MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
FUND LOGO
Quarterly Report
December 31, 1995
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.
<PAGE>
Merrill Lynch
Special Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
As 1995 drew to a close, the pace of US economic activity apparently
slowed. There was strong evidence of a slowing economy by mid-year,
a trend that was quickly reversed as gross domestic product growth
rebounded to a 4.2% pace during the third calendar quarter of 1995.
However, recent economic releases suggest that this rate of
expansion has not been sustained.
A number of key measures of economic growth indicate evidence of
slowing momentum. Retail sales for November were soft, a trend that
continued throughout the all-important holiday season, reflecting
ongoing caution on the part of debt-burdened consumers. At the same
time, there has been an increase in initial unemployment claims,
along with weak job and income growth. As labor costs continue to
decelerate and commodity price pressures remain subdued,
inflationary pressures continue to be well under control.
These developments led the Federal Reserve Board to ease its
monetary policy slightly at the December 19, 1995 Federal Open
Market Committee meeting. However, the Clinton Administration and
Congress have yet to reach an agreement in their current Federal
budget deliberations. While the probable direction of economic
activity will continue to be the primary focus of investors in the
weeks ahead, a credible plan for reducing the Federal budget deficit
will also be an important factor in the investment outlook.
<PAGE>
Portfolio Matters
For the 1995 calendar year, Merrill Lynch Special Value Fund, Inc.
underperformed the unmanaged Russell 2000 Index. For the year ended
December 31, 1995, the Fund's Class A, Class B, Class C and Class D
Shares returned +22.34%, +21.12%, +21.09% and +22.09%, respectively,
while the Russell 2000 Index total return was +28.44%. (Results
shown do not reflect sales charges; results would be lower if sales
charges were included. Complete performance information, including
average annual total returns, can be found on pages 4--7 of this
report to shareholders.)
For 1995, the Fund's performance was helped by holdings in the
technology, healthcare, financial services and energy sectors.
Technology stocks led the market sharply upward during the year,
driven by strong computer and equipment sales as well as by
attendant demand for semiconductors and software. However, the
December quarter proved very difficult for the group. After peaking
in September, technology indexes, particularly the semiconductor
index, moved sharply lower as softer memory prices and excess chip
manufacturing capacity began to emerge. Healthcare stocks started
the year on a strong note, still benefiting from the Clinton
administration's failure to impose sweeping changes to the
healthcare system. Among healthcare-related issues, biotechnology
stocks were outstanding performers as certain companies reported
favorable results from clinical trials, and the Food and Drug
Administration accelerated the pace of new drug approvals. The
sector also benefited from investments by large pharmaceutical
companies in smaller biotechnology concerns. Financial services
stocks responded favorably to the continued decline in interest
rates during the year. Banks and thrifts were also aided by the
increasing number of mergers and acquisitions, with some acquisition
multiples reaching 2.5 times book value or higher. Insurance stocks
benefited from declining interest rates and increased earnings
prospects.
Notable performers in order of their contributions to the
portfolio's total return for the year were: Charter One Financial,
Inc. (up 59%); Redman Industries, Inc. (up 106%); and Ace, Ltd. (up
71%). Each of these stocks was among the Fund's ten largest holdings
for at least some part of the year. The Fund's performance during
the second and third quarters was restrained somewhat by our
emphasis on stocks selling at low valuations rather than selecting
those selling at premium prices based on expected earnings growth.
Later in the year, many of the small capitalization "growth" stocks
that outperformed the market indexes in the second and third
quarters began to correct as disappointing earnings were announced.
As discussed in previous shareholder letters, the Fund maintained a
significant portion of its assets in cash reserves, which enabled
the Fund to take advantage of dips in the stock market by purchasing
shares. The Fund tended to sell into rallies to realize gains on
appreciated stocks, and to deploy cash during market downturns.
<PAGE>
During the quarter ended December 31, 1995, Merrill Lynch Special
Value Fund, Inc. slightly underperformed the unmanaged Russell 2000
Index. For the three-month period ended December 31, 1995, the
Fund's Class A, Class B, Class C and Class D Shares returned +1.66%,
+1.42%, +1.42% and +1.65%, respectively, while the Russell 2000
Index total return was +2.17%. During the December quarter, the
Fund's performance was helped by its positions in the energy,
building-related, healthcare and technology industries.
The energy sector's strong performance during the quarter ended
December 31, 1995 reflected the depressed valuations of many energy
stocks at the beginning of the quarter, aided by cold weather
conditions in the Northeast and Midwestern states and resulting
improved commodity pricing. Many oil services stocks outperformed
the stock market because of improved future earnings visibility from
strengthening demand and pricing. Several of the Fund's energy
investments during the December quarter focused on companies
offering technological advantages to oil and gas exploration and
production companies. The Fund's investments in the housing sector
emphasized manufactured housing stocks, where unit growth continued
to outpace that of traditional site-built homes. Many segments of
the healthcare industry came under pressure near year-end as debate
over Medicare/Medicaid reform intensified. However, the Fund's
investments in biotechnology continued to benefit from Washington's
mounting pressure on the Food and Drug Administration to speed
approval of new drugs. Technology stocks overall peaked during mid-
September and then performed poorly during the December quarter.
However, the Fund's technology holdings outperformed the market, and
several of the Fund'stop-performing stocks during the quarter were
technology issues. By contrast, the Standard &Poor's High Tech
Composite was down 2.3% for the quarter.
During the three months ended December 31, 1995, notable performers
in order of their contributions to the portfolio's total return
were: Control Data Systems, Inc. (up 62%); Redman Industries, Inc.
(up 30%); Stratus Computer, Inc. (up 32%); Input/Output, Inc. (up
51%); and Boole & Babbage, Inc. (up 22%).
Control Data Systems, Inc. is a global systems integrator. The
company helps client corporations and government entities integrate
complex networks and applications. In September, the company
divested five international units in an effort to sharpen its focus
on the electronic commerce business. Customer acceptance of Control
Data's electronic commerce and Product Data Management/Computer-
Aided Design products was very favorable. Shares of Redman
Industries, Inc., one of the largest producers of manufactured homes
in the United States, were propelled by continued strong growth in
unit shipments and higher earnings. Stratus Computer, Inc., a
leading provider of comprehensive computer solutions for critical on-
line environments, offers a broad range of continuously available
computers, applications software and professional services. The
company has a solid balance sheet and generates strong cash flow
relative to its stock price. The stock moved higher on increased
sales of its new Continuum fault tolerant computers.
<PAGE>
Input/Output, Inc., the world's leading manufacturer of seismic
instruments for the oil and gas exploration industry, received
renewed investor focus. This interest was caused by very favorable
earnings growth prospects stemming from Input/Output, Inc.'s
dominance of this high-tech segment of the oil services industry; an
expanded product line aided by a recent acquisition; strong domestic
orders and potential increased international orders; and, the
earnings potential from the company's recent entry into the oil and
gas exploration business. Oil services stocks generally outperformed
the market during the December quarter, and Input/Output, Inc.
benefited from its leadership position in the technology-oriented
segment of the oil services industry. As Input/Output, Inc.'s stock
appreciated to record high prices, the Fund took profits on most of
its positions. Boole & Babbage, Inc. is a worldwide leader in
enterprise automation software for distributed systems. The
company's products enable its information services clients to reduce
costs and increase systems availability.
During the December quarter, the Fund's performance was hindered by
holdings in the consumer durables, consumer nondurables, and retail
sectors. These consumer stocks and retailing issues were
particularly weak reflecting disappointing sales increases, and in
some cases, actual sales declines during the autumn, and an
increasingly difficult environment as the important holiday selling
season unfolded.
The Fund was active in making purchases during the December quarter.
We bought shares in 27 new holdings and added to positions in 44
existing investments. Purchases spanned a wide variety of industries
such as software, technology and basic industries. During periods of
weak prices in basic industry stocks--as investors began to worry
about a slowdown in the US economy--we added to holdings in the
cement and metals industries. We also increased several existing
technology holdings.
We eliminated holdings in 33 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 32 companies. Again, most sales were
motivated by the stocks appreciating to less attractive valuation
levels.
<PAGE>
We reduced the Fund's cash reserves from 24.8% of net assets at the
beginning of the December quarter to 19.7% at the end of the
quarter. Including the cash reserves, at the end of the December
quarter we estimate that the Fund had approximately 92% of the
volatility of the Russell 2000 Index. We reduced cash reserves in
response to weak stock prices. The Russell 2000 Index declined
during late November and into early December, providing some
opportunities to add positions at attractive valuations. The
December quarter performance of stocks in general was characterized
by declining breadth in the market, as indicated by the divergence
of stock market indexes. During the December quarter, total returns
for the Dow Jones Industrials were +7.49% and for the Standard &
Poor's 500 +6.01%, both in contrast to the +2.17% total return for
the Russell 2000 Index. While stock prices of the large-
capitalization stocks in the Dow Jones Industrial Average rose
fairly consistently during the quarter ended December 31, 1995, the
Russell 2000 Index reflected a more volatile overall market that
lacked breadth, especially in technology stocks.
Although the Fund's cash reserves were reduced, we continued to seek
stocks selling at attractive valuations, thereby maintaining a
somewhat cautious investment strategy. In addition, we remain
concerned about the high valuation levels for the overall stock
market.
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
February 2, 1996
<PAGE>
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>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
12/31/95 9/30/95 12/31/94 % Change % Change
<C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $ 17.10 $ 17.15 $ 14.70 +17.43%(1) -0.29%
ML Special Value Fund, Inc. Class B Shares* 16.61 16.61 14.30 +17.29(1) 0.00
ML Special Value Fund, Inc. Class C Shares* 16.50 16.51 14.24 +17.01(1) -0.06
ML Special Value Fund, Inc. Class D Shares* 17.09 17.12 14.69 +17.45(1) -0.18
Russell 2000 Index** 315.97 310.38 250.36 +26.21 +1.80
ML Special Value Fund, Inc. Class A Shares--Total Return* +22.34(2) +1.66(3)
ML Special Value Fund, Inc. Class B Shares--Total Return* +21.12(4) +1.42(5)
ML Special Value Fund, Inc. Class C Shares--Total Return* +21.09(6) +1.42(7)
ML Special Value Fund, Inc. Class D Shares--Total Return* +22.09(8) +1.65(9)
Russell 2000 Index**--Total Return +28.44 +2.17
<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 $0.327 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.513 per share ordinary
income dividends and $0.151 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.231 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.544 per share ordinary
income dividends and $0.151 per share capital gains distributions.
(7)Percent change includes reinvestment of $0.239 per share
ordinary income dividends.
(8)Percent change includes reinvestment of $0.639 per share ordinary
income dividends and $0.151 per share capital gains distributions.
(9)Percent change includes reinvestment of $0.306 per share ordinary
income dividends.
</TABLE>
<PAGE>
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 $4,349.03
on December 31, 1995.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/95 +22.34% +15.91%
Five Years Ended 12/31/95 +21.34 +20.04
Ten Years Ended 12/31/95 + 6.40 + 5.83
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/95 +21.12% +17.12%
Five Years Ended 12/31/95 +20.11 +20.11
Inception (10/21/88) through 12/31/95 + 8.26 + 8.26
[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 12/31/95 +21.09% +20.09%
Inception (10/21/94)
through 12/31/95 +16.24 +16.24
<PAGE>
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/95 +22.09% +15.68%
Inception (10/21/94)
through 12/31/95 +17.13 +11.96
[FN]
*Maximum sales charge is 5.25%
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
5/5/78-12/31/78 $ 9.60 $ 8.70 -- $0.190 - 7.63%
1979 8.70 10.16 $0.370 0.320 +25.67
1980 10.16 12.54 0.500 0.195 +33.62
1981 12.54 10.58 0.890 0.390 - 6.27
1982 10.58 10.67 0.650 0.380 +12.70
1983 10.67 12.45 0.610 0.070 +22.40
1984 12.45 11.10 0.290 0.120 - 7.60
1985 11.10 14.29 0.340 0.090 +33.14
1986 14.29 13.97 0.620 0.050 + 1.88
1987 13.97 10.32 1.086 0.143 -18.52
1988 10.32 11.83 0.017 0.233 +17.06
1989 11.83 11.65 -- 0.237 + 0.42
1990 11.65 8.32 -- 0.148 -27.52
1991 8.32 12.80 -- 0.080 +54.87
1992 12.80 14.96 -- 0.019 +17.04
1993 14.96 15.66 0.594 0.811 +14.26
1994 15.66 14.70 0.561 0.940 + 3.81
1995 14.70 17.10 0.151 0.675 +22.34
------ ------
Total $6.679 Total $5.091
Cumulative total return as of 12/31/95: +359.00%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/88-12/31/88 $12.01 $11.82 $0.017 $0.095 - 0.62%
1989 11.82 11.61 -- 0.140 - 0.64
1990 11.61 8.29 -- 0.050 -28.26
1991 8.29 12.69 -- 0.019 +53.32
1992 12.69 14.70 -- -- +15.84
1993 14.70 15.31 0.594 0.692 +13.07
1994 15.31 14.30 0.561 0.828 + 2.79
1995 14.30 16.61 0.151 0.513 +21.12
------ ------
Total $1.323 Total $2.337
Cumulative total return as of 12/31/95: +77.07%**
<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)
<PAGE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
------ ------
Total $0.343 Total $0.974
Cumulative total return as of 12/31/95: +19.69%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
------ ------
Total $0.343 Total $1.086
Cumulative total return as of 12/31/95: +20.79%**
<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>
SCHEDULE OF INVESTMENTS
<CAPTION>
Percent of
Industries Shares Held Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 86,800 Banner Aerospace, Inc. $ 592,640 $ 499,100 0.1%
307,800 UNC, Inc. 1,763,264 1,846,800 0.3
------------ ------------ ------
2,355,904 2,345,900 0.4
Apparel 815,000 Farah, Inc. 6,680,057 3,871,250 0.7
233,000 Kellwood Co. 4,270,366 4,747,375 0.8
84,000 Marisa Christina, Inc. 862,660 1,428,000 0.3
700,500 Norton McNaughton, Inc. 10,056,577 7,793,063 1.4
75,000 The Warnaco Group, Inc. (Class A) 1,142,930 1,875,000 0.3
------------ ------------ ------
23,012,590 19,714,688 3.5
Automotive 291,000 Smith (A.O.) Corp. 6,245,316 6,038,250 1.1
Banks & Finance 60,000 American Federal Bank, FSB 611,250 915,000 0.2
173,100 Bankers Corp. 1,033,803 2,812,875 0.5
20,000 Banknorth Group, Inc. 365,000 770,000 0.1
444,000 Charter One Financial, Inc. 8,406,972 13,597,500 2.5
170,000 Civic Bancorp, Inc. 926,250 1,275,000 0.2
28,000 Collective Bancorp., Inc. 468,951 710,500 0.1
201,400 FirstFed Financial Corp. 2,785,972 2,844,775 0.5
155,000 Roosevelt Financial Group, Inc. 1,229,832 3,003,125 0.5
83,000 Walden Bancorp, Inc. (a) 943,713 1,577,000 0.3
------------ ------------ ------
16,771,743 27,505,775 4.9
Beverages 76,000 Celestial Seasonings, Inc. 1,159,395 1,425,000 0.3
Biotechnology 95,200 Alteon, Inc. 678,531 1,535,100 0.3
25,000 Athena Neurosciences, Inc. 228,125 306,250 0.1
107,000 COR Therapeutics, Inc. 1,046,352 896,125 0.2
158,500 CytoTherapeutics, Inc. 1,189,051 2,714,313 0.5
20,000 The Liposome Company, Inc. (Convertible
Preferred) 428,227 790,000 0.1
19,025 National Patent Development Corp. 208,155 164,091 0.0
169,850 North American Biologicals, Inc. (b) 1,511,440 1,825,888 0.3
30,000 Ostex International, Inc. 642,000 577,500 0.1
88,000 Pharmacopeia, Inc. 1,497,200 2,134,000 0.4
35,000 Regeneron Pharmaceuticals, Inc. 120,925 446,250 0.1
545,000 Scios Nova, Inc. 2,411,588 2,350,313 0.4
------------ ------------ ------
9,961,594 13,739,830 2.5
<PAGE>
Building & Building 50,000 American Homestar, Inc. 400,000 1,031,250 0.2
Materials 440,000 Giant Cement Holding, Inc. 4,776,418 5,060,000 0.9
413,000 Redman Industries, Inc. 6,947,618 13,938,750 2.5
167,200 Ryland Group, Inc. 2,322,757 2,340,800 0.4
150,200 Washington Homes, Inc. 872,781 826,100 0.2
------------ ------------ ------
15,319,574 23,196,900 4.2
Business Services 822,600 Applied Bioscience International, Inc. 4,698,404 5,552,550 1.0
76,500 Banta Corp. 2,333,080 3,366,000 0.6
------------ ------------ ------
7,031,484 8,918,550 1.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Percent of
Industries Face Amount Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Chemicals 50,000 Lesco, Inc. $ 705,682 $ 750,000 0.1%
Computers & Computer 350,500 Amdahl Corp. 3,038,956 2,979,250 0.5
Services 360,750 Boole & Babbage, Inc. 3,101,038 8,838,375 1.6
$ 4,000,000 Cellnet Data Systems, Inc., 13%++ due
6/15/2005 (c) 2,280,259 2,360,000 0.4
37,500 DH Technology, Inc. 295,000 918,750 0.2
56,300 Radius, Inc. 443,363 110,843 0.0
465,000 Storage Technology Corp. 11,360,734 11,101,875 2.0
561,000 Stratus Computer, Inc. 15,737,563 19,424,625 3.5
100,000 Tandem Computers, Inc. 1,293,500 1,062,500 0.2
------------ ------------ ------
37,550,413 46,796,218 8.4
Cosmetics 1,317 Alfin, Inc. (Preferred)(d) 0 0 0.0
Data Processing 80,000 Cognos, Inc. 495,625 3,570,000 0.6
78,800 Consilium, Inc. 575,018 935,750 0.2
359,400 Control Data Systems, Inc. 3,637,641 7,053,225 1.3
160,000 Hyperion Software Corp. 3,375,969 3,400,000 0.6
493,000 Information Resources, Inc. 6,726,454 6,100,875 1.1
80,000 ParcPlace Systems, Inc. 675,593 680,000 0.1
140,000 Platinum Technology, Inc. 2,773,651 2,572,500 0.5
100,000 Progress Software Corp. 2,978,760 3,750,000 0.7
148,800 Software Spectrum, Inc. 3,215,074 3,199,200 0.6
45,000 Sterling Software, Inc. 1,452,700 2,806,875 0.5
140,700 VMARK Software, Inc. 1,879,814 1,319,063 0.2
------------ ------------ ------
27,786,299 35,387,488 6.4
<PAGE>
Electrical Equipment 138,000 Comptek Research, Inc. 2,204,043 1,164,375 0.2
26,300 WPI Group, Inc. 164,375 98,625 0.0
------------ ------------ ------
2,368,418 1,263,000 0.2
Electronics 100,000 Alden Electronics, Inc. 422,500 137,500 0.0
57,000 Benchmark Electronics, Inc. 1,342,920 1,567,500 0.3
55,000 Dovatron International, Inc. 1,599,650 1,856,250 0.4
512,700 Landmark Graphics Corp. 10,607,755 11,920,275 2.2
27,562 Maxwell Laboratories, Inc. 316,726 227,387 0.0
226,000 Micronics Computers, Inc. 1,198,238 791,000 0.1
50,000 Symantec Corp. 1,312,500 1,162,500 0.2
65,000 VLSI Technology, Inc. 854,375 1,178,125 0.2
------------ ------------ ------
17,654,664 18,840,537 3.4
Environmental & 390,250 NSC Corp. 2,062,737 780,500 0.1
Environmental Control
Fragrance Distributor 205,000 Model Imperial, Inc. 1,349,000 230,625 0.0
Healthcare-- 185,000 Beverly Enterprises, Inc. 2,453,303 1,965,625 0.4
Products & Services 550,000 Community Psychiatric Centers 6,436,338 6,737,500 1.2
50,000 Healthcare Services Group, Inc. 468,500 468,750 0.1
330,000 Magellan Health Services, Inc. (e) 5,885,321 7,920,000 1.4
504,500 Ramsay Health Care, Inc. 3,537,506 1,639,625 0.3
131,644 Ramsay Managed Care, Inc. (f) 296,199 246,833 0.0
200,000 Unilab Corp. 1,106,250 537,500 0.1
------------ ------------ ------
20,183,417 19,515,833 3.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Percent of
Industries Face Amount Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Home Furnishings 150,000 Crown Crafts, Inc. $ 2,380,073 $ 1,725,000 0.3%
Insurance 358,000 Ace, Ltd. 8,997,258 14,230,500 2.6
32,000 American National Insurance Co. 1,873,745 2,128,000 0.4
144,394 Financial Security Assurance
Holdings, Ltd. (g) 3,609,850 3,591,801 0.7
113,100 First Colony Corp. 2,951,224 2,869,912 0.4
210,000 Harleysville Group, Inc. 4,686,186 6,798,750 1.2
7,000 Kansas City Life Insurance Company 359,365 364,000 0.1
190,200 Omni Insurance Group, Inc. 1,217,398 1,592,925 0.3
660,300 PXRE Corp. 14,403,271 17,497,950 3.2
457,700 Security-Connecticut Corp. 9,905,839 12,415,112 2.2
------------ ------------ ------
48,004,136 61,488,950 11.1
<PAGE>
Iron & Steel 274,600 Quanex Corp. 5,274,602 5,320,375 1.0
Leasing 244,000 Sea Containers, Ltd. 4,237,586 4,239,500 0.8
Machinery 45,000 AGCO Corp. 1,957,450 2,295,000 0.4
Medical 183,500 Analogic Corp. 3,250,002 3,394,750 0.6
132,500 Medex Inc. 1,425,473 1,490,625 0.3
45,000 Sequus Pharmaceuticals, Inc. 495,000 641,250 0.1
20,000 Utah Medical Products, Inc. 302,110 396,250 0.1
------------ ------------ ------
5,472,585 5,922,875 1.1
Metals--Non-Ferrous 76,800 Handy & Harman 1,205,929 1,267,200 0.2
Miscellaneous 45,000 PHH Corp. 1,541,238 2,103,750 0.4
Natural Resources 145,000 Abraxas Petroleum Corp. 1,642,500 906,250 0.2
90,900 Atwood Oceanics, Inc. 763,563 2,295,225 0.4
190,000 Tom Brown, Inc. 1,781,265 2,778,750 0.5
29,000 Cliffs Drilling Co.
(Convertible Preferred) 774,875 797,500 0.1
214,000 Coho Energy, Inc. 956,707 1,043,250 0.2
122,000 Core Laboratories N.V. 1,493,375 1,464,000 0.3
135,000 Gerrity Oil & Gas Corp. 1,625,550 540,000 0.1
310,000 Global Natural Resources, Inc. 3,093,326 3,255,000 0.6
70,700 Grant Tensor Geophysical Corp.
(Convertible Preferred) 1,175,941 1,060,500 0.2
30,000 Input/Output, Inc. 598,021 1,732,500 0.3
359,000 International Petroleum Corp. 990,247 1,054,562 0.2
$2,625,000 NS Group, Inc., 13.50% due 7/15/2003 (h) 2,506,505 2,336,250 0.4
228,000 Newpark Resources, Inc. 4,029,203 5,073,000 0.9
120,000 Noble Drilling Corp. 735,714 1,080,000 0.2
105,000 Nuevo Energy Co. 2,023,100 2,349,375 0.4
308,391 Plains Resources, Inc. 1,806,983 2,582,775 0.5
50,000 Plains Resources, Inc. 402,500 450,000 0.1
$ 900,000 Swift Energy Corp., Convertible Bonds,
6.50% due 6/30/2003 924,000 963,000 0.2
300,000 Total Petroleum of North America, Ltd. 3,359,309 2,925,000 0.5
$2,876,000 Transamerican Refining Corp., 18.29%++
due 2/15/2002 (i) 1,972,807 1,862,210 0.3
460,000 TransTexas Gas Corp. 5,970,887 6,210,000 1.1
20,000 The Wiser Oil Co. 360,000 240,000 0.0
------------ ------------ ------
38,986,378 42,999,147 7.7
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Percent of
Industries Face Amount Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Paper/Forest Products 177,500 Duplex Products, Inc. $ 1,316,146 $ 1,442,187 0.3%
140,000 Pope & Talbot, Inc. 2,335,976 1,855,000 0.3
------------ ------------ ------
3,652,122 3,297,187 0.6
Personal Care Products 50,000 Marietta Corp. 441,875 431,250 0.1
Pharmaceuticals 19,025 American Drug Co. 2,377 7,134 0.0
19,025 American Drug Co. (Warrants)(j) 1,189 1,189 0.0
300,000 Ariad Pharmaceuticals, Inc. 1,322,811 1,425,000 0.3
182,000 Cytel Corp. 929,686 1,114,750 0.2
125,000 Gensia, Inc. 571,875 656,250 0.1
250,000 NeoRx Corp. 1,620,702 1,593,750 0.3
143,000 Vical, Inc. 1,154,202 1,733,875 0.3
------------ ------------ ------
5,602,842 6,531,948 1.2
Photo-Optical Instruments 80,000 Instron Corp. 1,010,849 1,080,000 0.2
Real Estate & Real $1,000,000 Alexander Haagen Properties, Inc., 7.25%
Estate Investment due 12/27/2003 1,000,000 972,500 0.2
Trusts 105,000 Bay Apartment Communities, Inc. 1,901,463 2,546,250 0.5
23,000 Cali Realty Corp. 364,568 503,125 0.1
88,000 Catellus Development Corp.
(Convertible Preferred) 3,200,250 3,520,000 0.6
315,000 Crown American Realty Trust 4,268,387 2,480,625 0.4
25,000 Developers Diversified Realty Corp. 701,563 750,000 0.1
23,200 Duke Realty Investments, Inc. 645,629 727,900 0.1
21,100 Innkeepers USA Trust 186,765 192,537 0.0
60,000 Manufactured Home Communities, Inc. 887,550 1,050,000 0.2
40,000 Merry Land & Investment Co., Inc. 772,400 945,000 0.2
50,000 Mid-America Apartment Communities, Inc. 1,253,000 1,237,500 0.2
$3,000,000 National Health Corp., Convertible Bonds,
7.75% due 1/01/2001 3,000,000 3,120,000 0.6
40,000 Spieker Properties, Inc. 804,350 1,005,000 0.2
------------ ------------ ------
18,985,925 19,050,437 3.4
Restaurants 140,000 Shoney's, Inc. 1,406,643 1,435,000 0.3
1,164,900 TPI Enterprises, Inc. 5,488,347 3,640,312 0.6
------------ ------------ ------
6,894,990 5,075,312 0.9
<PAGE>
Retailing 468,500 J. Baker, Inc. 7,047,889 2,693,875 0.5
236,200 Bon-Ton Stores, Inc. 2,471,959 1,181,000 0.2
382,400 Catherines Stores Corp. 3,967,632 3,154,800 0.6
2,100,000 Charming Shoppes, Inc. 6,002,156 6,037,500 1.1
58,000 Consolidated Stores Corporation 1,011,230 1,261,500 0.2
115,000 Dress Barn, Inc. 1,133,867 1,135,625 0.2
1,063,000 Grossman's, Inc. 3,251,812 1,195,875 0.2
300,000 Hancock Fabrics, Inc. 2,706,004 2,700,000 0.5
75,000 Movie Gallery, Inc. 1,944,532 2,287,500 0.4
70,000 OfficeMax, Inc. 886,667 1,566,250 0.3
320,250 Pier 1 Imports, Inc. 2,687,712 3,642,844 0.7
102,000 REX Stores Corp. 1,315,670 1,810,500 0.3
40,000 S&K Famous Brands, Inc. 511,650 240,000 0.0
700,000 Service Merchandise Co., Inc. 3,694,765 3,500,000 0.6
760,500 The Wet Seal, Inc. (Class A) 2,827,998 5,133,375 0.9
100,000 Whole Foods Market, Inc. 1,237,500 1,387,500 0.3
------------ ------------ ------
42,699,043 38,928,144 7.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Percent of
Industries Shares Held Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Scientific Instruments 70,000 Technitrol, Inc. $ 1,223,287 $ 1,592,500 0.3%
Telecommunications 100,000 Dynatech Corporation 1,710,184 1,700,000 0.3
145,000 General DataComm Industries, Inc. 1,757,401 2,483,125 0.5
------------ ------------ ------
3,467,585 4,183,125 0.8
Textiles 450,000 Burlington Industries, Inc. 5,117,552 5,906,250 1.1
Toy Manufacturing 389,000 Just Toys, Inc. 1,738,722 559,187 0.1
Transportation 405,000 Kirby Corp. 6,283,662 6,581,250 1.2
Utilities 125,000 American Water Works Co., Inc. 1,921,197 4,859,375 0.9
80,000 Wicor, Inc. 2,227,100 2,580,000 0.4
------------ ------------ ------
4,148,297 7,439,375 1.3
Total Stocks & Bonds 401,844,958 454,466,856 81.8
Face Amount Short-Term Securities
Commercial Paper* $10,000,000 Ciesco L.P., 5.53% due 2/20/1996 9,920,122 9,920,122 1.8
20,000,000 Daimler-Benz AG, 5.74% due 1/08/1996 19,971,300 19,971,300 3.6
20,019,000 General Electric Capital Corp.,
5.90% due 1/02/1996 20,009,157 20,009,157 3.6
20,000,000 National Australia Funding (Delaware)
Inc., 5.70% due 1/18/1996 19,939,833 19,939,833 3.6
20,000,000 National Fleet Funding Corp., 5.74%
due 2/09/1996 19,869,256 19,869,256 3.5
20,000,000 Sandoz Corporation, 5.75% due 1/29/1996 19,904,167 19,904,167 3.6
<PAGE>
Total Short-Term Securities 109,613,835 109,613,835 19.7
Total Investments $511,458,793 564,080,691 101.5
============
Liabilities in Excess of Other Assets (8,400,004) (1.5)
------------ ------
Net Assets $555,680,687 100.0%
============ ======
Net Asset Class A--Based on net assets of $178,098,648 and
Value: 10,413,121 shares outstanding $ 17.10
============
Class B--Based on net assets of $323,280,884 and
19,463,363 shares outstanding $ 16.61
============
Class C--Based on net assets of $27,182,841 and
1,647,062 shares outstanding $ 16.50
============
Class D--Based on net assets of $27,118,314 and
1,586,741 shares outstanding $ 17.09
============
<FN>
(a)Formerly The Co-Operative Bank of Concord.
(b)North American Biologicals, Inc. took over Univax Biologicals,
Inc.
(c)Each unit consists of a $1,000 par senior discount note plus 4
warrants.
(d)Security represents 14.5% cumulative preferred stock. For each
share of preferred stock, the Fund will receive an annual dividend
of approximately 9.43 shares of Common Stock.
(e)Formerly Charter Medical Corp.
(f)The Fund received these shares from the spinoff of Ramsay Health
Care, Inc.
(g)Financial Security Assurance Holdings, Ltd. took over Capital
Guaranty Corp.
(h)Each unit consists of a $1,000 bond plus 1 warrant.
(i)Each unit consists of a $1,000 bond plus 17.09 warrants.
(j)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.
*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.
++Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
</TABLE>
<PAGE>
PORTFOLIO INFORMATION
Percent of
Top Ten Equity Holdings Net Assets
Stratus Computer, Inc. 3.5%
PXRE Corp. 3.2
Ace, Ltd. 2.6
Redman Industries, Inc. 2.5
Charter One Financial, Inc. 2.5
Security-Connecticut Corp. 2.2
Landmark Graphics Corp. 2.2
Storage Technology Corp. 2.0
Boole & Babbage, Inc. 1.6
Magellan Health Services, Inc. 1.4
Percent of
Ten Largest Industries Net Assets
Insurance 11.1%
Computers & Computer Services 8.4
Natural Resources 7.7
Retailing 7.0
Data Processing 6.4
Banks & Finance 4.9
Building & Building Materials 4.2
Apparel 3.5
Healthcare--Products & Services 3.5
Real Estate & Real Estate Investment Trusts 3.4
<PAGE>
Equity Portfolio Changes for the Quarter Ended
December 31, 1995
Additions
*Alfin Inc.
*Amisys Managed Care
Systems
*Arbor Software Corp.
*Boston Beer Company,
Inc.
Charming Shoppes, Inc.
*Citrix Systems Inc.
*Compumed Inc.
Dynatech Corporation
*IDX Systems Corp.
Innkeepers USA Trust
Kansas City Life
Insurance Company
Landmark Graphics
Corp.
*Mecon Inc.
Medex Inc.
*Meta Group Inc.
*Metatools Inc.
Movie Gallery, Inc.
Ostex International,
Inc.
Pharmacopeia, Inc.
*Pixar Inc.
Quanex Corp.
Sequus Pharmaceuticals,
Inc.
*Scopus Technology Inc.
Symantec Corp.
*Sync Research Inc.
*Visio Corp.
*Visioneer Inc.
Deletions
Agouron Pharmaceuticals, Inc.
*Alfin Inc.
*Amisys Managed Care Systems
Applied Immune Sciences, Inc.
*Arbor Software Corp.
Arcadian Corp.
Automated Security Holdings
PLC (ADR)
The Bombay Company, Inc.
*Boston Beer Company, Inc.
Carr Realty Corp.
Catalina Lighting, Inc.
*Citrix Systems Inc.
*Compumed Inc.
Gantos, Inc.
<PAGE>
*IDX Systems Corp.
*Mecon Inc.
*Meta Group Inc.
*Metatools Inc.
Neurogen Corporation
*Pixar Inc.
Primark Corp.
Rollins Environmental Services,
Inc.
SHL Systemhouse, Inc.
SangStat Medical Corp.
*Scopus Technology Inc.
Sheldahl, Inc.
*Sync Research Inc.
Technitrol, Inc.
Transnational Re Corp.
(Class A)
Venture Stores, Inc.
*Visio Corp.
*Visioneer Inc.
[FN]
*Added and deleted in the
same quarter.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Dennis W. Stattman, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
