MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
FUND LOGO
Quarterly Report
December 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
Printed on post-consumer recycled paper
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
A relatively benign economic environment created the backdrop for
strong US stock and bond markets in 1996. Although expectations of
an overheating economy sparked inflationary concerns at mid-year,
business activity subsequently subsided back to a more moderate
pace. As a result, equity and bond prices rebounded in the latter
half of the year. Positive investor sentiment was further reinforced
when the Federal Reserve Board kept monetary policy unchanged. The
results of the US election were well-received by investors, and
further enhanced the already positive investment outlook.
<PAGE>
Highlighting the economic results as 1996 drew to a close were
reports of a decline in the trade deficit in October and stronger
industrial production. Underscoring the moderating growth trend
were some signs of softening in the labor market, and initial
indications suggested a respectable but unremarkable holiday selling
season.
On balance, US economic fundamentals appear to be the most positive
they have been for many years. However, as 1997 begins, the dilemma
facing investors is how long the economic expansion can continue at
a steady, noninflationary pace. At this late stage of the current
economic recovery, investor expectations can quickly change from
positive to negative with the release of surprising economic
results. Therefore, continued reassurance of steady, noninflationary
economic growth would be a very positive development for the stock
and bond markets in the new year.
Portfolio Matters
During the quarter ended December 31, 1996, Merrill Lynch Special
Value Fund, Inc. slightly underperformed the unmanaged Russell 2000
Index. Total returns for the Fund's Class A, Class B, Class C and
Class D Shares were +5.11%, +4.82%, +4.88% and +5.05%, respectively.
This compares to the total return of +5.20% 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--6 of this report to shareholders.)
The December quarter opened on a weak note for small-capitalization
stocks. The Russell 2000 Index posted a loss in October, while both
the Dow Jones Industrial Average and the unmanaged Standard & Poor's
500 (S&P 500) Index registered positive returns. Small-capitalization
stock performance appeared to have been hindered by the high number
of initial public offerings (IPOs) in October, which was more than
double the previous month's volume in dollar terms. A strong new-issue
market tends to divert investment funds away from more seasoned
small-capitalization issues. In November, IPO activity waned,
and the Russell 2000 Index posted positive returns, though
still lagging the large-capitalization indexes. Then in December,
small-capitalization stocks strengthened and outperformed large-
capitalization stocks. However, for the December quarter as a whole,
the Russell 2000 Index significantly underperformed the Dow Jones
Industrial Average and the S&P 500 Index.
<PAGE>
During the three-month period ended December 31, 1996, Merrill Lynch
Special Value Fund, Inc. bene-fited from the good performance of
holdings in the technology, business equipment and services, and the
financial services sectors. Both technology and the closely related
business equipment services sectors remained overweighted in the
Fund's portfolio relative to the benchmark Russell 2000 Index. The
Fund's performance in the December quarter was hindered by holdings
in the retail and healthcare sectors, which continued to suffer from
weaker-than-expected consumer spending on the retail side, and
continued concern over Medicare/Medicaid reimbursement issues in the
healthcare sector. The Fund's weightings in the retail and apparel
sectors remained below the benchmark Russell 2000 Index sector
weightings, while the healthcare sector weighting is approximately
equal to that of the Russell 2000 Index. We continue to believe that
periodic declines in healthcare stocks offer an opportunity to
acquire growth companies at attractive valuations.
Specific stocks that most benefited the Fund's quarterly
performance, in order of their contribution to total return,
included Boole & Babbage, Inc., Storage Technology Corp. and CHS
Electronics, Inc. Boole & Babbage, Inc., a provider of enterprise
software, benefited from strong growth in sales of its client/server
product line and a significant gain in earnings. Shares of Storage
Technology Corp., a manufacturer of computer storage devices,
climbed on increased demand for the company's disk storage products.
The shares of CHS Electronics, Inc., an international distributor of
micro-computers and related products, appreciated sharply following
the company's pre-announcement that fourth quarter earnings would
exceed analysts' expectations. However, Fund performance was
hindered by investments in Mercer International, Inc. and Chico's
Fashions, Inc. Mercer International, Inc., a pulp and paper company
with operations primarily in Germany, traded lower on a slower-than-
expected recovery in pulp pricing. We added to the Fund's position
in Mercer International, Inc. based on the stock's low valuation and
prospects for earnings improvement in upcoming quarters. Shares of
Chico's Fashions, Inc., a designer and retailer of private label
women's casual clothing, were weak as a result of poor same-store-
sales results. We continued to hold shares of Chico's Fashions,
Inc., as we anticipate a rebound in the stock on likely seasonal
sales strength in the spring.
With the major market indexes attaining new highs during the
December quarter, many stocks traded at the high end of their
historical valuation ranges. Certain segments of the technology
sector appeared particularly overvalued. Nonetheless, we continue to
find new investment opportunities in data processing and electronic
distribution companies. As in previous quarters, we realized profits
on stocks that had appreciated sharply, and reinvested the proceeds
in areas where we perceived valuations to be more modest. Current
portfolio holdings and potential investments are regularly evaluated
within their historical valuation ranges based on measures such as
enterprise value/cash flow, price/sales, and price/earnings ratios.
As a direct result of this process, we reduced positions in several
technology holdings and initiated positions in five companies. On
balance, the Fund's technology exposure is slightly higher than it
was at the end of the previous quarter.
<PAGE>
Other changes to the Fund's investment positions during the quarter
ended December 31, 1996 included an increase in exposure to the
capital goods sector with the purchase of five new holdings. Among
these, shares of Elsag Bailey Process Automation N.V., a supplier of
digital process control systems, were purchased after the stock
declined sharply on reduced earnings expectations. Shares of Nu
Horizons Electronics, Inc., a distributor of electronics components
in the northeastern United States, were added on the basis of an
exceptionally low valuation and good long-term fundamentals. We
reduced several positions in the raw materials sector following
stock price appreciation. The Fund's exposure to the financial
services sector was further reduced, and is now significantly
underweighted relative to the comparable Russell 2000 sector. We
trimmed positions in several financial services stocks as they
advanced during the December quarter. The Fund's investment in
Roosevelt Financial Group, Inc., a commercial bank holding company,
was eliminated following the announcement of a definitive merger
agreement with Mercantile Bancorporation.
During the quarter ended December 31, 1996, we eliminated holdings
in 25 securities. The majority of sales were prompted by stocks
reaching our internal price objectives. Concerns about companies'
operating results also motivated a small number of sales. We
initiated Fund holdings in 21 companies. Cash reserves were little
changed at December quarter-end, despite the purchase and sale of
securities, declining modestly from 6.4% of net assets on September
30, 1996 to 5.8% on December 31, 1996. Including cash reserves, we
estimate that the Fund's volatility was approximately 10% greater
than the Russell 2000 Index.
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,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Daniel V. Szemis)
Daniel V. Szemis
Vice President and Portfolio Manager
January 23, 1997
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. (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).
<PAGE>
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
PERFORMANCE DATA (continued)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% sales charge--$947.50 net amount invested; assuming
reinvestment of all dividends and capital gains distributions)
A mountain chart depicting the performance of a $1,000 investment in
the Fund's Class A Shares since inception (5/5/78) through 12/31/96.
Beginning and values are $947.50 and $5,388.15.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +23.90% +17.39%
Five Years Ended 12/31/96 +16.04 +14.80
Ten Years Ended 12/31/96 + 8.51 + 7.92
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +22.57% +18.57%
Five Years Ended 12/31/96 +14.85 +14.85
Inception (10/21/88) through 12/31/96 + 9.92 + 9.92
<PAGE>
[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 12/31/96 +22.64% +21.64%
Inception (10/21/94)
through 12/31/96 +19.11 +19.11
[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 12/31/96 +23.58% +17.09%
Inception (10/21/94)
through 12/31/96 +20.03 +17.11
[FN]
*Maximum sales charge is 5.25%
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<PAGE>
<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
------ ------
Total $7.912 Total $7.105
Cumulative total return as of 12/31/96: +468.67%**
<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**
<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
------ ------
Total $2.556 Total $4.187
<PAGE>
Cumulative total return as of 12/31/96: +117.04%**
<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
1996 16.50 17.05 1.233 1.854 +22.64
------ ------
Total $1.576 Total $2.828
Cumulative total return as of 12/31/96: +46.79%**
<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
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
------ ------
Total $1.576 Total $3.057
<PAGE>
Cumulative total return as of 12/31/96: +49.27%**
<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>
Recent Performance Results
<CAPTION>
12 Month 3 Month
12/31/96 9/30/96 12/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $17.83 $18.99 $17.10 +11.52%(1) -0.58%(2)
ML Special Value Fund, Inc. Class B Shares* 17.18 18.32 16.61 +10.89(1) -0.50(2)
ML Special Value Fund, Inc. Class C Shares* 17.05 18.19 16.50 +10.85(1) -0.50(2)
ML Special Value Fund, Inc. Class D Shares* 17.81 18.96 17.09 +11.47(1) -0.53(2)
Russell 2000 Index** 362.61 346.39 315.97 +14.76 +4.68
ML Special Value Fund, Inc. Class A Shares--Total Return* +23.90(3) +5.11(4)
ML Special Value Fund, Inc. Class B Shares--Total Return* +22.57(5) +4.82(6)
ML Special Value Fund, Inc. Class C Shares--Total Return* +22.64(7) +4.88(8)
ML Special Value Fund, Inc. Class D Shares--Total Return* +23.58(9) +5.05(10)
Russell 2000 Index**--Total Return +16.49 +5.20
<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 $1.050 per share capital
gains distributions.
(3)Percent change includes reinvestment of $2.014 per share ordinary
income dividends and $1.233 per share capital gains distributions.
(4)Percent change includes reinvestment of $1.081 per share ordinary
income dividends and $1.050 per share capital gains distributions.
(5)Percent change includes reinvestment of $1.850 per share ordinary
income dividends and $1.233 per share capital gains distributions
(6)Percent change includes reinvestment of $0.975 per share ordinary
income dividends and $1.050 per share capital gains distributions.
(7)Percent change includes reinvestment of $1.854 per share ordinary
income dividends and $1.233 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.980 per share ordinary
income dividends and $1.050 per share capital gains distributions.
(9)Percent change inc ludes reinvestment of $1.971 per share ordinary
income dividends and $1.233 per share capital gains distributions.
(10)Percent change includes reinvestment of $1.059 per share
ordinary income dividends and $1.050 per share capital gains
distributions.
</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 475,000 UNC, Inc. $ 2,952,554 $ 5,700,000 0.9%
Apparel 808,300 Farah, Inc. 6,592,555 6,264,325 0.9
700,500 Norton McNaughton, Inc. 10,056,577 5,954,250 0.9
------------ ------------ ------
16,649,132 12,218,575 1.8
Automotive 41,800 Smith (A.O.) Corp. 843,733 1,248,775 0.2
160,000 Walbro Corp. 3,105,071 2,920,000 0.4
------------ ------------ ------
3,948,804 4,168,775 0.6
Banks & Finance 166,200 Charter One Financial, Inc. 2,857,934 6,980,400 1.0
170,000 Civic Bancorp, Inc. 926,250 1,742,500 0.3
88,000 Collective Bancorp., Inc. 1,929,051 3,091,000 0.5
251,400 FirstFed Financial Corp. 3,600,548 5,530,800 0.8
54,300 Greater New York Savings Bank 694,100 739,838 0.1
120,000 Haven Bancorp, Inc. 3,434,038 3,435,000 0.5
------------ ------------ ------
13,441,921 21,519,538 3.2
Biotechnology 239,600 Biomatrix, Inc. 3,664,032 3,833,600 0.6
157,000 COR Therapeutics, Inc. 1,570,102 1,550,375 0.2
276,600 NeoRx Corp. 1,782,214 1,140,975 0.2
249,200 Ostex International, Inc. 2,937,627 1,370,600 0.2
467,600 Scios, Inc. 2,012,401 2,871,356 0.4
------------ ------------ ------
11,966,376 10,766,906 1.6
Building & Building 650,000 Giant Cement Holding, Inc. 7,315,281 10,481,250 1.6
Materials 602,900 Insituform Technologies, Inc. (Class A) 4,197,921 4,446,388 0.6
245,300 Ryland Group, Inc. 3,575,517 3,372,875 0.5
------------ ------------ ------
15,088,719 18,300,513 2.7
Commercial Services 111,200 Education Alternatives, Inc. 370,299 528,200 0.1
221,997 Pharmaceutical Product Development Inc. 2,835,426 5,605,424 0.8
------------ ------------ ------
3,205,725 6,133,624 0.9
Computer Software 236,900 MathSoft, Inc. 1,247,851 888,375 0.1
373,400 Software Spectrum, Inc. 7,959,567 10,921,950 1.6
114,667 Sterling Commerce, Inc. 2,149,244 4,042,012 0.6
509,000 Structural Dynamics Research Corp. 10,110,464 10,180,000 1.5
594,000 Symantec Corp. 8,533,218 8,613,000 1.3
4,500,000 Versus Technology, Inc. 2,250,000 1,755,000 0.3
------------ ------------ ------
32,250,344 36,400,337 5.4
<PAGE>
Computers & Computer 597,225 Boole & Babbage, Inc. (b) 4,046,644 14,930,625 2.2
Services 129,600 Compuware Corp. 3,458,408 6,496,200 1.0
282,000 Peak Technologies Group Inc. 3,464,195 3,384,000 0.5
102,000 Sterling Software, Inc. 2,135,651 3,225,750 0.5
315,000 Storage Technology Corp. 7,145,107 15,001,875 2.2
287,000 Stratus Computer, Inc. 7,587,436 7,820,750 1.2
604,700 Telxon Corp. 6,882,844 7,407,575 1.1
445,800 Wang Laboratories, Inc. 9,786,049 9,027,450 1.4
------------ ------------ ------
44,506,334 67,294,225 10.1
Cosmetics 1,317 Alfin, Inc. (Preferred) (c) 0 24,259 0.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Percent of
Industries Shares Held Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Data Processing 45,800 Cognos, Inc. $ 91,383 $ 1,288,125 0.2%
320,000 Hyperion Software Corp. 3,853,619 6,800,000 1.0
810,000 Metromail Corp. 15,137,380 14,782,500 2.2
882,600 Platinum Technology, Inc. 12,863,975 12,025,425 1.8
386,500 Sybase, Inc. 7,211,259 6,449,719 1.0
634,700 VMARK Software, Inc. 6,214,967 4,760,250 0.7
------------ ------------ ------
45,372,583 46,106,019 6.9
Electronics 355,300 Alpha Industries, Inc. 2,746,209 2,797,988 0.4
403,000 B.I., Inc. 4,066,592 2,821,000 0.4
965,000 CHS Electronics, Inc. 12,724,743 16,525,625 2.5
475,750 C.P. Clare Corp. 4,055,965 4,757,500 0.7
150,000 DII Group, Inc. 2,980,758 3,487,500 0.5
547,400 ITI Technologies, Inc. 7,331,641 8,279,425 1.2
90,000 Marshall Industries 2,590,109 2,756,250 0.4
336,900 Nu Horizons Electronics, Inc. 3,093,493 2,674,144 0.4
337,200 Rofin-Sinar Technologies, Inc. 3,203,400 3,962,100 0.6
53,200 Triumph Group, Inc. 1,010,800 1,270,150 0.2
98,200 Wyle Electronics 3,048,424 3,878,900 0.6
------------ ------------ ------
46,852,134 53,210,582 7.9
<PAGE>
Environmental & 529,320 BHA Group, Inc. (Class A) 7,111,261 8,535,285 1.3
Environmental Control 1,733,500 Envirosource, Inc. 6,567,508 4,658,781 0.7
------------ ------------ ------
13,678,769 13,194,066 2.0
Gaming 150,000 WMS Industries, Inc. 3,195,000 3,000,000 0.5
Healthcare-- 279,850 GranCare, Inc. 4,827,476 5,002,319 0.7
Hospitals & Services 641,000 Magellan Health Services, Inc. 12,208,917 14,342,375 2.1
574,500 Ramsay Health Care, Inc. 3,830,632 1,687,594 0.3
150,000 Sierra Health Services, Inc. 4,760,136 3,693,750 0.6
813,000 Transitional Hospitals Corp. (d) 8,865,402 7,825,125 1.2
------------ ------------ ------
34,492,563 32,551,163 4.9
Home Furnishings 200,000 Crown Crafts, Inc. 2,348,299 2,000,000 0.3
426,400 Department 56, Inc. 9,867,996 10,553,400 1.6
------------ ------------ ------
12,216,295 12,553,400 1.9
Instruments 188,000 Elsag Bailey Process Automation N.V. 3,019,280 3,525,000 0.5
Insurance 40,600 American National Insurance Co. 2,442,745 2,994,250 0.5
51,900 Gryphon Holdings, Inc. 625,395 733,088 0.1
70,100 Midland Financial Group, Inc. 556,419 604,613 0.1
700,300 PXRE Corp. 15,443,271 17,332,425 2.6
217,300 Security-Connecticut Corp. 4,318,664 7,632,663 1.1
------------ ------------ ------
23,386,494 29,297,039 4.4
Iron & Steel 200,000 Gibraltar Steel Corp. 3,630,701 5,250,000 0.8
192,900 Olympic Steel, Inc. 2,978,953 4,894,838 0.7
639,300 Quanex Corp. 13,849,303 17,500,837 2.6
621,200 Shiloh Industries, Inc. 8,402,602 10,094,500 1.5
------------ ------------ ------
28,861,559 37,740,175 5.6
Leasing 182,300 Sea Containers, Ltd. 2,773,775 2,848,437 0.4
</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>
Machinery 110,000 AGCO Corp. $ 2,383,050 $ 3,148,750 0.5%
202,600 Bearings, Inc. 5,707,340 5,647,475 0.8
327,100 Cincinnati Milacron, Inc. 7,469,537 7,155,312 1.1
195,000 Stewart & Stevenson Services, Inc. 4,394,675 5,679,375 0.8
------------ ------------ ------
19,954,602 21,630,912 3.2
<PAGE>
Medical 235,000 Analogic Corp. 4,319,877 7,872,500 1.2
Instruments 231,300 Healthdyne Technologies, Inc. 2,367,770 2,052,787 0.3
372,800 Sofamor Danek Group, Inc. 9,164,341 11,370,400 1.7
468,800 VISX, Inc. 11,494,579 10,372,200 1.5
------------ ------------ ------
27,346,567 31,667,887 4.7
Metals 276,800 Castle (A.M.) & Company 4,650,240 5,328,400 0.8
412,000 Commonwealth Aluminum Corp. 6,733,618 6,334,500 0.9
143,200 Ryerson Tull, Inc. (Class A) 1,889,685 1,933,200 0.3
------------ ------------ ------
13,273,543 13,596,100 2.0
Natural Resources 240,000 Tom Brown, Inc. 2,556,265 5,010,000 0.7
449,000 Newpark Resources, Inc. 10,539,539 16,725,250 2.5
308,391 Plains Resources, Inc. 1,806,983 4,702,963 0.7
140,000 Plains Resources, Inc. 1,461,553 2,187,500 0.3
288,400 Titan Exploration, Inc. 3,172,400 3,460,800 0.5
380,000 Total Petroleum of North America,
Ltd. 4,357,496 3,942,500 0.6
$ 8,626,000 TransAmerican Refining Corp.,
18.29%** due 2/15/2002 6,511,109 7,116,450 1.1
147,437 TransAmerican Refining Corp.
(Warrants) (a) 360,299 294,874 0.0
685,000 TransTexas Gas Corp. 8,165,048 9,932,500 1.5
830,076 Zemex Corporation (e) 7,282,851 5,810,532 0.9
------------ ------------ ------
46,213,543 59,183,369 8.8
Paper/Forest Products 717,700 Mercer International, Inc. 11,790,413 7,356,425 1.1
230,000 Pope & Talbot, Inc. 3,579,159 3,651,250 0.6
------------ ------------ ------
15,369,572 11,007,675 1.7
Real Estate & $ 1,000,000 Alexander Haagen Properties, Inc.,
Real Estate 7.25% due 12/27/2003 1,000,000 961,875 0.2
Investment Trusts $ 3,000,000 National Health Investors, Inc.,
Convertible Bonds, 7.75% due 1/01/2001 3,000,000 3,540,000 0.5
------------ ------------ ------
4,000,000 4,501,875 0.7
Restaurants 581,000 Au Bon Pain Company, Inc. (Class A) 3,749,593 3,776,500 0.6
522,436 Shoney's, Inc. 6,781,301 3,657,052 0.5
1,164,900 TPI Enterprises, Inc. 113,689 109,209 0.0
------------ ------------ ------
10,644,583 7,542,761 1.1
<PAGE>
Retailing 1,068,500 J. Baker, Inc. 12,266,646 5,676,406 0.9
579,300 CML Group, Inc. 1,766,865 1,955,137 0.3
393,800 Catherines Stores Corp. 4,060,257 2,165,900 0.3
661,900 Chico's Fashions, Inc. 5,035,678 2,813,075 0.4
1,344,700 Grossman's, Inc. 2,518,600 1,092,569 0.2
1,274,900 Levitz Furniture, Inc. 6,434,404 3,984,062 0.6
102,000 REX Stores Corp. 1,315,670 828,750 0.1
------------ ------------ ------
33,398,120 18,515,899 2.8
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Percent of
Industries Shares Held Stocks & Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Telecommunications 223,600 Allen Group, Inc. $ 3,763,098 $ 4,975,100 0.8%
336,700 Brite Voice Systems, Inc. 4,590,762 5,008,412 0.7
16,000 CellNet Data Systems, Inc. 399,151 234,000 0.0
880,500 Comdial Corp. 5,434,500 5,503,125 0.8
663,000 Network Equipment Technologies, Inc. 12,208,696 10,939,500 1.6
134,100 Rural Cellular Corp. (Class A) 1,387,816 1,290,712 0.2
454,900 TALX Corp. 3,929,737 3,752,925 0.6
51,600 Voice Control Systems, Inc. 270,900 406,350 0.1
------------ ------------ ------
31,984,660 32,110,124 4.8
Textiles 300,000 Burlington Industries, Inc. 3,364,562 3,300,000 0.5
Transportation 258,900 Air Express International Corp. 6,992,886 8,349,525 1.2
219,300 American Freightways Corp. 2,452,114 2,439,712 0.4
120,700 Landair Services, Inc. 1,231,349 1,207,000 0.2
------------ ------------ ------
10,676,349 11,996,237 1.8
Total Stocks & Bonds 574,084,462 631,605,472 94.3
Face Amount Short-Term Securities
Commercial Paper* $10,000,000 American Brands, Inc., 5.30% due
1/06/1997 9,992,639 9,992,639 1.5
28,000,000 Ford Motor Credit Co., 5.32% due
1/14/1997 27,946,209 27,946,209 4.1
1,188,000 General Electric Capital Corp., 7.10%
due 1/02/1997 1,187,766 1,187,766 0.2
Total Short-Term Securities 39,126,614 39,126,614 5.8
<PAGE>
Total Investments $613,211,076 670,732,086 100.1
============
Liabilities in Excess of Other Assets (842,644) (0.1)
------------ ------
Net Assets $669,889,442 100.0%
============ ======
Net Asset Class A--Based on net assets of $232,957,918 and
Value: 13,063,066 shares outstanding $ 17.83
============
Class B--Based on net assets of $367,086,593 and
21,361,581 shares outstanding $ 17.18
============
Class C--Based on net assets of $35,270,522 and
2,069,088 shares outstanding $ 17.05
============
Class D--Based on net assets of $34,574,409 and
1,941,127 shares outstanding $ 17.81
============
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock. The purchase price and the number of shares
are subject to adjustment under certain conditions until the
expiration date.
(b)The Company declared a three-four-two stock split during the
quarter.
(c)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.
(d)Formerly Community Psychiatric Centers.
(e)The Company declared a 2% stock dividend during the quarter.
*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 or step bond; the interest rate shown is
the effective yield at the time of purchase by the Fund.
</TABLE>
PORTFOLIO INFORMATION
As of December 31, 1996
Percent of
Top Ten Equity Holdings Net Assets
<PAGE>
Quanex Corp. 2.6%
PXRE Corp. 2.6
Newpark Resources, Inc. 2.5
CHS Electronics, Inc. 2.5
Storage Technology Corp. 2.2
Boole & Babbage, Inc. 2.2
Metromail Corp . 2.2
Magellan Health Services, Inc. 2.1
Platinum Technology, Inc. 1.8
Sofamor Danek Group, Inc. 1.7
Percent of
Ten Largest Industries Net Assets
Computers & Computer Services 10.1%
Natural Resources 8.8
Electronics 7.9
Data Processing 6.9
Iron & Steel 5.6
Computer Software 5.4
Healthcare--Products & Services 4.9
Telecommunications 4.8
Medical Instruments 4.7
Insurance 4.4
Equity Portfolio Changes for the Quarter
Ended December 31, 1996
Additions
*Advanced Fibre
Communications, Inc.
American Freightways Corp.
*Aurum Software, Inc.
Brite Voice Systems, Inc.
C.P. Clare Corp.
CellNet Data Systems, Inc.
DII Group, Inc.
Elsag Bailey Process
Automation N.V.
Greater New York Savings
Bank
Haven Bancorp, Inc.
Landair Services, Inc.
Metromail Corp.
Nu Horizons Electronics, Inc.
The Peak Technologies Group
Rural Cellular Corp. (Class A)
Ryerson Tull, Inc. (Class A)
*Scientific Games Holdings
Corp.
*Select Software Tools (ADR)
*Simulation Sciences, Inc.
Sterling Commerce, Inc.
Stewart & Stevenson
Services, Inc.
Sybase, Inc.
TALX Corp.
Titan Exploration, Inc.
Triumph Group, Inc.
WMS Industries, Inc.
*Xomed Surgical Products, Inc.
<PAGE>
Deletions
*Advanced Fibre
Communications, Inc.
American Federal Bank, FSB
American Water Works Co.,
Inc.
Arbatax International, Inc.
Arcadian Corp.
*Aurum Software, Inc.
BE Aerospace, Inc.
Bankers Corp.
Bay Apartment Communities,
Inc.
Beverly Enterprises, Inc.
Bon-Ton Stores, Inc.
Catellus Development Corp.
(Convertible Preferred)
(Class B)
Expeditors International of
Washington, Inc.
Grant Tensor Geophysical
Corp. (Convertible
Preferred)
Handy & Harman
Information Resources, Inc.
InterVoice, Inc.
Kirby Corp.
Manufactured Home
Communities, Inc.
Medex, Inc.
Mid-America Apartment
Communities, Inc.
Mississippi Chemical Corp.
PHH Corp.
Roosevelt Financial Group,
Inc.
*Scientific Games Holdings
Corp.
*Select Software Tools (ADR)
*Simulation Sciences, Inc.
Swift Energy Co.
VLSI Technology, Inc.
Wicor, Inc.
*Xomed Surgical Products, Inc.
<PAGE>
[FN]
*Added and deleted in the
same quarter.
