MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
FUND LOGO
Annual Report
March 31, 1995
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, New York 10286
<PAGE>
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Special Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
Increasing signs of slowing economic growth led to higher US stock
and bond prices during the March quarter. Although gross domestic
product (GDP) was reported to have increased at a revised 5.1% rate
during the final quarter of 1994, declines in other indicators such
as new home sales and durable goods orders registered thus far in
1995 have led investors to anticipate that the economy is losing
enough momentum to keep inflation under control and preclude further
significant monetary policy tightening by the Federal Reserve Board.
However, as US stock and bond markets have risen, the value of the
US dollar reached new lows relative to the yen and the Deutschemark.
Persistent trade deficits and exports of capital from the United
States have kept the US currency in a decade-long decline relative
to the Japanese and German currencies. Over the longer term, since
the United States has the highest productivity among industrialized
nations and among the lowest labor costs, demand for US dollar-
denominated assets may improve. However, a reduction of the still-
widening US trade deficit may be necessary before the US dollar
appreciates substantially relative to the yen and the Deutschemark.
<PAGE>
The first three months of 1995 were very positive for the US stock
and bond markets. Continued signs of a moderating expansion and well-
contained inflationary pressures would provide further assurance
that the peak in interest rates is behind us, creating a stronger
foundation for higher stock and bond prices. On the other hand,
indications of reaccelerating growth and further significant
monetary policy tightening by the Federal Reserve Board would be a
decided negative for the US financial markets.
Portfolio Matters
During the quarter ended March 31, 1995, Merrill Lynch Special Value
Fund, Inc. outperformed the unmanaged Russell 2000 Index. The total
returns of the Fund's Class A, B, C and D Shares were +6.33%,
+6.01%, +6.04% and +6.26%, respectively, while the Russell 2000
Index total return was +4.61%. (Complete performance information,
including average annual total returns, can be found on pages 5 -8
of this report to shareholders.) The Fund's performance was helped
by holdings in technology, healthcare and financial services.
Notable performers in order of their contributions to the
portfolio's total return were VLSI Technology, Inc. (up 50%),
TPIEnterprises, Inc. (up 45%), Plains Resources, Inc. (up 44%) and
Symantec Corp. (up 31%). Technology stocks continued to respond to
strong computer and telecommunications equipment sales with
attendant demand for semiconductors and software. Healthcare stocks
extended the gains they have been making since it became clear that
the Clinton Administration would fail in its attempt to impose
sweeping changes to the healthcare system. Financial services stocks
rose in response to continued earnings growth, low valuations and
falling interest rates. The Fund also benefited from improved prices
in many of the new holdings added during the December 31, 1994
quarter.
The Fund was active in making purchases. We initiated investments in
16 new holdings and added to existing positions in 42 securities.
Purchases spanned a wide variety of industries as sectors receiving
emphasis included financial services, technology, healthcare, retail
and apparel. Purchases were somewhat more diversified than in some
prior periods, and no single security received a concentration of
new investment.
We eliminated the Fund's holdings in 12 securities. Most sales were
motivated by stocks appreciating to the Fund's price objectives.
Concerns over companies' operating results motivated a small number
of sales.
Fiscal Year in Review
For the twelve months ended March 31, 1995, the Fund outperformed
the unmanaged Russell 2000 Index. The Fund benefited from its
holdings in the technology, healthcare and financial services
sectors. Results were hindered by investments in the retail sector.
Cash reserves served to dampen the Fund's volatility and to provide
buying power to take advantage of price weakness in individual
securities. Notable contributors to the Fund's performance included
two computer software companies, Boole & Babbage, Inc. (up 82%) and
Cognos, Inc. (up 88%).
<PAGE>
The Fund's fiscal year was difficult for many investors. Increasing
interest rates led to subpar performance for equities and bonds
during most of the twelve months. While many stocks enjoyed gains,
these were often temporary. Furthermore, a significant number of
stocks suffered large declines. In addition to enjoying the lower
volatility provided by its cash reserves, which ended the fiscal
year at 27.1% of net assets, the Fund benefited from emphasizing
stocks selling at attractive valuations rather than more expensive
stocks with higher projected earnings growth.
The March 31, 1995 quarter marked a sharp change from the final
quarter of calendar 1994 as well as most of the full year. Stocks
had sold off sharply following the Federal Reserve Board's February
1994 move to increase interest rates. Stock prices stayed weak for
most of the year but bottomed in early December amidst considerable
bearishness among many investors. As noted in our December report,
we used the year-end 1994 period of weak prices to increase the pace
of our investing, resulting in a number of new holdings, increases
in existing holdings, and a decrease in cash reserves. After the
turn of the year, investors began to focus on signs that the
economy's growth was slowing. This led to a belief that short-term
interest rates were at a peak. Bond and stock prices moved
consistently higher, but the US dollar weakened sharply against the
Deutschemark and yen. As stock prices moved higher, we slowed the
pace of the Fund's purchases and reduced holdings in some stocks as
noted above.
Together with ongoing shareholder subscriptions, cash reserves
increased to 27.1% of Fund net assets. We estimate that at this
level of cash reserves, the Fund is approximately 87% as volatile as
its benchmark, the Russell 2000 Index.
In important respects, the current environment is supportive of
improving equity prices. As noted, it follows a period of negative
investor sentiment and has been characterized by falling interest
rates. Economic growth continues at a more moderate pace and
inflation has remained relatively low. Also, US assets have been
pushed onto the bargain counter for investors holding sharply
appreciated Deutschemarks or yen. Indeed, these factors have
produced a remarkably steady improvement in equity prices since
early December. Perhaps the most critical change from last year has
been the shift in investors' perceptions regarding future Federal
Reserve Board policy, from expecting a trend of repeated interest
rate increases to a belief that policy would be held steady. Flat or
lower interest rates could lead to still further stock market gains.
However, the Federal Reserve Board could resume its policy
tightening moves if it sees renewed economic strength or an
acceleration of recent increases in inflation.
<PAGE>
Finally, we note that the Fund's net assets increased 91% during the
fiscal year to a record level of $366 million.
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
May 9, 1995
ABOUT THE FUND'S INVESTMENT STRATEGY
Merrill Lynch Special Value Fund, Inc.'s Board of Directors has
adopted the following investment strategies to be used in managing
the Fund's portfolio in accordance with its investment objective and
fundamental investment policy. In seeking to achieve the Fund's
investment objective we first seek long-term growth of capital by
investing in a diversified portfolio of securities, primarily common
stock, of relatively small companies which management of the Fund
believes have special investment value, and in emerging growth
companies regardless of size. The Fund has employed an investment
strategy that focuses on a long-range view of a company's prospects,
primarily through fundamental analysis of its management, financial
structure, product development and marketing ability and other
relevant factors. The Board of Directors has recently authorized the
Fund's management to also seek to identify companies which can show
favorable investment potential through analysis of the economy and
the financial markets. This strategy focuses on the long-range view
of a company's market valuation, primarily through analysis of
economic trends, valuation models, market statistics or other
quantitative factors applicable to specific companies, industries or
economic sectors.
<PAGE>
Additionally, the Fund's management may identify a number of
companies that it believes share favorable investment potential,
often companies in particular or related industries or market
segments. At times, the Fund may acquire such companies together as
a "basket" (group) in a single transaction. The Fund will take
delivery of such securities, and may subsequently sell such
"baskets" as a group, or it may sell only selected securities.
The Fund may also acquire or dispose of "baskets" of securities as a
means to rapidly increase or decrease exposure to the markets in
response to the Fund's cash flow (primarily, the effects of net
purchases or net redemptions of the Fund's shares). These "baskets"
may be composed of securities selected solely because their
aggregate volatility appears to substantially correlate with the
volatility of the markets (or a portion of the markets) in which the
Fund invests, although the Fund may continue to hold particular
securities from such a "basket" based on their favorable investment
potential.
Management believes that while the companies in which the Fund
invests present above-average risks, properly selected companies of
this type also have the potential to increase their earnings or
market valuation at a rate substantially in excess of the general
growth of the economy. Full development of these companies and
trends frequently takes time and, for this reason, the Fund should
be considered as a long-term investment and not as a vehicle for
seeking short-term profits.
PROXY RESULTS
During the six-month period ended March 31, 1995, Merrill Lynch
Special Value Fund, Inc. shareholders voted on the following
proposals. Proposals 1, 2 and 4 were approved at a special
shareholders' meeting on September 26, 1994. Proposal 3 was passed
at a special shareholders' meeting on January 31, 1995. The
description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Donald Cecil 12,682,867 289,333
M. Colyer Crum 12,684,593 287,607
Edward H. Meyer 12,680,872 291,328
Jack B. Sunderland 12,689,342 282,858
J. Thomas Touchton 12,685,092 287,108
Arthur Zeikel 12,684,588 287,612
<PAGE>
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To select Deloitte & Touche LLP as the Fund's independent auditors. 12,635,809 86,034 250,357
3. To approve certain changes to the Fund's fundamental investment
restrictions. 7,368,604 301,700 418,033
4. To amend the Fund's articles of incorporation to implement the
Merrill Lynch Select Pricing SM System. 11,578,052 672,825 721,323
</TABLE>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch Special Value Fund, Inc. during the fiscal
year ended March 31, 1995:
<TABLE>
<CAPTION>
Domestic Domestic Total Long-Term
Record Payable Qualifying Non-Qualifying Ordinary Capital
Date Date Ordinary Income Ordinary Income Income Gains
<S> <C> <C> <C> <C> <C> <C>
Class A Shares: 07/05/94 07/13/94 $.055838 $.431981 $.487819 $.368884
12/12/94 12/20/94 $.071520 $.380198 $.451718 $.191830
Class B Shares: 07/05/94 07/13/94 $.052680 $.407544 $.460224 $.368884
12/12/94 12/20/94 $.058243 $.309616 $.367859 $.191830
Class C Shares: 12/12/94 12/20/94 $.068010 $.361539 $.429549 $.191830
Class D Shares: 12/12/94 12/20/94 $.070759 $.376154 $.446913 $.191830
</TABLE>
The qualifying domestic ordinary income qualifies for the dividends
received deduction for corporations.
Please retain this information for your records.
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:
<PAGE>
* 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).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Total Return Based on a $10,000 Investment",
"Performance Summary" and "Average Annual Total Return" tables on
pages 6 and 7. The "Results of a $1,000 Investment Since Inception--
Class A Shares" chart on page 8 illustrates the performance of a
$1,000 investment in Class A Shares made at the Fund's inception
(assuming the maximum initial sales charge of 5.25%) through March
31, 1995. "Aggregate Total Return" tables for Class C and Class D
Shares are also presented on page 6. Data for all of the Fund's
shares, including Class C and Class D Shares, are presented in the
"Recent Performance Results" table on page 8.
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 March 31, 1995 and
for Class C and Class D Shares for the since inception and 3-month
periods ended March 31, 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.
<PAGE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth if an investment in the Russell
2000 Index. Beginning and ending values are:
3/85 3/95
ML Special Value Fund, Inc.++--
Class A Shares* $ 9,475 $18,143
Russell 2000 Index++++ $10,000 $27,403
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the Russell
2000 Index. Beginning and ending values are:
10/21/88** 3/95
ML Special Value Fund, Inc.++--
Class B Shares* $10,000 $15,499
Russell 200 Index++++ $10,000 $19,866
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Special Value Fund, Inc. invests in a diversified
portfolio of securities, primarily common stocks, of
relatively small companies which the Fund's management
believes have special investment value and emerging
growth companies regardless of size.
++++This unmanages Index is comprised of common stocks of the
bottom two-thirds of the largest 3,000 publically traded
companies in the United States.
Past performance is not predictive of future performance.
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/95 + 8.85% + 3.14%
Five Years Ended 3/31/95 +11.19 + 9.99
Ten Years Ended 3/31/95 + 6.71 + 6.14
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/95 + 7.70% + 3.76%
Five Years Ended 3/31/95 +10.05 +10.05
Inception (10/21/88) through 3/31/95 + 7.04 + 7.04
[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 3/31/95 +4.82% +3.82%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94)
through 3/31/95 +5.13% -0.39%
[FN]
*Maximum sales charge is 5.25%
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
5/5/78--12/31/78 $ 9.60 $ 8.70 -- $0.190 - 7.63%
1979 8.70 10.16 $0.370 0.320 +25.67
1980 10.16 12.54 0.500 0.195 +33.62
1981 12.54 10.58 0.890 0.390 - 6.27
1982 10.58 10.67 0.650 0.380 +12.70
1983 10.67 12.45 0.610 0.070 +22.40
1984 12.45 11.10 0.290 0.120 - 7.60
1985 11.10 14.29 0.340 0.090 +33.14
1986 14.29 13.97 0.620 0.050 + 1.88
1987 13.97 10.32 1.086 0.143 -18.52
1988 10.32 11.83 0.017 0.233 +17.06
1989 11.83 11.65 -- 0.237 + 0.42
1990 11.65 8.32 -- 0.148 -27.52
1991 8.32 12.80 -- 0.080 +54.87
1992 12.80 14.96 -- 0.019 +17.04
1993 14.96 15.66 0.594 0.811 +14.26
1994 15.66 14.70 0.561 0.940 + 3.81
1/1/95--3/31/95 14.70 15.63 -- -- + 6.33
------ ------
Total $6.528 Total $4.416
Cumulative total return as of 3/31/95: +298.93%**
<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
1994 15.31 14.30 0.561 0.828 + 2.79
1/1/95--3/31/95 14.30 15.16 -- -- + 6.01
------ ------
Total $1.172 Total $1.824
Cumulative total return as of 3/31/95: +54.99%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
PERFORMANCE DATA (concluded)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% sales charge--$947.500 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 $947.50 on May 5, 1978 to $3,779.86 on March 31,
1995.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
3/31/95 12/31/94 3/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $15.63 $14.70 $15.88 +2.24%(1) +6.33%
ML Special Value Fund, Inc. Class B Shares* 15.16 14.30 15.49 +1.77(1) +6.01
ML Special Value Fund, Inc. Class C Shares* 15.10 14.24 15.06 +1.67(2) +6.04
ML Special Value Fund, Inc. Class D Shares* 15.61 14.69 15.52 +1.95(2) +6.26
Russell 2000 Index** 260.77 250.36 251.06 +3.87 +4.16
ML Special Value Fund, Inc. Class A Shares--Total Return* +8.85(3) +6.33
ML Special Value Fund, Inc. Class B Shares--Total Return* +7.70(4) +6.01
ML Special Value Fund, Inc. Class C Shares--Total Return* +4.82(5) +6.04
ML Special Value Fund, Inc. Class D Shares--Total Return* +5.13(6) +6.26
Russell 2000 Index**--Total Return +5.50 +4.61
<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 $0.561 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.192 per share capital
gains distributions.
(3)Percent change includes reinvestment of $0.940 per share ordinary
income dividends and $0.561 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.828 per share ordinary
income dividends and $0.561 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.430 per share ordinary
income dividends and $0.192 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.447 per share ordinary
income dividends and $0.192 per share capital gains distributions.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 86,800 ++Banner Aerospace, Inc. $ 592,640 $ 347,200 0.1%
65,000 ++BE Aerospace, Inc. 497,985 422,500 0.1
257,800 ++UNC, Inc. 1,466,514 1,417,900 0.4
--------------- --------------- ------
2,557,139 2,187,600 0.6
Apparel 684,800 ++Farah, Inc. (a) 5,798,170 5,221,600 1.4
35,000 ++Jones Apparel Group, Inc. 790,325 945,000 0.3
183,000 Kellwood Co. 3,429,866 3,408,375 0.9
84,000 ++Marisa Christina, Inc. 862,660 1,018,500 0.3
152,100 ++Norton McNaughton, Inc. 2,142,668 2,699,775 0.7
75,000 The Warnaco Group, Inc. (Class A) 1,142,930 1,340,625 0.4
--------------- --------------- ------
14,166,619 14,633,875 4.0
Automotive 43,000 Smith (A.O.) Corp. 883,060 967,500 0.3
Banks & Finance 60,000 American Federal Bank, FSB 611,250 855,000 0.2
267,000 Bankers Corp. 2,164,922 4,405,500 1.2
20,000 Banknorth Group, Inc. 365,000 470,000 0.1
492,000 Charter One Financial, Inc. 9,416,987 9,963,000 2.7
170,000 ++Civic Bancorp, Inc. 926,250 1,115,625 0.3
30,000 Collective Bancorp, Inc. 502,547 543,750 0.2
287,500 The Co-Operative Bank of Concord (a) 3,701,013 4,600,000 1.3
51,600 ++FirstFed Financial Corp. 580,034 806,250 0.2
20,000 New York Bancorp, Inc. 348,974 342,500 0.1
105,000 ONBANCorp, Inc. 3,357,159 2,677,500 0.7
380,000 Roosevelt Financial Group, Inc. 3,948,501 5,985,000 1.6
--------------- --------------- ------
25,922,637 31,764,125 8.6
Beverages 66,000 ++Celestial Seasonings, Inc. 980,315 1,270,500 0.3
<PAGE>
Biotechnology 40,000 ++Alteon, Inc. 181,731 240,000 0.1
256,000 ++Applied Immune Sciences, Inc. 3,639,452 1,248,000 0.3
42,900 ++AutoImmune, Inc. 284,213 268,125 0.1
89,300 ++Cephalon, Inc. 630,609 625,100 0.2
95,000 ++COR Therapeutics, Inc. 937,940 1,235,000 0.3
173,500 ++CytoTherapeutics, Inc. 1,354,051 1,192,813 0.3
60,000 ++Genetic Therapy, Inc. 677,651 600,000 0.2
75,000 ++The Immune Response Corp. 1,089,374 210,938 0.1
45,000 ++The Liposome Company, Inc. (Convertible
Preferred) 992,998 1,125,000 0.3
100,000 ++Liposome Technology, Inc. 804,373 687,500 0.2
76,100 National Patent Development Corp. 208,155 128,419 0.0
90,000 ++Regeneron Pharmaceuticals, Inc. 313,200 562,500 0.2
50,000 ++Sepracor, Inc. 386,875 506,250 0.1
--------------- --------------- ------
11,500,622 8,629,645 2.4
Building & 70,000 American Homestar, Inc. 560,000 778,750 0.2
Building Materials 59,000 Blount, Inc. (Class A) 2,311,339 2,625,500 0.7
100,000 ++Giant Cement Holding, Inc. 1,146,880 1,150,000 0.3
400,000 ++Redman Industries, Inc. (a) 6,782,631 7,750,000 2.1
125,300 Ryland Group, Inc. 1,724,018 1,801,188 0.5
150,200 Washington Homes, Inc. 872,781 525,700 0.1
--------------- --------------- ------
13,397,649 14,631,138 3.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Business Services 566,000 ++Applied Bioscience International, Inc. $ 3,086,390 $ 3,042,250 0.8%
60,000 Banta Corp. 1,791,430 1,980,000 0.5
--------------- --------------- ------
4,877,820 5,022,250 1.3
Computer Services 725,000 ++Anacomp, Inc. 2,691,367 1,268,750 0.3
240,500 Boole & Babbage, Inc. 3,101,038 6,854,250 1.9
25,000 ++Primark Corp. 282,750 359,375 0.1
--------------- --------------- ------
6,075,155 8,482,375 2.3
<PAGE>
Computers 25,000 ++DH Technology, Inc. 295,000 518,750 0.1
301,300 Radius, Inc. 2,674,581 3,916,900 1.1
180,000 ++Storage Technology Corp. 3,623,075 3,442,500 0.9
170,000 ++Stratus Computer, Inc. 5,287,343 5,312,500 1.5
--------------- --------------- ------
11,879,999 13,190,650 3.6
Cosmetics 1,317 Alfin, Inc., Preferred (f) 0 0 0.0
Data Processing 205,000 ++Cognos, Inc. 1,573,000 4,484,375 1.2
30,000 ++Computervision Corp. 83,700 150,000 0.0
57,800 ++Consilium, Inc. 419,581 462,400 0.1
275,000 ++SHL Systemhouse, Inc. 1,509,375 1,650,000 0.5
120,000 ++Sterling Software, Inc. 4,201,414 4,185,000 1.1
85,000 ++Symantec Corp. 1,111,950 1,955,000 0.5
--------------- --------------- ------
8,899,020 12,886,775 3.4
Electrical Equipment 60,000 ++Catalina Lighting, Inc. 471,291 375,000 0.1
138,000 Comptek Research, Inc. 2,204,043 1,863,000 0.5
26,300 ++WPI Group, Inc. 164,375 72,325 0.0
--------------- --------------- ------
2,839,709 2,310,325 0.6
Electronics 100,000 Alden Electronics, Inc. 422,500 250,000 0.1
500,011 Automated Security Holdings PLC 1,774,832 937,521 0.3
27,562 ++Maxwell Laboratories, Inc. 316,726 179,153 0.1
226,000 ++Micronics Computers, Inc. 1,198,238 1,214,750 0.3
141,000 ++VLSI Technology, Inc. 1,712,250 2,538,000 0.7
27,000 ++VTEL Corp. 161,155 297,000 0.1
--------------- --------------- ------
5,585,701 5,416,424 1.6
<PAGE>
Environmental & 390,250 NSC Corp. 2,062,737 975,625 0.3
Environmental Control 110,000 ++Rollins Environmental Services, Inc. 546,187 453,750 0.1
--------------- --------------- ------
2,608,924 1,429,375 0.4
Foods/Food Processing 50,000 Riviana Foods, Inc. 600,000 675,000 0.2
Health Care-- 215,000 ++Beverly Enterprises, Inc. 2,869,712 3,117,500 0.9
Products & Services 255,000 Charter Medical Corp. 4,561,083 4,749,375 1.3
120,000 Community Psychiatric Centers 1,480,500 1,545,000 0.4
50,000 ++Healthcare Services Group, Inc. 468,500 600,000 0.2
504,500 ++Ramsey Health Care, Inc. (a) 3,537,506 3,720,688 1.0
200,000 ++Unilab Corp. 1,106,250 1,025,000 0.3
--------------- --------------- ------
14,023,551 14,757,563 4.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Home Furnishings 158,000 Crown Crafts, Inc. $ 2,535,692 $ 2,686,000 0.7%
Insurance 173,800 Ace, Ltd. 3,894,836 4,388,450 1.2
225,000 Capital Guaranty Corp. 3,407,464 3,853,125 1.1
152,500 Harleysville Group, Inc. 3,227,904 3,717,188 1.0
107,200 ++Omni Insurance Group, Inc. 636,023 804,000 0.2
395,000 PXRE Corp. (a)(b) 8,361,899 9,529,375 2.6
232,400 Security-Connecticut Corp. 4,645,395 5,780,950 1.6
70,000 ++Transnational Re Corp. (Class A) 1,326,059 1,400,000 0.4
--------------- --------------- ------
25,499,580 29,473,088 8.1
Leasing 147,100 ++LDI Corp. 1,406,703 514,850 0.1
195,000 ++Sea Containers, Ltd. 3,371,021 2,730,000 0.7
--------------- --------------- ------
4,777,724 3,244,850 0.8
<PAGE>
Medical 148,500 Analogic Corp. 2,654,377 2,821,500 0.8
32,600 ++Everest & Jennings International (Class A) 456,544 20,375 0.0
15,000 ++Fischer Imaging Corp. 288,440 76,875 0.0
--------------- --------------- ------
3,399,361 2,918,750 0.8
Metals--Non-Ferrous 76,800 Handy & Harman 1,205,929 1,267,200 0.3
Miscellaneous 45,000 PHH Corp. 1,541,238 1,710,000 0.5
Natural Resources 145,000 ++Abraxas Petroleum Corp. 1,642,500 1,286,875 0.4
80,000 ++Addington Resources, Inc. 621,055 760,000 0.2
103,600 ++American Oilfield Divers, Inc. 951,150 699,300 0.2
90,900 ++Atwood Oceanics, Inc. 763,563 1,238,512 0.3
110,000 ++Tom Brown, Inc. 930,773 1,705,000 0.5
38,300 ++Cliffs Drilling Co. 494,562 540,987 0.1
29,000 Cliffs Drilling Co. (Convertible Preferred) 774,875 768,500 0.2
299,254 ++Coho Resources, Inc. 2,075,477 1,533,677 0.4
25,000 ++Energy Ventures, Inc. 468,750 328,125 0.1
275,000 ++Gerrity Oil & Gas Corp. 3,571,250 1,065,625 0.3
70,700 ++Grant Tensor Geophysical Corp. (Convertible
Preferred) 1,175,940 972,125 0.3
75,000 Input/Output, Inc. 1,641,345 1,978,125 0.5
359,000 ++International Petroleum Corp. 990,247 560,937 0.2
120,000 ++Noble Drilling Corp. 735,714 735,000 0.2
105,000 ++Nuevo Energy Co. 2,023,100 2,073,750 0.6
194,600 ++Plains Resources, Inc. 1,356,218 1,508,150 0.4
17,796 ++Plains Resources, Inc. (Convertible Preferred),
Series C 1,700,000 2,333,560 0.6
$ 900,000 Swift Energy Corp., Convertible Bonds, 6.50%
due 6/30/2003 924,000 855,000 0.2
65,000 ++Tetra Technologies, Inc. 500,750 780,000 0.2
192,100 Total Petroleum of North America, Ltd. 2,342,351 2,353,225 0.6
231,000 ++Trans Texas Gas Corp. 2,551,375 2,598,750 0.7
2,876 Transamerican Refining Corp., 18.29%++++ due
2/15/1998 (Units) (d) 1,728,249 1,743,575 0.5
1,700 WRT Energy Corp., 13.875% due 3/01/2002
(Units) (e) 1,700,000 1,678,750 0.5
52,000 ++Weatherford International, Inc. 449,600 546,000 0.2
20,000 The Wiser Oil Co. 360,000 287,500 0.1
--------------- --------------- ------
32,472,844 30,931,048 8.5
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Convertible Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Paper/Forest Products 100,000 Pope & Talbot, Inc. $ 1,662,200 $ 1,600,000 0.4%
Personal Care 50,000 ++Marietta Corp. 441,875 543,750 0.1
Products
Pharmaceuticals 19,025 ++American Drug Co. 2,377 4,756 0.0
19,025 ++American Drug Co. (Warrants) (c) 1,189 1,189 0.0
--------------- --------------- ------
3,566 5,945 0.0
Photo-Optical 80,000 Instron Corp. 1,010,849 960,000 0.3
Instruments
Real Estate & Real $1,000,000 Alexander Haagen Properties, Inc., 7.25% due
Estate Investment 12/27/2003 1,000,000 900,000 0.2
Trusts 25,000 Bay Apartment Communities, Inc. 456,662 459,375 0.1
23,000 Cali Realty Corp. 364,567 399,625 0.1
110,000 Carr Realty Corp. 2,223,480 1,911,250 0.5
88,000 ++Catellus Development Corp. (Convertible
Preferred) 3,200,250 3,344,000 0.9
280,800 Crown American Realty Trust 3,855,935 3,650,400 1.0
25,000 Developers Diversified Realty Corp. 701,563 706,250 0.2
40,000 Manufactured Home Communities, Inc. 591,350 615,000 0.2
50,000 The Town and Country Trust 678,600 675,000 0.2
--------------- --------------- ------
13,072,407 12,660,900 3.4
Restaurants 536,400 ++TPI Enterprises, Inc. 3,196,191 3,017,250 0.8
<PAGE>
Retailing 338,500 J. Baker, Inc. 5,749,139 5,162,125 1.4
189,500 ++Bon-Ton Stores, Inc. 1,996,946 2,013,437 0.6
313,800 ++Catherines Stores Corp. 3,404,710 2,745,750 0.8
222,000 ++Filene's Basement Corp. 1,063,607 749,250 0.2
80,000 Fingerhut Companies, Inc. 893,552 950,000 0.3
40,000 Gantos, Inc. 497,275 75,000 0.0
1,063,000 ++Grossman's, Inc. 3,251,812 2,258,875 0.6
84,900 Hancock Fabrics, Inc. 765,791 859,612 0.2
66,200 Lillian Vernon Corp. 972,147 1,365,375 0.4
59,200 ++OfficeMax, Inc. 1,124,800 1,517,000 0.4
305,000 Pier 1 Imports, Inc. 2,687,712 2,821,250 0.8
102,000 ++REX Stores Corp. 1,315,670 1,428,000 0.4
40,000 ++S&K Famous Brands, Inc. 511,650 290,000 0.1
700,000 ++Service Merchandise Co., Inc. 4,632,083 3,500,000 1.0
144,000 Venture Stores, Inc. 2,407,682 1,782,000 0.5
745,400 ++The Wet Seal, Inc. (Class A) (a) 2,643,245 2,935,012 0.8
--------------- --------------- ------
33,917,821 30,452,686 8.5
Steel 60,000 ++National Steel Corp. 972,012 960,000 0.3
Telecommunications 100,000 ++General DataComm Industries, Inc. 1,460,168 1,475,000 0.4
Textiles 300,000 Burlington Industries, Inc. 3,384,602 3,412,500 0.9
Toy Manufacturing 389,000 ++Just Toys, Inc. (a) 1,738,722 559,187 0.2
Transportation 148,700 ++Kirby Corp. 2,696,059 2,602,250 0.7
Utilities 125,000 American Water Works Co., Inc. 1,921,197 3,625,000 1.0
Total Stocks & Convertible Bonds 263,707,957 272,360,524 74.3
</TABLE>
<PAGE>
<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* $ 9,000,000 ANZ (Delaware), Inc., 5.95% due 4/07/1995 $ 8,991,075 $ 8,991,075 2.5%
6,000,000 BAT Capital Corp., 5.97% due 4/10/1995 5,991,045 5,991,045 1.6
15,000,000 Ciesco L.P., 5.97% due 5/03/1995 14,920,400 14,920,400 4.1
10,000,000 du Pont (E.I.) de Nemours & Co., 5.85%
due 4/04/1995 9,995,125 9,995,125 2.7
19,451,000 General Electric Capital Corp., 6.25% due
4/03/1995 19,444,246 19,444,246 5.3
5,000,000 Goldman Sachs & Co., 5.97% due 4/20/1995 4,984,246 4,984,246 1.4
14,998,000 Matterhorn Capital Corp., 5.95% due 4/19/1995 14,953,381 14,953,381 4.1
10,000,000 National Australia Funding (Delaware) Inc.,
5.96% due 5/05/1995 9,943,711 9,943,711 2.7
--------------- --------------- ------
89,223,229 89,223,229 24.4
US Government & 10,000,000 Federal National Mortgage Association, 5.90%
Agency Obligations* due 4/21/1995 9,967,222 9,967,222 2.7
Total Short-Term Securities 99,190,451 99,190,451 27.1
Total Investments $ 362,898,408 371,550,975 101.4
===============
Liabilities in Excess of Other Assets (5,215,466) (1.4)
--------------- ------
Net Assets $ 366,335,509 100.0%
=============== ======
<FN>
(a)Investment in companies 5% or more of whose outstanding
securities are held by the Fund (such companies are defined as
"Affiliated Companies" in section 2 (a)(3) of the Investment Company
Act of 1940) are as follows:
<PAGE>
<CAPTION>
Net Share Net Dividend
Industry Affiliate Activity Cost Income
<S> <S> <C> <C> <C>
Apparel Farah, Inc. 684,800 $5,798,170 --
Banks & Finance The Co-Operative Bank
of Concord 105,500 1,516,137 $76,070
Building &
Building Materials Redman Industries, Inc. 290,000 5,024,675 --
Health Care--
Products & Services Ramsey Health Care, Inc. 429,000 2,949,083 --
Insurance PXRE Corp. 295,000 6,001,185 107,670
Retailing The Wet Seal, Inc. (Class A) 260,400 767,210 --
Toy Manufacturing Just Toys, Inc. 242,000 781,455 --
(b)Formerly Phoenix Re Corp.
(c)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.
(d)Each unit consists of a $1,000 bond plus 17.09 warrants. Each
warrant can be exercised for 1 share of common stock.
(e)Each unit consists of a $1,000 bond plus 8 warrants. Each warrant
can be exercised for 1 share of common stock.
(f)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.
*Commercial Paper and certain US Government & Agency Obligations are
tradedon 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.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of March 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$362,898,408) (Note 1a) $371,550,975
Receivables:
Capital shares sold $ 2,927,430
Securities sold 1,711,097
Dividends 99,738
Interest 49,640 4,787,905
------------
Prepaid registration fees and other assets (Note 1e) 45,083
------------
Total assets 376,383,963
------------
<PAGE>
Liabilities: Payables:
Securities purchased 8,115,981
Capital shares redeemed 728,571
Investment adviser (Note 2) 221,436
Distributor (Note 2) 200,610 9,266,598
------------
Accrued expenses and other liabilities 781,856
------------
Total liabilities 10,048,454
------------
Net Assets: Net assets $366,335,509
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 681,590
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 1,565,355
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 75,723
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 70,699
Paid-in capital in excess of par 344,227,254
Undistributed investment income--net 459,974
Undistributed realized capital gains on investments--net 10,602,347
Unrealized appreciation on investments--net 8,652,567
------------
Net assets $366,335,509
============
Net Asset Value: Class A--Based on net assets of $106,505,526 and 6,815,898 shares
outstanding $ 15.63
============
Class B--Based on net assets of $237,359,356 and 15,653,545 shares
outstanding $ 15.16
============
Class C--Based on net assets of $11,433,954 and 757,232 shares
outstanding $ 15.10
============
Class D--Based on net assets of $11,036,673 and 706,989 shares
outstanding $ 15.61
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended March 31, 1995
<S> <S> <C>
Investment Interest and discount earned $ 3,357,098
Income Dividends (net of $3,508 foreign withholding tax) 2,342,037
(Notes 1c ------------
& 1d): Total income 5,699,135
------------
Expenses: Investment advisory fees (Note 2) 1,927,770
Distribution fees--Class B (Note 2) 1,618,538
Transfer agent fees--Class B (Note 2) 396,853
Printing and shareholder reports 199,343
Transfer agent fees--Class A (Note 2) 184,422
Professional fees 98,476
Registration fees (Note 1e) 96,805
Accounting services (Note 2) 47,277
Custodian fees 41,270
Directors' fees and expenses 31,626
Distribution fees--Class C (Note 2) 22,414
Transfer agent fees--Class C (Note 2) 7,963
Transfer agent fees--Class D (Note 2) 7,471
Account maintenance fees--Class D (Note 2) 6,057
Pricing fees 252
Other 8,281
------------
Total expenses 4,694,818
------------
Investment income--net 1,004,317
------------
Realized & Realized gain on investments--net 20,737,686
Unrealized Gain on Change in unrealized appreciation on investments 1,142,318
Investments--Net ------------
(Notes 1b, Net Increase in Net Assets Resulting from Operations $ 22,884,321
1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 1,004,317 $ 99,234
Realized gain on investments--net 20,737,686 23,450,584
Change in unrealized appreciation on investments--net 1,142,318 (6,187,920)
------------ ------------
Net increase in net assets resulting from operations 22,884,321 17,361,898
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (614,155) --
Shareholders Class B -- --
(Note 1f): Class C (9,723) --
Class D (19,699) --
Realized gain on investments--net:
Class A (7,894,397) (6,037,362)
Class B (13,778,928) (6,735,508)
Class C (88,207) --
Class D (139,464) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (22,544,573) (12,772,870)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 174,423,847 39,880,101
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 174,763,595 44,469,129
Beginning of year 191,571,914 147,102,785
------------ ------------
End of year* $366,335,509 $191,571,914
============ ============
<FN>
*Undistributed investment income--net $ 459,974 $ 99,234
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1995** 1994** 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.88 $ 15.32 $ 13.86 $ 10.84 $ 11.36
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .16 .10 .05 .10 .12
Realized and unrealized gain (loss) on
investments--net 1.09 1.87 1.43 3.00 (.49)
-------- -------- -------- -------- --------
Total from investment operations 1.25 1.97 1.48 3.10 (.37)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.10) -- (.02) (.08) (.15)
Realized gain on investments--net (1.40) (1.41) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.50) (1.41) (.02) (.08) (.15)
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.63 $ 15.88 $ 15.32 $ 13.86 $ 10.84
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 8.85% 13.14% 10.69% 28.71% (3.15%)
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.15% 1.17% 1.28% 1.55% 1.88%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 1.04% .62% .37% .83% 1.13%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $106,506 $ 78,804 $ 70,920 $ 57,056 $ 44,818
Data: ======== ======== ======== ======== ========
Portfolio turnover 59.79% 68.70% 42.25% 98.76% 73.06%
======== ======== ======== ======== ========
<PAGE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1995** 1994** 1993** 1992** 1991**
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.49 $ 15.01 $ 13.70 $ 10.77 $ 11.29
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net -- (.06) (.09) (.03) --
Realized and unrealized gain (loss) on
investments--net 1.06 1.83 1.40 2.98 (.47)
-------- -------- -------- -------- --------
Total from investment operations 1.06 1.77 1.31 2.95 (.47)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.02) (.05)
Realized gain on investments--net (1.39) (1.29) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.39) (1.29) -- (.02) (.05)
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.16 $ 15.49 $ 15.01 $ 13.70 $ 10.77
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.70% 12.03% 9.56% 27.41% (4.16%)
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding distribution fees 1.20% 1.19% 1.28% 1.51% 1.95%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.20% 2.19% 2.28% 2.51% 2.95%
======== ======== ======== ======== ========
Investment income--net .02% (.41%) (.65%) (.27%) (.04%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $237,359 $112,768 $ 76,182 $ 29,534 $ 3,783
Data: ======== ======== ======== ======== ========
Portfolio turnover 59.79% 68.70% 42.25% 98.76% 73.06%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
**Based on an average number of shares outstanding during the
period.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period Oct. 21, 1994++
to March 31, 1995**
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 15.06 $ 15.52
Operating ------------ ------------
Performance: Investment income--net .01 .07
Realized and unrealized gain on investments--net .65 .66
------------ ------------
Total from investment operations .66 .73
------------ ------------
Less dividends and distributions:
Investment income--net (.06) (.08)
Realized gain on investments--net (.56) (.56)
------------ ------------
Total dividends and distributions (.62) (.64)
------------ ------------
Net asset value, end of period $ 15.10 $ 15.61
============ ============
Total Investment Based on net asset value per share 4.82%+++ 5.13%+++
Return:*** ============ ============
Ratios to Expenses, excluding account maintenance and distribution fees 1.41%* 1.36%*
Average ============ ============
Net Assets: Expenses 2.41%* 1.61%*
============ ============
Investment income (loss)--net .14%* .95%*
============ ============
Supplemental Net assets, end of period (in thousands) $ 11,434 $ 11,037
Data: ============ ============
Portfolio turnover 59.79% 59.79%
============ ============
<FN>
*Annualized.
**Based on an average number of shares outstanding during the
period.
***Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Special Value Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers 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 exchanges 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.
(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.
<PAGE>
* Financial futures contracts--The Fund may purchase or sell futures
contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended
puchase 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 and purchase call and 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.
* Forward foreign exchange contracts--The Fund is authorized to enter
into forward foreign exchange contracts as a hedge against either
specific transactions or portfolio positions. Such contracts are not
entered on the Fund's records. However, the effect on operations is
recorded from the date the Fund enters into such contracts. Premium
or discount is amortized over the life of the contracts.
NOTES TO FINANCIAL STATEMENTS (continued)
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
<PAGE>
(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.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee of 0.75%, on an annual basis,
of the average daily value of the Fund's net assets. The Investment
Advisory Agreement obligates FAM to reimburse the Fund to the extent
the Fund's expenses (excluding interest, taxes, distribution fees,
brokerage fees and commissions, and extraordinary items) exceed 2.5%
of the Fund's first $30 million of average daily net assets, 2.0% of
the Fund's next $70 million of average daily net assets, and 1.5% of
the average daily net assets in excess thereof. No fee payment will
be made to the Investment Adviser during any fiscal year which will
cause such expenses to exceed the most restrictive expense
limitation at the time of such payment.
<PAGE>
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 year ended March 31, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $9,023 $129,600
Class D $4,682 $ 73,089
For the year ended March 31, 1995, MLPF&S received contingent
deferred sales charges of $354,631 and $3,295 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $18,421 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
March 31, 1995.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended March 31, 1995 were $216,275,783 and $118,590,306,
respectively.
Net realized and unrealized gains as of March 31, 1995 were as
follows:
<PAGE>
Realized Unrealized
Gains Gains
Long-term investments $20,255,458 $ 8,652,567
Short-term investments 233 --
Stock index futures contracts 481,995 --
----------- -----------
Total $20,737,686 $ 8,652,567
=========== ===========
As of March 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $8,030,608, of which $32,875,637 related to
appreciated securities and $24,845,029 related to depreciated
securities. At March 31,1995, the aggregate cost of investments for
Federal income tax purposes was $363,520,367.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $174,423,847 and $39,880,101 for the years ended March 31, 1995
and 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended 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 A Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
Shares sold 1,242,225 $ 19,995,495
Shares issued to shareholders
in reinvestment of dividends
and distributions 322,010 4,973,387
----------- ------------
Total issued 1,564,235 24,968,882
Shares redeemed (1,232,902) (19,830,929)
----------- ------------
Net increase 331,333 $ 5,137,953
=========== ============
<PAGE>
Class B Shares for the Year Dollar
Ended 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
=========== ============
Class B Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
Shares sold 3,509,022 $55,127,981
Shares issued to shareholders
in reinvestment of dividends
and distributions 387,961 5,863,597
----------- -----------
Total issued 3,896,983 60,991,578
Shares redeemed (1,692,858) (26,249,430)
----------- -----------
Net increase 2,204,125 $34,742,148
=========== ===========
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
<PAGE>
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.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Special Value Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Special Value Fund, Inc. as of March 31, 1995, the related
statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at March
31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
<PAGE>
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Special Value Fund, Inc. as of March 31, 1995, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 9, 1995
</AUDIT-REPORT>
PORTFOLIO INFORMATION (unaudited)
Percent of
Top Ten Equity Holdings Net Assets
Charter One Financial, Inc. 2.7%
PXRE Corp. 2.6
Redman Industries, Inc. 2.1
Boole & Babbage, Inc. 1.9
Roosevelt Financial Group, Inc. 1.6
Security-Connecticut Corp. 1.6
Stratus Computer, Inc. 1.5
Farah, Inc. 1.4
J. Baker, Inc. 1.4
Charter Medical Corp. 1.3
Percent of
Ten Largest Industries Net Assets
Banks & Finance 8.6%
Natural Resources 8.5
Retailing 8.5
Insurance 8.1
Health Care--Products & Services 4.1
Apparel 4.0
Building & Building Materials 3.9
Computers 3.6
Data Processing 3.4
Real Estate & Real Estate Investment
Trusts 3.4
<PAGE>
Portfolio Changes for the Quarter Ended
March 31, 1995
Additions
++Act Manufacturing, Inc.
Bay Apartment Communities, Inc.
++C*ATS Software, Inc.
Developers Diversified Realty Corp.
Fingerhut Companies, Inc.
General DataComm Industries, Inc.
Giant Cement Holding, Inc.
++Haemonetics Corporation
++HCIA, Inc.
++Information Storage Devices
Liposome Technology, Inc.
Manufactured Home Communities, Inc.
Marisa Christina, Inc.
++MedPartners, Inc.
++National Instruments Corp.
National Steel Corp.
++Oak Technology, Inc.
++Remedy Corporation
REX Stores Corp.
Riviana Foods, Inc.
Smith (A.O.)Corp.
Storage Technology Corp.
++Tivoli Systems, Inc.
The Town and Country Trust
++Toy Biz, Inc.
++Transaction Systems Architects, Inc.
Transamerican Refining Corp., 18.29% due
2/15/1998 (Units)
WRT Energy Corp., 13.875% due 3/01/2002 (Units)
<PAGE>
Deletions
++Act Manufacturing, Inc.
Alpha Industries, Inc.
Amsco International, Inc.
++C*ATS Software, Inc.
Catellus Development Corp.
Coram Healthcare Corp.
Core Industries, Inc.
Gilead Sciences, Inc.
++Haemonetics Corporation
++HCIA, Inc.
++Information Storage Devices
++MedPartners, Inc.
++National Instruments Corp.
NeoRx Corp.
NFS Financial Corp.
++Oak Technology, Inc.
++Remedy Corporation
The Sports Authority, Inc.
The United States Shoe Corp.
++Tivoli Systems, Inc.
++Toy Biz, Inc.
++Transaction Systems Architects, Inc.
Vigoro Corp.
Zilog, Inc.
[FN]
++Added and deleted in the same quarter.
