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 - 03/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Small Cap Value
Fund, Inc.
Annual Report
March 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Small Cap Value Fund, Inc.
Portfolio Information as of March 31, 2004 (unaudited)
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Parametric Technology Corporation ................................... 2.5%
Tech Data Corporation ............................................... 2.2
Foot Locker, Inc. ................................................... 2.2
CNF Transportation Inc. ............................................. 2.2
Protective Life Corporation ......................................... 2.1
Triumph Group, Inc. ................................................. 1.8
WebMD Corporation ................................................... 1.7
GrafTech International Ltd. ......................................... 1.6
Convergys Corporation ............................................... 1.5
Allied Waste Industries, Inc. ....................................... 1.4
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries* Net Assets
- --------------------------------------------------------------------------------
Specialty Retail .................................................... 6.4%
Commercial Banks .................................................... 6.3
Software ............................................................ 6.3
Electronic Equipment & Instruments .................................. 5.9
Oil & Gas ........................................................... 4.1
- --------------------------------------------------------------------------------
* 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. These
industry classifications are unaudited.
2 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
A Letter From the President
Dear Shareholder
Equity markets produced positive results for the most recent six-month and
12-month reporting periods. The U.S. stock market, as measured by the Standard &
Poor's 500 Index, returned +14.08% and +35.12% for the six-month and 12-month
periods ended March 31, 2004, respectively.
The U.S. economy has benefited from significant fiscal and monetary stimulus in
the form of low interest rates and tax cuts. This has opened the door to
consumer spending, capital spending, increases in exports and long-awaited job
growth. As expected, these positive developments have led the way to continued
improvements in corporate earnings -- a positive for stock markets. For the
period ended March 31, 2004, the Federal Reserve Board maintained its
accommodative policy stance, although with a strengthening economy it is likely
to be nudging interest rates upward in the coming months.
As the economic cycle continues to mature, patterns in equity markets tend to
emerge. True to historic precedent, the smaller and more volatile stocks
provided the best results coming off of the 2000 - 2002 bear market bottom,
partly because they were among the most downtrodden. Given the cyclical nature
of the markets, larger-capitalization and higher-quality stocks may be the next
beneficiaries as the economic surge gives way to more moderate and sustainable
growth.
The events and efforts of the past year leave us with a much stronger economy
today. With all of this in mind, we believe it is time for investors to consider
what can go right in 2004. We encourage you to revisit your portfolio and your
asset allocation strategy to ensure you are well positioned to take advantage of
the opportunities that lie ahead. Your financial advisor can help you develop a
strategy designed to perform through all types of market and economic cycles.
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. MARCH 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
For the fiscal year ended March 31, 2004, Merrill Lynch Small Cap Value
Fund delivered its best absolute performance in more than two decades.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended March 31, 2004, Merrill Lynch Small Cap Value
Fund, Inc.'s Class A, Class B, Class C, Class I and Class R Shares had total
returns of +57.20%, +56.07%, +56.00%, +57.61% and +57.09%, respectively.
(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 - 9 of
this report to shareholders.) For the same period, the unmanaged benchmark
Russell 2000 Index returned +63.83% and the Lipper Small Cap Value Funds
category posted an average return of +60.85%. (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.)
Despite the strong fiscal year performance, relative results were hindered by
our average cash holdings of about 6% in a sharply rising equity environment.
The median market cap of about $1.0 billion for the Fund's holdings also
dampened relative performance in an environment that favored companies with
market caps below $500 million. Both the Russell 2000 Index and the Lipper Small
Cap Value category include a number of small and micro cap issues. Nonetheless,
the Fund achieved record absolute returns while moderating the overall level of
risk in the portfolio.
What changes were made to the portfolio during the period?
The portfolio was aggressively positioned at the beginning of the period, and
more defensively positioned at the close on March 31, 2004. Early last year,
entire sectors looked appealing based on the prevailing valuation metrics. Many
stocks then satisfied our valuation criteria, since they were trading near the
low end of their historical valuation ranges. In the current environment,
however, we are finding fewer opportunities and must be more selective. Last
year, in a sharply rising stock market, assuming greater market risk paid off.
This year, we prefer to assume stock-specific risk in special situations where
we have done extensive fundamental research, and limit market risk by trimming
high-beta stocks where returns are closely tied to the overall performance of
the stock market. We believe this may help to mitigate the level of risk in the
portfolio.
When selecting new stocks, we initiate discussions with company management teams
to understand their operating strategy. Many of our recent purchases involved
situations where there is a turnaround, a corporate restructuring or an overhaul
of the executive management team. We seek to identify company-specific catalysts
that could cause the shares to move higher in the months ahead.
Regarding sector positioning, we made several changes during the year. The
Fund's technology stock holdings returned more than 90% on average during the
12-month period, versus the average return of about 81% for technology stocks in
the Russell 2000 Index. On the heels of this strong performance, we aggressively
trimmed the Fund's technology holdings to keep the sector at approximately the
same portfolio weight throughout the year. In the software industry, for
example, share prices rose dramatically and we scaled back our investments.
Despite our continued selling, the portfolio's weighting in software was roughly
unchanged at approximately 6% as of March 31, 2004.
4 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Many recent additions to the portfolio have been in the distribution industry.
We added Anixter International Inc., a distributor of specialty wire and cable
products, Ingram Micro Inc., a leading distributor of computers and related
products, and CommScope, Inc., a provider of networking products. We also
initiated holdings in telecommunications-related areas, including shares of DSP
Group Inc., a designer of digital signal processing chips, and Tellabs Inc., a
vendor of telecommunications equipment.
The addition of telecommunication equipment stocks is a fairly recent portfolio
change. The portfolio had essentially no exposure to these stocks over the past
few years. This change of strategy is based on our belief that capital spending
for telecommunications equipment is in the early stages of a rebound. We believe
that spending on telecommunication equipment could surpass the high end of
analysts' estimates, and we favor stocks with solid balance sheets that are, in
most cases, profitable. Generally speaking, they are not providers of
cutting-edge technology, but rather are companies positioned to take advantage
of improved spending on legacy equipment where upgrades have been neglected for
a long time.
How would you characterize the portfolio's position at the close of the period?
As of March 31, 2004, the portfolio was underweight in the consumer
discretionary sector. We believe that rapid growth in consumer spending has
largely run its course and is now likely to wane with the anticipated slowdown
in mortgage-refinancing activity. By contrast, the portfolio was slightly
overweight at period end in consumer staples, where stock valuation levels are
more favorable in our view.
We retained the portfolio's underweight position in financial services stocks
during the 12-month period because few financial stocks are trading near the low
end of their historical valuation ranges, and many financials that are at low
valuations have credit-quality issues. Despite our relative underexposure in
this area, the portfolio's financial services stocks performed extremely well
during the fiscal period. One of our largest investments in shares of Knight
Trading Group, Inc., a market maker of Nasdaq and over-the-counter securities,
more than doubled in value during the period.
The portfolio continues to hold selected investments in insurers,
broker/dealers, asset management firms, and a basket of regional banks and
thrifts that should benefit from any further industry consolidation. The
portfolio was modestly overweight in technology stocks at period end, but still
below previous high levels of ownership. Holdings in information technology are
well balanced, with an emphasis on distribution stocks. Significant positions
include Tech Data Corporation, a full-line distributor of computers and related
products, and Anixter International, a distributor of specialty wire and cable.
We believe these companies will benefit from improved technology spending. They
also have attractive earnings prospects and reasonable valuation levels in our
view.
Looking ahead, how would you characterize the environment for small cap stocks?
Several factors support our continued positive outlook for small cap stocks.
Typically, micro-capitalization stocks lead in the early stages of a market
rebound. As the economic recovery broadens, small and mid cap stocks usually
follow. Small cap stocks have not rallied as sharply as micro caps over the past
year, and they presently appear more attractive on price-to-earnings and
price-to-book-value ratios. Another factor supporting our favorable view is the
prospect of increased merger-and-acquisition activity, which has propelled small
cap stocks higher in past economic cycles. Companies have restructured and
strengthened their balance sheets. Cash flow is at historically high levels, and
management teams now have the resources to pursue takeovers. Interest rates are
another positive factor.
Recent mutual fund flows also provide support, with small cap mutual funds
continuing to receive inflows. The positive flow of assets into small cap funds
could cause money managers to seek attractively valued opportunities, pushing
stock prices still higher.
R. Elise Baum
Vice President and Portfolio Manager
April 13, 2004
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
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. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain more current performance
information. 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 gain distributions, if any, 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*
10-Year/
6-Month 12-Month Since Inception
As of March 31, 2004 Total Return Total Return Total Return
===============================================================================================================
ML Small Cap Value Fund, Inc. Class A Shares* +21.22% +57.20% +302.94%
- ---------------------------------------------------------------------------------------------------------------
ML Small Cap Value Fund, Inc. Class B Shares* +20.79 +56.07 +284.92
- ---------------------------------------------------------------------------------------------------------------
ML Small Cap Value Fund, Inc. Class C Shares* +20.78 +56.00 +274.15
- ---------------------------------------------------------------------------------------------------------------
ML Small Cap Value Fund, Inc. Class I Shares* +21.41 +57.61 +326.57
- ---------------------------------------------------------------------------------------------------------------
ML Small Cap Value Fund, Inc. Class R Shares* +21.08 +57.09 + 53.79
- ---------------------------------------------------------------------------------------------------------------
Russell 2000 Index** +21.69 +63.83 +169.88/+165.95/+62.43
- ---------------------------------------------------------------------------------------------------------------
* 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 10-year/since inception periods
are for 10 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 10 years, from
10/21/94 and from 2/04/03, respectively.
6 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class A & Class C Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class C Shares compared to growth of an investment in the Russell 2000
Index. Values are from October 21, 1994 to March 2004.
10/21/94** 3/95 3/96 3/97 3/98 3/99
ML Small Cap Value
Fund, Inc.+--Class A Shares* $ 9,475 $ 9,961 $11,880 $13,945 $19,913 $15,458
ML Small Cap Value
Fund, Inc.+--Class C Shares* $10,000 $10,482 $12,405 $14,438 $20,463 $15,760
Russell 2000 Index++ $10,000 $10,398 $13,419 $14,104 $20,030 $16,774
3/00 3/01 3/02 3/03 3/04
ML Small Cap Value
Fund, Inc.+--Class A Shares* $24,265 $25,748 $33,773 $24,287 $38,179
ML Small Cap Value
Fund, Inc.+--Class C Shares* $24,529 $25,827 $33,635 $23,984 $37,415
Russell 2000 Index++ $23,030 $19,500 $22,226 $16,233 $26,595
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Master Small Cap Value Trust. The
Trust invests in a diversified portfolio of securities, primarily common
stocks, of relatively small companies which the Trust's management
believes have special investment value, and emerging growth companies
regardless of size.
++ This unmanaged Index is comprised of approximately 2,000
small-capitalization common stocks from various industrial sectors.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 3/31/04 +57.20% +48.95%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/04 +19.82 +18.54
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 3/31/04 +15.91 +15.25
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 3/31/04 +56.00% +55.00%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/04 +18.88 +18.88
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 3/31/04 +15.00 +15.00
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class B & Class I Shares
A line graph depicting the growth of an investment in the Fund's Class B Shares
and Class I Shares compared to growth of an investment in the Russell 2000
Index. Values are from March 1994 to March 2004.
3/94 3/95 3/96 3/97 3/98
ML Small Cap Value
Fund, Inc.+--Class B Shares* $10,000 $10,770 $12,749 $14,845 $21,038
ML Small Cap Value
Fund, Inc.+--Class I Shares* $ 9,475 $10,314 $12,332 $14,504 $20,768
Russell 2000 Index++ $10,000 $10,552 $13,617 $14,312 $20,326
3/99 3/00 3/01 3/02 3/03 3/04
ML Small Cap Value
Fund, Inc.+--Class B Shares* $16,207 $25,237 $26,565 $34,592 $24,663 $38,492
ML Small Cap Value
Fund, Inc.+--Class I Shares* $16,162 $25,422 $27,047 $35,582 $25,643 $40,418
Russell 2000 Index++ $17,022 $23,370 $19,788 $22,555 $16,473 $26,988
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ The Fund invests all of its assets in Master Small Cap Value Trust. The
Trust invests in a diversified portfolio of securities, primarily common
stocks, of relatively small companies which the Trust's management
believes have special investment value, and emerging growth companies
regardless of size.
++ This unmanaged Index is comprised of approximately 2,000
small-capitalization common stocks from various industrial sectors.
Past performance is not predictive of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 3/31/04 +56.07% +52.07%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/04 +18.89 +18.69
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/04 +14.43 +14.43
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 3/31/04 +57.61% +49.34%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/04 +20.12 +18.83
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/04 +15.61 +14.99
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
8 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Performance Data (concluded)
Total Return Based on a $10,000 Investment--Class R Shares
A line graph depicting the growth of an investment in the Fund's Class R Shares
compared to growth of an investment in the Russell 2000 Index. Values are from
February 4, 2003 to March 2004.
2/04/03** 3/03 3/04
ML Small Cap Value
Fund, Inc.+--Class R Shares* $10,000 $9,790 $15,379
Russell 2000 Index++ $10,000 $9,914 $16,243
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Master Small Cap Value Trust. The
Trust invests in a diversified portfolio of securities, primarily common
stocks, of relatively small companies which the Trust's management
believes have special investment value, and emerging growth companies
regardless of size.
++ This unmanaged Index is comprised of approximately 2,000
small-capitalization common stocks from various industrial sectors.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without
Sales Charge
================================================================================
Class R Shares
================================================================================
One Year Ended 3/31/04 +57.09%
- --------------------------------------------------------------------------------
Inception (2/04/03) through 3/31/04 +45.36
- --------------------------------------------------------------------------------
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Merrill Lynch Small Cap Value Fund, Inc.
As of March 31, 2004
=============================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------
Investment in Master Small Cap Value Trust, at value
(identified cost--$2,745,515,466) ........................... $ 3,189,311,450
Prepaid registration fees ..................................... 50,850
---------------
Total assets .................................................. 3,189,362,300
---------------
=============================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Payables:
Distributor ................................................ $ 1,477,304
Other affiliates ........................................... 1,148,230
Administrative fees ........................................ 107,082 2,732,616
---------------
Accrued expenses .............................................. 23,165
---------------
Total liabilities ............................................. 2,755,781
---------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets .................................................... $ 3,186,606,519
===============
=============================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... $ 2,300,236
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... 3,853,276
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... 2,230,516
Class I Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... 3,939,478
Class R Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... 12,674
Paid-in capital in excess of par .............................. 2,556,589,160
Undistributed realized capital gains on investments
allocated from the Trust--net ............................... $ 173,885,195
Unrealized appreciation on investments allocated
from the Trust--net ......................................... 443,795,984
---------------
Total accumulated earnings--net ............................... 617,681,179
---------------
Net Assets .................................................... $ 3,186,606,519
===============
=============================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $620,192,753 and
23,002,357 shares outstanding ............................... $ 26.96
===============
Class B--Based on net assets of $951,561,818 and
38,532,756 shares outstanding ............................... $ 24.69
===============
Class C--Based on net assets of $539,393,374 and
22,305,159 shares outstanding ............................... $ 24.18
===============
Class I--Based on net assets of $1,072,298,530
and 39,394,784 shares outstanding ........................... $ 27.22
===============
Class R--Based on net assets of $3,160,044 and
126,743 shares outstanding .................................. $ 24.93
===============
See Notes to Financial Statements.
10 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Statement of Operations Merrill Lynch Small Cap Value Fund, Inc.
For the Year Ended March 31, 2004
=============================================================================================================================
Investment Income Allocated from the Trust--Net
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Trust:
Dividends (including $1,098,097 from affiliates and net
of $4,000 foreign withholding tax) ....................... $ 22,663,660
Interest from affiliates ................................... 1,543,540
Securities lending--net .................................... 406,484
Expenses ................................................... (13,464,137)
---------------
Net investment income allocated from the Trust ................ 11,149,547
---------------
=============================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------
Account maintenance and distribution fees--Class B ............ $ 8,417,028
Administration fees ........................................... 6,635,233
Account maintenance and distribution fees--Class C ............ 4,442,747
Transfer agent fees--Class B .................................. 2,265,051
Transfer agent fees--Class I .................................. 2,112,642
Account maintenance fees--Class A ............................. 1,259,937
Transfer agent fees--Class C .................................. 1,258,108
Transfer agent fees--Class A .................................. 1,233,335
Printing and shareholder reports .............................. 185,634
Registration fees ............................................. 162,733
Professional fees ............................................. 64,402
Directors' fees and expenses .................................. 32,373
Account maintenance and distribution fees--Class R ............ 3,031
Transfer agent fees--Class R .................................. 1,328
Other ......................................................... 29,793
---------------
Total expenses ................................................ 28,103,375
---------------
Investment loss--net .......................................... (16,953,828)
---------------
=============================================================================================================================
Realized & Unrealized Gain Allocated from the Trust--Net
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain on investments allocated from the Trust--net .... 248,569,142
Change in unrealized appreciation/depreciation on
investments allocated from the Trust--net ................... 878,215,072
---------------
Total realized and unrealized gain allocated from the
Trust--net .................................................. 1,126,784,214
---------------
Net Increase in Net Assets Resulting from Operations .......... $ 1,109,830,386
===============
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Merrill Lynch Small Cap Value Fund, Inc.
For the Year Ended
March 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2004 2003
=============================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------
Investment loss--net .......................................... $ (16,953,828) $ (19,204,943)
Realized gain (loss) on investments allocated from the
Trust--net .................................................. 248,569,142 (43,800,828)
Change in unrealized appreciation/depreciation on investments
allocated from the Trust--net ............................... 878,215,072 (867,812,951)
-----------------------------------
Net increase (decrease) in net assets resulting from operations 1,109,830,386 (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 .......................................... 146,819,263 (310,974,611)
-----------------------------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ....................... 1,256,649,649 (1,305,962,621)
Beginning of year ............................................. 1,929,956,870 3,235,919,491
-----------------------------------
End of year ................................................... $ 3,186,606,519 $ 1,929,956,870
===================================
See Notes to Financial Statements.
12 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Financial Highlights Merrill Lynch Small Cap Value Fund, Inc.
Class A@@
The following per share data and ratios have been derived ---------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
---------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001+ 2000
================================================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .... $ 17.15 $ 24.45 $ 19.73 $ 22.80 $ 16.19
---------------------------------------------------------------
Investment loss--net*** ............... (.08) (.09) (.07) --@@@ (.07)
Realized and unrealized gain (loss) on
investments and allocated from the
Trust--net .......................... 9.89 (6.73) 6.08 1.23 8.82
---------------------------------------------------------------
Total from investment operations ...... 9.81 (6.82) 6.01 1.23 8.75
---------------------------------------------------------------
Less distributions from realized gain
on investments and allocated from
the Trust--net ...................... -- (.48) (1.29) (4.30) (2.14)
---------------------------------------------------------------
Net asset value, end of year .......... $ 26.96 $ 17.15 $ 24.45 $ 19.73 $ 22.80
===============================================================
================================================================================================================================
Total Investment Return*
- --------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .... 57.20% (28.09%) 31.17% 6.11% 56.98%
===============================================================
================================================================================================================================
Ratios to Average Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
Expenses** ............................ 1.27% 1.33% 1.25% 1.30% 1.33%
===============================================================
Investment loss--net .................. (.34%) (.48%) (.30%) (.02%) (.37%)
===============================================================
================================================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $620,193 $347,736 $467,733 $198,094 $151,650
===============================================================
Portfolio turnover .................... 80.35%++ 68.27%++ 54.14%++ 42.30%@ 89.18%
===============================================================
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses.
*** Based on average shares outstanding.
+ 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, which 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.
@ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
@@ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
@@@ Amount is less than $(.01) per share.
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 13
[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 ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001@ 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .... $ 15.82 $ 22.74 $ 18.44 $ 21.59 $ 15.37
------------------------------------------------------------------
Investment loss--net*** ............... (.24) (.23) (.22) (.15) (.21)
Realized and unrealized gain (loss) on
investments and allocated from the
Trust--net .......................... 9.11 (6.25) 5.67 1.15 8.35
------------------------------------------------------------------
Total from investment operations ...... 8.87 (6.48) 5.45 1.00 8.14
------------------------------------------------------------------
Less distributions from realized gain
on investments and allocated from the
Trust--net .......................... -- (.44) (1.15) (4.15) (1.92)
------------------------------------------------------------------
Net asset value, end of year .......... $ 24.69 $ 15.82 $ 22.74 $ 18.44 $ 21.59
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .... 56.07% (28.70%) 30.22% 5.26% 55.72%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses** ............................ 2.04% 2.10% 2.01% 2.06% 2.11%
==================================================================
Investment loss--net .................. (1.11%) (1.26%) (1.04%) (.75%) (1.14%)
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 951,562 $ 640,017 $1,003,961 $ 563,316 $ 511,780
==================================================================
Portfolio turnover .................... 80.35%++ 68.27%++ 54.14%++ 42.30%+ 89.18%
==================================================================
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses.
*** Based on average shares outstanding.
+ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
++ Portfolio turnover for the Trust.
@ 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, which 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.
See Notes to Financial Statements.
14 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Financial Highlights (continued) Merrill Lynch Small Cap Value Fund, Inc.
Class C
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001@ 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .... $ 15.50 $ 22.30 $ 18.13 $ 21.32 $ 15.21
------------------------------------------------------------------
Investment loss--net*** ............... (.23) (.23) (.23) (.15) (.21)
Realized and unrealized gain (loss) on
investments and allocated from the
Trust--net .......................... 8.91 (6.13) 5.58 1.14 8.25
------------------------------------------------------------------
Total from investment operations ...... 8.68 (6.36) 5.35 .99 8.04
------------------------------------------------------------------
Less distributions from realized gain
on investments and allocated from the
Trust--net .......................... -- (.44) (1.18) (4.18) (1.93)
------------------------------------------------------------------
Net asset value, end of year .......... $ 24.18 $ 15.50 $ 22.30 $ 18.13 $ 21.32
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .... 56.00% (28.69%) 30.23% 5.29% 56.98%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses** ............................ 2.05% 2.12% 2.02% 2.08% 2.12%
==================================================================
Investment loss--net .................. (1.13%) (1.27%) (1.11%) (.75%) (1.16%)
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $539,393 $334,720 $504,537 $140,610 $ 67,390
==================================================================
Portfolio turnover .................... 80.35%++ 68.27%++ 54.14%++ 42.30%+ 89.18%
==================================================================
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses.
*** Based on average shares outstanding.
+ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
++ Portfolio turnover for the Trust.
@ 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, which 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.
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 15
[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 ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001+ 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .... $ 17.27 $ 24.58 $ 19.81 $ 22.87 $ 16.27
------------------------------------------------------------------
Investment income (loss)--net*** ...... (.02) (.05) (.01) .06 (.02)
Realized and unrealized gain (loss) on
investments and allocated from the
Trust--net .......................... 9.97 (6.77) 5.84 1.23 8.84
------------------------------------------------------------------
Total from investment operations ...... 9.95 (6.82) 5.83 1.29 8.82
------------------------------------------------------------------
Less distributions from realized gain
on investments and allocated from the
Trust--net .......................... -- (.49) (1.06) (4.35) (2.22)
------------------------------------------------------------------
Net asset value, end of year .......... $ 27.22 $ 17.27 $ 24.58 $ 19.81 $ 22.87
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .... 57.61% (27.93%) 31.56% 6.39% 57.29%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses** ............................ 1.02% 1.07% .99% 1.04% 1.08%
==================================================================
Investment income (loss)--net ......... (.09%) (.24%) (.03%) .27% (.12%)
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $1,072,299 $607,484 $1,259,688 $648,806 $491,855
==================================================================
Portfolio turnover .................... 80.35%++ 68.27%++ 54.14%++ 42.30%@ 89.18%
==================================================================
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses.
*** Based on average shares outstanding.
+ 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, which 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.
@ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
@@ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
See Notes to Financial Statements.
16 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Financial Highlights (concluded) Merrill Lynch Small Cap Value Fund, Inc.
Class R
-----------------------------
The following per share data and ratios have been derived For the For the Period
from information provided in the financial statements. Year Ended February 4,
March 31, 2003+ to
Increase (Decrease) in Net Asset Value: 2004 March 31, 2003
============================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 15.87 $ 16.12
-----------------------------
Investment loss--net*** .......................... (.12) --@@@
Realized and unrealized gain (loss) on investments
allocated from the Trust--net .................. 9.18 (.25)
-----------------------------
Total from investment operations ................. 9.06 (.25)
-----------------------------
Net asset value, end of period ................... $ 24.93 $ 15.87
=============================
============================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............... 57.09% (1.55%)@
=============================
============================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------
Expenses++ ....................................... 1.52% 1.66%*
=============================
Investment loss--net ............................. (.59%) (.65%)*
=============================
============================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $ 3,160 --@@
=============================
Portfolio turnover of the Trust .................. 80.35% 68.27%
=============================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Commencement of operations.
++ 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. MARCH 31, 2004 17
[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. The percentage of the Trust owned by the Fund
at March 31, 2004 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. 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, dividend 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.
(g) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax difference of $16,953,828 has been
reclassified between undistributed net realized capital gains and accumulated
net investment loss. This reclassification has no effect on net assets or net
asset values per share.
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.
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
18 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Notes to Financial Statements (continued)
Merrill Lynch Small Cap Value Fund, Inc.
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 year ended March 31, 2004, 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 ............................ $ 23,247 $324,723
Class I ............................ $ 907 $ 13,228
- --------------------------------------------------------------------------------
For the year ended March 31, 2004, MLPF&S received contingent deferred sales
charges of $934,451 and $43,940 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 $146,819,263 and $(310,974,611) for the years ended March 31, 2004 and March
31, 2003, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 2004+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 7,355,410 $ 171,011,025
Automatic conversion of shares ......... 1,839,213 41,811,547
--------------------------------
Total issued ........................... 9,194,623 212,822,572
Shares redeemed ........................ (6,474,293) (150,175,716)
--------------------------------
Net increase ........................... 2,720,330 $ 62,646,856
================================
+ 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 Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 10,154,910 $ 215,460,830
Automatic conversion of shares ......... (1,999,667) (41,811,547)
Shares redeemed ........................ (10,066,295) (215,593,957)
--------------------------------
Net decrease ........................... (1,911,052) $ (41,944,674)
================================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 5,342,274 $ 115,762,960
Shares redeemed ........................ (4,633,448) (95,640,822)
--------------------------------
Net increase ........................... 708,826 $ 20,122,138
================================
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded)
Merrill Lynch Small Cap Value Fund, Inc.
- -------------------------------------------------------------------------------
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 Year Dollar
Ended March 31, 2004+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 15,484,530 $ 367,911,503
Shares redeemed ........................ (11,274,789) (264,974,932)
--------------------------------
Net increase ........................... 4,209,741 $ 102,936,571
================================
+ 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 Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 167,761 $ 4,074,962
Shares redeemed ........................ (41,024) (1,016,590)
--------------------------------
Net increase ........................... 126,737 $ 3,058,372
================================
- -------------------------------------------------------------------------------
Class R Shares for the
Period February 5, 2003+ to Dollar
March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 6 $ 100
--------------------------------
Net increase ........................... 6 $ 100
================================
+ Commencement of operations.
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended March 31,
2004 and March 31, 2003 was as follows:
- -------------------------------------------------------------------------------
3/31/2004 3/31/2003
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ...................... $ -- $ 24,250,573
Net long-term capital gains .......... -- 39,918,715
---------------------------------
Total taxable distributions ............ $ -- $ 64,169,288
=================================
As of March 31, 2004, the components of accumulated earnings on a tax basis were
as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income--net ..................... $ 117,682,281
Undistributed long-term capital gains--net ............. 71,909,643
-------------
Total undistributed earnings--net ...................... 189,591,924
Capital loss carryforward .............................. (492,581)*
Unrealized gains--net .................................. 428,581,836**
-------------
Total accumulated earnings--net ........................ $ 617,681,179
=============
* On March 31, 2004, the Fund had a net capital loss carryforward of
$492,581, all of which expires in 2010. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales and
limitations on the utilization of capital loss carryforwards for tax
purposes.
20 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Independent Auditors' Report Merrill Lynch Small Cap Value Fund, Inc.
To the Shareholders and Board of Directors of
Merrill Lynch Small Cap Value Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Small Cap Value Fund, Inc. as of March 31, 2004, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Small Cap Value Fund, Inc. as of March 31, 2004, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and its financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
May 14, 2004
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments Master Small Cap Value Trust
Value Percent of
Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
===================================================================================================================================
Aerospace & Defense 1,201,100 Raytheon Company $ 37,642,474 1.2%
1,769,300 +Triumph Group, Inc. (a) 58,475,365 1.8
----------------------------
96,117,839 3.0
===================================================================================================================================
Air Freight & Logistics 2,070,100 CNF Transportation Inc. 69,555,360 2.2
===================================================================================================================================
Auto Components 948,500 +American Axle & Manufacturing
Holdings, Inc. 34,952,225 1.1
883,700 +Hayes Lemmerz International, Inc. 13,600,143 0.4
413,200 +Shiloh Industries, Inc. 3,673,761 0.1
----------------------------
52,226,129 1.6
===================================================================================================================================
Biotechnology 581,300 +Applera Corporation--Celera
Genomics Group 8,434,663 0.3
651,400 +Charles River Laboratories
International, Inc. 27,912,490 0.9
173,081 +Diversa Corporation 1,533,498 0.0
1,038,500 +Human Genome Sciences, Inc. 13,012,405 0.4
1,474,332 +Incyte Genomics, Inc. 12,251,699 0.4
1,365,300 +Maxygen Inc. 12,956,697 0.4
1,127,600 +Medarex, Inc. 10,114,572 0.3
593,500 +Vertex Pharmaceuticals Incorporated 5,590,770 0.2
2,204,857 +Vical Incorporated (a) 13,449,628 0.4
----------------------------
105,256,422 3.3
===================================================================================================================================
Building Products 156,200 ElkCorp 4,231,458 0.1
===================================================================================================================================
Capital Markets 2,005,900 Janus Capital Group Inc. 32,856,642 1.0
2,653,700 +Knight Trading Group, Inc. 33,595,842 1.1
63,000 W.P. Stewart & Co., Ltd. 1,256,220 0.0
----------------------------
67,708,704 2.1
===================================================================================================================================
Chemicals 137,800 Cytec Industries Inc. 4,901,546 0.2
===================================================================================================================================
Commercial Banks 809,200 Bank of Hawaii Corporation 37,490,236 1.2
1,173,500 Banknorth Group, Inc. 39,945,940 1.3
1,394,100 The Colonial BancGroup, Inc. 25,790,850 0.8
779,900 Compass Bancshares, Inc. 32,342,453 1.0
1,196,600 First Midwest Bancorp, Inc. 40,851,924 1.3
1,050,300 Old National Bancorp 23,736,780 0.7
----------------------------
200,158,183 6.3
===================================================================================================================================
Commercial Services & Supplies 3,353,000 +Allied Waste Industries, Inc. 44,628,430 1.4
687,400 Ambassadors International, Inc. (a) 8,970,570 0.3
1,487,200 +Cornell Companies, Inc. (a) 17,206,904 0.6
293,800 +Corrections Corporation of America 10,459,280 0.3
176,300 G & K Services, Inc. (Class A) 6,561,886 0.2
1,681,900 +United Rentals, Inc. 29,887,363 0.9
----------------------------
117,714,433 3.7
===================================================================================================================================
Communications Equipment 1,271,000 +Cable Design Technology 12,049,080 0.4
1,993,800 +CommScope, Inc. 33,196,770 1.0
887,000 +Extreme Networks, Inc. 6,395,270 0.2
1,856,300 +McData Corporation (Class B) (a) 12,771,344 0.4
653,200 +Network Equipment Technologies, Inc. 6,518,936 0.2
3,637,800 +Tellabs, Inc. 31,394,214 1.0
----------------------------
102,325,614 3.2
===================================================================================================================================
Construction & Engineering 592,300 Fluor Corporation 22,916,087 0.7
1,253,600 +MasTec, Inc. 11,871,592 0.4
----------------------------
34,787,679 1.1
===================================================================================================================================
Construction Materials 583,800 Martin Marietta Materials, Inc. 26,948,208 0.8
===================================================================================================================================
Containers & Packaging 1,646,200 +Smurfit-Stone Container Corporation 28,956,658 0.9
===================================================================================================================================
22 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Schedule of Investments (continued) Master Small Cap Value Trust
Value Percent of
Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
===================================================================================================================================
Diversified Financial Services 509,500 Financial Select Sector SPDR Fund (b) $ 14,979,300 0.5%
266,100 iShares S&P Midcap 400 Index Fund (h) 32,091,660 1.0
266,500 iShares S&P SmallCap 600/BARRA Value Index
Fund (i) 28,432,885 0.9
224,900 iShares S&P SmallCap 600 Index Fund (j) 31,951,543 1.0
----------------------------
107,455,388 3.4
===================================================================================================================================
Electrical Equipment 72,700 Belden Inc. 1,379,119 0.0
1,428,500 +Global Power Equipment Group Inc. 12,027,970 0.4
----------------------------
13,407,089 0.4
===================================================================================================================================
Electronic Equipment & Instruments 928,500 Anixter International Inc. 26,230,125 0.8
111,500 +Bell Microproducts Inc. 802,800 0.0
1,892,100 +Ingram Micro Inc. (Class A) 34,247,010 1.1
1,811,773 +Itron, Inc. (a) 33,717,095 1.1
360,310 +Nu Horizons Electronics Corp. 3,790,461 0.1
1,253,500 +Paxar Corporation 18,489,125 0.6
1,743,900 +Tech Data Corporation 71,395,266 2.2
----------------------------
188,671,882 5.9
===================================================================================================================================
Energy Equipment & Service 1,346,000 Diamond Offshore Drilling, Inc. 32,559,740 1.0
614,500 Energy Select Sector SPDR Fund (k) 18,023,285 0.6
587,300 +FMC Technologies, Inc. 15,874,719 0.5
1,802,200 +Key Energy Services, Inc. 19,824,200 0.6
503,800 +National-Oilwell, Inc. 14,247,464 0.4
159,000 Oil Service HOLDRs Trust (d) 11,166,570 0.4
----------------------------
111,695,978 3.5
===================================================================================================================================
Food Products 652,500 ConAgra, Inc. 17,578,350 0.5
861,600 Corn Products International, Inc. 34,464,000 1.1
1,987,200 +Del Monte Foods Company 22,356,000 0.7
475,500 Interstate Bakeries Corporation 5,406,435 0.2
695,600 +Smithfield Foods, Inc. 18,864,672 0.6
----------------------------
98,669,457 3.1
===================================================================================================================================
Health Care Equipment & Supplies 1,114,700 +CTI Molecular Imaging, Inc. 16,263,473 0.5
191,700 +Cutera, Inc. 2,683,800 0.1
142,600 Invacare Corp. 6,436,964 0.2
968,000 Mentor Corporation 29,136,800 0.9
397,900 +STERIS Corporation 10,265,820 0.3
----------------------------
64,786,857 2.0
===================================================================================================================================
Health Care Providers & Services 57,600 AmerisourceBergen Corporation 3,149,568 0.1
73,500 +First Health Group Corp. 1,606,710 0.0
2,831,500 Hooper Holmes, Inc. 17,668,560 0.6
5,943,700 +WebMD Corporation 52,839,493 1.7
----------------------------
75,264,331 2.4
===================================================================================================================================
Hotels, Restaurants & Leisure 693,855 Ambassadors Group, Inc. (a) 17,159,034 0.6
724,700 Bob Evans Farms, Inc. 23,509,268 0.7
597,040 Dover Downs Gaming & Entertainment, Inc. (a) 6,394,298 0.2
1,019,700 Dover Motorsports, Inc. (a) 3,925,845 0.1
2,925,100 +La Quinta Corporation 22,055,254 0.7
----------------------------
73,043,699 2.3
===================================================================================================================================
IT Services 3,231,600 +Convergys Corporation 49,120,320 1.5
1,671,700 Sabre Holdings Corporation 41,474,877 1.3
90,900 +TNS Inc. 1,740,735 0.1
----------------------------
92,335,932 2.9
===================================================================================================================================
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 23
[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
===================================================================================================================================
Insurance 82,300 American National Insurance Company $ 7,365,027 0.2%
1,226,600 +Conseco, Inc. 28,408,056 0.9
408,818 Presidential Life Corporation 6,124,094 0.2
1,817,700 Protective Life Corporation 68,072,865 2.1
----------------------------
109,970,042 3.4
===================================================================================================================================
Internet & Catalog Retail 261,700 +CHRONIMED Inc. 2,033,409 0.1
===================================================================================================================================
Internet Software & Services 2,163,300 +Entrust Technologies Inc. 9,453,621 0.3
507,800 +MatrixOne, Inc. 3,686,628 0.1
32,975 +Tom Online Inc. (ADR) (e) 400,646 0.0
21,298,517 +Vignette Corporation (a) 44,087,930 1.4
----------------------------
57,628,825 1.8
===================================================================================================================================
Leisure Equipment & Products 1,487,600 Callaway Golf Company 28,234,648 0.9
179,000 +JAKKS Pacific, Inc. 2,685,000 0.1
560,700 +Leapfrog Enterprises, Inc. 10,849,545 0.3
1,451,600 The Nautilus Group, Inc. 22,862,700 0.7
----------------------------
64,631,893 2.0
===================================================================================================================================
Machinery 70,384 BHA Group Holdings, Inc. 2,110,816 0.1
848,900 Kaydon Corp. 23,370,217 0.7
751,000 Reliance Steel & Aluminum Co. 26,397,650 0.8
972,600 +Wolverine Tube, Inc. (a) 8,160,114 0.3
----------------------------
60,038,797 1.9
===================================================================================================================================
Media 2,210,300 +APAC Customer Services Inc. 6,520,385 0.2
335,600 +Catalina Marketing Corporation 6,507,284 0.2
731,100 Harte-Hanks, Inc. 17,122,362 0.6
5,070,400 +Paxson Communications Corporation (a) 19,774,560 0.6
2,536,000 The Reader's Digest Association, Inc. (Class A) 35,706,880 1.1
1,028,500 +Valassis Communications, Inc. 31,266,400 1.0
----------------------------
116,897,871 3.7
===================================================================================================================================
Metals & Mining 1,094,200 Gibraltar Steel Corporation (a) 26,895,436 0.8
3,319,400 +GrafTech International Ltd. 49,625,030 1.6
402,400 Quanex Corporation 17,097,976 0.5
1,021,200 +Steel Dynamics, Inc. 25,305,336 0.8
----------------------------
118,923,778 3.7
===================================================================================================================================
Oil & Gas 1,370,500 +Denbury Resources Inc. 23,106,630 0.7
805,900 Noble Energy, Inc. 37,957,890 1.2
815,691 +Plains Exploration & Production Company 15,204,480 0.5
979,491 +Plains Resources Inc. 17,807,147 0.6
652,100 +Stone Energy Corporation 32,252,866 1.0
327,400 Vintage Petroleum, Inc. 4,799,684 0.1
----------------------------
131,128,697 4.1
===================================================================================================================================
Paper & Forest Products 242,200 +Mercer International, Inc. 2,300,900 0.1
===================================================================================================================================
Pharmaceuticals 478,000 +aaiPharma Inc. 3,169,140 0.1
1,028,000 +King Pharmaceuticals, Inc. 17,311,520 0.5
----------------------------
20,480,660 0.6
===================================================================================================================================
Real Estate 563,800 Brandywine Realty Trust 17,224,090 0.6
1,177,993 Trizec Properties, Inc. 20,202,580 0.6
----------------------------
37,426,670 1.2
===================================================================================================================================
Road & Rail 863,900 CSX Corporation 26,167,531 0.9
2,598,400 +Kansas City Southern Industries, Inc. 36,117,760 1.1
----------------------------
62,285,291 2.0
===================================================================================================================================
24 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Schedule of Investments (continued) Master Small Cap Value Trust
Value Percent of
Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
===================================================================================================================================
Semiconductors & Semiconductor 1,877,200 +ANADIGICS, Inc. (a) $ 11,676,184 0.4%
Equipment 2,829,900 +Applied Micro Circuits Corporation 16,271,925 0.5
391,500 +DSP Group, Inc. 10,073,295 0.3
1,025,900 +TranSwitch Corporation 2,369,829 0.1
955,600 +TriQuint Semiconductor, Inc. 6,975,880 0.2
506,800 +Zoran Corporation 8,798,048 0.3
------------------------------
56,165,161 1.8
===================================================================================================================================
Software 1,185,100 +Borland Software Corporation 10,760,708 0.3
3,391,900 +Compuware Corporation 25,269,655 0.8
2,772,468 +E.piphany, Inc. 20,017,219 0.6
5,699,000 +i2 Technologies, Inc. 6,724,820 0.2
807,000 +JDA Software Group, Inc. 11,741,850 0.4
17,574,300 +Parametric Technology Corporation (a) 79,435,836 2.5
1,494,375 +QRS Corporation (a) 8,428,275 0.3
1,010,300 +Take-Two Interactive Software, Inc. 37,158,834 1.2
------------------------------
199,537,197 6.3
===================================================================================================================================
Specialty Retail 732,900 Abercrombie & Fitch Co. (Class A) 24,801,336 0.8
509,000 Christopher & Banks Corporation 10,744,990 0.3
668,400 +Electronics Boutique Holdings Corp. 19,624,224 0.6
2,699,800 Foot Locker, Inc. 69,654,840 2.2
503,300 +Linens 'n Things, Inc. 17,821,853 0.6
613,200 +The Men's Wearhouse, Inc. 16,292,724 0.5
576,400 Pier 1 Imports, Inc. 13,660,680 0.4
909,100 The Talbots, Inc. 32,527,598 1.0
------------------------------
205,128,245 6.4
===================================================================================================================================
Thrifts & Mortgage Finance 1,178,200 Sovereign Bancorp, Inc. 25,237,044 0.8
===================================================================================================================================
Trading Companies & Distributors 696,200 Applied Industrial Technologies, Inc. 15,817,664 0.5
1,208,200 Watsco, Inc. (a) 35,037,800 1.1
------------------------------
50,855,464 1.6
===================================================================================================================================
Wireless Telecommunication Services 47,900 Linktone Ltd. (ADR) (e) 579,111 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost--$2,613,414,452) 3,057,467,901 95.9
===================================================================================================================================
Preferred Stocks
===================================================================================================================================
Personal Products 1,317 Adrien Arpel, Inc. 0 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost--$0) 0 0.0
===================================================================================================================================
Warrants (g)
===================================================================================================================================
Capital Markets 760,000 UBS (l) 37,278,000 1.2
- -----------------------------------------------------------------------------------------------------------------------------------
Total Warrants (Cost--$37,535,465) 37,278,000 1.2
===================================================================================================================================
Beneficial Interest/
Shares Held Short-Term Securities
===================================================================================================================================
$119,272,297 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (c) 119,272,297 3.7
$112,121,813 Merrill Lynch Liquidity Series, LLC
Money Market Series (c)(f) 112,121,813 3.5
37,373,937 Merrill Lynch Premier Institutional
Fund (c)(f) 37,373,937 1.2
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$268,768,047) 268,768,047 8.4
===================================================================================================================================
Total Investments (Cost--$2,919,717,964) 3,363,513,948 105.5
Liabilities in Excess of Other Assets (174,202,498) (5.5)
------------------------------
Net Assets $3,189,311,450 100.0%
==============================
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 25
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) Master Small Cap Value Trust
* 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. These
industry classifications are unaudited.
+ Non-income producing security.
(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
----------------------------------------------------------------------------------------------------------------------------
ANADIGICS, Inc. 1,877,200 $12,829,585 -- -- +
Ambassadors Group, Inc. (14,000) $ 330,708 $ 289,388 $ 275,977 $151,801
Ambassadors International, Inc. (195,400) $ 173,043 $ 1,727,412 $ 640,946 $202,380
BHA Group Holdings, Inc.* (355,093) -- $ 3,871,217 $ 4,231,293 $ 70,189
Cornell Companies, Inc. 1,487,200 $21,836,510 $ 1,023,662 $ (254,570) +
Dover Downs Gaming & Entertainment, Inc. (128,200) $ 116,690 $ 1,488,674 $ (128,649) $134,828
Dover Motorsports, Inc. (113,700) $ 75,760 $ 846,889 $ (351,572) $ 43,376
E.piphany, Inc.* (4,320,142) -- $27,686,948 $ 9,079,409 +
EXE Technologies, Inc.* (452,342) -- $12,011,587 $(8,919,250) +
Gibraltar Steel Corporation 261,100 $ 6,760,007 $ 1,545,372 $ (75,641) $173,428
Itron, Inc. 1,811,773 $39,870,855 $ 2,888,315 $ (353,675) +
Knight Trading Group, Inc.* (3,470,500) -- $36,990,403 $ 3,173,726 +
McData Corporation (Class B) 1,856,300 $17,978,349 -- -- +
Mercer International, Inc.* (875,700) -- $ 8,666,848 $(2,468,105) +
Nu Horizons Electronics Corp.* (792,200) -- $ 7,268,739 $ (132,018) +
Nuance Communications, Inc.* (2,681,900) -- $15,121,751 $ 1,733,247 +
Parametric Technology Corporation 1,686,900 $ 9,568,386 $ 7,658,347 $(3,492,173) +
Paxar Corporation* (828,000) $ 8,583,521 $20,161,864 $ 1,539,309 +
Paxson Communications Corporation 1,248,500 $ 6,222,885 -- -- +
QRS Corporation 615,155 $10,648,215 $ 8,722,967 $(2,599,170) +
Quanex Corporation* (409,500) $ 958,015 $13,840,974 $ 4,330,571 $473,603
Ryerson Tull, Inc.* (1,372,981) $ 10,945 $19,052,168 $(5,442,017) $191,582
Triumph Group, Inc. 429,600 $13,816,222 -- -- +
Vical Incorporated 292,400 $ 1,171,930 -- -- +
Vignette Corporation 3,804,717 $ 9,389,866 $ 576,862 $ (417,009) +
Watsco, Inc. (868,100) $ 824,249 $10,762,841 $ 6,776,841 $392,284
Wolverine Tube, Inc. (171,900) $ 143,172 $ 2,904,101 $(1,749,074) +
Zemex Corporation* (626,610) -- $ 5,053,311 $ 425,057 +
----------------------------------------------------------------------------------------------------------------------------
+ Non-income producing security.
* No longer an affiliated company as of March 31, 2004.
(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 Index.
(c) 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:
--------------------------------------------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $ 30,551,014 $1,543,540
Merrill Lynch Liquidity Series, LLC Money Market Series $(34,014,007) $ 275,535
Merrill Lynch Premier Institutional Fund 37,373,937 $ 130,949
--------------------------------------------------------------------------------------------------------------
(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) American Depositary Receipts (ADR).
(f) Security was purchased with the cash proceeds from securities loans.
(g) Warrants entitle the Trust to purchase a predetermined number of shares of
common stock and are non-income producing. The purchase price and number
of shares are subject to adjustment under certain conditions until the
expiration date.
26 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Schedule of Investments (concluded) Master Small Cap Value Trust
(h) iShares S&P MidCap 400 Index Fund is an exchange-traded Fund. The Fund
seeks investment results that correspond to the performance of the S&P
MidCap 400 Index.
(i) iShares S&P SmallCap 600/Barra Value Index Fund is an exchange-traded
Fund. The Fund seeks investment results that correspond to the performance
of the S&P SmallCap 600/Barra Value Index.
(j) iShares S&P SmallCap 600 Index Fund is an exchange-traded Fund. The Fund
seeks investment results that correspond to the performance of the S&P
SmallCap 600 Index.
(k) Represents ownership in Energy Select Sector SPDR Fund, registered in the
United States. The investment objective of the Energy Select Sector SPDR
Fund is to provide investment results that correspond to the performance
of the Energy Select Sector Index.
(l) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 27
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Master Small Cap Value Trust
As of March 31, 2004
=========================================================================================================================
Assets
- -------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including
securities loaned of $141,548,529) (identified
cost--$2,222,451,110) ................................... $ 2,689,179,682
Investments in affiliated securities, at value (identified
cost--$697,266,854) ..................................... 674,334,266
Receivables:
Securities sold ........................................ $ 25,986,026
Contributions .......................................... 4,778,447
Dividends .............................................. 1,825,568
Interest (including $3,238 from affiliates) ............ 113,876
Securities lending--net ................................ 52,997 32,756,914
---------------
Prepaid expenses .......................................... 10,624
---------------
Total assets .............................................. 3,396,281,486
---------------
=========================================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ................. 149,495,750
Payables:
Custodian bank ......................................... 26,129,576
Securities purchased ................................... 21,359,489
Withdrawals ............................................ 9,635,888
Investment adviser ..................................... 201,465
Other affiliates ....................................... 15,504 57,341,922
---------------
Accrued expenses .......................................... 132,364
---------------
Total liabilities ......................................... 206,970,036
---------------
=========================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------------
Net assets ................................................ $ 3,189,311,450
===============
=========================================================================================================================
Net Assets Consist of
- -------------------------------------------------------------------------------------------------------------------------
Investor's capital ........................................ $ 2,745,515,466
Unrealized appreciation on investments--net ............... 443,795,984
---------------
Net Assets ................................................ $ 3,189,311,450
===============
See Notes to Financial Statements.
28 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Statement of Operations Master Small Cap Value Trust
For the Year Ended March 31, 2004
=========================================================================================================================
Investment Income
- -------------------------------------------------------------------------------------------------------------------------
Dividends (including $1,098,097 from affiliates and net
of $4,000 foreign withholding tax) ...................... $ 22,663,660
Interest from affiliates .................................. 1,543,540
Securities lending--net ................................... 406,484
---------------
Total income .............................................. 24,613,684
---------------
=========================================================================================================================
Expenses
- -------------------------------------------------------------------------------------------------------------------------
Investment advisory fees .................................. $ 12,578,207
Accounting services ....................................... 523,978
Custodian fees ............................................ 166,149
Professional fees ......................................... 82,990
Trustees' fees and expenses ............................... 48,394
Printing and shareholder reports .......................... 9,822
Pricing fees .............................................. 789
Other ..................................................... 53,808
---------------
Total expenses ............................................ 13,464,137
---------------
Investment income--net .................................... 11,149,547
---------------
=========================================================================================================================
Realized & Unrealized Gain on Investments--Net
- -------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ......................... 248,569,142
Change in unrealized appreciation/depreciation on
investments--net ........................................ 878,215,072
---------------
Total realized and unrealized gain on investments--net .... 1,126,784,214
---------------
Net Increase in Net Assets Resulting from Operations ...... $ 1,137,933,761
===============
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 29
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Master Small Cap Value Trust
For the Year Ended
March 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2004 2003
=========================================================================================================================
Operations
- -------------------------------------------------------------------------------------------------------------------------
Investment income--net .................................... $ 11,149,547 $ 8,089,276
Realized gain (loss) on investments--net .................. 248,569,142 (44,447,915)
Change in unrealized appreciation/depreciation on
investments--net ........................................ 878,215,072 (870,204,527)
-----------------------------------
Net increase (decrease) in net assets resulting from
operations .............................................. 1,137,933,761 (906,563,166)
-----------------------------------
=========================================================================================================================
Capital Transactions
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ............................... 874,221,280 386,453,716
Fair value of withdrawals ................................. (755,260,753) (796,432,753)
-----------------------------------
Net increase (decrease) in net assets derived from
capital transactions .................................... 118,960,527 (409,979,037)
-----------------------------------
=========================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ................... 1,256,894,288 (1,316,542,203)
Beginning of year ......................................... 1,932,417,162 3,248,959,365
-----------------------------------
End of year ............................................... $ 3,189,311,450 $ 1,932,417,162
===================================
See Notes to Financial Statements.
30 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Financial Highlights Master Small Cap Value Trust
For the
For the Year Ended Period
March 31, Sept. 1, 2000+
The following ratios have been derived from ------------------------------------------------ to March 31,
information provided in the financial statements. 2004 2003 2002 2001
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return .............. 58.26% (27.31%)++ 32.13% --
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. .51% .51% .52% .54%*
==================================================================
Investment income--net ............... .42% .32% .44% .85%*
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $3,189,311 $1,932,417 $3,248,959 $1,553,556
==================================================================
Portfolio turnover ................... 80.35% 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.
See Notes to Financial Statements.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 31
[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. The following is a summary of significant
accounting policies followed by the Trust.
(a) Valuation of investments -- Securities that are held by the Trust that are
traded on stock exchanges or the Nasdaq National Market are valued at the last
sale price or official close 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. In cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the Board of
Trustees of the Trust. Long positions in securities traded in the
over-the-counter ("OTC") market, Nasdaq Small Cap or Bulletin Board are valued
at the last available bid price or yield equivalent obtained from one or more
dealers or pricing services approved by the Board of Trustees of the Trust.
Short positions in securities traded in the OTC market are valued at the last
available ask price. Trust securities that are traded both in the OTC market and
on a stock exchange are valued according to the broadest and most representative
market. When the Trust writes an option, the amount of the premium received is
recorded on the books of the Trust as an asset and an equivalent liability. The
amount of the liability is subsequently valued to reflect the current market
value of the option written, based on the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last ask price. Options purchased by the Trust are valued at their last sale
price in the case of exchange-traded options or, in the case of options traded
in the OTC market, the last bid price. The value of swaps, including interest
rate swaps, caps and floors, will be determined by obtaining dealer quotations.
Other investments, including futures contracts and related options, are stated
at market value. Obligations with remaining maturities of 60 days or less are
valued at amortized cost unless the Investment Adviser believes that this method
no longer produces fair valuations. Repurchase agreements will be valued at cost
plus accrued interest. The Trust employs certain pricing services to provide
securities prices for the Trust. 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 the pricing services retained by the Trust,
which may use a matrix system for valuations. The procedures of a pricing
service and its valuations are reviewed by the officers of the Trust under the
general supervision of the Trust's Board of Trustees. Such valuations and
procedures will be reviewed periodically by the Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. Government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the New York Stock Exchange ("NYSE").
The values of such securities used in computing the net assets of the Trust are
determined as of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Trust's net assets. If
events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities may be valued at their fair 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 Trust's Board
of Trustees.
(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.
32 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Notes to Financial Statements (continued) Master Small Cap Value Trust
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 may 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.
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 may 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.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 33
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued) Master Small Cap Value Trust
(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 three
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.
(f) Custodian bank -- The Trust recorded an amount payable to the custodian bank
resulting from a timing difference of security transaction settlements.
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.
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 Trust's net assets at the following annual
rates: .50% of the Trust'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 March 31, 2004, the Trust lent securities with a value of
$92,066 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 year ended March 31, 2004, MLIM,
LLC received $177,693 in securities lending agent fees.
In addition, MLPF&S received $919,791 in commissions on the execution of
portfolio security transactions for the Trust for the year ended March 31, 2004.
For the year ended March 31, 2004, the Trust reimbursed FAM $51,974 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
year ended March 31, 2004 were $2,131,389,339 and $2,013,798,244, respectively.
34 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Notes to Financial Statements (concluded) Master Small Cap Value Trust
Net realized gains for the year ended March 31, 2004 and net unrealized gains as
of March 31, 2004 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .............. $248,569,142 $443,795,984
----------------------------------
Total .............................. $248,569,142 $443,795,984
==================================
As of March 31, 2004, net unrealized appreciation for Federal income tax
purposes aggregated $428,581,837, of which $541,543,035 related to appreciated
securities and $112,961,198 related to depreciated securities. At March 31,
2004, the aggregate cost of investments for Federal income tax purposes was
$2,934,932,111.
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 28, 2003, the credit agreement
was renewed for one year under the same terms. The Trust did not borrow under
the credit agreement during the year ended March 31, 2004.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 35
[LOGO] Merrill Lynch Investment Managers
Independent Auditors' Report Master Small Cap Value Trust
To the Investor and Board of Trustees of
Master Small Cap Value Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master Small Cap Value Trust as of March 31,
2004, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the respective periods then
ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free from material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2004, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Master
Small Cap Value Trust as of March 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the respective
periods then ended, in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
May 14, 2004
36 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Officers and Directors/Trustees (unaudited)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Director/Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President of the Merrill Lynch Investment Managers, 124 Funds None
Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. 160 Portfolios
08543-9011 Director/ and ("FAM")--Advised Funds since 1999; Chairman
Age: 63 Trustee 1997 to (Americas Region) of MLIM from 2000 to 2002;
present Executive Vice President of MLIM and FAM (which
terms as used herein include their corporate
predecessors) from 1983 to 2002; President of FAM
Distributors, Inc. ("FAMD") from 1986 to 2002 and
Director thereof from 1991 to 2002; Executive Vice
President and Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P. from
1989 to 2002; Director of Financial Data
Services, Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his former positions with MLIM, FAM, FAMD, Princeton Services and Princeton Administrators, L.P. The
Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation, removal, or death, or until
December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of
Directors/Trustees.
====================================================================================================================================
Independent Directors/Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. P.O. Box 9095 Director/ 2002 to General Partner of The Burton Partnership, Limited 23 Funds ITC Delta-
Burton Princeton, NJ Trustee present Partnership since 1979; Managing General Partner 36 Portfolios Com, Inc.,
08543-9095 of the South Atlantic Venture Funds, Limited ITC Financial
Age: 60 Partnerships since 1983; Member of the Investment Services,
Advisory Council of the Florida State Board of Knology, Inc.,
Administration since 2001. PriCare, Inc.,
Symbion, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
M. Colyer P.O. Box 9095 Director/ 1981 to James R. Williston Professor of Investment 24 Funds Cambridge
Crum Princeton, NJ Trustee present Management Emeritus, Harvard Business 37 Portfolios Bancorp
08543-9095 School since 1996; Chairman and Director of
Age: 71 Phaeton International, Ltd. from 1985 to present;
Director of Cambridge Bancorp since 1969.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie P.O. Box 9095 Director/ 1999 to Professor of Finance and Economics, Graduate 23 Funds None
Simon Princeton, NJ Trustee present School of Business, Columbia University since 36 Portfolios
Hodrick 08543-9095 1998; Associate Professor of Finance and
Age: 41 Economics, Graduate School of Business,
Columbia University from 1996 to 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
David H. P.O. Box 9095 Director/ 2003 to Consultant with Putnam Investments since 1993 23 Funds None
Walsh Princeton, NJ Trustee present and employed in various capacities therewith from 36 Portfolios
08543-9095 1971 to 1992; Director, the National Audubon
Age: 62 Society since 2000; Director of the American Museum
of Fly Fishing since 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 37
[LOGO] Merrill Lynch Investment Managers
Officers and Directors/Trustees (unaudited) (concluded)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. P.O. Box 9095 Director/ 1998 to Managing Director of FGW Associates since 1997; 23 Funds Watson
Weiss Princeton, NJ Trustee present Vice President, Planning, Investment and Devel- 36 Portfolios Pharma-
08543-9095 opment of Warner Lambert Co. from 1979 to 1997; ceuticals,
Age: 62 Director of BTG International, PLC since 2001; Inc.
Director of KIMC Investments, Inc. since 2003;
Director of Osmotica Holding Corp. AVV since 2003.
------------------------------------------------------------------------------------------------------------------------
* The Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation, removal or death, or
until December 31 of the year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length of
Held with Time
Name Address & Age Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999; Vice
08543-9011 and and President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer 1999 to
present
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 Senior Vice 1999 to President of MLIM and member of the Executive Management Committee of ML & Co.,
Doll, Jr. Princeton, NJ President present Inc. since 2001; Global Chief Investment Officer and Senior Portfolio Manager of
08543-9011 MLIM since 1999; Chief Investment Officer of Equities at Oppenheimer Funds, Inc.
Age: 49 from 1990 to 1999 and Chief Investment Officer thereof from 1998 to 1999; Executive
Vice President of Oppenheimer Funds, Inc. from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Robin P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2002; Director (Equities) of MLIM from 1999 to
Elise Baum Princeton, NJ President present 2002.
08543-9011
Age: 43
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip S. P.O. Box 9011 Secretary 2000 to First Vice President of MLIM since 2001; Director (Legal Advisory) from 2000 to
Gillespie Princeton, NJ present 2001; Vice President from 1999 to 2000; Attorney associated with MLIM since 1998.
08543-9011
Age: 40
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
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
38 MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004
Electronic Delivery
The Fund offers 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.
MERRILL LYNCH SMALL CAP VALUE FUND, INC. MARCH 31, 2004 39
[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 -- 3/04
Item 2 - Code of Ethics - The registrant has adopted 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
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Donald W.
Burton, (2) M. Colyer Crum, (3) Laurie Simon Hodrick, (4) David H.
Walsh and (5) Fred G. Weiss.
The registrant's board of directors has determined that Laurie Simon
Hodrick and M. Colyer Crum qualify as financial experts pursuant to
Item 3(c)(4) of Form N-CSR.
Ms. Hodrick has a thorough understanding of generally accepted
accounting principals, financial statements, and internal controls and
procedures for financial reporting. Ms. Hodrick earned a Ph.D. in
economics and has taught courses in finance for over 15 years. Her
M.B.A.-level course centers around the evaluation and analysis of
firms' corporate financial statements. She has also taught in financial
analysts' training programs. Ms. Hodrick has also worked with several
prominent corporations in connection with the analysis of financial
forecasts and projections and analysis of the financial statements of
those companies, serving on the Financial Advisory Council of one of
these major corporations. She has also served as the Treasurer and
Finance Chair of a 501(c)(3) organization. Ms. Hodrick has published a
number of articles in leading economic and financial journals and is
the associate editor of two leading finance journals.
M. Colyer Crum also possesses a thorough understanding of generally
accepted accounting principals, financial statements, and internal
controls and procedures for financial reporting through a combination
of education and experience. Professor Crum was a professor of
investment management at the Harvard Business School for 25 years. The
courses taught by Professor Crum place a heavy emphasis on the analysis
of underlying company financial statements with respect to stock
selection and the analysis of credit risk in making loans. Professor
Crum has also served on a number of boards of directors and has served
on the audit committees, and in some cases chaired the audit committee,
for several major corporations and financial institutions. For two such
organizations, Professor Crum has performed extensive investment
analysis of financial statements in connection with investment
management decisions. From these experiences, he has gained significant
experience with the establishment of reserves and accounting policies,
differences between U.S. GAAP and Canadian GAAP and executive
compensation issues.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees
Master Small Cap Value Trust: Fiscal Year Ending March 31, 2004
- $38,000
Fiscal Year Ending March 31, 2003
- $50,950
Merrill Lynch Small Cap Value Fund: Fiscal Year Ending March 31, 2004
- $11,400
Fiscal Year Ending March 31, 2003
- $17,150
(b) Audit-Related Fees
Master Small Cap Value Trust: Fiscal Year Ending March 31, 2004
- $0
Fiscal Year Ending March 31, 2003
- $0
Merrill Lynch Small Cap Value Fund: Fiscal Year Ending March 31, 2004
- $0
Fiscal Year Ending March 31, 2003
- $8,250
The 2003 audit-related fees included procedures performed in relation
to a fund merger.
(c) Tax Fees
Master Small Cap Value Trust: Fiscal Year Ending March 31, 2004
- $0
Fiscal Year Ending March 31, 2003
- $7,900
The nature of the services include tax compliance, tax advice and tax
planning.
Merrill Lynch Small Cap Value Fund: Fiscal Year Ending March 31, 2004
- $5,800
Fiscal Year Ending March 31, 2003
- $5,400
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees
Master Small Cap Value Trust: Fiscal Year Ending March 31, 2004
- $0
Fiscal Year Ending March 31, 2003
- $0
Merrill Lynch Small Cap Value Fund: Fiscal Year Ending March 31, 2004
- $0
Fiscal Year Ending March 31, 2003
- $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for the project as a whole. Any proposed services exceeding the
pre-approved cost levels will require specific pre-approval by the
Committee, as will any other services not subject to general
pre-approval (e.g., unanticipated but permissible services). The
Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g)
Master Small Cap Value Trust: Fiscal Year Ending March 31, 2004
- $16,708,160
Fiscal Year Ending March 31, 2003
- $17,378,427
Master Small Cap Value Trust: Fiscal Year Ending March 31, 2004
- $16,708,160
Fiscal Year Ending March 31, 2003
- $17,378,427
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $541,640, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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: May 21, 2004
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: May 21, 2004
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: May 21, 2004