SEMI-ANNUAL REPORT
SEPTEMBER 30, 2000
[GRAPHIC OMITTED]
Mercury
Small Cap
Value
Fund, Inc.
<PAGE>
MASTER SMALL CAP VALUE TRUST
SECTOR REPRESENTATION
================================================================================
A pie chart illustrating the following percentages
(As a Percentage of Net Assets as of September 30, 2000.)
Utilities - 0.4%
Miscellaneous - 0.7%
Consumer Staples - 1.8%
Auto & Transportation - 3.6%
Energy - 4.0%
Producer Durables - 5.8%
Healthcare - 7.2%
Financial Services - 11.5%
Materials & Processing - 11.8%
Technology - 16.7%
Consumer Discretionary - 23.5%
INVESTMENTS AS OF SEPTEMBER 30, 2000
================================================================================
Percent of
Ten Largest Holdings Net Assets
================================================================================
WMS Industries, Inc. 3.3%
--------------------------------------------------------------------------------
United Rentals, Inc. 2.4
--------------------------------------------------------------------------------
Structural Dynamics Research
Corporation 2.3
--------------------------------------------------------------------------------
Charter One Financial, Inc. 2.1
--------------------------------------------------------------------------------
Tech Data Corporation 2.1
--------------------------------------------------------------------------------
Watsco, Inc. 1.7
--------------------------------------------------------------------------------
Panera Bread Company (Class A) 1.6
--------------------------------------------------------------------------------
The Men's Warehouse, Inc. 1.6
--------------------------------------------------------------------------------
FileNET Corporation 1.5
--------------------------------------------------------------------------------
Banknorth Group, Inc. 1.5
--------------------------------------------------------------------------------
September 30, 2000 (2) Mercury Small Cap Value Fund, Inc.
<PAGE>
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for Mercury
Small Cap Value Fund, Inc. The Fund seeks to provide long-term growth of capital
by investing in a diversified portfolio of securities, primarily common stock,
of relatively small companies that Fund management believes have special
investment value and emerging growth companies regardless of size. The Fund is a
"feeder" fund that invests all of its assets in Master Small Cap Value Trust,
which has the same investment objective as the Fund.
During the six months ended September 30, 2000, Mercury Small Cap Value Fund,
Inc. and a predecessor Fund investing in the same underlying portfolio as
Mercury Small Cap Value Fund outperformed the unmanaged Russell 2000 Index.
Total returns for the Fund's Class I, Class A, Class B and Class C Shares were
+9.20%, +9.02%, +8.56% and +8.63%, respectively, compared to the total return of
-2.72% for the unmanaged Russell 2000 Index. (Investment results shown do not
reflect sales charges, and would be lower if sales charges were included.
Complete performance information can be found on pages 5 and 6 of this report to
shareholders.)
Investment Environment
The positive performance run of small-capitalization stocks ended with a growth
stock collapse that began in March. This led to a 2.72% loss for the six-month
period ended September 30, 2000 for the Russell 2000 Index, a widely followed
measure of small-capitalization stock performance. Large-capitalization stocks
performed about the same as small caps, as the Dow Jones Industrial Average and
the unmanaged Standard & Poor's 500 (S&P 500) Index posted returns of -1.73% and
-3.60%, respectively, for the same six-month period. The divergence in
performance between value and growth stocks has continued in favor of value
stocks following the mid-March technology stock sell-off. This divergence is
evident in the style-specific Russell small-capitalization indexes. Value small
cap stocks in the Russell 2000 Index gained 9.43% for the six-month period ended
September 30, 2000, while growth small cap stocks in the Russell 2000 Index
declined 11.05%. Some of these growth small cap stocks declined to levels that
meet our out-of-favor valuation screen criteria and are under consideration as
potential investments for the Trust. However, there are still quite a few growth
stocks that have not yet declined to what we believe to be reasonable valuation
levels, and it is possible that the overall market may fall further as the
revaluation process continues.
For the period ended September 30, 2000, the Fund's performance benefited from
strong stock selection in the consumer discretionary, technology, and financial
services sectors. Our underweighted position in the healthcare sector negatively
influenced performance for the period, as healthcare stocks were the strongest
performing group in the Russell 2000. The Trust was a net seller of consumer
discretionary, consumer staples, and financial services stocks during the
period, as several stocks met our price objectives or were the subject of
takeover activity. Purchases were made in the technology, materials and
processing, and producer durables sectors, based on attractive valuations and
favorable company-specific fundamentals.
At September 30, 2000, the Trust was underweighted in the financial services and
healthcare sectors, and overweighted in the consumer discretionary and materials
& processing sectors, compared to the Russell 2000 Index sector weights. The
Trust's sector weights
September 30, 2000 (3) Mercury Small Cap Value Fund, Inc.
<PAGE>
are consistent with our investment philosophy of investing in the stocks of
small companies that are out of favor with investors. Healthcare and financial
services stocks have performed well during the past six months. Consequently,
relatively few stocks in those sectors are trading at the low end of their
historical valuation ranges. Consumer discretionary and producer durables stocks
have performed poorly for some time and a significant number of stocks in those
sectors meet our valuation criteria.
In Conclusion
Throughout the period ended September 30, 2000, sentiment alternated between
optimism and pessimism, and investor favor vacillated between growth and value
stocks. The recent decline in the market has brought a number of new investment
opportunities to our attention. Valuations for many small-capitalization stocks
appear attractive to us, though the decelerating economic backdrop presents risk
for stocks whose prices have not yet adjusted to the reduced growth expectations
for the overall market. Although the investment environment is likely to
continue to be volatile, we have a positive long-term outlook for the Trust's
current holdings.
We thank you for your investment in Mercury Small Cap Value Fund, Inc., and we
look forward to reviewing our outlook and strategy with you again in our next
report to shareholders.
Sincerely,
/s/ Terry K. Glenn /s/ Daniel V. Szemis
Terry K. Glenn Daniel V. Szemis
President and Director/Trustee Senior Vice President and
Portfolio Manager
November 13, 2000
September 30, 2000 (4) Mercury Small Cap Value Fund, Inc.
<PAGE>
FUND PERFORMANCE DATA
ABOUT FUND PERFORMANCE
The Fund offers four classes of shares, each with its own sales charge and
expense structure, allowing you to invest in the way that best suits your needs.
CLASS I SHARES incur a maximum initial sales charge of 5.25% and bear no ongoing
distribution and account maintenance fees. Class I shares are available only to
eligible investors.
CLASS A SHARES incur a maximum initial sales charge of 5.25% and an account
maintenance fee of 0.25% (but no distribution fee).
CLASS B SHARES are subject to a maximum contingent deferred sales charge of 4%
if redeemed during the first two years, decreasing to 3% for each of the next
two years and decreasing 1% each year thereafter to 0% after the sixth year. In
addition, Class B shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. These shares automatically convert to Class A
shares after approximately 8 years.
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 may be subject to a 1%
contingent deferred sales charge if redeemed within one year after purchase.
The performance results depicted on page 6 are those of Mercury Small Cap Value
Fund and, prior to October 1, 2000, a predecessor Fund investing in the same
underlying portfolio and with the same fees as Mercury Small Cap Value Fund.
Performance results prior to October 1, 2000 reflect the annual operating
expenses of the predecessor Fund. If Mercury Small Cap Value Fund's operating
expenses were reflected, the results may have been less than those shown for
this time period. Performance results after October 1, 2000 include the actual
operating expenses of Mercury Small Cap Value Fund. The Fund commenced
operations on September 5, 2000.
None of the past results shown should be considered a representation of future
performance. Figures shown in the "Recent Performance Results" and "Average
Annual Total Return" tables assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. Investment
return and principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Dividends paid to
each class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to each class,
which are deducted from the income available to be paid to shareholders.
September 30, 2000 (5) Mercury Small Cap Value Fund, Inc.
<PAGE>
FUND PERFORMANCE DATA (CONCLUDED)
RECENT PERFORMANCE RESULTS*
================================================================================
Ten Years/
6 Month 12 Month Since Inception
As of September 30, 2000 Total Return Total Return Total Return
--------------------------------------------------------------------------------
Class I + 9.20% +44.44% +494.29%
--------------------------------------------------------------------------------
Class A + 9.02 +44.03 +179.20
--------------------------------------------------------------------------------
Class B + 8.56 +42.91 +436.36
--------------------------------------------------------------------------------
Class C + 8.63 +42.94 +166.46
--------------------------------------------------------------------------------
Russell 2000 Index** - 2.72 +23.39 +377.97/+124.04
--------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if sales charges were included. Total investment returns are
based on changes in the Fund's net asset values for the periods shown, and
assume reinvestment of all dividends and capital gains at net asset value
on the ex-dividend date. The Fund's ten-year/since inception periods are
ten years for Class I & Class B Shares and from 10/21/94 for Class A and
Class C Shares.
** An unmanaged broad-based Index comprised of small-capitalization common
stocks. Ten years/since inception total return periods are ten years and
from 10/21/94, respectively.
AVERAGE ANNUAL TOTAL RETURN
================================================================================
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
================================================================================
One Year Ended
9/30/00 +44.44% +36.86%
--------------------------------------------------------------------------------
Five Years Ended
9/30/00 +18.92 +17.64
--------------------------------------------------------------------------------
Ten Years Ended
9/30/00 +19.51 +18.87
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class I Shares
were offered at a higher sales charge. Thus, actual returns would have
been lower than shown for the ten-year period.)
** Assuming maximum sales charge.
% Return % Return
Without Sales With Sales
Class B Shares* CDSC CDSC**
================================================================================
One Year Ended
9/30/00 +42.91% +38.91%
--------------------------------------------------------------------------------
Five Years Ended
9/30/00 +17.69 +17.69
--------------------------------------------------------------------------------
Ten Years Ended
9/30/00 +18.29 +18.29
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
================================================================================
One Year Ended
9/30/00 +44.03% +36.47%
--------------------------------------------------------------------------------
Five Years Ended
9/30/00 +18.63 +17.36
--------------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/00 +18.85 +17.78
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without Sales With Sales
Class C Shares* CDSC CDSC**
================================================================================
One Year Ended
9/30/00 +42.94% +41.94%
--------------------------------------------------------------------------------
Five Years Ended
9/30/00 +17.69 +17.69
--------------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/00 +17.92 +17.92
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
September 30, 2000 (6) Mercury Small Cap Value Fund, Inc.
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
As of September 30, 2000
--------------------------------------------------------------------------------
MERCURY SMALL CAP VALUE FUND, INC.
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Investment in Master Small Cap Value Trust, at value (identified
cost-- $126,637) $ 123,182
Prepaid registration fees and other assets 111,870
---------
Total assets 235,052
---------
--------------------------------------------------------------------------------------
Liabilities:
Payables:
Distributor $ 959
Administrator 18 977
-------
Accrued expenses and other liabilities 111,002
---------
Total liabilities 111,979
---------
--------------------------------------------------------------------------------------
Net Assets:
Net assets $ 123,073
=========
--------------------------------------------------------------------------------------
Net Assets Consist of:
Class I Shares of Common Stock, $.10 par value,
100,000,000 shares authorized $ 250
Class A Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 250
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 250
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 513
Paid-in capital in excess of par 124,057
Accumulated investment loss -- net (48)
Undistributed realized capital gains on investments from
the Trust -- net 1,256
Unrealized depreciation on investments from the Trust -- net (3,455)
---------
Net assets $ 123,073
=========
--------------------------------------------------------------------------------------
Net Asset Value:
Class I -- Based on net assets of $24,362 and 2,500 shares
outstanding $ 9.74
=========
Class A -- Based on net assets of $24,358 and 2,500 shares
outstanding $ 9.74
=========
Class B -- Based on net assets of $24,346 and 2,500 shares
outstanding $ 9.74
=========
Class C -- Based on net assets of $50,007 and 5,134 shares
outstanding $ 9.74
=========
--------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
September 30, 2000 (7) Mercury Small Cap Value Fund, Inc.
<PAGE>
STATEMENT OF OPERATIONS
For the Period September 5, 2000+ to September 30, 2000
--------------------------------------------------------------------------------
MERCURY SMALL CAP VALUE FUND, INC.
================================================================================
Investment Income:
Investment income allocated from the Trust $ 107
Expenses allocated from the Trust (45)
-------
Net investment income from the Trust 62
-------
--------------------------------------------------------------------------------
Expenses:
Registration fees $ 16,093
Offering costs 6,603
Accounting services 179
Account maintenance and distribution fees -- Class C 23
Administration fee 19
Account maintenance and distribution fees -- Class B 17
Account maintenance fee -- Class A 4
--------
Total expenses before reimbursement 22,938
Reimbursement of expenses (22,828)
--------
Total expenses after reimbursement 110
-------
Investment loss -- net (48)
-------
--------------------------------------------------------------------------------
Realized & Unrealized Gain (Loss) from the
Trust -- Net:
Realized gain on investments from the Trust -- net 1,256
Unrealized depreciation on investments from the Trust -- net (3,455)
-------
Net Decrease in Net Assets Resulting from Operations $(2,247)
=======
--------------------------------------------------------------------------------
+ Commencement of operations.
See Notes to Financial Statements.
September 30, 2000 (8) Mercury Small Cap Value Fund, Inc.
<PAGE>
STATEMENT OF CHANGES
IN NET ASSETS
For the Period September 5, 2000+ to September 30, 2000
--------------------------------------------------------------------------------
MERCURY SMALL CAP VALUE FUND, INC.
================================================================================
Increase (Decrease) in Net Assets:
--------------------------------------------------------------------------------
Operations:
Investment loss -- net $ (48)
Realized gain on investments from the Trust -- net 1,256
Unrealized depreciation on investments from the Trust -- net (3,455)
---------
Net decrease in net assets resulting from operations (2,247)
---------
--------------------------------------------------------------------------------
Capital Share Transactions:
Net increase in net assets derived from capital share transactions 25,320
---------
--------------------------------------------------------------------------------
Net Assets:
Total increase in net assets 23,073
Beginning of period 100,000
---------
End of period $ 123,073
=========
--------------------------------------------------------------------------------
+ Commencement of operations.
See Notes to Financial Statements.
September 30, 2000 (9) Mercury Small Cap Value Fund, Inc.
<PAGE>
FINANCIAL HIGHLIGHTS
MERCURY SMALL CAP VALUE FUND, INC.
================================================================================
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
For the Period September 5, 2000+ to September 30, 2000
-------------------------------------------------------------
Increase (Decrease) in Net Asset Value: Class I Class A Class B Class C
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------------------------------------------------------------
Investment loss-- net --++ --++ --++ --++
Realized and unrealized loss on
investments from the Trust-- net (.26) (.26) (.26) (.26)
-------------------------------------------------------------
Total from investment operations (.26) (.26) (.26) (.26)
-------------------------------------------------------------
Net asset value, end of period $ 9.74 $ 9.74 $ 9.74 $ 9.74
=============================================================
---------------------------------------------------------------------------------------------------------
Total Investment Return:**
Based on net asset value per share (2.60%)@ (2.60%)@ (2.60%)@ (2.60%)@
=============================================================
---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses, net of reimbursement+++ 1.49%* 1.74%* 2.49%* 2.52%*
=============================================================
Expenses+++ 314.07%* 314.32%* 315.08%* 306.66%*
=============================================================
Investment loss-- net (.08%)* (.33%)* (1.09%)* (.97%)*
=============================================================
---------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 25 $ 24 $ 24 $ 50
=============================================================
---------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Amount is less than $.01 per share.
+++ Includes the Fund's share of the Trust's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
September 30, 2000 (10) Mercury Small Cap Value Fund, Inc.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MERCURY SMALL CAP VALUE FUND, INC.
================================================================================
(1) Significant Accounting Policies:
Mercury Small Cap Value Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end investment
company. The Fund seeks to achieve its investment objective by investing
all of its assets in the Master Small Cap Value Trust (the "Trust") that
has the same investment objective as the Fund. The value of the Fund's
investment in the Trust reflects the Fund's proportionate interest in the
net assets of the Trust. The performance of the Fund is directly affected
by the performance of the Trust. The financial statements of the Trust,
including the Schedule of Investments, are included elsewhere in this
report and should be read in conjunction with the Fund's financial
statements. The Fund's financial statements are prepared in conformity
with accounting principles generally accepted in the United States of
America, which may require the use of management accruals and estimates.
These unaudited financial statements reflect all adjustments, which are,
in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a normal,
recurring nature. Prior to commencement of operations on September 5,
2000, the Fund had no operations other than those relating to
organizational matters and the issuance of 10,000 capital shares of the
Fund on August 9, 2000 to Fund Asset Management, L.P. ("FAM") for
$100,000. The Fund offers four classes of shares. Shares of Class I and
Class A are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. All classes
of shares have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except that Class A, Class B and Class
C Shares bear certain expenses related to the account maintenance of such
shares, and Class B and Class C Shares also bear certain expenses related
to the distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and distribu
tion expenditures (except that Class B Shares have certain voting rights
with respect to Class A expenditures). The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments -- Valuation of securities is discussed in
Note 1a of the Trust's Notes to Financial Statements, which are included
elsewhere in this report.
(b) Income -- The Fund's net investment income consists of the Fund's pro
rata share of the net investment income of the Trust, less all actual and
accrued expenses of the Fund determined in conformity with accounting
principles generally accepted in the United States of America.
September 30, 2000 (11) Mercury Small Cap Value Fund, Inc.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(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.
(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 are accounted for on
a trade date basis.
(2) Transactions with Affiliates:
The Fund has entered into an Administrative Services 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.,
Incorporated ("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. FAM earned fees of $19, all of which was waived. In
addition, FAM reimbursed the Fund $22,809 in additional expenses.
The Fund has also entered into a Distribution Agreement and Distribution
Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc. Pursuant to the
Distribution Plans adopted by the Fund in accordance with Rule 12b-1 under
the Investment Company Act of 1940, the Fund pays the Distributor ongoing
account maintenance and distribution fees. The fees are accrued daily and
paid monthly at annual rates based upon the average daily net assets of
the shares as follows:
Account Distribution
Maintenance Fee Fee
--------------------------------------------------------------------------
Class A .25% --
--------------------------------------------------------------------------
Class B .25% .75%
--------------------------------------------------------------------------
Class C .25% .75%
--------------------------------------------------------------------------
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 and Class C
shareholders. The ongoing distribution fee compensates the Distributor and
MLPF&S for providing shareholder and distribution-related services to
Class B and Class C shareholders.
September 30, 2000 (12) Mercury Small Cap Value Fund, Inc.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, FAMD, FDS, and/or ML & Co.
(3) Investments:
Increases in the Fund's investment in the Trust for the period September
5, 2000 to September 30, 2000 were $125,320.
(4) Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$25,320 for the period September 5, 2000 to September 30, 2000.
Transactions in capital shares were as follows:
Class C Shares for the Period
September 5, 2000+ to September 30, 2000 Shares Dollar Amount
--------------------------------------------------------------------------
Shares sold 2,634 $ 25,320
--------------------------------
Net increase 2,634 $ 25,320
================================
--------------------------------------------------------------------------
+ Prior to September 5, 2000 (commencement of operations), the Fund issued
2,500 shares to FAM for $25,000.
September 30, 2000 (13) Mercury Small Cap Value Fund, Inc.
<PAGE>
SCHEDULE OF INVESTMENTS
MASTER SMALL CAP VALUE TRUST
================================================================================
<TABLE>
<CAPTION>
In US Dollars
--------------------------------------------
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Auto & 204,750 ArvinMeritor, Inc. $ 5,064,323 $ 3,007,266 0.2%
Trans- 498,400 CNF Transportation, Inc. 14,913,560 11,089,400 0.8
portation 469,900 Circle International
Group, Inc. 9,422,544 14,214,475 1.0
803,000 +Fritz Companies, Inc. 7,882,253 9,636,000 0.7
185,200 +Gentex Corporation 3,000,336 4,630,000 0.3
1,019,700 +Keystone Automotive
Industries, Inc. (c) 9,864,743 4,907,306 0.4
1,744,400 +Miller Industries, Inc. 11,515,625 1,635,375 0.1
188,000 +Tower Automotive, Inc. 3,064,058 1,762,500 0.1
--------------------------------------------
64,727,442 50,882,322 3.6
-------------------------------------------------------------------------------------------------------
Consumer 308,100 +ACNielsen Corporation 5,843,350 7,336,631 0.5
Discre- 2,266,800 +APAC Customer
tionary Services, Inc. 11,387,622 12,042,375 0.9
1,317 Adrienne Arpel, Inc.
(Preferred) 0 28,157 0.0
560,900 +Ambassadors
International, Inc. 7,100,702 10,481,819 0.7
606,200 +BI, Incorporated (c) 5,500,558 4,982,206 0.4
556,900 +Boron, LePore &
Associates, Inc. 7,575,025 5,708,225 0.4
1,293,500 +Buffets, Inc. 12,552,401 17,785,625 1.3
511,900 Dover Downs
Entertainment, Inc. 6,283,444 6,878,656 0.5
77,000 Ethan Allen Interiors, Inc. 1,856,299 2,180,062 0.2
218,600 G & K Services, Inc.
(Class A) 4,799,192 6,134,463 0.4
1,742,250 +HA-LO Industries, Inc. 12,895,180 6,969,000 0.5
25,000 Harte Hanks, Inc. 617,770 681,250 0.1
412,600 IKON Office Solutions, Inc. 2,900,873 1,624,613 0.1
147,992 +Interlogix, Inc. 3,186,277 1,963,206 0.1
234,600 +Jack in the Box, Inc. 4,860,809 5,029,238 0.4
331,600 +Linens 'n Things, Inc. 7,946,966 8,455,800 0.6
205,000 Liz Claiborne, Inc. 8,496,503 7,892,500 0.6
119,600 +MSC Industrial
Direct Co., Inc. (Class A) 1,678,022 1,823,900 0.1
747,200 +McNaughton Apparel
Group, Inc. (c) 10,131,919 12,235,400 0.9
812,400 +The Men's
Warehouse, Inc. 17,023,378 23,001,075 1.6
1,258,350 +Metromedia International
Group, Inc. 12,398,347 4,706,229 0.3
254,440 +Midway Games, Inc. 2,304,374 1,781,080 0.1
282,300 +Mohawk Industries, Inc. 6,258,726 6,157,669 0.4
</TABLE>
September 30, 2000 (14) Mercury Small Cap Value Fund, Inc.
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
--------------------------------------------
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer 582,000 +Outback Steakhouse,
Discre- Inc. $ 13,902,102 $ 15,786,750 1.1%
tionary 1,121,700 +Panera Bread Company
(concluded) (Class A) (c) 7,525,064 23,415,488 1.6
1,264,300 +Paxson Communications
Corporation 13,010,660 14,539,450 1.0
1,036,600 Pier 1 Imports, Inc. 6,780,942 14,058,888 1.0
108,600 +QRS Corporation 2,064,598 1,635,787 0.1
1,394,000 +SITEL Corporation 9,744,698 4,094,875 0.3
275,000 +Sinclair Broadcast Group,
Inc. (Class A) 3,059,375 3,007,813 0.2
509,200 Strayer Education, Inc. 11,121,155 11,138,750 0.8
452,100 +THQ, Inc. 4,144,876 10,511,325 0.7
23,400 +Take-Two Interactive
Software, Inc. 248,625 293,963 0.0
687,000 +Tech Data Corporation 16,614,337 29,369,250 2.1
2,113,600 +WMS Industries, Inc. (c) 17,117,233 47,556,000 3.3
140,400 +West TeleServices
Corporation 1,668,883 3,088,800 0.2
--------------------------------------------
260,600,285 334,376,318 23.5
-------------------------------------------------------------------------------------------------------
Consumer 259,000 Dean Foods Company 6,375,784 8,611,750 0.6
Staples 191,300 Longs Drug Stores
Corporation 4,383,379 3,658,612 0.3
256,300 +Suiza Foods Corporation 8,679,734 12,991,206 0.9
--------------------------------------------
19,438,897 25,261,568 1.8
-------------------------------------------------------------------------------------------------------
Energy 94,200 +Barrett Resources
Corporation 2,127,520 3,561,937 0.2
563,300 +Basin Exploration, Inc. 7,948,646 10,984,350 0.8
191,300 Diamond Offshore
Drilling, Inc. 5,617,791 7,843,300 0.6
150,600 +Evergreen Resources, Inc. 3,326,488 5,233,350 0.4
259,722 +Louis Dreyfus Natural
Gas Corp. 3,817,826 10,291,484 0.7
152,600 +Nuevo Energy Company 3,043,950 2,804,025 0.2
158,800 +Plains Resources Inc. 1,826,931 2,997,350 0.2
308,391 Plains Resources Inc. (b) 1,806,983 5,820,880 0.4
309,250 +Tom Brown, Inc. 3,017,615 7,576,625 0.5
--------------------------------------------
32,533,750 57,113,301 4.0
-------------------------------------------------------------------------------------------------------
Financial 65,050 American National
Services Insurance Company 4,792,822 4,155,069 0.3
1,152,700 Banknorth Group, Inc. 18,986,273 20,604,512 1.5
1,394,000 +Billing Concepts Corp. 8,731,709 4,443,375 0.3
515,400 Brandywine Realty Trust 9,019,808 10,436,850 0.7
278,000 Camden Property Trust 7,307,121 8,618,000 0.6
658,100 Capitol Federal Financial 6,559,765 9,624,712 0.7
1,228,968 Charter One Financial, Inc. 21,301,599 29,956,102 2.1
51,900 +Investment Technology
Group, Inc. 1,182,616 2,072,756 0.1
</TABLE>
September 30, 2000 (15) Mercury Small Cap Value Fund, Inc.
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
--------------------------------------------
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial 1,683,800 Meditrust Companies $ 12,184,520 $ 4,946,163 0.4%
Services 560,200 National Data Corporation 15,585,838 18,381,563 1.3
(concluded) 391,000 PXRE Group Limited 8,096,612 6,158,250 0.4
351,400 +The Profit Recovery Group
International, Inc. 5,900,645 3,470,075 0.2
202,100 Roslyn Bancorp, Inc. 3,478,444 4,521,988 0.3
329,200 Scottish Annuity & Life
Holdings, Ltd. 4,515,650 3,045,100 0.2
1,384,000 +United Rentals, Inc. 24,729,057 33,389,000 2.4
--------------------------------------------
152,372,479 163,823,515 11.5
-------------------------------------------------------------------------------------------------------
Healthcare 1,429,500 +Caremark Rx, Inc. 7,097,897 16,081,875 1.1
328,000 +Closure Medical
Corporation 5,814,280 8,261,500 0.6
573,600 +Covance, Inc. 8,603,854 4,696,350 0.3
296,600 +INAMED Corporation 9,305,937 8,341,875 0.6
314,000 +Isis Pharmaceuticals, Inc. 3,708,791 3,611,000 0.3
516,200 Mentor Corporation 9,025,173 8,130,150 0.6
610,200 +Nabi 3,937,002 4,271,400 0.3
202,300 +Novoste Corporation 6,602,643 8,597,750 0.6
518,100 +Orthodontic Centers of
America, Inc. 5,913,097 17,259,206 1.2
148,000 Owens & Minor, Inc. 2,599,454 2,331,000 0.2
456,000 +Patterson Dental
Company 9,023,154 10,260,000 0.7
154,800 +Pharmaceutical Product
Development, Inc. 2,004,400 4,111,875 0.3
98,900 +Quintiles Transnational
Corp. 1,343,229 1,576,219 0.1
177,200 +Vical, Incorporated 4,001,951 4,585,050 0.3
--------------------------------------------
78,980,862 102,115,250 7.2
-------------------------------------------------------------------------------------------------------
Materials & 1,046,400 AK Steel Holding
Processing Corporation 14,336,343 9,810,000 0.7
506,800 A.M. Castle & Company 8,676,896 4,877,950 0.3
278,900 +Airgas, Inc. 2,103,759 1,900,006 0.1
519,400 Boise Cascade Corporation 14,730,143 13,796,562 1.0
62,700 Carpenter Technology
Corporation 1,504,931 1,826,137 0.1
359,300 Commonwealth
Industries, Inc. 5,075,131 1,998,606 0.1
900,500 Corn Products
International, Inc. 21,502,128 20,486,375 1.4
456,500 Gibraltar Steel
Corporation 8,343,793 7,532,250 0.5
848,500 Intermet Corporation 11,221,789 6,151,625 0.4
121,000 Kaydon Corp. 3,249,434 2,783,000 0.2
251,500 +Novamerican Steel, Inc. 2,912,596 2,137,750 0.2
642,100 +Paxar Corporation 8,073,661 5,738,769 0.4
641,700 Quanex Corporation 13,574,406 12,232,406 0.9
</TABLE>
September 30, 2000 (16) Mercury Small Cap Value Fund, Inc.
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
--------------------------------------------
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Materials & 522,800 Rock-Tenn Company
Processing (Class A) $ 6,192,610 $ 5,195,325 0.4%
(concluded) 1,569,081 Ryerson Tull, Inc. (c) 26,496,832 14,808,202 1.0
714,900 +Shiloh Industries, Inc. 9,909,349 5,183,025 0.4
1,060,100 +Unifi, Inc. 12,367,232 10,799,769 0.8
2,391,200 Watsco, Inc. (c) 27,129,836 24,605,448 1.7
669,400 +Wolverine Tube, Inc. (c) 11,260,517 9,957,325 0.7
863,610 +Zemex Corporation (c) 7,282,851 6,369,124 0.5
--------------------------------------------
215,944,237 168,189,654 11.8
-------------------------------------------------------------------------------------------------------
Miscella- 1,331,500 +Mercer International,
neous Inc. (c) 15,768,762 10,069,469 0.7
-------------------------------------------------------------------------------------------------------
Producer 529,500 +ANTEC Corporation 17,075,727 15,620,250 1.1
Durables 633,100 Applied Industrial
Technologies, Inc. 10,981,741 10,960,544 0.8
442,000 +BE Aerospace, Inc. 3,169,273 7,127,250 0.5
638,277 BHA Group Holdings,
Inc. (c) 7,083,102 9,095,447 0.6
846,900 +Brown & Sharpe
Manufacturing Company
(Class A) (c) 10,624,240 3,493,462 0.3
468,100 +Com21, Inc. 7,720,797 6,319,350 0.4
808,800 +Comdial Corporation (c) 4,965,675 1,642,875 0.1
166,800 +DONCASTERS PLC
(ADR) (a) 1,203,203 3,377,700 0.2
2,350,800 +Danka Business
Systems PLC (ADR) (a) 15,370,687 3,599,663 0.3
598,500 Oakwood Homes
Corporation 11,219,065 897,750 0.1
218,000 The Ryland Group, Inc. 3,345,065 6,758,000 0.5
179,630 +Toll Brothers, Inc. 3,456,533 6,174,781 0.4
180,400 +Triumph Group, Inc. 4,514,694 6,471,850 0.5
--------------------------------------------
100,729,802 81,538,922 5.8
-------------------------------------------------------------------------------------------------------
Technology 257,400 +ANADIGICS, Inc. 6,897,591 5,694,975 0.4
285,400 +American Management
Systems, Incorporated 6,595,511 4,905,313 0.3
543,700 +Anixter International, Inc. 7,483,122 15,835,262 1.1
535,450 +C.P. Clare Corporation (c) 4,490,184 2,309,128 0.2
683,800 +ESCO Technologies Inc. 11,672,171 11,966,500 0.8
454,900 +Electronics for
Imaging, Inc. 10,727,861 11,486,225 0.8
1,162,600 +FileNET Corporation 23,431,908 21,144,788 1.5
253,600 +Harmonic, Inc. 6,786,081 6,086,400 0.4
369,000 +II-VI, Incorporated (c) 6,148,696 6,889,922 0.5
358,753 +InterVoice-Bright, Inc. 3,560,329 3,766,907 0.3
815,000 +JDA Software Group, Inc. 13,155,349 10,391,250 0.7
577,800 +Mentor Graphics
Corporation 5,580,857 13,614,413 1.0
</TABLE>
September 30, 2000 (17) Mercury Small Cap Value Fund, Inc.
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
--------------------------------------------
Shares Percent of
Sector* Held Stocks Cost Value Net Assets
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Technology 1,361,000 +NetManage, Inc. $ 3,267,125 $ 2,892,125 0.2%
(concluded) 112,400 +Network Associates, Inc. 2,506,488 2,543,050 0.2
235,940 +Nu Horizons Electronics
Corp. 1,910,534 6,562,081 0.5
474,970 +PeopleSoft, Inc. 4,852,979 13,269,474 0.9
588,600 +Planar Systems, Inc. (c) 5,681,645 10,962,675 0.8
1,223,000 +Sensormatic Electronics
Corporation 15,872,000 18,345,000 1.3
1,964,500 +Structural Dynamics
Research Corporation (c) 24,949,646 32,168,688 2.3
364,650 +Sybase, Inc. 3,168,199 8,386,950 0.6
1,477,200 +Sykes Enterprises,
Incorporated 22,977,841 7,939,950 0.5
443,575 TALX Corporation (c) 3,308,463 11,422,056 0.8
552,700 +Transaction Systems
Architects, Inc. (Class A) 12,028,841 8,981,375 0.6
--------------------------------------------
207,053,421 237,564,507 16.7
-------------------------------------------------------------------------------------------------------
Utilities 310,000 +Boston Communications
Group, Inc. 3,878,897 5,967,500 0.4
-------------------------------------------------------------------------------------------------------
Total Stocks 1,152,028,834 1,236,902,326 87.0
-------------------------------------------------------------------------------------------------------
<CAPTION>
Face Short-Term
Amount Securities
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Com- $20,240,000 AEP Inc., 6.50% due
mercial 10/16/2000 20,181,529 20,181,529 1.4
Paper** 2,958,000 CSW Credit, Inc., 6.50%
due 10/16/2000 2,949,455 2,949,455 0.2
10,000,000 Gannett Company, 6.49%
due 10/05/2000 9,990,986 9,990,986 0.7
64,075,000 General Motors
Acceptance Corp., 6.75%
due 10/02/2000 64,050,972 64,050,972 4.5
20,000,000 Target Corporation, 6.48%
due 10/11/2000 19,960,400 19,960,400 1.4
20,000,000 Transamerica Finance
Corporation, 6.51% due
10/27/2000 19,902,350 19,902,350 1.4
-------------------------------------------------------------------------------------------------------
</TABLE>
September 30, 2000 (18) Mercury Small Cap Value Fund, Inc.
<PAGE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
In US Dollars
--------------------------------------------
Face Short-Term Percent of
Amount Securities Cost Value Net Assets
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US $20,119,000 Federal Home Loan
Government Banks, 6.40%
Agency due 10/06/2000 $ 20,097,540 $ 20,097,540 1.4%
Obligations** Freddie Mac
Participation
Certificates:
15,000,000 6.44% due
10/03/2000 14,991,950 14,991,950 1.1
25,000,000 6.40% due
10/17/2000 24,924,444 24,924,444 1.8
-------------------------------------------------------------------------------------------------------
Total Short-Term
Securities 197,049,626 197,049,626 13.9
============================================
-------------------------------------------------------------------------------------------------------
Total Investments $1,349,078,460 1,433,951,952 100.9
==============
Liabilities in Excess
of Other Assets (12,378,258) (0.9)
--------------------------
Net Assets $1,421,573,694 100.0%
==========================
-------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* Holdings are classified into the economic sectors found in the Russell
2000 Index.
** Commercial Paper and certain US Government Agency Obligations are traded
on a discount basis; the interest rates shown reflect the discount rates
paid at the time of purchase by the Trust.
(a) American Depositary Receipts (ADR).
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Investments in companies 5% or more of whose outstanding securities are
held by the Trust (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Net Share Net Dividend
Sector Affiliate Activity Cost Income
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Auto & Transportation Keystone Automotive Industries, Inc. -- -- +
------------------------------------------------------------------------------------------------------
Consumer BI, Incorporated -- -- +
Discretionary McNaughton Apparel Group, Inc. -- -- +
Panera Bread Company (Class A) -- -- +
WMS Industries, Inc. 411,100 $3,545,278 +
------------------------------------------------------------------------------------------------------
Materials & Processing Ryerson Tull, Inc. -- -- +
Watsco, Inc. -- -- +
Wolverine Tube, Inc. 500,300 7,606,262 +
Zemex Corporation -- -- +
------------------------------------------------------------------------------------------------------
Miscellaneous Mercer International, Inc. -- -- +
------------------------------------------------------------------------------------------------------
Producer Durables BHA Group Holdings, Inc. -- -- +
Brown & Sharpe Manufacturing Company
(Class A) -- -- +
Comdial Corporation -- -- +
------------------------------------------------------------------------------------------------------
Technology C.P. Clare Corporation (60,000) (534,768) +
II-VI, Incorporated 369,000 6,148,696 +
Planar Systems, Inc. 300,000 3,134,677 +
Structural Dynamics Research Corporation 300,000 3,852,817 +
TALX Corporation 25,325 7,976,804 $12,098
------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
See Notes to Financial Statements.
September 30, 2000 (19) Mercury Small Cap Value Fund, Inc.
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
As of September 30, 2000
--------------------------------------------------------------------------------
MASTER SMALL CAP VALUE TRUST
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost -- $1,349,078,460) $1,433,951,952
Receivables:
Securities sold $ 5,218,317
Contributions 4,019,744
Dividends 401,525 9,639,586
--------------
Prepaid expenses and other assets 409,645
--------------
Total assets 1,444,001,183
--------------
-------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Securities purchased 18,992,489
Withdrawals 1,803,401
Custodian bank 1,067,104
Investment adviser 556,046 22,419,040
--------------
Accrued expenses and other liabilities 8,449
--------------
Total liabilities 22,427,489
--------------
-------------------------------------------------------------------------------------------------
Net Assets:
Net assets $1,421,573,694
==============
-------------------------------------------------------------------------------------------------
Net Assets Consist of:
Partners' capital $1,336,700,202
Unrealized appreciation on investments -- net 84,873,492
--------------
Net assets $1,421,573,694
==============
-------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
September 30, 2000 (20) Mercury Small Cap Value Fund, Inc.
<PAGE>
STATEMENT OF OPERATIONS
For the Period September 1, 2000+ to September 30, 2000
--------------------------------------------------------------------------------
MASTER SMALL CAP VALUE TRUST
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income:
Interest and discount earned $ 890,800
Dividends 532,240
------------
Total income 1,423,040
------------
----------------------------------------------------------------------------------------
Expenses:
Investment advisory fees $ 584,943
Accounting services 17,864
Custodian fees 10,581
Professional fees 3,379
Offering costs 1,602
Trustees' fees and expenses 859
Pricing fees 134
Other 1,831
------------
Total expenses 621,193
------------
Investment income -- net 801,847
------------
----------------------------------------------------------------------------------------
Realized & Unrealized Gain on
Investments -- Net:
Realized gain from investments -- net 20,594,529
Unrealized appreciation on investments -- net 84,873,492
------------
Net Increase in Net Assets Resulting from Operations $106,269,868
============
----------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
September 30, 2000 (21) Mercury Small Cap Value Fund, Inc.
<PAGE>
STATEMENT OF CHANGES
IN NET ASSETS
For the Period September 1, 2000+ to September 30, 2000
--------------------------------------------------------------------------------
MASTER SMALL CAP VALUE TRUST
================================================================================
Increase (Decrease) in Net Assets:
--------------------------------------------------------------------------------
Operations:
Investment income -- net $ 801,847
Realized gain on investments -- net 20,594,529
Unrealized appreciation on investments -- net 84,873,492
--------------
Net increase in net assets resulting from operations 106,269,868
--------------
--------------------------------------------------------------------------------
Net Capital Contributions:
Increase in net assets derived from net capital contributions 1,315,203,726
--------------
--------------------------------------------------------------------------------
Net Assets:
Total increase in net assets 1,421,473,594
Beginning of period 100,100
--------------
End of period $1,421,573,694
==============
--------------------------------------------------------------------------------
+ Commencement of operations.
See Notes to Financial Statements.
September 30, 2000 (22) Mercury Small Cap Value Fund, Inc.
<PAGE>
FINANCIAL HIGHLIGHTS
MASTER SMALL CAP VALUE TRUST
================================================================================
The following ratios have been derived from information For the Period
provided in the financial statements. Sept. 1, 2000+
to Sept. 30, 2000
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .55%*
=============
Investment income -- net .71%*
=============
--------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 1,421,574
=============
Portfolio turnover 7.32%
=============
--------------------------------------------------------------------------------
+ Commencement of operations.
* Annualized.
See Notes to Financial Statements.
September 30, 2000 (23) Mercury Small Cap Value Fund, Inc.
<PAGE>
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 and is organized as a Delaware business
trust. The Trust's financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require the use of management accruals and estimates. These
unaudited financial statements reflect all adjustments, which are, in the
opinion of management, necessary to a fair statement of the results for
the interim period presented. All such adjustments are of a normal,
recurring nature. The following is a summary of significant accounting
policies followed by the Trust.
(a) Valuation of investments -- Portfolio securities that are traded on
stock exchanges are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available
bid price. Securities that are traded in the over-the-counter market are
valued at the last available bid price prior to the time of valuation. In
cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the authority
of the Board of Trustees as the primary market. Securities that are traded
both in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market. Options written
or purchased are valued at the last sale price in the case of
exchange-traded options. In the case of options traded in the
over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Short-term securities
are valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are stated
at market value. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by
or under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust which may
use a matrix system for valuations.
(b) Derivative financial instruments -- The Trust may engage in various
portfolio investment strategies to increase or decrease the level of risk
to which the Trust is exposed more quickly and efficiently than
transactions in other types of instruments. Losses may arise due to
changes in the value of the contract or if the counterparty does not
perform under the contract.
o Financial futures contracts -- The Trust may purchase or sell financial
futures con tracts and options on such futures contracts for the purpose
of hedging the market risk on existing securities or the intended purchase
of securities. Futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Trust deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected.
September 30, 2000 (24) Mercury Small Cap Value Fund, Inc.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Pursuant to the contract, the Trust agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Trust as unrealized gains or losses. When the contract is
closed, the Trust records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value
at the time it was closed.
o Options -- The Trust is authorized to write put and covered call options
and purchase put and call options. When the Trust writes an option, an
amount equal to the premium received by the Trust is reflected as an asset
and an equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the
basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Trust enters into a
closing transaction), the Trust realizes a gain or loss on the option to
the extent of the premiums received or paid (or loss or gain to the extent
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts -- The Trust is authorized to enter
into forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Trust's records. However, the effect on operations is recorded from the
date the Trust enters such contracts.
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-US
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 classified as a partnership for Federal
income tax purposes. As a partnership for Federal income tax purposes, the
Trust will not incur Federal income tax liability. Items of partnership
income, gain, loss and deduction will pass through to investors as
partners in the Trust. Therefore, no Federal income tax provision is
required.
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Dividend income is recorded on the ex-dividend dates. Interest
income (including amortization
September 30, 2000 (25) Mercury Small Cap Value Fund, Inc.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
of discount) is recognized on the accrual basis. Realized gains and losses
on security transactions are determined on the identified cost basis.
(e) Custodian bank -- The Trust recorded an amount payable to the
Custodian Bank reflecting an overnight overdraft which resulted from
management estimates of available cash.
(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 Fund's net
assets at the following annual rates: .50% of the Fund's average net
assets not exceeding $1 billion, .475% of average daily net assets in
excess of $1 billion but not exceeding $1.5 billion; and .45% of average
daily net assets in excess of $1.5 billion.
In addition, MLPF&S received $10,618 in commissions on the execution of
portfolio security transactions for the Trust for the period September 1,
2000 to September 30, 2000.
Accounting services are provided to the Trust by FAM at cost.
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 period September 1, 2000 to September 30, 2000 were $87,032,829 and
$89,999,011, respectively.
Net realized gains for the period September 1, 2000 to September 30, 2000
and net unrealized gains as of September 30, 2000 were as follows:
Realized Unrealized
Gains Gains
--------------------------------------------------------------------------------
Long-term investments $20,594,529 $84,873,492
---------------------------------
Total $20,594,529 $84,873,492
=================================
--------------------------------------------------------------------------------
September 30, 2000 (26) Mercury Small Cap Value Fund, Inc.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
As of September 30, 2000, net unrealized appreciation for Federal income
tax purposes aggregated $84,873,492, of which $285,872,752 related to
appreciated securities and $200,999,260 related to depreciated securities.
At September 30, 2000, the aggregate cost of investments for Federal
income tax purposes was $1,349,078,460.
(4) Short-Term Borrowings:
On December 3, 1999, the Trust became a party to a $1,000,000,000 credit
agreement dated December 3, 1999 among certain other funds managed by FAM
and its affiliates, Bank of America, N.A. and certain other lenders. The
Trust may borrow under the credit agreement to fund 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
facility. Amounts borrowed under the facility 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 of America, N.A. The Trust did not borrow
under the facility during the period September 1, 2000 to September 30,
2000.
September 30, 2000 (27) Mercury Small Cap Value Fund, Inc.
<PAGE>
OFFICERS AND DIRECTORS/TRUSTEES
Terry K. Glenn, President and
Director/Trustee
M. Colyer Crum, Director/Trustee
Laurie Simon Hodrick,
Director/Trustee
Jack B. Sunderland, Director/Trustee
Stephen B. Sunderland, Director/Trustee
J. Thomas Touchton, Director/Trustee
Fred G. Weiss, Director
Arthur Zeikel, Director
Robert E. Doll, Jr., Senior Vice President
Daniel V. Szemis, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President and
Treasurer
Thomas D. Jones, III, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(888) 763-2260
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.
The Fund seeks long-term growth of capital. The Fund invests primarily in a
diversified portfolio of securities, primarily common stock, of relatively small
companies that Fund management believes have special investment value and
emerging growth com panies regardless of size. The Fund will seek to achieve its
objective by investing all of its assets in Master Small Cap Value Trust, which
has the same investment objective as the Fund. The Fund's investment experience
will correspond to the investment experience of the Trust.
Mercury Small Cap Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLE LOGO] Printed on post-consumer recycled paper MERCSCV -- 9/00
