UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-09957
811-10179
Name of Fund: Mercury Basic Value Fund, Inc.
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., 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: 06/30/03
Date of reporting period: 07/01/02 - 06/30/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Annual Report
June 30, 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.
The Fund seeks capital appreciation and secondarily, income. The
Fund invests primarily in a portfolio of securities that are selling
at a discount either from book value or historical price/earnings
ratios, or seem capable of recovering from temporarily out-of-favor
conditions. The Fund will seek to achieve its objective by investing
all of its assets in Master Basic 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.
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
(UNAUDITED)
AS OF JUNE 30, 2003
Ten Largest Percent of
Equity Holdings Net Assets
Exxon Mobil Corporation 4.3%
Wells Fargo & Co. 4.1
Citigroup Inc. 3.5
Royal Dutch Petroleum Company
(NY Registered Shares) 3.3
American International
Group, Inc. 2.5
Deere & Company 2.5
Bank One Corporation 2.5
Unocal Corporation 2.3
E.I. du Pont de Nemours and
Company 2.3
Wachovia Corporation 2.0
June 30, 2003, Mercury Basic Value Fund, Inc.
DEAR SHAREHOLDER
Investment Environment
We are pleased to provide you with this annual report for Mercury
Basic Value Fund, Inc. Over the course of the year, economic
growth and equity market performance were largely beleaguered by
geopolitical concerns. The event that had the greatest impact on the
markets, particularly during the second half of the fiscal period,
was the resolution of the Iraq conflict. While the year also was
marked by uneasiness over economic growth, severe acute respiratory
syndrome (SARS) and lingering concerns over accounting
irregularities and corporate governance issues, the predominant
influence, in our opinion, centered around activities related to
Iraq. Beginning in late fall 2002, Iraq was on the minds of many
corporate executives, management teams and investors. What initially
began as the potential for a war became a debate within the United
Nations on how the war was going to be fought and who was going to
be involved. In the first three months of 2003, the U.S. equity
market and the economy in general stalled as investors waited for a
resolution.
We believe the intense focus on Iraq, leading up to and including
the war, was the primary factor holding back a sustained economic
recovery. The tremendous uncertainty it created for investors hurt
the markets for much of this period. However, by the time the war
started in March 2003, the markets began a slow rally. When the
fighting came to an end faster than most expected, war fears lifted
and the markets rallied more strongly in anticipation of a long-
awaited economic recovery. Today, the question is, are we on course
for the recovery? We believe there is a better chance for a
sustainable economic revival now than there was before the war
started.
In short, we witnessed two very distinct periods--before the war and
after the war. As did equity markets in general, the Fund performed
poorly before the war. It performed admirably after the war, as we
expected, based on our portfolio positioning, which included a focus
on cyclical and economically sensitive areas.
Fiscal Year in Review
For the 12-month period ended June 30, 2003, Mercury Basic Value
Fund, Inc.'s Class A, Class B, Class C and Class I Shares had total
returns of -1.66%, -1.15%, -1.69% and -1.42%, respectively. The Fund
outperformed both the -1.84% return of the unmanaged benchmark
Standard & Poor's 500 (S&P 500r) Barra Value Index and the -2.41%
average return of the Lipper Large Cap Value Funds for the same
period. The Fund underperformed the broader S&P 500 Index, which
incorporates the performance of growth stocks and returned +.25% for
the period. Growth stocks (as measured by the S&P 500 Barra Growth
Index) outperformed value stocks (as measured by the S&P 500 Barra
Value Index) by more than 4% for the 12-month period, causing the
Fund to trail the overall S&P 500 Index. For the six-month period
ended June 30, 2003, the Fund's Class A, Class B, Class C and Class
I Shares posted positive absolute total returns of +10.06%, +10.10%,
+10.01% and +10.13%, 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 - 9 of this report to shareholders.)
June 30, 2003, Mercury Basic Value Fund, Inc.
The portfolio has been and continues to be positioned for an
economic recovery. Some of the areas that did well during the long
market downturn of the past three years were the more stable,
defensive sectors--areas in which we did participate. Throughout the
fiscal year, we continued a process that we started after September
11, 2001. At that time, we began to focus on economically sensitive
names, and started to construct the portfolio with a cyclical bias
rooted in our belief that the economy would eventually turn upward.
As contrarian investors, this is where we saw and continue to see
the most long-term value.
Our outperformance of the S&P 500 Barra Value Index has been more a
result of security selection than asset allocation. In the health
care sector, for example, our positions in Boston Scientific
Corporation, Aetna Inc. and Merck & Co., Inc. significantly
benefited performance in the last 12 months. In consumer staples,
companies such as Sara Lee Corporation and The Clorox Company helped
performance substantially. Based on this, it appears the traditional
"safehaven" areas have done well. However, a look at our information
technology holdings confirms that owning companies such as Unisys
Corporation, Computer Associates International Inc. and Hewlett-
Packard Company impacted the portfolio favorably during the past 12
months. In the industrial sector, another cyclical area, we saw
impressive performance. So, despite a procyclical, prorecovery
allocation to our portfolio in a market that largely wanted to avoid
those areas, the Fund performed well because, ultimately, stock
selection was most important--and our stock selection was favorable.
Overall, we have not made many major changes to the portfolio. We
continued the slow process of eliminating some of the defensive
areas and adding more fundamentally sound, yet offensive holdings to
the portfolio. We have been removing those holdings that performed
the best in what was a miserable three-year period for the stock
market. These included traditionally non-cyclical companies such as
Procter & Gamble, Aetna, Lincoln National Corporation, Guidant
Corporation and Tribune Company. We have been adding more cyclical
companies, which we believe will offer greater value in the period
ahead.
Recent additions to the portfolio include automobile maker
DaimlerChrysler AG, GlobalSantaFe Corporation in the oil service
sector, and Alcoa Inc. and BHP Billiton Ltd., two materials
companies. We added The Boeing Company and Raytheon Company, both of
which came under pressure as the airline sector suffered, and Sun
Microsystems, a technology name that actually has not done well in
this period, but offers much better value for future returns. Away
from our cyclical bias, we added MetLife, Inc., ChevronTexaco
Corporation, Unilever and AOL Time Warner Inc., four high-profile
companies with compelling franchise-restructuring stories. At
purchase price, they represented tremendous value in our view.
At the close of the period, we remained poised for an economic
recovery. While the portfolio's focus has not changed much, what has
changed is investors' appetite for stocks. We continue to be
overweight relative to the S&P 500 Barra Value Index in the cyclical
areas of the market. Inside each sector, we tend to have an
economically sensitive bias in favor of revitalization. In general
terms, we are overweight relative to the benchmark in information
technology and materials. We have slight overweights in consumer
staples and health care, primarily because the benchmark's positions
in these areas are so low. As we ended the period, energy was a
large overweight compared to the benchmark. As energy companies
begin to increase their capital expenditures for oil and gas
exploration, we believe stocks in the sector have the potential to
provide attractive returns.
June 30, 2003, Mercury Basic Value Fund, Inc.
The Fund has a modest underweight in the consumer discretionary
sector. And, while financials represents our largest sector, at 25%
of the portfolio, our allocation is underweight relative to the
benchmark's excessive position of 36%. We believe allocating such a
large portion of the portfolio's assets to any one sector would
expose the Fund to undue risk. Our weighting in the industrials
sector is neutral relative to the benchmark, and our positions in
utilities and telecommunication services represent modest
underweights.
The Fund's investment process has not changed. In our view, the
market volatility we are experiencing has nothing to do with most
companies' long-term prospects. In fact, we believe it can create
significant opportunities for value investors.
In Conclusion
As of July 14, 2003, U.S. shareholders of each class of shares of
Mercury Basic Value Fund, Inc. have an exchange privilege with the
same class of shares of certain multiple class funds advised by
Merrill Lynch Investment Managers, L.P., Fund Asset Management, L.P.
or their affiliates. This exchange privilege supplements the
existing exchange privilege that shareholders have had with other
Mercury mutual funds and with Summit Cash Reserves Fund, a money
market fund.
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
July 15, 2003
June 30, 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 - 9 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. 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.
June 30, 2003, Mercury Basic Value Fund, Inc.
FUND PERFORMANCE DATA (CONTINUED)
RECENT PERFORMANCE RESULTS*
Ten-Year/
6-Month 12-Month Since Inception
As of June 30, 2003 Total Return Total Return Total Return
Class A +10.06% -1.66% +123.75%
Class B +10.10 -1.15 +131.90
Class C +10.01 -1.69 +111.68
Class I +10.13 -1.42 +152.67
S&P 500 Index** +11.76 +0.25 +160.37/+143.39
S&P 500 Barra Value Index*** +12.29 -1.84 +145.31/+127.04
*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.
**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 10/31/94, respectively.
June 30, 2003, Mercury Basic Value Fund, Inc.
FUND PERFORMANCE DATA (CONTINUED)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph illustrating the growth of a $10,000 investment in
Mercury Basic Value Fund, Inc.++ Class A and Class C Shares*
compared to a similar investment in S&P 500 Index++++ and S&P 500
Barra Value Index++++++. Values illustrated are as follows:
Mercury Basic Value Fund, Inc.++
Class A Shares*
Date Value
10/21/1994** $ 9,475.00
June 1995 $11,013.00
June 1996 $13,172.00
June 1997 $17,077.00
June 1998 $20,985.00
June 1999 $23,977.00
June 2000 $22,492.00
June 2001 $23,816.00
June 2002 $21,558.00
June 2003 $21,201.00
Mercury Basic Value Fund, Inc.++
Class C Shares*
Date Value
10/21/1994** $10,000.00
June 1995 $11,559.00
June 1996 $13,719.00
June 1997 $17,643.00
June 1998 $21,522.00
June 1999 $24,398.00
June 2000 $22,703.00
June 2001 $23,894.00
June 2002 $21,532.00
June 2003 $21,168.00
S&P 500 Index++++
Date Value
10/21/1994** $10,000.00
June 1995 $11,951.00
June 1996 $15,058.00
June 1997 $20,283.00
June 1998 $26,401.00
June 1999 $32,409.00
June 2000 $34,758.00
June 2001 $29,603.00
June 2002 $24,278.00
June 2003 $24,339.00
S&P 500 Barra Value Index++++++
Date Value
10/21/1994** $10,000.00
June 1995 $11,577.00
June 1996 $14,448.00
June 1997 $18,912.00
June 1998 $23,662.00
June 1999 $27,578.00
June 2000 $26,167.00
June 2001 $28,240.00
June 2002 $23,131.00
June 2003 $22,705.00
A line graph illustrating the growth of a $10,000 investment in
Mercury Basic Value Fund, Inc.++ Class B and Class I Shares*
compared to a similar investment in S&P 500 Index++++ and S&P 500
Barra Value Index++++++. Values illustrated are as follows:
Mercury Basic Value Fund, Inc.++
Class B Shares*
Date Value
June 1993 $10,000.00
June 1994 $10,461.00
June 1995 $12,600.00
June 1996 $14,957.00
June 1997 $19,237.00
June 1998 $23,464.00
June 1999 $26,608.00
June 2000 $24,761.00
June 2001 $26,059.00
June 2002 $23,460.00
June 2003 $23,190.00
Mercury Basic Value Fund, Inc.++
Class I Shares*
Date Value
June 1993 $ 9,475.00
June 1994 $10,013.00
June 1995 $12,183.00
June 1996 $14,610.00
June 1997 $18,985.00
June 1998 $23,395.00
June 1999 $26,796.00
June 2000 $25,193.00
June 2001 $26,752.00
June 2002 $24,285.00
June 2003 $23,940.00
S&P 500 Index++++
Date Value
June 1993 $10,000.00
June 1994 $10,141.00
June 1995 $12,784.00
June 1996 $16,108.00
June 1997 $21,698.00
June 1998 $28,242.00
June 1999 $34,669.00
June 2000 $37,182.00
June 2001 $31,668.00
June 2002 $25,972.00
June 2003 $26,037.00
S&P 500Barra Value Index++++++
Date Value
June 1993 $10,000.00
June 1994 $10,310.00
June 1995 $12,309.00
June 1996 $15,610.00
June 1997 $20,433.00
June 1998 $25,565.00
June 1999 $29,796.00
June 2000 $28,271.00
June 2001 $30,511.00
June 2002 $24,992.00
June 2003 $24,532.00
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++The Fund invests all of its assets in Master Basic Value Trust.
The Trust invests in securities, primarily equities, that management
of the Fund believes are undervalued and therefore represent basic
investment value.
++++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.
++++++This unmanaged broad-based Index is a capitalization-weighted
index of stocks in the S&P 500 Index that have lower price-to-book
ratios. The starting date for the Index in the Class A and Class C
Shares' graph is from 10/31/94.
Past performance is not predictive of future performance.
June 30, 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 6/30/03 -1.66% -6.82%
Five Years Ended 6/30/03 +0.20 -0.87
Inception (10/21/94) through 6/30/03 +9.71 +9.03
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
One Year Ended 6/30/03 -1.15% -5.09%
Five Years Ended 6/30/03 -0.23 -0.33
Ten Years Ended 6/30/03 +8.78 +8.78
*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 6/30/03 -1.69% -2.67%
Five Years Ended 6/30/03 -0.33 -0.33
Inception (10/21/94) through 6/30/03 +9.01 +9.01
*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 6/30/03 -1.42% -6.59%
Five Years Ended 6/30/03 +0.46 -0.62
Ten Years Ended 6/30/03 +9.71 +9.12
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
June 30, 2003, Mercury Basic Value Fund, Inc.
STATEMENT OF ASSETS
AND LIABILITIES
As of June 30, 2003
MERCURY BASIC VALUE FUND, INC.
Assets:
Investment in Master Basic Value Trust, at value (identified
cost--$9,148,070) $ 10,741,545
Prepaid registration fees 31,632
--------------
Total assets 10,773,177
--------------
Liabilities:
Payables:
Distributor $ 2,319
Other affiliates 2,317
Administrator 1,325 5,961
--------------
Accrued expenses 5,104
--------------
Total liabilities 11,065
--------------
Net Assets:
Net assets $ 10,762,112
==============
Net Assets Consist of:
Class A Shares of Common Stock, $.10 par value,
100,000,000 shares authorized $ 25,372
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 64,435
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 26,530
Class I Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 1,178
Paid-in capital in excess of par 12,346,861
Undistributed investment income--net $ 19,355
Accumulated realized capital losses on investments
and foreign currency transactions from the Trust--net (3,315,094)
Unrealized appreciation on investments and foreign
currency transactions from the Trust--net 1,593,475
--------------
Total accumulated losses--net (1,702,264)
--------------
Net assets $ 10,762,112
==============
Net Asset Value:
Class A--Based on net assets of $2,330,461 and 253,716 shares
outstanding $ 9.19
==============
Class B--Based on net assets of $5,904,359 and 644,353 shares
outstanding $ 9.16
==============
Class C--Based on net assets of $2,418,538 and 265,296 shares
outstanding $ 9.12
==============
Class I--Based on net assets of $108,754 and 11,776 shares
outstanding $ 9.24
==============
See Notes to Financial Statements.
June 30, 2003, Mercury Basic Value Fund, Inc.
STATEMENT OF OPERATIONS
For the Year Ended June 30, 2003
MERCURY BASIC VALUE FUND, INC.
Investment Income from the Trust--Net:
Net investment income allocated from the Trust:
Dividends (net of $3,600 foreign withholding tax) $ 223,229
Interest 4,156
Securities lending--net 2,042
Expenses (47,364)
--------------
Net investment income from the Trust 182,063
--------------
Expenses:
Professional fees $ 44,349
Printing and shareholder reports 41,547
Registration fees 40,252
Administration fees 27,574
Account maintenance and distribution fees--Class B 15,541
Transfer agent fees--Class B 9,150
Account maintenance and distribution fees--Class C 6,263
Account maintenance fees--Class A 5,470
Transfer agent fees--Class C 3,464
Transfer agent fees--Class A 2,610
Transfer agent fees--Class I 147
Directors' fees and expenses 120
Other 9,136
--------------
Total expenses before waiver and reimbursement
of expenses 205,623
Waiver and reimbursement of expenses (71,300)
--------------
Total expenses after waiver and reimbursement
of expenses 134,323
--------------
Investment income--net 47,740
--------------
Realized & Unrealized Loss from the
Trust--Net:
Realized loss from the Trust on:
Investments--net (1,782,588)
Foreign currency transactions--net (259) (1,782,847)
--------------
Change in unrealized appreciation on investments and
foreign currency transactions from the Trust--net 1,171,518
--------------
Total realized and unrealized loss from the Trust--net (611,329)
--------------
Net Decrease in Net Assets Resulting from Operations $ (563,589)
==============
See Notes to Financial Statements.
June 30, 2003, Mercury Basic Value Fund, Inc.
STATEMENTS OF CHANGES
IN NET ASSETS
MERCURY BASIC VALUE FUND, INC.
For the Year Ended June 30,
Increase (Decrease) in Net Assets: 2003 2002
Operations:
Investment income (loss)--net $ 47,740 $ (13,593)
Realized loss on investments and foreign currency
transactions from the Trust--net (1,782,847) (1,370,712)
Change in unrealized appreciation on investments
and foreign currency transactions from the Trust--net 1,171,518 253,083
-------------- --------------
Net decrease in net assets resulting from operations (563,589) (1,131,222)
-------------- --------------
Dividends & Distributions to Shareholders:
Investment income--net:
Class A (5,794) (642)
Class B (15,967) (3,242)
Class C (6,092) (1,062)
Class I (399) (190)
Realized gain on investments from the Trust--net:
Class A -- (2)
Class B -- (15)
Class C -- (5)
Class I -- (1)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (28,252) (5,159)
-------------- --------------
Capital Share Transactions:
Net increase (decrease) in net assets derived from
capital share transactions (2,748,684) 11,745,641
-------------- --------------
Net Assets:
Total increase (decrease) in net assets (3,340,525) 10,609,260
Beginning of year 14,102,637 3,493,377
-------------- --------------
End of year* $ 10,762,112 $ 14,102,637
============== ==============
*Undistributed investment income--net $ 19,355 --
============== ==============
See Notes to Financial Statements.
June 30, 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 Period
Year Oct. 16,
Ended 2000++ to
June 30, June 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 9.37 $ 10.37 $ 10.00
-------- -------- --------
Investment income--net .04** .01** .01
Realized and unrealized gain (loss) on
investments and foreign currency
transactions from the Trust--net (.20) (.99) .36
-------- -------- --------
Total from investment operations (.16) (.98) .37
-------- -------- --------
Less dividends and distributions:
Investment income--net (.02) (.02) --
Realized gain on investments from the Trust--net -- --+++++ --
-------- -------- --------
Total dividends and distributions (.02) (.02) --
-------- -------- --------
Net asset value, end of period $ 9.19 $ 9.37 $ 10.37
======== ======== ========
Total Investment Return:***
Based on net asset value per share (1.66%) (9.48%) 3.70%+++
======== ======== ========
Ratios to Average Net Assets:
Expenses, net of waiver and reimbursement++++ 1.65% 1.65% 1.36%*
======== ======== ========
Expenses++++ 2.28% 2.83% 23.91%*
======== ======== ========
Investment income--net .44% .13% .51%*
======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $ 2,330 $ 2,442 $ 323
======== ======== ========
Portfolio turnover of the Trust 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.
June 30, 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 Period
Year Oct. 16,
Ended 2000++ to
June 30, June 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 9.29 $ 10.33 $ 10.00
-------- -------- --------
Investment income (loss)--net .04** (.02)** --+++++
Realized and unrealized gain (loss) on
investments and foreign currency
transactions from the Trust--net (.15) (1.01) .33
-------- -------- --------
Total from investment operations (.11) (1.03) .33
-------- -------- --------
Less dividends and distributions:
Investment income--net (.02) (.01) --
Realized gain on investments from the Trust--net -- --+++++ --
-------- -------- --------
Total dividends and distributions (.02) (.01) --
-------- -------- --------
Net asset value, end of period $ 9.16 $ 9.29 $ 10.33
======== ======== ========
Total Investment Return:***
Based on net asset value per share (1.15%) (9.97%) 3.30%+++
======== ======== ========
Ratios to Average Net Assets:
Expenses, net of waiver and reimbursement++++ 1.65% 1.99% 1.97%*
======== ======== ========
Expenses++++ 2.29% 3.23% 22.03%*
======== ======== ========
Investment income (loss)--net .43% (.24%) (.18%)*
======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $ 5,904 $ 7,969 $ 2,290
======== ======== ========
Portfolio turnover of the Trust 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.
June 30, 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 Period
Year Oct. 16,
Ended 2000++ to
June 30, June 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 9.30 $ 10.33 $ 10.00
-------- -------- --------
Investment income (loss)--net .04** (.01)** --+++++
Realized and unrealized gain (loss) on
investments and foreign currency
transactions from the Trust--net (.20) (1.01) .33
-------- -------- --------
Total from investment operations (.16) (1.02) .33
-------- -------- --------
Less dividends and distributions:
Investment income--net (.02) (.01) --
Realized gain on investments from the Trust--net -- --+++++ --
-------- -------- --------
Total dividends and distributions (.02) (.01) --
-------- -------- --------
Net asset value, end of period $ 9.12 $ 9.30 $ 10.33
======== ======== ========
Total Investment Return:***
Based on net asset value per share (1.69%) (9.89%) 3.30%+++
======== ======== ========
Ratios to Average Net Assets:
Expenses, net of waiver and reimbursement++++ 1.65% 1.83% 1.81%*
======== ======== ========
Expenses++++ 2.31% 3.03% 21.97%*
======== ======== ========
Investment income (loss)--net .43% (.06%) (.02%)*
======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $ 2,419 $ 3,503 $ 838
======== ======== ========
Portfolio turnover of the Trust 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.
June 30, 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 Period
Year Oct. 16,
Ended 2000++ to
June 30, June 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 9.41 $ 10.39 $ 10.00
-------- -------- --------
Investment income--net .06** .04** .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions from the Trust--net (.20) (1.00) .35
-------- -------- --------
Total from investment operations (.14) (.96) .39
-------- -------- --------
Less dividends and distributions:
Investment income--net (.03) (.02) --
Realized gain on investments from the Trust--net -- --+++++ --
-------- -------- --------
Total dividends and distributions (.03) (.02) --
-------- -------- --------
Net asset value, end of period $ 9.24 $ 9.41 $ 10.39
======== ======== ========
Total Investment Return:***
Based on net asset value per share (1.42%) (9.22%) 3.90%+++
======== ======== ========
Ratios to Average Net Assets:
Expenses, net of waiver and reimbursement++++ 1.40% 1.40% 1.19%*
======== ======== ========
Expenses++++ 2.08% 2.65% 26.47%*
======== ======== ========
Investment income--net .67% .37% .79%*
======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $ 109 $ 189 $ 42
======== ======== ========
Portfolio turnover of the Trust 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.
June 30, 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. The percentage of the Trust owned by the Fund at June 30,
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.
June 30, 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.
(g) Reclassification--Accounting principles generally accepted in
the United States of America require that certain components of net
assets be adjusted to reflect permanent differences between
financial and tax reporting. Accordingly, the current year's
permanent book/tax difference of $11,992 has been reclassified
between paid-in capital in excess of par and accumulated net
realized capital losses. This reclassification has no effect on net
assets or net asset values per share.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner. The Fund pays a monthly fee at an annual rate of .25% of
the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund. 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, 2003 and is renewable. For the
year ended June 30, 2003, FAM earned fees of $27,574, all of which
were waived. In addition, FAM reimbursed the Fund $43,726 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%
June 30, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 year ended June 30, 2003, the
Fund did not accrue Class B and Class C distribution fees.
For the year ended June 30, 2003, FAMD earned underwriting discounts
and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a
subsidiary of ML & Co., earned dealer concessions on sales of the
Fund's Class A Shares as follows:
FAMD MLPF&S
Class A $4 $100
For the year ended June 30, 2003, MLPF&S received contingent
deferred sales charges of $31,536 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 increase (decrease) in net assets derived from capital share
transactions was $(2,748,684) and $11,745,641 for the years ended
June 30, 2003 and June 30, 2002, respectively.
Transactions in capital shares for each class were as follows:
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)
============ ============
June 30, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Class A Shares for the Year
Ended June 30, 2002 Shares Dollar Amount
Shares sold 267,312 $ 2,600,155
Automatic conversion of shares 698 7,268
Shares issued to shareholders in
reinvestment of dividends and
distributions 51 531
------------ ------------
Total issued 268,061 2,607,954
Shares redeemed (38,644) (392,931)
------------ ------------
Net increase 229,417 $ 2,215,023
============ ============
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 B Shares for the Year
Ended June 30, 2002 Shares Dollar Amount
Shares sold 775,925 $ 7,772,309
Shares issued to shareholders in
reinvestment of dividends and
distributions 281 2,926
------------ ------------
Total issued 776,206 7,775,235
Automatic conversion of shares (705) (7,268)
Shares redeemed (139,753) (1,367,798)
------------ ------------
Net increase 635,748 $ 6,400,169
============ ============
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)
============ ============
Class C Shares for the Year
Ended June 30, 2002 Shares Dollar Amount
Shares sold 351,192 $ 3,517,514
Shares issued to shareholders in
reinvestment of dividends and
distributions 87 910
------------ ------------
Total issued 351,279 3,518,424
Shares redeemed (55,761) (546,279)
------------ ------------
Net increase 295,518 $ 2,972,145
============ ============
June 30, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
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)
============ ============
Class I Shares for the Year
Ended June 30, 2002 Shares Dollar Amount
Shares sold 20,285 $ 202,038
Shares issued to shareholders in
reinvestment of dividends and
distributions 18 191
------------ ------------
Total issued 20,303 202,229
Shares redeemed (4,284) (43,925)
------------ ------------
Net increase 16,019 $ 158,304
============ ============
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years
ended June 30, 2003 and June 30, 2002 was as follows:
6/30/2003 6/30/2002
Distributions paid from:
Ordinary income $ 28,252 $ 5,159
------------ ------------
Total taxable distributions $ 28,252 $ 5,159
============ ============
As of June 30, 2003, the components of accumulated earnings on a tax
basis were as follows:
Undistributed ordinary income--net $ 19,437
Undistributed long-term capital gains--net --
------------
Total undistributed earnings--net 19,437
Capital loss carryforward (3,139,344)*
Unrealized gains--net 1,417,643**
------------
Total accumulated earnings--net $(1,702,264)
============
*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 in 2011. This amount will be available to offset like
amounts of any future taxable gains.
**The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
wash sales, the tax deferral of losses on straddles, the realization
for tax purposes of unrealized gains (losses) on certain foreign
currency contracts and the deferral of post-October capital losses
for tax purposes.
June 30, 2003, Mercury Basic Value Fund, Inc.
INDEPENDENT AUDITORS' REPORT
MERCURY BASIC VALUE FUND, INC.
To the Shareholders and Board of Directors of
Mercury Basic Value Fund, Inc.:
We have audited the accompanying statement of assets and liabilities
of Mercury Basic Value Fund, Inc. as of June 30, 2003, and the
related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years then
ended, and the financial highlights for the respective periods then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Mercury Basic Value Fund, Inc. as of June 30,
2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period
then ended, and its financial highlights for the respective periods
then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
August 8, 2003
June 30, 2003, Mercury Basic Value Fund, Inc.
IMPORTANTTAXINFORMATION
(UNAUDITED)
All of the ordinary income distribution paid by Mercury Basic Value
Fund, Inc. to shareholders of record on December 10, 2002 qualifies
for the dividends received deduction for corporations.
Please retain this information for your records
June 30, 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 4,690,100 Alcoa Inc. $ 119,597,550 1.6%
Metals & Mining 7,683,900 BHP Billiton Limited 44,523,704 0.6
Pharmaceuticals 3,397,900 Bristol-Myers Squibb Company 92,252,985 1.3
Oil & Gas 1,100,000 ChevronTexaco Corporation 79,420,000 1.1
Chemicals 4,000,000 E.I. du Pont de Nemours and
Company 166,560,000 2.3
Oil & Gas 8,906,200 Exxon Mobil Corporation 319,821,642 4.3
Personal Products 3,096,500 The Gillette Company 98,654,490 1.4
Aerospace & 5,300,000 Honeywell International Inc. 142,305,000 1.9
Defense
Capital Markets 2,864,400 J.P. Morgan Chase & Co. 97,905,192 1.3
Oil & Gas 1,675,000 Kerr-McGee Corporation 75,040,000 1.0
Capital Markets 2,400,000 Mellon Financial Corporation 66,600,000 0.9
Oil & Gas 5,209,500 Royal Dutch Petroleum Company
(NY Registered Shares) 242,866,890 3.3
Diversified 5,029,700 SBC Communications Inc. 128,508,835 1.7
Telecommunication
Services
Food Products 5,122,900 Sara Lee Corporation 96,361,749 1.3
Diversified 3,000,000 Verizon Communications 118,350,000 1.6
Telecommunication
Services
Commercial 3,662,700 Wachovia Corporation 146,361,492 2.0
Banks
2,035,129,529 27.6
Below-Average Price/Earnings Ratio
Insurance 2,579,100 ACE Limited 88,437,339 1.2
Insurance 2,825,000 The Allstate Corporation 100,711,250 1.4
Insurance 3,400,000 American International Group, Inc. 187,612,000 2.5
Commercial 1,250,000 Bank of America Corporation 98,787,500 1.3
Banks
Commercial 5,000,000 Bank One Corporation 185,900,000 2.5
Banks
Machinery 1,103,500 Caterpillar Inc. 61,420,810 0.8
Diversified 6,018,500 Citigroup Inc. 257,591,800 3.5
Financial
Services
June 30, 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 8,300,000 Delphi Automotive Systems
Corporation $ 71,629,000 1.0%
Automobiles 4,204,800 Ford Motor Company 46,210,752 0.6
Computers & 5,200,000 Hewlett-Packard Company 110,760,000 1.5
Peripherals
Household 5,073,700 Koninklijke (Royal) Philips
Durables Electronics NV
(NY Registered Shares) 96,958,407 1.3
Hotels, 5,621,800 McDonald's Corporation 124,016,908 1.7
Restaurants &
Leisure
Pharmaceuticals 1,500,000 Merck & Co., Inc. 90,825,000 1.2
Insurance 1,804,800 MetLife, Inc. 51,111,936 0.7
Capital Markets 2,156,900 Morgan Stanley 92,207,475 1.3
Semiconductors & 2,600,000 ++National Semiconductor
Semiconductor Corporation 51,272,000 0.7
Equipment
Pharmaceuticals 5,012,900 Schering-Plough Corporation 93,239,940 1.3
Electrical 3,600,000 ++Thomas & Betts Corporation (a) 52,020,000 0.7
Equipment
Insurance 6,300,000 Travelers Property Casualty Corp.
(Class A) 100,170,000 1.4
Food Products 1,839,900 Unilever NV
(NY Registered Shares) 99,354,600 1.3
IT Services 11,500,000 ++Unisys Corporation 141,220,000 1.9
Oil & Gas 6,000,000 Unocal Corporation 172,140,000 2.3
2,373,596,717 32.1
Low Price-to-Book Value
Communications 10,690,000 ++3Com Corporation 50,029,200 0.7
Equipment
Media 8,600,000 ++AOL Time Warner Inc. 138,374,000 1.9
Semi- 8,000,000 ++Advanced Micro Devices, Inc. 51,280,000 0.7
conductors &
Semiconductor
Equipment
Electronic 3,780,200 ++Agilent Technologies, Inc. 73,902,910 1.0
Equipment &
Instruments
Aerospace & 2,400,000 The Boeing Company 82,368,000 1.1
Defense
June 30, 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 (continued)
Automobiles 2,390,000 DaimlerChrysler AG $ 82,980,800 1.1%
Machinery 4,100,000 Deere & Company 187,370,000 2.5
Energy 5,600,000 Diamond Offshore Drilling, Inc. 117,544,000 1.6
Equipment &
Service
Media 2,097,400 ++Fox Entertainment Group, Inc.
(Class A) 60,363,172 0.8
Energy 3,763,200 GlobalSantaFe Corporation 87,833,088 1.2
Equipment &
Service
Energy 4,115,600 Halliburton Company 94,658,800 1.3
Equipment &
Service
Insurance 2,809,700 The Hartford Financial Services
Group, Inc. 141,496,492 1.9
Paper & Forest 3,100,000 International Paper Company 110,763,000 1.5
Products
Household 2,114,200 Kimberly-Clark Corporation 110,234,388 1.5
Products
Semi- 10,313,800 ++LSI Logic Corporation 73,021,704 1.0
conductors &
Semiconductor
Equipment
Media 10,998,100 ++Liberty Media Corporation
(Class A) 127,138,036 1.7
Communications 22,000,000 ++Lucent Technologies Inc. 44,660,000 0.6
Equipment
Metals & Mining 5,824,400 Massey Energy Company (a) 76,590,860 1.0
Semi- 2,000,000 ++Micron Technology, Inc. 23,260,000 0.3
conductors &
Semiconductor
Equipment
Communications 10,343,900 Motorola, Inc. 97,542,977 1.3
Equipment
Metals & Mining 3,200,000 ++Phelps Dodge Corporation 122,688,000 1.7
Aerospace & 2,292,800 Raytheon Company 75,295,552 1.0
Defense
Computers & 10,000,000 ++Sun Microsystems, Inc. 46,000,000 0.6
Peripherals
June 30, 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)
Electronic 1,900,000 ++Tektronix, Inc. $ 41,040,000 0.6%
Equipment &
Instruments
Industrial 1,400,000 Textron, Inc. 54,628,000 0.7
Conglomerates
Specialty Retail 2,800,000 ++Toys 'R' Us, Inc. 33,936,000 0.5
Media 900,000 Tribune Company 43,470,000 0.6
Media 1,101,800 ++Viacom, Inc. (Class B) 48,104,588 0.6
Media 5,100,000 The Walt Disney Company 100,725,000 1.4
Commercial 6,000,000 Wells Fargo & Co. 302,400,000 4.1
Banks
2,699,698,567 36.5
Special Situations
Software 3,935,500 Computer Associates
International, Inc. 87,682,940 1.2
Specialty Retail 4,089,900 The Gap, Inc. 76,726,524 1.0
Computers & 1,387,200 International Business Machines
Peripherals Corporation 114,444,000 1.6
278,853,464 3.8
Total Common Stocks
(Cost--$6,283,624,891) 7,387,278,277 100.0
Beneficial Interest/
Shares Held Short-Term Securities
Short-Term Securities
$ 61,887,893 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (b) 61,887,893 0.9
$667,314,520 Merrill Lynch Liquidity Series,
LLC Money Market Series (b)(c) 667,314,520 9.0
444,876,345 Merrill Lynch Premier Institutional
Fund (b)(c) 444,876,345 6.0
Total Short-Term Securities
(Cost--$1,174,078,758) 1,174,078,758 15.9
Number of
Contracts Issue
Options Purchased
Put Options 13,000 American International Group, Inc.,
Purchased expiring August 2003 at USD 60,
Broker Morgan Stanley 6,760,000 0.1
15,000 Citigroup Inc., expiring July 2003
at USD 42.5, Broker UBS Warburg 1,200,000 0.0
June 30, 2003, Mercury Basic Value Fund, Inc.
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Number of Percent of
Contracts Issue Value Net Assets
Options Purchased (concluded)
Put Options 10,000 Halliburton Company, expiring
Purchased October 2003 at USD 22.5,
(concluded) Broker Morgan Stanley $ 1,900,000 0.0%
5,000 International Business Machines
Corporation, expiring July 2003
at USD 90, Broker UBS Warburg 3,650,000 0.1
6,000 International Paper Company,
expiring October 2003 at USD
37.5, Broker Morgan Stanley 1,860,000 0.0
5,000 J.P. Morgan Chase & Co., expiring
September 2003 at USD 32.5,
Broker Morgan Stanley 725,000 0.0
20,000 Wells Fargo & Co., expiring
July 2003 at USD 50, Broker
UBS Warburg 1,100,000 0.0
Total Options Purchased
(Premiums Paid--$23,169,500) 17,195,000 0.2
Total Investments
(Cost--$7,480,873,149) 8,578,552,035 116.1
Options Written
Call Options 13,000 American International Group, Inc.,
Written expiring August 2003 at USD 60,
Broker Morgan Stanley (780,000) 0.0
6,000 Bank of America Corporation,
expiring November 2003 at
USD 75, Broker Morgan Stanley (3,900,000) (0.1)
15,000 Citigroup Inc., expiring September
2003 at USD 47.5, Broker UBS
Warburg (750,000) 0.0
10,000 Halliburton Company, expiring
October 2003 at USD 25, Broker
Morgan Stanley (1,400,000) 0.0
5,000 International Business Machines
Corporation, expiring July 2003 at
USD 90, Broker UBS Warburg (125,000) 0.0
6,000 International Paper Company,
expiring January 2004 at USD 40,
Broker Morgan Stanley (720,000) 0.0
June 30, 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 (concluded)
Call Options 5,000 J.P. Morgan Chase & Co.,
Written expiring September 2003 at
(concluded) USD 37.5, Broker Morgan
Stanley $ (325,000) 0.0%
Total Options Written
(Premiums Received--
$10,746,601) (8,000,000) (0.1)
Total Investments,
Net of Options Written
(Cost--$7,470,126,548) 8,570,552,035 116.0
Liabilities in Excess of
Other Assets (1,182,057,012) (16.0)
--------------- ------
Net Assets $ 7,388,495,023 100.0%
=============== ======
++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 the Trust management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease. These industry classifications
are unaudited.
(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 Loss Income
Massey Energy Company 212,000 $2,664,112 -- -- $1,152,580
Thomas & Betts Corporation (150,000) $ 785,593 $9,375,316 $(6,551,597) --++
++Non-income producing security.
(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:
Dividend/
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, $ 61,887,893 $1,207,456
LLC Cash Sweep Series I
Merrill Lynch Liquidity Series,
LLC Money Market Series $ (68,237,361) $ 606,522
Merrill Lynch Premier Institutional Fund (1,265,031,874) $ 714,543
(c)Security was purchased with the cash proceeds from securities
loans.
See Notes to Financial Statements.
June 30, 2003, Mercury Basic Value Fund, Inc.
STATEMENT OF ASSETS
AND LIABILITIES
As of June 30, 2003
MASTER BASIC VALUE TRUST
Assets:
Investments, at value (including securities loaned
of $1,066,563,296) (identified cost--$7,457,703,649) $8,561,357,035
Options purchased, at value (cost--$23,169,500) 17,195,000
Receivables:
Securities sold $ 114,354,665
Dividends 10,811,431
Contributions 4,594,361
Interest 187,918
Securities lending--net 47,610 129,995,985
--------------
Prepaid expenses and other assets 23,038
--------------
Total assets 8,708,571,058
--------------
Liabilities:
Collateral on securities loaned, at value 1,112,190,865
Options written, at value (premiums received--$10,746,601) 8,000,000
Payables:
Securities purchased 152,623,302
Withdrawals 39,810,688
Custodian bank 4,667,800
Investment adviser 2,585,470
Other afffiliates 39,288 199,726,548
--------------
Accrued expenses 158,622
--------------
Total liabilities 1,320,076,035
--------------
Net Assets:
Net assets $7,388,495,023
==============
Net Assets Consist of:
Investors' capital $6,288,086,244
Unrealized appreciation on investments and foreign
currency transactions--net 1,100,408,779
--------------
Net assets $7,388,495,023
==============
See Notes to Financial Statements.
June 30, 2003, Mercury Basic Value Fund, Inc.
STATEMENT OF OPERATIONS
For the Year Ended June 30, 2003
MASTER BASIC VALUE TRUST
Investment Income:
Dividends (net of $2,341,396 foreign withholding tax) $ 143,720,884
Interest 2,634,438
Securities lending--net 1,321,065
--------------
Total income 147,676,387
==============
Expenses:
Investment advisory fees $ 28,621,078
Accounting services 1,078,940
Custodian fees 283,208
Professional fees 189,232
Trustees' fees and expenses 51,567
Printing and shareholder reports 11,440
Pricing fees 690
Other 234,703
--------------
Total expenses 30,470,858
--------------
Investment income--net 117,205,529
--------------
Realized & Unrealized Loss on
Investments & Foreign Currency
Transactions--Net:
Realized loss from:
Investments--net (194,115,458)
Foreign currency transactions--net (177,565) (194,293,023)
Change in unrealized appreciation/depreciation on:
Investments--net (63,763,741)
Foreign currency transactions--net (16,708) (63,780,449)
-------------- --------------
Total realized and unrealized loss on investments and
foreign currency transactions--net (258,073,472)
--------------
Net Decrease in Net Assets Resulting from Operations $(140,867,943)
==============
See Notes to Financial Statements.
June 30, 2003, Mercury Basic Value Fund, Inc.
STATEMENTS OF CHANGES
IN NET ASSETS
MASTER BASIC VALUE TRUST
For the Year Ended
June 30,
Increase (Decrease)in Net Assets: 2003 2002
Operations:
Investment income--net $ 117,205,529 $ 116,629,770
Realized gain (loss) on investments and
foreign currency transactions--net (194,293,023) 162,614,751
Change in unrealized appreciation/depreciation
on investments and foreign currency transactions--net (63,780,449) (1,253,288,054)
-------------- --------------
Net decrease in net assets resulting from operations (140,867,943) (974,043,533)
-------------- --------------
Capital Transactions:
Proceeds from contributions 1,032,235,075 2,155,873,351
Fair value of withdrawals (1,810,048,195) (2,284,337,190)
-------------- --------------
Net decrease in net assets derived from
capital transactions (777,813,120) (128,463,839)
-------------- --------------
Net Assets:
Total decrease in net assets (918,681,063) (1,102,507,372)
Beginning of year 8,307,176,086 9,409,683,458
-------------- --------------
End of year $7,388,495,023 $8,307,176,086
============== ==============
See Notes to Financial Statements.
June 30, 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
Year Ended October 13, 2000++
June 30, to June 30,
2003 2002 2001
Total Investment Return:**
Total investment return (.09%) (9.93%) --
========== ========== ==========
Ratios to Average Net Assets:
Expenses .43% .42% .42%*
========== ========== ==========
Investment income--net 1.66% 1.33% 1.57%*
========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $7,388,495 $8,307,176 $9,409,683
========== ========== ==========
Portfolio turnover 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.
See Notes to Financial Statements.
June 30, 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. The following is a summary of significant
accounting policies followed by the Trust.
(a) Valuation of investments--Portfolio securities that are traded
on stock exchanges or the Nasdaq National Market are valued at the
last sale price or official closing price on the exchange on which
such securities are traded, as of the close of business on the day
the securities are being valued or, lacking any sales, at the last
available bid price for long positions and at the last available ask
price for short positions. Securities that are traded in the over-
the-counter market are valued at the last available bid price prior
to the time of valuation. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the
primary market. Securities that are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written 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. Short-term securities are valued at
amortized cost, which approximates market value. Other investments
are stated at market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust which may use a matrix system for
valuations. Occasionally, events affecting the values of securities
and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the market on
which such securities trade) and the close of business on the NYSE.
If events (for example, company announcement, natural disasters,
market volatility) occur during such periods that are expected to
materially affect the value for such securities, those securities
may be valued at their fair market value as determined in good faith
by the Trust's Board of Trustees or by the investment adviser using
a pricing service and/or procedures approved by the Board of
Trustees of the Trust.
(b) Derivative financial instruments--The Trust may engage in
various portfolio investment strategies both to increase the return
of the Trust and to hedge, or protect, its exposure to interest rate
movement 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.
June 30, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
* Options--The Trust is authorized to 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.
(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.
June 30, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(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.
(g) Custodian bank--The Trust recorded an amount payable to the
custodian bank reflecting an overnight overdraft, which resulted
from a failed trade that settled the next day.
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 June 30, 2003, the
Trust lent securities with a value of $285,129,040 to MLPF&S or its
affiliates. Pursuant to that order, the Trust also has retained
Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate
of FAM, as the securities lending agent for a fee based on a share
of the returns on investment of cash collateral. MLIM, LLC may, on
behalf of the Trust, invest cash collateral received by the Trust
for such loans, among other things, in a private investment company
managed by MLIM, LLC or in registered money market funds advised by
FAM or its affiliates. For the year ended June 30, 2003, MLIM, LLC
received $612,005 in securities lending agent fees.
In addition, MLPF&S received $1,102,194 in commissions on the
execution of portfolio security transactions for the Trust for the
year ended June 30, 2003.
June 30, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
For the year ended June 30, 2003, the Trust reimbursed FAM $155,411
for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended June 30, 2003 were $2,215,969,550 and
$2,497,547,710, respectively.
Net realized gains (losses) for the year ended June 30, 2003 and net
unrealized gains (losses) as of June 30, 2003 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $(209,902,751) $1,103,653,386
Short-term investments 1,233 --
Options purchased (3,735,458) (5,974,500)
Options written 19,521,518 2,746,601
Foreign currency transactions (177,565) (16,708)
-------------- --------------
Total $(194,293,023) $1,100,408,779
============== ==============
As of June 30, 2003, net unrealized appreciation for Federal income
tax purposes aggregated $1,022,970,844, of which $1,680,240,231
related to appreciated securities and $657,269,387 related to
depreciated securities. At June 30, 2003, the aggregate cost of
investments, net of options written, for Federal income tax purposes
was $7,547,581,191.
Transactions in call options written for the year ended June 30,
2003 were as follows:
Number of Premiums
Contracts Received
Outstanding call options written,
beginning of year 10,000 $ 805,975
Options written 203,000 36,214,207
Options closed (63,000) (10,955,665)
Options expired (90,000) (15,317,916)
-------------- --------------
Outstanding call options written,
end of year 60,000 $ 10,746,601
============== ==============
Transactions in put options written for the year ended June 30, 2003
were as follows:
Number of Premiums
Contracts Received
Outstanding put options written,
beginning of year -- --
Options written 20,000 $ 2,041,937
Options closed (20,000) (2,041,937)
-------------- --------------
Outstanding put options written,
end of year -- $ --
============== ==============
June 30, 2003, Mercury Basic Value Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
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 29, 2002, the credit agreement was
renewed for one year under the same terms, except that the
commitment was reduced from $1,000,000,000 to $500,000,000. The
Trust did not borrow under the credit agreement during the year
ended June 30, 2003.
5. Commitments:
At June 30, 2003, the Trust had entered into foreign exchange
contracts under which it had agreed to purchase foreign currency
with an approximate value of $12,450,000.
June 30, 2003, Mercury Basic Value Fund, Inc.
INDEPENDENT AUDITORS' REPORT
MASTER BASIC VALUE TRUST
To the Investors and Board of Trustees of
Master Basic Value Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Master Basic
Value Trust as of June 30, 2003, and the related statement of
operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for the respective periods then ended. These
financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 2003, by
correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above, present fairly, in all material respects, the
financial position of Master Basic Value Trust as of June 30, 2003,
the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then
ended, and its financial highlights for the respective periods then
ended, in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
August 8, 2003
June 30, 2003, Mercury Basic Value Fund, Inc.
OFFICERS AND DIRECTORS/TRUSTEES
INTERESTED DIRECTOR/TRUSTEE
Number of Other Public
Portfolios in Directorships
Position(s) Length Fund Complex Held by
Held of Time Overseen by Director/
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director/Trustee Trustee
Terry K. Glenn* President 1999 to President and Chairman of Merrill Lynch 114 Funds None
P.O. Box 9011 and present Investment Managers, L.P. ("MLIM")/Fund 159 Portfolios
Princeton, Director/ and Asset Management, L.P. ("FAM")--Advised
NJ 08543-9011 Trustee 1983 to Funds since 1999; Chairman (Americas
Age: 62 present Region) of MLIM from 2000 to 2002;
Executive Vice President of MLIM and FAM
(which terms as used herein include their
corporate predecessors) from 1983 to 2002;
President of FAM Distributors, Inc.
("FAMD") from 1986 to 2002 and Director
thereof from 1991 to 2002; Executive Vice
President and Director of Princeton
Services, Inc. ("Princeton Services") from
1993 to 2002; President of Princeton
Administrators, L.P. from 1989 to 2002;
Director of Financial Data Services, Inc.
from 1985 to 2002.
*Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
former positions with MLIM, FAM, FAMD, Princeton Services and
Princeton Administrators, L.P. The Director's/Trustee's term is
unlimited. Directors/Trustees serve until their resignation, removal
or death, or until December 31 of the year in which they turn 72. As
Fund President, Mr. Glenn serves at the pleasure of the Board of
Directors/Trustees.
INDEPENDENT DIRECTORS/TRUSTEES*
Donald W. Burton Director/ 2002 to Manager of The Burton Partnership, Limited 21 Funds ITC DeltaCom,
P.O. Box 9095 Trustee present Partnership since 1979; Managing General 35 Portfolios Inc.; ITC
Princeton, Partner of the South Atlantic Venture Funds, Holding
NJ 08543-9095 Limited Partnerships and Chairman of South Company, Inc.;
Age: 59 Atlantic Private Equity Fund IV, Limited Knology, Inc.;
Partnership since 1983; Member of the MainBancorp,
Investment Advisory Council of the Florida N.A.; PriCare,
State Board of Administration since 2001. Inc.; Symbion,Inc.
M. Colyer Crum Director/ 1977 to James R. Williston Professor of Investment 22 Funds Cambridge
P.O. Box 9095 Trustee present Management Emeritus, Harvard Business 36 Portfolios Bancorp
Princeton, School since 1996; Chairman and Director,
NJ 08543-9095 Phaeton International, Ltd. from 1985 to
Age: 71 present; Director, Cambridge Bancorp since
1969.
Laurie Simon Hodrick Director/ 1999 to Professor of Finance and Economics, 21 Funds None
P.O. Box 9095 Trustee present Graduate School of Business, Columbia 35 Portfolios
Princeton, University since 1998; Associate
NJ 08543-9095 Professor of Finance and Economics,
Age: 40 Graduate School of Business,Columbia
University from 1996 to 1998.
Fred G. Weiss Director/ 1998 to Managing Director of FGW Associates 21 Funds Watson Pharma-
P.O. Box 9095 Trustee present since 1997; Vice President, Planning, 35 Portfolios ceuticals, Inc.
Princeton, Investment and Development of Warner
NJ 08543-9095 Lambert Co. from 1979 to 1997; Director,
Age: 61 BTG International, PLC since 2001;
Director, Watson Pharmaceuticals, Inc.
since 2000.
*The Director's/Trustee's term is unlimited. Directors/Trustees
serve until their resignation, removal or death, or until December
31 of the year in which they turn 72.
June 30, 2003, Mercury Basic Value Fund, Inc.
OFFICERS AND DIRECTORS/TRUSTEES
(CONCLUDED)
FUND OFFICERS
Position(s) Length
Held of Time
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since
P.O. Box 9011 President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999;
Princeton, and and 1999 Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
NJ 08543-9011 Treasurer to
Age: 43 present
Robert C. Doll, Jr. Senior 1999 to President of MLIM and member of the Executive Management Committee of ML&Co.,
P.O. Box 9011 Vice present Inc. since 2001; Global Chief Investment Officer and Senior Portfolio Manager
Princeton, President of MLIM since 1999; Chief Investment Officer of Equities at Oppenheimer Funds,
NJ 08543-9011 Inc. from 1990 to 1999 and Chief Investment Officer thereof from 1998 to 1999;
Age: 48 Executive Vice President of Oppenheimer Funds, Inc. from 1991 to 1999.
Robert J. Martorelli Vice 2002 to Managing Director of MLIM since 2000; Director (Equities) of MLIM from 1997
P.O. Box 9011 President present to 2000.
Princeton,
NJ 08543-9011
Age: 45
Kevin M. Rendino Vice 1999 to Managing Director of MLIM since 2000; Director (Equities) of MLIM from 1997
P.O. Box 9011 President present to 2000.
Princeton,
NJ 08543-9011
Age: 36
Phillip S. Gillespie Acting 2003 to First Vice President of MLIM since 2001; Director (Legal Advisory) of MLIM
P.O. Box 9011 Secretary present from 2000 to 2001; Vice President of MLIM from 1999 to 2000 and Attorney
Princeton, associated with MLIM since 1998; Assistant General Counsel of Chancellor
NJ 08543-9011 LGT Asset Management, Inc. from 1997 to 1998.
Age: 39
*Officers of the Fund serve at the pleasure of the Board of
Directors/Trustees.
Further information about the Fund's Officers and Directors/Trustees
is available in the Fund's Statement of Additional Information,
which can be obtained without charge by calling 1-888-763-2260.
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
June 30, 2003, Mercury Basic Value Fund, Inc.
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (annual requirement
only and not required to be answered until the registrant's fiscal
year-end on or after July 15, 2003)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose name/
independence of more than one financial expert) If no, explain
why not. -N/A (annual requirement only and not required to be
answered until the registrant's fiscal year-end on or after July 15,
2003)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule
10A-3 under the Exchange Act, state whether or not the registrant
has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A
Item 8--Reserved
Item 9(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the
Sarbanes-Oxley Act. Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Mercury Basic Value Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Mercury Basic Value Fund, Inc.
Date: August 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
Mercury Basic Value Fund, Inc.
Date: August 21, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Mercury Basic Value Fund, Inc.
Date: August 21, 2003
Attached hereto as a furnished exhibit are the certifications
pursuant to Section 906 of the Sarbanes-Oxley Act.