MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
FUND LOGO
Quarterly Report
December 31, 1994
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Dennis W. Stattman, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Special Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
Volatility in the US financial markets continued during the December
quarter, largely prompted by concerns of increasing inflationary
pressures. The possibility of continued monetary policy tightening
by the Federal Reserve Board was predominant in the minds of
investors throughout most of the period. Therefore, there was little
surprise in mid-November when the central bank announced the sixth
increase in short-term interest rates in 1994. Early in the period,
the weakness of the US dollar in foreign exchange markets prompted
declines in US stock and bond prices, but some strengthening of the
US currency has occurred recently.
The manufacturing sector was the driving force behind the US economy
through the final quarter of the year, making an important
contribution to the substantial increase in corporate earnings. US
companies have been successful at containing labor costs, which are
an important component of the inflation outlook. Although consumer
spending grew at a slower pace than in previous economic recoveries,
purchases of vehicles and household durable goods rose in the latter
months of 1994. Despite the relatively modest rise in consumer
spending, the personal savings rate fell to an all-time annual low
in 1994.
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether further increases
in short-term interest rates are likely. The core inflation rate
rose less than 3% in 1994 following a 3% increase in 1993, the best
sustained inflation performance in 30 years. It is not likely that
such positive inflation results will be duplicated in 1995. In
addition, investor interest in the new year will also be focused on
the progress that the new Congress makes on both reducing spending
and the Federal budget deficit and passing tax cuts that promote
savings and investment. Legislative progress, combined with
continued indications of moderate and sustainable levels of economic
growth, would be positive for the US capital markets. However, the
lagged effects of higher interest rates could slow the economy and
with it, the growth of corporate profits.
<PAGE>
Portfolio Matters
For the 1994 calendar year, Merrill Lynch Special Value Fund, Inc.
outperformed the unmanaged Russell 2000 Index. The Fund's Class A
Shares and Class B Shares returned +3.81% and +2.79%, respectively,
while the Russell 2000 Index total return was -1.82%. (Fund results
do not include sales charges; results would be lower if sales
charges were included. Complete performance information, including
average annual total returns, can be found on pages 3, 4, 5 and 6 of
this report to shareholders.) For 1994, the Fund's performance was
helped by holdings in the technology and financial services sectors.
Notable performers in order of their contributions to the
portfolio's total return were Input/Output, Inc. (up 97%), Boole &
Babbage, Inc. (up 57%), and Cognos, Inc. (up 62%). Each of these
stocks was among the Fund's ten largest holdings for at least some
portion of the year. The Fund's performance was also helped by the
relatively cautious investment strategy pursued during the year. As
discussed in previous quarterly shareholder reports, this involved
maintaining a portion of the Fund in cash reserves, selling to
realize gains on appreciated stocks, and emphasizing investments in
stocks with attractive valuations to a greater degree than those
selling at premium prices based on expected earnings growth.
In the December quarter, Merrill Lynch Special Value Fund, Inc.
modestly underperformed the unmanaged Russell 2000 Index. For the
three months ended December 31, 1994, the Fund's Class A Shares and
Class B Shares' total returns were -2.53% and -2.79%, respectively,
while the Russell 2000 Index total return was -1.87%. The Fund's
Class C and Class D Shares had total investment returns of -1.15%
and -1.06%, respectively, for the period since inception (October
21, 1994) through December 31, 1994. During the three-month period,
the Fund's performance was helped by its positions in the technology
sector. For the quarter, notable performers in order of their
contributions to the portfolio's total return were Cognos, Inc. (up
37%), Boole & Babbage, Inc. (up 28%), and NeoRx Corp. (up 39%).
During the December quarter, the Fund's performance was hindered by
holdings in the retail, financial services, and energy sectors.
Retailing stocks have been particularly weak, reflecting
disappointing sales increases and concerns that consumer spending
gains have been outpacing income growth. Energy stocks have been
hurt by sharp declines in natural gas prices resulting from
unseasonably warm weather in the northeastern United States. The
Fund's financial services stocks gave back part of the gains
achieved in the year's first half. Among these, Bankers Corp.'s
stock declined sharply after the company broke off merger talks with
Summit Bancorporation.
<PAGE>
We were particularly active in making purchases during the December
quarter. We bought shares in 35 new holdings and added to positions
in 41 existing investments. Purchases spanned a wide variety of
industries. Sectors receiving emphasis included financial services,
technology, retail and apparel. During periods of weak stock prices,
we added to the Fund's largest financial services holdings and also
bought four new holdings in that sector. In technology, we increased
several existing holdings and added five new positions. The largest
addition was Sterling Software, Inc., a vendor of enterprise
automation software with a record of good earnings growth. The
company is attractive, in our opinion, for its continued earnings
growth prospects and its below-market price/earnings ratio based on
estimated 1995 earnings per share.
We took advantage of the extended price weakness in retail and
apparel stocks to add to a number of existing holdings and to
establish positions in seven new holdings. Investors became
particularly pessimistic about the current and future prospects for
retailing and apparel stocks based on lower-than-expected sales
growth and concern about possible industry over capacity. We readily
acknowledge that earnings for late 1994 and early 1995 will likely
fall below earlier consensus expectations. However, the sharp
declines in many stocks offer the lowest prices and most attractive
values in years, in our opinion.
We purchased 485,200 shares of Farah, Inc., making it the Fund's
largest holding in the retail and apparel sector. This maker of
men's slacks has established itself as the leader in wrinkle-free
pants, a rapidly growing segment of the market. The stock price
declined from a 1994 high of over $21 to $7.125 at year-end, in
response to concerns over increased competition and lower-than-
expected earnings for the 1994 year. Based on estimated earnings of
$0.80 for the October 1995 fiscal year, the stock sells at less than
nine times per share earnings and below book value per share.
Furthermore, the stock sells at only 4.2 times our $1.70 per share
estimate of fiscal 1995 earnings before interest, taxes and
depreciation. As of the August 1994 quarter, the company had less
than $1.00 per share of long-term debt and approximately $6.80 per
share in working capital. We believe that Farah, Inc. is very
attractive based on these valuations.
We eliminated holdings in 11 securities. Most sales were motivated
by stocks appreciating to the Fund's price objectives. Concerns over
companies' operating results also motivated some sales. We reduced
the Fund's holdings in 22 companies. Again, most sales were
motivated by the stocks appreciating to less attractive valuation
levels. In the difficult stock market environment in 1994, we moved
more quickly than usual to take profits and reduce weightings in
stocks that had appreciated.
<PAGE>
We purposely reduced the Fund's cash reserves during the quarter
from nearly 28% of net assets to 19.5% (adjusted for the stock index
futures holdings discussed below). Including the cash reserves and
stock index futures, at the end of the December quarter, we estimate
that the Fund had approximately the same volatility as the Russell
2000 Index. We made this reduction in cash reserves in response to
weak stock prices and in anticipation of normal seasonal strength in
small stocks at the turn of the year. In early December, the Russell
2000 Index sank to new lows for 1994, and throughout the month many
individual stocks also hit new low prices for the year. This
weakness provided the year's best buying opportunity in small
stocks, in our opinion, and, accordingly, we added to equities and
reduced cash during December.
In order to expedite investment near the year's lowest prices, we
bought Russell 2000 Stock Index futures in addition to individual
stocks in December. This allowed us to gain exposure to the small
stock portion of the equity market more rapidly than would otherwise
have been possible. Subsequently, we have been purchasing additional
individual stocks and gradually liquidating the stock index futures.
The Russell 2000 futures have the advantage of representing more
closely the small stock portion of the equity market than do
Standard & Poor's 500 Index (S&P 500) futures. However, the Russell
2000 futures are much less liquid than S&P 500 futures.
For an extended period, we have maintained a somewhat cautious
investment strategy and have discussed the reasoning for this in
previous letters to shareholders. In short, we have been concerned
about the combination of high valuation levels for the overall stock
market plus rising interest rates. We have not abandoned these
concerns. Recent purchases and reduction of cash reserves should be
viewed as an adjustment in response to lower stock prices and more
attractive values in a number of small companies. While price
declines in most stock indexes have been relatively modest, losses
in many individual stocks and some sectors have been sharp and have
created some interesting investment opportunities, in our view.
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
January 24, 1995
<PAGE>
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 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 "Performance Summary" and "Average Annual Total
Return" tables on pages 4 and 5. The "Results of a $1,000 Investment
Since Inception--Class A Shares" chart on page 4 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 December 31, 1994. "Aggregate Total Return" tables
for Class C and Class D Shares are also presented on page 4. Data
for all of the Fund's shares, including Class C and Class D Shares,
are presented in the "Recent Performance Results" table.
The "Recent Performance Results" table on page 6 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 December
31, 1994 and for Class C and Class D Shares for the period since
inception through December 31, 1994. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
<PAGE>
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.
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 growth of an investment in the Fund's
Class A Shares from $947.50 on May 5, 1978 to $3,554.97 on December
31, 1994.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/94 +3.81% -1.64%
Five Years Ended 12/31/94 +9.28 +8.11
Ten Years Ended 12/31/94 +7.31 +6.73
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/94 +2.79% -0.95%
Five Years Ended 12/31/94 +8.17 +8.17
Inception (10/21/88) through 12/31/94 +6.32 +6.32
[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 12/31/94 -1.15% -2.10%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one 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 12/31/94 -1.06% -6.26%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
5/5/78--12/31/78 $ 9.60 $ 8.70 -- $0.190 - 7.63%
1979 8.70 10.16 $0.370 0.320 +25.67
1980 10.16 12.54 0.500 0.195 +33.62
1981 12.54 10.58 0.890 0.390 - 6.27
1982 10.58 10.67 0.650 0.380 +12.70
1983 10.67 12.45 0.610 0.070 +22.40
1984 12.45 11.10 0.290 0.120 - 7.60
1985 11.10 14.29 0.340 0.090 +33.14
1986 14.29 13.97 0.620 0.050 + 1.88
1987 13.97 10.32 1.086 0.143 -18.52
1988 10.32 11.83 0.017 0.233 +17.06
1989 11.83 11.65 -- 0.237 + 0.42
1990 11.65 8.32 -- 0.148 -27.52
1991 8.32 12.80 -- 0.080 +54.87
1992 12.80 14.96 -- 0.019 +17.04
1993 14.96 15.66 0.594 0.811 +14.26
1994 15.66 14.70 0.561 0.940 + 3.81
------ ------
Total $6.528 Total $4.416
Cumulative total return as of 12/31/94: +275.19%**
<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
------ ------
Total $1.172 Total $1.824
Cumulative total return as of 12/31/94: +46.20%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
12/31/94 9/30/94++ 12/31/93 % Change % Change++
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $14.70 $15.77 $15.66 -2.49%(1) -5.52%(2)
ML Special Value Fund, Inc. Class B Shares* 14.30 15.31 15.31 -2.88(1) -5.29(2)
ML Special Value Fund, Inc. Class C Shares* 14.24 15.06 -- -- -4.12(2)
ML Special Value Fund, Inc. Class D Shares* 14.69 15.52 -- -- -4.06(2)
Russell 2000 Index** -3.18 -2.25
ML Special Value Fund, Inc. Class A Shares--Total Return* +3.81(3) -2.53(4)
ML Special Value Fund, Inc. Class B Shares--Total Return* +2.79(5) -2.79(6)
ML Special Value Fund, Inc. Class C Shares--Total Return* -- -1.15(7)
ML Special Value Fund, Inc. Class D Shares--Total Return* -- -1.06(8)
Russell 2000 Index**--Total Return -1.82 -1.87
<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 $0.561 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 $0.452 per share ordinary
income dividends and $0.192 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.828 per share ordinary
income dividends and $0.561 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.368 per share ordinary
income dividends and $0.192 per share capital gains distributions.
(7)Percent change includes reinvestment of $0.430 per share ordinary
income dividends and $0.192 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.447 per share ordinary
income dividends and $0.192 per share capital gains distributions.
</TABLE>
PORTFOLIO INFORMATION
Percent of
Top Ten Equity Holdings Net Assets
Charter One Financial, Inc. 3.0%
Boole & Babbage, Inc. 2.9
PXRE Corp. 2.8
Roosevelt Financial Group, Inc. 2.6
Security-Connecticut Corp. 1.9
Redman Industries, Inc. 1.8
J. Baker, Inc. 1.6
Farah, Inc. 1.4
The Co-Operative Bank of Concord 1.3
Sterling Software, Inc. 1.3
<PAGE>
Percent of
Ten Largest Industries Net Assets
Banks & Finance 10.8%
Retail Stores 9.2
Natural Resources 8.4
Insurance 8.2
Computer Services 4.6
Health Care--Products & Services 4.2
Computer Software 3.1
Apparel 3.0
Biotechnology 3.0
Real Estate 2.3
Portfolio Changes for the Quarter Ended 12/31/94
Additions
Ace, Ltd.
Amsco International, Inc.
*Aspen Technology, Inc.
Banta Corp.
Bon-Ton Stores, Inc.
Cali Realty Corp.
Catellus Development Corp.
Catellus Development Corp.
(Convertible Preferred)
Celestial Seasonings, Inc.
Cephalon, Inc.
Charter Medical Corp.
Collective Bancorp, Inc.
Consilium, Inc.
Filene's Basement Corp.
FirstFed Financial Corp.
Hancock Fabrics, Inc.
Input/Output, Inc.
*Isolyser Company, Inc.
Lillian Vernon Corp.
The Liposome Company, Inc.
(Convertible Preferred)
Norton McNaughton, Inc.
OfficeMax, Inc.
Omni Insurance Group, Inc.
PHH Corp.
Pope & Talbot, Inc.
Radius, Inc.
Regeneron Pharmaceuticals, Inc.
Ryland Group, Inc.
*Security Dynamics, Inc.
The Sports Authority, Inc.
Sterling Software, Inc.
Stratus Computer, Inc.
Vigoro Corp.
Weatherford International, Inc.
Zilog, Inc.
<PAGE>
Deletions
*Aspen Technology, Inc.
*Isolyser Company, Inc.
The Liposome Co. Inc.
Mississippi Chemical Corp.
Outboard Marine Corp.
Pinkertons Security &
Investigation Services
Roberts Pharmaceutical Corp.
*Security Dynamics, Inc.
St. John Knits, Inc.
Tredegar Industries, Inc.
Western Digital Corp.
[FN]
*Added and deleted in the same quarter.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Percent of
Industry Shares Held Stocks & Convertible Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 86,800 Banner Aerospace, Inc. $ 592,640 $ 390,600 0.1%
65,000 BE Aerospace, Inc. 497,985 479,375 0.2
257,800 UNC, Inc. 1,466,514 1,546,800 0.6
------------ ------------ ------
2,557,139 2,416,775 0.9
Apparel 555,000 Farah, Inc. 4,742,630 3,954,375 1.4
25,000 Jones Apparel Group, Inc. 554,625 643,750 0.2
60,000 Kellwood Co. 1,169,024 1,260,000 0.5
82,100 Norton McNaughton, Inc. 1,066,418 1,252,025 0.4
75,000 The Warnaco Group, Inc.
(Class A) 1,142,930 1,293,750 0.5
------------ ------------ ------
8,675,627 8,403,900 3.0
<PAGE>
Banks & Finance 60,000 American Federal Bank, FSB 611,250 645,000 0.2
267,000 Bankers Corp. 2,164,922 3,571,125 1.3
20,000 Banknorth Group, Inc. 365,000 440,000 0.2
442,000 Charter One Financial, Inc. 8,371,237 8,398,000 3.0
170,000 Civic Bancorp, Inc. 926,250 935,000 0.3
40,000 Collective Bancorp, Inc. 670,526 680,000 0.2
287,500 The Co-Operative Bank of
Concord 3,701,013 3,737,500 1.3
51,600 FirstFed Financial Corp. 580,034 651,450 0.2
20,000 Hamilton Bankcorp, Inc. 595,000 515,000 0.2
45,000 NFS Financial Corp. 493,125 1,265,625 0.4
105,000 ONBANCorp, Inc. 3,357,159 2,441,250 0.9
480,000 Roosevelt Financial
Group, Inc. 5,241,126 7,200,000 2.6
------------ ------------ ------
27,076,642 30,479,950 10.8
Beverages 25,000 Celestial Seasonings, Inc. 371,875 365,625 0.1
Biotechnology 72,100 Alteon, Inc. 471,284 405,562 0.1
256,000 Applied Immune Sciences, Inc. 3,639,452 1,408,000 0.5
42,900 AutoImmune, Inc. 284,213 246,675 0.1
111,600 Cephalon, Inc. 888,077 920,700 0.3
70,000 COR Therapeutics, Inc. 694,190 770,000 0.3
173,500 Cyto Therapeutics, Inc. 1,354,051 780,750 0.3
60,000 Genetic Therapy, Inc. 677,651 420,000 0.2
27,500 Gilead Sciences, Inc. 202,813 261,250 0.1
100,000 The Immune Response Corp. 1,367,499 600,000 0.2
45,000 The Liposome Company, Inc.
(Convertible Preferred) 992,998 922,500 0.3
76,100 National Patent Development
Corp. 208,155 137,931 0.1
130,000 NeoRx Corp. 456,563 633,750 0.2
196,000 Regeneron Pharmaceuticals, Inc. 731,554 588,000 0.2
50,000 Sepracor, Inc. 386,875 206,250 0.1
------------ ------------ ------
12,355,375 8,301,368 3.0
Business 556,700 Applied Bioscience
Services International, Inc. 3,037,941 3,061,850 1.1
Chemicals 48,200 Vigoro Corp. 1,383,742 1,446,000 0.5
Computer 226,000 Micronics Computers, Inc. 1,198,238 988,750 0.4
Equipment
<PAGE>
Computer Services 725,000 Anacomp, Inc. 2,691,367 1,450,000 0.5
312,450 Boole & Babbage, Inc. 4,311,219 8,201,812 2.9
25,000 Primark Corp. 282,750 328,125 0.1
165,000 Symantec Corp. 2,249,250 2,887,500 1.1
------------ ------------ ------
9,534,586 12,867,437 4.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Percent of
Industry Face Amount Stocks & Convertible Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Computer 205,000 Cognos, Inc. $ 1,573,000 $ 3,664,375 1.3%
Software 33,300 Consilium, Inc. 241,213 258,075 0.1
101,000 Sterling Software, Inc. 3,178,505 3,711,750 1.3
35,300 Zilog, Inc. 1,016,165 1,041,350 0.4
------------ ------------ ------
6,008,883 8,675,550 3.1
Computers 60,000 Alpha Industries, Inc. 218,724 375,000 0.1
115,000 Computervision Corp. 320,850 445,625 0.2
25,000 DH Technology, Inc. 295,000 600,000 0.2
170,000 Radius, Inc. 1,364,423 1,445,000 0.5
275,000 SHL Systemhouse, Inc. 1,509,375 1,409,375 0.5
40,000 Stratus Computer, Inc. 1,467,030 1,520,000 0.6
------------ ------------ ------
5,175,402 5,795,000 2.1
Cosmetics 1,317 Alfin, Inc. (Pfd.) (d) 0 0 0.0
Electrical 60,000 Catalina Lighting, Inc. 471,291 495,000 0.2
Equipment 135,000 Comptek Research, Inc. 2,159,300 2,362,500 0.9
10,000 Core Industries, Inc. 149,550 97,500 0.0
26,300 WPI Group, Inc. 164,375 75,613 0.0
------------ ------------ ------
2,944,516 3,030,613 1.1
Electronics 100,000 Alden Electronics, Inc. 422,500 225,000 0.1
500,000 Automated Security Holdings
PLC 1,774,832 1,125,001 0.4
27,562 Maxwell Laboratories, Inc. 316,726 201,547 0.0
215,000 VLSI Technology, Inc. 2,508,915 2,580,000 0.9
57,000 VTEL Corp. 291,155 495,188 0.2
------------ ------------ ------
5,314,128 4,626,736 1.6
<PAGE>
Energy $900,000 Swift Energy Corp.,
Convertible Bonds,
6.50% due 6/30/2003 924,000 904,500 0.3
Engineering & 59,000 Blount, Inc. (Class A) 2,311,339 2,743,500 1.0
Construction
Environmental & 390,250 NSC Corp. 2,062,737 1,073,188 0.4
Environmental 110,000 Rollins Environmental
Control Services, Inc. 546,187 536,250 0.2
------------ ------------ ------
2,608,924 1,609,438 0.6
Health Care-- 62,700 Analogic Corp. 1,026,252 1,191,300 0.4
Products & 175,000 Beverly Enterprises, Inc. 2,344,812 2,515,625 0.9
Services 130,000 Charter Medical Corp. 2,689,833 2,795,000 1.0
85,000 Community Psychiatric Centers 1,048,087 935,000 0.3
50,000 Healthcare Services Group, Inc. 468,500 675,000 0.2
461,400 Ramsey Health Care, Inc. 3,275,582 2,999,100 1.1
200,000 Unilab Corp. 1,106,250 800,000 0.3
------------ ------------ ------
11,959,316 11,911,025 4.2
Home Builders 31,700 Ryland Group, Inc. 426,302 475,500 0.2
150,200 Washington Homes, Inc. 872,781 506,925 0.2
------------ ------------ ------
1,299,083 982,425 0.4
Home Furnishings 110,000 Crown Crafts, Inc. 1,746,037 1,663,750 0.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Percent of
Industry Face Amount Stocks & Convertible Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Housing 303,700 Redman Industries, Inc. $ 4,954,131 $ 5,162,900 1.8%
Industrial 45,000 PHH Corp. 1,541,238 1,563,750 0.6
Services
<PAGE>
Insurance 96,900 Ace, Ltd. 2,075,059 2,265,038 0.8
178,300 Capital Guaranty Corp. 2,715,424 2,518,488 0.9
120,500 Harleysville Group, Inc. 2,458,586 2,922,125 1.0
107,200 Omni Insurance Group, Inc. 636,023 616,400 0.2
276,400 PXRE Corp. (b) 5,708,797 7,808,300 2.8
232,400 Security-Connecticut Corp. 4,645,395 5,229,000 1.9
70,000 Transnational Re Corp.
(Class A) 1,326,059 1,645,000 0.6
------------ ------------ ------
19,565,343 23,004,351 8.2
Leasing 147,100 LDI Corp. 1,406,703 570,013 0.2
195,000 Sea Containers, Ltd. 3,371,021 2,583,750 0.9
------------ ------------ ------
4,777,724 3,153,763 1.1
Manufactured 70,000 American Homestar, Inc. 560,000 682,500 0.2
Housing
Medical 140,500 Amsco International, Inc. 1,308,025 1,282,062 0.5
72,000 Coram Healthcare Corp.(a) 1,054,707 1,188,000 0.4
32,600 Everest & Jennings
International (Class A) 456,544 14,262 0.0
15,000 Fischer Imaging Corp. 288,440 80,625 0.0
------------ ------------ ------
3,107,716 2,564,949 0.9
Metals-- 76,800 Handy & Harman 1,205,929 1,180,800 0.4
Non-Ferrous
<PAGE>
Natural Resources 145,000 Abraxas Petroleum Corp. 1,642,500 1,341,250 0.5
100,000 Addington Resources, Inc. 804,030 975,000 0.3
103,600 American Oilfield Divers, Inc. 951,150 634,550 0.2
90,900 Atwood Oceanics, Inc. 763,563 1,068,075 0.4
110,000 Tom Brown, Inc. 930,773 1,265,000 0.4
38,300 Cliffs Drilling Co. 494,562 450,025 0.2
29,000 Cliffs Drilling Co.
(Convertible Preferred) 774,875 768,500 0.3
299,254 Coho Resources, Inc. 2,075,477 1,552,380 0.6
25,000 Energy Ventures, Inc. 468,750 303,125 0.1
275,000 Gerrity Oil & Gas Corp. 3,571,250 1,168,750 0.4
70,700 Grant Tensor Geophysical
Corp. (Convertible Preferred) 1,175,940 936,775 0.3
69,000 Input/Output, Inc. 1,379,132 1,630,125 0.6
359,000 International Petroleum Corp. 990,247 448,750 0.2
120,000 Noble Drilling Corp. 735,714 705,000 0.2
105,000 Nuevo Energy Co. 2,023,100 1,890,000 0.7
194,600 Plains Resources, Inc. 1,356,218 1,070,300 0.4
17,000 Plains Resources, Inc.
(Convertible Preferred) 1,700,000 1,655,375 0.6
80,000 Tetra Technologies, Inc. 610,450 950,000 0.3
187,100 Total Petroleum of North
America, Ltd. 2,290,176 2,338,750 0.8
180,000 Trans Texas Gas Corp. 2,035,000 2,025,000 0.7
32,000 Weatherford International, Inc. 273,600 312,000 0.1
20,000 The Wiser Oil Co. 360,000 285,000 0.1
------------ ------------ ------
27,406,507 23,773,730 8.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Percent of
Industry Face Amount Stocks & Convertible Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Paper 85,000 Pope & Talbot, Inc. $ 1,421,525 $ 1,349,375 0.5%
Personal Care 50,000 Marietta Corp. 441,875 375,000 0.1
Products
Pharmaceuticals 19,025 American Drug Co. 2,377 4,756 0.0
19,025 American Drug Co.
Warrants) (c) 1,189 1,486 0.0
------------ ------------ ------
3,566 6,242 0.0
<PAGE>
Photo-Optical 80,000 Instron Corp. 1,010,849 l,000,000 0.4
Instruments
Publishing/ 32,000 Banta Corp. 927,505 968,000 0.3
Printing
Real Estate $1,000,000 Alexander Haagen
Properties, Inc., 7.25%
due 12/27/2003 1,000,000 880,000 0.3
3,700 Cali Realty Corp. 57,109 59,200 0.0
85,000 Carr Realty Corp. 1,781,355 1,530,000 0.5
69,000 Catellus Development Corp. 382,950 405,375 0.1
26,000 Catellus Development Corp.
(Convertible Preferred) 1,025,250 994,500 0.4
205,200 Crown American Realty Trust 2,886,099 2,770,200 1.0
------------ ------------ ------
7,132,763 6,639,275 2.3
Restaurants 611,400 TPI Enterprises, Inc. 3,985,881 2,369,175 0.8
Retailing 75,000 Hancock Fabrics, Inc. 556,875 665,625 0.2
66,200 Lillian Vernon Corp. 972,147 1,009,550 0.4
------------ ------------ ------
1,529,022 1,675,175 0.6
Retail Stores 298,500 J. Baker, Inc. 5,190,186 4,477,500 1.6
97,000 Bon-Ton Stores, Inc. 979,005 1,042,750 0.4
313,800 Catherines Stores Corp. 3,404,710 2,745,750 1.0
205,000 Filene's Basement Corp. 1,008,740 948,125 0.3
40,000 Gantos, Inc. 497,275 50,000 0.0
1,063,000 Grossman's, Inc. 3,251,812 2,657,500 0.9
389,000 Just Toys, Inc. 1,738,722 729,375 0.3
59,200 OfficeMax, Inc. 1,124,800 1,568,800 0.6
305,000 Pier 1 Imports, Inc. 2,687,712 2,859,375 1.0
40,000 S & K Famous Brands, Inc. 511,650 285,000 0.1
600,000 Service Merchandise Co., Inc. 4,202,708 2,775,000 1.0
31,150 The Sports Authority, Inc. 591,850 654,150 0.2
20,000 The United States Shoe Corp. 313,887 375,000 0.1
124,000 Venture Stores, Inc. 2,186,482 1,441,500 0.5
745,400 The Wet Seal, Inc. (Class A) 2,643,245 3,261,125 1.2
------------ ------------ ------
30,332,784 25,870,950 9.2
<PAGE>
Textiles 280,000 Burlington Industries, Inc. 3,178,492 2,765,000 1.0
Transportation 148,700 Kirby Corp. 2,696,059 2,936,825 1.0
Utilities 125,000 American Water Works Co., Inc. 1,921,197 3,375,000 1.2
Total Stocks & Convertible
Bonds 224,182,899 220,690,952 78.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Percent of
Face Amount Short-Term Securities Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Commercial $ 12,000,000 Ciesco L.P., 6.00% due
Paper* 1/19/1995 $ 11,962,000 $ 11,962,000 4.3%
12,000,000 Daimler-Benz AG, 5.94% due
1/17/1995 11,966,340 11,966,340 4.3
5,594,000 General Electric Capital Corp.,
5.80% due 1/03/1995 5,591,296 5,591,296 2.0
8,000,000 JC Penney Funding Corp.,
5.80% due 1/17/1995 7,978,089 7,978,089 2.8
12,000,000 Matterhorn Capital Corp.,
6.02% due 1/20/1995 11,959,867 11,959,867 4.3
8,000,000 PHH Corp., 5.925% due
1/12/1995 7,984,200 7,984,200 2.8
2,000,000 Premium Funding, Inc., 6.07%
due 1/13/1995 1,995,616 1,995,616 0.7
8,000,000 Xerox Credit Corp., 5.97% due
1/09/1995 7,988,060 7,988,060 2.8
Total Short-Term Securities 67,425,468 67,425,468 24.0
Total Investments $291,608,367 288,116,420 102.4
============
Variation Margin on Stock Index Futures Contracts** 110,380 0.0
Liabilities in Excess of Other Assets (6,899,792) (2.4)
------------ ------
Net Assets $281,327,008 100.0%
============ ======
<PAGE>
Net Asset Class A--Based on net assets of $94,557,466
Value: and 6,432,636 shares outstanding $ 14.70
============
Class B--Based on net assets of $178,388,071
and 12,473,551 shares outstanding $ 14.30
============
Class C--Based on net assets of $3,915,189
and 274,920 shares outstanding $ 14.24
============
Class D--Based on net assets of $4,466,282
and 303,945 shares outstanding $ 14.69
============
<FN>
(a)T2 Medical, Inc., Curaflex Health Services, Inc., and Medisys,
Inc., all portfolio holdings, merged on July 11, 1994 to become
Coram Healthcare Corp.
(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)Non-income producing security.
*Commercial Paper is traded on a discount basis; the interest rates shown
are the discount rates paid at the time of purchase by the Fund.
**Stock index futures contracts purchased as of December 31, 1994 were as
follows:
Number of Expiration
Contracts Issue Exchange Date Value
100 Russell 2000 CME March 1995 $12,550,000
Total Stock Index Futures Contracts Purchased
(Total Contract Price--$11,993,675) $12,550,000
===========
</TABLE>
