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 811-2739
Merrill Lynch Basic Value Fund, Inc.
Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Merrill Lynch 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: 6/30/03
Date of reporting period: 07/01/02 - 12/31/02
Item 1 - Is shareholder report attached? - Y
(BULL LOGO)
Merrill Investment Managers
Semi-Annual Report
December 31, 2002
Merrill Lynch
Basic Value
Fund, Inc.
www.mlim.ml.com
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch Basic Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH BASIC VALUE FUND, INC.
TO OUR SHAREHOLDERS
For the six-month period ended December 31, 2002, Merrill Lynch
Basic Value Fund, Inc.'s Class A, Class B, Class C and Class D
Shares had total returns of -10.23%, -10.66%, -10.70% and -10.34%,
respectively. The Fund's returns outperformed the -12.58% return for
the unmanaged Standard & Poor's (S&P) 500 Barra Value Index for the
same period. For the year ended December 31, 2002, the Fund's Class
A, Class B, Class C and Class D Shares had total returns of -16.79%,
- -17.64%, -17.65% and -17.03%, respectively, outdistancing the
- -20.85% return for the S&P 500 Barra Value Index. (Investment
results shown do not reflect sales charges and would be lower if
sales charges were included. Complete performance information can be
found on pages 3 and 4 of this report to shareholders.) While we
achieved good relative performance, we know that having positive
absolute returns are what we are all interested in. That said, we
cannot change the environment; we can only do our best within the
framework of what the environment is, and clearly, the last three
years have been a period where preserving capital has been
paramount. In that three-year time frame, the Fund's performance of
- -14.59%, -17.16%, -17.20% and -15.25% for Class A, Class B, Class C
and Class D Shares, respectively, has fared much better than the
- -23.53% return for the Dow Jones Industrial Average, the -37.61%
return for the S&P 500 Index and the -67.18% return for the NASDAQ
Composite Index.
While we are pleased with our relative performance, 2002 did not
turn out as expected on an absolute basis. If someone had told us in
the beginning of the year that we would have 3+% gross domestic
product growth, 5.5% productivity growth, no inflation and a year-
ending Federal Funds rate of 1.25%, it would have been inconceivable
for us to believe that the S&P 500 Index would be down 22.1%.
Impossible, especially considering that we were coming off two back-
to-back down years. 2002 news headlines centered around corporate
governance and global conflict: Enron Corporation, WorldCom, Inc.,
Tyco International Ltd., Iraq, North Korea and worries of future
terrorist attacks. These were the issues that caused confidence to
plummet and confidence in the financial markets to evaporate.
Economic issues had less to do with the destruction in equity prices
than geopolitical worries and accounting fears. There is no doubt
that we did not experience a powerful economic recovery in 2002. On
its own, the economy was healthy enough to provide for a much better
stock market had the above issues been less of a factor. In a
vacuum, it was not the U.S. economy that was broken. 2002-reported
economic statistics, albeit choppy, bore that out. It was confidence
that was lost and shattered in an environment where the overriding
concern was "Can you trust the numbers?" While we underestimated the
damage those issues would have on equity prices, new legislation has
already been put into place requiring chief executive officers to
sign off on their reported results. While it may take time for
confidence to be restored, we should at least be comforted by the
notion that when the United States faces a crisis, immediate action
is taken. Geopolitical issues in the aftermath of September 11, 2001
also weighed on the market for most of 2002. In the early months of
2003, the significant uncertainty surrounding Iraq is likely to be
resolved in what we hope is a positive outcome. We believe a
resolution would be viewed as a positive lift for the market.
Portfolio Matters
During the six-month period ended December 31, 2002, we generated
positive performance from security selection across a number of
sectors including: consumer discretionary (Fox Entertainment Group,
Inc. and Tribune Company); consumer staples (Sara Lee Corporation,
The Clorox Company and The Procter & Gamble Company); energy
(Halliburton Company); financials (Wells Fargo Company and Wachovia
Corporation); health care (Boston Scientific Corporation and Merck &
Co., Inc.); industrials (Deere & Company and Eaton Corporation);
information technology (International Business Machines Corporation,
Unisys Corporation and Hewlett-Packard Company); and materials (E.I.
du Pont de Nemours and Company).
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
Disappointing stock performance came across a variety of sectors as
well during the period. These sectors included: technology (Philips
Electronics NV and Motorola Inc.); consumer discretionary
(McDonald's Corporation); energy (Diamond Offshore Drilling, Inc.
and Unocal Corporation); industrials (Honeywell International Inc.);
materials (Georgia-Pacific Group, Phelps Dodge Corporation and
International Paper Company); and communications (Verizon
Communications).
For the six-month period ended December 31, 2002, security purchases
totaled $1.1 billion (15.6% of net assets) and security sales
equaled $1.3 billion (18.5% of net assets). Companies that we added
to the portfolio included Alcan Aluminium Ltd., AOL Time Warner
Inc., The Boeing Company, GlobalSantaFe Corporation, Kimberly-Clark
Corporation, The Limited, Inc., Lincoln National Corporation and
Raytheon Company.
In the particular case of Kimberly-Clark, a leading personal care
products company, the company has been plagued by a myriad of
issues, including intensified competitive pressures, weak Latin
American results, adverse currency trends and new product launch
costs. The good news is that these impediments are expected to ease
as we progress through 2003. Thus, with the shares trading at a very
reasonable 14 times 2003 earnings per share, the risk/ reward
appears favorable to us. Kimberly-Clark holds a commanding share in
many attractive categories, enjoys high profit margins and generates
sizeable cash flow.
The Boeing Company's shares were purchased given the historically
low valuation parameters assigned to the shares. At current prices,
Boeing shares reflect continued deterioration of the commercial
aircraft business, which, we believe, is nearing its bottom.
Furthermore, geopolitical unease bodes well for the defense segment
of the company, which produces the lion's share of earnings.
Guidant Corporation, a medical devices company, was purchased on
news that its efforts to establish a drug-coated stent had failed.
The shares were trading at a price that valued only Guidant's non-
stent business. As the company pursues yet another avenue to enter
the lucrative drug-coated stent market, we believe that the
valuation and earnings should improve, providing ample reward for
shareholders.
AOL Time Warner shares were purchased as investors are
overdiscounting the dire straits of the AOL on-line business
segment. While challenged with strategic issues in this one
division, the remaining assets, which account for 80% of total
profits, are performing well and are being overlooked.
Other additions to existing positions in order of magnitude included
Royal Dutch Petroleum Company, Exxon Mobil Corporation, Honeywell
International Inc., Morgan Stanley, International Paper Company,
Motorola, Inc. and National Semiconductor Corporation.
On the sell side, we eliminated our holdings in Boston Scientific
Corporation, The Clorox Company and Gannett Co., Inc., all with
sizeable gains after the stocks reached our price targets. Axa,
Georgia-Pacific Group, Schlumberger Limited and Vivendi Universal
were sold at losses following disappointing earnings outlooks.
Reductions to current holdings in order of most capital raised
included The Procter & Gamble Company, Hewlett-Packard Company,
Tribune Company, Fox Entertainment Group, Inc. and Bank of America
Corporation.
2002 marked the third consecutive year that the market declined,
the first time that has happened since the Great Depression days of
1939 - 1941. In fact, December 2002 was the worst December for the
equity market since 1931. What is ahead in 2003? While certainly
cognizant of the risks, both geopolitical and economic,
accommodative monetary and fiscal policy, low inflation, rising
productivity, improving profitability for corporate America and
reasonable valuations lead us to conclude that 2003 should be a
recovery year for the U.S. stock market. If it was only the economy
that mattered in 2002, last year might have been the recovery
year we envisioned at the start. We have witnessed a worse economy
than the one we have today. We view the real estate recession of
1990 - 1991 as far worse, as it strained the banking system almost
to the point of failure. It was the factors of reprehensible
corporate governance and geopolitical concerns that held the market
back in 2002. If these issues are minimized and contained, it is our
belief that we are in for a positive return for the market in the
year ahead. We remain positioned for a cyclical rebound in the
market and a sustained economic recovery. We have overweighted
positions in consumer staples, health care, information technology,
consumer discretionary, materials and energy. We have underweighted
positions in financials, telecommunication services, industrials and
cash.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
In Conclusion
We thank you for your continued support and investment in Merrill
Lynch Basic Value Fund, Inc., and we look forward to reviewing our
outlook and strategy with you in our next report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director/Trustee
(Kevin M. Rendino)
Kevin M. Rendino
Senior Vice President and
Co-Portfolio Manager
(Robert J. Martorelli)
Robert J. Martorelli
Senior Vice President and
Co-Portfolio Manager
January 31, 2003
We are pleased to announce that Robert J. Martorelli has been named
Co-Portfolio Manager of Merrill Lynch Basic Value Fund, Inc. Mr.
Martorelli has been First Vice President of Merrill Lynch Investment
Managers, L.P. since 1997, Vice President thereof from 1987 to 1997
and Portfolio Manager thereof since 1987.
PORTFOLIO INFORMATION
As of December 31, 2002
Percent of
Ten Largest Equity Holdings Net Assets
Exxon Mobil Corporation 4.3%
Wells Fargo Company 4.1
Royal Dutch Petroleum Company
(NY Registered Shares) 3.1
Wachovia Corporation 3.1
Unocal Corporation 3.1
Citigroup Inc. 3.0
Deere & Company 2.8
American International Group, Inc. 2.7
Bank One Corporation 2.6
E.I. du Pont de Nemours and
Company 2.4
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Effective June 1, 2001, Class B Shares are subject to a maximum
contingent deferred sales charge of 4% declining to 0% after six
years. All Class B Shares purchased prior to June 1, 2001 will
maintain the four-year schedule. In addition, Class B Shares are
subject to a distribution fee of 0.75% and an account maintenance
fee of 0.25%. These shares automatically convert to Class D Shares
after approximately eight years. (There is no initial sales charge
for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contin-gent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
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.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
PERFORMANCE DATA (continued)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 12/31/02 -16.79% -21.16%
Five Years Ended 12/31/02 + 1.16 + 0.07
Ten Years Ended 12/31/02 +10.34 + 9.75
*Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class A
Shares were offered at a higher sales charge. Thus, actual returns
would have been lower than shown for the ten-year period.)
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 12/31/02 -17.64% -20.83%
Five Years Ended 12/31/02 + 0.13 - 0.12
Ten Years Ended 12/31/02 + 9.22 + 9.22
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 6 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 12/31/02 -17.65% -18.45%
Five Years Ended 12/31/02 + 0.12 + 0.12
Inception (10/21/94) through 12/31/02 + 8.44 + 8.44
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
One Year Ended 12/31/02 -17.03% -21.39%
Five Years Ended 12/31/02 + 0.90 - 0.18
Inception (10/21/94) through 12/31/02 + 9.28 + 8.57
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
PERFORMANCE DATA (concluded)
Recent Performance Results
Ten-Year/
6-Month 12-Month Since Inception
As of December 31, 2002 Total Return Total Return Total Return
ML Basic Value Fund Class A Shares* -10.23% -16.79% +167.48%
ML Basic Value Fund Class B Shares* -10.66 -17.64 +141.57
ML Basic Value Fund Class C Shares* -10.70 -17.65 + 94.21
ML Basic Value Fund Class D Shares* -10.34 -17.03 +107.00
S&P 500 Index** -10.30 -22.10 +144.33/+114.22
S&P 500 Barra Value Index*** -12.58 -20.85 +145.31/+102.18
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund's ten-year/since inception periods are ten years for Class A &
Class B Shares and from 10/21/94 for Class C & Class D Shares,
respectively.
**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 returns are
for ten years and from 10/31/94, respectively.
***This unmanaged 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.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION
Statement of Assets and Liabilities Merrill Lynch Basic Value Fund, Inc.
As of December 31, 2002
Assets: Investment in Master Basic Value Trust, at value
(identified cost--$6,621,306,023) $ 6,995,627,585
Prepaid registration fees 89,488
---------------
Total assets 6,995,717,073
---------------
Liabilities: Distributor payable 2,265,504
Accrued expenses 1,050,600
---------------
Total liabilities 3,316,104
---------------
Net Assets: Net assets $ 6,992,400,969
===============
Net Assets Class A Shares of Common Stock, $.10 par value, 400,000,000
Consist of: shares authorized $ 14,322,650
Class B Shares of Common Stock, $.10 par value, 400,000,000
shares authorized 7,246,961
Class C Shares of Common Stock, $.10 par value, 200,000,000
shares authorized 2,096,222
Class D Shares of Common Stock, $.10 par value, 200,000,000
shares authorized 6,515,246
Paid-in capital in excess of par 6,770,663,553
Undistributed investment income--net $ 410,776
Accumulated realized capital losses on investments from the
Trust--net (183,176,001)
Unrealized appreciation on investments from the Trust--net 374,321,562
---------------
Total accumulated earnings--net 191,556,337
---------------
Net assets $ 6,992,400,969
===============
Net Asset Value: Class A--Based on net assets of $3,345,843,174 and 143,226,504
shares outstanding $ 23.36
===============
Class B--Based on net assets of $1,659,326,577 and 72,469,609
shares outstanding $ 22.90
===============
Class C--Based on net assets of $470,186,905 and 20,962,223
shares outstanding $ 22.43
===============
Class D--Based on net assets of $1,517,044,313 and 65,152,462
shares outstanding $ 23.28
===============
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION (continued)
Statement of Operations Merrill Lynch Basic Value Fund, Inc.
For the Six Months Ended December 31, 2002
Investment Net investment income allocated from the Trust:
Income from the Dividends (net of $578,910 foreign withholding tax) $ 69,749,401
Trust--Net: Interest 2,066,635
Securities lending--net 801,879
Expenses (15,760,957)
---------------
Net investment income from the Trust 56,856,958
---------------
Expenses: Account maintenance and distribution fees--Class B $ 8,878,968
Transfer agent fees--Class A 2,847,399
Account maintenance and distribution fees--Class C 2,406,510
Account maintenance fees--Class D 1,946,388
Transfer agent fees--Class B 1,696,222
Transfer agent fees--Class D 1,276,376
Transfer agent fees--Class C 485,682
Printing and shareholder reports 144,711
Registration fees 97,180
Professional fees 77,219
Directors' fees and expenses 17,962
Other 19,815
---------------
Total expenses 19,894,432
---------------
Investment income--net 36,962,526
---------------
Realized & Realized loss on investments from the Trust--net (117,828,772)
Unrealized Loss Change in unrealized appreciation on investments from the
from the Trust--net (789,445,703)
Trust--Net: ---------------
Total realized and unrealized loss from the Trust--net (907,274,475)
---------------
Net Decrease in Net Assets Resulting from Operations $ (870,311,949)
===============
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets Merrill Lynch Basic Value Fund, Inc.
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2002 2002
Operations: Investment income--net $ 36,962,526 $ 69,701,061
Realized gain (loss) on investments from the Trust--net (117,828,772) 163,985,596
Change in unrealized appreciation on investments from the
Trust--net (789,445,703) (1,253,541,135)
--------------- ---------------
Net decrease in net assets resulting from operations (870,311,949) (1,019,854,478)
--------------- ---------------
Dividends & Investment income--net:
Distributions to Class A (49,088,458) (51,997,196)
Shareholders: Class B (4,440,205) (6,556,952)
Class C (1,875,542) (1,733,298)
Class D (17,970,278) (18,068,168)
Realized gain on investments from the Trust--net:
Class A (94,987,362) (388,624,020)
Class B (50,808,427) (260,912,962)
Class C (13,766,398) (43,091,171)
Class D (42,802,984) (163,037,191)
--------------- ---------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (275,739,654) (934,020,958)
--------------- ---------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions: share transactions (150,053,931) 841,533,280
--------------- ---------------
Net Assets: Total decrease in net assets (1,296,105,534) (1,112,342,156)
Beginning of period 8,288,506,503 9,400,848,659
--------------- ---------------
End of period* $ 6,992,400,969 $ 8,288,506,503
=============== ===============
*Undistributed investment income--net $ 410,776 $ 36,822,733
=============== ===============
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION (continued)
Financial Highlights Merrill Lynch Basic Value Fund, Inc.
Class A
The following per share data and ratios For the
have been derived from information Six Months
provided in the financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2002 2002 2001+++++ 2000 1999
Per Share Net asset value, beginning of period $ 27.14 $ 33.77 $ 37.12 $ 43.70 $ 41.55
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net++ .17 .35 .55 .66 .76
Realized and unrealized gain (loss)
on investments and from the Trust--net (2.94) (3.53) 2.51 (3.14) 4.61
---------- ---------- ---------- ---------- ----------
Total from investment operations (2.77) (3.18) 3.06 (2.48) 5.37
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.34) (.40) (.65) (.72) (.81)
Realized gain on investments and
from the Trust--net (.67) (3.05) (5.76) (3.38) (2.41)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (1.01) (3.45) (6.41) (4.10) (3.22)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 23.36 $ 27.14 $ 33.77 $ 37.12 $ 43.70
========== ========== ========== ========== ==========
Total Based on net asset value per share (10.23%)+++ (10.38%) 9.11% (5.98%) 14.54%
Investment ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses++++ .61%* .56% .56% .56% .55%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net 1.39%* 1.19% 1.60% 1.68% 1.95%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $3,345,843 $3,909,901 $4,302,609 $4,426,635 $5,521,623
Data: ========== ========== ========== ========== ==========
Portfolio turnover -- -- -- 27.80% 15.52%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++On October 13, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust, a
mutual fund that has the same investment objective as the Fund. All
investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION (continued)
Financial Highlights (continued) Merrill Lynch Basic Value Fund, Inc.
Class B
The following per share data and ratios For the
have been derived from information Six Months
provided in the financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2002 2002 2001+++++ 2000 1999
Per Share Net asset value, beginning of period $ 26.44 $ 32.98 $ 36.33 $ 42.84 $ 40.78
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net++ .04 .05 .20 .26 .36
Realized and unrealized gain (loss)
on investments and from the Trust--net (2.85) (3.46) 2.46 (3.08) 4.53
---------- ---------- ---------- ---------- ----------
Total from investment operations (2.81) (3.41) 2.66 (2.82) 4.89
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.06) (.08) (.25) (.31) (.42)
Realized gain on investments and
from the Trust--net (.67) (3.05) (5.76) (3.38) (2.41)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.73) (3.13) (6.01) (3.69) (2.83)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 22.90 $ 26.44 $ 32.98 $ 36.33 $ 42.84
========== ========== ========== ========== ==========
Total Based on net asset value per share (10.66%)+++ (11.33%) 8.02% (6.94%) 13.40%
Investment ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses++++ 1.63%* 1.58% 1.59% 1.57% 1.57%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net .36%* .17% .58% .67% .93%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $1,659,327 $2,099,660 $2,838,319 $3,305,961 $4,846,702
Data: ========== ========== ========== ========== ==========
Portfolio turnover -- -- -- 27.80% 15.52%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++On October 13, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust, a
mutual fund that has the same investment objective as the Fund. All
investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION (continued)
Financial Highlights (continued) Merrill Lynch Basic Value Fund, Inc.
Class C
The following per share data and ratios For the
have been derived from information Six Months
provided in the financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2002 2002 2001+++++ 2000 1999
Per Share Net asset value, beginning of period $ 25.96 $ 32.47 $ 35.88 $ 42.37 $ 40.39
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net++ .04 .05 .18 .25 .35
Realized and unrealized gain (loss)
on investments and from the Trust--net (2.81) (3.39) 2.43 (3.04) 4.48
---------- ---------- ---------- ---------- ----------
Total from investment operations (2.77) (3.34) 2.61 (2.79) 4.83
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.09) (.12) (.26) (.32) (.44)
Realized gain on investments and
from the Trust--net (.67) (3.05) (5.76) (3.38) (2.41)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.76) (3.17) (6.02) (3.70) (2.85)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 22.43 $ 25.96 $ 32.47 $ 35.88 $ 42.37
========== ========== ========== ========== ==========
Total Based on net asset value per share (10.70%)+++ (11.30%) 8.00% (6.95%) 13.36%
Investment ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses++++ 1.64%* 1.59% 1.59% 1.58% 1.58%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net .35%* .16% .56% .66% .92%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 470,187 $ 541,921 $ 435,973 $ 413,240 $ 535,132
Data: ========== ========== ========== ========== ==========
Portfolio turnover -- -- -- 27.80% 15.52%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++On October 13, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust, a
mutual fund that has the same investment objective as the Fund. All
investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded) Merrill Lynch Basic Value Fund, Inc.
Class D
The following per share data and ratios For the
have been derived from information Six Months
provided in the financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2002 2002 2001+++++ 2000 1999
Per Share Net asset value, beginning of period $ 27.01 $ 33.63 $ 36.99 $ 43.55 $ 41.42
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net++ .14 .27 .46 .56 .65
Realized and unrealized gain (loss)
on investments and from the Trust--net (2.92) (3.52) 2.50 (3.12) 4.61
---------- ---------- ---------- ---------- ----------
Total from investment operations (2.78) (3.25) 2.96 (2.56) 5.26
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.28) (.32) (.56) (.62) (.72)
Realized gain on investments and
from the Trust--net (.67) (3.05) (5.76) (3.38) (2.41)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.95) (3.37) (6.32) (4.00) (3.13)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 23.28 $ 27.01 $ 33.63 $ 36.99 $ 43.55
========== ========== ========== ========== ==========
Total Based on net asset value per share (10.34%)+++ (10.62%) 8.82% (6.19%) 14.25%
Investment ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses++++ .86%* .81% .81% .80% .80%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net 1.13%* .94% 1.34% 1.43% 1.69%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $1,517,044 $1,737,025 $1,823,948 $1,764,541 $1,980,153
Data: ========== ========== ========== ========== ==========
Portfolio turnover -- -- -- 27.80% 15.52%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++On October 13, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust, a
mutual fund that has the same investment objective as the Fund. All
investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
NOTES TO FINANCIAL STATEMENTS
Merrill Lynch Basic Value Fund, Inc.
1. Significant Accounting Policies:
Merrill Lynch Basic Value Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
investment company. The Fund seeks to achieve its investment
objective by investing all of its assets in 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, 2002 was 99.8%.
The Fund offers four classes of shares under the Merrill Lynch
Select Pricing SM System. Shares of Class A and Class D 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 B, Class C and
Class D 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. Income,
expenses (other than expenses attributable to a specific class) and
realized and unrealized gains and losses on investments are
allocated daily to each class based on its relative net assets. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments--The Fund records its investment in the
Trust at fair value. Valuation of securities held by the Trust is
discussed in Note 1a of the Trust's Notes to Financial Statements,
which are included elsewhere in this report.
(b) Investment income and expenses--The Fund records daily its
proportionate share of the Trust's income, expenses and realized and
unrealized gains and losses. In addition, the Fund accrues its own
expenses.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no Federal income tax
provision is required.
(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 a Distribution Agreement and Distribution
Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc. Pursuant to the
Distribution Plans adopted by the Fund in accordance with Rule 12b-1
under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing account maintenance and distribution fees. The
fees are accrued daily and paid monthly at annual rates based upon
the average daily net assets of the shares of the Fund as follows:
Account Distribution
Maintenance Fee Fee
Class B .25% .75%
Class C .25% .75%
Class D .25% --
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
NOTES TO FINANCIAL STATEMENTS (continued)
Merrill Lynch Basic Value Fund, Inc.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
ML & Co., also provides account maintenance and distribution
services to the Fund. The ongoing account maintenance fee
compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders.
The ongoing distribution fee compensates the Distributor and MLPF&S
for providing shareholder and distribution-related services to Class
B and Class C shareholders.
For the six months ended December 31, 2002, FAMD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
FAMD MLPF&S
Class A $ 4,504 $ 55,231
Class D $11,440 $178,222
For the six months ended December 31, 2002, MLPF&S received
contingent deferred sales charges of $770,786 and $91,676 relating
to transactions in Class B and Class C Shares of the Fund,
respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$328 and $2,625 relating to transactions subject to front-end sales
charge waivers in Class A and Class D Shares, respectively.
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. Investments:
Increases and decreases in the Fund's investment in the Trust for
the six months ended December 31, 2002 were $197,291,238 and
$644,363,180, respectively.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(150,053,931) and $841,533,280 for the six months
ended December 31, 2002 and the year ended June 30, 2002,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
December 31, 2002 Shares Amount
Shares sold 11,502,411 $ 268,623,148
Shares issued to shareholders
in reinvestment of dividends
and distributions 5,439,951 128,721,636
-------------- --------------
Total issued 16,942,362 397,344,784
Shares redeemed (17,802,986) (415,484,641)
-------------- --------------
Net decrease (860,624) $ (18,139,857)
============== ==============
Class A Shares for the
Year Ended Dollar
June 30, 2002 Shares Amount
Shares sold 28,878,205 $ 850,196,713
Shares issued to shareholders
in reinvestment of dividends
and distributions 12,887,122 388,178,236
-------------- --------------
Total issued 41,765,327 1,238,374,949
Shares redeemed (25,084,435) (724,888,516)
-------------- --------------
Net increase 16,680,892 $ 513,486,433
============== ==============
Class B Shares for the
Six Months Ended Dollar
December 31, 2002 Shares Amount
Shares sold 5,908,142 $ 135,389,563
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,125,768 49,165,466
-------------- --------------
Total issued 8,033,910 184,555,029
Automatic conversion of shares (3,648,989) (84,395,259)
Shares redeemed (11,316,367) (257,553,564)
-------------- --------------
Net decrease (6,931,446) $(157,393,794)
============== ==============
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
Merrill Lynch Basic Value Fund, Inc.
Class B Shares for the
Year Ended Dollar
June 30, 2002 Shares Amount
Shares sold 16,487,000 $ 472,656,912
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,950,833 234,739,364
-------------- --------------
Total issued 24,437,833 707,396,276
Automatic conversion of shares (10,734,722) (305,705,641)
Shares redeemed (20,375,322) (580,244,282)
-------------- --------------
Net decrease (6,672,211) $(178,553,647)
============== ==============
Class C Shares for the
Six Months Ended Dollar
December 31, 2002 Shares Amount
Shares sold 2,392,371 $ 53,907,808
Shares issued to shareholders
in reinvestment of dividends
and distributions 621,702 14,094,151
-------------- --------------
Total issued 3,014,073 68,001,959
Shares redeemed (2,930,350) (65,427,541)
-------------- --------------
Net increase 83,723 $ 2,574,418
============== ==============
Class C Shares for the
Year Ended Dollar
June 30, 2002 Shares Amount
Shares sold 9,500,715 $ 268,545,342
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,368,761 39,677,313
-------------- --------------
Total issued 10,869,476 308,222,655
Shares redeemed (3,418,024) (95,496,042)
-------------- --------------
Net increase 7,451,452 $ 212,726,613
============== ==============
Class D Shares for the
Six Months Ended Dollar
December 31, 2002 Shares Amount
Shares sold 4,135,872 $ 96,809,799
Automatic conversion of shares 3,575,745 84,395,259
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,311,118 54,486,981
-------------- --------------
Total issued 10,022,735 235,692,039
Shares redeemed (9,174,310) (212,786,737)
-------------- --------------
Net increase 848,425 $ 22,905,302
============== ==============
Class D Shares for the
Year Ended Dollar
June 30, 2002 Shares Amount
Shares sold 8,417,289 $ 244,441,073
Automatic conversion of shares 10,531,057 305,705,641
Shares issued to shareholders
in reinvestment of dividends
and distributions 5,363,154 161,058,182
-------------- --------------
Total issued 24,311,500 711,204,896
Shares redeemed (14,241,923) (417,331,015)
-------------- --------------
Net increase 10,069,577 $ 293,873,881
============== ==============
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
SCHEDULE OF INVESTMENTS Master Basic Value Trust
Shares Percent of
Industry* Held Stocks Cost Value Net Assets
Above-Average Yield
Diversified 1,505,300 AT&T Corp. $ 44,887,241 $ 39,303,383 0.6%
Telecommunication
Services
Metals & Mining 1,422,700 Alcan Aluminium Ltd. 37,187,074 41,998,104 0.6
Pharmaceuticals 3,623,200 Bristol-Myers Squibb Company 143,967,335 83,877,080 1.2
Chemicals 3,913,800 E.I. du Pont de Nemours and Company 159,927,519 165,945,120 2.4
Oil & Gas 8,686,600 Exxon Mobil Corporation 136,033,216 303,509,804 4.3
Personal Products 3,512,400 The Gillette Company 106,753,967 106,636,464 1.5
Aerospace & Defense 5,468,300 Honeywell International Inc. 155,357,062 131,239,200 1.9
Diversified 3,512,400 J.P. Morgan Chase & Co. 134,453,340 84,297,600 1.2
Financials
Oil & Gas 2,071,500 Kerr-McGee Corporation 121,095,770 91,767,450 1.3
Insurance 1,003,500 Lincoln National Corporation 28,395,404 31,690,530 0.5
Oil & Gas 5,017,700 Royal Dutch Petroleum Company
(NY Registered Shares) 169,234,204 220,879,154 3.1
Diversified 3,372,900 SBC Communications Inc. 85,168,537 91,439,319 1.3
Telecommunication
Services
Food Products 4,200,000 Sara Lee Corporation 88,301,920 94,542,000 1.3
Diversified 3,026,300 Verizon Communications 79,534,603 117,269,125 1.7
Telecommunication
Services
Banks 6,018,500 Wachovia Corporation 207,434,604 219,314,140 3.1
-------------- -------------- -----
1,697,731,796 1,823,708,473 26.0
Below-Average Price/Earnings Ratio
Insurance 3,512,400 ACE Limited 101,297,163 103,053,816 1.5
Insurance 3,084,000 The Allstate Corporation 33,007,355 114,077,160 1.6
Insurance 3,300,000 American International Group, Inc. 88,685,858 190,905,000 2.7
Computers & 2,107,400 ++Apple Computer, Inc. 35,825,289 30,199,042 0.4
Peripherals
Banks 1,309,300 Bank of America Corporation 23,094,016 91,088,001 1.3
Banks 5,017,600 Bank One Corporation 154,056,627 183,393,280 2.6
Machinery 1,003,500 Caterpillar Inc. 44,176,607 45,880,020 0.7
Diversified 6,018,500 Citigroup Inc. 26,574,419 211,791,015 3.0
Financials
Auto Components 8,530,100 Delphi Automotive Systems Corporation 111,153,500 68,667,305 1.0
Machinery 903,200 Eaton Corporation 44,823,436 70,548,952 1.0
Automobiles 4,515,900 Ford Motor Company 74,573,536 41,997,870 0.6
Health Care Equipment 1,252,100 ++Guidant Corporation 37,423,065 38,627,285 0.6
& Supplies
Computers & 5,471,600 Hewlett-Packard Company 88,829,170 94,986,976 1.4
Peripherals
Household Durables 5,521,200 Koninklijke (Royal) Philips Electronics NV
(NY Registered Shares) 23,458,988 97,614,816 1.4
Hotels, Restaurants 6,159,800 McDonald's Corporation 165,067,706 99,049,584 1.4
& Leisure
Pharmaceuticals 1,606,200 Merck & Co., Inc. 92,726,693 90,926,982 1.3
Diversified 1,740,200 Morgan Stanley 79,620,134 69,468,784 1.0
Financials
Semiconductor 3,813,400 ++National Semiconductor Corporation 70,429,957 57,239,134 0.8
Equipment & Products
Household Products 1,003,500 The Procter & Gamble Company 55,982,025 86,240,790 1.2
Pharmaceuticals 3,965,200 Schering-Plough Corporation 135,008,754 88,027,440 1.3
Electrical Equipment 3,797,800 ++Thomas & Betts Corporation (b) 109,146,459 64,182,820 0.9
Insurance 6,221,900 ++Travelers Property Casualty Corp. (Class A) 101,513,606 91,150,835 1.3
IT Consulting & 11,500,000 ++Unisys Corporation 136,230,913 113,850,000 1.6
Services
Oil & Gas 7,024,700 Unocal Corporation 210,186,631 214,815,326 3.1
-------------- -------------- -----
2,042,891,907 2,357,782,233 33.7
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
SCHEDULE OF INVESTMENTS (continued) Master Basic Value Trust
Shares Percent of
Industry* Held Stocks Cost Value Net Assets
Low Price-to-Book Value
Communications 10,300,000 ++3Com Corporation $ 52,040,670 $ 47,586,000 0.7%
Equipment
Semiconductor 7,064,700 ++Advanced Micro Devices, Inc. 87,545,306 45,637,962 0.7
Equipment & Products
Health Care 1,805,700 Aetna Inc. (New Shares) 52,660,629 74,250,384 1.1
Providers & Services
Electronic Equipment 4,272,300 ++Agilent Technologies, Inc. 114,233,343 76,730,508 1.1
& Instruments
Media 2,828,900 ++AOL Time Warner Inc. 36,401,719 37,058,590 0.5
Aerospace & Defense 1,493,900 The Boeing Company 48,961,435 49,283,761 0.7
Media 2,434,850 ++Comcast Corporation (Class A) 72,174,489 57,365,066 0.8
Automobiles 1,863,400 DaimlerChrysler AG 68,154,518 57,113,210 0.8
Machinery 4,214,800 Deere & Company 97,056,457 193,248,580 2.8
Energy Equipment & 5,600,000 Diamond Offshore Drilling, Inc. 212,462,928 122,360,000 1.7
Service
Media 3,482,200 ++Fox Entertainment Group, Inc. (Class A) 68,004,107 90,293,446 1.3
Energy Equipment & 1,505,200 GlobalSantaFe Corporation 33,554,976 36,606,464 0.5
Service
Energy Equipment & 4,015,600 Halliburton Company 88,783,819 75,131,876 1.1
Service
Insurance 2,809,900 The Hartford Financial Services Group, Inc. 44,979,044 127,653,757 1.8
Paper & Forest 3,000,000 International Paper Company 107,463,530 104,910,000 1.5
Products
Household Products 1,868,900 Kimberly-Clark Corporation 89,353,275 88,716,683 1.3
Semiconductor 7,497,000 ++LSI Logic Corporation 90,626,302 43,257,690 0.6
Equipment & Products
Media 13,567,800 ++Liberty Media Corporation (Class A) 172,475,844 121,296,132 1.7
Specialty Retail 1,003,600 The Limited, Inc. 16,029,241 13,980,148 0.2
Communications 24,585,900 ++Lucent Technologies Inc. 160,110,215 30,978,234 0.4
Equipment
Metals & Mining 5,824,400 Massey Energy Company (b) 67,305,515 56,613,168 0.8
Semiconductor 2,413,500 ++Micron Technology, Inc. 45,706,449 23,507,490 0.3
Equipment & Products
Communications 11,642,400 Motorola, Inc. 182,604,653 100,706,760 1.4
Equipment
Metals & Mining 3,462,100 ++Phelps Dodge Corporation 142,527,145 109,575,465 1.6
Aerospace & Defense 1,174,900 Raytheon Company 35,565,085 36,128,175 0.5
Electronic Equipment 2,086,200 ++Tektronix, Inc. 37,080,804 37,947,978 0.5
& Instruments
Industrial 1,956,900 Textron, Inc. 92,393,386 84,127,131 1.2
Conglomerates
Specialty Retail 3,261,400 ++Toys 'R' Us, Inc. 57,536,138 32,614,000 0.5
Media 1,382,400 Tribune Company 44,989,458 62,843,904 0.9
Media 1,054,300 ++Viacom, Inc. (Class B) 37,944,948 42,973,268 0.6
Media 4,515,900 The Walt Disney Company 101,602,966 73,654,329 1.1
Banks 6,111,500 Wells Fargo Company 78,045,706 286,446,005 4.1
-------------- -------------- -----
2,636,374,100 2,440,596,164 34.8
Special Situations
Software 3,512,400 Computer Associates International, Inc. 57,094,700 47,417,400 0.7
Specialty Retail 4,415,500 The Gap, Inc. 58,861,547 68,528,560 1.0
Computers & 1,903,800 International Business Machines
Peripherals Corporation 24,109,148 147,544,500 2.1
-------------- -------------- -----
140,065,395 263,490,460 3.8
Total Stocks 6,517,063,198 6,885,577,330 98.3
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
SCHEDULE OF INVESTMENTS (concluded) Master Basic Value Trust
Partnership Percent of
Interest Issue Cost Value Net Assets
Short-Term Securities
$ 328,782,741 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (a) $ 328,782,741 $ 328,782,741 4.7%
Total Short-Term Securities 328,782,741 328,782,741 4.7
Options Purchased
Nominal Value Premiums
Covered by Options Paid
Put Options Purchased 1,200,000 American International Group, Inc.,
expiring January 2003 at USD 65 6,131,040 8,520,000 0.1
1,000,000 Citigroup Inc., expiring March 2003 at
USD 37.5 3,480,000 3,800,000 0.0
500,000 International Business Machines
Corporation, expiring January 2003
at USD 70 4,215,000 425,000 0.0
2,000,000 Wells Fargo Company, expiring January
2003 at USD 50 8,135,000 6,400,000 0.1
Total Options Purchased 21,961,040 19,145,000 0.2
Total Investments 6,867,806,979 7,233,505,071 103.2
Premiums
Received
Options Written
Call Options Written 1,200,000 American International Group, Inc.,
expiring February 2003 at USD 70 (3,304,884) (240,000) 0.0
Citigroup Inc.:
1,000,000 expiring January 2003 at USD 35 (2,969,910) (1,450,000) 0.0
1,000,000 expiring March 2003 at USD 40 (1,969,940) (750,000) 0.0
2,000,000 Wells Fargo Company, expiring January
2003 at USD 55 (2,062,436) (200,000) 0.0
Total Options Written (10,307,170) (2,640,000) 0.0
Total Investments, Net of Options Written $6,857,499,809 7,230,865,071 103.2
==============
Liabilities in Excess of Other Assets (224,601,594) (3.2)
-------------- ------
Net Assets $7,006,263,477 100.0%
============== ======
++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.
(a)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:
Net Net Interest
Affiliate Activity Cost Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $ 328,782,741 $ 328,782,741 $ 663,900
(b)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 Net Dividend
Industry Affiliate Activity Cost Income
Metals & Massey Energy
Mining Company 212,000 $ 2,664,112 $ 453,652
Electrical Thomas & Betts
Equipment Corporation 47,800 785,593 --
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION
Statement of Assets and Liabilities Master Basic Value Trust
As of December 31, 2002
Assets: Investments, at value (including securities loaned of $1,333,512,934)
(identified cost--$6,845,845,939) $ 7,214,360,071
Investments held as collateral for loaned securities, at value 1,376,729,112
Options purchased, at value (cost--$21,961,040) 19,145,000
Receivables:
Dividends $ 12,312,647
Contributions 6,919,809
Interest 483,099
Loaned securities income 146,021 19,861,576
---------------
Prepaid expenses and other assets 47,337
---------------
Total assets 8,630,143,096
---------------
Liabilities: Collateral on securities loaned, at value 1,376,729,112
Options written, at value (premiums received--$10,307,170) 2,640,000
Payables:
Securities purchased 189,208,281
Withdrawals 52,461,355
Investment adviser 2,566,059 244,235,695
---------------
Accrued expenses and other liabilities 274,812
---------------
Total liabilities 1,623,879,619
---------------
Net Assets: Net assets $ 7,006,263,477
===============
Net Assets Investors' capital $ 6,632,898,215
Consist of: Unrealized appreciation on investments--net 373,365,262
---------------
Net assets $ 7,006,263,477
===============
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION (continued)
Statement of Operations Master Basic Value Trust
For the Six Months Ended December 31, 2002
Investment Dividends (net of $579,866 foreign withholding tax) $ 69,861,933
Income: Interest 2,069,948
Securities lending--net 803,145
---------------
Total income 72,735,026
---------------
Expenses: Investment advisory fees $ 14,760,933
Accounting services 567,701
Custodian fees 178,446
Professional fees 76,541
Trustees' fees and expenses 28,643
Printing and shareholder reports 1,457
Pricing fees 439
Other 172,194
---------------
Total expenses 15,786,354
---------------
Investment income--net 56,948,672
---------------
Realized & Realized loss on investments--net (118,030,025)
Unrealized Change in unrealized appreciation/depreciation on
Loss on investments--net (790,823,966)
Investments--Net: ---------------
Total realized and unrealized loss on investments--net (908,853,991)
---------------
Net Decrease in Net Assets Resulting from Operations $ (851,905,319)
===============
See Notes to Financial Statements.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
FINANCIAL INFORMATION (concluded)
Statements of Changes in Net Assets Master Basic Value Trust
For the Six For the
Months Ended Year Ended
December 31, June 30,
Decrease in Net Assets: 2002 2002
Operations: Investment income--net $ 56,948,672 $ 116,629,770
Realized gain (loss) on investments--net (118,030,025) 162,614,751
Change in unrealized appreciation/depreciation on
investments--net (790,823,966) (1,253,288,054)
--------------- ---------------
Net decrease in net assets resulting from operations (851,905,319) (974,043,533)
--------------- ---------------
Capital Proceeds from contributions 197,685,553 2,155,873,351
Transactions: Fair value of withdrawals (646,692,843) (2,284,337,190)
--------------- ---------------
Net decrease in net assets derived from capital transactions (449,007,290) (128,463,839)
--------------- ---------------
Net Assets: Total decrease in net assets (1,300,912,609) (1,102,507,372)
Beginning of period 8,307,176,086 9,409,683,458
--------------- ---------------
End of period $ 7,006,263,477 $ 8,307,176,086
=============== ===============
See Notes to Financial Statements.
Financial Highlights Master Basic Value Trust
For the Six For the For the Period
Months Ended Year Ended Oct. 13, 2000++
The following ratios have been derived from information December 31, June 30, to June 30,
provided in the financial statements. 2002 2002 2001
Total (8.99%)+++ (8.40%) --
Investment ============= ============= =============
Return:**
Ratios to Expenses .43%* .42% .42%*
Average ============= ============= =============
Net Assets: Investment income--net 1.56%* 1.33% 1.57%*
============= ============= =============
Supplemental Net assets, end of period (in thousands) $ 7,006,263 $ 8,307,176 $ 9,409,683
Data: ============= ============= =============
Portfolio turnover 15.43% 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.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
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 and is organized as a Delaware
business 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.
All such adjustments are of a normal, recurring nature. The
following is a summary of significant accounting policies followed
by the Trust.
(a) Valuation of investments--Portfolio securities that are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities that are traded in the over-
the-counter market are valued at the last available bid price prior
to the time of valuation. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the
primary market. Securities that are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written 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.
(b) Derivative financial instruments--The Trust may engage in
various portfolio investment strategies to increase or decrease the
level of risk to which the Trust is exposed more quickly and
efficiently than transactions in other types of instruments. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* 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) Income taxes--The Trust is classified as a partnership for
Federal income tax purposes. As a partnership for Federal income tax
purposes, the Trust will not incur Federal income tax liability.
Items of partnership income, gain, loss and deduction will pass
through to investors as partners in the Trust. Therefore, no Federal
income tax provision is required. Under the applicable foreign tax
law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates. It is intended that the Trust's
assets will be managed so an investor in the Trust can satisfy the
requirements of subchapter M of the Internal Revenue Code.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend dates. Interest income is
recognized on the accrual basis.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
NOTES TO FINANCIAL STATEMENTS (continued)
Master Basic Value Trust
(e) Securities lending--The Trust may lend securities to financial
institutions that provide cash or securities issued or guaranteed by
the U.S. government as collateral, which will be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities. 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, 2002,
the Trust lent securities with a value of $400,094,745 to MLPF&S or
its affiliates. Pursuant to that order, the Trust also has retained
Merrill Lynch Investment Advisors, LLC ("MLIA"), an affiliate of
FAM, as the securities lending agent for a fee based on a share of
the returns on investment of cash collateral. MLIA 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 MLIA or in registered money market funds advised by FAM or its
affiliates. As of December 31, 2002, cash collateral of $729,666,430
was invested in the Money Market Series of the Merrill Lynch
Liquidity Series, LLC and $647,062,682 was invested in the Merrill
Lynch Premier Institutional Fund. For the six months ended December
31, 2002, MLIA received $380,180 in securities lending agent fees.
In addition, MLPF&S received $452,813 in commissions on the
execution of portfolio security transactions for the Trust for the
six months ended December 31, 2002.
For the six months ended December 31, 2002, the Fund reimbursed FAM
$83,885 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, 2002 were $1,085,305,067 and
$1,209,525,521, respectively.
Net realized gains (losses) for the six months ended December 31,
2002 and net unrealized gains (losses) as of December 31, 2002 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $(133,840,215) $ 368,514,132
Short-term investments 1,233 --
Options purchased 14,257,233 (2,816,040)
Options written 1,551,724 7,667,170
-------------- --------------
Total $(118,030,025) $ 373,365,262
============== ==============
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
Master Basic Value Trust
As of December 31, 2002, net unrealized appreciation for Federal
income tax purposes aggregated $316,110,976, of which $1,486,467,304
related to appreciated securities and $1,170,356,328 related to
depreciated securities. At December 31, 2002, the aggregate cost of
investments, including options, for Federal income tax purposes was
$6,914,754,095.
Transactions in call options written for the six months ended
December 31, 2002 were as follows:
Nominal
Value Premiums
Covered Received
Outstanding call options
written, beginning of
period 1,000,000 $ 805,975
Options written 7,200,000 13,200,982
Options closed (1,000,000) (764,977)
Options expired (2,000,000) (2,934,810)
-------------- --------------
Outstanding call options
written, end of period 5,200,000 $ 10,307,170
============== ==============
Transactions in put options written for the six months ended
December 31, 2002 were as follows:
Nominal
Value Premiums
Covered Received
Outstanding put options
written, beginning of
period -- $ --
Options written 2,000,000 2,041,937
Options closed (2,000,000) (2,041,937)
-------------- --------------
Outstanding put options
written, end of period -- $ --
============== ==============
4. Short-Term Borrowings:
The Trust, along with certain other funds managed by FAM and its
affiliates, is a party to a credit agreement with Bank One, N.A. and
certain other lenders. Effective November 29, 2002, in conjunction
with the renewal for one year at the same terms, the total
commitment was reduced from $1,000,000,000 to $500,000,000. 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. The Trust
did not borrow under the credit agreement during the six months
ended December 31, 2002.
Merrill Lynch Basic Value Fund, Inc., December 31, 2002
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
J. Thomas Touchton, Director/Trustee
Fred G. Weiss, Director/Trustee
Robert J. Martorelli, Senior Vice President and
Co-Portfolio Manager
Kevin M. Rendino, Senior Vice President and
Co-Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Susan B. Baker, Secretary
Effective January 1, 2003, J. Thomas Touchton, Director/Trustee of
Merrill Lynch Basic Value Fund, Inc., retired. The Fund's Board of
Directors/Trustees wishes Mr. Touchton well in his retirement.
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
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 (not answered until
July 15, 2003 and only annually for funds)
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 (not answered until July 15, 2003 and only annually
for funds)
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.
Items 5-6 - 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) - Disclose the conclusions of the registrant's principal
executive officer or officers and principal financial officer or
officers, or persons performing similar functions, about the
effectiveness of the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-2(c)))
based on their evaluation of these controls and procedures as of a
date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph. N/A.
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 (4 in total pursuant to Sections 302
and 906 for CEO/CFO). Attached hereto.