MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Quarterly Report
December 31, 1997
<PAGE>
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
During the quarter ended December 31, 1997, Merrill Lynch Special Value Fund,
Inc. underperformed the unmanaged Russell 2000 Index. Total returns for the
Fund's Class A, Class B, Class C and Class D Shares were -10.51%, -10.73%,
- -10.75% and -10.58%, respectively. This compares to the total return of -3.35%
for the Russell 2000 Index. (Fund results do not reflect sales charges; results
would be lower if sales charges were included. Complete performance information,
including average annual total returns, can be found on pages 3-6 of this report
to shareholders.)
The Russell 2000 Index of small-capitalization stocks trailed the unmanaged
Standard & Poor's 500 Index (S&P 500), which gained 2.88% during the December
quarter. Turmoil in Southeast Asian financial markets provided the catalyst for
sharp price declines as investors abandoned small stocks in favor of more liquid
large-capitalization issues. Small-capitalization stocks have less overseas
exposure than large company stocks. Yet, despite this seeming contradiction, the
resulting investor behavior was not surprising, since liquidity often diminishes
during periods of market uncertainty.
Within the benchmark Russell 2000 Index, investment returns varied sharply
across economic sectors. The energy and technology sectors suffered steep
declines, while the interest rate-sensitive utilities and financial services
sectors made solid advances. The consumer staples sector also performed well
during the December quarter. Adverse sector positioning hindered Merrill Lynch
Special Value Fund, Inc.'s investment performance during the quarter. The Fund
was heavily weighted in technology stocks, and had only limited exposure to the
financial services, utilities and consumer staples sectors. Technology stocks in
the Russell 2000 Index declined 16% versus a decline of 11% for the Fund's
specific technology holdings. We have not reduced the Fund's weighting in
technology stocks since many of our established holdings and new purchases
appear very attractive on valuation and fundamental measures.
Specific stock selection also hindered Fund performance during the December
quarter. Shares of Vivus, Inc. abruptly declined as the company encountered
manufacturing problems and concerns about competing therapies resurfaced. The
company provides products to treat erectile dysfunction. Shares of Paxson
Communications Corporation, a broadcast network company covering 70% of US
television households, retreated when the company abandoned plans to join with a
programming partner, and instead announced that it would purchase television
programming on its own.
Fund performance benefited from investments in Storage Technology Corp. and
Platinum Technology, Inc. Shares of Storage Technology Corp., a manufacturer of
computer tape and disk storage products, advanced sharply based on improved
earnings and the announcement of a substantial corporate stock repurchase
program. The share price of Platinum Technology, Inc., a provider of distributed
software solutions, extended the September quarter's gains on strong growth in
license revenues and the announcement of a key strategic alliance with Intel
Corp.
Stock purchases in the December quarter spanned a variety of areas, although we
emphasized telemarketing services, biotechnology and telecommunication equipment
stocks. We took advantage of volatility in the biotechnology industry to
purchase stocks where we believed that a temporary setback in the development
process caused the stocks to trade at exceptionally low absolute valuations
based on the companies'
1
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1997
drugs under development. Telemarketing services stocks also presented an
attractive investment opportunity during the December quarter. These stocks have
suffered in recent months as a result of increased price competition and high
customer concentrations that are common in the industry. SITEL Corporation and
APAC Teleservices, Inc. are two recent Fund purchases in this area. Both
companies provide outsourced telephone customer service. We anticipate that
these companies will experience profit margin recovery along with continued
strong revenue growth.
As we enter the new year, the US economy remains strong and earnings growth
expectations favor small company stocks over large company stocks, while
valuations based on price/book value, price/sales and price/earnings ratios are
well below historical averages relative to large company stocks. Any
stabilization of events in Southeast Asia could cause investors to refocus on
the favorable fundamentals underpinning US small-capitalization stocks. The
Fund's allocation strategy, while adverse to performance in the December
quarter, positions the portfolio to take advantage of growth in the technology
sector, where stock valuations are low. It also limits our exposure to the
financial services sector, where earnings may have peaked and current valuations
are high.
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
January 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
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
2
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 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
12/31/97 9/30/97 12/31/96 % Change % Change
===================================================================================================================
<S> <C> <C> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* $19.53 $23.15 $17.83 +15.72%(1) -13.44%(2)
- -------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class B Shares* 18.69 22.12 17.18 +15.21(1) -13.20(2)
- -------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class C Shares* 18.51 21.93 17.05 +15.02(1) -13.27(2)
- -------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class D Shares* 19.49 23.09 17.81 +15.62(1) -13.38(2)
- -------------------------------------------------------------------------------------------------------------------
Russell 2000 Index** 437.02 453.82 362.61 +20.52 - 3.70
- -------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class A Shares--Total Return* +25.23(3) -10.51(4)
- -------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class B Shares--Total Return* +23.97(5) -10.73(6)
- -------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class C Shares--Total Return* +23.88(7) -10.75(8)
- -------------------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class D Shares--Total Return* +24.90(9) -10.58(10)
- -------------------------------------------------------------------------------------------------------------------
Russell 2000 Index**--Total Return +22.36 - 3.35
===================================================================================================================
</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 $1.097 per share capital gains
distributions.
(2) Percent change includes reinvestment of $0.516 per share capital gains
distributions.
(3) Percent change includes reinvestment of $1.632 per share ordinary income
dividends and $1.097 per share capital gains distributions.
(4) Percent change includes reinvestment of $0.687 per share ordinary income
dividends and $0.516 per share capital gains distributions.
(5) Percent change includes reinvestment of $1.451 per share ordinary income
dividends and $1.097 per share capital gains distributions.
(6) Percent change includes reinvestment of $0.554 per share ordinary income
dividends and $0.516 per share capital gains distributions.
(7) Percent change includes reinvestment of $1.456 per share ordinary income
dividends and $1.097 per share capital gains distributions.
(8) Percent change includes reinvestment of $0.560 per share ordinary income
dividends and $0.516 per share capital gains distributions.
(9) Percent change includes reinvestment of $1.591 per share ordinary income
dividends and $1.097 per share capital gains distributions.
(10) Percent change includes reinvestment of $0.655 per share ordinary income
dividends and $0.516 per share capital gains distributions.
3
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 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)
[A mountain chart depicting the growth of an investment in the Fund's Class A
Shares from $947.50 on May 5, 1978 to $6,747.43 on December 31, 1997.]
Average Annual Total Return
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 12/31/97 +25.23% +18.65%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/97 +17.62 +16.36
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/97 +13.27 +12.66
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 12/31/97 +23.97% +19.97%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/97 +16.42 +16.42
- --------------------------------------------------------------------------------
Inception (10/21/88) through 12/31/97 +11.37 +11.37
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after 4
years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 12/31/97 +23.88% +22.88%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/97 +20.59 +20.59
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1
year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 12/31/97 +24.90% +18.34%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/97 +21.53 +19.50
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1997
PERFORMANCE DATA (continued)
Performance Summary--Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
================================================================================
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
- --------------------------------------------------------------------------------
1997 17.83 19.53 1.097 1.632 +25.23
- --------------------------------------------------------------------------------
Total $9.009 Total $8.737
================================================================================
Cumulative total return as of 12/31/97: +612.13%**
================================================================================
* 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
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
================================================================================
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
- --------------------------------------------------------------------------------
1997 17.18 18.69 1.097 1.451 +23.97
- --------------------------------------------------------------------------------
Total $3.653 Total $5.638
================================================================================
Cumulative total return as of 12/31/97: +169.06%**
================================================================================
* 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.
5
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1997
PERFORMANCE DATA (concluded)
Performance Summary--Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
================================================================================
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
- --------------------------------------------------------------------------------
1997 17.05 18.51 1.097 1.456 +23.88
- --------------------------------------------------------------------------------
Total $2.673 Total $4.284
================================================================================
Cumulative total return as of 12/31/97: +81.84%**
================================================================================
* 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
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
================================================================================
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
- --------------------------------------------------------------------------------
1997 17.81 19.49 1.097 1.591 +24.90
- --------------------------------------------------------------------------------
Total $2.673 Total $4.648
================================================================================
Cumulative total return as of 12/31/97: +86.44%**
================================================================================
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge
was included.
6
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Percentage of
Sectors* Held Stocks Cost Value Net Assets
=================================================================================================================
<C> <C> <S> <C> <C> <C>
Auto & Transportation 280,500 Air Express International Corp. $ 5,044,176 $ 8,555,250 0.8%
386,500 Circle International Group, Inc. 10,222,009 8,865,344 0.9
1,823,500 Envirosource, Inc. 6,792,508 5,470,500 0.5
527,500 Landair Services, Inc. 6,217,120 12,791,875 1.3
345,000 Meritor Automotive, Inc. 7,584,782 7,266,563 0.7
325,000 Miller Industries, Inc. 3,638,066 3,493,750 0.3
434,800 Walbro Corp. 8,254,004 5,842,625 0.6
----------- ----------- ----
47,752,665 52,285,907 5.1
=================================================================================================================
Consumer Discretionary 460,000 APAC Teleservices, Inc. 6,276,791 6,210,000 0.6
1,317 Alfin, Inc. (Preferred) (a) 0 24,259 0.0
1,140,200 Au Bon Pain Company, Inc. (Class A) 7,669,095 8,622,763 0.8
158,300 Axiom, Inc. 1,873,968 633,200 0.1
434,500 J. Baker, Inc. 3,619,080 2,444,063 0.2
17,600 Catalina Marketing Corporation 446,837 814,000 0.1
15,800 Cheesecake Factory (The) 355,500 481,900 0.1
417,500 Department 56, Inc. 9,524,161 12,003,125 1.2
132,000 Dover Downs Entertainment, Inc. 2,794,937 3,027,750 0.3
40,502 Emerson Electric Co. (c) 1,946,255 2,285,860 0.2
235,000 Farah, Inc. 1,606,481 1,307,188 0.1
130,100 Global DirectMail Corp. 2,818,693 2,252,356 0.2
376,600 HA-LO Industries, Inc. 5,413,113 9,791,600 1.0
553,000 Heilig-Meyers Company 8,481,324 6,636,000 0.7
295,400 ITI Technologies, Inc. 4,273,172 6,424,950 0.6
646,300 Metromail Corp. 10,183,726 11,552,613 1.1
771,900 Micro Warehouse, Inc. 12,713,306 10,758,356 1.0
93,400 New Horizons Worldwide, Inc. 1,205,232 1,342,625 0.1
700,500 Norton McNaughton, Inc. 10,056,577 3,677,625 0.4
1,284,800 Paxson Communications Corporation 13,894,938 9,475,400 0.9
500 QuickResponse Services, Inc. 17,205 18,500 0.0
543,300 SITEL Corporation 5,075,810 4,957,613 0.5
506,500 Sodak Gaming, Inc. 6,191,644 3,228,938 0.3
387,800 Unitog Company 9,442,168 8,628,550 0.8
215,100 Veterinary Centers of America, Inc. 3,023,120 2,890,406 0.3
526,500 Viking Office Products, Inc. 10,536,523 11,484,281 1.1
456,800 WMS Industries, Inc. 8,734,749 9,649,900 0.9
----------- ----------- ----
148,174,405 140,623,821 13.6
=================================================================================================================
Financial Services 80,050 American National Insurance Co. 6,324,332 7,444,650 0.7
225,000 The BISYS Group, Inc. 7,173,797 7,481,250 0.7
210,630 Charter One Financial, Inc. (d) 4,843,514 13,296,019 1.3
126,500 Civic Bancorp, Inc. (e) 653,869 2,466,750 0.3
221,400 FirstFed Financial Corp. 3,459,042 8,579,250 0.8
343,200 Haven Bancorp, Inc. (f) 5,426,488 7,722,000 0.8
147,000 National Data Corporation 5,553,865 5,310,375 0.5
347,800 PXRE Corp. 7,578,788 11,542,613 1.1
125,990 Reliastar Financial Corp. 1,605,526 5,189,213 0.5
----------- ----------- ----
42,619,221 69,032,120 6.7
=================================================================================================================
</TABLE>
7
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percentage of
Sectors* Held Stocks Cost Value Net Assets
=================================================================================================================
<C> <C> <S> <C> <C> <C>
Health Care 398,000 Bell Industries, Inc. $ 6,419,535 $ 5,472,500 0.5%
149,400 Biomatrix, Inc. 2,233,899 4,482,000 0.4
207,100 COR Therapeutics, Inc. 2,077,958 4,659,750 0.4
333,700 Cephalon, Inc. 3,432,714 3,795,838 0.4
424,000 Genome Therapeutics Corp. 3,619,214 2,676,500 0.3
57,800 Gilead Sciences, Inc. 1,593,401 2,210,850 0.2
260,000 HCIA Inc. 3,248,663 3,087,500 0.3
500,000 Isolyser Company, Inc. 3,047,185 1,171,875 0.1
454,600 Magainin Pharmaceuticals, Inc. 4,779,299 3,665,213 0.4
299,500 Magellan Health Services, Inc. 8,688,770 6,439,250 0.6
538,000 NABI, Inc. 3,708,502 1,832,563 0.2
347,400 NeoRx Corp. 2,201,611 1,954,125 0.2
146,700 Neurogen Corporation 1,957,182 1,980,450 0.2
236,700 Ostex International, Inc. 2,734,502 621,338 0.1
411,400 Pharmaceutical Product Development,
Inc. 5,366,843 6,325,275 0.6
1,898,400 Physician Computer Network, Inc. 11,521,535 7,593,600 0.7
574,500 Ramsay Health Care, Inc. 3,830,632 1,723,500 0.2
79,000 Sano Corporation 1,289,500 2,616,875 0.3
387,350 Scios, Inc. 2,049,208 3,873,500 0.4
202,100 Sequana Therapeutics, Inc. 2,547,239 2,223,100 0.2
93,000 Sierra Health Services, Inc. 2,866,479 3,127,125 0.3
1,065,000 VISX, Inc. 24,162,305 23,563,125 2.3
705,900 Vivus, Inc. 16,905,648 7,500,188 0.7
------------ ----------- ----
120,281,824 102,596,040 10.0
=================================================================================================================
Materials & Processing 441,200 ACX Technologies, Inc. 9,324,762 10,781,825 1.1
598,252 BHA Group, Inc. (Class A) 7,417,261 11,665,914 1.1
237,200 Castle (A.M.) & Company 3,984,960 5,425,950 0.5
329,500 Citation Corp. 4,725,918 5,354,375 0.5
717,500 Commonwealth Industries, Inc. 12,637,919 10,403,750 1.0
399,300 Giant Cement Holding, Inc. 4,171,887 9,233,813 0.9
927,600 Insituform Technologies, Inc.
(Class A) 6,906,439 7,188,900 0.7
98,900 Novamerican Steel, Inc. 1,070,587 1,149,713 0.1
157,000 Quanex Corp. 4,307,020 4,415,625 0.4
155,100 Ryerson Tull, Inc. (Class A) 2,087,343 2,152,012 0.2
585,000 Shiloh Industries, Inc. 7,889,761 11,115,000 1.1
253,500 Wolverine Tube, Inc. 7,470,047 7,858,500 0.8
846,678 Zemex Corporation 7,282,851 7,408,428 0.7
------------ ----------- ----
79,276,755 94,153,805 9.1
=================================================================================================================
Miscellaneous 317,000 DONCASTERS PLC (ADR) (b) 5,766,768 6,696,625 0.6
425,000 Dan River, Inc. (Class A) 6,396,243 6,985,937 0.7
528,000 Figgie International, Inc.
(Class A) 7,351,804 6,930,000 0.7
430,000 MasTec, Inc. 10,422,459 9,836,250 0.9
1,609,700 Mercer International, Inc. 21,053,577 14,185,481 1.4
978,150 Metromedia International Group,
Inc. 11,716,809 9,292,425 0.9
295,800 Primark Corporation 8,199,338 12,035,362 1.2
------------ ----------- ----
70,906,998 65,962,080 6.4
=================================================================================================================
</TABLE>
8
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percentage of
Sectors* Held Stocks Cost Value Net Assets
================================================================================================================
<C> <C> <S> <C> <C> <C>
Other Energy 559,900 Benton Oil & Gas Co. $ 8,510,720 $ 7,243,706 0.7%
382,844 Louis Dreyfus Natural Gas
Corp. (g) 6,028,534 7,154,397 0.7
308,391 Plains Resources, Inc. 1,806,983 5,242,647 0.5
140,000 Plains Resources, Inc. 1,461,553 2,406,250 0.2
189,700 Tom Brown, Inc. 1,777,502 3,651,725 0.4
------------ ------------ ----
19,585,292 25,698,725 2.5
================================================================================================================
Producer Durables 171,300 AGCO Corp. 4,212,749 5,010,525 0.5
178,700 Allen Telecom, Inc. 3,163,312 3,294,781 0.3
103,700 Apogee Enterprises, Inc. 1,067,426 1,231,437 0.1
240,300 Applied Industrial Technology, Inc. 4,712,836 6,428,025 0.6
586,200 B.I., Inc. 5,366,809 5,239,162 0.5
471,600 Brown & Sharpe Manufacturing
Company (Class A) 6,419,839 4,804,425 0.5
150,300 Cincinnati Milacron, Inc. 3,138,902 3,898,406 0.4
808,800 Comdial Corp. 4,965,675 7,481,400 0.7
234,900 Cuno, Incorporated 3,358,481 3,582,225 0.4
372,000 ESCO Electronics Corporation 6,555,620 6,277,500 0.6
311,450 General Cable Corporation 7,151,975 11,270,597 1.1
107,100 Kennametal, Inc. 4,825,389 5,549,119 0.5
246,200 Nu Horizons Electronics Corp. 1,908,889 1,538,750 0.1
206,600 Oakwood Homes Corp. 4,574,569 6,856,537 0.7
286,100 Ryland Group, Inc. 4,213,565 6,759,112 0.7
645,400 Stewart & Stevenson Services, Inc. 15,413,974 16,457,700 1.6
518,750 TALX Corp. 4,385,624 3,436,719 0.3
216,800 Toll Brothers, Inc. 4,208,656 5,799,400 0.6
165,200 Triumph Group, Inc. 4,226,595 5,492,900 0.5
------------ ------------ ----
93,870,885 10,408,720 10.7
================================================================================================================
Technology 606,400 Alpha Industries, Inc. 4,076,636 9,778,200 0.9
497,100 Anixter International, Inc. 7,849,509 8,202,150 0.8
284,925 Boole & Babbage, Inc. 1,352,577 8,512,134 0.8
442,100 Brite Voice Systems, Inc. 5,650,961 4,310,475 0.4
514,100 Business Objects S.A. (ADR) (b) 6,438,740 5,333,787 0.5
941,400 CHS Electronics, Inc. 13,433,597 16,121,475 1.6
848,750 C.P. Clare Corp. 8,019,636 11,033,750 1.1
285,400 Cylink Corporation 4,095,174 2,782,650 0.3
750,800 DII Group, Inc. 8,522,084 20,459,300 2.0
514,600 DSP Communications, Inc. 3,826,236 6,175,200 0.6
245,160 Harbinger Corporation (h) 5,059,305 6,895,125 0.7
531,400 IKOS Systems, Inc. 4,668,048 3,254,825 0.3
26,200 Identix, Inc. 224,010 252,175 0.0
325,400 Learning Company, Inc. (The) 3,574,729 5,226,737 0.5
236,900 MathSoft, Inc. 1,247,850 651,475 0.1
1,003,100 Mentor Graphics Corporation 10,207,663 9,717,531 0.9
826,100 Network Equipment Technologies,
Inc. 12,391,742 12,081,712 1.2
532,550 Phoenix Technologies Ltd. 7,324,493 6,457,169 0.6
639,000 Planar Systems, Inc. 7,535,335 6,549,750 0.6
221,300 Platinum Technology, Inc. 2,296,839 6,251,725 0.6
</TABLE>
9
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Shares Percentage of
Sectors* Held Stocks Cost Value Net Assets
===================================================================================================================
<C> <C> <S> <C> <C> <C>
Technology 277,000 Software Spectrum, Inc. $ 5,550,546 $ 3,289,375 0.3%
(concluded) 151,717 Sterling Commerce, Inc. 3,430,396 5,831,622 0.6
233,700 Storage Technology Corp. 5,425,524 14,474,794 1.4
1,311,500 Structural Dynamics Research Corp. 26,471,411 29,508,750 2.9
904,800 Sybase, Inc. 14,827,826 12,045,150 1.2
709,300 Texlon Corp. 9,253,708 16,934,537 1.6
659,700 VMARK Software, Inc. 6,390,940 5,277,600 0.5
144,600 Vanstar Corporation 1,292,522 1,635,787 0.2
486,900 Wang Laboratories, Inc. 10,120,605 10,772,662 1.0
332,400 Wonderware Corporation 5,809,709 4,695,150 0.5
----------- ----------- ----
206,368,351 254,512,772 24.7
===================================================================================================================
Utilities 489,600 Applied Digital Access, Inc. 3,644,062 2,876,400 0.3
===================================================================================================================
Total Stocks 832,480,458 918,150,390 89.1
===================================================================================================================
<CAPTION>
Face
Amount Short-Term Securities
===================================================================================================================
<C> <C> <S> <C> <C> <C>
Commercial Paper** $46,294,000 General Motors Acceptance Corp.,
6.75% due 1/02/1998 46,285,320 46,285,320 4.5
20,000,000 International Securitization Corp.,
5.90% due 1/13/1998 19,960,667 19,960,667 1.9
20,000,000 Lehman Brothers Holdings, Inc.,
5.95% due 1/07/1998 19,980,167 19,980,167 1.9
10,000,000 Lexington Parker Capital Co. LLC,
5.93% due 1/09/1998 9,986,822 9,986,822 1.0
15,000,000 WCP Funding, Inc., 5.85%
due 1/16/1998 14,963,438 14,963,438 1.5
===================================================================================================================
Total Short-Term Securities 111,176,414 111,176,414 10.8
===================================================================================================================
Total Investments $943,656,872 1,029,326,804 99.9
============
Other Assets Less Liabilities 1,009,392 0.1
-------------- ------
Net Assets $1,030,336,196 100.0%
============== =======
===================================================================================================================
Net Asset Class A--Based on net assets of $362,968,469 and
Value: 18,586,362 shares outstanding $ 19.53
Class B--Based on net assets of $525,091,231 and ==============
28,100,373 shares outstanding $ 18.69
Class C--Based on net assets of $56,459,430 and ==============
3,050,421 shares outstanding $ 18.51
Class D--Based on net assets of $85,817,066 and ==============
4,403,348 shares outstanding $ 19.49
==============
===================================================================================================================
</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).
(c) Computational Systems, Inc. was acquired by Emerson Electric Co. during the
quarter.
(d) Charter One Financial, Inc. declared a 5% stock dividend during the quarter.
(e) Civic Bancorp, Inc. declared a 5% stock dividend during the quarter.
(f) Haven Bancorp, Inc. declared a two-for-one stock split during the quarter.
(g) Louis Dreyfus Natural Gas Corp. merged with American Exploration Co. during
the quarter.
(h) Premenos Technology Corporation was acquired by Harbinger Corporation during
the quarter.
10
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1997
PORTFOLIO INFORMATION
As of December 31, 1997
Percent of
Top Ten Equity Holdings Net Assets
Structural Dynamics Research Corp. ............. 2.9%
VISX, Inc. ..................................... 2.3
DII Group, Inc. ................................ 2.0
Texlon Corp. ................................... 1.6
Stewart & Stevenson Services, Inc. ............. 1.6
CHS Electronics, Inc. .......................... 1.6
Storage Technology Corp. ....................... 1.4
Mercer International, Inc. ..................... 1.4
Charter One Financial, Inc. .................... 1.3
Landair Services, Inc. ......................... 1.3
Sectors Represented Percent of
in the Portfolio Net Assets
Technology ..................................... 24.7%
Consumer Discretionary ......................... 13.6
Producer Durables .............................. 10.7
Health Care .................................... 10.0
Materials & Processing ......................... 9.1
Financial Services ............................. 6.7
Miscellaneous .................................. 6.4
Auto & Transportation .......................... 5.1
Other Energy ................................... 2.5
Utilities ...................................... 0.3
Equity Portfolio Changes for the Quarter
Ended December 31, 1997
Additions
APAC Teleservices, Inc.
Allen Telecom, Inc.
Apogee Enterprises, Inc.
Bell Industries, Inc.
Business Objects S.A. (ADR)
Cephalon, Inc.
Dan River, Inc. (Class A)
ESCO Electronics Corporation
Emerson Electric Co.
Figgie International, Inc. (Class A)
HCIA Inc.
IKOS Systems, Inc.
MasTec, Inc.
Meritor Automotive, Inc.
Miller Industries, Inc.
Neurogen Corporation
Novamerican Steel, Inc.
Pharmaceutical Product Development, Inc.
QuickResponse Services, Inc.
SITEL Corporation
*Stoneridge, Inc.
Veterinary Centers of America, Inc.
Wonderware Corporation
Deletions
Analogic Corp.
Dynatech Corporation
Fingerhut Companies, Inc.
Marshall Industries
Neoprobe Corp.
Pioneer-Standard Electronics, Inc.
Reno Air, Inc.
Rural Cellular Corp. (Class A)
Sofamor Danek Group, Inc.
*Stoneridge, Inc.
VWR Scientific Products Corp.
Versus Technology, Inc.
*Added and deleted in the same quarter.
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--12/97
[LOGO] Printed on post-consumer recycled paper
