MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
FUND LOGO
Annual Report
March 31, 1996
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
Daniel V. Szemis, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 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.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Special Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
DEAR SHAREHOLDER
As 1995 ended and into the first two months of 1996, it appeared
that the US economy was losing momentum. Lackluster retail sales,
increases in initial unemployment claims (along with weak job and
income growth), and evidence of slowing in the manufacturing sector
all suggested that the rate of economic growth was slowing, with
some forecasters even suggesting the possibility of an imminent
recession. With inflationary pressures well subdued, these signs of
economic weakness led the Federal Reserve Board to lower short-term
interest rates at its January Federal Open Market Committee meeting.
<PAGE>
However, investor perceptions regarding the rate of future economic
growth changed dramatically with the report of stronger-than-
expected employment data for February and March. As a result, the
consensus outlook regarding the direction of business activity
shifted from expectations of weakness to anticipation of a revival
in growth of the economy. Long-term interest rates rose, and the
Federal Reserve Board left monetary policy on hold.
Investors are likely to continue to focus on the probable direction
of economic activity and Federal Reserve Board monetary policy in
the weeks ahead. At this time, inflationary pressures do not seem to
be building and the manufacturing sector is still relatively weak,
which suggest that the economy is not on the verge of overheating.
Nevertheless, it is likely that any further indication of stronger
economic activity in the weeks ahead may add to investor concerns
that accelerating economic activity could lead to higher interest
rates.
Portfolio Matters
During the quarter ended March 31, 1996, Merrill Lynch Special Value
Fund, Inc. underperformed the unmanaged Russell 2000 Index. The
total returns of the Fund's Class A, Class B, Class C and Class D
Shares were +3.92%, +3.61%, +3.64% and +3.80%, respectively, while
the Russell 2000 Index total return was +5.14%. (Complete
performance information, including average annual total returns, can
be found on pages 4--8 of this report to shareholders.)
During the March quarter, interest rates initially continued their
downward march, assisted by the Federal Reserve Board's reduction of
the discount rate at the end of January. However, after reaching low
points during early February, interest rates rose sharply during the
second half of the quarter. Investor sentiment swung frequently
between an expectation of lackluster economic growth, implying
stable or lower interest rates, and an expectation of economic
growth re-accelerating, implying higher interest rates and
inflation. Small capitalization stocks, as represented by the
Russell 2000 Index, underperformed large capitalization stocks
through mid-February and then began to show relative outperformance.
By the end of the March quarter, many stock market strategists were
forecasting that small capitalization stocks would perform better
than the larger cap stock indexes. According to these strategists'
analyses, valuations of small capitalization stocks overall became
more attractive than larger capitalization stocks during the first
quarter of 1996, after having underperformed larger capitalization
issues since September 1995.
<PAGE>
The Fund's performance during the March quarter was helped by an
overweighted position in both the retail and energy sectors relative
to the Russell 2000 Index. After underperforming the general stock
market indexes during the last two years, the retail sector
deteriorated further during January as retailers reported a
disappointing Christmas selling season followed by severe winter
weather in January that hurt holiday clearance sales. Resultant
depressed stock prices of many retail stocks attracted renewed
investor attention to the group by late January. This interest,
combined with stronger sales comparisons that many retailers
experienced during February, fueled the sector's recovery during the
March quarter. The Fund took the opportunity to sell into this
strength by paring positions in certain retailers while selling
entire positions in other retail holdings as the stocks appreciated
to target levels. The Fund also added to several key retail holdings
and purchased two new retail stocks. Overall, the retail industry
remains overweighted in the Fund relative to the Russell 2000
industry weight.
The energy sector outperformed the general market during the March
quarter, extending the trend begun in October, as oil prices firmed
and natural gas prices rose sharply this past winter. The Fund
remains overweighted in the energy sector relative to the Russell
2000 Index. Rising earnings at the oil and gas exploration and
production companies motivated these companies to increase capital
expenditure budgets for drilling and other oil services, thereby
prompting further strength in the oil services sector. Industry
fundamentals appear stable in the near term. Notable performers
during the March quarter in order of their importance to the
portfolio's total return were Charming Shoppes, Inc. (up 79.3%), The
Wet Seal, Inc. (up 88.9%), Applied Bioscience International Inc. (up
35.2%), Newpark Resources, Inc. (up 33.7%) and Redman Industries,
Inc. (up 20.0%).
The Fund's performance during the March quarter was hindered by an
overweighted position in technology and financial services.
Technology, the Fund's most heavily weighted sector, was generally
weak, with the Fund's holdings underperforming the Russell 2000
Index technology sector. The Fund has not reduced its weighting in
technology stocks, as many of our previous holdings and new
purchases appear very attractive on valuation and fundamental
measures. Financial services, the Fund's second most heavily
weighted sector, was also somewhat weak, with modest under-
performance in the Fund's holdings as compared to the Russell
2000 sector. The Fund brought its weighting in this sector down to
slightly less than the weight in the Russell 2000 Index. Notable
underperformers during the March quarter were Stratus Computer, Inc.
(down 19.9%) and Landmark Graphics Corp. (down 28.5%). After rising
32% in the December quarter of 1995, shares of Stratus Computer,
Inc. declined as investors were disappointed by the pace of
management's cost-cutting efforts. Landmark Graphics Corp., a
supplier of exploration and production information systems for the
oil and gas industry, declined after announcing that earnings would
fall below the range of analysts' estimates.
<PAGE>
Other changes to the Fund included a reduction in the weights of the
insurance, biotechnology and pharmaceutical industries via the sale
of stocks that had appreciated significantly. Petroleum services,
computer software and services, apparel, and business services
industry weights were increased. The Fund added to existing
positions in 28 stocks across a broad range of industries and added
13 new holdings. The Fund pared positions in 20 stocks and
eliminated holdings in 35 positions. By the end of the March
quarter, the Fund was somewhat defensively positioned, with 22.5% of
net assets in cash, compared with a 19.7% cash position at the
beginning of the March quarter. The Fund may reduce its cash
position in the coming months, however, as a permanent shift toward
becoming as fully invested in equities as is practical. This shift
is directly attributable to the Fund's increased emphasis on a
bottom-up investment process. Looking ahead, the Fund plans to hold
fewer positions than has been the practice in the past. This
strategy is consistent with the increased emphasis on bottom-up
selection of individual securities and less emphasis on broad
industry decisions. During the March quarter, the Fund reduced the
total number of securities positions (excluding short-term
securities) from 167 at the end of the December quarter to 144
securities at March 31, 1996.
Fiscal Year in Review
For the 12 months ended March 31, 1996, the Fund significantly
underperformed the unmanaged Russell 2000 Index. Total returns for
Class A, Class B, Class C and Class D shares were +19.56%, +18.37%,
+18.34% and +19.26%, respectively, in contrast to the +29.08% total
return for the benchmark index. While cash reserves served to dampen
the Fund's volatility and provide buying power to take advantage of
price weakness in individual securities, they also held back the
Fund's performance. The Fund benefited from its holdings in the
technology, healthcare, financial services and energy sectors.
Results were hindered during much of the year by investments in the
retail and consumer non-durable sectors. Notable contributors to the
Fund's performance spanned a range of industries and included:
Redman Industries, Inc. (up 105%), a producer of manufactured
housing; Control Data Systems, Inc. (up 57% since purchase), a
global systems integrator and provider of electronic commerce
solutions; Boole & Babbage, Inc. (up 34.9%), a computer software
company; Charter One Financial, Inc. (up 67.7%), a savings and loan
institution headquartered in Cleveland, Ohio; The Wet Seal, Inc. (up
219%), a retailer for junior girls' apparel; Charming Shoppes, Inc.
(up 79.3% since purchase), a women's apparel retailer; and Ace, Ltd.
(up 74.1%), a property casualty reinsurer. For the 12 months ended
March 31, 1996, the Fund's performance was hurt by investments in
Landmark Graphics Corp. (down 21.0% from the Fund's average cost), a
supplier of exploration and production information systems for the
oil and gas industry; Norton McNaughton, Inc. (down 25.1%), a
women's apparel supplier; TPI Enterprises, Inc. (down 48.8%), a
franchise restaurant operator; and, J. Baker, Inc. (down 50.8%), an
apparel retailer.
<PAGE>
The Fund's fiscal year ended March 31, 1996 was very rewarding to
most investors overall as demonstrated by the +32.09% total return
of the unmanaged Standard & Poor's 500 Composite Index during that
period and the +29.08% total return of the Russell 2000 Index. As
indicated by these figures, large cap stock indexes outperformed the
Russell 2000 Index during the last 12 months. In addition, the stock
market generally favored growth stocks over value stocks during this
period.
During its fiscal year, the Fund used its cash reserves to add to
positions during any temporary dips in the market. The Fund
emphasized stocks selling at attractive valuations rather than more
expensive stocks with higher projected earnings growth. We estimate
that with 22.5% of net assets in cash, the Fund is approximately 82%
as volatile as its benchmark Russell 2000 Index. During the 12-month
period ended March 31, 1996, Merrill Lynch Special Value Fund,
Inc.'s assets increased 48.5%, from $366.3 million at March 31, 1995
to $543.2 million at March 31, 1996.
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
(Daniel V. Szemis)
Daniel V. Szemis
Vice President and Portfolio Manager
<PAGE>
May 7, 1996
We are pleased to announce that as of February 12, 1996, Daniel V.
Szemis, C.F.A., assumed the responsibility of Portfolio Manager for
Merrill Lynch Special Value Fund, Inc. Mr. Szemis joined the
Investment Adviser in 1996 and is responsible for day-to-day
management of the Fund's investments. From 1990 to 1996, Mr. Szemis
was a Portfolio Manager at Prudential Mutual Fund Investment
Management Advisors.
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end load)
of 5.25% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years.
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
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>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/96 +19.56% +13.29%
Five Years Ended 3/31/96 +15.97 +14.73
Ten Years Ended 3/31/96 + 5.39 + 4.83
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/96 +18.37% +14.37%
Five Years Ended 3/31/96 +14.80 +14.80
Inception (10/21/88) through 3/31/96 + 8.49 + 8.49
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/96 +18.34% +17.34%
Inception (10/21/94)
through 3/31/96 +16.10 +16.10
[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*
Year Ended 3/31/96 +19.26% +13.00%
Inception (10/21/94)
through 3/31/96 +16.96 +12.67
[FN]
*Maximum sales charge is 5.25%
**Assuming maximum sales charge.
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 of an investment in the Russell 2000 Index. Beginning and
ending values are:
3/86 3/96
ML Special Value Fund, Inc.++--
Class A Shares* $ 9,475 $16,020
Russell 2000 Index++++ $10,000 $26,934
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** 3/96
ML Special Value Fund, Inc.++--
Class B Shares* $10,000 $18,347
Russell 2000 Index++++ $10,000 $25,643
<PAGE>
Total Return Based on a $10,000 Investment-Class C Shares and Class D
Shares
A line graph depicting the growth of an investment in the Fund's Class C and
Class D Shares compared to growth of an investment in Russell 2000 Index.
Beginning and ending values are:
10/21/94** 3/96
ML Special Value Fund, Inc.++--
Class C Shares* $10,000 $12,405
ML Special Value Fund, Inc.++--
Class D Shares* $ 9,475 $11,880
Russell Index++++ $10,000 $13,304
[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 unmanaged Index is comprised of common stocks of the bottom
two-thirds of the largest 3,000 publicly traded companies domiciled
in the United States.
Past performance is not predictive of future performance.
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 $4,519.39 on March 31, 1996.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
3/31/96 12/31/95 3/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $17.77 $17.10 $15.63 +14.77%(1) +3.92%
ML Special Value Fund, Inc. Class B Shares* 17.21 16.61 15.16 +14.63(1) +3.61
ML Special Value Fund, Inc. Class C Shares* 17.10 16.50 15.10 +14.36(1) +3.64
ML Special Value Fund, Inc. Class D Shares* 17.74 17.09 15.61 +14.73(1) +3.80
Russell 2000 Index** 330.77 315.97 260.77 +26.84 +4.68
ML Special Value Fund, Inc. Class A Shares--Total Return* +19.56(2) +3.92
ML Special Value Fund, Inc. Class B Shares--Total Return* +18.37(3) +3.61
ML Special Value Fund, Inc. Class C Shares--Total Return* +18.34(4) +3.64
ML Special Value Fund, Inc. Class D Shares--Total Return* +19.26(5) +3.80
Russell 2000 Index**--Total Return +29.08 +5.14
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
**An unmanaged broad-based index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
(1)Percent change includes reinvestment of $0.151 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.675 per share ordinary
income dividends and $0.151 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.513 per share ordinary
income dividends and $0.151 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.544 per share ordinary
income dividends and $0.151 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.639 per share ordinary
income dividends and $0.151 per share capital gains distributions.
</TABLE>
<PAGE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
5/5/78--12/31/78 $ 9.60 $ 8.70 -- $0.190 - 7.63%
1979 8.70 10.16 $0.370 0.320 +25.67
1980 10.16 12.54 0.500 0.195 +33.62
1981 12.54 10.58 0.890 0.390 - 6.27
1982 10.58 10.67 0.650 0.380 +12.70
1983 10.67 12.45 0.610 0.070 +22.40
1984 12.45 11.10 0.290 0.120 - 7.60
1985 11.10 14.29 0.340 0.090 +33.14
1986 14.29 13.97 0.620 0.050 + 1.88
1987 13.97 10.32 1.086 0.143 -18.52
1988 10.32 11.83 0.017 0.233 +17.06
1989 11.83 11.65 -- 0.237 + 0.42
1990 11.65 8.32 -- 0.148 -27.52
1991 8.32 12.80 -- 0.080 +54.87
1992 12.80 14.96 -- 0.019 +17.04
1993 14.96 15.66 0.594 0.811 +14.26
1994 15.66 14.70 0.561 0.940 + 3.81
1995 14.70 17.10 0.151 0.675 +22.34
1/1/96--3/31/96 17.10 17.77 -- -- + 3.92
------ ------
Total $6.679 Total $5.091
Cumulative total return as of 3/31/96: +376.98%**
<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**
<S> <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
1995 14.30 16.61 0.151 0.513 +21.12
1/1/96--3/31/96 16.61 17.21 -- -- + 3.61
------ ------
Total $1.323 Total $2.337
Cumulative total return as of 3/31/96: +83.47%**
<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>
Performance Summary-Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $15.06 $14.24 $0.192 $0.430 - 1.15%
1995 14.24 16.50 0.151 0.544 +21.09
1/1/96--3/31/96 16.50 17.10 -- -- + 3.64
------ ------
Total $0.343 Total $0.974
Cumulative total return as of 3/31/96: +24.05%**
<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>
<PAGE>
<TABLE>
Performance Summary-Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $15.52 $14.69 $0.192 $0.447 - 1.06%
1995 14.69 17.09 0.151 0.639 +22.09
1/1/96--3/31/96 17.09 17.74 -- -- + 3.80
------ ------
Total $0.343 Total $1.086
Cumulative total return as of 3/31/96: +25.38%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share distributions
paid by Merrill Lynch Special Value Fund, Inc. during its taxable
year ended March 31, 1996:
Domestic Domestic Total Long-Term
Record Payable Qualifying Non-Qualifying Ordinary Capital
Date Date Ordinary Income Ordinary Income Income Gains
<S> <S> <S> <C> <C> <C> <C>
Class A Shares: 6/22/95 6/30/95 $0.053941 $0.294600 $0.348541 $0.150728
12/11/95 12/19/95 $0.042656 $0.284241 $0.326897 --
Class B Shares: 6/22/95 6/30/95 $0.043738 $0.238875 $0.282613 $0.150728
12/11/95 12/19/95 $0.030086 $0.200480 $0.230566 --
Class C Shares: 6/22/95 6/30/95 $0.047134 $0.257423 $0.304557 $0.150728
12/11/95 12/19/95 $0.031210 $0.207970 $0.239180 --
Class D Shares: 6/22/95 6/30/95 $0.051615 $0.281897 $0.333512 $0.150728
12/11/95 12/19/95 $0.039869 $0.265675 $0.305544 --
The qualifying domestic ordinary income qualifies for the dividends received
deduction for corporations. Please retain this information for your records.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 375,000 ++UNC, Inc. $ 2,161,424 $ 2,812,500 0.5%
Apparel 815,000 ++Farah, Inc. (k) 6,680,057 4,482,500 0.8
233,000 Kellwood Co. 4,270,366 3,611,500 0.7
84,000 ++Marisa Christina, Inc. 862,660 1,690,500 0.3
700,500 ++Norton McNaughton, Inc. (k) 10,056,577 7,530,375 1.4
38,500 The Warnaco Group, Inc. (Class A) 567,405 928,813 0.2
------------ ------------ ------
22,437,065 18,243,688 3.4
Automotive 100,000 Smith (A.O.) Corp. 2,027,107 2,362,500 0.4
Banks & Finance 60,000 American Federal Bank, FSB 611,250 900,000 0.2
173,100 Bankers Corp. 1,033,803 2,921,063 0.5
20,000 Banknorth Group, Inc. 365,000 705,000 0.1
314,000 Charter One Financial, Inc. 5,779,533 10,597,500 2.0
170,000 ++Civic Bancorp, Inc. 926,250 1,296,250 0.2
28,000 Collective Bancorp., Inc. 468,951 707,000 0.1
201,400 ++FirstFed Financial Corp. 2,785,972 3,197,225 0.6
250,000 Roosevelt Financial Group, Inc. 2,916,708 4,625,000 0.9
83,000 Walden Bancorp, Inc. (a) 943,713 1,639,250 0.3
------------ ------------ ------
15,831,180 26,588,288 4.9
Beverages 76,000 ++Celestial Seasonings, Inc. 1,159,395 1,653,000 0.3
Biotechnology 107,000 ++COR Therapeutics, Inc. 1,046,352 1,243,875 0.2
180,400 ++Ostex International, Inc. 2,749,950 2,886,400 0.5
61,600 ++Pharmacopeia, Inc. 995,086 1,540,000 0.3
560,000 ++Scios, Inc. (h) 2,474,401 2,555,000 0.5
------------ ------------ ------
7,265,789 8,225,275 1.5
Building & Building 525,000 ++Giant Cement Holding, Inc. (k) 5,693,918 6,628,125 1.3
Materials 574,000 ++Redman Industries, Inc. 4,634,704 11,623,500 2.1
195,300 Ryland Group, Inc. 2,757,842 3,149,213 0.6
150,200 ++Washington Homes, Inc. 872,781 732,225 0.1
------------ ------------ ------
13,959,245 22,133,063 4.1
<PAGE>
Business Services 822,600 ++Applied Bioscience International, Inc. 4,698,404 7,506,225 1.4
Chemicals 50,000 Lesco, Inc. 705,682 743,750 0.1
Commercial Services 13,100 Duff & Phelps Credit Rating Co. 206,008 209,600 0.0
111,200 ++Education Alternatives, Inc. 370,299 403,100 0.1
------------ ------------ ------
576,307 612,700 0.1
Computers & Computer 550,500 ++Amdahl Corp. 4,479,487 4,679,250 0.9
Services 360,750 ++Boole & Babbage, Inc. 3,101,038 9,244,219 1.7
$ 4,000,000 Cellnet Data Systems, Inc., 13%++++
due 6/15/2005 (b)(j) 2,352,754 2,740,000 0.5
37,500 ++DH Technology, Inc. 295,000 900,000 0.2
465,000 ++Storage Technology Corp. 11,360,734 12,148,125 2.2
610,000 ++Stratus Computer, Inc. 17,104,028 16,927,500 3.1
------------ ------------ ------
38,693,041 46,639,094 8.6
Cosmetics 1,317 ++Alfin, Inc. (Preferred)(c) 0 24,259 0.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Data Processing 80,000 Cognos, Inc. $ 495,625 $ 4,540,000 0.8%
78,800 ++Consilium, Inc. 575,018 650,100 0.1
545,000 ++Control Data Systems, Inc. 6,977,634 10,797,813 2.0
160,000 Hyperion Software Corp. 3,375,969 3,480,000 0.6
362,500 ++Information Resources, Inc. 4,869,211 5,256,250 1.0
80,000 ++ParcPlace Systems, Inc. 675,593 730,000 0.1
140,000 ++Platinum Technology, Inc. 2,773,651 2,117,500 0.4
110,000 Progress Software Corp. 3,273,935 1,650,000 0.3
271,000 ++Software Spectrum, Inc. 5,754,666 5,487,750 1.0
24,000 ++Sterling Commerce, Inc. 576,000 738,000 0.1
45,000 ++Sterling Software, Inc. 1,452,700 3,172,500 0.6
140,700 ++VMARK Software, Inc. 1,879,814 1,020,075 0.2
------------ ------------ ------
32,679,816 39,639,988 7.2
Electrical Equipment 138,000 ++Comptek Research, Inc. 2,204,043 707,250 0.1
Electronics 100,000 ++Alden Electronics, Inc. 422,500 81,250 0.0
140,200 ++Alpha Industries, Inc. 1,100,285 1,217,988 0.2
80,100 ++B.I., Inc. 658,020 670,838 0.2
57,000 ++Benchmark Electronics, Inc. 1,342,920 1,702,875 0.3
55,000 ++DII Group, Inc. (i) 1,599,650 1,670,625 0.3
226,000 ++Micronics Computers, Inc. 1,198,238 607,375 0.1
210,000 ++Symantec Corp. 3,648,500 2,703,750 0.5
40,000 ++VLSI Technology, Inc. 448,125 515,000 0.1
------------ ------------ ------
10,418,238 9,169,701 1.7
<PAGE>
Environmental & 187,100 BHA Group, Inc. (Class A) 2,427,489 2,385,525 0.4
Environmental Control 555,200 ++Envirosource, Inc. 2,263,074 2,290,200 0.4
390,250 NSC Corp. 2,062,737 585,375 0.1
------------ ------------ ------
6,753,300 5,261,100 0.9
Healthcare-- 185,000 ++Beverly Enterprises, Inc. 2,453,303 2,035,000 0.4
Products & Services 640,000 Community Psychiatric Centers 7,214,082 5,360,000 1.0
50,000 ++Healthcare Services Group, Inc. 468,500 475,000 0.1
330,000 ++Magellan Health Services, Inc. (d) 5,885,321 7,425,000 1.3
504,500 ++Ramsay Health Care, Inc. (k) 3,537,506 1,639,625 0.3
131,644 ++Ramsay Managed Care, Inc. (e) 296,199 320,882 0.1
200,000 ++Unilab Corp. 1,106,250 400,000 0.1
------------ ------------ ------
20,961,161 17,655,507 3.3
Home Furnishings 150,000 Crown Crafts, Inc. 2,380,073 1,425,000 0.3
109,800 ++Department 56, Inc. 2,440,854 2,401,875 0.4
------------ ------------ ------
4,820,927 3,826,875 0.7
Insurance 113,000 Ace, Ltd. 2,447,188 5,042,625 0.9
32,000 American National Insurance Co. 1,873,745 2,160,000 0.4
131,000 First Colony Corp. 3,400,524 3,127,625 0.6
37,900 Harleysville Group, Inc. 764,450 1,013,825 0.2
275,200 ++Omni Insurance Group, Inc. 1,950,523 2,476,800 0.5
660,300 PXRE Corp. (k) 14,403,271 16,837,650 3.1
267,300 Security-Connecticut Corp. 5,441,464 6,983,212 1.3
------------ ------------ ------
30,281,165 37,641,737 7.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Iron & Steel 129,100 ++Olympic Steel, Inc. $ 1,316,934 $ 1,371,687 0.3%
300,000 Quanex Corp. 5,765,076 6,562,500 1.2
------------ ------------ ------
7,082,010 7,934,187 1.5
Leasing 244,000 Sea Containers, Ltd. 4,237,586 4,209,000 0.8
Machinery 110,000 AGCO Corp. (i) 2,383,050 2,653,750 0.5
50,000 Blount, Inc. (Class A) 1,323,000 1,537,500 0.3
------------ ------------ ------
3,706,050 4,191,250 0.8
<PAGE>
Medical 183,500 Analogic Corp. 3,250,002 3,440,625 0.6
175,000 Medex Inc. 1,899,773 2,078,125 0.4
------------ ------------ ------
5,149,775 5,518,750 1.0
Metals--Non-Ferrous 76,800 Handy & Harman 1,205,929 1,257,600 0.2
Miscellaneous 45,000 PHH Corp. 1,541,238 2,503,125 0.5
Natural Resources 145,000 ++Abraxas Petroleum Corp. 1,642,500 779,375 0.1
90,900 ++Atwood Oceanics, Inc. 763,563 3,272,400 0.6
190,000 ++Tom Brown, Inc. 1,781,265 2,683,750 0.5
135,000 ++Gerrity Oil & Gas Corp. 1,625,550 421,875 0.1
310,000 ++Global Natural Resources, Inc. 3,093,326 4,107,500 0.8
70,700 ++Grant Tensor Geophysical Corp.
(Convertible Preferred) 1,175,940 1,064,919 0.2
50,000 ++Input/Output, Inc. (i) 497,878 1,550,000 0.3
359,000 ++International Petroleum Corp. 990,247 807,750 0.2
587,000 ++Landmark Graphics Corp. 12,346,168 9,758,875 1.8
$ 2,625,000 NS Group, Inc., 13.50% due
7/15/2003 (f) 2,508,750 2,408,437 0.4
320,200 ++Newpark Resources, Inc. 5,630,151 9,525,950 1.8
120,000 ++Noble Drilling Corp. 735,714 1,515,000 0.3
105,000 ++Nuevo Energy Co. 2,023,100 3,018,750 0.6
50,000 ++Plains Resources, Inc. 402,500 453,125 0.1
308,391 ++Plains Resources, Inc. (j) 1,806,983 2,775,519 0.5
$ 900,000 Swift Energy Corp., Convertible
Bonds, 6.50% due 6/30/2003 924,000 1,017,000 0.2
300,000 Total Petroleum of North America,
Ltd. 3,359,308 2,925,000 0.5
$ 2,876,000 Transamerican Refining Corp.,
18.29%++++ due 2/15/2002 (g) 2,061,506 1,843,228 0.3
460,000 ++TransTexas Gas Corp. 5,970,887 4,600,000 0.8
------------ ------------ ------
49,339,336 54,528,453 10.1
Paper/Forest Products 200,000 ++Duplex Products, Inc. 1,497,271 1,837,500 0.3
140,000 Pope & Talbot, Inc. 2,335,976 1,942,500 0.4
------------ ------------ ------
3,833,247 3,780,000 0.7
Pharmaceuticals 250,000 ++NeoRx Corp. 1,620,702 2,031,250 0.4
Photo-Optical Instruments 80,000 Instron Corp. 1,010,849 1,130,000 0.2
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Real Estate & $ 1,000,000 Alexander Haagen Properties, Inc.,
Real Estate 7.25% due 12/27/2003 (j) $ 1,000,000 $ 936,250 0.2%
Investment Trusts 105,000 Bay Apartment Communities, Inc. 1,901,462 2,533,125 0.5
23,000 Cali Realty Corp. 364,567 514,625 0.1
88,000 Catellus Development Corp.
(Convertible Preferred) (j) 3,200,250 4,224,000 0.8
23,200 Duke Realty Investments, Inc. 645,629 698,900 0.1
100,000 Innkeepers USA Trust 874,152 937,500 0.2
60,000 Manufactured Home Communities, Inc. 887,550 1,065,000 0.2
40,000 Merry Land & Investment Co., Inc. 772,400 870,000 0.2
50,000 Mid-America Apartment Communities, Inc. 1,253,000 1,287,500 0.2
$ 3,000,000 National Health Corp., Convertible
Bonds, 7.75% due 1/01/2001 3,000,000 3,045,000 0.5
40,000 Spieker Properties, Inc. 804,350 1,015,000 0.2
------------ ------------ ------
14,703,360 17,126,900 3.2
Restaurants 140,000 ++Shoney's, Inc. 1,406,643 1,260,000 0.2
1,164,900 ++TPI Enterprises, Inc. (k) 5,488,347 3,349,087 0.6
------------ ------------ ------
6,894,990 4,609,087 0.8
Retailing 574,800 J. Baker, Inc. 7,781,064 4,311,000 0.8
232,400 ++Bon-Ton Stores, Inc. 2,429,684 1,568,700 0.3
579,300 CML Group, Inc. 1,766,865 1,810,312 0.3
393,800 ++Catherines Stores Corp. (k) 4,060,257 3,938,000 0.7
1,035,000 Charming Shoppes, Inc. 2,660,559 5,336,719 1.0
69,000 ++Chico's Fashions, Inc. 473,812 483,000 0.1
25,000 ++Dress Barn, Inc. 243,408 293,750 0.1
1,063,000 ++Grossman's, Inc. 3,251,812 1,760,594 0.3
300,000 Hancock Fabrics, Inc. 2,706,004 2,962,500 0.5
125,800 ++Movie Gallery, Inc. 3,084,989 3,176,450 0.6
70,000 OfficeMax, Inc. 886,667 1,697,500 0.3
202,650 Pier 1 Imports, Inc. 1,492,944 2,558,456 0.5
102,000 ++REX Stores Corp. 1,315,670 1,415,250 0.3
700,000 ++Service Merchandise Co., Inc. 3,694,765 3,675,000 0.7
649,900 ++The Wet Seal, Inc. (Class A)(k) 2,238,280 8,286,225 1.5
39,900 ++Whole Foods Market, Inc. 493,762 728,175 0.1
------------ ------------ ------
38,580,542 44,001,631 8.1
Scientific Instruments 80,000 Technitrol, Inc. 1,415,137 2,320,000 0.4
<PAGE>
Telecommunications 145,000 ++General DataComm Industries, Inc. 1,757,401 1,540,625 0.3
Textiles 450,000 ++Burlington Industries, Inc. 5,117,552 5,681,250 1.0
Toy Manufacturing 389,000 ++Just Toys, Inc. (k) 1,738,722 461,937 0.1
Transportation 200,000 ++Kirby Corp. 2,814,824 3,425,000 0.6
Utilities 46,000 American Water Works Co., Inc. 180,682 1,771,000 0.3
55,000 Wicor, Inc. 1,529,287 1,856,250 0.3
------------ ------------ ------
1,709,969 3,627,250 0.6
Total Stocks & Bonds 371,092,508 421,323,795 77.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Face Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Paper* $ 10,000,000 A.I. Credit Corp., 5.13% due
4/02/1996 $ 9,995,725 $ 9,995,725 1.8%
15,000,000 ANZ (Delaware) Inc., 5.10% due
4/22/1996 14,951,125 14,951,125 2.8
10,000,000 CIT Group Holdings, Inc., 5.23% due
4/11/1996 9,982,567 9,982,567 1.8
20,000,000 Commerzbank U.S. Finance Inc., 5.35%
due 4/29/1996 19,910,833 19,910,833 3.7
14,258,000 Ford Motor Credit Co., 5.50% due
4/01/1996 14,253,643 14,253,643 2.6
20,019,000 Matterhorn Capital Corp., 5.35% due
5/01/1996 19,923,799 19,923,799 3.7
8,000,000 Transamerica Corp., 5.28% due
5/14/1996 7,947,200 7,947,200 1.5
15,000,000 Transamerica Finance Corp., 5.17% due
4/11/1996 14,974,150 14,974,150 2.8
------------ ------------ ------
111,939,042 111,939,042 20.7
US Government & 5,000,000 Federal Home Loan Bank, 5.15% due
Agency Obligations* 4/08/1996 4,993,563 4,993,563 0.9
5,150,000 Federal National Mortgage Association,
5.13% due 4/09/1996 5,142,661 5,142,661 0.9
------------ ------------ ------
10,136,224 10,136,224 1.8
Total Short-Term Securities 122,075,266 122,075,266 22.5
Total Investments $493,167,774 543,399,061 100.0
============
Liabilities in Excess of Other Assets (212,702) 0.0
------------ ------
Net Assets $543,186,359 100.0%
============ ======
<PAGE>
<FN>
*Commercial Paper and certain US
Government & Agency Obligations are
traded on a discount basis; the interest
rates shown are the discount rates paid at
the time of purchase by the Fund.
++Non-income producing security.
++++Represents a zero coupon or step bond; the
interest rate shown is the effective yield at
the time of purchase by the Fund.
(a)Formerly the Co-Operative Bank of
Concord.
(b)Each $1,000 face amount contains
4 warrants of Cellnet Data Systems, Inc.
(c)Security represents 14.5% cumulative pre-
ferred stock. For each share of Preferred
Stock, the Fund will receive an annual
dividend of approximately 9.43 shares
of Common Stock.
(d)Formerly Charter Medical Group.
(e)The Fund received these shares from the
spinoff of Ramsay Health Care, Inc.
(f)Each $1,000 face amount contains
1 warrant of NS Group, Inc.
(g)Each $1,000 face amount contains
17.09 warrants of Transamerican
Refining Corp.
(h)Formerly Scios Nova, Inc.
(i)The Company declared a two-for-one stock
split during the quarter.
(j)Restricted securities as to resale. The value of the Fund's
investments in restricted securities was approximately $10,676,000,
representing 2.0% of net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
Alexander Haagen Properties, Inc.,
7.25% due 12/27/2003 12/27/1993 $ 1,000,000 $ 936,250
Catellus Development Corp. 12/14/1994-- 3,200,250 4,224,000
(Convertible Preferred) 2/02/1995
Cellnet Data Systems, Inc.,
13% due 6/15/2005 6/06/1995 2,352,754 2,740,000
Plains Resources, Inc. 5/25/1992--
1/18/1995 1,806,983 2,775,519
Total $ 8,359,987 $10,675,769
=========== ===========
(k)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. 130,200 $ 881,887 +++
Apparel Norton McNaughton, Inc 548,400 7,913,909 +++
Building & Giant Cement Holding, Inc 425,000 4,547,038 +++
Building
Materials
Healthcare-- Ramsay Health Care, Inc -- -- +++
Products
& Services
Insurance PXRE Corp. 265,300 6,041,372 $397,503
Restaurants TPI Enterprises, Inc. 628,500 2,292,156 +++
Retailing Catherines Stores Corp. 80,000 655,547 +++
Retailing The Wet Seal, Inc.
(Class A) (95,500) (404,965) +++
Toy Just Toys, Inc. -- -- +++
Manufacturing
+++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of March 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$493,167,774) (Note 1a) $543,399,061
Cash 349
Receivables:
Securities sold $ 9,618,578
Capital shares sold 1,565,556
Dividends 174,810
Interest 173,528 11,532,472
------------
Prepaid registration fees and other assets (Note 1e) 136,526
------------
Total assets 555,068,408
------------
Liabilities: Payables:
Securities purchased 7,869,014
Capital shares redeemed 2,997,590
Investment adviser (Note 2) 318,849
Distributor (Note 2) 268,308 11,453,761
------------
Accrued expenses and other liabilities 428,288
------------
Total liabilities 11,882,049
------------
<PAGE>
Net Assets: Net assets $543,186,359
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 1,020,373
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 1,802,231
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 157,436
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 139,735
Paid-in capital in excess of par 456,578,905
Undistributed investment income--net 374,217
Undistributed realized capital gains on investments--net 32,882,175
Unrealized appreciation on investments--net 50,231,287
------------
Net assets $543,186,359
============
Net Asset Value: Class A--Based on net assets of $181,296,866 and 10,203,733
shares outstanding $ 17.77
============
Class B--Based on net assets of $310,174,160 and 18,022,310
shares outstanding $ 17.21
============
Class C--Based on net assets of $26,920,405 and 1,574,359
shares outstanding $ 17.10
============
Class D--Based on net assets of $24,794,928 and 1,397,349
shares outstanding $ 17.74
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statement of Operations for the Year Ended March 31, 1996
<S> <S> <C>
Investment Interest and discount earned $ 7,628,104
Income Dividends (net of $9,858 foreign withholding tax) 5,084,073
(Notes 1c & 1d): ------------
Total income 12,712,177
------------
<PAGE>
Expenses: Investment advisory fees (Note 2) 3,704,781
Account maintenance and distribution fees--Class B (Note 2) 2,949,799
Transfer agent fees--Class B (Note 2) 820,486
Transfer agent fees--Class A (Note 2) 382,472
Printing and shareholder reports 233,105
Account maintenance and distribution fees--Class C (Note 2) 220,526
Registration fees (Note 1e) 131,880
Professional fees 82,261
Custodian fees 70,976
Transfer agent fees--Class C (Note 2) 64,219
Accounting services (Note 2) 56,839
Account maintenance fees--Class D (Note 2) 50,713
Transfer agent fees--Class D (Note 2) 49,979
Directors' fees and expenses 31,480
Pricing fees 249
Other 10,467
------------
Total expenses 8,860,232
------------
Investment income--net 3,851,945
------------
Realized & Realized gain on investments--net 39,649,159
Unrealized Gain on Change in unrealized appreciation on investments--net 41,578,720
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 85,079,824
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 3,851,945 $ 1,004,317
Realized gain on investments--net 39,649,159 20,737,686
Change in unrealized appreciation on investments--net 41,578,720 1,142,318
------------ ------------
Net increase in net assets resulting from operations 85,079,824 22,884,321
------------ ------------
<PAGE>
Dividends & Investment income--net:
Distributions to Class A (2,232,929) (614,155)
Shareholders Class B (1,325,529) --
(Note 1f): Class C (137,548) (9,723)
Class D (241,696) (19,699)
Realized gain on investments--net:
Class A (5,403,183) (7,894,397)
Class B (10,567,528) (13,778,928)
Class C (748,130) (88,207)
Class D (650,489) (139,464)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (21,307,032) (22,544,573)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 113,078,058 174,423,847
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 176,850,850 174,763,595
Beginning of year 366,335,509 191,571,914
------------ ------------
End of year* $543,186,359 $366,335,509
============ ============
<FN>
*Undistributed investment income--net $ 374,217 $ 459,974
============ ============
See Notes to Financial Statements.
</TABLE>
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: 1996* 1995* 1994* 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.63 $ 15.88 $ 15.32 $ 13.86 $ 10.84
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .24 .16 .10 .05 .10
Realized and unrealized gain on
investments--net 2.72 1.09 1.87 1.43 3.00
-------- -------- -------- -------- --------
Total from investment operations 2.96 1.25 1.97 1.48 3.10
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.23) (.10) .00++ (.02) (.08)
Realized gain on investments--net (.59) (1.40) (1.41) .00++ .00++
-------- -------- -------- -------- --------
Total dividends and distributions (.82) (1.50) (1.41) (.02) (.08)
-------- -------- -------- -------- --------
Net asset value, end of year $ 17.77 $ 15.63 $ 15.88 $ 15.32 $ 13.86
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 19.56% 8.85% 13.14% 10.69% 28.71%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.12% 1.15% 1.17% 1.28% 1.55%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 1.43% 1.04% .62% .37% .83%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $181,297 $106,506 $ 78,804 $ 70,920 $ 57,056
Data: ======== ======== ======== ======== ========
Portfolio turnover 60.37% 59.79% 68.70% 42.25% 98.76%
======== ======== ======== ======== ========
Average commission rate paid $ .0503 -- ++++ -- ++++ -- ++++ -- ++++
======== ======== ======== ======== ========
<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: 1996* 1995* 1994* 1993* 1992*
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.16 $ 15.49 $ 15.01 $ 13.70 $ 10.77
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .07 .00++ (.06) (.09) (.03)
Realized and unrealized gain on
investments--net 2.64 1.06 1.83 1.40 2.98
-------- -------- -------- -------- --------
Total from investment operations 2.71 1.06 1.77 1.31 2.95
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.07) .00++ .00++ .00++ (.02)
Realized gain on investments--net (.59) (1.39) (1.29) .00++ .00++
-------- -------- -------- -------- --------
Total dividends and distributions (.66) (1.39) (1.29) -- (.02)
-------- -------- -------- -------- --------
Net asset value, end of year $ 17.21 $ 15.16 $ 15.49 $ 15.01 $ 13.70
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 18.37% 7.70% 12.03% 9.56% 27.41%
Return:** ======== ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses 2.15% 2.20% 2.19% 2.28% 2.51%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .44% .02% (.41%) (.65%) (.27%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $310,174 $237,359 $112,768 $ 76,182 $ 29,534
Data: ======== ======== ======== ======== ========
Portfolio turnover 60.37% 59.79% 68.70% 42.25% 98.76%
======== ======== ======== ======== ========
Average commission rate paid $ .0503 -- ++++ -- ++++ -- ++++ -- ++++
======== ======== ======== ======== ========
<FN>
++Amount is less than $.01 per share.
++++Data not required for the period.
*Based on average shares outstanding during the period.
**Total investment returns exclude the effect of sales loads.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
Period Period
The following per share data and ratios have been derived For the Oct. 21, For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++ to Year Ended 1994++ to
March 31, March 31, March 31, March 31,
Increase (Decrease) in Net Asset Value: 1996** 1995** 1996** 1995**
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.10 $ 15.06 $ 15.61 $ 15.52
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .06 .01 .19 .07
Realized and unrealized gain on
investments--net 2.63 .65 2.73 .66
---------- ---------- ---------- ----------
Total from investment operations 2.69 .66 2.92 .73
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.10) (.06) (.20) (.08)
Realized gain on investments--net (.59) (.56) (.59) (.56)
---------- ---------- ---------- ----------
Total dividends and distributions (.69) (.62) (.79) (.64)
---------- ---------- ---------- ----------
Net asset value, end of period $ 17.10 $ 15.10 $ 17.74 $ 15.61
========== ========== ========== ==========
<PAGE>
Total Investment Based on net asset value per share 18.34% 4.82%+++ 19.26% 5.13%+++
Return:*** ========== ========== ========== ==========
Ratios to Average Expenses 2.16% 2.41%* 1.37% 1.61%*
Net Assets: ========== ========== ========== ==========
Investment income--net .36% .14%* 1.15% .95%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 26,920 $ 11,434 $ 24,795 $ 11,037
Data: ========== ========== ========== ==========
Portfolio turnover 60.37% 59.79% 60.37% 59.79%
========== ========== ========== ==========
Average commission rate paid $ .0503 -- ++++$ .0503 -- ++++
========== ========== ========== ==========
<FN>
*Annualized.
**Based on average shares outstanding during the period.
***Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
++Commencement of Operations.
++++Data not required for the period.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Special Value Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. 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.
<PAGE>
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. Securities traded in the NASDAQ National
Market System are valued at the last sale price, or lacking any
sales, at the closing bid price. 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.
* 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
purchase of securities. Futures contracts are contracts for delayed
delivery of securities at a specific future date and at a specific
price or yield. Upon entering into a contract, the Fund deposits and
maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
<PAGE>
* Options--The Fund is authorized to write covered call and purchase
put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
NOTES TO FINANCIAL STATEMENTS (continued)
* Forward foreign exchange contracts--The Fund is authorized to enter
into forward foreign exchange contracts as a hedge against either
specific transactions or portfolio positions. Such contracts are not
entered on the Fund's records. However, the effect on operations is
recorded from the date the Fund enters such contracts. Premium or
discount is amortized over the life of the contracts.
* Foreign currency options and futures--The Fund may purchase or sell
listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
<PAGE>
(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 FAM during any fiscal year which will cause such expenses
to exceed the most restrictive expense limitation at the time of
such payment.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
<PAGE>
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, 1996, MLFD earned underwriting
discounts and commissions and MLPF&S earned dealer concessions on
sales of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $3,362 $ 46,182
Class D $7,030 $100,093
For the year ended March 31, 1996, MLPF&S received contingent
deferred sales charges of $681,141 and $16,859 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $24,421 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
March 31, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended March 31, 1996 were $325,901,138 and
$259,000,990, respectively.
Net realized and unrealized gains (losses) as of March 31, 1996 were
as follows:
<PAGE>
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $39,649,160 $50,231,287
Short-term investments (1) --
----------- -----------
Total $39,649,159 $50,231,287
=========== ===========
As of March 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $48,714,020, of which $87,521,417 related to
appreciated securities and $38,807,397 related to depreciated
securities. At March 31, 1996, the aggregate cost of investments for
Federal income tax purposes was $494,685,041.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $113,078,058 and $174,423,847 for the years ended March 31, 1996
and 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Dollar
Year Ended March 31, 1996 Shares Amount
Shares sold 6,440,754 $105,924,815
Shares issued to shareholders
in reinvestment of dividends
and distributions 420,869 6,827,898
------------ ------------
Total issued 6,861,623 112,752,713
Shares redeemed (3,473,788) (58,594,494)
------------ ------------
Net increase 3,387,835 $ 54,158,219
============ ============
Class A Shares for the Dollar
Year 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
============ ============
<PAGE>
Class B Shares for the Dollar
Year Ended March 31, 1996 Shares Amount
Shares sold 8,847,890 $141,111,187
Shares issued to shareholders
in reinvestment of dividends
and distributions 671,486 10,542,063
------------ ------------
Total issued 9,519,376 151,653,250
Shares redeemed (6,931,949) (113,068,363)
Automatic conversion
of shares (218,662) (3,473,457)
------------ ------------
Net increase 2,368,765 $ 35,111,430
============ ============
Class B Shares for the Dollar
Year 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
============ ============
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for
the Year Ended Dollar
March 31, 1996 Shares Amount
Shares sold 1,482,478 $ 23,589,611
Shares issued to shareholders
in reinvestment of dividends
and distributions 50,565 791,271
------------ ------------
Total issued 1,533,043 24,380,882
Shares redeemed (715,916) (11,679,944)
------------ ------------
Net increase 817,127 $ 12,700,938
============ ============
<PAGE>
Class C Shares for the
Period October 21, 1994++ to Dollar
March 31, 1995 Shares Amount
Shares sold 828,311 $ 12,105,918
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,268 85,792
------------ ------------
Total issued 834,579 12,191,710
Shares redeemed (77,347) (1,134,143)
------------ ------------
Net increase 757,232 $ 11,057,567
============ ============
[FN]
++Commencement of Operations.
Class D Shares for the Dollar
Year Ended March 31, 1996 Shares Amount
Shares sold 1,716,390 $ 28,556,422
Automatic conversion
of shares 212,202 3,473,457
Shares issued to shareholders
in reinvestment of dividends
and distributions 48,666 790,721
------------ ------------
Total issued 1,977,258 32,820,600
Shares redeemed (1,286,898) (21,713,129)
------------ ------------
Net increase 690,360 $ 11,107,471
============ ============
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
============ ============
<PAGE>
[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, 1996, 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, 1996 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.
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, 1996, 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 7, 1996
</AUDIT-REPORT>
<PAGE>
PORTFOLIO INFORMATION (unaudited)
As of March 31, 1996
Percent of
Top Ten Equity Holdings Net Assets
Stratus Computer, Inc. 3.1%
PXRE Corp. 3.1
Storage Technology Corp. 2.2
Redman Industries, Inc. 2.1
Control Data Systems, Inc. 2.0
Charter One Financial, Inc. 2.0
Landmark Graphics Corp. 1.8
Newpark Resources, Inc. 1.8
Boole & Babbage, Inc. 1.7
The Wet Seal, Inc. (Class A) 1.5
Percent of
Ten Largest Industries Net Assets
Natural Resources 10.1%
Computers & Computer Services 8.6
Retailing 8.1
Data Processing 7.2
Insurance 7.0
Banks & Finance 4.9
Building & Building Materials 4.1
Apparel 3.4
Healthcare--Products & Services 3.3
Real Estate and Real Estate
Investment Trusts 3.2
<PAGE>
Equity Portfolio Changes for the
Quarter Ended March 31, 1996
Additions
Alpha Industries, Inc.
B. I., Inc.
BHA Group, Inc. (Class A)
Blount, Inc. (Class A)
CML Group, Inc.
Chico's Fashions, Inc.
*Cytyc Corp.
DII Group, Inc.
*Data Processing Resources
Corp.
Department 56, Inc.
*Documentum, Inc.
Duff & Phelps Credit
Rating Co.
*ESC Medical Systems, Ltd.
Education Alternatives,
Inc.
Envirosource, Inc.
*NABI, Inc.
Olympic Steel, Inc.
*Open Text Corp.
*Premiere Technologies, Inc.
*Prism Solutions, Inc.
*Raptor Systems, Inc.
*Red Brick Systems, Inc.
Sterling Commerce, Inc.
*Wilmar Industries, Inc.
*Workgroup Technology
Corp.
Deletions
Alteon, Inc.
American Drug Co.
American Drug Co.
(Warrants)
American Homestar, Inc.
Ariad Pharmaceuticals, Inc.
Athena Neurosciences, Inc.
Banner Aerospace, Inc.
Banta Corp.
Cliffs Drilling Co.
(Convertible Preferred)
Coho Energy, Inc.
Consolidated Stores
Corporation
Core Laboratories N.V.
Crown American Realty
Trust
Cytel Corp.
<PAGE>
CytoTherapeutics, Inc.
*Cytyc Corp.
*Data Processing Resources
Corp.
Developers Diversified
Realty Corp.
*Documentum, Inc.
Dovatron International, Inc.
Dynatech Corporation
*ESC Medical Systems, Ltd.
Financial Security
Assurance Holdings, Ltd.
Gensia, Inc.
Kansas City Life Insurance
Company
The Liposome Company,
Inc. (Convertible
Preferred)
Marietta Corp.
Maxwell Laboratories, Inc.
Model Imperial, Inc.
*NABI, Inc.
National Patent
Development Corp.
North American
Biologicals, Inc.
*Open Text Corp.
*Premiere Technologies, Inc.
*Prism Solutions, Inc.
Radius, Inc.
*Raptor Systems, Inc.
*Red Brick Systems, Inc.
Regeneron
Pharmaceuticals, Inc.
S&K Famous Brands, Inc.
Sequus Pharmaceuticals,
Inc.
Tandem Computers, Inc.
Utah Medical Products, Inc.
Vical, Inc.
WPI Group, Inc.
*Wilmar Industries, Inc.
The Wiser Oil Co.
*Workgroup Technology
Corp.
<PAGE>
[FN]
*Added and deleted in the same quarter.
