UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-2809
811-10095
Name of Fund: Merrill Lynch Small Cap Value Fund, Inc.
Master Small Cap Value Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Small Cap Value Fund, Inc. and Master Small Cap Value Trust, 800
Scudders Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box
9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 03/31/04
Date of reporting period: 04/01/03 - 09/30/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Small Cap Value
Fund, Inc.
Semi-Annual Report
September 30, 2003
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Small Cap Value Fund, Inc.
Portfolio Information as of September 30, 2003
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
CNF Transportation Inc. ........................................... 2.3%
Tech Data Corporation ............................................. 2.3
Protective Life Corporation ....................................... 2.1
Knight Trading Group, Inc. ........................................ 2.0
Parametric Technology Corporation ................................. 2.0
Triumph Group, Inc. ............................................... 1.8
Banknorth Group, Inc. ............................................. 1.8
Convergys Corporation ............................................. 1.7
Sovereign Bancorp, Inc. ........................................... 1.7
Foot Locker, Inc. ................................................. 1.7
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries* Net Assets
- --------------------------------------------------------------------------------
Specialty Retail .................................................. 6.2%
Software .......................................................... 6.1
Diversified Financial Services .................................... 5.8
Commercial Banks .................................................. 5.5
Electronic Equipment & Instruments ................................ 4.6
- --------------------------------------------------------------------------------
* For Trust compliance purposes, "Industries" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Trust management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease.
Electronic Delivery
The Fund is now offering electronic delivery of communications to its
shareholders. In order to receive this service, you must register your account
and provide us with e-mail information. To sign up for this service, simply
access this website http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification number
(PIN). You will need this PIN should you wish to update your e-mail address,
choose to discontinue this service and/or make any other changes to the service.
This service is not available for certain retirement accounts at this time.
2 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
A Letter From the President
Dear Shareholder
As we enter the final quarter of 2003, it seems appropriate to reflect on what
has been a meaningful year in many respects. We saw the beginning and the end of
all-out war in Iraq, equity market uncertainty turned to strength, and sub par
economic growth of 1.4% in the first quarter of 2003 multiplied to projected
growth of more than 4% in the second half of the year.
Equity markets rebounded from one of the most dismal three-year periods in
history to make a strong showing so far this year. The Standard & Poor's 500
Index posted year-to-date and 12-month returns of +14.72% and +24.40%,
respectively, as of September 30, 2003. Small cap stocks, which tend to perform
well during an economic recovery, returned +28.58% year-to-date and +36.50% over
the past 12 months as measured by the Russell 2000 Index. Although continued
market strength cannot be assured, investors increasingly returned to the
markets based on improving corporate earnings reports and economic stimuli.
Against this backdrop, our portfolio managers continued to work diligently to
deliver on our commitment to provide superior performance within reasonable
expectations for risk and return. This included striving to outperform our peers
and the market indexes. With that said, remember also that the advice and
guidance of a skilled financial advisor often can mean the difference between
successful and unsuccessful investing. A financial professional can help you
choose those investments that will best serve you as you plan for your financial
future.
Finally, I am proud to premiere a new look to our shareholder communications.
Our portfolio manager commentaries have been trimmed and organized in such a way
that you can get the information you need at a glance, in plain language.
Today's markets are confusing enough. We want to help you put it all in
perspective. The report's new size also allows us certain mailing efficiencies.
Any cost savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director/Trustee
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
We believe there were essentially two components needed during this
six-month period to perform well: small companies and high-beta stocks. Merrill
Lynch Small Cap Value Fund had both, and this contributed to its strong absolute
performance.
How did the Fund perform during the period?
For the six-month period ended September 30, 2003, Merrill Lynch Small Cap Value
Fund, Inc.'s Class A, Class B, Class C, Class I and Class R Shares had total
returns of +29.68%, +29.20%, +29.16%, +29.82% and 29.74%, respectively. (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 6 and 7 of
this report to shareholders.) Despite the strong absolute performance, the
Fund's returns lagged the +34.63% total return of the unmanaged benchmark
Russell 2000 Index and the +30.69% average return of the Lipper Small Cap Value
Funds for the same period. (Funds in this Lipper category seek long-term growth
of capital by investing in companies that are considered to be undervalued
relative to a major unmanaged stock index.)
What were the major economic and market developments that affected the Fund?
Importantly, economic growth accelerated during the period. Several statistics
supported this. Retail sales improved, durable goods orders increased, and gross
domestic product advanced. The stronger the economic recovery, the better it
usually is for small cap stocks. During the six-month period, investors favored
small companies that tend to be more economically sensitive.
Historically, small cap stocks have performed well in an economic recovery. As
economic conditions improved during the period, small cap stocks performed
favorably. The unmanaged Russell 3000 Index returned +20.23% for the six-month
period, while the unmanaged Russell 2000 Index, which measures the performance
of the 2,000 smallest companies in the Russell 3000, returned +34.63%.
We also saw investors gravitate to speculative areas of the market, including
technology, biotechnology and Internet stocks. Earlier this year, we had
significant exposure to these areas because the stocks then ranked favorably on
our evaluation criteria. Our investments in higher-beta issues benefited Fund
performance during the six-month period.
What were the primary reasons for the Fund's performance during the six-month
period?
Stock selection in the financial services, consumer discretionary and
information technology sectors contributed favorably to performance, while
selection in the industrials, materials and energy sectors hindered results. Our
financial services holdings performed particularly well during the period. The
Fund's financial stocks were up more than 40% over the six months, while the
financial stocks in the benchmark Russell 2000 Index were up approximately 28%.
The leading contributor to Fund performance during the period was Knight Trading
Group, Inc., a market maker in Nasdaq and over-the-counter securities. Knight's
business benefited as investors returned to the stock market. With new
management in place, Knight's revenue growth was greater than anticipated and
earnings exceeded expectations. Parametric Technology Corporation, a software
provider of product development and lifecycle management solutions, also rallied
sharply during the period. Management significantly reduced the company's cost
structure, and corporate spending for enterprise software solutions stabilized.
Vignette Corporation, an application software provider, also contributed
favorably to Fund performance as demand for the company's portal and enterprise
content management solutions recovered.
Health care stocks appreciated sharply during the six-month period, and the
Fund's underweight position in the sector hindered performance somewhat. The
Fund's exposure to the health care sector averaged about 8% compared to 13% for
the Russell 2000 Index. The Fund's average cash position of about 5% also
hindered results in a sharply rising equity environment.
4 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
What changes were made to the portfolio during the period?
We reduced the Fund's exposure to technology stocks, because we believe that
current prices already reflect a significant improvement in end-market demand.
When stocks exceed our price objectives, we generally trim them and deploy the
cash in areas where we believe there is greater upside opportunity. We adjusted
the Fund's technology exposure away from software holdings toward a more
balanced mix of hardware stocks, technology distributors and computer services
companies. Tech Data Corporation, a full-line distributor of technology
products, became the portfolio's largest technology position. On balance,
however, the Fund's technology exposure was reduced from the levels held at the
beginning of the period.
Proceeds from the sale of technology stocks were primarily invested in consumer
discretionary issues. We believe the current low interest rate environment,
coupled with President Bush's tax stimulus, should help sustain consumer
spending. In keeping with this view, we added to several consumer discretionary
positions, including American Eagle Outfitters, Inc., a retailer of teen
apparel, and Callaway Golf Company, a designer and manufacturer of high
performance golf clubs.
We also made a number of changes to the portfolio's health care holdings. We
moved the Fund's positioning away from volatile biotechnology stocks that worked
well during the six-month period, and transitioned into other health care names
with more visible earnings prospects. We added to our holdings in health care
information technology company WebMD Corporation. In addition, we initiated
positions in CTI Molecular Imaging, Inc., a provider of diagnostic imaging
equipment, and Charles River Laboratories, a provider of research tools and
support services for drug discovery and development.
The most important portfolio change has been a move away from higher-beta names
toward a more balanced and defensive stance. While the equity market rally was
most focused on speculative companies that are yet to show a profit, we believe
further market gains will probably include established companies with more
predictable earnings. We maintain a favorable view of the market, but anticipate
greater breadth and less emphasis on small, high-beta issues. Accordingly, we
have moved "up-cap" within our small cap universe to take advantage of this
anticipated shift in investor sentiment.
How would you characterize the portfolio's position at the close of the period?
We believe the Fund is well balanced between early stage and more established
companies. At the beginning of the year, we held some large sector exposures. We
were significantly overweight in technology and the higher-beta stocks. We have
since reined in these exposures, and the Fund's current position is more neutral
relative to the Russell 2000 Index. We believe further gains in the market are
likely to encompass larger companies and those areas that have lagged on a
year-to-date basis.
R. Elise Baum
Vice President and Portfolio Manager
October 10, 2003
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. Investors are able to purchase
shares of the Fund through multiple pricing alternatives:
o Class A Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4%, declining to 0% after six years. All Class B Shares purchased prior
to June 1, 2001 will maintain the four-year schedule. 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 A
Shares after approximately eight 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 I Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
I Shares are available only to eligible investors.
o Class R Shares do not incur a maximum sales charge (front-end load) or
deferred sales charge. These shares are subject to a distribution fee of
0.25% and an account maintenance fee of 0.25%. Class R Shares are
available only to certain retirement plans.
None of the past results shown should be considered a representation of future
performance. Performance results do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
Figures shown in each of the following 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*
Ten-Year/
6-Month 12-Month Since Inception
As of September 30, 2003 Total Return Total Return Total Return
=====================================================================================================================
ML Small Cap Value Fund, Inc. Class A Shares* +29.68% +32.54% +232.40%
- ---------------------------------------------------------------------------------------------------------------------
ML Small Cap Value Fund, Inc. Class B Shares* +29.20 +31.53 +231.42
- ---------------------------------------------------------------------------------------------------------------------
ML Small Cap Value Fund, Inc. Class C Shares* +29.16 +31.45 +209.78
- ---------------------------------------------------------------------------------------------------------------------
ML Small Cap Value Fund, Inc. Class I Shares* +29.82 +32.90 +267.34
- ---------------------------------------------------------------------------------------------------------------------
ML Small Cap Value Fund, Inc. Class R Shares* +29.74 -- + 27.02
- ---------------------------------------------------------------------------------------------------------------------
Russell 2000 Index** +34.63 +36.50 +121.46/+118.54/+33.47
- ---------------------------------------------------------------------------------------------------------------------
* 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 for ten years for Class B & Class I Shares, from 10/21/94 for Class A
& Class C Shares and from 2/04/03 for Class R Shares.
** An unmanaged broad-based Index comprised of small-capitalization common
stocks. Ten-year/since inception total returns are for ten years, from
10/21/94 and from 2/04/03, respectively.
6 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Performance Data (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 9/30/03 +32.54% +25.58%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/03 +17.09 +15.83
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/03 +14.38 +13.69
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
- --------------------------------------------------------------------------------
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 9/30/03 +31.53% +27.53%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/03 +16.18 +15.96
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/03 +12.73 +12.73
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 9/30/03 +31.45% +30.45%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/03 +16.17 +16.17
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/03 +13.48 +13.48
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 9/30/03 +32.90% +25.92%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/03 +17.38 +16.12
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/03 +13.90 +13.28
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class I Shares
were offered at a higher sales charge. Thus, actual returns would have
been lower than shown for the ten-year period.)
** Assuming maximum sales charge.
Aggregate Total Return
% Return Without
Sales Charge
================================================================================
Class R Shares
================================================================================
Inception (2/04/03) through 9/30/03 +27.02%
- --------------------------------------------------------------------------------
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 7
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Merrill Lynch Small Cap Value Fund, Inc.
As of September 30, 2003
=================================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Investment in Master Small Cap Value Trust, at value
(identified cost--$2,424,648,286) .......................................... $ 2,539,760,441
Prepaid registration fees .................................................. 1,037,928
---------------
Total assets ............................................................... 2,540,798,369
---------------
=================================================================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------------
Payables:
Other affiliates ........................................................ $ 1,645,135
Distributor ............................................................. 1,220,669
Administrative fees ..................................................... 69,537
---------------
Total liabilities .......................................................... 2,935,341
---------------
=================================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets ................................................................. $ 2,537,863,028
===============
=================================================================================================================================
Net Assets Consist of
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized $ 2,177,347
Class B Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 3,971,489
Class C Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 2,096,023
Class I Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 3,666,180
Class R Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 456
Paid-in capital in excess of par ........................................... 2,449,731,752
Accumulated investment loss--net ........................................... $ (7,837,881)
Accumulated realized capital losses on investments from the Trust--net ..... (31,054,493)
Unrealized appreciation on investments from the Trust--net ................. 115,112,155
---------------
Total accumulated earnings--net ............................................ 76,219,781
---------------
Net assets ................................................................. $ 2,537,863,028
===============
=================================================================================================================================
Net Asset Value
- ---------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $484,161,582 and 21,773,466 shares outstanding $ 22.24
===============
Class B--Based on net assets of $811,966,626 and 39,714,893 shares outstanding $ 20.44
===============
Class C--Based on net assets of $419,666,205 and 20,960,233 shares outstanding $ 20.02
===============
Class I--Based on net assets of $821,974,756 and 36,661,799 shares outstanding $ 22.42
===============
Class R--Based on net assets of $93,859 and 4,559 shares outstanding ....... $ 20.59
===============
See Notes to Financial Statements.
8 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Statement of Operations Merrill Lynch Small Cap Value Fund, Inc.
For the Six Months Ended September 30, 2003
=================================================================================================================================
Investment Income from the Trust--Net
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Trust:
Dividends (net of $4,000 foreign withholding tax) ................... $ 10,088,106
Interest ............................................................ 884,640
Securities lending--net ............................................. 168,972
Expenses ............................................................ (6,034,053)
---------------
Net investment income from the Trust .................................. 5,107,665
---------------
=================================================================================================================================
Expenses
- ---------------------------------------------------------------------------------------------------------------------------------
Account maintenance and distribution fees--Class B .................... $ 3,834,686
Administration fees ................................................... 2,937,440
Account maintenance and distribution fees--Class C .................... 1,976,779
Transfer agent fees--Class B .......................................... 1,154,235
Transfer agent fees--Class A .......................................... 1,027,561
Transfer agent fees--Class C .......................................... 627,165
Transfer agent fees--Class I .......................................... 602,282
Account maintenance fees--Class A ..................................... 548,726
Printing and shareholder reports ...................................... 105,655
Registration fees ..................................................... 72,124
Professional fees ..................................................... 30,536
Directors' fees and expenses .......................................... 16,211
Account maintenance and distribution fees--Class R .................... 126
Transfer agent fees--Class R .......................................... 63
Other ................................................................. 11,957
---------------
Total expenses ........................................................ 12,945,546
---------------
Investment loss--net .................................................. (7,837,881)
---------------
=================================================================================================================================
Realized & Unrealized Gain from the Trust--Net
- ---------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments from the Trust--net ...................... 26,675,626
Change in unrealized appreciation/depreciation on investments
from the Trust--net ................................................... 549,531,243
---------------
Total realized and unrealized gain from the Trust--net ................ 576,206,869
---------------
Net Increase in Net Assets Resulting from Operations .................. $ 568,368,988
===============
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 9
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Merrill Lynch Small Cap Value Fund, Inc.
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 2003 2003
=================================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------------------
Investment loss--net .................................................. $ (7,837,881) $ (19,204,943)
Realized gain (loss) on investments from the Trust--net ............... 26,675,626 (43,800,828)
Change in unrealized appreciation/depreciation on investments from
the Trust--net ........................................................ 549,531,243 (867,812,951)
-----------------------------------
Net increase (decrease) in net assets resulting from operations ....... 568,368,988 (930,818,722)
-----------------------------------
=================================================================================================================================
Distributions to Shareholders
- ---------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net:
Class A ............................................................ -- (9,542,568)
Class B ............................................................ -- (19,140,828)
Class C ............................................................ -- (10,955,515)
Class I ............................................................ -- (24,530,377)
-----------------------------------
Net decrease in net assets resulting from distributions to shareholders -- (64,169,288)
-----------------------------------
=================================================================================================================================
Capital Share Transactions
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from capital share
transactions .......................................................... 39,537,170 (310,974,611)
-----------------------------------
=================================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................... 607,906,158 (1,305,962,621)
Beginning of period ................................................... 1,929,956,870 3,235,919,491
-----------------------------------
End of period* ........................................................ $ 2,537,863,028 $ 1,929,956,870
===================================
*Accumulated investment loss--net ................................... $ (7,837,881) --
===================================
See Notes to Financial Statements
10 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Financial Highlights Merrill Lynch Small Cap Value Fund, Inc.
Class A++++
------------------------------------------------------------------
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended March 31,
September 30, --------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001@@ 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............... $ 17.15 $ 24.45 $ 19.73 $ 22.80 $ 16.19
----------------------------------------------------------------
Investment loss--net+ .............................. (.04) (.09) (.07) --@@@ (.07)
Realized and unrealized gain (loss) from investments
and from the Trust--net .......................... 5.13 (6.73) 6.08 1.23 8.82
----------------------------------------------------------------
Total from investment operations ................... 5.09 (6.82) 6.01 1.23 8.75
----------------------------------------------------------------
Less distributions from realized gain on investments
and from the Trust--net .......................... -- (.48) (1.29) (4.30) (2.14)
----------------------------------------------------------------
Net asset value, end of period ..................... $ 22.24 $ 17.15 $ 24.45 $ 19.73 $ 22.80
================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ................. 29.68%@ (28.09%) 31.17% 6.11% 56.98%
================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses++ ......................................... 1.30%* 1.33% 1.25% 1.30% 1.33%
================================================================
Investment loss--net ............................... (.36%)* (.48%) (.30%) (.02%) (.37%)
================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ........... $484,161 $347,736 $467,733 $198,094 $151,650
================================================================
Portfolio turnover ................................. 34.22%+++ 68.27%+++ 54.14%+++ 42.30%@@@@ 89.18%
================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses.
+++ Portfolio turnover for the Trust.
++++ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
@ Aggregate total investment return.
@@ On September 1, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment objective
by investing all of its assets in the Trust, a mutual fund that has the
same investment objective as the Fund. All investments will be made at the
Trust level. This structure is sometimes called a "master/feeder"
structure.
@@@ Amount is less than $(.01) per share.
@@@@ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 11
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued) Merrill Lynch Small Cap Value Fund, Inc.
Class B
------------------------------------------------------------------
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended March 31,
September 30, ---------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001@@ 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............... $ 15.82 $ 22.74 $ 18.44 $ 21.59 $ 15.37
-----------------------------------------------------------------
Investment loss--net+ .............................. (.11) (.23) (.22) (.15) (.21)
Realized and unrealized gain (loss) from investments
and from the Trust--net .......................... 4.73 (6.25) 5.67 1.15 8.35
-----------------------------------------------------------------
Total from investment operations ................... 4.62 (6.48) 5.45 1.00 8.14
-----------------------------------------------------------------
Less distributions from realized gain on investments
and from the Trust--net .......................... -- (.44) (1.15) (4.15) (1.92)
-----------------------------------------------------------------
Net asset value, end of period ..................... $ 20.44 $ 15.82 $ 22.74 $ 18.44 $ 21.59
=================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ................. 29.20%@ (28.70%) 30.22% 5.26% 55.72%
=================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses++ ......................................... 2.08%* 2.10% 2.01% 2.06% 2.11%
=================================================================
Investment loss--net ............................... (1.13%)* (1.26%) (1.04%) (.75%) (1.14%)
=================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ........... $811,967 $640,017 $1,003,961 $563,316 $511,780
=================================================================
Portfolio turnover ................................. 34.22%+++ 68.27%+++ 54.14%+++ 42.30%@@@ 89.18%
=================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses.
+++ Portfolio turnover for the Trust.
@ Aggregate total investment return.
@@ On September 1, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment objective
by investing all of its assets in the Trust, a mutual fund that has the
same investment objective as the Fund. All investments will be made at the
Trust level. This structure is sometimes called a "master/feeder"
structure.
@@@ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
See Notes to Financial Statements.
12 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Financial Highlights (continued) Merrill Lynch Small Cap Value Fund, Inc.
Class C
------------------------------------------------------------------
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended March 31,
September 30, ---------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001@@ 2000
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............... $ 15.50 $ 22.30 $ 18.13 $ 21.32 $ 15.21
----------------------------------------------------------------
Investment loss--net+ .............................. (.11) (.23) (.23) (.15) (.21)
Realized and unrealized gain (loss) from investments
and from the Trust--net .......................... 4.63 (6.13) 5.58 1.14 8.25
----------------------------------------------------------------
Total from investment operations ................... 4.52 (6.36) 5.35 .99 8.04
----------------------------------------------------------------
Less distributions from realized gain on investments
and from the Trust--net .......................... -- (.44) (1.18) (4.18) (1.93)
----------------------------------------------------------------
Net asset value, end of period ..................... $ 20.02 $ 15.50 $ 22.30 $ 18.13 $ 21.32
================================================================
=================================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ................. 29.16%@ (28.69%) 30.23% 5.29% 56.98%
================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses++ ......................................... 2.10%* 2.12% 2.02% 2.08% 2.12%
================================================================
Investment loss--net ............................... (1.15%)* (1.27%) (1.11%) (.75%) (1.16%)
================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ........... $419,666 $334,720 $504,537 $140,610 $ 67,390
================================================================
Portfolio turnover ................................. 34.22%+++ 68.27%+++ 54.14%+++ 42.30%@@@ 89.18%
================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses.
+++ Portfolio turnover for the Trust.
@ Aggregate total investment return.
@@ On September 1, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment objective
by investing all of its assets in the Trust, a mutual fund that has the
same investment objective as the Fund. All investments will be made at the
Trust level. This structure is sometimes called a "master/feeder"
structure.
@@@ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued) Merrill Lynch Small Cap Value Fund, Inc.
Class I@@@
-------------------------------------------------------------------
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended March 31,
September 30, ---------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001@@ 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............... $ 17.27 $ 24.58 $ 19.81 $ 22.87 $ 16.27
-----------------------------------------------------------------
Investment income (loss)--net+ ..................... (.01) (.05) (.01) .06 (.02)
Realized and unrealized gain (loss) from investments
and from the Trust--net .......................... 5.16 (6.77) 5.84 1.23 8.84
-----------------------------------------------------------------
Total from investment operations ................... 5.15 (6.82) 5.83 1.29 8.82
-----------------------------------------------------------------
Less distributions from realized gain on investments
and from the Trust--net .......................... -- (.49) (1.06) (4.35) (2.22)
-----------------------------------------------------------------
Net asset value, end of period ..................... $ 22.42 $ 17.27 $ 24.58 $ 19.81 $ 22.87
=================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ................. 29.82%@ (27.93%) 31.56% 6.39% 57.29%
=================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses++ ......................................... 1.05%* 1.07% .99% 1.04% 1.08%
=================================================================
Investment income (loss)--net ...................... (.11%)* (.24%) (.03%) .27% (.12%)
=================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ........... $821,975 $607,484 $1,259,688 $648,806 $491,855
=================================================================
Portfolio turnover ................................. 34.22%+++ 68.27%+++ 54.14%+++ 42.30%@@@@ 89.18%
=================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses.
+++ Portfolio turnover for the Trust.
@ Aggregate total investment return.
@@ On September 1, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment objective
by investing all of its assets in the Trust, a mutual fund that has the
same investment objective as the Fund. All investments will be made at the
Trust level. This structure is sometimes called a "master/feeder"
structure.
@@@ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
@@@@ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
See Notes to Financial Statements.
14 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Financial Highlights (concluded) Merrill Lynch Small Cap Value Fund, Inc.
Class R
--------------------------------
For the Six For the Period
The following per share data and ratios have been derived Months Ended February 4,
from information provided in the financial statements. September 30, 2003+ to
Increase (Decrease) in Net Asset Value: 2003 March 31, 2003
====================================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..................... $15.87 $16.12
--------------------------------
Investment loss--net++ ................................... (.08) --@@@
Realized and unrealized gain (loss) from the Trust--net .. 4.80 (.25)
--------------------------------
Total from investment operations ......................... 4.72 (.25)
--------------------------------
Net asset value, end of period ........................... $20.59 $15.87
================================
====================================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....................... 29.74%@ (1.55%)@
================================
====================================================================================================================
Ratios to Average Net Assets
- --------------------------------------------------------------------------------------------------------------------
Expenses+++ .............................................. 1.57%* 1.66%*
================================
Investment loss--net ..................................... (.67%)* (.65%)*
================================
====================================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................. $ 94 --@@
================================
Portfolio turnover for the Trust (for the six months ended
September 30, 2003 and the year ended March 31, 2003) .. 34.22% 68.27%
================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Includes the Fund's share of the Trust's allocated expenses.
@ Aggregate total investment return.
@@ Amount is less than $1,000.
@@@ Amount is less than $(.01) per share.
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 15
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements Merrill Lynch Small Cap Value Fund, Inc.
1. Significant Accounting Policies:
Merrill Lynch Small Cap Value Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
investment company. The Fund seeks to achieve its investment objective by
investing all of its assets in Master Small Cap Value Trust (the "Trust"), which
has the same investment objective as the Fund. The value of the Fund's
investment in the Trust reflects the Fund's proportionate interest in the net
assets of the Trust. The performance of the Fund is directly affected by the
performance of the Trust. The financial statements of the Trust, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, 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 percentage of the Trust owned by the Fund
at September 30, 2003 was 100%. The Fund offers multiple classes of shares.
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. The Fund's financial statements
and financial highlights contained within this report reflect the new share
class redesignation. Shares of Class A and Class I are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a contingent
deferred sales charge. Class R Shares are sold only to certain retirement plans.
All classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that Class A, Class B, Class C
and Class R Shares bear certain expenses related to the account maintenance of
such shares, and Class B, Class C and Class R 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. Income, expenses (other than expenses attributed to a
specific class) and realized and unrealized gains and losses on investments are
allocated daily to each class based on its relative net assets. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investment in the Trust at
fair value. Valuation of securities held by the Trust is discussed in Note 1a of
the Trust's Notes to Financial Statements, which are included elsewhere in this
report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Trust's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(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 shareholders. Therefore,
no Federal income tax provision is required. Under the applicable foreign tax
law, withholding taxes may be imposed on interest, dividends and capital gains
at various rates.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Trust are
accounted for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
16 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Merrill Lynch Small Cap Value Fund, Inc.
Notes to Financial Statements (continued)
The Fund has also entered into a Distribution Agreement and Distribution Plans
with FAM Distributors, Inc. ("FAMD" or the "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc. 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 of the Fund as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ................................ .25% --
Class B ................................ .25% .75%
Class C ................................ .25% .75%
Class R ................................ .25% .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 A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the six months ended September 30, 2003, FAMD earned underwriting discounts
and direct commissions and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class I Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A ............................ $ 7,472 $104,980
Class I ............................ $ 460 $ 6,627
- --------------------------------------------------------------------------------
For the six months ended September 30, 2003, MLPF&S received contingent deferred
sales charges of $430,933 and $22,760 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred
sales charges of $816 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $39,537,170 and $(310,974,611) for the six months ended September 30, 2003
and for the year ended March 31, 2003, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended September 30, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 3,659,087 $ 77,049,087
Automatic conversion of shares ......... 1,033,874 21,262,887
--------------------------------
Total issued ........................... 4,692,961 98,311,974
Shares redeemed ........................ (3,201,522) (67,304,631)
--------------------------------
Net increase ........................... 1,491,439 $ 31,007,343
================================
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 7,113,921 $ 140,002,212
Shares issued resulting from
reorganization ....................... 44,223 788,841
Automatic conversion of shares ......... 2,023,816 39,382,479
Shares issued to shareholders
in reinvestment of distributions ..... 471,048 8,893,386
--------------------------------
Total issued ........................... 9,653,008 189,066,918
Shares redeemed ........................ (8,498,543) (161,172,605)
--------------------------------
Net increase ........................... 1,154,465 $ 27,894,313
================================
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- -------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended September 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 5,222,282 $ 100,361,725
Automatic conversion of shares ......... (1,122,096) (21,262,887)
Shares redeemed ........................ (4,829,101) (92,474,009)
--------------------------------
Net decrease ........................... (728,915) $ (13,375,171)
================================
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 17
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Small Cap Value Fund, Inc.
Notes to Financial Statements (concluded)
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 12,726,102 $ 235,585,486
Shares issued resulting from
reorganization ....................... 272,294 4,484,073
Shares issued to shareholders
in reinvestment of distributions ..... 1,016,001 17,800,329
--------------------------------
Total issued ........................... 14,014,397 257,869,888
Automatic conversion of shares ......... (2,183,866) (39,382,479)
Shares redeemed ........................ (15,534,931) (275,176,509)
--------------------------------
Net decrease ........................... (3,704,400) $ (56,689,100)
================================
- -------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended September 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 1,797,271 $ 34,434,441
Shares redeemed ........................ (2,433,371) (45,209,903)
--------------------------------
Net decrease ........................... (636,100) $ (10,775,462)
================================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 6,995,271 $ 135,585,916
Shares issued resulting from
reorganization ....................... 43,650 704,020
Shares issued to shareholders
in reinvestment of distributions ..... 590,989 10,141,373
--------------------------------
Total issued ........................... 7,629,910 146,431,309
Shares redeemed ........................ (8,659,865) (148,426,789)
--------------------------------
Net decrease ........................... (1,029,955) $ (1,995,480)
================================
- -------------------------------------------------------------------------------
Class I Shares for the Six Months Dollar
Ended September 30, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 6,854,702 $ 145,244,723
Shares redeemed ........................ (5,377,946) (112,653,115)
--------------------------------
Net increase ........................... 1,476,756 $ 32,591,608
================================
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended March 31, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 15,518,137 $ 316,638,867
Shares issued resulting from
reorganization ....................... 781 14,033
Shares issued to shareholders
in reinvestment of distributions ..... 1,237,024 23,478,724
--------------------------------
Total issued ........................... 16,755,942 340,131,624
Shares redeemed ........................ (32,825,635) (620,316,068)
--------------------------------
Net decrease ........................... (16,069,693) $(280,184,444)
================================
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
- -------------------------------------------------------------------------------
Class R Shares for the Six Months Dollar
Ended September 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 6,116 $ 122,260
Shares redeemed ........................ (1,563) (33,408)
--------------------------------
Net increase ........................... 4,553 $ 88,852
================================
- -------------------------------------------------------------------------------
Class R Shares for the Period Dollar
Feb. 5, 2003+ to March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 6 $ 100
--------------------------------
Net increase ........................... 6 $ 100
================================
+ Commencement of operations.
5. Capital Loss Carryforward:
On March 31, 2003, the Fund had a net capital loss carryforward of $22,220,268,
of which $258,440 expires in 2009, $515,628 expires in 2010, and $21,446,200
expires in 2011. This amount will be available to offset like amounts of any
future taxable gains.
18 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Schedule of Investments Master Small Cap Value Trust
Value Percent of
Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense 378,600 Precision Castparts Corp. $ 13,288,860 0.5%
1,132,800 Raytheon Company 31,718,400 1.3
1,534,900 + Triumph Group, Inc. (a) 45,740,020 1.8
-----------------------
90,747,280 3.6
- ------------------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics 1,825,200 CNF Transportation Inc. 58,497,660 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
Auto Components 399,600 + American Axle & Manufacturing Holdings, Inc. 11,820,168 0.5
900 Intermet Corporation 3,870 0.0
638,000 + Shiloh Industries, Inc. 2,552,000 0.1
-----------------------
14,376,038 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Biotechnology 768,200 + Applera Corporation--Celera Genomics Group 8,980,258 0.4
83,600 + Charles River Laboratories International, Inc. 2,565,684 0.1
307,181 + Diversa Corporation 2,380,653 0.1
2,022,532 + Incyte Genomics, Inc. 9,323,872 0.4
1,065,300 + Maxygen Inc. 10,866,060 0.4
965,700 + Medarex, Inc. 5,726,601 0.2
537,100 + Millennium Pharmaceuticals, Inc. 8,265,969 0.3
494,700 + Vertex Pharmaceuticals Incorporated 6,084,810 0.2
2,151,757 + Vical Incorporated (a) 12,523,226 0.5
-----------------------
66,717,133 2.6
- ------------------------------------------------------------------------------------------------------------------------------------
Building Products 976,900 ElkCorp 23,015,764 0.9
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Markets 4,477,900 + Knight Trading Group, Inc. 51,271,955 2.0
56,800 + National Financial Partners Corporation 1,533,600 0.1
-----------------------
52,805,555 2.1
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks 783,100 Bank of Hawaii Corporation 26,296,498 1.0
1,611,400 Banknorth Group, Inc. 45,473,708 1.8
911,600 The Colonial BancGroup, Inc. 13,163,504 0.5
746,400 Compass Bancshares, Inc. 25,810,512 1.0
1,025,000 First Midwest Bancorp, Inc. 30,452,750 1.2
-----------------------
141,196,972 5.5
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies 674,000 + Ambassadors International, Inc. (a) 8,256,500 0.3
1,191,000 + Cornell Companies, Inc. (a) 19,591,950 0.8
411,800 G & K Services, Inc. (Class A) 14,413,000 0.6
263,835 + On Assignment, Inc. 1,393,049 0.1
2,094,300 + United Rentals, Inc. 33,697,287 1.3
974,500 + Valassis Communications, Inc. 25,726,800 1.0
-----------------------
103,078,586 4.1
- ------------------------------------------------------------------------------------------------------------------------------------
Communications Equipment 701,818 + Proxim Corporation (Class A) 1,045,709 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Construction & Engineering 489,900 Fluor Corporation 18,287,967 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
Construction Materials 819,300 Martin Marietta Materials, Inc. 29,863,485 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging 1,853,400 + Smurfit-Stone Container Corporation 27,763,932 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 1,000,000 Financial Select Sector SPDR Fund (b) 25,400,000 1.0
387,700 iShares Russell 2000 Index Fund 37,595,269 1.5
340,100 iShares S&P SmallCap 600 Index Fund 39,852,918 1.6
130,900 S&P 500 Depositary Receipts (e) 13,079,528 0.5
336,900 S&P Mid-Cap 400 Depositary Receipts (c) 31,459,722 1.2
-----------------------
147,387,437 5.8
- ------------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment 1,741,400 + Global Power Equipment Group Inc. 9,177,178 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments 1,137,600 + Itron, Inc. (a) 22,831,632 0.9
892,010 + Nu Horizons Electronics Corp. (a) 7,769,407 0.3
2,166,600 + Paxar Corporation (a) 27,732,480 1.1
1,866,100 + Tech Data Corporation 57,569,185 2.3
-----------------------
115,902,704 4.6
- ------------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 19
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) Master Small Cap Value Trust
Value Percent of
Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Service 420,000 Diamond Offshore Drilling, Inc. $ 8,022,000 0.3%
400,000 Energy Select Sector SPDR Fund 9,620,000 0.4
542,200 + FMC Technologies, Inc. 11,613,924 0.5
1,759,700 + Key Energy Services, Inc. 16,981,105 0.7
499,300 + National-Oilwell, Inc. 9,057,302 0.3
200,000 Oil Service HOLDRs Trust (d) 11,504,000 0.4
-----------------------
66,798,331 2.6
- ------------------------------------------------------------------------------------------------------------------------------------
Food Products 789,100 + Chiquita Brands International, Inc. 13,967,070 0.6
897,300 Corn Products International, Inc. 28,579,005 1.1
2,513,100 Interstate Bakeries Corporation (a) 37,696,500 1.5
1,786,800 + Smithfield Foods, Inc. 34,306,560 1.3
-----------------------
114,549,135 4.5
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies 365,500 Bausch & Lomb Incorporated 16,136,825 0.6
450,400 + CTI Molecular Imaging, Inc. 6,652,408 0.3
130,600 + DJ Orthopedics Incorporated 1,821,870 0.1
439,800 + Intuitive Surgical, Inc. 7,335,864 0.3
566,900 Mentor Corporation 12,925,320 0.5
1,049,900 + Wright Medical Group, Inc. 26,541,472 1.0
142,100 + Zoll Medical Corporation 4,554,305 0.2
-----------------------
75,968,064 3.0
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services 2,867,500 Hooper Holmes, Inc. 19,068,875 0.7
282,800 Owens & Minor, Inc. 6,815,480 0.3
3,645,500 + WebMD Corporation 32,517,860 1.3
-----------------------
58,402,215 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 697,755 + Ambassadors Group, Inc. (a) 11,868,813 0.4
146,100 Bob Evans Farms, Inc. 3,902,331 0.1
639,240 Dover Downs Gaming & Entertainment, Inc. (a) 5,254,553 0.2
1,133,400 Dover Motorsports, Inc. (a) 4,261,584 0.2
2,396,700 + La Quinta Corporation 14,931,441 0.6
576,000 Mandalay Resort Group 22,815,360 0.9
448,000 Outback Steakhouse, Inc. 16,965,760 0.7
-----------------------
79,999,842 3.1
- ------------------------------------------------------------------------------------------------------------------------------------
IT Services 1,343,400 + American Management Systems, Incorporated 17,128,350 0.7
2,397,000 + Convergys Corporation 43,960,980 1.7
338,600 + MAXIMUS, Inc. 11,664,770 0.4
690,500 Sabre Holdings Corporation 14,838,845 0.6
-----------------------
87,592,945 3.4
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance 80,700 American National Insurance Company 6,863,535 0.3
390,018 Presidential Life Corporation 5,900,972 0.2
1,749,300 Protective Life Corporation 52,216,605 2.1
-----------------------
64,981,112 2.6
- ------------------------------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail 105,400 + RedEnvelope Inc. 1,475,600 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services 1,151,990 + Commerce One, Inc. 2,891,495 0.1
2,386,230 + EarthLink, Inc. 19,638,673 0.8
2,596,300 + Entrust Technologies Inc. 12,747,833 0.5
2,349,400 + SeeBeyond Technology Corporation 6,014,464 0.2
18,599,117 + Vignette Corporation 42,777,969 1.7
360,200 + Vitria Technology, Inc. 1,819,010 0.1
1,598,900 + webMethods, Inc. 12,759,222 0.5
-----------------------
98,648,666 3.9
- ------------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products 1,327,000 Callaway Golf Company 18,936,290 0.8
482,800 The Nautilus Group, Inc. 6,092,936 0.2
-----------------------
25,029,226 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
20 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Schedule of Investments (continued) Master Small Cap Value Trust
Value Percent of
Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Machinery 153,677 BHA Group Holdings, Inc. $ 3,651,365 0.1%
1,149,400 Kaydon Corp. 27,286,756 1.1
1,313,800 Reliance Steel & Aluminum Co. 29,153,222 1.1
1,144,500 + Wolverine Tube, Inc. (a) 4,841,235 0.2
-----------------------
64,932,578 2.5
- ------------------------------------------------------------------------------------------------------------------------------------
Media 2,265,900 + APAC Customer Services Inc. 5,664,750 0.2
572,000 Harte-Hanks, Inc. 10,547,680 0.4
4,433,500 + Paxson Communications Corporation (a) 21,990,160 0.9
2,445,800 The Reader's Digest Association, Inc. (Class A) 34,216,742 1.3
-----------------------
72,419,332 2.8
- ------------------------------------------------------------------------------------------------------------------------------------
Metals & Mining 396,800 + A.M. Castle & Company 1,761,792 0.1
1,003,700 Gibraltar Steel Corporation (a) 22,121,548 0.9
767,400 Quanex Corporation 25,784,640 1.0
1,085,681 Ryerson Tull, Inc. 8,468,312 0.3
759,800 + Steel Dynamics, Inc. 11,503,372 0.4
-----------------------
69,639,664 2.7
- ------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas 539,900 Noble Energy, Inc. 20,678,170 0.8
759,391 + Plains Exploration & Production Company 9,469,606 0.4
847,691 + Plains Resources Inc. 10,553,753 0.4
397,800 + Stone Energy Corporation 14,034,384 0.6
236,000 Vintage Petroleum, Inc. 2,567,680 0.1
-----------------------
57,303,593 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products 1,139,000 Boise Cascade Corporation 31,436,400 1.3
954,100 + Mercer International, Inc. (a) 5,848,633 0.2
-----------------------
37,285,033 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 19,600 Medicis Pharmaceutical (Class A) 1,148,560 0.0
335,736 + Noven Pharmaceuticals, Inc. 3,827,390 0.2
-----------------------
4,975,950 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate 541,000 Brandywine Realty Trust 13,898,290 0.6
253,000 Camden Property Trust 9,722,790 0.4
210,400 + Corrections Corporation of America 5,190,568 0.2
188,900 Crescent Real Estate Equities Company 2,739,050 0.1
1,072,393 Trizec Properties, Inc. 13,147,538 0.5
-----------------------
44,698,236 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
Road & Rail 602,900 CSX Corporation 17,634,825 0.7
2,549,800 + Kansas City Southern Industries, Inc. 28,226,286 1.1
-----------------------
45,861,111 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 364,800 + AMIS Holdings, Inc. 6,734,208 0.3
Equipment 437,300 + AXT, Inc. 1,088,877 0.1
222,100 + Actel Corp. 5,323,737 0.2
2,136,300 + Applied Micro Circuits Corporation 10,403,781 0.4
484,728 + IXYS Corporation 4,541,901 0.2
111,200 + Mattson Technology, Inc. 1,007,472 0.0
45,400 + Sigmatel Incorporated 935,694 0.0
-----------------------
30,035,670 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 21
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) Master Small Cap Value Trust
Value Percent of
Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Software 911,496 + Ascential Software Corporation $ 16,890,021 0.7%
1,086,500 + Aspen Technology, Inc. 4,237,350 0.2
2,378,600 + Compuware Corporation 12,749,296 0.5
7,251,710 + E.piphany, Inc. (a) 36,186,033 1.4
95,042 + EXE Technologies, Inc. 670,046 0.0
149,600 + FileNET Corporation 3,002,472 0.1
2,376,000 + i2 Technologies, Inc. 3,017,520 0.1
191,253 + InterVoice-Brite, Inc. 1,709,802 0.1
356,000 + NetIQ Corporation 4,250,640 0.2
1,162,000 + Nuance Communications Inc. 6,727,980 0.3
16,420,400 + Parametric Technology Corporation (a) 51,231,648 2.0
825,620 + QRS Corporation (a) 7,017,770 0.3
1,083,400 + Wind River Systems, Inc. 6,164,546 0.2
------------------------
153,855,124 6.1
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty Retail 316,600 + Abercrombie & Fitch Co. (Class A) 8,772,986 0.3
1,634,900 + American Eagle Outfitters, Inc. 24,294,614 1.0
742,500 + Charlotte Russe Holding Inc. 7,640,325 0.3
311,000 + Electronics Boutique Holdings Corp. 8,885,270 0.4
2,663,900 Foot Locker, Inc. 43,155,180 1.7
545,100 + Linens `n Things, Inc. 12,962,478 0.5
382,600 + The Men's Wearhouse, Inc. 9,813,690 0.4
456,700 Pier 1 Imports, Inc. 8,786,908 0.3
963,100 The Talbots, Inc. 33,564,035 1.3
------------------------
157,875,486 6.2
- ------------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods 779,200 + Unifi, Inc. 3,740,160 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 2,340,100 Sovereign Bancorp, Inc. 43,408,855 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors 823,200 Applied Industrial Technologies, Inc. 16,356,984 0.7
1,644,400 Watsco, Inc. (a) 31,424,484 1.2
------------------------
47,781,468 1.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost--$2,292,008,641) 2,407,120,796 94.8
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
- ------------------------------------------------------------------------------------------------------------------------------------
Personal Products 1,317 + Adrien Arpel, Inc. 0 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost--$0) 0 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
22 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Schedule of Investments (concluded) Master Small Cap Value Trust
Beneficial Interest/ Value Percent of
Shares Held Short-Term Securities (in U.S. dollars) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
$124,406,971 Merrill Lynch Liquidity Series, LLC Cash
Sweep Series I (f) $ 124,406,971 4.9%
$232,632,855 Merrill Lynch Liquidity Series, LLC Money
Market Series (f)(g) 232,632,855 9.2
125,263,845 Merrill Lynch Premier Institutional Fund (f)(g) 125,263,845 4.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$482,303,671) 482,303,671 19.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$2,774,312,312) 2,889,424,467 113.8
Liabilities in Excess of Other Assets (349,664,026) (13.8)
-------------------------
Net Assets $2,539,760,441 100.0%
=========================
+ Non-income producing security.
* For Trust compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Trust management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease.
(a) Investments in companies 5% or more of whose outstanding securities are
held by the Trust (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as follows:
-----------------------------------------------------------------------------------------------------------------------------
Net Share Purchase Sales Realized Dividend
Affiliate Activity Cost Cost Gain (Loss) Income
-----------------------------------------------------------------------------------------------------------------------------
Ambassadors Group, Inc. (10,100) -- $ 101,249 $ 78,257 +
Ambassadors International, Inc. (208,800) -- $1,727,412 $ 640,946 +
Cornell Companies, Inc. 1,191,000 $17,674,212 -- -- +
Dover Downs Gaming & Entertainment, Inc. (86,000) -- $ 931,925 $ (135,064) $ 70,854
Dover Motorsports, Inc. -- -- -- -- $ 22,668
E.piphany, Inc. 159,100 $ 3,783,956 $4,023,905 $ (508,946) +
Gibraltar Steel Corporation 170,600 $ 2,985,544 -- -- $ 77,060
Interstate Bakeries Corporation 378,200 $ 6,802,129 $4,316,419 $ (353,942) $339,584
Itron, Inc. 1,137,600 $23,523,387 -- -- +
Mercer International, Inc. (163,400) $ 11,159 $1,728,465 $ (877,909) +
Nu Horizons Electronics Corp. (260,500) -- $2,732,042 $ (716,479) +
Parametric Technology Corporation 533,000 $ 2,512,730 $1,893,027 $ (1,099,400) +
Paxar Corporation 85,100 $ 7,596,366 $9,145,605 $ (504,112) +
Paxson Communications Corporation 611,600 $ 3,136,847 -- -- +
QRS Corporation (53,600) $ 3,189,354 $7,866,533 $ (2,520,087) +
Triumph Group, Inc. 195,200 $ 5,930,110 -- -- +
Vical Incorporated 239,300 $ 869,938 -- -- +
Watsco, Inc. (431,900) $ 106,675 $5,353,379 $ 1,402,571 $145,380
Wolverine Tube, Inc. -- -- -- -- +
-----------------------------------------------------------------------------------------------------------------------------
+ Non-income producing security.
(b) Represents ownership in Financial Select Sector SPDR Fund, registered in
the United States. The investment objective of the Financial Select Sector
SPDR Fund is to provide investment results that correspond to the
performance of The Financial Select Sector Trust.
(c) Represents ownership in Mid Cap SPDR Trust, a registered unit investment
trust. The investment objective of the Mid Cap SPDR Trust is to provide
investment results that generally correspond to the price performance and
dividend yield of the component.
(d) Represents ownership in Oil Services HOLDRs Trust. The Oil Services HOLDRs
Trust holds shares of common stock issued by 20 specified companies
generally considered to be involved in various segments of the oil service
industry.
(e) Represents ownership in S&P 500 SPDR Trust, a registered unit investment
trust. The investment objective of the S&P 500 SPDR Trust is to provide
investment results that generally correspond to the price performance and
dividend yield of the component stock.
(f) Investments in companies considered to be an affiliate of the Trust (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
----------------------------------------------------------------------------------------------------------------------------
Dividend/
Net Interest
Affiliate Activity Income
----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweeps Series I $35,685,688 $883,564
Merrill Lynch Liquidity Series, LLC Money Market Series $86,496,435 $106,282
Merrill Lynch Premier Institutional Fund 27,839,565 $ 62,690
----------------------------------------------------------------------------------------------------------------------------
(g) Security was purchased with the cash proceeds from securities loans.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 23
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Master Small Cap Value Trust
As of September 30, 2003
=================================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $344,206,011)
(identified cost--$2,774,312,312) ..................................... $ 2,889,424,467
Cash .................................................................. 5,382,592
Receivables:
Securities sold .................................................... $ 29,608,356
Contributions ...................................................... 3,043,766
Dividends .......................................................... 1,766,098
Interest ........................................................... 151,601
Securities lending--net ............................................ 45,788 34,615,609
---------------
Prepaid expenses ...................................................... 13,226
---------------
Total assets .......................................................... 2,929,435,894
---------------
=================================================================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ............................. 357,896,700
Payables:
Securities purchased ............................................... 21,366,581
Withdrawals ........................................................ 10,135,242
Investment adviser ................................................. 132,124
Other affiliates ................................................... 29,922 31,663,869
---------------
Accrued expenses ...................................................... 114,884
---------------
Total liabilities ..................................................... 389,675,453
---------------
=================================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................ $ 2,539,760,441
===============
=================================================================================================================================
Net Assets Consist of
- ---------------------------------------------------------------------------------------------------------------------------------
Investors' capital .................................................... $ 2,424,648,286
Unrealized appreciation on investments--net ........................... 115,112,155
---------------
Net assets ............................................................ $ 2,539,760,441
===============
See Notes to Financial Statements.
24 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Statement of Operations Master Small Cap Value Trust
For the Six Months Ended September 30, 2003
=================================================================================================================================
Investment Income
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends (net of $4,000 foreign withholding tax) ..................... $ 10,088,106
Interest .............................................................. 884,640
Securities lending--net ............................................... 168,972
---------------
Total income .......................................................... 11,141,718
---------------
=================================================================================================================================
Expenses
- ---------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees .............................................. $ 5,604,674
Accounting services ................................................... 263,167
Custodian fees ........................................................ 76,023
Professional fees ..................................................... 35,569
Trustees' fees and expenses ........................................... 25,428
Printing and shareholder reports ...................................... 3,478
Pricing fees .......................................................... 314
Other ................................................................. 25,400
---------------
Total expenses ........................................................ 6,034,053
---------------
Investment income--net ................................................ 5,107,665
---------------
=================================================================================================================================
Realized & Unrealized Gain on Investments--Net
- ---------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ..................................... 26,675,626
Change in unrealized appreciation/depreciation on investments--net .... 549,531,243
---------------
Total realized and unrealized gain on investments--net ................ 576,206,869
---------------
Net Increase in Net Assets Resulting from Operations .................. $ 581,314,534
===============
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 25
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Master Small Cap Value Trust
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 2003 2003
=================================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................ $ 5,107,665 $ 8,089,276
Realized gain (loss) on investments--net .............................. 26,675,626 (44,447,915)
Change in unrealized appreciation/depreciation on investments--net .... 549,531,243 (870,204,527)
-----------------------------------
Net increase (decrease) in net assets resulting from operations ....... 581,314,534 (906,563,166)
-----------------------------------
=================================================================================================================================
Capital Transactions
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ........................................... 357,212,236 386,453,716
Fair value of withdrawals ............................................. (331,183,491) (796,432,753)
-----------------------------------
Net increase (decrease) in net assets derived from capital transactions 26,028,745 (409,979,037)
-----------------------------------
=================================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................... 607,343,279 (1,316,542,203)
Beginning of period ................................................... 1,932,417,162 3,248,959,365
-----------------------------------
End of period ......................................................... $ 2,539,760,441 $ 1,932,417,162
===================================
See Notes to Financial Statements.
26 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Financial Highlights Master Small Cap Value Trust
For the For the
Six Months For the Year Ended Period
Ended March 31, Sept. 1, 2000+
The following ratios have been derived from Sept. 30, ------------------------------- to March 31,
information provided in the financial statements 2003 2003 2002 2001
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 30.17%@ (27.31%)++ 32.13% --
===================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .51%* .51% .52% .54%*
===================================================================
Investment income--net ................. .43%* .32% .44% .85%*
===================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,539,760 $ 1,932,417 $ 3,248,959 $ 1,553,556
===================================================================
Portfolio turnover ..................... 34.22% 68.27% 54.14% 42.30%
===================================================================
* Annualized.
** Total investment return is required to be disclosed for fiscal years
beginning after December 15, 2000.
+ Commencement of operations.
++ FAM fully reimbursed the Trust for a loss on a transaction not meeting the
Trust's investment guidelines, which had no impact on total return.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 27
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements Master Small Cap Value Trust
1. Significant Accounting Policies:
Master Small Cap Value Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, and is organized as a Delaware statutory trust.
The Declaration of the Trust permits the Trustees to issue nontransferable
interests in the Trust, subject to certain limitations. The Trust's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, 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 following is a summary of significant
accounting policies followed by the Trust.
(a) Valuation of investments -- Portfolio securities that are traded on stock
exchanges or the Nasdaq National Market are valued at the last sale price or
official closing 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 for long positions and at the last
available ask price for short positions. Securities that are traded in the
over-the-counter market are valued at the last available bid price prior to the
time of valuation. 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 Trustees 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 (options written) or the last bid price (options
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 quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Trust, including valuations furnished by a pricing service retained by the
Trust which may use a matrix system for valuations. Occasionally, events
affecting the values of securities and other assets may occur between the times
at which valuations of such securities are determined (that is, close of the
market on which such securities trade) and the close of business on the NYSE. If
events (for example, company announcement, natural disasters, market volatility)
occur during such periods that are expected to materially affect the value for
such securities, those securities may be valued at their fair market value as
determined in good faith by the Trust's Board of Trustees or by the investment
adviser using a pricing service and/or procedures approved by the Board of
Trustees of the Trust.
(b) Derivative financial instruments -- The Trust may engage in various
portfolio investment strategies both to increase the return of the Trust and to
hedge, or protect, its exposure to interest rate movements and movements in the
securities 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 Trust may purchase or sell financial
futures contracts and options on such futures contracts. 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 Trust
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Trust 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
Trust as unrealized gains or losses. When the contract is closed, the
Trust 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 Trust is authorized to write put and covered call options
and purchase put and call options. When the Trust writes an option, an
amount equal to the premium received by the Trust 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.
28 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Notes to Financial Statements (continued) Master Small Cap Value Trust
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 Trust enters into a
closing transaction), the Trust realizes a gain or loss on the option to
the extent of the premiums received or paid (or loss or gain 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 Trust is authorized to enter
into forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. The contract is marked-to-market
daily and the change in market value is recorded by the Trust as an
unrealized gain or loss. When the contract is closed, the Trust records a
realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed.
o Foreign currency options and futures -- The Trust 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-U.S.
dollar-denominated securities owned by the Trust, sold by the Trust but
not yet delivered, or committed or anticipated to be purchased by the
Trust.
(c) Income taxes -- The Trust is considered as a "pass through" entity for
Federal income tax purposes. As such, each investor in the Trust is treated as
owner of its proportionate share of the net assets, income, expenses and
realized and unrealized gains and losses of the Trust. 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. It is intended that the Trust's assets will be managed so an
investor in the Trust can satisfy the requirements of subchapter M of the
Internal Revenue Code.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(e) Securities lending -- The Trust may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Trust and any additional required collateral is delivered to the Trust on
the next business day. Where the Trust receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Trust typically
receives the income on the loaned securities but does not receive the income on
the collateral. Where the Trust receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Trust may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Trust could experience delays
and costs in gaining access to the collateral. The Trust also could suffer a
loss where the value of the collateral falls below the market value of the
borrowed securities, in the event of borrower default or in the event of losses
on investments made with cash collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust 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.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 29
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded) Master Small Cap Value Trust
FAM is responsible for the management of the Trust's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Trust. For such services, the Trust pays a monthly fee
upon the average daily value of the Fund's net assets at the following annual
rates: .50% of the Fund's average net assets not exceeding $1 billion, .475% of
average daily net assets in excess of $1 billion but not exceeding $1.5 billion;
and .45% of average daily net assets in excess of $1.5 billion.
The Trust has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its
affiliates. As of September 30, 2003, the Trust lent securities with a value of
$19,308,254 to MLPF&S or its affiliates. Pursuant to that order, the Trust also
has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate
of FAM, as the securities lending agent for a fee based on a share of the
returns on investment of cash collateral. MLIM, LLC may, on behalf of the Trust,
invest cash collateral received by the Trust for such loans, among other things,
in a private investment company managed by MLIM, LLC or in registered money
market funds advised by FAM or its affiliates. For the six months ended
September 30, 2003, MLIM, LLC received $166,309 in securities lending agent
fees.
In addition, MLPF&S received $288,788 in commissions on the execution of
portfolio security transactions for the Trust for the six months ended September
30, 2003.
For the six months ended September 30, 2003, the Trust reimbursed FAM $27,298
for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended September 30, 2003 were $744,970,653 and $765,062,001,
respectively.
Net realized gains for the six months ended September 30, 2003 and net
unrealized gains as of September 30, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .............. $ 26,675,626 $115,112,155
------------ ------------
Total .............................. $ 26,675,626 $115,112,155
============ ============
As of September 30, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $81,307,256, of which $315,203,678 related to appreciated
securities and $233,896,422 related to depreciated securities. At September 30,
2003, the aggregate cost of investments for Federal income tax purposes was
$2,808,117,211.
4. Short-Term Borrowings:
The Trust, along with certain other funds managed by FAM and its affiliates, is
a party to a $500,000,000 credit agreement with Bank One, N.A. and certain other
lenders. The Trust may borrow under the credit agreement to fund investors'
withdrawals and for other lawful purposes other than for leverage. The Trust may
borrow up to the maximum amount allowable under the Trust's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Trust pays a commitment fee of .09% per
annum based on the Trust's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50% or a base
rate as determined by Bank One, N.A. On November 29, 2002, the credit agreement
was renewed for one year under the same terms, except that the commitment was
reduced from $1,000,000,000 to $500,000,000. The Trust did not borrow under the
credit agreement during the six months ended September 30, 2003.
30 MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003
Officers and Directors/Trustees
Terry K. Glenn, President and Director/Trustee
Donald W. Burton, Director/Trustee
M. Colyer Crum, Director/Trustee
Laurie Simon Hodrick, Director/Trustee
David H. Walsh, Director/Trustee
Fred G. Weiss, Director/Trustee
Robert E. Doll, Jr., Senior Vice President
R. Elise Baum, Vice President and Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
MERRILL LYNCH SMALL CAP VALUE FUND, INC. SEPTEMBER 30, 2003 31
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Merrill Lynch Small Cap Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
#10253 -- 9/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (annual requirement only)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. - N/A (annual requirement
only)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by
the principal accountant for the audit of the
registrant's annual financial statements or services
that are normally provided by the accountant in
connection with statutory and regulatory filings or
engagements for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and
related services by the principal accountant
that are reasonably related to the performance
of the audit of the registrant's financial
statements and are not reported under
paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising
the fees disclosed under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of
the services comprising the fees disclosed under this
category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services
provided by the principal accountant, other than
the services reported in paragraphs (a) through
(c) of this Item. Registrants shall describe the
nature of the services comprising the fees
disclosed under this category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of
Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by
the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for each
of the last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A
Item 8 -- Reserved
Item 9(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Merrill Lynch Small Cap Value Fund, Inc. and Master Small Cap Value
Trust
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
Merrill Lynch Small Cap Value Fund, Inc. and Master Small Cap Value
Trust
Date: November 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
Merrill Lynch Small Cap Value Fund, Inc. and Master Small Cap Value
Trust
Date: November 21, 2003
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Small Cap Value Fund, Inc. and Master Small Cap Value
Trust
Date: November 21, 2003
Attached hereto as a furnished exhibit are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act.