UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-09957
811-10179
Name of Fund: Mercury Basic Value Fund, Inc. and
Master Basic Value Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Mercury Basic Value Fund, Inc. and Master Basic 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: 06/30/04
Date of reporting period: 07/01/03 - 12/31/03
Item 1 - Report to Shareholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Semi-Annual Report
December 31, 2003
Mercury
Basic Value
Fund, Inc.
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.
Mercury Basic Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
PORTFOLIO INFORMATION
AS OF DECEMBER 31, 2003
Ten Largest Percent of
Stock Holdings Net Assets
Exxon Mobil Corporation 4.1%
Wells Fargo & Company 4.1
Citigroup Inc. 3.4
Royal Dutch Petroleum Company
(NY Registered Shares) 2.8
Bank One Corporation 2.5
Unocal Corporation 2.4
Deere & Company 2.0
Time Warner Inc. 2.0
American International
Group, Inc. 1.9
Raytheon Company 1.9
December 31, 2003, Mercury Basic Value Fund, Inc.
DEAR SHAREHOLDER
For the six-month period ended December 31, 2003, Mercury Basic
Value Fund, Inc.'s Class A, Class B, Class C and Class I Shares
had total returns of +19.30%, +19.54%, +19.32% and +19.47%,
respectively. (Fund results shown do not reflect sales charges
and would be lower if sales charges were included. Complete
performance information can be found on pages 6 - 8 of this report
to shareholders.) The Fund outperformed both the +15.14% return of
the unmanaged Standard & Poor's 500 (S&P 500) Index and the +17.36%
return of the S&P 500 Barra Value Index for the same period. Fund
returns also exceeded the +15.66% average return of the Lipper Large
Cap Value Funds category for the same six months. (Funds in this
Lipper category invest in companies considered to be undervalued
relative to a major unmanaged stock index.)
Investment Environment
Entering 2003, the Fund had a bias toward economic sensitivity. We
were overweight in cyclicals, including industrials, materials and
technology stocks. We also sought opportunities in portions of the
consumer discretionary sector, with an emphasis on media. We found
valuations to be most attractive in those areas of the market that
were most likely to benefit from economic recovery.
In initiating this cyclical approach, our feeling was that the
economy had suffered after the events of September 11, 2001 and well
into the following year. Yet the economy grew in 2002 despite a
myriad of scandals and misfortunes, including accounting
irregularities, corporate governance issues and impending war in
Iraq. If the economy could grow under these extreme conditions, we
felt certain that growth would accelerate in 2003, and we positioned
the portfolio accordingly. In doing so, the one concern we had
revolved around the conflict in Iraq. When combat finally broke out
and then ended relatively quickly, our concerns were allayed as the
market embarked on a strong rally that continued virtually
uninterrupted from March through December 2003.
During the six-month period, economic growth picked up steam, as was
evident in the astounding 8.2% gross domestic product growth in the
third quarter. Many stocks that had been beaten down rebounded
dramatically. The primary beneficiaries of this upturn were higher-
beta, economically sensitive stocks, which dominated the equity
market rally through year end. Our bias in these areas benefited
Fund performance significantly.
The strong performance for the year and the six-month period can be
attributed primarily to our focus on technology. Coming into 2003,
we had a significant overweighting in technology--15% of portfolio
assets versus 7% for the S&P 500 Barra Value Index. The technology
group appreciated 67% for the year. With 15% of our assets up
67%--and at a double weight compared to the competitive universe--
the positive results are understandable. The same is true for the
six months ended December 31, 2003. More than half of the Fund's
outperformance came from technology. Specific holdings in technology
that benefited performance in the past six months were Advanced
Micro Devices, Inc., National Semiconductor Corporation, 3Com
Corporation, Agilent Technologies, Inc., Motorola, Inc. and LSI
Logic Corporation.
Also contributing to performance in the six-month period were stocks
in the materials, industrials and consumer discretionary areas.
China has grown dramatically this year, and as a large importer of
materials, that has helped the sector immensely. Materials stocks
that benefited Fund returns in the past six months were Phelps Dodge
Corporation, Alcoa Inc. and Massey Energy Company. In industrials,
Deere & Company, Thomas & Betts Corporation and Caterpillar Inc.
contributed the most to relative returns. In consumer discretionary,
Koninklijke (Royal) Philips Electronics NV and Viacom, Inc. were
standouts.
December 31, 2003, Mercury Basic Value Fund, Inc.
In terms of areas that hurt performance during the six-month period,
health care was the largest culprit, with Merck & Co., Inc., Shering-
Plough Corporation and Bristol-Myers Squibb Company at the top of
the list. These represent the large cap, stable growth stocks that
really stumbled this year. Aside from poor business results from
many companies in the sector, the underperformance of health care
was partially due to market dynamics. Investors were clearly moving
assets out of large, defensive areas into those that were benefiting
from the economic recovery. Also detracting from Fund returns was
the energy sector. Despite a favorable fourth quarter, returns in
energy were negative for the six-month period. We believe this was
primarily the result of an asset allocation decision by investors.
As money flowed into areas like technology, it flowed out of
defensive groups such as energy. Curiously, this occurred despite
the fact that commodity prices were at all-time highs. Energy stocks
that underperformed included Diamond Offshore Drilling, Inc., Exxon
Mobil Corporation, GlobalSantaFe Corporation and Royal Dutch
Petroleum Company.
Portfolio Activity
Although we ended the year with a continued bias toward an up-market
and economic sensitivity, that bias was not as strong as it was when
we entered 2003. In the last six months, we began reducing the
portfolio's beta somewhat, as we were finding more value in the
defensive areas of the market. In keeping with our underlying
investment strategy, we buy weakness and sell strength. It follows
then that those economically sensitive stocks that performed so well
would be trimmed from the portfolio as we look for next year's
winners.
Along these lines, we reduced our positions in materials,
industrials, financials and technology based on relative valuations
and stocks meeting our price targets. While selling our strong
performers, we began buying stocks in areas that have yet to out-
perform. This includes stocks in the energy and consumer staples
areas, where we found a lot of value toward the end of the year. We
also have been nibbling at health care in the last six months.
Positions initiated in the portfolio during the period include
TransOcean Inc. in the energy sector, and ConAgra, Inc., Unilever
NV, Coca-Cola Enterprises and Kraft Foods Inc. in consumer staples.
We also added to our positions in Anadarko Petroleum Corporation
(energy), Raytheon Company (aerospace and defense), Viacom, Inc.
(media) and Baxter International Inc. (health care).
On the sell side, we liquidated our positions in Fox Entertainment
Group, Inc., The Gap Inc., MetLife, Inc., Textron, Inc., Tribune
Company and J.P. Morgan Chase & Co. All of these stocks performed
well and reached our price target. Largest reductions during the
period were Phelps Dodge Corporation, Deere & Company, National
Semiconductor Corporation, Wachovia Corporation, Philips Electronics
and American International Group, Inc.
Investment Outlook
We maintain our confidence in a continuing economic recovery. The
events and efforts of 2003 seem to have sufficiently set the stage
for sustainable growth. The variables that could derail economic
advancement at this point--terrorist activity or a dramatic change
in China's growth and consumption--are virtually unanalyzable.
Absent these types of unpredictable events, we believe that the
market will continue to head upward this year and that the economy
will continue to recover, although both at a slower pace than in
2003.
December 31, 2003, Mercury Basic Value Fund, Inc.
At the close of the period, the portfolio was overweight versus the
S&P 500 Barra Value Index in consumer staples, energy, health care,
information technology and materials. We had underweights in
consumer discretionary, financials, industrials, telecommunication
services and utilities. Our largest overweight remained in
technology, where we still see some appreciation potential.
Technology, in our opinion, remains a growth cyclical, and we think
information technology budgets will increase in 2004. Our next-
largest overweight was in energy. In our view, the underlying gas
and oil supply problems in the United States and elsewhere have been
masked by lack of demand due to soft economies. As economies
continue to recover, so will industrial production; and as
industrial production recovers, so will demand for energy. Energy
prices remain high, and we have a collection of companies in the
portfolio that are not priced for $30 per barrel for oil and $7 per
thousand cubic feet for gas, where we are currently. These make the
stock's valuations incredibly appealing to us. Consumers continue to
wait for oil prices to go down, yet the stocks have not reflected
the high commodity prices. We believe at some point they will, and
have positioned the portfolio with that view in mind.
In Conclusion
As always, we will continue our search for what we believe are very
good companies that are temporarily underpriced as a result of
negative investor sentiment or short-term circumstances, and that we
believe have the potential to offer shareholders significant value
over a three-year time horizon. We thank you for your investment in
Mercury Basic Value Fund, Inc., and we look forward to serving your
investment needs in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director/Trustee
(Robert J. Martorelli)
Robert J. Martorelli
Vice President and
Co-Portfolio Manager
(Kevin M. Rendino)
Kevin M. Rendino
Vice President and
Co-Portfolio Manager
January 8, 2004
December 31, 2003, Mercury Basic Value Fund, Inc.
FUND PERFORMANCE DATA
ABOUT FUND PERFORMANCE
The Fund offers multiple 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 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 eight 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.
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.
The performance results depicted on pages 7 and 8 are those of
Mercury Basic Value Fund, Inc. and, prior to October 16, 2000, a
predecessor Fund investing in the same underlying portfolio and with
the same fees as Mercury Basic Value Fund, Inc. Performance results
prior to October 16, 2000 reflect the annual operating expenses of
the predecessor Fund. If Mercury Basic Value Fund, Inc.'s operating
expenses were reflected, the results may have been less than those
shown for this time period. Performance results after October 16,
2000 include the actual operating expenses of Mercury Basic Value
Fund, Inc. The Fund commenced operations on October 16, 2000.
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 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. The Fund's Investment Adviser voluntarily waived a
portion of its management fee. Without such waiver, the Fund's
performance would have been lower.
December 31, 2003, Mercury Basic Value Fund, Inc.
FUND PERFORMANCE DATA (CONTINUED)
RECENT PERFORMANCE RESULTS*
Ten-Year/
6-Month 12-Month Since Inception
As of December 31, 2003 Total Return Total Return Total Return
Class A +19.30% +31.30% +166.93%
Class B +19.54 +31.61 +161.33
Class C +19.32 +31.27 +152.58
Class I +19.47 +31.57 +183.19
S&P 500 Index** +15.14 +28.68 +185.63/+180.25
S&P 500 Barra Value Index*** +17.36 +31.79 +172.61/+171.63
*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.
**This unmanaged Index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets (mostly
NYSE issues), representing about 75% of NYSE market capitalization
and 30% of NYSE issues. Ten-year/since inception total return
periods are for ten years and from 10/21/94, respectively.
***This unmanaged broad-based Index is a capitalization-weighted
index of those stocks in the S&P 500 Index that have lower price-to-
book ratios. Ten-year/since inception total returns are for ten
years and from 10/21/94, respectively.
December 31, 2003, Mercury Basic Value Fund, Inc.
FUND PERFORMANCE DATA (CONCLUDED)
AVERAGE ANNUAL TOTAL RETURN
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
One Year Ended
12/31/03 +31.30% +24.41%
Five Years Ended
12/31/03 + 3.91 + 2.79
Inception (10/21/94)
through 12/31/03 +11.27 +10.62
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
One Year Ended
12/31/03 +31.61% +27.61%
Five Years Ended
12/31/03 + 3.57 + 3.47
Ten Years Ended
12/31/03 +10.08 +10.08
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after six years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without With
Class C Shares* CDSC CDSC**
One Year Ended
12/31/03 +31.27% +30.27%
Five Years Ended
12/31/03 + 3.44 + 3.44
Inception (10/21/94)
through 12/31/03 +10.60 +10.60
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one year.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
One Year Ended
12/31/03 +31.57% +24.67%
Five Years Ended
12/31/03 + 4.17 + 3.06
Ten Years Ended
12/31/03 +10.97 +10.37
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
December 31, 2003, Mercury Basic Value Fund, Inc.
STATEMENT OF ASSETS
AND LIABILITIES
As of December 31, 2003
MERCURY BASIC VALUE FUND, INC.
Assets:
Investment in Master Basic Value Trust, at value (identified
cost--$8,547,676) $ 11,917,708
Prepaid registration fees and other assets 37,920
--------------
Total assets 11,955,628
--------------
Liabilities:
Payables:
Other affiliates $ 3,078
Distributor 2,559 5,637
--------------
Accrued expenses 35,088
--------------
Total liabilities 40,725
--------------
Net Assets:
Net assets $ 11,914,903
==============
Net Assets Consist of:
Class A Shares of Common Stock, $.10 par value,
100,000,000 shares authorized $ 23,702
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 59,615
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 24,964
Class I Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 1,175
Paid-in capital in excess of par 11,585,480
Accumulated distributions in excess of investment
income--net $ (9,790)
Accumulated realized capital losses on investments
and foreign currency transactions from the Trust--net (3,140,275)
Unrealized appreciation on investments from
the Trust--net 3,370,032
--------------
Total accumulated earnings--net 219,967
--------------
Net assets $ 11,914,903
==============
Net Asset Value:
Class A--Based on net assets of $2,585,683 and 237,020 shares
outstanding $ 10.91
==============
Class B--Based on net assets of $6,497,450 and 596,148 shares
outstanding $ 10.90
==============
Class C--Based on net assets of $2,702,997 and 249,642 shares
outstanding $ 10.83
==============
Class I--Based on net assets of $128,773 and 11,753 shares
outstanding $ 10.96
==============
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2003
MERCURY BASIC VALUE FUND, INC.
Investment Income Allocated from the
Trust--Net:
Net investment income allocated from the Trust:
Dividends (net of $1,146 foreign withholding tax) $ 111,203
Interest 2,695
Securities lending--net 705
Expenses (23,689)
--------------
Net investment income allocated from the Trust 90,914
--------------
Expenses:
Registration fees $ 23,528
Printing and shareholder reports 21,466
Administration fees 13,857
Professional fees 12,451
Account maintenance and distribution fees--Class B 7,571
Transfer agent fees--Class B 3,631
Account maintenance and distribution fees--Class C 3,149
Account maintenance fees--Class A 2,991
Transfer agent fees--Class C 1,377
Transfer agent fees--Class A 1,150
Directors' fees and expenses 84
Transfer agent fees--Class I 56
Other 4,442
--------------
Total expenses before waiver and reimbursement
of expenses 95,753
Waiver and reimbursement of expenses (28,133)
--------------
Total expenses after waiver and reimbursement
of expenses 67,620
--------------
Investment income--net 23,294
--------------
Realized & Unrealized Gain (Loss) allocated
from the Trust--Net:
Realized gain (loss) allocated from the Trust on:
Investments--net 174,927
Foreign currency transactions--net (108) 174,819
--------------
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions allocated
from the Trust--net 1,776,557
--------------
Total realized and unrealized gain allocated from the
Trust--net 1,951,376
--------------
Net Increase in Net Assets Resulting from Operations $ 1,974,670
==============
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
STATEMENTS OF CHANGES
IN NET ASSETS
MERCURY BASIC VALUE FUND, INC.
For the Six For the Year
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2003 2003
Operations:
Investment income--net $ 23,294 $ 47,740
Realized gain (loss) on investments and foreign currency
transactions allocated from the Trust--net 174,819 (1,782,847)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions allocated
from the Trust--net 1,776,557 1,171,518
-------------- --------------
Net increase (decrease) in net assets resulting from
operations 1,974,670 (563,589)
-------------- --------------
Dividends to Shareholders:
Investment income--net:
Class A (11,895) (5,794)
Class B (27,594) (15,967)
Class C (12,105) (6,092)
Class I (845) (399)
-------------- --------------
Net decrease in net assets resulting from dividends
to shareholders (52,439) (28,252)
-------------- --------------
Capital Share Transactions:
Net decrease in net assets derived from capital
share transactions (769,440) (2,748,684)
-------------- --------------
Net Assets:
Total increase (decrease) in net assets 1,152,791 (3,340,525)
Beginning of period 10,762,112 14,102,637
-------------- --------------
End of period* $ 11,914,903 $ 10,762,112
============== ==============
*Undistributed (accumulated distributions in
excess of) investment income--net $ (9,790) $ 19,355
============== ==============
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
FINANCIAL HIGHLIGHTS
MERCURY BASIC VALUE FUND, INC.
The following per share data and ratios have been derived from
information provided in the financial statements.
Class A
For the
For the For the Period
Six Months Year Oct. 16,
Ended Ended 2000++ to
December 31, June 30, June 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 9.19 $ 9.37 $ 10.37 $ 10.00
---------- ---------- ---------- ----------
Investment income--net .02** .04** .01** .01
Realized and unrealized gain (loss) on
investments and foreign currency
transactions from the Trust--net 1.75 (.20) (.99) .36
---------- ---------- ---------- ----------
Total from investment operations 1.77 (.16) (.98) .37
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.05) (.02) (.02) --
Realized gain on investments from
the Trust--net -- -- --+++++ --
---------- ---------- ---------- ----------
Total dividends and distributions (.05) (.02) (.02) --
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.91 $ 9.19 $ 9.37 $ 10.37
========== ========== ========== ==========
Total Investment Return:***
Based on net asset value per share 19.30%+++ (1.66%) (9.48%) 3.70%+++
========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of waiver and reimbursement++++ 1.63%* 1.65% 1.65% 1.36%*
========== ========== ========== ==========
Expenses++++ 2.13%* 2.28% 2.83% 23.91%*
========== ========== ========== ==========
Investment income--net .43%* .44% .13% .51%*
========== ========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $ 2,586 $ 2,330 $ 2,442 $ 323
========== ========== ========== ==========
Portfolio turnover of the Trust 13.31% 31.92% 38.15% 37.53%
========== ========== ========== ==========
*Annualized.
**Based on average shares outstanding.
***Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++Amount is less than $(.01) per share.
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
MERCURY BASIC VALUE FUND, INC.
The following per share data and ratios have been derived from
information provided in the financial statements.
Class B
For the
For the For the Period
Six Months Year Oct. 16,
Ended Ended 2000++ to
December 31, June 30, June 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 9.16 $ 9.29 $ 10.33 $ 10.00
---------- ---------- ---------- ----------
Investment income (loss)--net .02** .04** (.02)** --+++++
Realized and unrealized gain (loss) on
investments and foreign currency
transactions from the Trust--net 1.77 (.15) (1.01) .33
---------- ---------- ---------- ----------
Total from investment operations 1.79 (.11) (1.03) .33
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.05) (.02) (.01) --
Realized gain on investments from
the Trust--net -- -- --+++++ --
---------- ---------- ---------- ----------
Total dividends and distributions (.05) (.02) (.01) --
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.90 $ 9.16 $ 9.29 $ 10.33
========== ========== ========== ==========
Total Investment Return:***
Based on net asset value per share 19.54%+++ (1.15%) (9.97%) 3.30%+++
========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of waiver and reimbursement++++ 1.65%* 1.65% 1.99% 1.97%*
========== ========== ========== ==========
Expenses++++ 2.16%* 2.29% 3.23% 22.03%*
========== ========== ========== ==========
Investment income (loss)--net .41%* .43% (.24%) (.18%)*
========== ========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $ 6,497 $ 5,904 $ 7,969 $ 2,290
========== ========== ========== ==========
Portfolio turnover of the Trust 13.31% 31.92% 38.15% 37.53%
========== ========== ========== ==========
*Annualized.
**Based on average shares outstanding.
***Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++Amount is less than $(.01) per share.
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
MERCURY BASIC VALUE FUND, INC.
The following per share data and ratios have been derived from
information provided in the financial statements.
Class C
For the
For the For the Period
Six Months Year Oct. 16,
Ended Ended 2000++ to
December 31, June 30, June 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 9.12 $ 9.30 $ 10.33 $ 10.00
---------- ---------- ---------- ----------
Investment income (loss)--net .02** .04** (.01)** --+++++
Realized and unrealized gain (loss) on
investments and foreign currency
transactions from the Trust--net 1.74 (.20) (1.01) .33
---------- ---------- ---------- ----------
Total from investment operations 1.76 (.16) (1.02) .33
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.05) (.02) (.01) --
Realized gain on investments from
the Trust--net -- -- --+++++ --
---------- ---------- ---------- ----------
Total dividends and distributions (.05) (.02) (.01) --
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.83 $ 9.12 $ 9.30 $ 10.33
========== ========== ========== ==========
Total Investment Return:***
Based on net asset value per share 19.32%+++ (1.69%) (9.89%) 3.30%+++
========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of waiver and reimbursement++++ 1.64%* 1.65% 1.83% 1.81%*
========== ========== ========== ==========
Expenses++++ 2.15%* 2.31% 3.03% 21.97%*
========== ========== ========== ==========
Investment income (loss)--net .42%* .43% (.06%) (.02%)*
========== ========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $ 2,703 $ 2,419 $ 3,503 $ 838
========== ========== ========== ==========
Portfolio turnover of the Trust 13.31% 31.92% 38.15% 37.53%
========== ========== ========== ==========
*Annualized.
**Based on average shares outstanding.
***Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++Amount is less than $(.01) per share.
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
FINANCIAL HIGHLIGHTS (CONCLUDED)
MERCURY BASIC VALUE FUND, INC.
The following per share data and ratios have been derived from
information provided in the financial statements.
Class I
For the
For the For the Period
Six Months Year Oct. 16,
Ended Ended 2000++ to
December 31, June 30, June 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 9.24 $ 9.41 $ 10.39 $ 10.00
---------- ---------- ---------- ----------
Investment income--net .03** .06** .04** .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions from the Trust--net 1.76 (.20) (1.00) .35
---------- ---------- ---------- ----------
Total from investment operations 1.79 (.14) (.96) .39
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.07) (.03) (.02) --
Realized gain on investments from
the Trust--net -- -- --+++++ --
---------- ---------- ---------- ----------
Total dividends and distributions (.07) (.03) (.02) --
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.96 $ 9.24 $ 9.41 $ 10.39
========== ========== ========== ==========
Total Investment Return:***
Based on net asset value per share 19.47%+++ (1.42%) (9.22%) 3.90%+++
========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of waiver and reimbursement++++ 1.38%* 1.40% 1.40% 1.19%*
========== ========== ========== ==========
Expenses++++ 1.89%* 2.08% 2.65% 26.47%*
========== ========== ========== ==========
Investment income--net .68%* .67% .37% .79%*
========== ========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $ 129 $ 109 $ 189 $ 42
========== ========== ========== ==========
Portfolio turnover of the Trust 13.31% 31.92% 38.15% 37.53%
========== ========== ========== ==========
*Annualized.
**Based on average shares outstanding.
***Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++Amount is less than $(.01) per share.
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
MERCURY BASIC VALUE FUND, INC.
1. Significant Accounting Policies:
Mercury Basic 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 Basic Value Trust
(the "Trust"), which has the same investment objective as the Fund.
The value of the Fund's investment in the Trust reflects the Fund's
proportionate interest in the net assets of the Trust. The
performance of the Fund is directly affected by the performance of
the Trust. The financial statements of the Trust, including the
Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The Fund's financial statements are prepared in conformity with
accounting principles generally accepted in the United States of
America, which may require the use of management accruals and
estimates. These unaudited financial statements reflect all
adjustments, which are, in the opinion of management, necessary to a
fair statement of the results for the interim period presented. All
such adjustments are of a normal, recurring nature. The percentage
of the Trust owned by the Fund at December 31, 2003 was 0.1%. The
Fund offers multiple classes of 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. 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 distribution
expenditures (except that Class B Shares have certain voting rights
with respect to Class A expenditures). Income, expenses (other than
expenses attributable to a specific class) and realized and
unrealized gains and losses on investments and foreign currency
transactions are allocated daily to each class based on its relative
net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--The Fund records its investment in the
Trust at fair value. Valuation of securities held by the Trust is
discussed in Note 1a of the Trust's Notes to Financial Statements,
which are included elsewhere in this report.
(b) Investment income and expenses--The Fund records daily its
proportionate share of the Trust's income, expenses and realized and
unrealized gains and losses. In addition, the Fund accrues its own
expenses.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law,
withholding taxes may be imposed on interest, dividends and capital
gains at various rates.
December 31, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions in the Trust
are accounted for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner. The Fund pays a monthly fee at an annual rate of .25% of
the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund. FAM
has entered into a contractual arrangement with the Fund under which
the expenses incurred by each class of shares of the Fund (excluding
distribution and/or account maintenance fees) will not exceed 1.40%.
This arrangement expires on June 30, 2004 and is renewable. For the
six months ended December 31, 2003, FAM earned fees of $13,857, all
of which were waived. In addition, FAM reimbursed the Fund $14,276
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, selected dealers
also provide account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and selected dealers for providing account maintenance
services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and selected dealers
for providing shareholder and distribution-related services to Class
B and Class C shareholders. For the six months ended December 31,
2003, the Fund did not accrue Class B or Class C distribution fees.
December 31, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
For the six months ended December 31, 2003, MLPF&S received
contingent deferred sales charges of $4,374 relating to transactions
in Class B 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 decrease in net assets derived from capital share transactions
was $769,440 and $2,748,684 for the six months ended December 31,
2003 and for the year ended June 30, 2003, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months
Ended December 31, 2003 Shares Dollar Amount
Shares sold 12,418 $ 122,500
Shares issued to shareholders in
reinvestment of dividends 1,165 11,656
------------ -------------
Total issued 13,583 134,156
Shares redeemed (30,279) (293,920)
------------ -------------
Net decrease (16,696) $ (159,764)
============ =============
Class A Shares for the Year
Ended June 30, 2003 Shares Dollar Amount
Shares sold 54,095 $ 447,210
Shares issued to shareholders in
reinvestment of dividends 660 5,644
------------ -------------
Total issued 54,755 452,854
Shares redeemed (61,632) (524,750)
------------ -------------
Net decrease (6,877) $ (71,896)
============ =============
December 31, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Class B Shares for the Six Months
Ended December 31, 2003 Shares Dollar Amount
Shares sold 253 $ 9,838
Shares issued to shareholders in
reinvestment of dividends 2,467 24,709
------------ -------------
Total issued 2,720 34,547
Shares redeemed (50,925) (491,851)
------------ -------------
Net decrease (48,205) $ (457,304)
============ =============
Class B Shares for the Year
Ended June 30, 2003 Shares Dollar Amount
Shares sold 38,184 $ 357,535
Shares issued to shareholders in
reinvestment of dividends 1,695 14,443
------------ -------------
Total issued 39,879 371,978
Shares redeemed (252,943) (2,082,925)
------------ -------------
Net decrease (213,064) $ (1,710,947)
============ =============
Class C Shares for the Six Months
Ended December 31, 2003 Shares Dollar Amount
Shares issued to shareholders in
reinvestment of dividends 1,165 $ 11,571
Shares redeemed (16,819) (163,783)
------------ -------------
Net decrease (15,654) $ (152,212)
============ =============
Class C Shares for the Year
Ended June 30, 2003 Shares Dollar Amount
Shares sold 5,241 $ 45,719
Shares issued to shareholders in
reinvestment of dividends 667 5,666
------------ -------------
Total issued 5,908 51,385
Shares redeemed (117,242) (947,384)
------------ -------------
Net decrease (111,334) $ (895,999)
============ =============
December 31, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Class I Shares for the Six Months
Ended December 31, 2003 Shares Dollar Amount
Shares issued to shareholders in
reinvestment of dividends 84 $ 846
Shares redeemed (107) (1,006)
------------ -------------
Net decrease (23) $ (160)
============ =============
Class I Shares for the Year
Ended June 30, 2003 Shares Dollar Amount
Shares issued to shareholders in
reinvestment of dividends 43 $ 374
Shares redeemed (8,374) (70,216)
------------ -------------
Net decrease (8,331) $ (69,842)
============ =============
4.Capital Loss Carryforward:
On June 30, 2003, the Fund had a net capital loss carryforward of
$3,139,344, of which $1,170,278 expires in 2010 and $1,969,066
expires 2011. This amount will be available to offset like amounts
of any future taxable gains.
December 31, 2003, Mercury Basic Value Fund, Inc.
SCHEDULE OF INVESTMENTS
MASTER BASIC VALUE TRUST
In U.S. Dollars
Shares Percent of
Industry+++ Held Common Stocks Value Net Assets
Above-Average Yield
Metals & Mining 4,131,400 Alcoa Inc. $ 156,993,200 1.8%
Metals & Mining 8,103,000 BHP Billiton Limited 74,422,457 0.9
Pharmaceuticals 3,397,900 Bristol-Myers Squibb Company 97,179,940 1.1
Oil & Gas 961,000 ChevronTexaco Corporation 83,020,790 1.0
Food Products 4,168,900 ConAgra, Inc. 110,017,271 1.3
Chemicals 3,421,600 E.I. du Pont de Nemours and
Company 157,017,224 1.8
Oil & Gas 8,716,000 Exxon Mobil Corporation 357,356,000 4.1
Personal Products 3,096,500 The Gillette Company 113,734,445 1.3
Aerospace &
Defense 4,033,700 Honeywell International Inc. 134,846,591 1.6
Oil & Gas 2,315,600 Kerr-McGee Corporation 107,652,244 1.3
Capital Markets 2,353,600 Mellon Financial Corporation 75,574,096 0.9
Oil & Gas 4,689,500 Royal Dutch Petroleum Company
(NY Registered Shares) 245,682,905 2.8
Diversified 5,029,700 SBC Communications Inc. 131,124,279 1.5
Telecommunication
Services
Food Products 3,924,000 Sara Lee Corporation 85,190,040 1.0
Diversified 2,957,100 Verizon Communications 103,735,068 1.2
Telecommunication
Services
Commercial Banks 2,247,300 Wachovia Corporation 104,701,707 1.2
2,138,248,257 24.8
Below-Average Price Earnings/Ratio
Insurance 2,166,700 ACE Limited 89,744,714 1.0
Insurance 2,238,700 The Allstate Corporation 96,308,874 1.1
Insurance 2,492,700 American International Group, Inc. 165,216,156 1.9
Commercial Banks 4,800,600 Bank One Corporation 218,859,354 2.5
Commercial Banks 1,460,100 Bank of America Corporation 117,435,843 1.4
Health Care 2,110,800 Baxter International Inc. 64,421,616 0.8
Equipment &
Supplies
Machinery 706,800 Caterpillar Inc. 58,678,536 0.7
Diversified 6,018,500 Citigroup Inc. 292,137,990 3.4
Financial
Services
Beverages 2,943,900 Coca-Cola Enterprises Inc. 64,383,093 0.7
December 31, 2003, Mercury Basic Value Fund, Inc.
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares Percent of
Industry+++ Held Common Stocks Value Net Assets
Below-Average Price Earnings/Ratio (concluded)
Auto Components 4,660,626 Delphi Automotive Systems
Corporation $ 47,584,992 0.6%
Automobiles 4,062,700 Ford Motor Company 65,003,200 0.8
Computers & 4,984,100 Hewlett-Packard Company 114,484,777 1.3
Peripherals
Household 2,780,700 Koninklijke (Royal) Philips
Durables Electronics NV (NY Registered
Shares) 80,890,563 0.9
Food Products 2,078,400 Kraft Foods Inc. (Class A) 66,966,048 0.8
Hotels, 4,418,100 McDonald's Corporation 109,701,423 1.3
Restaurants &
Leisure
Pharmaceuticals 1,626,000 Merck & Co., Inc. 75,121,200 0.9
Capital Markets 2,156,900 Morgan Stanley 124,819,803 1.4
Semiconductors & 473,500 ++National Semiconductor
Semiconductor Corporation 18,660,635 0.2
Equipment
Pharmaceuticals 5,955,100 Schering-Plough Corporation 103,559,189 1.2
Electrical 3,600,000 Thomas & Betts Corporation (a) 82,404,000 1.0
Equipment
Energy Equipment 4,333,800 ++Transocean Inc. 104,054,538 1.2
& Services
Insurance 6,810,600 Travelers Property Casualty Corp.
(Class A) 114,281,868 1.3
Food Products 2,023,900 Unilever NV (NY Registered
Shares) 131,351,110 1.5
IT Services 10,080,100 ++Unisys Corporation 149,689,485 1.7
Oil & Gas 5,640,000 Unocal Corporation 207,721,200 2.4
2,763,480,207 32.0
Low Price-to-Book Value
Communications 10,329,600 ++3Com Corporation 84,392,832 1.0
Equipment
Semiconductors 5,993,400 ++Advanced Micro Devices, Inc. 89,301,660 1.0
& Semiconductor
Equipment
Electronic 3,008,900 ++Agilent Technologies, Inc. 87,980,236 1.0
Equipment &
Instruments
Oil & Gas 1,866,600 Anadarko Petroleum Corporation 95,215,266 1.1
Aerospace & 2,044,100 The Boeing Company 86,138,374 1.0
Defense
December 31, 2003, Mercury Basic Value Fund, Inc.
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares Percent of
Industry+++ Held Common Stocks Value Net Assets
Low Price-to-Book Value (concluded)
Media 1,342,200 ++Comcast Corporation
(Special Class A) $ 41,984,016 0.5%
Automobiles 1,843,000 DaimlerChrysler AG 85,183,460 1.0
Machinery 2,612,600 Deere & Company 169,949,630 2.0
Energy Equipment 5,600,000 Diamond Offshore Drilling, Inc. 114,856,000 1.3
& Services
Energy Equipment 4,679,300 GlobalSantaFe Corporation 116,187,019 1.3
& Services
Energy Equipment 3,283,500 Halliburton Company 85,371,000 1.0
& Services
Insurance 2,301,800 The Hartford Financial Services
Group, Inc. 135,875,254 1.6
Paper & Forest 3,100,000 International Paper Company 133,641,000 1.5
Products
Household 2,418,600 Kimberly-Clark Corporation 142,915,074 1.7
Products
Semiconductors 11,248,100 ++LSI Logic Corporation 99,770,647 1.2
& Semiconductor
Equipment
Media 10,278,800 ++Liberty Media Corporation
(Class A) 122,214,932 1.4
Communications 15,777,800 ++Lucent Technologies Inc. 44,808,952 0.5
Equipment
Metals & Mining 3,834,300 Massey Energy Company (a) 79,753,440 0.9
Semiconductors 4,261,700 ++Micron Technology, Inc. 57,405,099 0.7
& Semiconductor
Equipment
Communications 8,775,500 Motorola, Inc. 123,471,285 1.4
Equipment
Metals & Mining 728,600 ++Phelps Dodge Corporation 55,439,174 0.6
Aerospace & 5,440,700 Raytheon Company 163,438,628 1.9
Defense
Electronic 1,537,900 Tektronix, Inc. 48,597,640 0.6
Equipment &
Instruments
Media 9,819,700 ++Time Warner Inc. 176,656,403 2.0
Specialty Retail 2,571,500 ++Toys 'R' Us, Inc. 32,503,760 0.4
Media 2,983,300 Viacom, Inc. (Class B) 132,398,854 1.5
Media 4,424,200 The Walt Disney Company 103,216,586 1.2
Commercial Banks 6,000,000 Wells Fargo & Company 353,340,000 4.1
3,062,006,221 35.4
December 31, 2003, Mercury Basic Value Fund, Inc.
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares Percent of
Industry+++ Held Common Stocks Value Net Assets
Special Situations
Software 2,544,700 Computer Associates
International, Inc. $ 69,572,098 0.8%
Computers & 1,267,300 International Business
Peripherals Machines Corporation 117,453,364 1.3
Computers & 16,534,600 ++Sun Microsystems, Inc. 74,240,354 0.9
Peripherals
261,265,816 3.0
Total Common Stocks
(Cost--$5,827,903,681) 8,225,000,501 95.2
Beneficial Interest/
Shares Held Short-Term Securities
Short-Term Securities
$436,676,792 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (b) 436,676,792 5.0
$793,587,037 Merrill Lynch Liquidity Series,
LLC Money Market Series (b)(c) 793,587,037 9.2
264,529,013 Merrill Lynch Premier Institutional
Fund (b)(c) 264,529,013 3.1
Total Short-Term Securities
(Cost--$1,494,792,842) 1,494,792,842 17.3
Number of
Contracts Issue
Options Purchased
Put Options 13,000 American International Group, Inc.,
Purchased expiring February 2004 at USD 60,
Broker Morgan Stanley 520,000 0.0
15,000 Citigroup Inc., expiring January
2004 at USD 45, Broker UBS
Warburg 150,000 0.0
5,000 International Business Machines
Corporation, expiring January 2004
at USD 90, Broker UBS Warburg 350,000 0.0
20,000 Wells Fargo & Company, expiring
January 2004 at USD 55, Broker
UBS Warburg 300,000 0.0
Total Options Purchased
(Premiums Paid--$16,675,850) 1,320,000 0.0
Total Investments
(Cost--$7,339,372,373)
December 31, 2003, Mercury Basic Value Fund, Inc.
SCHEDULE OF INVESTMENTS (CONCLUDED)
In U.S. Dollars
Number of Percent of
Contracts Issue Value Net Assets
Options Written
Call Options 13,000 American International Group,
Written Inc., expiring February 2004 at
USD 60, Broker Morgan Stanley $ (8,710,000) (0.1)%
5,000 International Business Machines
Corporation, expiring January 2004
at USD 95, Broker UBS Warburg (350,000) 0.0
6,000 International Paper Company,
expiring January 2004 at USD 40,
Broker Morgan Stanley (1,920,000) 0.0
19,500 Wells Fargo & Company, expiring
January 2004at USD 55, Broker
UBS Warburg (7,605,000) (0.1)
Total Options Written (Premiums
Received--$8,789,043) (18,585,000) (0.2)
Total Investments,
Net of Options Written
(Cost--$7,330,583,330) 9,702,528,343 112.3
Liabilities in Excess of
Other Assets (1,059,694,942) (12.3)
---------------- ------
Net Assets $ 8,642,833,401 100.0%
================ ======
++Non-income producing security.
+++For Trust compliance purposes, "Industry" means any one or more
of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Trust management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease.
(a)Investments in companies 5% or more of whose outstanding
securities are held by the Trust (such companies are defined as
"Affiliated Companies" in Section 2(a)(3) of the Investment Company
Act of 1940) are as follows:
Net Share Purchase Sales Realized Dividend
Affiliate Activity Cost Cost Gain Income
Massey Energy Company (1,990,100) -- 29,053,507 $4,748,744 $441,776
Thomas & Betts Corporation -- -- -- -- $ 18,000
(b)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 $ 374,788,899 $1,933,424
Merrill Lynch Liquidity Series,
LLC Money Market Series $ 126,272,517 $ 338,918
Merrill Lynch Premier Institutional Fund (180,347,332) $ 165,407
(c)Security was purchased with the cash proceeds from securities
loans.
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
STATEMENT OF ASSETS
AND LIABILITIES
As of December 31, 2003
MASTER BASIC VALUE TRUST
Assets
Investments, at value (including securities loaned
of $1,025,149,771) (identified cost--$7,322,696,523) $9,719,793,343
Options purchased, at value (premiums paid--$16,675,850) 1,320,000
Cash 107,726
Receivables:
Dividends $ 14,311,139
Contributions 8,840,825
Securities sold 8,063,129
Interest 463,134
Securities lending--net 94,024 31,772,251
--------------
Prepaid expenses and other assets 50,936
--------------
Total assets 9,753,044,256
--------------
Liabilities
Collateral on securities loaned, at value 1,058,116,050
Options written, at value (premiums received--$8,789,043) 18,585,000
Payables:
Withdrawals 32,921,910
Investment adviser 473,489
Other affiliates 84,318 33,479,717
--------------
Accrued expenses 30,088
--------------
Total liabilities 1,110,210,855
--------------
Net Assets
Net assets $8,642,833,401
==============
Net Assets Consist of
Investors' capital $6,270,888,388
Unrealized appreciation on investments and foreign
currency transactions--net 2,371,945,013
--------------
Net Assets $8,642,833,401
==============
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2003
MASTER BASIC VALUE TRUST
Investment Income
Dividends (net of $806,990 foreign withholding tax) $ 79,079,988
Interest 1,927,223
Securities lending--net 504,325
--------------
Total income 81,511,536
==============
Expenses
Investment advisory fees $ 15,901,142
Accounting services 549,758
Custodian fees 156,394
Professional fees 87,479
Pricing fees 56,762
Trustees' fees and expenses 27,401
Printing and shareholder reports 4,948
Other 69,083
--------------
Total expenses 16,852,967
--------------
Investment income--net 64,658,569
--------------
Realized & Unrealized Gain (Loss) on
Investments & Foreign Currency
Transactions--Net
Realized gain (loss) from:
Investments--net 125,942,039
Foreign currency transactions--net (75,759) 125,866,280
Change in unrealized appreciation/depreciation on:
Investments--net 1,271,519,526
Foreign currency transactions--net 16,708 1,271,536,234
-------------- --------------
Total realized and unrealized gain on investments and
foreign currency transactions--net 1,397,402,514
--------------
Net Increase in Net Assets Resulting from Operations $1,462,061,083
==============
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
STATEMENTS OF CHANGES
IN NET ASSETS
MASTER BASIC VALUE TRUST
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease)in Net Assets: 2003 2003
Operations
Investment income--net $ 64,658,569 $ 117,205,529
Realized gain (loss) on investments and foreign
currency transactions--net 125,866,280 (194,293,023)
Change in unrealized appreciation (depreciation) on
investments and foreign currency transactions--net 1,271,536,234 (63,780,449)
-------------- --------------
Net increase (decrease) in net assets resulting
from operations 1,462,061,083 (140,867,943)
-------------- --------------
Capital Transactions
Proceeds from contributions 511,645,927 1,032,235,075
Fair value of withdrawals (719,368,632) (1,810,048,195)
-------------- --------------
Net decrease in net assets derived from
capital transactions (207,722,705) (777,813,120)
-------------- --------------
Net Assets
Total increase (decrease) in net assets 1,254,338,378 (918,681,063)
Beginning of period 7,388,495,023 8,307,176,086
-------------- --------------
End of period $8,642,833,401 $7,388,495,023
============== ==============
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
FINANCIAL HIGHLIGHTS
MASTER BASIC VALUE TRUST
The following ratios have been derived from information provided in
the financial statements.
For the For the Period
Six Months For the October 13,
Ended Year Ended 2000++ to
December 31, June 30, June 30,
2003 2003 2002 2001
Total Investment Return**
Total investment return 20.09%+++ (.09%) (9.93%) --
=========== =========== =========== ===========
Ratios to Average Net Assets
Expenses .43%* .43% .42% .42%*
=========== =========== =========== ===========
Investment income--net 1.64%* 1.66% 1.33% 1.57%*
=========== =========== =========== ===========
Supplemental Data
Net assets, end of period (in thousands) $ 8,642,833 $ 7,388,495 $ 8,307,176 $ 9,409,683
=========== =========== =========== ===========
Portfolio turnover 13.31% 31.92% 38.15% 37.53%
=========== =========== =========== ===========
*Annualized.
**Total return is required to be disclosed for fiscal years
beginning after December 15, 2000.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
December 31, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
MASTER BASIC VALUE TRUST
1. Significant Accounting Policies:
Master Basic 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 Trust permits the
Trustees to issue nontransferable interests in the Trust, subject to
certain limitations. The Trust's financial statements are prepared
in conformity with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
The following is a summary of significant accounting policies
followed by the Trust.
(a) Valuation of investments--Equity 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, 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 equity 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 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 traded in the OTC market
are valued at the last available ask price. Portfolio securities
that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market.
Options written are valued at 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 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. Swap
agreements are valued daily based upon quotations from market
makers. Financial futures contracts and options thereon, which are
traded on exchanges, are valued at their last sale price as of the
close of such exchanges. 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 are valued at cost plus accrued interest. The
Trust employs pricing services to provide certain 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.
December 31, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 Portfolio 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.
* Options--The Trust may purchase and write covered call and put
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 gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into U.S. dollars. Realized and unrealized gains or
losses from investments include the effects of foreign exchange
rates on investments.
December 31, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(d) Income taxes--The Trust is classified as a partnership 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.
(e) 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.
(f) Securities lending--The Trust may lend securities to financial
institutions that provide cash or securities issued or guaranteed by
the U.S. government as collateral, which will be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities. The market value of the loaned
securities is determined at the close of business of the Trust and
any additional required collateral is delivered to the Trust on the
next business day. Where the Trust receives securities as collateral
for the loaned securities, it collects a fee from the borrower. The
Trust typically receives the income on the loaned securities but
does not receive the income on the collateral. Where the Trust
receives cash collateral, it may invest such collateral and retain
the amount earned on such investment, net of any amount rebated to
the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities
within five business days. The Trust may pay reasonable finder's,
lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation
to return borrowed securities because of insolvency or for any other
reason, the Trust could experience delays and costs in gaining
access to the collateral. The Trust also could suffer a loss where
the value of the collateral falls below the market value of the
borrowed securities, in the event of borrower default or in the
event of losses on investments made with cash collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
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: .60% of the
Trust's average net assets not exceeding $100 million; .50% of
average daily net assets in excess of $100 million but not exceeding
$200 million; and .40% of average daily net assets in excess of
$200 million.
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 December 31, 2003,
the Trust lent securities with a value of $164,612,911 to MLPF&S or
its affiliates. Pursuant to that order, the Trust also has retained
Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate
of FAM, as the securities lending agent for a fee based on a share
of the returns on investment of cash collateral. MLIM, LLC may, on
behalf of the Trust, invest cash collateral received by the Trust
for such loans, among other things, in a private investment company
managed by MLIM, LLC or in registered money market funds advised by
FAM or its affiliates. For the six months ended December 31, 2003,
MLIM, LLC received $214,941 in securities lending agent fees.
In addition, MLPF&S received $524,639 in commissions on the
execution of portfolio security transactions for the Trust for the
six months ended December 31, 2003.
For the six months ended December 31, 2003, the Trust reimbursed FAM
$79,413 for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended December 31, 2003 were $993,669,271 and
$1,591,251,244, respectively.
Net realized gains (losses) for the six months ended December 31,
2003 and net unrealized gains (losses) as of December 31, 2003 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 141,874,993 $2,397,096,820
Options purchased (27,780,696) (15,355,850)
Options written 11,847,742 (9,795,957)
Foreign currency transactions (75,759) --
-------------- --------------
Total $ 125,866,280 $2,371,945,013
============== ==============
December 31, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
As of December 31, 2003, net unrealized appreciation for Federal
income tax purposes aggregated $2,294,490,369, of which
$2,620,479,400 related to appreciated securities and $325,989,031
related to depreciated securities. At December 31, 2003, the
aggregate cost of investments, net of options written, for Federal
income tax purposes was $7,408,037,974.
Transactions in call options written for the six months ended
December 31, 2003 were as follows:
Number of Premiums
Contracts Received
Outstanding call options written,
beginning of year 60,000 $ 10,746,601
Options written 85,000 18,852,174
Options closed (90,500) (18,102,860)
Options expired (11,000) (2,706,872)
-------------- --------------
Outstanding call options written,
end of period 43,500 $ 8,789,043
============== ==============
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 investor 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 six months ended December 31,
2003.
December 31, 2003, Mercury Basic Value Fund, Inc.
OFFICERS AND DIRECTORS/TRUSTEES
Terry K. Glenn, President and
Director/Trustee
Donald W. Burton, Director/Trustee
M. Colyer Crum, Director/Trustee
Laurie Simon Hodrick,
Director/Trustee
David H. Walsh, Director/Trustee
Fred G. Weiss, Director/Trustee
Robert C. Doll, Jr., Senior Vice
President
Robert J. Martorelli, Vice President
and Co-Portfolio Manager
Kevin M. Rendino, Vice President
and Co-Portfolio Manager
Donald C. Burke, Vice President and
Treasurer
Phillip S. Gillespie, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
888-763-2260
December 31, 2003, Mercury Basic Value Fund, Inc.
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to
this semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies - Not Applicable
Item 8 - Reserved
Item 9 - Controls and Procedures
9(a) - The registrant's certifying officers have reasonably designed
such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
9(b) - There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits attached hereto
10(a) - Not Applicable
10(b) - 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.
Mercury Basic Value Fund, Inc. and Master Basic Value Trust
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Mercury Basic Value Fund, Inc. and Master Basic Value Trust
Date: February 23, 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
Mercury Basic Value Fund, Inc. and Master Basic Value Trust
Date: February 23, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Mercury Basic Value Fund, Inc. and Master Basic Value Trust
Date: February 23, 2004