MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
FUND LOGO
Quarterly Report
June 30, 1997
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
<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
Printed on post-consumer recycled paper
<PAGE>
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
Shifting investor perceptions regarding the direction of the US
economy brought continued volatility to the US financial markets
during much of the quarter ended June 30, 1997. Increasing evidence
of noninflationary economic growth boosted investor confidence,
which was confirmed further shortly after the quarter's close when,
as widely expected, the Federal Reserve Board (FRB) chose to leave
monetary policy unchanged. This confluence of positive indicators
helped produce a significant rally in the US stock market. The
unmanaged Standard & Poor's 500 Composite Average, led by its 50
largest issues (in terms of stock market capitalization), generated
a +17.43% total return for the second quarter. A slight decline in
interest rates during the quarter resulted in a modest positive
total return for US fixed-income investments.
Current consensus expectations are for the US economy's rate of
growth to lose some momentum. Although gross domestic product growth
for the first quarter of the year was revised slightly upward to
5.9%, there are indications that the second quarter's rate of growth
will be lower. At the same time, inflationary pressures remain
contained, supported by the June employment report showing moderate
growth in wages along with a slight increase in unemployment. It
remains to be seen whether economic activity moderates enough to
rule out future FRB monetary policy tightenings.
The US dollar continued to be strong relative to other currencies.
In Europe, investors are uncertain regarding the viability of
economic and monetary union, while scandals continue to depress
investor confidence in Japan. At present, it appears that the US
economy is perceived most favorably by investors for its ongoing
growth and limited inflationary pressures. If economic data releases
continue to support this point of view, the outlook for the US
capital markets will remain positive.
Portfolio Matters
During the quarter ended June 30, 1997, Merrill Lynch Special Value
Fund, Inc. significantly outperformed the unmanaged Russell 2000
Index. Total returns for the Fund's Class A, Class B, Class C and
Class D Shares were +19.44%, +19.10%, +19.14% and +19.36%,
respectively. This compares to the total return of +16.21 % for the
Russell 2000 Index. (Fund results 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 3 to 6 of this report to shareholders.)
<PAGE>
In the first few weeks of the quarter, small-capitalization stocks
extended their year-to-date losses. Then on April 28, 1997, the
Russell 2000 Index reversed course and began to move sharply higher
on the expectation of sustained economic growth and modest
inflation. Small company stocks received an added boost when
congressional leaders supported a reduction in the capital gains
tax. Such legislation would benefit small-capitalization stocks more
than large-capitalization stocks because they generally provide a
greater portion of their investment return in the form of capital
appreciation rather than dividend payments. The unmanaged Russell
2000 Index's total return was an impressive +11.12% in May,
surpassing the +6.01% total return posted by the unmanaged Standard
and Poor's (S&P) 500 Composite Index. The period of outperformance
was short-lived, however, and the Russell 2000 Index trailed the
broader market indexes in June. For the quarter as a whole, the
Russell 2000 Index total return of +16.21% slightly lagged the S&P
500 Composite Index total return of +17.43%.
Within the benchmark Russell 2000 Index, all 12 economic sectors
posted substantial gains for the quarter ended June 30, 1997. The
technology, producer durables and transportation sectors posted the
steepest advances, while the materials processing, utilities and
integrated oil sectors posted comparatively weak returns. Merrill
Lynch Special Value Fund, Inc. benefited from favorable sector
positioning in the quarter. The portfolio was heavily weighted in
the better-performing technology and producer durables sectors, and
significantly underweighted in the weaker utilities and financial
services sectors. The Fund had minimal exposure to utility stocks,
and no exposure to real estate investment trusts, which were one of
the weakest industry components in the financial services sector.
Specific stock selection also made a significant positive
contribution to performance for the quarter, with the majority of
the Fund's stock sectors outperforming their respective sectors in
the benchmark. The Fund's excess return over the Russell 2000 Index
was attributable to both favorable sector positioning and company-
specific events which caused some of the portfolio's largest
investment positions to appreciate sharply.
Individual stocks that most benefited the Fund's performance during
the three months ended June 30, 1997, in order of their contribution
to total return, included Metromail Corp., DII Group, Inc.,
Transitional Hospitals Corp. and CHS Electronics, Inc. Shares of
Metromail Corp., a provider of consumer databases and marketing
information, appreciated sharply following the announcement that
Sprint Corp. selected Metromail Corp. to provide branded national
directory assistance to its local and long distance telephone
customers. Shares of Transitional Hospitals Corp., a provider of
long-term acute healthcare services, rallied after the company
received competing buyout offers from both Select Medical Corp. and
Vencor, Inc. We sold the Fund's shares of Transitional Hospitals
Corp. at a substantial profit following Vencor, Inc.'s higher
takeover offer. Shares of DII Group, Inc., a contract electronic
manufacturing company, surged based on an acceleration in new orders
and first quarter earnings which exceeded analysts' expectations.
Shares of CHS Electronics, Inc., an international distributor of
micro-computers and related products, further appreciated in the
June quarter based on strong operating results and the successful
integration of several acquisitions made within the last year.
<PAGE>
The Fund's performance in the June quarter was hindered by
investments in TALX Corp. and Levitz Furniture, Inc. Shares of TALX
Corp., a provider of computer telephony solutions, retreated as the
company failed to meet expectations set by analysts at the time of
their initial public offering. Shares of Levitz Furniture, Inc.
performed poorly given a difficult environment for retail furniture
stocks and the company's high financial leverage.
Notable changes to the Fund's investment position during the quarter
ended June 30, 1997 included an increase in the consumer
discretionary sector, and a decrease in the healthcare, financial
services and technology sectors. The healthcare and financial
services sectors declined primarily as a result of merger and
acquisition activity involving Fund holdings, while the technology
sector declined based on the sales of stocks that had reached our
internal price objectives. The Fund ended the June quarter with
approximately $739 million in net assets and 9.7% of net assets in
cash reserves, up from 6.5% at the end of the March 31, 1997
quarter. The higher cash position was the result of normal portfolio
turnover, and did not reflect a change in our positive investment
outlook. We continue to find small-capitalization stocks trading at
attractive valuations, and do not expect cash holdings to rise
significantly above the current level.
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
PERFORMANCE DATA
<PAGE>
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. (There is no initial
sales charge for automatic share conversions.)
* 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. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
<PAGE>
Class A Shares*
Year Ended 6/30/97 +30.23% +23.39%
Five Years Ended 6/30/97 +19.34 +18.06
Ten Years Ended 6/30/97 + 9.27 + 8.68
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +28.87% +24.87%
Five Years Ended 6/30/97 +18.12 +18.12
Inception (10/21/88) through 6/30/97 +11.34 +11.34
[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 6/30/97 +28.87% +27.87%
Inception (10/21/94)
through 6/30/97 +22.34 +22.34
[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 6/30/97 +29.93% +23.11%
Inception (10/21/94)
through 6/30/97 +23.30 +20.85
<PAGE>
[FN]
*Maximum sales charge is 5.25%
**Assuming maximum sales charge.
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 $6,349.20 on June 30,
1997.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
6/30/97 3/31/97 6/30/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $21.01 $17.59 $19.17 +17.22%(1) +19.44%
ML Special Value Fund, Inc. Class B Shares* 20.14 16.91 18.52 +16.59(1) +19.10
ML Special Value Fund, Inc. Class C Shares* 19.98 16.77 18.40 +16.48(1) +19.14
ML Special Value Fund, Inc. Class D Shares* 20.96 17.56 19.13 +17.19(1) +19.36
Russell 2000 Index** 396.37 342.56 346.62 +14.35 +15.71
ML Special Value Fund, Inc. Class A Shares--Total Return* +30.23(2) +19.44
ML Special Value Fund, Inc. Class B Shares--Total Return* +28.87(3) +19.10
ML Special Value Fund, Inc. Class C Shares--Total Return* +28.87(4) +19.14
ML Special Value Fund, Inc. Class D Shares--Total Return* +29.93(5) +19.36
Russell 2000 Index**--Total Return +16.33 +16.21
<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 $1.233 per share capital
gains distributions.
(2)Percent change includes reinvestment of $2.014 per share
ordinary income dividends and $1.233 per share capital gains
distributions.
(3)Percent change includes reinvestment of $1.850 per share ordinary
income dividends and $1.233 per share capital gains distributions.
(4)Percent change includes reinvestment of $1.854 per share ordinary
income dividends and $1.233 per share capital gains distributions.
(5)Percent change includes reinvestment of $1.971 per share ordinary
income dividends and $1.233 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
1996 17.10 17.83 1.233 2.014 +23.90
1/1/97--6/30/97 17.83 21.01 -- -- +17.84
------ ------
Total $7.912 Total $7.105
Cumulative total return as of 6/30/97: +570.10%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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**
<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
1996 16.61 17.18 1.233 1.850 +22.57
1/1/97--6/30/97 17.18 20.14 -- -- +17.23
------ ------
Total $2.556 Total $4.187
Cumulative total return as of 6/30/97: +154.43%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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
1996 16.50 17.05 1.233 1.854 +22.64
1/1/97--6/30/97 17.05 19.98 -- -- +17.18
------ ------
Total $1.576 Total $2.828
Cumulative total return as of 6/30/97: +72.01%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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**
<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
1996 17.09 17.81 1.233 1.971 +23.58
1/1/97--6/30/97 17.81 20.96 -- -- +17.69
------ ------
Total $1.576 Total $3.057
Cumulative total return as of 6/30/97: +75.67%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Percent of
Sectors* Shares Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Auto & Transportation 181,900 Air Express International Corp. $ 4,842,726 $ 7,230,525 1.0%
1,823,500 Envirosource, Inc. 6,792,508 3,647,000 0.5
630,300 Landair Services, Inc. 6,282,236 8,981,775 1.2
50,000 Reno Air, Inc. 380,010 431,250 0.0
400,000 Walbro Corp. 7,494,717 8,100,000 1.1
------------ ------------ ------
25,792,197 28,390,550 3.8
Consumer Discretionary 1,317 Alfin, Inc. (Preferred) (a) 0 24,259 0.0
841,500 Au Bon Pain Company, Inc. (Class A) 5,363,795 5,680,125 0.8
814,200 J. Baker, Inc. 7,767,084 6,411,825 0.9
519,900 CHS Electronics, Inc. 6,288,613 13,777,350 1.9
579,300 CML Group, Inc. 1,766,865 1,049,981 0.1
68,000 Catalina Marketing Corporation 1,733,496 3,272,500 0.4
345,300 Catherines Stores Corp. 3,244,894 1,294,875 0.2
414,700 Chico's Fashions, Inc. 2,890,033 2,203,094 0.3
426,400 Department 56, Inc. 9,867,996 9,460,750 1.3
235,000 Farah, Inc. 1,606,481 1,498,125 0.2
13,900 Fingerhut Companies, Inc. 235,258 242,381 0.0
1,344,700 Grossman's, Inc. 2,518,600 252,131 0.0
360,000 HA-LO Industries, Inc. 4,991,888 8,505,000 1.2
431,300 ITI Technologies, Inc. 5,169,729 9,865,988 1.3
1,138,500 Levitz Furniture, Inc. 5,717,608 1,636,594 0.2
1,263,800 Metromail Corp. 21,482,752 31,279,050 4.2
103,400 New Horizons Worldwide, Inc. 1,337,732 1,163,250 0.2
700,500 Norton McNaughton, Inc. 10,056,577 3,414,938 0.5
839,100 Paxson Communications Corporation 8,838,832 10,698,525 1.5
142,700 Ryerson Tull, Inc. (Class A) 1,882,780 2,354,550 0.3
899,100 TPI Enterprises, Inc. 77,045 125,874 0.0
230,000 Viking Office Products, Inc. 4,614,211 4,341,250 0.6
300,000 WMS Industries, Inc. 5,463,351 7,518,750 1.0
------------ ------------ ------
112,915,620 126,071,165 17.1
Financial Services 40,600 American National Insurance Co. 2,442,745 3,623,550 0.5
40,000 The BISYS Group, Inc. 1,178,125 1,670,000 0.2
166,200 Charter One Financial, Inc. 2,857,934 8,954,025 1.2
130,000 Civic Bancorp, Inc. 706,250 1,787,500 0.3
251,400 FirstFed Financial Corp. 3,600,548 7,809,113 1.1
120,000 Haven Bancorp, Inc. 3,434,038 4,500,000 0.6
292,300 PXRE Corp. 5,853,157 8,988,225 1.2
107,500 Security-Connecticut Corp. 2,030,339 5,919,219 0.8
------------ ------------ ------
22,103,136 43,251,632 5.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Percent of
Sectors* Shares Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Health Care 239,600 Biomatrix, Inc. $ 3,664,032 $ 4,552,400 0.6%
207,000 COR Therapeutics, Inc. 2,084,477 2,199,375 0.3
75,000 Gilead Sciences, Inc. 2,131,982 2,071,875 0.3
500,000 Isolyser Company, Inc. 3,047,185 1,359,375 0.2
66,100 Magellan Health Services, Inc. 1,614,516 1,949,950 0.3
207,400 NeoRx Corp. 1,302,040 920,338 0.1
236,700 Ostex International, Inc. 2,734,502 562,163 0.1
258,000 Physician Computer Network, Inc. 1,479,799 1,741,500 0.2
574,500 Ramsay Health Care, Inc. 3,830,632 1,938,938 0.3
248,600 Scios, Inc. 997,564 1,584,825 0.2
150,000 Sierra Health Services, Inc. 4,760,136 4,687,500 0.6
300,000 Sofamor Danek Group, Inc. 7,276,565 13,725,000 1.9
468,800 VISX, Inc. 11,494,579 11,134,000 1.5
559,000 Vivus, Inc. (d) 12,950,786 13,311,188 1.8
------------ ------------ ------
59,368,795 61,738,427 8.4
Integrated Oils 397,000 American Exploration Co. 4,741,003 5,806,125 0.8
327,400 Total Petroleum of North America, Ltd. 3,700,027 3,233,075 0.4
------------ ------------ ------
8,441,030 9,039,200 1.2
Materials & Processing 320,000 ACX Technologies, Inc. 6,274,546 7,200,000 1.0
582,252 BHA Group, Inc. (Class A) (c) 7,111,261 10,771,662 1.4
278,000 Castle (A.M.) & Company 4,673,249 6,133,375 0.8
258,400 Citation Corp. 3,472,430 4,425,100 0.6
328,300 Commonwealth Industries, Inc. 5,307,677 6,689,113 0.9
580,000 Giant Cement Holding, Inc. 6,393,918 10,875,000 1.5
602,900 Insituform Technologies, Inc. (Class A) 4,197,921 3,692,763 0.5
526,900 Quanex Corp. 10,825,242 16,169,244 2.2
716,500 Shiloh Industries, Inc. 9,762,708 14,464,344 2.0
475,000 UNC, Inc. 2,952,554 6,946,875 0.9
830,076 Zemex Corporation 7,282,851 6,433,089 0.9
------------ ------------ ------
68,254,357 93,800,565 12.7
Miscellaneous 44,900 ARM Financial Group, Inc. (Class A) 673,500 898,000 0.1
303,000 DONCASTERS PLC (ADR) (b) 5,400,178 7,006,875 0.9
260,700 General Cable Corporation 5,474,700 6,680,437 0.9
1,437,700 Mercer International, Inc. 19,356,477 13,658,150 1.8
502,600 Metromedia International Group, Inc. 6,344,711 6,376,737 0.9
15,700 Primark Corporation 401,009 418,012 0.1
------------ ------------ ------
37,650,575 35,038,211 4.7
Other Energy 325,000 Benton Oil & Gas Co. 4,816,250 4,875,000 0.7
308,391 Plains Resources, Inc. (e) 1,806,983 4,433,121 0.6
140,000 Plains Resources, Inc. 1,461,553 2,065,000 0.3
214,400 Tom Brown, Inc. 2,159,465 4,556,000 0.6
333,000 TransTexas Gas Corp. 3,337,536 5,328,000 0.7
------------ ------------ ------
13,581,787 21,257,121 2.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Percent of
Sectors* Shares Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Producer Durables 110,000 AGCO Corp. $ 2,383,050 $ 3,953,125 0.5%
132,200 Applied Industrial Technology, Inc. 3,671,180 4,759,200 0.6
470,500 B.I., Inc. 4,513,883 3,528,750 0.5
151,800 Brown & Sharpe Manufacturing Company
(Class A) 2,111,422 2,295,975 0.3
32,000 CellNet Data Systems, Inc. 399,151 398,000 0.0
217,100 Cincinnati Milacron, Inc. 4,681,041 5,631,031 0.8
808,800 Comdial Corp. 4,965,675 6,773,700 0.9
99,000 Dynatech Corporation 2,941,182 3,539,250 0.5
188,000 Elsag Bailey Process Automation N.V. 3,019,280 3,454,500 0.5
523,400 Nu Horizons Electronics, Inc. 4,612,937 4,285,337 0.6
260,000 Oakwood Homes Corp. 5,856,169 6,240,000 0.8
245,300 Ryland Group, Inc. 3,575,517 3,464,862 0.5
102,667 Sterling Commerce, Inc. 1,775,650 3,375,178 0.5
334,800 Stewart & Stevenson Services, Inc. 7,444,081 8,704,800 1.2
518,750 TALX Corp. 4,385,624 2,269,531 0.3
175,000 Toll Brothers, Inc. 3,381,874 3,215,625 0.4
53,200 Triumph Group, Inc. 1,010,800 1,649,200 0.2
------------ ------------ ------
60,728,516 67,538,064 9.1
Technology 906,100 Alpha Industries, Inc. 6,526,312 7,531,956 1.0
96,600 Analogic Corp. 1,601,244 3,284,400 0.4
166,400 Anixter International, Inc. 2,241,097 2,860,000 0.4
291,725 Boole & Babbage, Inc. 1,390,355 6,199,156 0.8
407,050 Brite Voice Systems, Inc. 5,377,075 3,307,281 0.4
742,550 C.P. Clare Corp. 6,361,798 11,695,162 1.6
415,400 DII Group, Inc. 9,550,129 18,277,600 2.5
600,000 DSP Communications, Inc. 4,428,120 6,600,000 0.9
81,600 Identix, Inc. 697,680 902,700 0.1
110,000 Marshall Industries 3,220,471 4,097,500 0.6
236,900 MathSoft, Inc. 1,247,850 740,312 0.1
523,600 Network Equipment Technologies, Inc. 7,155,039 9,424,800 1.3
283,000 Phoenix Technologies Ltd. 3,730,448 3,679,000 0.5
639,000 Planar Systems, Inc. 7,535,335 6,629,625 0.9
718,600 Platinum Technology, Inc. 9,646,536 9,521,450 1.3
255,000 Premenos Technology Corporation 2,196,476 2,167,500 0.3
373,400 Software Spectrum, Inc. 7,959,567 4,854,200 0.7
319,700 Storage Technology Corp. 9,000,132 14,226,650 1.9
567,700 Structural Dynamics Research Corp. 11,175,244 14,902,125 2.0
693,800 Sybase, Inc. 11,906,603 10,320,275 1.4
604,700 Texlon Corp. 6,882,844 10,884,600 1.5
659,700 VMARK Software, Inc. 6,390,940 5,112,675 0.7
253,000 VWR Scientific Products Corp. 3,607,837 3,984,750 0.5
186,100 Vanstar Corporation 1,663,473 2,628,662 0.4
4,500,000 Versus Technology, Inc. 2,250,000 2,137,500 0.3
495,800 Wang Laboratories, Inc. 10,667,300 10,566,737 1.4
134,400 Wyle Electronics 4,478,128 5,308,800 0.7
------------ ------------ ------
148,888,033 181,845,416 24.6
Utilities 179,600 Applied Digital Access, Inc. 1,243,764 1,391,900 0.2
134,100 Rural Cellular Corp. (Class A) 1,387,816 1,382,906 0.2
------------ ------------ ------
2,631,580 2,774,806 0.4
Total Stocks 560,355,626 670,745,157 90.8
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Percent of
Face Amount Short-Term Securities Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Paper** $ 16,099,000 Associates Corporation of North America,
6.15% due 7/01/1997 $ 16,099,000 $ 16,099,000 2.2%
8,000,000 CSW Credit, Inc., 5.56% due 8/05/1997 7,956,756 7,956,756 1.1
5,000,000 International Securitization Corp., 5.57%
due 7/18/1997 4,986,849 4,986,849 0.7
10,000,000 Lehman Brothers Holdings, Inc., 5.68%
due 7/07/1997 9,990,533 9,990,533 1.3
20,000,000 National Fleet Funding Corp., 5.58%
due 7/21/1997 19,938,000 19,938,000 2.7
13,000,000 Preferred Receivables Funding Corp., 5.54%
due 7/14/1997 12,973,993 12,973,993 1.7
Total Short-Term Securities 71,945,131 71,945,131 9.7
Total Investments $632,300,757 742,690,288 100.5
============
Liabilities in Excess of Other Assets (3,888,320) (0.5)
------------ ------
Net Assets $738,801,968 100.0%
============ ======
Net Asset Class A--Based on net assets of $257,334,786 and 12,247,943
Value: shares outstanding $ 21.01
============
Class B--Based on net assets of $393,462,425 and 19,533,655
shares outstanding $ 20.14
============
Class C--Based on net assets of $36,037,253 and 1,803,688
shares outstanding $ 19.98
============
Class D--Based on net assets of $51,967,504 and 2,479,479
shares outstanding $ 20.96
============
<FN>
(a)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.
(b)American Depository Receipts (ADR).
(c)BHA Group, Inc. declared a 10% dividend during the quarter.
(d)Vivus, Inc. declared a two for one split during the quarter.
(e)The security may be sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
*Holdings are classified into the economic sectors found in the
Russell 2000 Index.
**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.
</TABLE>
<PAGE>
PORTFOLIO INFORMATION
As of June 30, 1997
Percent of
Top Ten Equity Holdings Net Assets
Metromail Corp. 4.2%
DIIGroup, Inc. 2.5
Quanex Corp. 2.2
Structural Dynamics Research Corp. 2.0
Shiloh Industries, Inc. 2.0
Storage Technology Corp. 1.9
CHS Electronics, Inc. 1.9
Sofamor Danek Group, Inc. 1.9
Mercer International, Inc. 1.8
Vivus, Inc. 1.8
Sectors Represented in Percent of
the Portfolio Net Assets
Technology 24.6%
Consumer Discretionary 17.1
Materials &Processing 12.7
Producer Durables 9.1
Health Care 8.4
Financial Services 5.9
Miscellaneous 4.7
Auto &Transportation 3.8
Other Energy 2.9
Integrated Oils 1.2
Utilities 0.4
Equity Portfolio Changes for the Quarter
Ended June 30, 1997
<PAGE>
Additions
ARM Financial Group, Inc.
(Class A)
*Alfin, Inc.
Anixter International, Inc.
The BISYS Group, Inc.
Brown &Sharpe
Manufacturing Company
(Class A)
Catalina Marketing
Corporation
DSP Communications, Inc.
Dynatech Corporation
Fingerhut Companies, Inc.
General Cable Corporation
Metromedia International
Group, Inc.
*Olympic Steel, Inc.
Paxson Communications
Corporation
Phoenix Technologies Ltd.
Physician Computer Network,
Inc.
*Polo Ralph Lauren Corp.
Premenos Technology
Corporation
Primark Corporation
Reno Air, Inc.
Vanstar Corporation
Viking Office Products, Inc.
Vivus, Inc.
*WHG Resorts and Casinos Inc.
Deletions
Allen Telcom, Inc.
*Alfin, Inc.
Business Objects S.A. (ADR)
Cognos, Inc.
Compuware Corp.
Gibraltar Steel Corp.
Gryphon Holdings Inc.
Hyperion Software Corp.
Newpark Resources, Inc.
*Olympic Steel, Inc.
The Peak Technologies Group,
Inc.
Physician Reliance Network,
Inc.
*Polo Ralph Lauren Corp.
Pope & Talbot, Inc.
Rofin-Sinar Technologies, Inc.
Sea Containers, Ltd.
Symantec Corp.
Titan Exploration, Inc.
<PAGE>
TransAmerica Refining Corp.
(Warrants)
Transitional Hospitals Corp.
*WHG Resorts and Casinos Inc.
[FN]
*Added and deleted in the
same quarter.
