MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Quarterly Report
June 30, 1998
<PAGE>
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
During the quarter ended June 30, 1998, Merrill Lynch Special Value Fund, Inc.
outperformed the unmanaged Russell 2000 Index. For the three months ended June
30, 1998, total returns for the Fund's Class A, Class B, Class C and Class D
Shares were -3.00%, -3.28%, -3.26% and -3.05%, respectively, compared to the
total return of -4.66% for the Russell 2000 Index. (Fund results do not reflect
sales charges; results would be lower if sales charges were included. Complete
performance information can be found on pages 3 and 4 of this report to
shareholders.)
Portfolio Matters
The Russell 2000 Index of small-capitalization stocks exhibited strength early
in the June quarter, only to later reverse its gains as numerous companies
pre-announced earnings that fell below analysts' expectations. Many of the
earnings disappointments were the result of lower demand from Asian markets.
Although small-capitalization companies generally obtain a lower percentage of
revenue from overseas sources, they were especially hard-hit in the market
sell-off as investors abandoned secondary stocks in favor of more liquid
large-capitalization issues. Both the Dow Jones Industrial Average and the
unmanaged Standard & Poor's 500 Composite Index (S&P 500) posted gains for the
quarter ended June 30, 1998, while the Russell 2000 Index posted a loss. The
- -4.66% total return provided by the Russell 2000 Index fell significantly below
the +3.30% total return provided by the S&P 500 for the June quarter.
Within the benchmark Russell 2000 Index, all economic sectors provided negative
returns for the quarter ended June 30, 1998. The energy, healthcare and producer
durables sectors posted the steepest declines, while the transportation and
consumer discretionary sectors declined only slightly. The Fund's investment
performance was hindered by overweighted investments in cyclical stocks and by
underweighted investments in services stocks. Although sector positioning
detracted from performance during the June quarter, the Fund's specific stock
holdings sharply outperformed their respective sectors in the benchmark Russell
2000 Index.
Individual stocks that benefited the Fund's quarterly results included VISX Inc.
and Telxon Corporation. Shares of VISX Inc., a developer of laser vision
correction technologies, rallied sharply as first quarter earnings exceeded
analysts' expectations and the company resolved a long-standing legal dispute.
Sharp price appreciation and the large size of the investment position combined
to make VISX Inc. a leading contributor to Fund performance during the June
quarter. Shares of Telxon Corporation, a manufacturer of wireless and mobile
transaction systems, were also strong on news that the company had received an
unsolicited take-over offer from Symbol Technologies, Inc.
Fund performance was hindered by an investment in Danka Business Systems PLC.
The company distributes and services office equipment including facsimile
machines and copiers. Shares of Danka Business Systems were weak following a
pre-announced revenue shortfall. We continue to hold the position and expect the
stock to benefit from recent cost-cutting efforts and a sales force
restructuring.
As small-capitalization stocks faltered in May, we actively accumulated
investments where we believed the long-term earnings growth prospects were
favorable. Sharp price declines in computer distribution and oil services stocks
provided opportunities to increase existing positions and acquire new
investments at attractive valuation levels. Meanwhile, we reduced investments in
the biotechnology and leisure industries. The Fund closed the quarter with $1.2
billion in net assets and cash reserves of 11.8%.
1
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
Looking ahead, we are concerned about a potential slowdown in US economic
growth. A weak domestic economy generally does not provide a favorable
investment climate for small-capitalization stocks. However, relative valuations
still favor small-capitalization stocks over large-capitalization stocks, and
the earnings outlook remains favorable. March 1998 marked the fourth consecutive
quarter in which earnings growth for the Russell 2000 Index exceeded large
companies' earnings growth as measured by composite earnings for the S&P 500.
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
Senior Vice President and Portfolio Manager
July 30, 1998
2
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
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
assume reinvestment of all dividends and capital gains distributions at net
asset value on the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Dividends paid to each class of shares will
vary because of the different levels of account maintenance, distribution and
transfer agency fees applicable to each class, which are deducted from the
income available to be paid to shareholders.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
=============================================================================
Class A Shares*
=============================================================================
Year Ended 6/30/98 +16.28% +10.18%
-----------------------------------------------------------------------------
Five Years Ended 6/30/98 +18.88 +17.61
-----------------------------------------------------------------------------
Ten Years Ended 6/30/98 +12.26 +11.66
-----------------------------------------------------------------------------
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
=============================================================================
% Return % Return
Without CDSC With CDSC**
=============================================================================
Class B Shares*
Year Ended 6/30/98 +15.09% +11.09%
-----------------------------------------------------------------------------
Five Years Ended 6/30/98 +17.67 +17.67
-----------------------------------------------------------------------------
Inception (10/21/88)
through 6/30/98 +11.72 +11.72
-----------------------------------------------------------------------------
*Maximum contingent deferred sales charge is 4% and is reduced to 0% after 4
years.
**Assuming payment of applicable contingent deferred sales charge.
=============================================================================
% Return % Return
Without CDSC With CDSC**
=============================================================================
Class C Shares*
-----------------------------------------------------------------------------
Year Ended 6/30/98 +15.08% +14.08%
-----------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/98 +20.33 +20.33
-----------------------------------------------------------------------------
*Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1
year.
**Assuming payment of applicable contingent deferred sales charge.
=============================================================================
% Return Without % Return With
Sales Charge Sales Charge**
=============================================================================
Class D Shares*
-----------------------------------------------------------------------------
Year Ended 6/30/98 +15.98% + 9.89%
-----------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/98 +21.27 +19.51
-----------------------------------------------------------------------------
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
3
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
PERFORMANCE DATA (concluded)
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)
[GRAPHIC OMITTED:
A mountain chart depicting the growth of an investment in the Fund's Class A
Sahres from $947.50 on May 5, 1978 to $7,383.11 on June 30, 1998.]
Recent Performance Results
<TABLE>
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
======================================================================================================
<S> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* +16.28% -3.00% +217.94%
- ------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class B Shares* +15.09 -3.28 +192.82
- ------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class C Shares* +15.08 -3.26 + 97.95
- ------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class D Shares* +15.98 -3.05 +103.75
- ------------------------------------------------------------------------------------------------------
Russell 2000 Index** +16.51 -4.66 +257.42/+260.82/+90.96
======================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown would be
lower if a sales charge was included. Total investment returns are based on
changes in net asset values for the periods shown, and assume reinvestment of
all dividends and capital gains distributions at net asset value on the
ex-dividend date. The Fund's ten-year/inception dates are: Class A Shares,
ten years ended 6/30/98; Class B Shares, 10/21/88; and Class C and Class D
Shares, 10/21/94.
** An unmanaged broad-based index comprised of common stocks. Total investment
returns for unmanaged indexes are based on estimates. Ten years/since
inception total returns are: for the ten years ended 6/30/98; from 10/21/88
to 6/30/98; and from 10/21/94 to 6/30/98, respectively.
4
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
- -----------------------------------------------------------------------------------------------------------------
Auto & Transportation
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
233,400 Air Express International Corp. $ 4,125,817 $ 6,243,450 0.5%
431,300 Circle International Group, Inc. 11,191,474 12,076,400 1.0
214,986 Envirosource, Inc. 5,478,283 3,762,250 0.3
428,500 Landair Services, Inc. 4,216,915 12,747,875 1.1
350,500 Meritor Automotive, Inc. 7,707,445 8,412,000 0.7
1,270,000 Miller Industries, Inc. 11,486,697 9,842,500 0.9
434,800 Walbro Corp. 8,254,004 6,141,550 0.5
------------ ------------ ----
52,460,635 59,226,025 5.0
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Consumer Discretionary
- -----------------------------------------------------------------------------------------------------------------
1,316,600 APAC Teleservices, Inc. 12,311,900 7,693,881 0.6
10,104 Alfin, Inc. 5,052 11,999 0.0
1,317 Alfin, Inc. (Preferred) (a) 0 24,259 0.0
1,121,700 Au Bon Pain Company, Inc. (Class A) 7,525,064 12,338,700 1.0
317,000 Boise Cascade Office Products Corp. 5,252,744 4,913,500 0.4
202,400 Broderbund Software, Inc. 3,844,008 4,617,250 0.4
635,000 Caribiner International, Inc. 13,946,493 11,112,500 0.9
1,358,000 Danka Business Systems PLC (ADR) (b) 25,951,171 16,041,375 1.3
226,600 Dover Downs Entertainment, Inc. 5,661,752 7,024,600 0.6
130,100 Global DirectMail Corp. 2,818,693 1,642,513 0.1
326,600 HA-LO Industries, Inc. 4,476,002 10,165,425 0.9
1,030,000 Heilig-Meyers Company 14,472,716 12,681,875 1.1
295,400 ITI Technologies, Inc. 4,273,172 8,363,513 0.7
900,800 Micro Warehouse, Inc. 10,674,708 13,962,400 1.2
1,538,040 Midway Games, Inc. 23,296,757 24,031,875 2.0
700,500 Norton McNaughton, Inc. 10,056,576 4,553,250 0.4
1,284,800 Paxson Communications Corporation1 3,894,938 15,578,200 1.3
527,700 SITEL Corporation 4,675,234 3,496,013 0.3
506,500 Sodak Gaming, Inc. 6,191,644 3,165,625 0.3
467,800 Unitog Company 10,972,168 10,291,600 0.9
651,600 WMS Industries, Inc. 1,911,075 2,728,575 0.2
------------ ------------ ----
182,211,867 174,438,928 14.6
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Energy
- -----------------------------------------------------------------------------------------------------------------
222,200 Barrett Resources Corp. 6,950,418 8,318,613 0.7
559,900 Benton Oil & Gas Co. 8,510,720 5,948,938 0.5
385,000 Forcenergy, Inc. 8,623,882 6,857,813 0.6
420,000 Key Energy Group, Inc. 6,488,857 5,512,500 0.5
457,844 Louis Dreyfus Natural Gas Corp. 7,397,649 8,670,421 0.7
483,500 Newpark Resources, Inc. 6,144,795 5,378,937 0.4
308,391 Plains Resources, Inc. 1,806,983 5,512,489 0.5
140,000 Plains Resources, Inc. 1,461,553 2,511,250 0.2
175,100 Stone Energy Corporation 6,163,019 6,226,994 0.5
341,700 Tom Brown, Inc. 4,564,569 6,428,231 0.5
------------ ------------ ----
58,112,445 61,366,186 5.1
=================================================================================================================
</TABLE>
5
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
- -----------------------------------------------------------------------------------------------------------------
Financial Services
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
80,050 American National Insurance Co. $ 6,324,332 $ 8,425,263 0.7%
204,000 BISYS Group, Inc. (The) 6,590,354 8,364,000 0.7
320,260 Charter One Financial, Inc. 2,619,886 10,788,759 0.9
173,500 HCC Insurance Holdings, Inc. 2,877,362 3,817,000 0.3
120,000 National Data Corporation 4,431,553 5,250,000 0.4
310,000 PXRE Corp. 6,393,111 9,300,000 0.8
------------ ------------ ----
29,236,598 45,945,022 3.8
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Healthcare
- -----------------------------------------------------------------------------------------------------------------
272,835 AXYS Pharmaceuticals, Inc. 2,547,239 1,909,845 0.2
110,200 Biomatrix, Inc. 1,630,776 4,518,200 0.4
267,100 COR Therapeutics, Inc. 2,579,398 3,706,013 0.3
196,000 DVI, Inc. 4,359,633 4,998,000 0.4
265,000 EndoSonics Corp. 2,464,338 1,590,000 0.1
424,000 Genome Therapeutics Corp. 3,619,214 1,908,000 0.2
785,500 HCIA, Inc. 9,621,062 10,113,313 0.8
454,600 Magainin Pharmaceuticals, Inc. 4,779,299 2,415,063 0.2
413,300 Magellan Health Services, Inc. 9,780,009 10,487,487 0.9
1,144,500 MedPartners, Inc. 11,432,963 9,156,000 0.8
538,000 NABI, Inc. 3,708,502 1,630,812 0.1
347,400 NeoRx Corp. 2,201,611 1,715,287 0.1
152,000 Neurogen Corporation 2,017,552 2,698,000 0.2
222,400 Pharmaceutical Product Development, Inc. 2,863,578 4,892,800 0.4
143,300 Pharmacopeia, Inc. 2,582,582 2,042,025 0.2
574,500 Ramsay Health Care, Inc. 3,830,632 1,149,000 0.1
300,850 Scios, Inc. 1,387,073 2,670,044 0.2
139,500 Sierra Health Services, Inc. 2,866,479 3,513,656 0.3
959,000 VISX Inc. 21,236,713 57,060,500 4.8
------------ ------------ ----
95,508,653 128,174,045 10.7
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Integrated Oils
- -----------------------------------------------------------------------------------------------------------------
319,600 Basin Exploration, Inc. 5,483,309 5,632,950 0.5
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Materials & Processing
- -----------------------------------------------------------------------------------------------------------------
497,900 ACX Technologies, Inc. 10,605,253 10,829,325 0.9
500,000 Apogee Enterprises, Inc. 5,946,645 7,656,250 0.6
638,277 BHA Group, Inc. (Class A) 7,083,102 10,531,570 0.9
289,200 Castle (A.M.) & Company 5,157,844 6,362,400 0.5
329,500 Citation Corp. 4,725,918 6,590,000 0.6
705,000 Commonwealth Industries, Inc. 12,360,443 7,050,000 0.6
425,000 Dan River, Inc. (Class A) 6,396,243 7,225,000 0.6
253,300 Giant Cement Holding, Inc. 2,523,757 7,250,712 0.6
264,000 Inland Steel Industries, Inc. 7,692,626 7,441,500 0.6
938,600 Insituform Technologies, Inc. (Class A) 6,994,439 12,993,744 1.1
</TABLE>
6
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
- -----------------------------------------------------------------------------------------------------------------
Materials & Processing (concluded)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
30,600 Intermet Corporation $ 550,800 $ 554,625 0.0%
264,700 Novamerican Steel, Inc. 3,072,685 2,051,425 0.2
522,000 Paxar Corp. 7,495,480 6,003,000 0.5
191,400 Quanex Corp. 5,375,408 5,801,812 0.5
208,900 Ryerson Tull, Inc. (Class A) 2,807,419 4,282,450 0.4
585,000 Shiloh Industries, Inc. 7,889,761 11,846,250 1.0
253,500 Wolverine Tube, Inc. 7,470,047 9,633,000 0.8
846,677 Zemex Corporation 7,282,851 7,408,424 0.6
------------ ------------ ----
111,430,721 131,511,487 11.0
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Miscellaneous
- -----------------------------------------------------------------------------------------------------------------
1,609,700 Mercer International, Inc. 21,053,577 16,046,697 1.3
1,097,750 Metromedia International Group, Inc. 12,821,044 13,104,391 1.1
282,800 Primark Corporation 7,834,882 8,855,175 0.7
528,000 Scott Technologies, Inc. (Class A) 7,351,804 7,722,000 0.7
------------ ------------ ----
49,061,307 45,728,263 3.8
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Producer Durables
- -----------------------------------------------------------------------------------------------------------------
171,300 AGCO Corp. 4,212,749 3,522,356 0.3
235,000 Allen Telecom, Inc. 3,766,514 2,731,875 0.2
419,600 Applied Industrial Technologies, Inc. 8,937,144 8,628,025 0.7
586,200 B.I., Inc. 5,366,809 5,495,625 0.5
711,600 Brown & Sharpe Manufacturing Company
(Class A) 9,363,565 8,539,200 0.7
114,900 CUNO, Incorporated 1,579,875 2,484,712 0.2
808,800 Comdial Corp. 4,965,675 9,806,700 0.8
317,000 DONCASTERS PLC (ADR) (b) 5,766,768 8,816,562 0.7
511,000 ESCO Electronics Corporation 8,934,284 9,709,000 0.8
243,675 General Cable Corp. 3,411,450 7,036,116 0.6
107,100 Kennametal, Inc. 4,825,389 4,471,425 0.4
35,300 Kent Electronics Corp. 708,118 646,431 0.1
210,800 Nu Horizons Electronics Corp. 1,621,264 1,264,800 0.1
277,300 Oakwood Homes Corp. 6,751,087 8,319,000 0.7
272,100 Ryland Group, Inc. 3,984,616 7,142,625 0.6
422,400 Stewart & Stevenson Services, Inc. 9,571,351 7,603,200 0.6
518,750 TALX Corp. 4,385,624 2,885,547 0.3
344,230 Toll Brothers, Inc. 7,579,704 9,875,098 0.8
149,200 Triumph Group, Inc. 3,752,560 6,266,400 0.5
------------ ------------ ----
99,484,546 115,244,697 9.6
=================================================================================================================
</TABLE>
7
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
- -----------------------------------------------------------------------------------------------------------------
Technology
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
568,300 Alpha Industries, Inc. $ 4,178,383 $ 8,488,981 0.7%
497,100 Anixter International, Inc. 7,849,509 9,475,969 0.8
599,700 Ardent Software, Inc. 5,472,290 8,245,875 0.7
434,600 Bell Industries, Inc. 6,923,368 4,943,575 0.4
9,700 Black Box Corporation 320,100 321,919 0.0
467,387 Boole & Babbage, Inc. 2,302,576 11,158,865 0.9
386,500 Brite Voice Systems, Inc. 4,801,451 4,396,437 0.4
1,372,500 CHS Electronics, Inc. 20,921,464 24,533,437 2.0
833,150 C.P. Clare Corp. 7,758,336 7,914,925 0.7
142,700 Cylink Corporation 1,955,715 1,712,400 0.1
681,100 DII Group, Inc. 8,003,637 11,621,269 1.0
830,000 DSP Communications, Inc. 8,451,940 11,412,500 1.0
326,900 Hadco Corporation 12,144,123 7,620,856 0.6
330,240 Harbinger Corp. 4,402,009 7,987,680 0.7
277,800 Harmonic Lightwaves, Inc. 4,352,061 4,271,175 0.4
536,000 IKOS Systems, Inc. 4,698,851 2,093,750 0.2
85,000 Information Resources Inc. 1,516,803 1,572,500 0.1
512,700 Learning Company, Inc. (The) 6,571,267 15,188,737 1.3
1,222,800 Mentor Graphics Corporation 12,490,597 12,915,825 1.1
650,000 Network Equipment Technologies, Inc. 8,691,403 10,196,875 0.9
726,550 Phoenix Technologies Ltd. 9,776,393 9,263,512 0.8
465,300 Planar Systems, Inc. 5,361,635 4,885,650 0.4
348,000 Platinum Technology, Inc. 8,589,306 9,939,750 0.8
585,000 Rational Software Corporation 8,467,621 8,921,250 0.7
595,100 Read-Rite Corporation 5,734,613 5,393,094 0.4
277,000 Software Spectrum, Inc. 5,550,546 5,609,250 0.5
151,717 Sterling Commerce, Inc. 3,430,396 7,358,274 0.6
269,400 Storage Technology Corp. 2,591,422 11,685,225 1.0
1,165,200 Structural Dynamics Research Corp. 22,444,540 26,945,250 2.2
1,232,700 Sybase, Inc. 17,535,228 8,590,378 0.7
530,300 Telxon Corporation 5,933,519 17,168,462 1.4
227,900 TriQuint Semiconductor, Inc. 4,630,484 4,330,100 0.4
------------ ------------ ----
233,851,586 286,163,745 23.9
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Utilities
- -----------------------------------------------------------------------------------------------------------------
569,600 Applied Digital Access, Inc. 4,238,174 2,848,000 0.2
=================================================================================================================
Total Stocks 921,079,841 1,056,279,348 88.2
=================================================================================================================
</TABLE>
8
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Percent of
Amount Issue Cost Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Securities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial Paper** $20,000,000 Corporate Receivables Corp., 5.55%
due 7/01/1998 $ 20,000,000 $ 20,000,000 1.7%
25,000,000 Countrywide Home Loans, Inc., 5.53%
due 7/23/1998 24,915,514 24,915,514 2.1
25,000,000 Edison Asset Securitization Corp., 5.57%
due 7/10/1998 24,965,188 24,965,188 2.1
16,354,000 General Motors Acceptance Corp., 6.50%
due 7/01/1998 16,354,000 16,354,000 1.3
24,965,000 Lexington Parker Capital Co. LLC, 5.57%
due 7/01/1998 24,965,000 24,965,000 2.1
25,000,000 Republic Industries, Inc., 5.53%
due 7/16/1998 24,942,396 24,942,396 2.1
10,000,000 Transamerica Finance Corp., 5.51%
due 8/11/1998 9,937,247 9,937,247 0.8
====================================================================================================================================
Total Short-Term Securities 146,079,345 146,079,345 12.2
====================================================================================================================================
Total Investments $1,067,159,186 1,202,358,693 100.4
==============
Liabilities in Excess of Other Assets (5,334,513) (0.4)
-------------- -----
Net Assets $1,197,024,180 100.0%
============== =====
====================================================================================================================================
Net Asset Value: Class A--Based on net assets of $386,891,250 and
18,107,603 shares outstanding $ 21.37
==============
Class B--Based on net assets of $611,064,643 and
30,040,237 shares outstanding $ 20.34
==============
Class C--Based on net assets of $70,757,671 and
3,512,098 shares outstanding $ 20.15
==============
Class D--Based on net assets of $128,310,616 and
6,024,818 shares outstanding $ 21.30
==============
====================================================================================================================================
</TABLE>
* Holdings are classified into the economic sectors found in the Russell 2000
Index.
** Commercial Paper is traded on a discount basis; the interest rates shown
are the discount rates paid at the time of purchase by the Fund.
(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).
9
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
PORTFOLIO INFORMATION
As of June 30, 1998
Percent of
Top Ten Equity Holdings Net Assets
VISX Inc............................ 4.8%
Structural Dynamics Research Corp... 2.2
CHS Electronics, Inc................ 2.0
Midway Games, Inc................... 2.0
Telxon Corporation.................. 1.4
Mercer International, Inc........... 1.3
Danka Business Systems PLC (ADR).... 1.3
Paxson Communications Corporation... 1.3
Learning Company, Inc. (The)........ 1.3
Micro Warehouse, Inc................ 1.2
Sectors Represented Percent of
in the Portfolio Net Assets
Technology.......................... 23.9%
Consumer Discretionary.............. 14.6
Materials & Processing.............. 11.0
Healthcare.......................... 10.7
Producer Durables................... 9.6
Energy.............................. 5.1
Auto & Transportation............... 5.0
Financial Services.................. 3.8
Miscellaneous....................... 3.8
Integrated Oils..................... 0.5
Utilities........................... 0.2
Equity Portfolio Changes for the Quarter
Ended June 30, 1998
Additions
Alfin, Inc.
Black Box Corporation
Broderbund Software, Inc.
Caribiner International, Inc.
DVI, Inc.
Information Resources Inc.
Intermet Corporation
Kent Electronics Corp.
*Lone Star Steakhouse & Saloon, Inc.
Midway Games, Inc.
Newpark Resources, Inc.
Pharmacopeia, Inc.
Platinum Technology, Inc.
Rational Software Corporation
Read-Rite Corporation
Scott Technologies, Inc. (Class A)
TriQuint Semiconductor, Inc.
Deletions
Axiom, Inc.
J. Baker, Inc.
Business Objects S.A. (ADR)
Callaway Golf Company
Cameron Ashley Building Products, Inc.
Cephalon, Inc.
Cheesecake Factory (The)
Civic Bancorp, Inc.
Department 56, Inc.
Farah, Inc.
Figgie International, Inc. (Class A)
Fingerhut Companies, Inc.
Foamex International, Inc.
Identix, Inc.
Isolyser Company, Inc.
*Lone Star Steakhouse & Saloon, Inc.
MasTec, Inc.
MathSoft, Inc.
Metromail Corp.
New Horizons Worldwide, Inc.
Ostex International, Inc.
QuickResponse Services, Inc.
Reliastar Financial Corp.
Southern Energy Homes, Inc.
Trenwick Group, Inc.
Viking Office Products, Inc.
Vivus, Inc.
Waddell & Reed Financial, Inc.
Wang Laboratories, Inc.
West Teleservices Corp.
Wonderware Corporation
*Added and deleted in the same quarter.
10
<PAGE>
Merrill Lynch Special Value Fund, Inc. June 30, 1998
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
Fred G. Weiss, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Daniel V. Szemis, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President
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
11
<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--6/98
[RECYCLE LOGO] Printed on post-consumer recycled paper
