MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
STRATEGIC
Performance
Semi-Annual Report
September 30, 1997
<PAGE>
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
During the quarter ended September 30, 1997, investor perceptions regarding the
prospects for the US economy shifted dramatically. As the period began,
increasing evidence of noninflationary economic growth boosted investor
confidence when, as widely expected, the Federal Reserve Board (FRB) chose to
leave monetary policy unchanged at its July and August meetings. This increased
confidence was reinforced further in late July by the passage of tax-cut and
five-year balanced budget bills.
By late August, the consensus outlook had changed, with forecasts of overheating
growth and inflationary expectations. These concerns were reinforced by a large
upward revision in second-quarter real gross domestic product growth from an
original estimate of 2.2% to 3.6%. However, in September, this rate of growth
was revised downward to 3.3%. This report set the stage for renewed investor
confidence, which was bolstered further by the continued absence of inflationary
pressures.
Although it was widely anticipated that the FRB would not tighten monetary
policy at its September meeting, investors were pleasantly surprised by the
release of September employment data shortly after the quarter's close, since
the US economy added jobs at a slower-than-expected pace during the month. Over
the balance of 1997, the determining factor in the investment outlook is likely
to be whether or not the US economy continues to follow a pattern of moderate,
noninflationary growth.
Outside of the United States, the most dramatic developments took place in
Southeast Asia. The investment boom in many developing Asian economies came to
an abrupt halt as the devaluation of the Thai baht sparked a series of currency
devaluations and financial market volatility throughout the region. Countries
have been forced to raise interest rates to support their currencies, and this
trend may continue for some time. With higher debt-service costs, corporate
profitability is likely to erode, and lower economic growth is expected.
Portfolio Matters
During the quarter ended September 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 +18.75%,
+18.47%, +18.45% and +18.69%, respectively. This compares favorably to the total
return of +14.88% for the unmanaged 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 4-7 of this report to shareholders.)
After trailing the large-capitalization indexes for four consecutive quarters,
the Russell 2000 Index sharply exceeded the total return of +7.50% for the
unmanaged Standard & Poor's 500 Index (S&P 500) during the September quarter.
The impact of a strong US dollar on corporate profits became more evident during
July as second
1
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
quarter earnings were released. Several large-capitalization companies reported
disappointing results because of the effects of foreign currency translation.
Small company stocks were largely spared these effects, and the stage was set
for a period of small-capitalization out performance that continued through the
end of September.
Strength in small-capitalization issues was widespread during the September
quarter, with all 12 of the Russell 2000 economic sectors posting double-digit
positive returns. The energy, integrated oils and technology sectors provided
the steepest advances, while the consumer discretionary, financial services and
materials processing sectors posted lower returns, though still strong on an
absolute basis. Merrill Lynch Special Value Fund, Inc. benefited from favorable
sector positioning during the quarter. The Fund was heavily weighted in the
strong-performing technology sector, and was underweighted in the
weaker-performing financial services sector. Specific stock selection,
especially in the healthcare and technology sectors, was the most important
factor driving the portfolio's excess return over the unmanaged Russell 2000
Index.
Individual stocks that most benefited Fund performance for the three months
ended September 30, 1997 in order of their contribution to total return included
Vivus, Inc., Alpha Industries, Inc. and Platinum Technology, Inc. Shares of
Vivus, Inc., a company that provides products to treat erectile dysfunction,
were first purchased in the June 30, 1997 quarter following concern that
emerging therapies would dramatically reduce company sales. The shares moved
sharply higher in August and September on recent sales results and renewed
confidence in the company's growth outlook. The strong price performance and the
size of the position combined to make Vivus, Inc. a leading contributor to the
Fund's investment performance during the quarter ended September 30, 1997. The
share price of Alpha Industries, Inc., a provider of integrated circuits and
components for the communications industry, also rose substantially as the
company's order backlog improved and manufacturing inefficiencies were
eliminated. Shares of Platinum Technology, Inc., a provider of software for
distributed systems, moved sharply higher as sales force productivity improved
and cost-cutting efforts were implemented.
Our investment in Metromail Corp. hindered the Fund's performance during the
quarter ended September 30, 1997. Metromail Corp., a provider of consumer
database information, gave back some of the June quarter's gains when software
sales fell below the range of analysts' estimates.
Notable changes to the portfolio's investment positions during the quarter ended
September 30, 1997, included an increased level of investment in the healthcare
sector, and reduced investments in the areas of materials processing, consumer
discretionary and integrated oils sectors. We initiated new holdings in 24
companies, and eliminated holdings in 14 securities, excluding issues purchased
and sold during the quarter. Technology continues to be the Fund's largest
sector weighting at 27.4% of net assets, only slightly up from June 30, 1997
levels despite the sector's strong absolute performance. We trimmed investments
in several electronics manufacturing stocks that had attained our internal price
objectives, and redeployed the proceeds into technology stocks trading at more
modest multiples of projected sales and earnings. The media and communications
industries received added investment emphasis in the quarter.
2
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
Looking ahead to the release of September corporate earnings, we believe that
small-capitalization stocks are positioned to extend their recent gains if
profits meet analysts' consensus estimates. First Call Corp., a Boston-based
research firm, calculates year-over-year consensus earnings growth of 20.6% for
the Russell 2000 small-capitalization stocks, while the S&P 500 stocks are
expected to report 12.3% year-over-year growth. Given the positive earnings
outlook, we remain cautiously optimistic about the relative performance of
small-capitalization stocks. Earnings growth should drive near-term stock price
performance; however, much of the relative valuation advantage that was present
earlier in the year has been eliminated. On the basis of trailing 12-month
results, small-capitalization stocks are now within 5% of their historical
averages relative to large-cap stocks based on multiples of price/earnings,
price/cash flow and price/sales. Further outperformance of small-capitalization
stocks will depend on the extent to which their earnings growth exceeds that of
large-capitalization issues.
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,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Daniel V. Szemis
Daniel V. Szemis
Vice President and Portfolio Manager
October 28, 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
Thomas D. Jones, III, Secretary
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
3
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 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:
o 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.
o 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.)
o 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.
o 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.
Recent Performance Results
<TABLE>
<CAPTION>
12 Month 3 Month
9/30/97 6/30/97 9/30/96 % Change % Change
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $ 23.15 $ 21.01 $ 18.99 +32.90%(1) +13.45%(2)
- ---------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class B Shares* 22.12 20.14 18.32 +32.07(1) +13.22(2)
- ---------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class C Shares* 21.93 19.98 18.19 +31.97(1) +13.18(2)
- ---------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class D Shares* 23.09 20.96 18.96 +32.78(1) +13.43(2)
- ---------------------------------------------------------------------------------------------------------------------
Russell 2000 Index** 453.82 396.37 346.39 +31.01 +14.49
- ---------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class A Shares--Total Return* +47.08(3) +18.75(4)
- ---------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class B Shares--Total Return* +45.57(5) +18.47(6)
- ---------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class C Shares--Total Return* +45.59(7) +18.45(8)
- ---------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class D Shares--Total Return* +46.73(9) +18.69(10)
- ---------------------------------------------------------------------------------------------------------------------
Russell 2000 Index**--Total Return +33.19 +14.88
=====================================================================================================================
</TABLE>
* 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 $1.631 per share capital gains
distributions.
(2) Percent change includes reinvestment of $0.581 per share capital gains
distributions.
(3) Percent change includes reinvestment of $2.026 per share ordinary income
dividends and $1.631 per share capital gains distributions.
(4) Percent change includes reinvestment of $0.945 per share ordinary income
dividends and $0.581 per share capital gains distributions.
(5) Percent change includes reinvestment of $1.873 per share ordinary income
dividends and $1.631 per share capital gains distributions.
(6) Percent change includes reinvestment of $0.897 per share ordinary income
dividends and $0.581 per share capital gains distributions.
(7) Percent change includes reinvestment of $1.875 per share ordinary income
dividends and $1.631 per share capital gains distributions.
(8) Percent change includes reinvestment of $0.896 per share ordinary income
dividends and $0.581 per share capital gains distributions.
(9) Percent change includes reinvestment of $1.994 per share ordinary income
dividends and $1.631 per share capital gains distributions.
(10) Percent change includes reinvestment of $0.935 per share ordinary income
dividends and $0.581 per share capital gains distributions.
4
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
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)
[Line graph omitted]
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
======================================================================
Class A Shares*
======================================================================
Year Ended 9/30/97 +47.08% +39.36%
- ----------------------------------------------------------------------
Five Years Ended 9/30/97 +23.69 +22.36
- ----------------------------------------------------------------------
Ten Years Ended 9/30/97 +10.99 +10.39
- ----------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
======================================================================
% Return % Return
Without CDSC With CDSC**
======================================================================
Class B Shares*
======================================================================
Year Ended 9/30/97 +45.57% +41.57%
- ----------------------------------------------------------------------
Five Years Ended 9/30/97 +22.44 +22.44
- ----------------------------------------------------------------------
Inception (10/21/88) through 9/30/97 +13.13 +13.13
- ----------------------------------------------------------------------
* 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 9/30/97 +45.59% +44.59%
- ----------------------------------------------------------------------
Inception (10/21/94)
through 9/30/97 +27.37 +27.37
- ----------------------------------------------------------------------
* 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 9/30/97 +46.73% +39.03%
- ----------------------------------------------------------------------
Inception (10/21/94)
through 9/30/97 +28.37 +26.03
- ----------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
5
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
PERFORMANCE DATA (continued)
Performance Summary--Class A Shares
<TABLE>
<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
- -------------------------------------------------------------------------------------------------------------------
1996 17.10 17.83 1.233 2.014 + 23.90
- -------------------------------------------------------------------------------------------------------------------
1/1/97--9/30/97 17.83 23.15 0.581 0.945 + 39.93
- -------------------------------------------------------------------------------------------------------------------
Total $8.493 Total $8.050
===================================================================================================================
Cumulative total return as of 9/30/97: +695.74%**
===================================================================================================================
</TABLE>
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales
charge was included.
Performance Summary--Class B Shares
<TABLE>
<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
- -------------------------------------------------------------------------------------------------------------------
1996 16.61 17.18 1.233 1.850 + 22.57
- -------------------------------------------------------------------------------------------------------------------
1/1/97--9/30/97 17.18 22.12 0.581 0.897 + 38.88
- -------------------------------------------------------------------------------------------------------------------
Total $3.137 Total $5.084
===================================================================================================================
Cumulative total return as of 9/30/97: +201.42%**
===================================================================================================================
</TABLE>
* 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.
6
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
PERFORMANCE DATA (concluded)
Performance Summary--Class C Shares
<TABLE>
<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
- -------------------------------------------------------------------------------------------------------------------
1996 16.50 17.05 1.233 1.854 + 22.64
- -------------------------------------------------------------------------------------------------------------------
1/1/97--9/30/97 17.05 21.93 0.581 0.896 + 38.81
- -------------------------------------------------------------------------------------------------------------------
Total $2.157 Total $3.724
===================================================================================================================
Cumulative total return as of 9/30/97: +103.76%**
===================================================================================================================
</TABLE>
* 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.
Performance Summary--Class D Shares
<TABLE>
<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
- -------------------------------------------------------------------------------------------------------------------
1996 17.09 17.81 1.233 1.971 + 23.58
- -------------------------------------------------------------------------------------------------------------------
1/1/97--9/30/97 17.81 23.09 0.581 0.935 + 39.68
- -------------------------------------------------------------------------------------------------------------------
Total $2.157 Total $3.992
===================================================================================================================
Cumulative total return as of 9/30/97: +108.50%**
===================================================================================================================
</TABLE>
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales
charge was included.
7
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Value Percent of
Sectors* Shares Held Stocks Cost (Note 1a) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Auto & Transportation 311,500 Air Express International Corp. $ 6,008,426 $ 11,369,750 1.1%
264,000 Circle International Group, Inc. 6,812,409 7,854,000 0.7
1,823,500 + Envirosource, Inc. 6,792,508 4,672,719 0.4
518,100 + Landair Services, Inc. (d) 6,028,650 10,232,475 1.0
46,900 + Reno Air, Inc. 356,449 337,094 0.0
434,800 Walbro Corp. (d) 8,254,004 9,511,250 0.9
------------ ------------- -----
34,252,446 43,977,288 4.1
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1,317 + Alfin, Inc. (Preferred) (a) 0 24,259 0.0
1,140,200 + Au Bon Pain Company, Inc. (Class A) (d) 7,669,095 10,261,800 1.0
158,300 + Axiom, Inc. 1,873,968 1,860,025 0.2
491,100 J. Baker, Inc. 4,150,600 4,542,675 0.4
71,100 + Catalina Marketing Corporation 1,864,914 3,697,200 0.3
15,800 + Cheesecake Factory (The) 355,500 435,488 0.0
463,500 + Department 56, Inc. 10,707,135 13,412,531 1.2
67,800 Dover Downs Entertainment, Inc. 1,385,493 1,419,563 0.1
235,000 + Farah, Inc. 1,606,481 1,615,625 0.2
14,400 Fingerhut Companies, Inc. 244,533 324,000 0.0
263,800 + Global DirectMail Corp. 5,844,115 5,902,525 0.6
376,600 + HA-LO Industries, Inc. 5,413,113 10,780,175 1.0
316,400 Heilig-Meyers Company 5,149,093 4,864,650 0.5
263,600 + ITI Technologies, Inc. 3,521,897 7,512,600 0.7
804,400 + Metromail Corp. 12,803,415 16,238,825 1.5
429,000 + Micro Warehouse, Inc. 8,299,993 9,384,375 0.9
103,400 + New Horizons Worldwide, Inc. 1,337,732 1,350,663 0.1
700,500 + Norton McNaughton, Inc. (d) 10,056,577 3,808,969 0.4
1,295,800 + Paxson Communications Corporation 14,486,910 15,063,675 1.4
122,700 + Sodak Gaming, Inc. 1,703,119 1,733,138 0.2
89,000 Unitog Company 2,307,519 2,280,625 0.2
500,000 + Viking Office Products, Inc. 10,054,211 10,875,000 1.0
359,100 + WMS Industries, Inc. 6,957,594 10,840,331 1.0
------------ ------------- -----
117,793,007 138,228,717 12.9
- ------------------------------------------------------------------------------------------------------------------------------
Financial Services 80,050 American National Insurance Co. 6,324,332 8,085,050 0.7
225,000 + The BISYS Group, Inc. 7,173,797 7,228,125 0.7
200,600 Charter One Financial, Inc. 4,843,514 11,860,475 1.1
130,000 + Civic Bancorp, Inc. 706,250 2,193,750 0.2
221,400 + FirstFed Financial Corp. 3,459,042 7,555,275 0.7
171,600 Haven Bancorp, Inc. 5,426,488 7,335,900 0.7
68,000 National Data Corporation 3,122,644 2,788,000 0.3
347,800 PXRE Corp. 7,578,788 10,977,438 1.0
125,990 Reliastar Financial Corp. 1,605,526 5,015,977 0.5
------------ ------------- -----
40,240,381 63,039,990 5.9
- ------------------------------------------------------------------------------------------------------------------------------
Health Care 205,400 + Biomatrix, Inc. 3,103,771 7,214,675 0.7
215,100 + COR Therapeutics, Inc. 2,163,958 3,576,038 0.3
303,300 + Genome Therapeutics Corp. 2,593,933 2,653,875 0.2
80,800 + Gilead Sciences, Inc. 2,289,245 3,585,500 0.3
500,000 + Isolyser Company, Inc. 3,047,185 1,968,750 0.2
205,400 + Magainin Pharmaceuticals, Inc. 2,302,777 2,349,263 0.2
237,500 + Magellan Health Services, Inc. 6,878,050 7,540,625 0.7
330,000 + NABI, Inc. 2,674,034 2,413,125 0.2
160,000 + Neoprobe Corp. 2,290,000 2,240,000 0.2
257,400 + NeoRx Corp. 1,623,174 1,801,800 0.2
</TABLE>
8
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Value Percent of
Sectors* Shares Held Stocks Cost (Note 1a) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Health Care 236,700 + Ostex International, Inc. $ 2,734,502 $ 858,038 0.1%
(concluded) 1,015,600 + Physician Computer Network, Inc. 6,818,207 7,426,575 0.7
574,500 + Ramsay Health Care, Inc. (d) 3,830,632 3,195,656 0.3
85,000 + Sano Corporation 1,390,000 2,029,375 0.2
387,350 + Scios, Inc. 2,049,208 3,776,663 0.4
58,800 + Sequana Therapeutics, Inc. 639,872 808,500 0.1
93,000 + Sierra Health Services, Inc. 2,866,480 3,406,125 0.3
313,800 + Sofamor Danek Group, Inc. 7,897,830 17,925,825 1.7
1,095,900 + VISX, Inc. (d) 25,062,294 27,945,450 2.6
901,700 + Vivus, Inc. (d) 22,630,600 33,813,750 3.1
------------ ------------- -----
104,885,752 136,529,608 12.7
- ------------------------------------------------------------------------------------------------------------------------------
Materials & Processing 383,100 + ACX Technologies, Inc. 7,807,007 10,200,038 1.0
598,252 BHA Group, Inc. (Class A) (d) 7,417,261 10,319,847 1.0
274,200 Castle (A.M.) & Company 4,606,560 7,129,200 0.7
299,500 + Citation Corp. 4,204,668 5,765,375 0.5
637,400 Commonwealth Industries, Inc. 11,106,622 12,269,950 1.1
536,000 + Giant Cement Holding, Inc. (d) 5,832,918 13,065,000 1.2
681,800 + Insituform Technologies, Inc. (Class A) 4,762,021 5,965,750 0.6
264,800 Quanex Corp. 5,058,882 9,284,550 0.9
155,100 + Ryerson Tull, Inc. (Class A) 2,087,343 2,510,681 0.2
585,000 + Shiloh Industries, Inc. 7,889,761 11,115,000 1.0
218,500 + Wolverine Tube, Inc. 6,390,388 6,855,438 0.6
830,076 + Zemex Corporation (d) 7,282,851 7,885,722 0.7
------------ ------------- -----
74,446,282 102,366,551 9.5
- ------------------------------------------------------------------------------------------------------------------------------
Miscellaneous 317,000 + DONCASTERS PLC (ADR) (b) 5,766,768 9,510,000 0.9
1,609,700 Mercer International, Inc. 21,053,577 18,511,550 1.7
888,150 + Metromedia International Group, Inc. 10,872,501 10,768,819 1.0
259,800 + Primark Corporation 7,014,225 7,680,337 0.7
------------ ------------- -----
44,707,071 46,470,706 4.3
- ------------------------------------------------------------------------------------------------------------------------------
Other Energy 415,200 + American Exploration Co. 4,998,877 7,888,800 0.7
508,900 + Benton Oil & Gas Co. 7,495,432 9,510,069 0.9
140,000 + Plains Resources, Inc. 1,461,553 2,520,000 0.2
308,391 + Plains Resources, Inc. (c) 1,806,983 5,473,940 0.5
189,700 + Tom Brown, Inc. 1,777,502 4,695,075 0.5
------------ ------------- -----
17,540,347 30,087,884 2.8
- ------------------------------------------------------------------------------------------------------------------------------
Producer Durables 130,300 AGCO Corp. 3,045,424 4,128,881 0.4
243,300 Applied Industrial Technology, Inc. 4,802,462 8,378,644 0.8
586,200 + B.I., Inc. 5,366,809 4,359,862 0.4
418,700 + Brown & Sharpe Manufacturing Company
(Class A) (d) 5,728,749 5,940,306 0.5
139,400 Cincinnati Milacron, Inc. 2,851,648 3,746,375 0.3
808,800 + Comdial Corp. (d) 4,965,675 8,138,550 0.8
234,900 + Cuno, Incorporated 3,358,481 4,081,387 0.4
200,000 + Dynatech Corporation 6,557,551 8,212,500 0.8
311,450 + General Cable Corporation 7,151,975 11,056,475 1.0
97,100 Kennametal, Inc. 4,351,039 4,709,350 0.4
335,800 + Nu Horizons Electronics Corp. 2,657,977 2,791,337 0.3
229,600 Oakwood Homes Corp. 5,126,569 6,514,900 0.6
286,100 Ryland Group, Inc. 4,213,565 5,078,275 0.5
645,400 Stewart & Stevenson Services, Inc. 15,413,974 15,529,937 1.4
</TABLE>
9
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Value Percent of
Sectors* Shares Held Stocks Cost (Note 1a) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Producer Durables 518,750 + TALX Corp. $ 4,385,624 $ 4,150,000 0.4%
(concluded) 216,800 + Toll Brothers, Inc. 4,208,656 5,040,600 0.5
165,200 + Triumph Group, Inc. 4,226,595 5,513,550 0.5
------------ ------------- -----
88,412,773 107,370,929 10.0
- ------------------------------------------------------------------------------------------------------------------------------
Technology 656,800 + Alpha Industries, Inc. (d) 4,463,497 12,150,800 1.1
96,600 Analogic Corp. 1,601,244 3,525,900 0.3
497,100 + Anixter International, Inc. 7,849,509 8,543,906 0.8
327,925 + Boole & Babbage, Inc. 2,290,905 9,427,844 0.9
442,100 + Brite Voice Systems, Inc. 5,650,961 4,752,575 0.4
345,000 + CHS Electronics, Inc. 2,656,187 9,444,375 0.9
782,550 + C.P. Clare Corp. (d) 7,022,423 15,455,362 1.4
226,300 + Cylink Corporation 3,243,917 3,578,369 0.3
750,800 + DII Group, Inc. 8,522,084 24,612,162 2.3
537,200 + DSP Communications, Inc. 4,280,590 11,247,625 1.1
26,200 + Identix, Inc. 224,010 299,662 0.0
440,000 + Learning Company, Inc. (The) 4,984,116 6,490,000 0.6
115,000 + Marshall Industries 3,423,658 4,456,250 0.4
236,900 + MathSoft, Inc. 1,247,850 710,700 0.1
951,000 + Mentor Graphics Corporation 9,638,012 11,530,875 1.1
629,100 + Network Equipment Technologies, Inc. 9,129,158 10,969,931 1.0
482,550 + Phoenix Technologies Ltd. 6,547,323 7,177,931 0.7
353,300 Pioneer-Standard Electronics, Inc. 5,208,889 6,072,344 0.6
639,000 + Planar Systems, Inc. (d) 7,535,335 7,228,687 0.7
774,000 + Platinum Technology, Inc. 10,306,548 16,641,000 1.5
542,400 + Premenos Technology Corporation 5,052,880 7,797,000 0.7
351,100 + Software Spectrum, Inc. (d) 7,367,223 6,275,912 0.6
236,717 + Sterling Commerce, Inc. 6,323,429 8,507,017 0.8
297,500 + Storage Technology Corp. 8,518,941 14,224,219 1.3
779,700 + Structural Dynamics Research Corp. 16,869,335 19,979,812 1.9
861,800 + Sybase, Inc. 14,288,662 15,512,400 1.4
703,300 Texlon Corp. 9,106,558 17,230,850 1.6
659,700 + VMARK Software, Inc. (d) 6,390,940 6,761,925 0.6
259,000 + VWR Scientific Products Corp. 3,714,060 5,924,625 0.6
202,300 + Vanstar Corporation 1,882,829 3,085,075 0.3
4,500,000 + Versus Technology, Inc. (c)(d) 2,250,000 3,937,500 0.4
486,900 + Wang Laboratories, Inc. 10,120,605 10,255,331 1.0
------------ ------------- -----
197,711,678 293,807,964 27.4
- ------------------------------------------------------------------------------------------------------------------------------
Utilities 392,900 + Applied Digital Access, Inc. 2,963,615 2,946,750 0.3
134,100 + Rural Cellular Corp. (Class A) 1,387,816 1,575,675 0.1
------------ ------------- -----
4,351,431 4,522,425 0.4
- ------------------------------------------------------------------------------------------------------------------------------
Total Stocks 724,341,168 966,402,062 90.0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Value Percent of
Sectors* Shares Held Stocks Cost (Note 1a) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial Paper** 10,000,000 CXC Inc., 5.53% due 10/16/1997 $ 9,976,958 $ 9,976,958 0.9%
10,000,000 Corporate Receivables Corp.,
5.53% due 11/10/1997 9,938,556 9,938,556 0.9
4,968,000 General Motors Acceptance Corp.,
6.50% due 10/01/1997 4,968,000 4,968,000 0.5
Lexington Parker Capital Co. LLC:
15,000,000 5.52% due 10/01/1997 15,000,000 15,000,000 1.4
10,000,000 5.53% due 10/01/1997 10,000,000 10,000,000 0.9
10,000,000 National Fleet Funding Corp.,
5.54% due 10/06/1997 9,992,306 9,992,306 0.9
20,000,000 Preferred Receivables Funding Corp.,
5.53% due 10/10/1997 19,972,350 19,972,350 1.9
------------ ------------- -----
79,848,170 79,848,170 7.4
- ------------------------------------------------------------------------------------------------------------------------------
US Government Agency Federal Home Loan Mortgage Corp.:
Obligations** 7,000,000 5.41% due 10/09/1997 6,991,584 6,991,584 0.7
10,000,000 5.40% due 10/14/1997 9,980,500 9,980,500 0.9
20,000,000 Federal National Mortgage Association,
5.415% due 10/16/1997 19,954,875 19,954,875 1.9
------------ ------------- -----
36,926,959 36,926,959 3.5
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities 116,775,129 116,775,129 10.9
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments $841,116,297 1,083,177,191 100.9
============
Liabilities in Excess of Other Assets (9,405,190) (0.9)
------------- -----
Net Assets $1,073,772,001 100.0%
============= =====
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* Holdings are classified into the economic sectors found in the Russell
2000 Index.
** Commercial Paper and certain US Government Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Fund.
(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 Depositary Receipts (ADR).
(c) The security may be sold to "qualified institutional buyers" under Rule
144A of the Securities Act of 1933.
(d) Investment in companies 5% or more of whose outstanding securities are
held by the Fund (such companies are defined as "Affiliated Companies" in
section 2 (a) (3) of the Investment Company Act of 1940) are as follows:
- --------------------------------------------------------------------------------
Net Share Net Dividend
Sector Affiliate Activity Cost Income
- --------------------------------------------------------------------------------
Auto & Landair Services, Inc. (112,200) $(253,586) ++
Transportation
Auto & Walbro Corp. 44,800 917,412 $83,480
Transportation
Consumer Au Bon Pain Company, Inc.
Discretionary (Class A) 409,200 3,012,640 ++
Consumer Norton McNaughton, Inc. -- -- ++
Discretionary
Health Care Ramsay Health Care, Inc. -- -- ++
Health Care VISX, Inc. 627,100 13,567,715 ++
Health Care Vivus, Inc. 901,700 22,630,600 ++
Materials & BHA Group, Inc. (Class A) 68,932 306,000 33,827
Processing
Materials & Giant Cement Holding, Inc. (114,000) (1,482,363) ++
Processing
Materials & Zemex Corporation -- -- ++
Processing
Producer Durables Brown & Sharpe Manufacturing
Company (Class A) 418,700 5,728,749 ++
Producer Durables Comdial Corp. 27,500 175,312 ++
Technology Alpha Industries, Inc. (249,300) (2,062,815) ++
Technology C.P. Clare Corp. 40,000 660,625 ++
Technology Planar Systems, Inc. 349,000 3,943,899 ++
Technology Software Spectrum, Inc. (22,300) (592,344) ++
Technology VMARK Software, Inc. -- -- ++
Technology Versus Technology, Inc. -- -- ++
- --------------------------------------------------------------------------------
++ Non-income producing security.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of September 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets: Investments, at value (identified cost--$841,116,297) (Note 1a) .... $1,083,177,191
Cash 490,450
Receivables:
Capital shares sold ............................................. $ 6,563,071
Securities sold ................................................. 3,728,356
Dividends ....................................................... 69,220 10,360,647
--------------
Prepaid registration fees and other assets (Note 1e) ............... 40,384
--------------
Total assets ....................................................... 1,094,068,672
--------------
- ---------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ............................................ 15,705,780
Capital shares redeemed ......................................... 3,029,403
Investment adviser (Note 2) ..................................... 662,288
Distributor (Note 2) ............................................ 509,216 19,906,687
--------------
Accrued expenses and other liabilities ............................. 389,984
--------------
Total liabilities .................................................. 20,296,671
--------------
- ---------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ......................................................... $1,073,772,001
==============
- ---------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized ......................................................... $ 1,671,023
Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized ......................................................... 2,459,017
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized ......................................................... 264,490
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized ......................................................... 367,748
Paid-in capital in excess of par ................................... 780,252,849
Accumulated investment loss--net ................................... (2,576,856)
Undistributed realized capital gains on investments--net ........... 49,272,836
Unrealized appreciation on investments--net ........................ 242,060,894
--------------
Net assets ......................................................... $1,073,772,001
==============
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $386,895,975 and 16,710,231 shares
outstanding ............................................... $ 23.15
==============
Class B--Based on net assets of $543,964,095 and 24,590,164 shares
outstanding ............................................... $ 22.12
==============
Class C--Based on net assets of $58,002,073 and 2,644,901 shares
outstanding ............................................... $ 21.93
==============
Class D--Based on net assets of $84,909,858 and 3,677,475 shares
outstanding ............................................... $ 23.09
==============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
FINANCIAL INFORMATION (continued)
Statement of Operations for the Six Months Ended September 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Interest and discount earned .................................. $ 2,572,867
Income Dividends (net of $4,275 foreign withholding tax) ............. 1,257,878
(Notes 1c & 1d): -------------
Total income .................................................. 3,830,745
-------------
- -----------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ............................. 2,949,396
Account maintenance and distribution fees--Class B (Note 2) ... 2,051,959
Transfer agent fees--Class B (Note 2) ......................... 479,760
Transfer agent fees--Class A (Note 2) ......................... 290,257
Account maintenance and distribution fees--Class C (Note 2) ... 195,987
Printing and shareholder reports .............................. 72,552
Account maintenance fees--Class D (Note 2) .................... 68,583
Transfer agent fees--Class D (Note 2) ......................... 56,266
Registration fees (Note 1e) ................................... 55,986
Transfer agent fees--Class C (Note 2) ......................... 47,554
Custodian fees ................................................ 42,149
Accounting services (Note 2) .................................. 40,910
Professional fees ............................................. 34,155
Directors' fees and expenses .................................. 15,767
Pricing fees .................................................. 318
Other ......................................................... 6,002
-------------
Total expenses ................................................ 6,407,601
-------------
Investment loss--net .......................................... (2,576,856)
-------------
- -----------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ............................. 50,997,323
Unrealized Gain on Change in unrealized appreciation on investments--net ......... 223,423,575
Investments--Net -------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations .......... $ 271,844,042
=============
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
FINANCIAL INFORMATION (continued)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Sept. 30, 1997 March 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations: Investment loss--net ............................................. $ (2,576,856) $ (1,854,279)
Realized gain on investments--net ................................ 50,997,323 129,452,799
Change in unrealized appreciation on investments--net ............ 223,423,575 (31,593,968)
--------------- -------------
Net increase in net assets resulting from operations ............. 271,844,042 96,004,552
--------------- -------------
- ---------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Class A ....................................................... -- (626,240)
Shareholders Class D ....................................................... -- (58,931)
(Note 1f): Realized gain on investments--net:
Class A ....................................................... (18,715,447) (37,231,113)
Class B ....................................................... (29,000,275) (59,362,677)
Class C ....................................................... (2,676,723) (5,770,673)
Class D ....................................................... (3,846,638) (5,290,682)
--------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders .................................... (54,239,083) (108,340,316)
--------------- -------------
- ---------------------------------------------------------------------------------------------------------------------
Capital Shares Net increase in net assets derived from capital share transactions 223,604,220 101,712,227
Transactions --------------- -------------
(Note 4):
- ---------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets ..................................... 441,209,179 89,376,463
Beginning of period .............................................. 632,562,822 543,186,359
--------------- -------------
End of period .................................................... $ 1,073,772,001 $ 632,562,822
=============== =============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A++
-----------------------------------------------------------
For the
Six Months
The following per share data and ratios have been derived Ended For the Year Ended March 31,
from information provided in the financial statements. Sept. 30, --------------------------------------------
Increase (Decrease) in Net Asset Value: 1997 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 17.59 $ 17.77 $ 15.63 $ 15.88 $ 15.32
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .......... (.01) .06 .24 .16 .10
Realized and unrealized gain on
investments--net ....................... 7.10 3.01 2.72 1.09 1.87
-------- -------- -------- -------- --------
Total from investment operations ....... 7.09 3.07 2.96 1.25 1.97
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .............. -- (.06) (.23) (.10) .00+
Realized gain on investments--net ... (1.53) (3.19) (.59) (1.40) (1.41)
-------- -------- -------- -------- --------
Total dividends and distributions ...... (1.53) (3.25) (.82) (1.50) (1.41)
-------- -------- -------- -------- --------
Net asset value, end of period ......... $ 23.15 $ 17.59 $ 17.77 $ 15.63 $ 15.88
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ..... 41.84%++ 17.62% 19.56% 8.85% 13.14%
Return:** ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ............................... 1.02%* 1.10% 1.12% 1.15% 1.17%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .......... (.05%)* .34% 1.43% 1.04% .62%
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $386,896 $223,492 $181.297 $106,506 $ 78,804
Data: ======== ======== ======== ======== ========
Portfolio turnover ..................... 37.01% 97.87% 60.37% 59.79% 68.70%
======== ======== ======== ======== ========
Average commission rate paid+++ ........ $ .0509 $ .0514 $ .0503 -- --
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Amount is less than $.01 per share.
++ Based on average shares outstanding during the period.
+++ For fiscal years beginning on or after
September 1, 1995, the Fund is required to
disclose its average commission rate per share
for purchases and sales of equity securities.
++ Aggregate total investment return.
See Notes to Financial Statements.
15
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class B++
-----------------------------------------------------------
For the
Six Months
The following per share data and ratios have been derived Ended For the Year Ended March 31,
from information provided in the financial statements. Sept. 30, --------------------------------------------
Increase (Decrease) in Net Asset Value: 1997 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 16.91 $ 17.21 $ 15.16 $ 15.49 $ 15.01
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .......... (.10) (.12) .07 .00+ (.06)
Realized and unrealized gain on
investments--net ....................... 6.79 2.90 2.64 1.06 1.83
-------- -------- -------- -------- --------
Total from investment operations ....... 6.69 2.78 2.71 1.06 1.77
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .............. -- -- (.07) .00+ .00+
Realized gain on investments--net ... (1.48) (3.08) (.59) (1.39) (1.29)
-------- -------- -------- -------- --------
Total dividends and distributions ...... (1.48) (3.08) (.66) (1.39) (1.29)
-------- -------- -------- -------- --------
Net asset value, end of period ......... $ 22.12 $ 16.91 $ 17.21 $ 15.16 $ 15.49
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ..... 41.10%++ 16.44% 18.37% 7.70% 12.03%
Return:** ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ............................... 2.05%* 2.13% 2.15% 2.20% 2.19%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .......... (1.08%)* (.68%) .44% .02% (.41%)
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $543,964 $337,716 $310,174 $237,359 $112,768
Data: ======== ======== ======== ======== ========
Portfolio turnover ..................... 37.01% 97.87% 60.37% 59.79% 68.70%
======== ======== ======== ======== ========
Average commission rate paid+++ ........ $ .0509 $ .0514 $ .0503 -- --
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Amount is less than $.01 per share.
++ Based on average shares outstanding during the period.
+++ For fiscal years beginning on or after
September 1, 1995, the Fund is required to
disclose its average commission rate per share
for purchases and sales of equity securities.
++ Aggregate total investment return.
See Notes to Financial Statements.
16
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C++
------------------------------------------
For the
For the Period
The following per share data and ratios have been derived Six Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended March 31, 1994+ to
Sept. 30, ------------------ March 31,
Increase (Decrease) in Net Asset Value: 1997 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 16.77 $ 17.10 $ 15.10 $ 15.06
Operating ------- ------- ------- -------
Performance: Investment income (loss)--net .......... (.10) (.13) .06 .01
Realized and unrealized gain on
investments--net ....................... 6.74 2.89 2.63 .65
------- ------- ------- -------
Total from investment operations ....... 6.64 2.76 2.69 .66
------- ------- ------- -------
Less dividends and distributions:
Investment income--net .............. -- -- (.10) (.06)
Realized gain on investments--net ... (1.48) (3.09) (.59) (.56)
------- ------- ------- -------
Total dividends and distributions ...... (1.48) (3.09) (.69) (.62)
------- ------- ------- -------
Net asset value, end of period ......... $ 21.93 $ 16.77 $ 17.10 $ 15.10
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ..... 41.13%++ 16.39% 18.34% 4.82%++
Return:** ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ............................... 2.06%* 2.14% 2.16% 2.41%*
Net Assets: ======= ======= ======= =======
Investment income (loss)--net .......... (1.09%)* (.70%) .36% .14%*
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $58,002 $31,182 $26,920 $11,434
Data: ======= ======= ======= =======
Portfolio turnover ..................... 37.01% 97.87% 60.37% 59.79%
======= ======= ======= =======
Average commission rate paid+++ ........ $ .0509 $ .0514 $ .0503 --
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity
securities.
++ Aggregate total investment return.
See Notes to Financial Statements.
17
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D++
------------------------------------------
For the
For the Period
The following per share data and ratios have been derived Six Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended March 31, 1994+ to
Sept. 30, ------------------ March 31,
Increase (Decrease) in Net Asset Value: 1997 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 17.56 $ 17.74 $ 15.61 $ 15.52
Operating ------- ------- ------- -------
Performance: Investment income (loss)--net .......... (.03) .01 .19 .07
Realized and unrealized gain on
investments--net ....................... 7.08 3.02 2.73 .66
------- ------- ------- -------
Total from investment operations ....... 7.05 3.03 2.92 .73
------- ------- ------- -------
Less dividends and distributions:
Investment income--net .............. -- (.04) (.20) (.08)
Realized gain on investments--net ... (1.52) (3.17) (.59) (.56)
------- ------- ------- -------
Total dividends and distributions ...... (1.52) (3.21) (.79) (.64)
------- ------- ------- -------
Net asset value, end of period ......... $ 23.09 $ 17.56 $ 17.74 $ 15.61
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ..... 41.67%++ 17.38% 19.26% 5.13%++
Return:** ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ............................... 1.27%* 1.35% 1.37% 1.61%*
Net Assets: ======= ======= ======= =======
Investment income (loss)--net .......... (.30%)* .07% 1.15% .95%*
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $84,910 $40,173 $24,795 $11,037
Data: ======= ======= ======= =======
Portfolio turnover ..................... 37.01% 97.87% 60.37% 59.79%
======= ======= ======= =======
Average commission rate paid+++ ........ $ .0509 $ .0514 $ .0503 --
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ For fiscal years beginning on or after
September 1, 1995, the Fund is required to
disclose its average commission rate per share
for purchases and sales of equity securities.
++ Aggregate total investment return.
See Notes to Financial Statements.
18
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Special Value Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. These unaudited financial statements reflect all adjustments which are,
in the opinion of management, necessary to a fair statement of the results for
the interim period presented. All such adjustments are of a normal recurring
nature. The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a contingent
deferred sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class B, Class C and Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. Securities traded in the NASDAQ National Market
System are valued at the last sale price, or lacking any sales, at the closing
bid price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the authority of
the Board of Directors as the primary market. Securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market. Options written are valued at the
last sale price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last asked price. Options
purchased are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter market, the
last bid price. Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market value quotations are not available are valued at their fair value as
determined in good faith by or under the direction of the Fund's Board of
Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the equity, debt and currency markets. Losses may arise due
to changes in the value of the contract or if the counterparty does not perform
under the contract.
o Financial futures contracts--The Fund may purchase or sell futures contracts
and options on such futures contracts for the purpose of hedging the market risk
on existing securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific future date and
at a specific price or yield. Upon entering into a contract, the Fund deposits
and maintains as collateral such initial margin as required by the exchange on
which the transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the option to
the extent of the premiums received
19
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
NOTES TO FINANCIAL STATEMENTS (continued)
or paid (or gain or loss to the extent the cost of the closing transaction
exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the date the
Fund enters such contracts. Premium or discount is amortized over the life of
the contracts.
o Foreign currency options and futures--The Fund may purchase or sell listed or
over-the-counter foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(e) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(f) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee of
0.75%, on an annual basis, of the average daily value of the Fund's net assets.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- -------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- -------------------------------------------------------
Class B ................ 0.25% 0.75%
Class C ................ 0.25% 0.75%
Class D ................ 0.25% --
- -------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended September 30, 1997, MLFD earned underwriting discounts
and commissions and
20
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
NOTES TO FINANCIAL STATEMENTS (continued)
MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D
Shares as follows:
- ----------------------------------------------------------
MLFD MLPF&S
- ----------------------------------------------------------
Class A.................... $ 1,271 $ 17,441
Class D.................... $14,416 $181,134
- ----------------------------------------------------------
For the six months ended September 30, 1997, MLPF&S received contingent deferred
sales charges of $620,421 and $11,275 relating to transactions in Class B and
Class C Shares, respectively.
In addition, MLPF&S received $25,476 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended September
30, 1997.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended September 30, 1997 were $370,734,884 and $268,676,471,
respectively.
Net realized and unrealized gains as of September 30, 1997 were as follows:
- --------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------
Long-term investments.... $50,997,323 $242,060,894
----------- ------------
Total.................... $50,997,323 $242,060,894
=========== ============
- --------------------------------------------------------------
As of September 30, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $242,060,894, of which $261,746,994 related to appreciated
securities and $19,686,100 related to depreciated securities. At September 30,
1997, the aggregate cost of investments for Federal income tax purposes was
$841,116,297.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$223,604,220 and $101,712,227 for the six months ended September 30, 1997 and
the year ended March 31, 1997, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended September 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 6,751,263 $ 138,922,930
Shares issued to shareholders
in reinvestment of
distributions ............................. 881,738 17,308,513
---------- -------------
Total issued .............................. 7,633,001 156,231,443
Shares redeemed ........................... (3,628,257) (72,240,178)
---------- -------------
Net increase .............................. 4,004,744 $ 83,991,265
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 7,513,048 $ 138,984,315
Shares issued to shareholders
in reinvestment of dividends
and distributions ......................... 1,927,288 34,582,403
---------- -------------
Total issued .............................. 9,440,336 173,566,718
Shares redeemed ........................... (6,938,582) (127,615,134)
---------- -------------
Net increase .............................. 2,501,754 $ 45,951,584
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended September 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 7,178,304 $ 143,672,209
Shares issued to shareholders
in reinvestment of
distributions ............................. 1,377,607 25,899,008
---------- -------------
Total issued .............................. 8,555,911 169,571,217
Automatic conversion
of shares ................................. (159,753) (3,075,940)
Shares redeemed ........................... (3,780,933) (72,398,655)
---------- -------------
Net increase .............................. 4,615,225 $ 94,096,622
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 6,630,575 $ 119,062,202
Shares issued to shareholders
in reinvestment of
distributions ............................. 3,035,511 52,574,409
---------- -------------
Total issued .............................. 9,666,086 171,636,611
Automatic conversion
of shares ................................. (99,241) (1,783,849)
Shares redeemed ........................... (7,614,216) (135,651,522)
---------- -------------
Net increase .............................. 1,952,629 $ 34,201,240
========== =============
- --------------------------------------------------------------------------------
21
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended September 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 1,422,828 $ 28,618,242
Shares issued to shareholders
in reinvestment of
distributions ............................. 129,760 2,418,733
---------- -------------
Total issued .............................. 1,552,588 31,036,975
Shares redeemed ........................... (767,031) (14,992,672)
---------- -------------
Net increase .............................. 785,557 $ 16,044,303
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 1,075,754 $ 19,224,090
Shares issued to shareholders
in reinvestment of
distributions ............................. 299,448 5,144,748
---------- -------------
Total issued .............................. 1,375,202 24,368,838
Shares redeemed ........................... (1,090,217) (19,334,519)
---------- -------------
Net increase .............................. 284,985 $ 5,034,319
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended September 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 2,653,846 $ 56,692,006
Automatic conversion
of shares ................................. 153,449 3,075,940
Shares issued to shareholders
in reinvestment of
distributions ............................. 177,535 3,477,906
---------- -------------
Total issued .............................. 2,984,830 63,245,852
Shares redeemed ........................... (1,595,377) (33,773,822)
---------- -------------
Net increase .............................. 1,389,453 $ 29,472,030
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 2,128,192 $ 39,663,904
Automatic conversion
of shares ................................. 95,817 1,783,849
Shares issued to shareholders
in reinvestment of
dividends and distributions ............... 262,004 4,695,473
---------- -------------
Total issued .............................. 2,486,013 46,143,226
Shares redeemed ........................... (1,595,340) (29,618,142)
---------- -------------
Net increase .............................. 890,673 $ 16,525,084
========== =============
- --------------------------------------------------------------------------------
22
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1997
PORTFOLIO INFORMATION
As of September 30, 1997
Percent of
Top Ten Equity Holdings Net Assets
Vivus, Inc............................... 3.1%
VISX, Inc................................ 2.6
DII Group, Inc........................... 2.3
Structural Dynamics Research Corp........ 1.9
Mercer International, Inc................ 1.7
Sofamor Danek Group, Inc................. 1.7
Texlon Corp.............................. 1.6
Platinum Technology, Inc................. 1.5
Metromail Corp........................... 1.5
Stewart & Stevenson Services, Inc........ 1.4
Sectors Represented Percent of
In the Portfolio Net Assets
Technology............................... 27.4%
Consumer Discretionary................... 12.9
Health Care.............................. 12.7
Producer Durables........................ 10.0
Materials & Processing................... 9.5
Financial Services....................... 5.9
Miscellaneous............................ 4.3
Auto & Transportation.................... 4.1
Other Energy............................. 2.8
Utilities................................ 0.4
Equity Portfolio Changes for the Quarter
Ended September 30, 1997
Additions
* Advantage Learning Systems, Inc.
Axiom, Inc.
Cheesecake Factory (The)
Circle International Group, Inc.
Cuno, Incorporated
Cylink Corporation
Dover Downs Entertainment, Inc.
Genome Therapeutics Corp.
Global DirectMail Corp.
Heilig-Meyers Company
Kennametal, Inc.
Learning Company, Inc. (The)
Magainin Pharmaceuticals, Inc.
Mentor Graphics Corporation
Micro Warehouse, Inc.
NABI, Inc.
National Data Corporation
Neoprobe Corp.
Pioneer-Standard Electronics, Inc.
Reliastar Financial Corp.
Sano Corporation
Sequana Therapeutics, Inc.
Sodak Gaming, Inc.
Unitog Company
Wolverine Tube, Inc.
Deletions
ARM Financial Group, Inc. (Class A)
* Advantage Learning Systems, Inc.
CML Group, Inc.
Catherines Stores Corp.
CellNet Data Systems, Inc.
Chico's Fashions, Inc.
Elsag Bailey Process Automation N.V.
Grossman's, Inc.
Levitz Furniture, Inc.
Security-Connecticut Corp.
TPI Enterprises, Inc.
Total Petroleum of North America, Ltd.
TransTexas Gas Corp.
UNC, Inc.
Wyle Electronics, Inc.
* Added and deleted in the same quarter.
23
<PAGE>
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 #10253 -- 9/97
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