MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
September 30, 1999
<PAGE>
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
During the quarter ended September 30, 1999, Merrill Lynch Special Value Fund,
Inc. modestly underperformed the unmanaged Russell 2000 Index. Total returns for
the Fund's Class A, Class B, Class C and Class D Shares were -6.85%, -7.10%,
- -7.07% and -6.89%, respectively, compared to the total return of -6.32% for the
Russell 2000 Index. (Investment results shown do not reflect sales charges, and
would be lower if sales charges were included. Complete performance information
can be found on pages 3 and 4 of this report to shareholders.)
After rallying sharply during the June quarter, small-capitalization stocks
relinquished some of their gains during the quarter ended September 30, 1999.
Small-capitalization stock valuations, already historically low relative to
large-capitalization stock valuations, were held down by continued interest rate
concerns. In general, small cap stocks perform poorly when the economy is
decelerating. When the yield curve flattens, as it did in August 1999, it
indicates that investors expect slower economic growth. Investors are concerned
that signs of strength in the US economy will lead the Federal Reserve Board to
raise interest rates again in a preemptive strike against inflation. Therefore,
small cap stocks are caught between countervailing forces as signs of economic
growth, a tightening job market and rising raw materials prices lead to optimism
offset by the fear that additional interest rate hikes could curtail any
significant expansion.
The decline in the Russell 2000 Index of small cap stocks in the September
quarter was approximately equal to the decline in the broader Standard & Poor's
500 (S&P 500) Index over the same period. Declining sectors in the small cap
index outpaced advancing sectors by a three-to-one margin during the September
quarter. The economically sensitive transportation and materials processing
sectors posted double-digit declines, while the technology and energy sectors
posted slight advances. The Fund's sector allocation strategy had a negligible
impact on performance during the September quarter, as investment results were
largely driven by returns on individual stock positions.
Stocks that most benefited the Fund's quarterly investment results included
Danka Business Systems PLC and Mentor Corporation. Shares of Danka Business
Systems PLC, a distributor of office equipment including copiers and fax
machines, soared as the company renegotiated its credit agreements and divested
non-core operations. Medical device manufacturer Mentor Corporation also made a
positive contribution to Fund results during the September quarter. The company
provides implants for breast augmentation and products for urinary incontinence.
Mentor's shares appreciated sharply after its bid to acquire Collagen Aesthetics
Inc. failed, and the company reported earnings that showed revenue growth and
gross margins well ahead of analysts' expectations. We trimmed the Fund's
investment in Mentor on stock price strength as the shares approached our upside
valuation target.
Stocks that hindered results during the September quarter included some of the
same issues that benefited results in the June quarter. Among these, shares of
DSP Communications, Inc. were especially weak. DSP Communications designs
chipsets used in wireless devices, and the stock gave up some of its earlier
gains as talk of a potential takeover subsided and concerns emerged that the
company was about to lose a major design contract. Mentor Graphics Corporation,
a provider of electronic design automation software, also declined when the
company announced an earnings shortfall. We scaled back the Fund's investment in
Mentor Graphics following the disappointing results that caused us to adopt a
negative investment outlook for the stock.
1
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
As small-capitalization stocks declined in the September quarter, we actively
accumulated investments where we believed the long-term earnings prospects were
favorable. Stock price declines in our universe of small-capitalization stocks
provided numerous opportunities to increase existing positions and to acquire
new investments at attractive absolute valuation levels. In general, we sought
to reduce the level of portfolio risk by realizing gains in overweighted
technology stocks, and by increasing exposure to healthcare and financial
services stocks. With the second increase in the discount rate now behind us,
and against a backdrop of low valuation levels, small-capitalization stocks may
recover somewhat from their recent declines.
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 upcoming quarterly report to shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Daniel V. Szemis
Daniel V. Szemis
Senior Vice President and Portfolio Manager
November 1, 1999
2
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
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 "Recent Performance Results" and "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.
Recent Performance Results
<TABLE>
<CAPTION>
Ten Years/
3 Month 12 Month Since Inception
As of September 30, 1999 Total Return Total Return Total Return
=======================================================================================================
<S> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* -6.85% +28.64% +191.85%
- -------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class B Shares* -7.10 +27.32 +163.36
- -------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class C Shares* -7.07 +27.33 + 86.42
- -------------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class D Shares* -6.89 +28.34 + 93.85
- -------------------------------------------------------------------------------------------------------
Russell 2000 Index** -6.32 +19.07 +182.26/+81.57
=======================================================================================================
</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/since inception periods
are ten years for Class A & Class B Shares and from 10/21/94 for Class C &
Class D Shares, respectively.
** An unmanaged broad-based Index comprised of small-capitalization common
stocks. Ten years/since inception total return periods are ten years and
from 10/21/94, respectively.
3
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
PERFORMANCE DATA (concluded)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% current 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
Shares from $947.50 on May 5, 1978 to $7,043.72 on September 30, 1999.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 9/30/99 +28.64% +21.89%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/99 +14.07 +12.84
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/99 +11.31 +10.71
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 9/30/99 +27.32% +23.32%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/99 +12.90 +12.90
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/99 +10.17 +10.17
- --------------------------------------------------------------------------------
* 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 9/30/99 +27.33% +26.33%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/99 +13.43 +13.43
- --------------------------------------------------------------------------------
* 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 9/30/99 +28.34% +21.60%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/99 +14.33 +13.09
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value Percent of
Sector* Held Stocks (Note 1a) Net Assets
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Auto & Transportation
- ------------------------------------------------------------------------------------------------------------
526,600 Air Express International Corporation $ 11,947,237 1.3%
549,000 Circle International Group, Inc. 11,220,187 1.2
240,900 +Forward Air Corporation 5,600,925 0.6
21,000 +Gentex Corporation 433,781 0.1
185,400 +Keystone Automotive Industries Inc. 2,027,812 0.2
428,500 +Landair Corporation (c) 2,571,000 0.3
136,500 Meritor Automotive, Inc. 2,849,437 0.3
2,041,700 +Miller Industries, Inc. 5,742,281 0.6
-------------- ---
42,392,660 4.6
- ------------------------------------------------------------------------------------------------------------
Consumer Discretionary
- ------------------------------------------------------------------------------------------------------------
2,150,500 +APAC TeleServices, Inc. 9,005,219 1.0
1,317 Adrien Arpel, Inc. (Preferred) 24,259 0.0
273,700 +Ambassadors International, Inc. 3,677,844 0.4
1,457,300 +Boise Cascade Office Products Corp. 15,848,137 1.7
556,900 +Boron, LePore & Associates, Inc. 3,132,563 0.3
589,500 +Buffets, Inc. 6,852,937 0.8
569,600 +Caribiner International, Inc. 4,948,400 0.5
212,100 +The Cheesecake Factory Incorporated 5,885,775 0.7
1,822,700 +Danka Business Systems PLC (ADR)(a) 18,568,756 2.0
2,171,750 +HA-LO Industries, Inc. 13,573,437 1.5
1,461,600 Heilig-Meyers Company 6,942,600 0.8
250,900 +ITI Technologies, Inc. 7,542,681 0.8
665,500 +McNaughton Apparel Group Inc. 5,823,125 0.6
158,600 +The Men's Warehouse, Inc. 3,409,900 0.4
999,750 +Metromedia International Group, Inc. 4,123,969 0.4
425,800 +Micro Warehouse, Inc. 5,136,213 0.6
711,040 +Midway Games, Inc. 11,198,880 1.2
1,121,700 +Panera Bread Company (Class A)(c) 7,431,263 0.8
679,800 +Paxson Communications Corporation 8,327,550 0.9
803,200 Pier 1 Imports, Inc. 5,421,600 0.6
625,100 +SITEL Corporation 2,656,675 0.3
729,000 +Safety-Kleen Corp. 8,793,563 1.0
867,300 +Stein Mart, Inc. 6,179,513 0.7
320,300 +Suiza Foods Corporation 12,011,250 1.3
518,300 +Veterinary Centers of America, Inc. 5,928,056 0.7
897,300 +WMS Industries Inc. 10,431,113 1.1
100,700 +West TeleServices Corporation 1,044,763 0.1
-------------- ----
193,920,041 21.2
- ------------------------------------------------------------------------------------------------------------
Energy
- ------------------------------------------------------------------------------------------------------------
188,400 +Barrett Resources Corporation 6,959,025 0.7
481,000 +Basin Exploration, Inc. 11,544,000 1.3
150,600 +Evergreen Resources, Inc. 3,623,812 0.4
259,722 +Louis Dreyfus Natural Gas Corp. 5,567,790 0.6
158,800 +Plains Resources Inc. 2,838,550 0.3
308,391 Plains Resources Inc. (b) 5,570,312 0.6
290,750 +Tom Brown, Inc. 4,288,562 0.5
-------------- ----
40,392,051 4.4
- ------------------------------------------------------------------------------------------------------------
Financial Services
- ------------------------------------------------------------------------------------------------------------
85,050 American National Insurance Company 5,698,350 0.6
127,300 +BARRA Inc. 2,673,300 0.3
1,157,200 +Billing Concepts Corp. 5,786,000 0.6
286,300 Brandywine Realty Trust 4,652,375 0.5
</TABLE>
5
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Value Percent of
Sector* Held Stocks (Note 1a) Net Assets
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Financial Services (concluded)
- ------------------------------------------------------------------------------------------------------------
196,500 Camden Property Trust $ 5,280,937 0.6%
732,100 Capitol Federal Financial 7,298,122 0.8
647,447 Charter One Financial, Inc. 14,972,204 1.6
110,300 Commerce Bancorp, Inc. 4,577,450 0.5
22,600 Cullen/Frost Bankers, Inc. 565,000 0.1
13,400 Digital Insight Corporation 201,000 0.0
179,600 FelCor Lodging Trust Inc. 3,143,000 0.4
355,300 Frontier Insurance Group, Inc. 3,108,875 0.4
123,000 HCC Insurance Holdings, Inc. 2,067,937 0.2
207,500 Investment Technology Group, Inc. 4,772,500 0.5
34,900 Jefferies Group, Inc. 728,537 0.1
106,200 Kimco Realty Corporation 3,796,650 0.4
145,000 Meditrust Companies 1,232,500 0.1
171,300 National Data Corporation 4,453,800 0.5
391,000 PXRE Corporation 5,693,938 0.6
433,700 Peoples Heritage Financial Group, Inc. 7,210,263 0.8
475,600 +Primark Corporation 13,524,875 1.5
234,100 Roslyn Bancorp, Inc. 4,184,538 0.5
573,200 Scottish Annuity & Life Holdings, Ltd. 5,588,700 0.6
-------------- ----
111,210,851 12.2
- ------------------------------------------------------------------------------------------------------------
Healthcare
- ------------------------------------------------------------------------------------------------------------
1,445,500 +Caremark Rx, Inc. 8,130,937 0.9
150,900 +Coulter Pharmaceutical, Inc. 2,103,169 0.2
470,500 +Covance Inc. 4,557,969 0.5
67,400 +DVI, Inc. 1,103,675 0.1
26,000 +Datascope Corp. 913,250 0.1
489,800 +EndoSonics Corporation 4,163,300 0.5
35,400 +Gilead Sciences, Inc. 2,272,237 0.3
799,300 +HCIA, Inc. (c) 8,292,738 0.9
91,800 +Incyte Pharmaceuticals, Inc. 2,122,875 0.2
231,800 Mentor Corporation 6,606,300 0.7
610,200 +Nabi 3,165,413 0.3
129,800 +Neurogen Corporation 2,157,925 0.2
249,800 +Novoste Corporation 4,457,369 0.5
613,600 +Orthodontic Centers of America, Inc. 10,738,000 1.2
221,600 +Pharmacopeia, Inc. 2,409,900 0.3
300,850 +Scios Inc. 1,109,384 0.1
139,500 +Sierra Health Services, Inc. 1,412,438 0.2
298,000 +Sunrise Assisted Living, Inc. 7,915,625 0.9
46,000 +VISX, Incorporated 3,638,313 0.4
-------------- ----
77,270,817 8.5
- ------------------------------------------------------------------------------------------------------------
Materials & Processing
- ------------------------------------------------------------------------------------------------------------
477,700 A.M. Castle & Company 6,030,962 0.7
638,277 BHA Group Holdings, Inc. (c) 6,183,308 0.7
79,500 Carpenter Technology Corporation 1,947,750 0.2
214,500 +Citation Corporation 3,646,500 0.4
438,900 Commonwealth Industries, Inc. 5,897,719 0.6
191,300 +Giant Cement Holding, Inc. 4,387,944 0.5
209,500 Gibraltar Steel Corporation 4,412,594 0.5
268,200 +Insituform Technologies, Inc. (Class A) 6,705,000 0.7
559,200 Intermet Corporation 4,735,725 0.5
151,000 Kaydon Corp. 3,756,125 0.4
251,500 +Novamerican Steel, Inc. 2,860,813 0.3
</TABLE>
6
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Value Percent of
Sector* Held Stocks (Note 1a) Net Assets
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Materials & Processing (concluded)
- ------------------------------------------------------------------------------------------------------------
592,000 +Paxar Corporation $ 5,698,000 0.6%
195,500 Quanex Corporation 5,009,688 0.5
1,250,581 Ryerson Tull, Inc. (c) 28,919,686 3.2
674,500 +Shiloh Industries, Inc. (c) 7,419,500 0.8
885,200 Watsco, Inc. 10,069,150 1.1
332,800 +Wolverine Tube, Inc. 5,158,400 0.6
863,610 +Zemex Corporation (c) 6,099,246 0.7
-------------- ----
118,938,110 13.0
- ------------------------------------------------------------------------------------------------------------
Miscellaneous
- ------------------------------------------------------------------------------------------------------------
1,609,700 Mercer International, Inc. (c) 5,986,072 0.7
- ------------------------------------------------------------------------------------------------------------
Producer Durables
- ------------------------------------------------------------------------------------------------------------
194,300 AGCO Corporation 2,525,900 0.3
87,100 +ANTEC Corporation 4,627,187 0.5
250,000 +Allen Telecom Inc. 2,437,500 0.3
752,600 Applied Industrial Technologies, Inc. 13,546,800 1.5
606,200 +B.I., Incorporated (c) 4,849,600 0.5
846,900 +Brown & Sharpe Manufacturing Company
(Class A)(c) 2,011,387 0.2
808,800 +Comdial Corporation (c) 5,863,800 0.6
192,800 +DONCASTERS PLC (ADR)(a) 2,313,600 0.3
517,800 +ESCO Electronics Corporation 5,760,525 0.6
465,900 +Kent Electronics Corporation 8,619,150 0.9
210,800 +Nu Horizons Electronics Corp. 1,686,400 0.2
598,500 Oakwood Homes Corporation 2,693,250 0.3
145,200 The Ryland Group, Inc. 3,303,300 0.4
518,750 +TALX Corporation (c) 4,150,000 0.5
164,630 +Toll Brothers, Inc. 3,138,259 0.3
148,600 +Triumph Group, Inc. 3,947,188 0.4
-------------- ----
71,473,846 7.8
- ------------------------------------------------------------------------------------------------------------
Technology
- ------------------------------------------------------------------------------------------------------------
67,000 +ANADIGICS, Inc. 1,884,375 0.2
435,000 +Anixter International, Inc. 10,113,750 1.1
974,500 +Aspen Technology, Inc. 9,501,375 1.0
545,300 Bell Industries, Inc. (c) 2,385,687 0.3
298,300 +Black Box Corporation 15,660,750 1.7
806,150 +C.P. Clare Corporation (c) 5,139,206 0.6
270,000 +Cognos, Inc. 7,036,875 0.8
279,100 +The DII Group, Inc. 9,820,831 1.1
669,300 +DSP Communications, Inc. 12,716,700 1.4
15,600 +Galileo Corporation 337,350 0.0
85,253 +InterVoice, Inc. 943,111 0.1
1,590,900 +Mentor Graphics Corporation 13,622,081 1.5
1,400,000 +NetManage, Inc. 2,887,500 0.3
537,450 +Phoenix Technologies Ltd. 6,012,722 0.6
593,200 +Planar Systems, Inc. (c) 3,855,800 0.4
148,900 +Rational Software Corporation 4,359,978 0.5
387,900 +Read-Rite Corporation 1,818,281 0.2
591,400 +Sensormatic Electronics Corporation 7,503,388 0.8
277,000 +Software Spectrum, Inc. (c) 4,293,500 0.5
474,817 +Sterling Commerce, Inc. 8,813,791 1.0
63,500 +Storage Technology Corporation 1,222,375 0.1
</TABLE>
7
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Shares Value Percent of
Sector* Held Stocks (Note 1a) Net Assets
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Technology (concluded)
- ------------------------------------------------------------------------------------------------------------
892,400 +Structural Dynamics Research
Corporation $ 13,413,888 1.5%
1,062,700 +Sybase, Inc. 12,553,144 1.4
602,500 Telxon Corporation 5,045,938 0.5
946,800 +The Vantive Corporation 8,225,325 0.9
------------ -----
169,167,721 18.5
- ------------------------------------------------------------------------------------------------------------
Utilities
- ------------------------------------------------------------------------------------------------------------
569,600 +Applied Digital Access, Inc. 2,954,800 0.3
- ------------------------------------------------------------------------------------------------------------
Total Stocks (Cost--$891,394,549) 833,706,969 91.2
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Face
Amount
- ------------------------------------------------------------------------------------------------------------
Short-Term Securities
- ------------------------------------------------------------------------------------------------------------
Commercial Paper** $25,000,000 First Data Corporation, 5.30% due
10/19/1999 24,933,750 2.7
15,000,000 Ford Motor Credit Company, 5.29% due
10/07/1999 14,986,775 1.7
15,000,000 Vodafone AirTouch PLC, 5.32% due
10/21/1999 14,955,667 1.6
27,146,000 General Motors Acceptance Corp., 5.69%
due 10/01/1999 27,146,000 3.0
------------ -----
82,022,192 9.0
- ------------------------------------------------------------------------------------------------------------
US Government 19,910,000 Federal Home Loan Mortgage Corporation,
Agency Obligations** 5.23% due 10/15/1999 19,869,505 2.2
- ------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$101,891,697) 101,891,697 11.2
- ------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$993,286,246) 935,598,666 102.4
Liabilities in Excess of Other Assets (21,632,767) (2.4)
------------ -----
Net Assets $913,965,899 100.0%
============ =====
- ------------------------------------------------------------------------------------------------------------
</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 reflect the discount rates
paid at the time of purchase by the Fund.
(a) American Depositary Receipts (ADR).
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Investments 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Net Share Net Dividend
Sector Affiliate Activity Cost Income
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Auto & Landair Corporation -- -- ++
Transportation
Consumer Panera Bread Company 1,121,700 $ 7,525,064 ++
Discretionary (Class A)
Healthcare HCIA, Inc. (20,200) (257,550) ++
Materials & BHA Group Holdings, Inc. -- -- $ 19,148
Processing
Materials & Ryerson Tull, Inc. 210,700 2,985,772 59,879
Processing
Materials & Shiloh Industries, Inc. -- -- ++
Processing
Materials & Zemex Corporation 863,610 7,282,851 ++
Processing
Miscellaneous Mercer International, Inc. -- -- 80,485
Producer Durables B.I., Incorporated -- -- ++
Producer Durables Brown & Sharpe Manufacturing -- -- ++
Company (Class A)
Producer Durables Comdial Corporation -- -- ++
Producer Durables TALX Corporation -- -- ++
Technology Bell Industries, Inc. -- (3,108,210) 3,108,210
Technology C.P. Clare Corporation -- -- ++
Technology Planar Systems, Inc. 69,000 544,812 ++
Technology Software Spectrum, Inc. -- -- ++
- ----------------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$993,286,246) (Note 1a) .... $ 935,598,666
Cash ............................................................... 720
Receivables:
Securities sold ................................................. $ 2,714,812
Capital shares sold ............................................. 1,857,726
Dividends ....................................................... 245,618 4,818,156
--------------
Prepaid registration fees and other assets (Note 1e) ............... 35,610
--------------
Total assets ....................................................... 940,453,152
--------------
- -------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ............................................ 22,888,634
Capital shares redeemed ......................................... 2,524,257
Distributor (Note 2) ............................................ 395,156
Investment adviser (Note 2) ..................................... 110,588 25,918,635
--------------
Accrued expenses and other liabilities ............................. 568,618
--------------
Total liabilities .................................................. 26,487,253
--------------
- -------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ......................................................... $ 913,965,899
==============
- -------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000 shares
Consist of: authorized ......................................................... $ 1,989,454
Class B Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ........................................................ 2,468,506
Class C Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ........................................................ 282,084
Class D Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ......................................................... 578,883
Paid-in capital in excess of par ................................... 949,838,801
Accumulated investment loss--net ................................... (2,758,002)
Undistributed realized capital gains on investments--net ........... 19,253,753
Unrealized depreciation on investments--net ........................ (57,687,580)
--------------
Net assets ......................................................... $ 913,965,899
==============
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $352,604,598 and 19,894,540 shares
outstanding ............................................... $ 17.72
==============
Class B--Based on net assets of $412,536,304 and 24,685,063 shares
outstanding ............................................... $ 16.71
==============
Class C--Based on net assets of $46,606,459 and 2,820,836 shares
outstanding ............................................... $ 16.52
==============
Class D--Based on net assets of $102,218,538 and 5,788,832 shares
outstanding ............................................... $ 17.66
==============
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations for the Six Months Ended September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Investment Dividends .......................................................... $ 2,805,991
Income Interest and discount earned ....................................... 1,819,642
(Notes 1c & 1d): --------------
Total income ....................................................... 4,625,633
--------------
- -------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) .................................. $ 3,297,641
Account maintenance and distribution fees--Class B (Note 2) ........ 2,068,251
Transfer agent fees--Class B (Note 2) .............................. 653,158
Transfer agent fees--Class A (Note 2) .............................. 467,097
Account maintenance and distribution fees--Class C (Note 2) ........ 217,317
Transfer agent fees--Class D (Note 2) .............................. 142,135
Account maintenance fees--Class D (Note 2) ......................... 122,956
Printing and shareholder reports ................................... 98,927
Registration fees (Note 1e) ........................................ 74,926
Transfer agent fees--Class C (Note 2) .............................. 72,033
Professional fees .................................................. 53,348
Custodian fees ..................................................... 51,497
Accounting services (Note 2) ....................................... 48,459
Directors' fees and expenses ....................................... 6,327
Pricing fees ....................................................... 1,043
Other .............................................................. 8,520
--------------
Total expenses ..................................................... 7,383,635
--------------
Investment loss--net ............................................... (2,758,002)
--------------
- -------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net .................................. 22,668,196
Unrealized Gain Change in unrealized depreciation on investments--net .............. 112,288,688
on Investments--Net --------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ............... $ 132,198,882
==============
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Sept. 30, 1999 March 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment loss--net ................................................ $ (2,758,002) $ (7,042,111)
Realized gain on investments--net ................................... 22,668,196 84,918,600
Change in unrealized appreciation/depreciation on investments--net .. 112,288,688 (354,219,652)
------------- --------------
Net increase (decrease) in net assets resulting from operations ..... 132,198,882 (276,343,163)
------------- --------------
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Realized gain on investments--net:
Shareholders Class A .......................................................... (31,195,157) (19,624,603)
(Note 1f): Class B .......................................................... (35,406,939) (31,099,848)
Class C .......................................................... (3,802,949) (3,623,058)
Class D .......................................................... (8,635,731) (6,448,638)
------------- --------------
Net decrease in net assets resulting from distributions
to shareholders ..................................................... (79,040,776) (60,796,147)
------------- --------------
- ---------------------------------------------------------------------------------------------------------------------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions .................................................. 84,712,638 (78,669,579)
(Note 4): ------------- --------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets ............................. 137,870,744 (415,808,889)
Beginning of period ................................................. 776,095,155 1,191,904,044
------------- --------------
End of period ....................................................... $ 913,965,899 $ 776,095,155
============= ==============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A+
----------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended March 31,
Sept. 30, ------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 16.27 $ 22.03 $ 17.59 $ 17.77 $ 15.63
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .............. (.01) (.02) (.03) .06 .24
Realized and unrealized gain (loss) on
investments--net ........................... 3.20 (4.66) 7.20 3.01 2.72
-------- -------- -------- -------- --------
Total from investment operations ........... 3.19 (4.68) 7.17 3.07 2.96
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................. -- -- -- (.06) (.23)
Realized gain on investments--net ....... (1.74) (1.08) (2.73) (3.19) (.59)
-------- -------- -------- -------- --------
Total dividends and distributions .......... (1.74) (1.08) (2.73) (3.25) (.82)
-------- -------- -------- -------- --------
Net asset value, end of period ............. $ 17.72 $ 16.27 $ 22.03 $ 17.59 $ 17.77
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 18.91%++ (22.17%) 43.18% 17.62% 19.56%
Return:** ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................... 1.11%* 1.08% 1.02% 1.10% 1.12%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .............. (.06%)* (.10%) (.13%) .34% 1.43%
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $352,605 $276,957 $396,198 $223,492 $181,297
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................... 34.15% 57.82% 67.02% 97.87% 60.37%
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class B+
-------------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended March 31,
Sept. 30, ---------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 15.37 $ 21.03 $ 16.91 $ 17.21 $ 15.16
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .............. (.10) (.20) (.23) (.12) .07
Realized and unrealized gain (loss) on
investments--net ........................... 3.02 (4.43) 6.90 2.90 2.64
-------- -------- -------- -------- --------
Total from investment operations ........... 2.92 (4.63) 6.67 2.78 2.71
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................. -- -- -- -- (.07)
Realized gain on investments--net ....... (1.58) (1.03) (2.55) (3.08) (.59)
-------- -------- -------- -------- --------
Total dividends and distributions .......... (1.58) (1.03) (2.55) (3.08) (.66)
-------- -------- -------- -------- --------
Net asset value, end of period ............. $ 16.71 $ 15.37 $ 21.03 $ 16.91 $ 17.21
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 18.29%++ (22.96%) 41.72% 16.44% 18.37%
Return:** ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................... 2.14%* 2.10% 2.05% 2.13% 2.15%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .............. (1.09%)* (1.12%) (1.16%) (.68%) .44%
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $412,536 $378,610 $611,364 $337,716 $310,174
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................... 34.15% 57.82% 67.02% 97.87% 60.37%
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C+
-------------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended March 31,
Sept. 30, ---------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 15.21 $ 20.83 $ 16.77 $ 17.10 $ 15.10
Operating -------- -------- ------- ------- -------
Performance: Investment income (loss)--net .............. (.10) (.20) (.23) (.13) .06
Realized and unrealized gain (loss) on
investments--net ........................... 2.99 (4.38) 6.84 2.89 2.63
-------- -------- ------- ------- -------
Total from investment operations ........... 2.89 (4.58) 6.61 2.76 2.69
-------- -------- ------- ------- -------
Less dividends and distributions:
Investment income--net .................. -- -- -- -- (.10)
Realized gain on investments--net ....... (1.58) (1.04) (2.55) (3.09) (.59)
-------- -------- ------- ------- -------
Total dividends and distributions .......... (1.58) (1.04) (2.55) (3.09) (.69)
-------- -------- ------- ------- -------
Net asset value, end of period ............. $ 16.52 $ 15.21 $ 20.83 $ 16.77 $ 17.10
======== ======== ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 18.29%++ (22.99%) 41.74% 16.39% 18.34%
Return:** ======== ======== ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................... 2.15%* 2.12% 2.06% 2.14% 2.16%
Net Assets: ======== ======== ======= ======= =======
Investment income (loss)--net .............. (1.11%)* (1.14%) (1.17%) (.70%) .36%
======== ======== ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $ 46,606 $ 38,249 $70,159 $31,182 $26,920
Data: ======== ======== ======= ======= =======
Portfolio turnover ......................... 34.15% 57.82% 67.02% 97.87% 60.37%
======== ======== ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D+
-------------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended March 31,
Sept. 30, ---------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ...... $ 16.19 $ 21.97 $ 17.56 $ 17.74 $ 15.61
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net ............. (.03) (.06) (.08) .01 .19
Realized and unrealized gain (loss) on
investments--net .......................... 3.19 (4.65) 7.18 3.02 2.73
-------- -------- -------- -------- --------
Total from investment operations .......... 3.06 (4.71) 7.10 3.03 2.92
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ................. -- -- -- (.04) (.20)
Realized gain on investments--net ...... (1.69) (1.07) (2.69) (3.17) (.59)
-------- -------- -------- -------- --------
Total dividends and distributions ......... (1.69) (1.07) (2.69) (3.21) (.79)
-------- -------- -------- -------- --------
Net asset value, end of period ............ $ 17.66 $ 16.19 $ 21.97 $ 17.56 $ 17.74
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 18.82%++ (22.37%) 42.80% 17.38% 19.26%
Return:** ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses .................................. 1.36%* 1.33% 1.27% 1.35% 1.37%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net ............. (.32%)* (.35%) (.39%) .07% 1.15%
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) .. $102,219 $ 82,279 $114,183 $ 40,173 $ 24,795
Data: ======== ======== ======== ======== ========
Portfolio turnover ........................ 34.15% 57.82% 67.02% 97.87% 60.37%
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
15
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
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. The Fund's financial statements are prepared in accordance with
generally accepted accounting principles, which may require the use of
management accruals and estimates. 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 that 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 that 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 or purchased are valued
at the last sale price in the case of exchange-traded options. In the case of
options traded in the over-the-counter market, valuation is the last asked price
(option written) or the last bid price (option purchased). 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 financial 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 put and covered call options and
purchase put and call 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
16
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received 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.
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 the "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is 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
based upon the average daily value of the Fund's net assets at the following
annual rates: .75% of the Fund's average net assets not exceeding $1 billion,
.725% of average daily net assets in excess of $1 billion but not exceeding $1.5
billion; and .70% of average daily net assets in excess of $1.5 billion.
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 ................................ .25% .75%
Class C ................................ .25% .75%
Class D ................................ .25% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("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
17
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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, 1999, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D
Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A ................................ $ 348 $ 5,431
Class D ................................ $ 13,690 $187,450
- --------------------------------------------------------------------------------
For the six months ended September 30, 1999, MLPF&S received contingent deferred
sales charges of $365,621 and $9,568 relating to transactions in Class B and
Class C Shares, respectively.
In addition, MLPF&S received $28,782 in commis-sions on the execution of
portfolio security transactions for the Fund for the six months ended September
30, 1999.
Financial Data Services, Inc. ("FDS"), 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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended September 30, 1999 were $275,590,351 and $314,745,429,
respectively.
Net realized gains for the six months ended September 30, 1999 and net
unrealized losses as of September 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Losses
- --------------------------------------------------------------------------------
Long-term investments .................. $22,668,196 $(57,687,580)
----------- ------------
Total .................................. $22,668,196 $(57,687,580)
=========== ============
- --------------------------------------------------------------------------------
As of September 30, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $57,687,580, of which $118,494,346 related to appreciated
securities and $176,181,926 related to depreciated securities. At September 30,
1999, the aggregate cost of investments for Federal income tax purposes was
$993,286,246.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $84,712,638 and $(78,669,579) for the six months ended September 30, 1999
and for the year ended March 31, 1999, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended September 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 5,927,792 $116,058,597
Shares issued to shareholders
in reinvestment of
distributions .......................... 1,569,720 29,808,987
--------- ------------
Total issued ........................... 7,497,512 145,867,584
Shares redeemed ........................ (4,623,157) (83,355,854)
--------- ------------
Net increase ........................... 2,874,355 $ 62,511,730
========= ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 6,897,888 $123,949,228
Shares issued to shareholders
in reinvestment of
distributions .......................... 931,185 18,707,508
--------- ------------
Total issued ........................... 7,829,073 142,656,736
Shares redeemed ........................ (8,792,249) (156,339,942)
--------- ------------
Net decrease ........................... (963,176) $(13,683,206)
========= ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended September 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 5,129,967 $ 90,397,078
Shares issued to shareholders
in reinvestment of
distributions .......................... 1,805,305 32,405,224
--------- ------------
Total issued ........................... 6,935,272 122,802,302
Automatic conversion
of shares .............................. (496,974) (8,671,281)
Shares redeemed ........................ (6,389,238) (111,434,879)
--------- ------------
Net increase ........................... 49,060 $ 2,696,142
========= ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 10,840,643 $191,992,268
Shares issued to shareholders
in reinvestment of
distributions .......................... 1,492,117 28,529,266
---------- ------------
Total issued ........................... 12,332,760 220,521,534
Automatic conversion
of shares .............................. (744,862) (13,102,293)
Shares redeemed ........................ (16,025,174) (265,368,498)
---------- ------------
Net decrease ........................... (4,437,276) $(57,949,257)
========== ============
- --------------------------------------------------------------------------------
18
<PAGE>
Merrill Lynch Special Value Fund, Inc. September 30, 1999
- --------------------------------------------------------------------------------
Class C Shares
For the Six Months Dollar
Ended September 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................. 1,055,959 $ 18,511,414
Shares issued to shareholders
in reinvestment of
distributions ................................ 191,257 3,392,903
--------- ------------
Total issued ................................. 1,247,216 21,904,317
Shares redeemed .............................. (941,114) (16,156,286)
--------- ------------
Net increase ................................. 306,102 $ 5,748,031
========= ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares
For the Year Dollar
Ended March 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................. 1,513,437 $ 27,045,453
Shares issued to shareholders
in reinvestment of
distributions ................................ 177,024 3,349,285
--------- ------------
Total issued ................................. 1,690,461 30,394,738
Shares redeemed .............................. (2,544,293) (41,967,996)
--------- ------------
Net decrease ................................. (853,832) $(11,573,258)
========= ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended September 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................. 970,508 $ 18,146,755
Automatic conversion
of shares .................................... 471,009 8,671,281
Shares issued to shareholders
in reinvestment of
distributions ................................ 424,046 8,027,187
--------- ------------
Total issued ................................. 1,865,563 34,845,223
Shares redeemed .............................. (1,157,368) (21,088,488)
--------- ------------
Net increase ................................. 708,195 $ 13,756,735
========= ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended March 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................. 2,784,551 $ 52,722,275
Automatic conversion
of shares .................................... 710,009 13,102,293
Shares issued to shareholders
in reinvestment of
distributions ................................ 302,895 6,066,990
--------- ------------
Total issued ................................. 3,797,455 71,891,558
Shares redeemed .............................. (3,913,165) (67,355,416)
--------- ------------
Net increase (decrease) ...................... (115,710) $ 4,536,142
========= ============
- --------------------------------------------------------------------------------
PORTFOLIO INFORMATION
As of September 30, 1999
Percent of
Top Ten Equity Holdings Net Assets
Ryerson Tull, Inc. ............................................. 3.2%
Danka Business Systems PLC (ADR) ............................... 2.0
Boise Cascade Office Products Corp. ............................ 1.7
Black Box Corporation .......................................... 1.7
Charter One Financial, Inc. .................................... 1.6
Mentor Graphics Corporation .................................... 1.5
HA-LO Industries, Inc. ......................................... 1.5
Applied Industrial Technologies, Inc. .......................... 1.5
Primark Corporation ............................................ 1.5
Structural Dynamics Research Corporation ....................... 1.5
Sectors Represented Percent of
in the Portfolio Net Assets
Consumer Discretionary ......................................... 21.2%
Technology ..................................................... 18.5
Materials & Processing ......................................... 13.0
Financial Services ............................................. 12.2
Healthcare ..................................................... 8.5
Producer Durables .............................................. 7.8
Auto & Transportation .......................................... 4.6
Energy ......................................................... 4.4
Miscellaneous .................................................. 0.7
Utilities ...................................................... 0.3
19
<PAGE>
Officers and Directors
Terry K. Glenn, 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
Arthur Zeikel, Director
Robert C. Doll, Senior Vice President
Daniel V. Szemis, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Thomas D. Jones, III, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
Special Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10253--9/99
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