,283
Undistributed investment income--net 1,539,172
Undistributed realized capital gains on investments--net 16,206,069
Unrealized appreciation on investments--net 46,157,799
------------
Net assets $536,166,444
============
Net Asset Value: Class A--Based on net assets of $169,419,193 and 9,880,312
shares outstanding $ 17.15
============
Class B--Based on net assets of $319,366,620 and 19,230,399
shares outstanding $ 16.61
============
Class C--Based on net assets of $24,758,539 and 1,499,405
shares outstanding $ 16.51
============
Class D--Based on net assets of $22,622,092 and 1,321,095
shares outstanding $ 17.12
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended September 30, 1995
<S> <S> <C>
Investment Interest and discount earned $ 3,946,478
Income Dividends (net of $4,322 foreign withholding tax) 2,686,373
(Notes 1c & 1d): ------------
Total income 6,632,851
------------
<PAGE>
Expenses: Investment advisory fees (Note 2) 1,713,973
Account maintenance and distribution fees--Class B (Note 2) 1,403,140
Transfer agent fees--Class B (Note 2) 338,031
Transfer agent fees--Class A (Note 2) 145,874
Printing and shareholder reports 96,706
Account maintenance and distribution fees--Class C (Note 2) 91,462
Registration fees (Note 1e) 56,383
Custodian fees 27,035
Professional fees 25,240
Transfer agent fees--Class C (Note 2) 22,877
Accounting services (Note 2) 21,566
Account maintenance fees--Class D (Note 2) 20,883
Transfer agent fees--Class D (Note 2) 17,158
Directors' fees and expenses 12,384
Pricing fees 100
Other 4,402
------------
Total expenses 3,997,214
------------
Investment income--net 2,635,637
------------
Realized & Realized gain on investments--net 16,828,067
Unrealized Gain on Change in unrealized appreciation on investments--net 37,505,232
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 56,968,936
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 1995 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 2,635,637 $ 1,004,317
Realized gain on investments--net 16,828,067 20,737,686
Change in unrealized appreciation on investments--net 37,505,232 1,142,318
------------ ------------
Net increase in net assets resulting from operations 56,968,936 22,884,321
------------ ------------
<PAGE>
Dividends & Investment income--net:
Distributions to Class A (853,601) (614,155)
Shareholders Class B (562,757) --
(Note 1f): Class C (60,696) (9,723)
Class D (79,385) (19,699)
Realized gain on investments--net:
Class A (3,473,021) (7,894,397)
Class B (6,923,984) (13,778,928)
Class C (446,192) (88,207)
Class D (381,147) (139,464)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (12,780,783) (22,544,573)
------------ ------------
Capital Share Net increase in net assets derived from capital share transactions 125,642,782 174,423,847
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 169,830,935 174,763,595
Beginning of period 366,335,509 191,571,914
------------ ------------
End of period* $536,166,444 $366,335,509
============ ============
<FN>
*Undistributed investment income--net $ 1,539,172 $ 459,974
============ ============
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 Months
from information provided in the financial statements. Ended
Sept. 30, For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1995** 1995** 1994** 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.63 $ 15.88 $ 15.32 $ 13.86 $ 10.84
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .15 .16 .10 .05 .10
Realized and unrealized gain on
investments--net 1.87 1.09 1.87 1.43 3.00
-------- -------- -------- -------- --------
Total from investment operations 2.02 1.25 1.97 1.48 3.10
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.10) (.10) -- (.02) (.08)
Realized gain on investments--net (.40) (1.40) (1.41) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.50) (1.50) (1.41) (.02) (.08)
-------- -------- -------- -------- --------
Net asset value, end of period $ 17.15 $ 15.63 $ 15.88 $ 15.32 $ 13.86
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 13.18%+++ 8.85% 13.14% 10.69% 28.71%
Return:*** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.06%* 1.15% 1.17% 1.28% 1.55%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 1.82%* 1.04% .62% .37% .83%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $169,419 $106,506 $ 78,804 $ 70,920 $ 57,056
Data: ======== ======== ======== ======== ========
Portfolio turnover 25.06% 59.79% 68.70% 42.25% 98.76%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Based on average 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 (continued)
<PAGE>
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Sept. 30, For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1995** 1995** 1994** 1993** 1992**
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.16 $ 15.49 $ 15.01 $ 13.70 $ 10.77
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .06 -- (.06) (.09) (.03)
Realized and unrealized gain on
investments--net 1.82 1.06 1.83 1.40 2.98
-------- -------- -------- -------- --------
Total from investment operations 1.88 1.06 1.77 1.31 2.95
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.03) -- -- -- (.02)
Realized gain on investments--net (.40) (1.39) (1.29) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.43) (1.39) (1.29) -- (.02)
-------- -------- -------- -------- --------
Net asset value, end of period $ 16.61 $ 15.16 $ 15.49 $ 15.01 $ 13.70
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 12.65%+++ 7.70% 12.03% 9.56% 27.41%
Return:*** ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding account maintenance
Net Assets: and distribution fees 1.09%* 1.20% 1.19% 1.28% 1.51%
======== ======== ======== ======== ========
Expenses 2.09%* 2.20% 2.19% 2.28% 2.51%
======== ======== ======== ======== ========
Investment income (loss)--net .82%* .02% (.41%) (.65%) (.27%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $319,367 $237,359 $112,768 $ 76,182 $ 29,534
Data: ======== ======== ======== ======== ========
Portfolio turnover 25.06% 59.79% 68.70% 42.25% 98.76%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Based on average 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 Highlights (concluded)
<CAPTION>
Class C Class D
The following per share data and ratios have been derived For the Six For the Period For the Six For the Period
from information provided in the financial statements. Months Ended Oct. 21, 1994++ Months Ended Oct. 21, 1994++
Sept. 30, to March 31, Sept. 30, to March 31,
Increase (Decrease) in Net Asset Value: 1995** 1995** 1995** 1995**
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.10 $ 15.06 $ 15.61 $ 15.52
Operating --------- --------- --------- ---------
Performance: Investment income--net .06 .01 .13 .07
Realized and unrealized gain on
investments--net 1.80 .65 1.86 .66
--------- --------- --------- ---------
Total from investment operations 1.86 .66 1.99 .73
--------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.05) (.06) (.08) (.08)
Realized gain on investments--net (.40) (.56) (.40) (.56)
--------- --------- --------- ---------
Total dividends and distributions (.45) (.62) (.48) (.64)
--------- --------- --------- ---------
Net asset value, end of period $ 16.51 $ 15.10 $ 17.12 $ 15.61
========= ========= ========= =========
Total Investment Based on net asset value per share 12.59%+++ 4.82%+++ 13.03%+++ 5.13%+++
Return:*** ========= ========= ========= =========
Ratios to Average Expenses, excluding account maintenance
Net Assets: and distribution fees 1.10%* 1.41%* 1.05%* 1.36%*
========= ========= ========= =========
Expenses 2.10%* 2.41%* 1.30%* 1.61%*
========= ========= ========= =========
Investment income--net .77%* .14%* 1.55%* .95%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 24,758 $ 11,434 $ 22,622 $ 11,037
Data: ========= ========= ========= =========
Portfolio turnover 25.06% 59.79% 25.06% 59.79%
========= ========= ========= =========
<PAGE>
<FN>
*Annualized.
**Based on average shares outstanding during the period.
***Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
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. 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.
(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 Directors 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 value quotations are not available are valued at
their fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
<PAGE>
(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.
* Options--The Fund is authorized to write covered call options and
purchase put 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.
NOTES TO FINANCIAL STATEMENTS (continued)
<PAGE>
* 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 such contracts.
Premium or discount is amortized over the life of the contracts.
* Foreign currency options and futures--The Fund may 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.
(c) 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.
(d) 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 Fund is 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.
(e) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(f) 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."), 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.
<PAGE>
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 FAM during any fiscal year which will cause such expenses
to exceed the most restrictive expense limitation at the time of
such payment.
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
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 September 30, 1995, MLFD earned
underwriting discounts and commissions 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 $1,975 $ 26,801
Class D $9,055 $121,951
For the six months ended September 30, 1995, MLPF&S received
contingent deferred sales charges of $372,096 and $6,501 relating to
transactions in Class B and Class C Shares, respectively.
<PAGE>
In addition, MLPF&S received $14,114 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended September 30, 1995.
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 FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for six months ended September 30, 1995 were $182,344,196 and
$99,626,910, respectively.
Net realized and unrealized gains as of September 30, 1995 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $16,828,067 $46,157,799
----------- -----------
Total $16,828,067 $46,157,799
=========== ===========
As of September 30, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $46,157,799, of which $71,068,237
related to appreciated securities and $24,910,438 related to
depreciated securities. At September 30, 1995, the aggregate cost of
investments for Federal income tax purposes was $496,317,758.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $125,642,782 and $174,423,847 for the six months ended September
30, 1995 and the year ended March 31, 1995, respectively.
<PAGE>
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
September 30, 1995 Shares Amount
Shares sold 4,104,564 $ 66,345,203
Shares issued to shareholders
in reinvestment of dividends
and distributions 242,311 3,840,623
----------- ------------
Total issued 4,346,875 70,185,826
Shares redeemed (1,282,461) (21,253,777)
----------- ------------
Net increase 3,064,414 $ 48,932,049
=========== ============
Class A Shares for the
Year Ended Dollar
March 31, 1995 Shares Amount
Shares sold 2,510,523 $ 38,699,950
Shares issued to shareholders
in reinvestment of dividends
and distributions 496,385 7,197,017
----------- ------------
Total issued 3,006,908 45,896,967
Shares redeemed (1,152,958) (17,707,842)
----------- ------------
Net increase 1,853,950 $ 28,189,125
=========== ============
Class B Shares for the
Six Months Ended Dollar
September 30, 1995 Shares Amount
Shares sold 6,045,015 $ 95,114,854
Shares issued to shareholders
in reinvestment of dividends
and distributions 432,523 6,656,530
----------- ------------
Total issued 6,477,538 101,771,384
Shares redeemed (2,760,781) (44,312,619)
Automatic conversion
of shares (139,903) (2,195,112)
----------- ------------
Net increase 3,576,854 $ 55,263,653
=========== ============
<PAGE>
Class B Shares for the
Year Ended Dollar
March 31, 1995 Shares Amount
Shares sold 11,451,034 $171,088,878
Shares issued to shareholders
in reinvestment of dividends
and distributions 882,748 12,456,145
----------- ------------
Total issued 12,333,782 183,545,023
Shares redeemed (3,711,137) (55,381,255)
Automatic conversion of ----------- ------------
shares (247,985) (3,691,530)
----------- ------------
Net increase 8,374,660 $124,472,238
=========== ============
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Six Months Dollar
Ended September 30, 1995 Shares Amount
Shares sold 911,327 $14,283,745
Shares issued to shareholders
in reinvestment of dividends
and distributions 29,837 456,504
----------- -----------
Total issued 941,164 14,740,249
Shares redeemed (198,991) (3,229,318)
----------- -----------
Net increase 742,173 $11,510,931
=========== ===========
<PAGE>
Class C Shares for the Period Dollar
Oct. 21, 1994++ to March 31, 1995 Shares Amount
Shares sold 828,311 $12,105,918
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,268 85,792
----------- -----------
Total issued 834,579 12,191,710
Shares redeemed (77,347) (1,134,143)
----------- -----------
Net increase 757,232 $11,057,567
=========== ===========
[FN]
++Commencement of Operations.
Class D Shares for the Six Months Dollar
Ended September 30, 1995 Shares Amount
Shares sold 775,721 $12,724,940
Automatic conversion
of shares 135,808 2,195,112
Shares issued to shareholders
in reinvestment of dividends
and distributions 25,816 408,666
----------- -----------
Total issued 937,345 15,328,718
Shares redeemed (323,239) (5,392,569)
----------- -----------
Net increase 614,106 $ 9,936,149
=========== ===========
Class D Shares for the Period Dollar
Oct. 21, 1994++ to March 31, 1995 Shares Amount
Shares sold 496,638 $ 7,482,596
Automatic conversion of shares 240,716 3,691,530
Shares issued to shareholders
in reinvestment of dividends
and distributions 10,621 149,861
----------- -----------
Total issued 747,975 11,323,987
Shares redeemed (40,986) (619,070)
----------- -----------
Net increase 706,989 $10,704,917
=========== ===========
[FN]
++Commencement of Operations.
<PAGE>
PORTFOLIO INFORMATION
Percent of
Top Ten Equity Holdings Net Assets
PXRE Corp. 3.1%
Charter One Financial, Inc. 2.6
Security-Connecticut Corp. 2.4
Ace, Ltd. 2.3
Redman Industries, Inc. 2.0
Norton McNaughton, Inc. 1.9
Stratus Computer, Inc. 1.5
Boole & Babbage, Inc. 1.3
Charter Medical Corp. 1.3
Control Data Systems, Inc. 1.2
Percent of
Ten Largest Industries Net Assets
Insurance 10.9%
Natural Resources 8.0
Data Processing 7.4
Retailing 6.8
Banks & Finance 5.5
Apparel 4.5
Computers 3.7
Health Care--Products & Services 3.5
Real Estate & Real Estate Investment
Trusts 3.3
Building & Building Materials 3.2
PORTFOLIO INFORMATION (concluded)
Equity Portfolio Changes for the Quarter Ended
September 30, 1995
<PAGE>
Additions
AGCO Corp.
Amdahl Corp.
American National Insurance Co.
Arcadian Corp.
Ariad Pharmaceuticals, Inc.
*Astea International, Inc.
Athena Neurosciences, Inc.
Control Data Systems, Inc.
Core Laboratories N.V.
*Cygnus Therapeutic Systems
*Desktop Data, Inc.
Dovatron International, Inc.
Dress Barn, Inc.
Duplex Products, Inc.
*Evergreen Media Corp.
First Colony Corp.
*First Financial Corp.
Gensia, Inc.
Global Natural Resources, Inc.
*Harbinger Corp.
*Jayhawk Acceptance Corp.
Lesco, Inc.
*Lincare Holdings, Inc.
Mid-America Apartment Communities, Inc.
NeoRx Corp.
*Netscape Communications Corp.
Neurogen Corporation
Newpark Resources, Inc.
*Novadigm, Inc.
*ON Technology Corp.
*Oakley, Inc.
*OnTrak Systems, Inc.
*Pediatrix Medical Group, Inc.
Plains Resources, Inc.
Platinum Technology, Inc.
Progress Software Corp.
*Redhook Ale Brewery, Inc.
SangStat Medical Corp.
Sheldahl, Inc.
Shoney's, Inc.
*Smartflex Systems, Inc.
Tandem Computers, Inc.
Technitrol, Inc.
*Telecom Semiconductor, Inc.
Univax Biologics, Inc.
Utah Medical Products, Inc.
VMARK Software, Inc.
Whole Foods Market, Inc.
<PAGE>
Deletions
*Astea International, Inc.
Asyst Technologies, Inc.
Blount, Inc. (Class A)
Coram Healthcare Corporation
*Cygnus Therapeutic Systems
*Desktop Data, Inc.
Duracraft Corp.
Energy Ventures, Inc.
Everest & Jennings International (Class A)
*Evergreen Media Corp.
Filene's Basement Corp.
*First Financial Corp.
Fischer Imaging Corp.
Genetic Therapy, Inc.
*Harbinger Corp.
*Jayhawk Acceptance Corp.
Jones Apparel Group, Inc.
Landmark Graphics Corp.
Lillian Vernon Corp.
*Lincare Holdings, Inc.
Movie Gallery, Inc.
National Steel Corp.
*Netscape Communications Corp.
*Novadigm, Inc.
*ON Technology Corp.
ONBANCorp, Inc.
*Oakley, Inc.
*OnTrak Systems, Inc.
*Pediatrix Medical Group, Inc.
*Redhook Ale Brewery, Inc.
Riviana Foods, Inc.
Sequus Pharmaceuticals, Inc.
*Smartflex Systems, Inc.
Symantec Corp.
Taco Cabana, Inc.
*Telecom Semiconductor, Inc.
The Town and Country Trust
Weatherford International, Inc.
[FN]
*Added and deleted in the same quarter.
