MERRILL LYNCH
SPECIAL VALUE
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Quarterly Report
December 31, 1998
<PAGE>
MERRILL LYNCH SPECIAL VALUE FUND, INC.
DEAR SHAREHOLDER
During the quarter ended December 31, 1998, Merrill Lynch Special Value Fund,
Inc. performed in line with the Russell 2000 Index. Total returns for the Fund's
Class A, Class B, Class C and Class D Shares were +16.36%, +16.04%, +16.07%, and
+16.28%, respectively, compared to the total return of +16.31% for the unmanaged
Russell 2000 Index. (Fund 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.)
Portfolio Matters
After declining sharply through the end of September, the Russell 2000 Index of
small-capitalization stocks recovered sharply in the final weeks of 1998. The
Index bottomed on October 8, 1998, then rose 36% from its low. Merrill Lynch
Special Value Fund, Inc.'s performance paralleled the benchmark Russell 2000
Index for the three months ended December 31, 1998. Although the Fund declined
early in the fourth quarter, it rallied decisively in the final weeks of the
year. However, the small-cap rally in the fourth quarter did not fully erase the
year's overall decline. Total returns for the Fund's Class A, Class B, Class C
and Class D Shares were -5.58%, -6.55%, -6.55% and -5.79%, respectively, for the
12-month period ended December 31, 1998.
Individual stocks that contributed most to the Fund's results in the December
quarter included some of the same issues that most hindered performance in the
previous quarter. The shares of Structural Dynamics Research Corporation, a
provider of design automation tools to the auto and aerospace industries,
declined sharply in the September quarter following the launch of a new product
by the company's primary competitor. We increased the Fund's position based on
the stock price weakness and our belief that the shares provided a compelling
risk/reward profile. Shares of Structural Dynamics Research then recovered
sharply in the December quarter, rising 76%, as investors assessed the
competition and regained confidence in the earnings outlook.
CHS Electronics, Inc., an international distributor of microcomputers and
related products, also exhibited stock price weakness in the third quarter on
investors' fears about slowing demand for personal computers and softer sales to
Latin American markets. The pullback provided an opportunity to increase the
Fund's position at attractive prices, and the shares more than doubled off their
October lows. The sharp recovery, combined with the large size of the position,
made CHS Electronics a primary contributor to Fund performance in the period.
Significant changes to the Fund's portfolio included increases to positions in
real estate investment trusts, healthcare and insurance stocks, and reductions
in software, contract manufacturing and computer storage stocks. The Fund's
technology holdings appreciated 40% in the December quarter but, through sales
of selected stocks, the Fund's overall technology exposure was held at
September's quarter-end level at approximately 26% of net assets. Notable
deletions included the sale of Storage Technology Corp., a provider of computer
tape and disk storage devices. Shares of Storage Technology Corp. reached our
price target following news of an agreement to manufacture storage products for
Dell Computer Corp.
In Conclusion
The performance gap between small-capitalization and large-capitalization stocks
has rarely been wider than in 1998, when the total return of the Russell 2000
Index trailed that of the Standard & Poor's 500 Index by more than 30 percentage
points. Despite the underperformance of small-capitalization stocks, we believe
that investors should consider rep-
1
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1998
resentation in this asset class. In the past, periods of prolonged
small-capitalization underperformance have preceded some of the most powerful
rallies. We believe that the disparity between small-capitalization and
large-capitalization stock valuations is unsustainable, particularly given the
favorable earnings growth prospects for smaller companies. Over the long term,
share prices follow earnings, and price/earnings multiples relative to
large-capitalization stocks now favor small-capitalization stocks by a wide
margin compared to historical averages.
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
February 2, 1999
2
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select Pricing(SM) System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
A Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.75% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 8 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 12/31/98 - 5.58 -10.53%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/98 +13.22 +12.01
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/98 +10.86 +10.27
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 12/31/98 - 6.55% -10.07%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/98 +12.07 +12.07
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/98 + 9.73 + 9.73
- --------------------------------------------------------------------------------
* 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 12/31/98 - 6.55% - 7.43%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/98 +13.47 +13.47
- --------------------------------------------------------------------------------
* 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 12/31/98 - 5.79% -10.74%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/98 +14.37 +12.91
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
3
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1998
PERFORMANCE DATA (concluded)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% sales charge--$947.50 net amount invested; assuming reinvestment of all
dividends and capital gains distributions)
[GRAPHIC OMITTED]
A mountain chart depicting the growth of an investment in the Fund's Class A
Shares from $947.50 on May 5, 1978 to $6,371.18 on December 31, 1998.
Recent Performance Results
<TABLE>
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
==================================================================================================
<S> <C> <C> <C>
ML Special Value Fund, Inc. Class A Shares* -5.58% +16.36% +180.47%
- --------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class B Shares* -6.55 +16.04 +153.02
- --------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class C Shares* -6.55 +16.07 + 69.93
- --------------------------------------------------------------------------------------------------
ML Special Value Fund, Inc. Class D Shares* -5.79 +16.28 + 75.64
- --------------------------------------------------------------------------------------------------
Russell 2000 Index** -2.55 +16.31 +237.16/+77.36
==================================================================================================
</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 Class A & Class B Shares, for the ten years ended 12/31/98 and Class C
& Class D Shares, from 10/21/94 to 12/31/98.
** An unmanaged broad-based index comprised of small-capitalization common
stocks. Ten years/since inception total returns are for the ten years
ended 12/31/98 and from 10/21/94 to 12/31/98, respectively.
4
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
- -------------------------------------------------------------------------------------------------------------
Auto & Transportation
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
258,400 Air Express International Corporation $ 4,619,567 $ 5,620,200 0.6%
463,500 Circle International Group, Inc. 11,769,032 9,501,750 1.0
40,000 EnviroSource, Inc. 789,125 205,000 0.0
428,500 Forward Air Corporation 2,946,760 7,873,687 0.8
83,000 Gentex Corporation 1,039,103 1,660,000 0.2
428,500 Landair Corporation 1,270,155 3,160,187 0.3
233,500 Meritor Automotive, Inc. 5,013,528 4,947,281 0.5
2,006,100 Miller Industries, Inc. 14,669,183 9,027,450 1.0
418,700 Walbro Corporation 7,901,817 2,669,213 0.3
------------ ------------ ----
50,018,270 44,664,768 4.7
- -------------------------------------------------------------------------------------------------------------
Consumer Discretionary
- -------------------------------------------------------------------------------------------------------------
1,821,600 APAC TeleServices, Inc. 14,952,220 6,887,925 0.7
1,317 Adrien Arpel, Inc. (Preferred) 0 24,259 0.0
1,121,700 Au Bon Pain Co., Inc. (Class A) 7,525,064 7,571,475 0.8
990,400 Boise Cascade Office Products Corp. 15,066,882 13,370,400 1.4
1,312,800 Caribiner International, Inc. 21,646,944 11,979,300 1.2
1,262,700 Danka Business Systems PLC (ADR)(a) 10,313,731 5,287,556 0.5
453,200 Dover Downs Entertainment, Inc. 5,661,752 5,466,725 0.6
326,600 HA-LO Industries, Inc. 4,476,002 12,288,325 1.3
1,545,000 Heilig-Meyers Company 21,148,381 10,332,187 1.1
295,400 ITI Technologies, Inc. 4,273,172 9,157,400 1.0
381,100 Micro Warehouse, Inc. 4,189,904 12,885,944 1.3
1,538,040 Midway Games, Inc. 23,296,757 16,918,440 1.8
700,500 Norton McNaughton, Inc. 10,056,576 1,663,688 0.2
1,274,800 Paxson Communications Corporation 13,764,438 11,712,225 1.2
527,700 SITEL Corporation 4,675,234 1,286,269 0.1
446,500 Sodak Gaming, Inc. 5,338,282 3,711,531 0.4
218,700 Unitog Company 4,474,394 6,287,625 0.7
626,000 WMS Industries, Inc. 1,812,203 4,616,750 0.5
------------ ------------ ----
172,671,936 141,448,024 14.8
- -------------------------------------------------------------------------------------------------------------
Energy
- -------------------------------------------------------------------------------------------------------------
308,500 Barrett Resources Corporation 8,934,137 7,404,000 0.8
559,900 Benton Oil & Gas Company 8,510,720 1,679,700 0.2
374,500 Forcenergy, Inc. 8,380,772 983,062 0.1
351,200 Key Energy Services, Inc. 5,391,155 1,646,250 0.2
457,844 Louis Dreyfus Natural Gas Corp. 7,397,649 6,524,277 0.7
1,704,500 Newpark Resources, Inc. 17,523,346 11,611,906 1.2
448,391 Plains Resources, Inc. 3,268,536 6,195,207 0.6
243,700 Santa Fe International Corporation 3,056,366 3,564,112 0.4
243,100 Stone Energy Corporation 8,028,391 6,989,125 0.7
512,700 Tom Brown, Inc. 6,189,069 5,143,022 0.5
------------ ------------ ----
76,680,141 51,740,661 5.4
=============================================================================================================
</TABLE>
5
<PAGE>
Merrill Lynch Special Value Fund December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
- -------------------------------------------------------------------------------------------------------------
Financial Services
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
85,050 American National Insurance Company $ 6,785,507 $ 7,037,887 0.7%
252,400 Brandywine Realty Trust 4,490,093 4,511,650 0.5
173,200 Camden Property Trust 4,458,786 4,503,200 0.5
411,273 Charter One Financial, Inc. 4,693,693 11,412,826 1.2
157,500 FelCor Lodging Trust Inc. 3,451,855 3,632,344 0.4
283,000 HCC Insurance Holdings, Inc. 4,939,471 4,987,875 0.5
93,600 Kimco Realty Corporation 3,446,154 3,714,750 0.4
145,000 Meditrust Corporation 2,182,917 2,193,125 0.2
118,400 National Data Corporation 4,228,694 5,764,600 0.6
355,000 PXRE Corporation 7,444,686 8,897,188 0.9
243,000 Peoples Heritage Financial Group, Inc. 4,951,944 4,860,000 0.5
349,800 Primark Corporation 8,614,664 9,488,325 1.0
561,800 Scottish Annuity & Life Holdings, Ltd. 8,320,578 7,724,750 0.8
------------ ------------ ----
68,009,042 78,728,520 8.2
- -------------------------------------------------------------------------------------------------------------
Healthcare
- -------------------------------------------------------------------------------------------------------------
267,100 COR Therapeutics, Inc. 2,579,398 3,539,075 0.4
245,000 DVI, Inc. 5,159,211 4,440,625 0.5
510,900 EndoSonics Corporation 3,555,519 5,077,069 0.5
424,000 Genome Therapeutics Corp. 3,619,214 1,166,000 0.1
57,400 Gilead Sciences, Inc. 1,318,584 2,356,987 0.2
859,500 HCIA, Inc. 10,022,061 3,652,875 0.4
454,600 Magainin Pharmaceuticals, Inc. 4,779,299 1,449,037 0.2
413,300 Magellan Health Services, Inc. 9,780,009 3,461,388 0.4
1,877,700 MedPartners, Inc. 14,781,921 9,857,925 1.0
538,000 NABI, Inc. 3,708,502 1,445,875 0.2
347,400 NeoRx Corporation 2,201,611 466,819 0.1
152,000 Neurogen Corporation 2,017,552 2,660,000 0.3
143,300 Pharmacopeia, Inc. 2,582,582 1,361,350 0.1
185,300 Ramsay Youth Services, Inc. (b) 1,024,050 301,113 0.0
300,850 Scios, Inc. 1,387,073 3,121,319 0.3
139,500 Sierra Health Services, Inc. 2,866,479 2,938,219 0.3
377,000 VISX, Incorporated 7,472,185 32,963,938 3.4
------------ ------------ ----
78,855,250 80,259,614 8.4
- -------------------------------------------------------------------------------------------------------------
Integrated Oils
- -------------------------------------------------------------------------------------------------------------
387,600 Basin Exploration, Inc. 6,330,123 4,869,225 0.5
=============================================================================================================
</TABLE>
6
<PAGE>
Merrill Lynch Special Value Fund December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
- -------------------------------------------------------------------------------------------------------------
Materials & Processing
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
548,400 ACX Technologies, Inc. $ 11,649,080 $ 7,266,300 0.7%
350,700 A.M. Castle & Company 6,346,542 5,260,500 0.5
500,000 Apogee Enterprises, Inc. 5,946,645 5,625,000 0.6
638,277 BHA Group Holdings, Inc. 7,083,102 8,856,093 0.9
476,500 Citation Corporation 6,435,374 6,015,812 0.6
705,000 Commonwealth Industries, Inc. 12,360,443 6,609,375 0.7
218,800 Dan River, Inc. (Class A) 3,282,000 2,570,900 0.3
178,300 Giant Cement Holding, Inc. 1,744,525 4,412,925 0.5
97,665 Inland Steel Industries, Inc. 2,838,339 1,648,097 0.2
530,600 Insituform Technologies, Inc. (Class A) 3,672,621 7,693,700 0.8
392,400 Intermet Corporation 6,664,378 5,125,725 0.5
264,700 Novamerican Steel, Inc. 3,072,685 2,216,863 0.2
522,000 Paxar Corporation 7,495,480 4,665,375 0.5
251,000 Quanex Corporation 6,352,201 5,663,188 0.6
205,600 Ryerson Tull, Inc. (Class A) 2,751,227 2,004,600 0.2
672,800 Shiloh Industries, Inc. 9,453,417 8,830,500 0.9
48,700 Steel Dynamics, Inc. 563,212 572,225 0.1
267,000 Wolverine Tube, Inc. 7,723,847 5,607,000 0.6
863,610 Zemex Corporation 7,282,851 5,397,563 0.6
------------ ------------ ----
112,717,969 96,041,741 10.0
- -------------------------------------------------------------------------------------------------------------
Miscellaneous
- -------------------------------------------------------------------------------------------------------------
1,609,700 Mercer International, Inc. 21,053,577 10,966,081 1.1
1,200,850 Metromedia International Group, Inc. 13,686,960 6,529,622 0.7
------------ ------------ ----
34,740,537 17,495,703 1.8
- -------------------------------------------------------------------------------------------------------------
Producer Durables
- -------------------------------------------------------------------------------------------------------------
171,300 AGCO Corporation 4,212,749 1,348,987 0.1
250,000 Allen Telecom Inc. 3,924,619 1,671,875 0.2
419,600 Applied Industrial Technologies, Inc. 8,937,144 5,821,950 0.6
606,200 B.I., Incorporated 5,500,558 4,432,837 0.5
788,900 Brown & Sharpe Manufacturing Company
(Class A) 10,150,092 6,311,200 0.7
808,800 Comdial Corporation 4,965,675 7,127,550 0.8
189,000 DONCASTERS PLC (ADR)(a) 3,233,968 3,059,438 0.3
517,800 ESCO Electronics Corporation 9,048,312 4,692,562 0.5
107,100 Kennametal, Inc. 4,825,389 2,275,875 0.2
210,800 Nu Horizons Electronics Corp. 1,621,264 1,080,350 0.1
443,600 Oakwood Homes Corporation 9,257,834 6,737,175 0.7
179,200 Ryland Group, Inc. 2,487,185 5,174,400 0.5
422,400 Stewart & Stevenson Services, Inc. 9,571,351 4,118,400 0.4
518,750 TALX Corporation 4,385,624 2,723,438 0.3
145,130 Toll Brothers, Inc. 2,798,563 3,274,496 0.3
107,200 Triumph Group, Inc. 2,553,040 3,430,400 0.4
------------ ------------ ----
87,473,367 63,280,933 6.6
=============================================================================================================
</TABLE>
7
<PAGE>
Merrill Lynch Special Value Fund December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
- -------------------------------------------------------------------------------------------------------------
Technology
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
260,200 Alpha Industries, Inc. $ 1,679,574 $ 9,399,725 1.0%
558,500 Anixter International, Inc. 8,824,613 11,344,531 1.2
68,500 Ardent Software, Inc. 523,972 1,575,500 0.2
545,300 Bell Industries, Inc. 8,013,620 6,202,787 0.6
268,000 Black Box Corporation 7,669,811 10,150,500 1.1
251,837 Boole & Babbage, Inc. 724,578 7,413,452 0.8
286,900 Brite Voice Systems, Inc. 3,196,498 2,223,475 0.2
1,656,400 CHS Electronics, Inc. 23,283,335 28,055,275 2.9
806,150 CP Clare Corporation 7,312,386 4,131,519 0.4
142,700 Cylink Corporation 1,955,715 517,287 0.0
681,100 DII Group, Inc. 8,003,637 15,878,144 1.7
1,164,400 DSP Communications, Inc. 10,826,751 17,829,875 1.9
1,168,640 Harbinger Corporation 9,192,993 9,349,120 1.0
470,900 Harmonic Lightwaves, Inc. 6,359,593 8,829,375 0.9
170,000 Information Resources, Inc. 2,467,664 1,731,875 0.2
312,820 The Learning Company, Inc. 4,721,342 8,113,769 0.8
1,222,800 Mentor Graphics Corporation1 2,490,597 10,393,800 1.1
650,000 Network Equipment Technologies, Inc. 8,691,403 6,703,125 0.7
758,150 Phoenix Technologies Ltd. 10,073,879 6,539,044 0.7
405,100 Planar Systems, Inc. 4,615,740 2,759,744 0.3
299,200 Platinum Technology, Inc. 4,663,761 5,722,200 0.6
252,200 Rational Software Corporation 3,311,087 6,683,300 0.7
412,100 Read-Rite Corporation 3,916,229 6,091,353 0.6
277,000 Software Spectrum, Inc. 5,550,546 4,397,375 0.5
151,717 Sterling Commerce, Inc. 3,430,396 6,827,265 0.7
1,579,200 Structural Dynamics Research Corporation 25,253,069 31,386,600 3.3
1,232,700 Sybase, Inc. 17,535,228 9,129,684 0.9
445,200 Telxon Corporation 4,906,457 6,177,150 0.6
227,900 TriQuint Semiconductor, Inc. 4,630,484 4,387,075 0.5
------------ ------------ ----
213,824,958 249,943,924 26.1
- -------------------------------------------------------------------------------------------------------------
Utilities
- -------------------------------------------------------------------------------------------------------------
569,600 Applied Digital Access, Inc. 4,238,174 1,495,200 0.2
=============================================================================================================
Total Stocks 905,559,767 829,968,313 86.7
=============================================================================================================
</TABLE>
8
<PAGE>
Merrill Lynch Special Value Fund December 31, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Percent of
Amount Issue Cost Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Short-Term Securities
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial Paper**
$37,176,000 General Motors Acceptance Corp.,
5.13% due 1/04/1999 $ 37,160,107 $ 37,160,107 3.9%
10,000,000 Lexington Parker Capital Company, LLC,
5.50% due 1/05/1999 9,993,889 9,993,889 1.1
15,000,000 Metropolitan Life Insurance Company,
5.35% due 1/22/1999 14,953,188 14,953,188 1.6
10,000,000 Pfizer Inc., 5.20% due 1/11/1999 9,985,556 9,985,556 1.0
10,000,000 Variable Funding Capital Corp.,
5.41% due 1/07/1999 9,990,983 9,990,983 1.0
10,000,000 Xerox Credit Corp, 5% due 1/12/1999 9,984,722 9,984,722 1.0
==============================================================================================================================
Foreign Government 20,000,000 International Bank for Reconstruction and
Obligations** Development, 5.05% due 1/08/1999 19,980,361 19,980,361 2.1
==============================================================================================================================
US Government Agency 15,000,000 Federal Home Loan Mortgage Corporation,
Obligations** 5.10% due 1/08/1999 14,985,125 14,985,125 1.6
==============================================================================================================================
Total Short-Term Securities 127,033,931 127,033,931 13.3
==============================================================================================================================
Total Investments $1,032,593,698 957,002,244 100.0
==============
Liabilities in Excess of Other Assets (405,142) 0.0
------------ -----
Net Assets $956,597,102 100.0%
============ =====
==============================================================================================================================
Net Asset Class A--Based on net assets of $323,674,863 and 18,491,630 shares outstanding $ 17.50
Value: ============
Class B--Based on net assets of $473,522,520 and 28,571,186 shares outstanding $ 16.57
============
Class C--Based on net assets of $52,588,909 and 3,205,952 shares outstanding $ 16.40
============
Class D--Based on net assets of $106,810,810 and 6,127,576 shares outstanding $ 17.43
============
==============================================================================================================================
</TABLE>
(a) American Depositary Receipts (ADR).
(b) Formerly Ramsay Health Care, Inc.
* Holdings are classified into the economic sectors found in the Russell
2000 Index.
** Commercial Paper, US Government Agency Obligations, and certain Foreign
Government Obligations are traded on a discount basis; the interest rates
shown reflect the discount rates paid at the time of purchase by the Fund.
9
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1998
PORTFOLIO INFORMATION
As of December 31, 1998
Percent of
Top Ten Equity Holdings Net Assets
VISX, Incorporated ................................................. 3.4%
Structural Dynamics Research Corporation ........................... 3.3
CHS Electronics, Inc. .............................................. 2.9
DSP Communications, Inc. ........................................... 1.9
Midway Games, Inc. ................................................. 1.8
DII Group, Inc. .................................................... 1.7
Boise Cascade Office Products Corp. ................................ 1.4
Micro Warehouse, Inc. .............................................. 1.3
HA-LO Industries, Inc .............................................. 1.3
Caribiner International, Inc. ...................................... 1.2
Sectors Represented Percent of
in the Portfolio Net Assets
Technology ......................................................... 26.1%
Consumer Discretionary ............................................. 14.8
Materials & Processing ............................................. 10.0
Healthcare ......................................................... 8.4
Financial Services ................................................. 8.2
Producer Durables .................................................. 6.6
Energy ............................................................. 5.4
Auto & Transportation .............................................. 4.7
Miscellaneous ...................................................... 1.8
Integrated Oils .................................................... 0.5
Utilities .......................................................... 0.2
Stock Portfolio Changes for the Quarter
Ended December 31, 1998
Additions
Peoples Heritage Financial Group, Inc.
Santa Fe International Corporation
Scottish Annuity & Life Holdings, Ltd.
Steel Dynamics, Inc.
Deletions
CUNO, Incorporated
Electronics for Imaging, Inc.
Hadco Corporation
IKOS Systems, Inc.
Scott Technologies, Inc. (Class A)
Storage Technology Corp.
10
<PAGE>
Merrill Lynch Special Value Fund, Inc. December 31, 1998
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Fred G. Weiss, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Daniel V. Szemis, Senior Vice President and Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Thomas D. Jones, III, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
11
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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--12/98
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