UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-02739
811-10179
Name of Fund: Merrill Lynch 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: Robert C. Doll, Jr., Chief Executive
Officer, Merrill Lynch Basic Value Fund, Inc. and Master Basic Value
Trust, 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address:
P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 06/30/06
Date of reporting period: 07/01/05 - 12/31/05
Item 1 - Report to Stockholders
Merrill Lynch
Basic Value Fund, Inc.
Semi-Annual Report
December 31, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.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. Please see
the Fund's prospectus for a description of risks associated with global
investments.
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 1-800-637-3863; (2) at
www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent 12-
month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Basic Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
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A Letter From the President
Dear Shareholder
On balance, 2005 was a year of "muddling through" for the U.S. financial
markets, as oil prices reached new record highs, the Federal Reserve Board
(the Fed) increased the target federal funds rate from 2.25% to 4.25%, the
housing market and the consumer finally showed some signs of slowing, and
Hurricanes Katrina and Rita ravaged the Gulf Coast, causing yet untold
economic damage.
Although they struggled, stocks managed to post their third straight year
of positive performance. The year was equally uncertain for fixed income
markets, which were bemused by a flattening yield curve and a number of
significant credit events that brought a slowdown in high yield market
returns. Notably, the one-year results for the major asset classes - stocks,
bonds and cash - were the closest they have been in more than 100 years. For
the 12- and six-month periods ended December 31, 2005, most of the major
market indexes managed to land in positive territory:
Total Returns as of December 31, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) + 5.77% + 4.91%
Small-cap U.S. equities (Russell 2000 Index) + 5.88 + 4.55
International equities (MSCI Europe Australasia Far East Index) +14.88 +13.54
Fixed income (Lehman Brothers Aggregate Bond Index) - 0.08 + 2.43
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.60 + 3.51
High yield bonds (Credit Suisse First Boston High Yield Index) + 1.48 + 2.26
In hindsight, these numbers are reasonably good given the headwinds facing
the markets in 2005. U.S. equities found support in strong corporate earnings,
low core inflation and healthy company balance sheets. Strength in the
global economy and non-U.S. equity markets helped, as did robust dividend-
distribution, share-buyback and merger-and-acquisition activity. International
stocks had an excellent year, with many markets benefiting from strong
economic statistics, trade surpluses and solid finances. In the U.S. bond
market, long-term yields remained low and, at year-end, the Treasury curve
appeared ready to invert.
As 2006 begins, the largest question marks center on the Fed's future moves,
the U.S. consumer's ability (or inability) to continue spending, the direction
of the U.S. dollar following a year of appreciation and the potential for
continued strong economic and corporate earnings growth. As you turn the
calendar and consider how these factors might impact your investments, remember
that the new year is a good time to meet with your financial advisor to review
your financial goals, and to make portfolio changes where necessary. For
investing insights and timely "food for thought" for investors, we also invite
you to visit Shareholder magazine at www.mlim.ml.com/shareholdermagazine.
As always, we thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the new year
and beyond.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Director/Trustee
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
We are pleased to present to you the management team of
Merrill Lynch Basic Value Fund, Inc.
Senior Portfolio Managers Kevin Rendino and Bob Martorelli are co-heads of
Merrill Lynch Basic Value Fund team. Mr. Rendino joined Merrill Lynch
Investment Managers in 1990. He received a bachelor's degree from Boston
College. Mr Martorelli joined Merrill Lynch in 1985. He received a bachelor's
degree from Hofstra University and an MBA from Fordham University. Mr. Rendino
and Mr. Martorelli are supported by Analysts Harry Radovich, Geri Gunn-Hertig,
Carrie King, John Arege and Michelle Smith. The team is also supported by
Product Specialist Scott Malatesta. Mr. Radovich earned a bachelor's degree
and an MBA from St. John's University and is a CFAr charterholder. Ms. Gunn-
Hertig holds a bachelor's degree from Montclair State University and an MBA
from Rutgers University. Ms. King holds a bachelor's degree from Boston
University and an MBA from New York University. Mr. Arege received a
bachelor's degree from the Catholic University and a juris doctor degree from
Touro Law School. He is a CFA charterholder. Ms. Smith earned a bachelor's
degree and MBA from Rider University. Mr. Malatesta received a bachelor's
degree from Mount St. Mary College and a master's degree from Fairleigh
Dickinson University.
Kevin Rendino
Senior Portfolio Manager
Bob Martorelli
Senior Portfolio Manager
Table of Contents Page
A Letter From the President 2
A Discussion With Your Fund's Portfolio Managers 4
Performance Data 6
Disclosure of Expenses 8
Fund Financial Statements 9
Fund Financial Highlights 12
Fund Notes to Financial Statements 17
Portfolio Information 20
Master Schedule of Investments 21
Master Financial Statements 24
Master Financial Highlights 27
Master Notes to Financial Statements 28
Investment Advisory Agreement 31
Officers and Directors/Trustees 33
CFA (R) and Chartered Financial Analyst (R) are trademarks owned by the
Association for Investment Management and Research.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
A Discussion With Your Fund's Portfolio Managers
The Fund provided competitive returns for the period as we continued in our
efforts to increase portfolio diversification, limit risk and shift into
larger companies as the economic cycle evolved.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended December 31, 2005, Merrill Lynch Basic Value
Fund, Inc.'s Class A, Class B, Class C, Class I and Class R Shares had total
returns of +5.83%, +5.43%, +5.42%, +5.96% and +5.69%, 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 and 7
of this report to shareholders.) This compared to a return of +5.77% for the
Standard & Poor's 500 (S&P 500) Index, +6.23% for the S&P 500 Barra Value
Index and an average return of +5.43% for the Lipper Large-Cap Value Funds
category for the same period. (Funds in this Lipper category invest in
companies considered to be undervalued relative to a major unmanaged stock
index.)
The second half of 2005, the Fund's semi-annual reporting period, was very
different from the first six months of the calendar year. In the first six
months, as the Federal Reserve Board (the Fed) advanced its interest rate-
hiking campaign and investors worried about a slowing economy, the equity
markets were relatively flat. In the latter six months, despite record-high
oil prices, a vigilant Fed and two catastrophic hurricanes, the economic data
was largely positive. Gross domestic product growth rose from 3.3% in the
second quarter of 2005 to 4.1% in the third quarter. Corporate earnings also
continued to come in very strong. Investors began to believe that perhaps a
soft landing was in the making, and the markets strengthened. Most recently,
after 13 consecutive interest rate hikes between June 2004 and December 2005,
the Fed finally hinted that its monetary tightening campaign may be nearing an
end. This was good news for stocks.
The Fund generally provided competitive returns for the six-month period.
Energy was one of our top-performing industry groups, led by strong
performance from offshore oil driller GlobalSantaFe and oil service companies
BJ Services and Halliburton. The budgets for many oil exploration & production
companies are expanding at a fast rate, and drilling activity is exploding
throughout the world given the high prices for crude and gas. The portfolio
has benefited from its positions in oil drillers and companies that provide
services for those activities.
The Fund also realized positive attribution from its investments in the
financials sector. We added to our position in financials during the period,
making it the largest absolute weighting in the portfolio. Generally speaking,
you don't want to own as many financials when the Fed is raising interest
rates as you do when the Fed is done or will be cutting interest rates. So
financials struggled over the past 18 months, but started to rally
significantly in the latter months of 2005 as the market began to anticipate
the end of monetary tightening. Financial stocks that contributed to Fund
results included JP Morgan Chase & Co. and American International Group, Inc.
Several of the portfolio's technology names performed well. Among them were
Agilent Technologies, Inc., a company that reorganized, sold some assets and
announced a dutch auction during the period; Hewlett-Packard Co., which also
underwent a positive transformation with a new CEO in place; and Motorola,
Inc., a strong franchise whose new management did a good job of focusing the
business on areas that offer high returns and moving away from those that
don't.
In terms of areas that hindered performance, we saw some weakness from
materials and industrials stocks, particularly those companies that use fuel
to power their manufacturing facilities. As oil and gas prices rose, our
energy holdings benefited, but positions such as Kimberly-Clark Corp., top
maker of personal paper products, and International Paper Co., the leading
forest products company, declined.
In consumer discretionary, media names Interpublic Group of Cos., Inc. and
Comcast Corp. disappointed, as did our only retail stock, The Gap, Inc. Like
most retailers, The Gap came under pressure on the prospects of a weak holiday
shopping season. This, coupled with worries over a slowdown in consumer
spending and a poor product cycle, caused The Gap to underperform. The media
stocks, in the meantime, lagged on concerns over weak advertising revenues.
Finally, our position in Verizon Communications, Inc. also detracted from
returns as the company weathered the highly competitive landscape for DSL and
VoIP. Verizon purchased MCI out of bankruptcy, so there was some share
pressure associated with that transaction as well.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
What changes were made to the portfolio during the period?
As the economic cycle evolved, we continued to shift more assets from our
smaller, tertiary names into the larger companies in the portfolio. We also
continued our efforts to diversify the Fund in a market environment where no
particular sector seemed particularly ripe for outperformance.
The biggest thematic change during the period was our increased exposure to
the financials sector. This move was motivated by our belief that the Fed is
near the end of its interest rate-hiking campaign, which should continue to
support banks and financial stocks. We have already seen this play out
somewhat during the past six months. In total, we added 426 basis points
(4.26%) to our financial weighting, representing the first time we increased
our exposure to this sector in a meaningful way in several years. At
approximately 26% of net assets, the portfolio is still underweight relative
to the S&P 500 Barra Value Index's hefty weighting of 36%, although far less
underweight than we were. Four prominent additions in this sector were Morgan
Stanley, MBNA Corp., XL Capital Ltd. and Ace Ltd.
Other significant new additions included defense company Northrop Grumman.
Defense stocks came under pressure from fears that defense spending would face
scrutiny as the U.S. budget deficits grew. We believe defense budgets will be
unaffected by any budgetary action and that companies such as Northrop Grumman
will rise from their relatively low levels. We added significantly to our
position in International Business Machines Corp., a company that has
undergone an important transformation. Specifically, IBM sold a lot of
commodity-like products and businesses, such as the PC, memory and disk drive
businesses, and is now focusing on higher-margin endeavors, such as services,
mainframes and software. Given its healthy free cash flow and record of
returning money to shareholders via dividend increases or share repurchases,
we do not believe IBM should be trading at a market discount and, therefore,
the stock represents compelling value.
In terms of sales, we eliminated International Paper from the portfolio as we
became less intrigued with the investment story after the company
restructured. Most other sales were made at profits. We sold Wachovia, a good
stock for a number of years, as financial stocks came under pressure post-
Hurricane Katrina. We found more interesting places in financials to invest
the proceeds as the sector subsequently rallied. We sold Liberty Media Corp.
at a slight profit and eliminated AstraZeneca Group Plc, Seagate Technology
and Abbott Laboratories after they reached our price targets. We also reduced
our position in Motorola with some profit taking.
How would you characterize the Fund's position at the close of the period?
In mid-December, the S&P 500/Citigroup Value Index replaced our S&P 500 Barra
Value Index benchmark. As a result, the benchmark weightings in consumer
staples, health care, utilities, information technology and industrials
increased while consumer discretionary, energy, financials, telecommunications
and materials declined. At year-end, the Fund was overweight versus the new
benchmark in the consumer discretionary, consumer staples, energy, health care
and information technology sectors, and underweight in financials,
industrials, materials, telecommunication services and utilities.
In 2005, the market faced continued Fed interest rate hikes, twin deficits,
record-high energy prices and a devastating hurricane season. And yet, the
economy continued to grow at a rate exceeding 3% while corporate earnings
remained robust. We view the 2006 landscape as much the same. Equities face
similar headwinds - geopolitical uncertainty, budget and current account
deficits, a consumer that could be close to tapped out and the potential for a
couple more Fed interest rate hikes. Offsetting this is the profitability and
overall financial well-being of Corporate America. We believe the U.S.
corporation is much healthier than the consumer, and with record cash flows,
strong earnings and cash to deploy via dividend increases, share repurchases
or investments in their own businesses, we do not see a recession on the
horizon.
While we do not expect earnings growth to decline, we do anticipate a
slowdown, which leads us to favor some of the larger, multinational companies
that can more readily capture market share in all kinds of economic
environments. We also see continued merger-and-acquisition activity and a
healthy IPO environment in 2006. With companies challenged to show the same
type of earnings growth that they have over the past few years, we believe
they will seek to achieve growth through merger-and-acquisition and buyout
activity, a trend that began to emerge strongly in 2005. Overall, we are
fairly constructive on the markets and expect the Fed to complete its interest
rate-hiking campaign early in 2006 - a long-awaited positive for equities.
Kevin M. Rendino
Senior Vice President and Co-Portfolio Manager
Robert J. Martorelli
Senior Vice President and Co-Portfolio Manager
January 9, 2006
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end load) of 5.25%
and an account maintenance fee of 0.25% per year (but no distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales charge of
4% declining to 0% after six years. In addition, Class B Shares are subject to
a distribution fee of 0.75% per year and an account maintenance fee of 0.25%
per year. These shares automatically convert to Class A Shares after
approximately eight years. (There is no initial sales charge for automatic
share conversions.) All returns for periods greater than eight years reflect
this conversion.
* Class C Shares are subject to a distribution fee of 0.75% per year and an
account maintenance fee of 0.25% per year. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one year
of purchase.
* Effective December 28, 2005, Class I Shares are no longer subject to any
front-end sales charge. Class I Shares bear no ongoing distribution or account
maintenance fees and are available only to eligible investors. Had the sales
charge been included, the Fund's Class I Shares' performance would have been
lower.
* Class R Shares do not incur a maximum sales charge (front-end load) or
deferred sales charge. These shares are subject to a distribution fee of 0.25%
per year and an account maintenance fee of 0.25% per year. Class R Shares are
available only to certain retirement plans. Prior to inception, Class R Share
performance results are those of Class I Shares (which have no distribution or
account maintenence fees) restated for Class R Share fees.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to
the most recent month-end. Performance results do not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption of
fund shares. Figures shown in each of the following tables assume reinvestment
of all dividends and capital gain distributions, if any, at net asset value on
the ex-dividend date. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer agency fees
applicable to each class, which are deducted from the income available to be
paid to shareholders.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Performance Data (concluded)
Recent Performance Results
6-Month 12-Month 10-Year
As of December 31, 2005 Total Return Total Return Total Return
ML Basic Value Fund, Inc. Class A Shares* +5.83% +3.60% +139.94%
ML Basic Value Fund, Inc. Class B Shares* +5.43 +2.82 +125.57
ML Basic Value Fund, Inc. Class C Shares* +5.42 +2.82 +121.90
ML Basic Value Fund, Inc. Class I Shares* +5.96 +3.87 +146.05
ML Basic Value Fund, Inc. Class R Shares* +5.69 +3.38 +135.02
S&P 500 (R) Index** +5.77 +4.91 +138.36
S&P 500/Citigroup Value Index*** +7.87 +8.71 +146.23
S&P 500 Barra Value Index**** +6.23 +6.33 +146.38
* Investment results shown do not reflect sales charges; results shown would be lower
if a sales charge was included. Cumulative 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.
** 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 Index is designed to provide a comprehensive measure of large-cap
U.S. equity "value" performance. It is an unmanaged float adjusted market
capitalization weighted index comprised of stocks representing approximately half
the market capitalization of the S&P 500 Index that have been identified as being
on the value end of the growth-value spectrum.
**** 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.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 12/31/05 +3.60% -1.84%
Five Years Ended 12/31/05 +4.48 +3.36
Ten Years Ended 12/31/05 +9.15 +8.56
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 12/31/05 +2.82% -1.08%
Five Years Ended 12/31/05 +3.68 +3.35
Ten Years Ended 12/31/05 +8.47 +8.47
* 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 CDSC With CDSC**
Class C Shares*
One Year Ended 12/31/05 +2.82% +1.85%
Five Years Ended 12/31/05 +3.67 +3.67
Ten Years Ended 12/31/05 +8.30 +8.30
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year.
** Assuming payment of applicable contingent deferred sales
charge.
Class I Shares Return
One Year Ended 12/31/05 +3.87%
Five Years Ended 12/31/05 +4.74
Ten Years Ended 12/31/05 +9.42
Class R Shares Return
One Year Ended 12/31/05 +3.38%
Five Years Ended 12/31/05 +4.30
Ten Years Ended 12/31/05 +8.92
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses
related to transactions, including sales charges, redemption fees and exchange
fees; and (b) operating expenses including advisory fees, distribution fees
including 12b-1 fees and other Fund expenses. The following example (which is
based on a hypothetical investment of $1,000 invested on July 1, 2005 and held
through December 31, 2005) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in comparing these
expenses with similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during
the period covered by this report, shareholders can divide their account value
by $1,000 and then multiply the result by the number in the first line under
the heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as
sales charges, redemption fees or exchange fees. Therefore, the second table
is useful in comparing ongoing expenses only, and will not help shareholders
determine the relative total expenses of owning different funds. If these
transactional expenses were included, shareholder expenses would have been
higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value July 1, 2005 to
July 1, December 31, December 31,
2005 2005 2005
Actual
Class A $1,000 $1,058.30 $4.28
Class B $1,000 $1,054.30 $8.29
Class C $1,000 $1,054.20 $8.29
Class I $1,000 $1,059.60 $2.99
Class R $1,000 $1,056.90 $5.57
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,020.94 $4.20
Class B $1,000 $1,017.03 $8.14
Class C $1,000 $1,017.03 $8.14
Class I $1,000 $1,022.19 $2.94
Class R $1,000 $1,019.69 $5.47
* For each class of the Fund, expenses are equal to the expense ratio for the class (.83% for Class A,
1.61% for Class B, 1.61% for Class C, .58% for Class I and 1.08% for Class R), multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half year period shown).
Because the Fund is a feeder fund, the expense table example reflects the expenses of both the feeder
fund and the master fund in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most
recent fiscal half year divided by 365.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Statement of Assets and Liabilities Merrill Lynch Basic Value Fund, Inc.
As of December 31, 2005
Assets
Investment in Master Basic Value Trust (the "Trust"), at value
(identified cost--$5,549,418,585) $ 7,859,843,970
Prepaid expenses 42,378
---------------
Total assets 7,859,886,348
---------------
Liabilities
Payables:
Other affiliates $ 2,454,093
Distributor 1,977,790 4,431,883
---------------
Accrued expenses 223,282
---------------
Total liabilities 4,655,165
---------------
Net Assets
Net assets $ 7,855,231,183
===============
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 200,000,000 shares authorized $ 7,286,266
Class B Shares of Common Stock, $.10 par value, 400,000,000 shares authorized 3,404,957
Class C Shares of Common Stock, $.10 par value, 200,000,000 shares authorized 2,539,979
Class I Shares of Common Stock, $.10 par value, 400,000,000 shares authorized 12,203,193
Class R Shares of Common Stock, $.10 par value, 400,000,000 shares authorized 87,988
Paid-in capital in excess of par 5,446,810,993
Undistributed investment income--net $ 471,767
Undistributed realized capital gains allocated from the Trust--net 72,000,655
Unrealized appreciation allocated from the Trust--net 2,310,425,385
---------------
Total accumulated earnings--net 2,382,897,807
---------------
Net Assets $ 7,855,231,183
===============
Net Asset Value
Class A--Based on net assets of $2,253,257,362 and 72,862,664 shares outstanding $ 30.92
===============
Class B--Based on net assets of $1,034,723,836 and 34,049,570 shares outstanding $ 30.39
===============
Class C--Based on net assets of $751,401,369 and 25,399,792 shares outstanding $ 29.58
===============
Class I--Based on net assets of $3,789,197,687 and 122,031,931 shares outstanding $ 31.05
===============
Class R--Based on net assets of $26,650,929 and 879,881 shares outstanding $ 30.29
===============
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Statement of Operations Merrill Lynch Basic Value Fund, Inc.
For the Six Months Ended December 31, 2005
Investment Income
Net investment income allocated from the Trust:
Dividends $ 81,260,094
Interest from affiliates 911,049
Securities lending--net 113,707
Expenses (17,360,539)
---------------
Total income 64,924,311
---------------
Expenses
Account maintenance and distribution fees--Class B $ 5,656,648
Account maintenance and distribution fees--Class C 3,769,494
Transfer agent fees--Class I 2,862,121
Account maintenance fees--Class A 2,838,057
Transfer agent fees--Class A 1,649,606
Transfer agent fees--Class B 953,844
Transfer agent fees--Class C 653,412
Printing and shareholder reports 166,269
Professional fees 114,964
Registration fees 68,145
Account maintenance and distribution fees--Class R 66,606
Directors' fees and expenses 20,837
Transfer agent fees--Class R 19,206
Other 21,444
---------------
Total expenses 18,860,653
---------------
Investment income--net 46,063,658
---------------
Realized & Unrealized Gain Allocated from the Trust--Net
Realized gain on investments, foreign currency transactions and options
written--net 220,514,073
Net increase from payments by affiliates 6,195,151
Change in unrealized appreciation/depreciation on investments (includes
payments by affiliates) and options written--net 185,224,543
---------------
Total realized and unrealized gain--net 411,933,767
---------------
Net Increase in Net Assets Resulting from Operations $ 457,997,425
===============
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
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: 2005 2005
Operations
Investment income--net $ 46,063,658 $ 99,145,218
Realized gain--net 226,709,224 600,591,605
Change in unrealized appreciation/depreciation--net 185,224,543 (411,521,052)
--------------- ---------------
Net increase in net assets resulting from operations 457,997,425 288,215,771
--------------- ---------------
Dividends & Distributions to Shareholders
Investment income--net:
Class A (28,120,646) (24,977,124)
Class B (4,412,874) (4,497,660)
Class C (4,018,853) (3,224,139)
Class I (57,968,619) (56,515,218)
Class R (278,358) (200,856)
Realized gain--net:
Class A (109,263,240) (97,088,385)
Class B (57,000,078) (66,074,692)
Class C (37,857,411) (32,199,533)
Class I (190,415,930) (180,466,939)
Class R (1,272,507) (854,418)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (490,608,516) (466,098,964)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (328,831,444) (337,437,451)
--------------- ---------------
Net Assets
Total decrease in net assets (361,442,535) (515,320,644)
Beginning of period 8,216,673,718 8,731,994,362
--------------- ---------------
End of period* $ 7,855,231,183 $ 8,216,673,718
=============== ===============
* Undistributed investment income--net $ 471,767 $ 49,207,459
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Financial Highlights Merrill Lynch Basic Value Fund, Inc.
Class A
For the Six
Months Ended
The following per share data and ratios have been derived December 31, For the Year Ended June 30,
from information provided in the financial statements. 2005 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of period $ 31.03 $ 31.74 $ 25.72 $ 27.01 $ 33.63
------------ ---------- ---------- ---------- ----------
Investment income--net*** .19 .38 .33 .29 .27
Realized and unrealized gain (loss)--net 1.60 .63 6.02 (.63) (3.52)
------------ ---------- ---------- ---------- ----------
Total from investment operations 1.79 1.01 6.35 (.34) (3.25)
------------ ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.39) (.35) (.33) (.28) (.32)
Realized gain--net (1.51) (1.37) -- (.67) (3.05)
------------ ---------- ---------- ---------- ----------
Total dividends and distributions (1.90) (1.72) (.33) (.95) (3.37)
------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 30.92 $ 31.03 $ 31.74 $ 25.72 $ 27.01
============ ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 5.83%+++++++ 3.49% 24.90% (.94%) (10.62%)
============ ========== ========== ========== ==========
Ratios to Average Net Assets++
Expenses .83%* .82% .81% .85% .81%
============ ========== ========== ========== ==========
Investment income--net 1.20%* 1.24% 1.11% 1.23% .94%
============ ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 2,253,257 $2,242,881 $2,223,869 $1,679,935 $1,737,025
============ ========== ========== ========== ==========
Portfolio turnover of the Trust 21.65% 45.10% 33.32% 31.92% 38.15%
============ ========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses and/or investment income--net.
++++ For the six months ended December 31, 2005, +.09% of the Fund's total return consists of
a portion of payments by the Investment Adviser to the Trust for compensation as a result
of a securities class action entitlement recovery and a result of a corporate action.
Excluding these items, the total return would have been +5.74%.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Financial Highlights (continued) Merrill Lynch Basic Value Fund, Inc.
Class B
For the Six
Months Ended
The following per share data and ratios have been derived December 31, For the Year Ended June 30,
from information provided in the financial statements. 2005 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of period $ 30.39 $ 31.08 $ 25.19 $ 26.44 $ 32.98
------------ ---------- ---------- ---------- ----------
Investment income--net*** .06 .14 .10 .11 .05
Realized and unrealized gain (loss)--net 1.57 .62 5.92 (.63) (3.46)
------------ ---------- ---------- ---------- ----------
Total from investment operations 1.63 .76 6.02 (.52) (3.41)
------------ ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.12) (.08) (.13) (.06) (.08)
Realized gain--net (1.51) (1.37) -- (.67) (3.05)
------------ ---------- ---------- ---------- ----------
Total dividends and distributions (1.63) (1.45) (.13) (.73) (3.13)
------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 30.39 $ 30.39 $ 31.08 $ 25.19 $ 26.44
============ ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 5.43%+++++++ 2.72% 23.95% (1.72%) (11.33%)
============ ========== ========== ========== ==========
Ratios to Average Net Assets++
Expenses 1.61%* 1.59% 1.58% 1.63% 1.58%
============ ========== ========== ========== ==========
Investment income--net .42%* .47% .35% .45% .17%
============ ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 1,034,724 $1,212,392 $1,594,286 $1,626,835 $2,099,660
============ ========== ========== ========== ==========
Portfolio turnover of the Trust 21.65% 45.10% 33.32% 31.92% 38.15%
============ ========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses and/or investment income--net.
++++ For the six months ended December 31, 2005, +.09% of the Fund's total return consists of
a portion of payments by the Investment Adviser to the Trust for compensation as a result
of a securities class action entitlement recovery and a result of a corporate action.
Excluding these items, the total return would have been +5.34%.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Financial Highlights (continued) Merrill Lynch Basic Value Fund, Inc.
Class C
For the Six
Months Ended
The following per share data and ratios have been derived December 31, For the Year Ended June 30,
from information provided in the financial statements. 2005 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of period $ 29.66 $ 30.42 $ 24.68 $ 25.96 $ 32.47
------------ ---------- ---------- ---------- ----------
Investment income--net*** .06 .14 .09 .10 .05
Realized and unrealized gain (loss)--net 1.53 .61 5.79 (.62) (3.39)
------------ ---------- ---------- ---------- ----------
Total from investment operations 1.59 .75 5.88 (.52) (3.34)
------------ ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.16) (.14) (.14) (.09) (.12)
Realized gain--net (1.51) (1.37) -- (.67) (3.05)
------------ ---------- ---------- ---------- ----------
Total dividends and distributions (1.67) (1.51) (.14) (.76) (3.17)
------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 29.58 $ 29.66 $ 30.42 $ 24.68 $ 25.96
============ ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 5.42%+++++++ 2.70% 23.93% (1.75%) (11.30%)
============ ========== ========== ========== ==========
Ratios to Average Net Assets++
Expenses 1.61%* 1.59% 1.59% 1.64% 1.59%
============ ========== ========== ========== ==========
Investment income--net .42%* .46% .33% .45% .16%
============ ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 751,401 $ 743,882 $ 679,667 $ 502,623 $ 541,921
============ ========== ========== ========== ==========
Portfolio turnover of the Trust 21.65% 45.10% 33.32% 31.92% 38.15%
============ ========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses and/or investment income--net.
++++ For the six months ended December 31, 2005, +.09% of the Fund's total return consists of
a portion of payments by the Investment Adviser to the Trust for compensation as a result
of a securities class action entitlement recovery and a result of a corporate action.
Excluding these items, the total return would have been +5.33%.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Financial Highlights (continued) Merrill Lynch Basic Value Fund, Inc.
Class I
For the Six
Months Ended
The following per share data and ratios have been derived December 31, For the Year Ended June 30,
from information provided in the financial statements. 2005 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of period $ 31.19 $ 31.89 $ 25.83 $ 27.14 $ 33.77
------------ ---------- ---------- ---------- ----------
Investment income--net*** .23 .46 .40 .35 .35
Realized and unrealized gain (loss)--net 1.61 .64 6.06 (.65) (3.53)
------------ ---------- ---------- ---------- ----------
Total from investment operations 1.84 1.10 6.46 (.30) (3.18)
------------ ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.47) (.43) (.40) (.34) (.40)
Realized gain--net (1.51) (1.37) -- (.67) (3.05)
------------ ---------- ---------- ---------- ----------
Total dividends and distributions (1.98) (1.80) (.40) (1.01) (3.45)
------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 31.05 $ 31.19 $ 31.89 $ 25.83 $ 27.14
============ ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 5.96%+++++++ 3.77% 25.23% (.74%) (10.38%)
============ ========== ========== ========== ==========
Ratios to Average Net Assets++
Expenses .58%* .57% .56% .60% .56%
============ ========== ========== ========== ==========
Investment income--net 1.45%* 1.49% 1.36% 1.48% 1.19%
============ ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 3,789,198 $3,992,702 $4,220,353 $3,564,283 $3,909,901
============ ========== ========== ========== ==========
Portfolio turnover of the Trust 21.65% 45.10% 33.32% 31.92% 38.15%
============ ========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effect of sales charges. Effective December 28, 2005,
Class I Shares are no longer subject to any front-end sales charge.
*** Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses and/or investment income--net.
++++ For the six months ended December 31, 2005, +.09% of the Fund's total return consists of
a portion of payments by the Investment Adviser to the Trust for compensation as a result
of a securities class action entitlement recovery and a result of a corporate action.
Excluding these items, the total return would have been +5.87%.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Financial Highlights (concluded) Merrill Lynch Basic Value Fund, Inc.
Class R
For the Six For the Period
Months Ended For the Year Ended January 3, 2003++
The following per share data and ratios have been derived December 31, June 30, to June 30,
from information provided in the financial statements. 2005 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 30.41 $ 31.17 $ 25.36 $ 23.65
-------------- ---------- ---------- ----------
Investment income--net** .14 .30 .25 .21
Realized and unrealized gain--net 1.57 .63 5.93 1.50
-------------- ---------- ---------- ----------
Total from investment operations 1.71 .93 6.18 1.71
-------------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.32) (.32) (.37) --
Realized gain--net (1.51) (1.37) -- --
-------------- ---------- ---------- ----------
Total dividends and distributions (1.83) (1.69) (.37) --
-------------- ---------- ---------- ----------
Net asset value, end of period $ 30.29 $ 30.41 $ 31.17 $ 25.36
============== ========== ========== ==========
Total Investment Return
Based on net asset value per share 5.69%+++++++++ 3.28% 24.58% 7.23%+++
============== ========== ========== ==========
Ratios to Average Net Assets++++
Expenses 1.08%* 1.07% 1.07% 1.10%*
============== ========== ========== ==========
Investment income--net .95%* .98% .80% 1.09%*
============== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 26,651 $ 24,817 $ 13,821 $ 1
============== ========== ========== ==========
Portfolio turnover of the Trust 21.65% 45.10% 33.32% 31.92%
============== ========== ========== ==========
* Annualized.
** Based on average shares outstanding.
++ Commencement of operations.
++++ Includes the Fund's share of the Trust's allocated expenses and/or investment income--net.
++++++ For the six months ended December 31, 2005, +.10% of the Fund's total return consists of
a portion of payments by the Investment Adviser to the Trust for compensation as a result
of a securities class action entitlement recovery and a result of a corporate action.
Excluding these items, the total return would have been +5.59%.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
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 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 and strategies 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 U.S. generally
accepted accounting principles, which may require the use of management
accruals and estimates. Actual results may differ from these estimates. These
unaudited financial statements reflect all adjustments, which are, in the
opinion of management, necessary to present a fair statement of the results
for the interim period. All such adjustments are of a normal, recurring
nature. The percentage of the Trust owned by the Fund at December 31, 2005 was
99.9%. The Fund offers multiple classes of shares. Effective December 28,
2005, Class I Shares are no longer subject to a front-end sales charge. Class
A Shares are sold with a front-end sales charge. Shares of Class B and Class C
may be subject to a contingent deferred sales charge. Class I Shares are sold
only to certain retirement plans and investment programs and existing Class I
shareholders. Class R Shares are sold only to certain retirement plans. All
classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that Class A, Class B, Class
C and Class R Shares bear certain expenses related to the account maintenance
of such shares, and Class B, Class C and Class R Shares also bear certain
expenses related to the distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to its account maintenance and
distribution expenditures (except that Class B shareholders may vote on
certain changes to the Class A distribution plan). Income, expenses (other
than expenses attributable to a specific class) and realized and unrealized
gains and losses 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
1(a) 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 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.
The Fund may pay a monthly investment advisory fee based upon the average
daily value of the Fund's net assets at the following annual rates: .60% of
the Fund'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. However, the
Investment Adviser has entered into a contractual agreement with the Fund
pursuant to which the investment advisory fee will not be charged to the Fund
so long as the Fund remains invested in the Trust. As a result, the investment
advisory fee has not been accrued and will not be payable by the Fund for the
period covered by this report.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Notes to Financial Statements (continued) Merrill Lynch Basic Value Fund, Inc.
FAM compensated the Trust and the allocated portion to the Fund is
approximately $1,376,400 as a result of a securities class action entitlement
recovery and approximately $5,978,300 as a result of a corporate action.
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 as follows:
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
Class R .25% .25%
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, also provides
account maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders.
The ongoing distribution fee compensates the Distributor and MLPF&S for
providing shareholder and distribution-related services to Class B, Class C
and Class R shareholders.
For the six months ended December 31, 2005, FAMD earned underwriting discounts
and direct commissions and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class I Shares as follows:
FAMD MLPF&S
Class A $ 28,411 $ 362,744
Class I $ 5,209 $ 52,834
For the six months ended December 31, 2005, additionally, MLPF&S received
contingent deferred sales charges of $455,138 and $47,909 relating to
transactions in Class B and Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), is the Fund's transfer agent.
Certain officers and/or directors of the Fund are officers and/or directors of
FAMD, FAM, PSI, FDS, and/or ML & Co.
3. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$328,831,444 and $337,437,451 for the six months ended December 31, 2005 and
for the year ended June 30, 2005, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
December 31, 2005 Shares Amount
Shares sold 2,972,752 $ 91,711,735
Automatic conversion of shares 3,375,307 104,143,562
Shares issued to shareholders in
reinvestment of dividends and
distributions 3,956,309 122,304,906
--------------- ---------------
Total issued 10,304,368 318,160,203
Shares redeemed (9,715,922) (299,203,654)
--------------- ---------------
Net increase 588,446 $ 18,956,549
=============== ===============
Class A Shares for the Year Dollar
Ended June 30, 2005 Shares Amount
Shares sold 8,300,055 $ 255,797,925
Automatic conversion of shares 6,496,022 200,664,446
Shares issued to shareholders in
reinvestment of dividends and
distributions 3,643,838 108,295,384
--------------- ---------------
Total issued 18,439,915 564,757,755
Shares redeemed (16,237,018) (500,924,244)
--------------- ---------------
Net increase 2,202,897 $ 63,833,511
=============== ===============
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Notes to Financial Statements (concluded) Merrill Lynch Basic Value Fund, Inc.
Class B Shares for the
Six Months Ended Dollar
December 31, 2005 Shares Amount
Shares sold 1,447,557 $ 43,751,291
Shares issued to shareholders in
reinvestment of dividends and
distributions 1,817,156 55,133,538
--------------- ---------------
Total issued 3,264,713 98,884,829
--------------- ---------------
Automatic conversion of shares (3,444,202) (104,143,562)
Shares redeemed (5,668,405) (171,199,265)
--------------- ---------------
Total redeemed (9,112,607) (275,342,827)
--------------- ---------------
Net decrease (5,847,894) $ (176,457,998)
=============== ===============
Class B Shares for the Year Dollar
Ended June 30, 2005 Shares Amount
Shares sold 4,873,763 $ 146,971,279
Shares issued to shareholders in
reinvestment of dividends and
distributions 2,167,927 63,264,900
--------------- ---------------
Total issued 7,041,690 210,236,179
--------------- ---------------
Automatic conversion of shares (6,621,714) (200,664,446)
Shares redeemed (11,818,181) (357,216,387)
--------------- ---------------
Total redeemed (18,439,895) (557,880,833)
--------------- ---------------
Net decrease (11,398,205) $ (347,644,654)
=============== ===============
Class C Shares for the
Six Months Ended Dollar
December 31, 2005 Shares Amount
Shares sold 2,224,065 $ 65,394,004
Shares issued to shareholders in
reinvestment of dividends and
distributions 1,267,545 37,460,641
--------------- ---------------
Total issued 3,491,610 102,854,645
Shares redeemed (3,171,290) (93,244,249)
--------------- ---------------
Net increase 320,320 $ 9,610,396
=============== ===============
Class C Shares for the Year Dollar
Ended June 30, 2005 Shares Amount
Shares sold 6,513,275 $ 191,855,719
Shares issued to shareholders in
reinvestment of dividends and
distributions 1,111,391 31,741,387
--------------- ---------------
Total issued 7,624,666 223,597,106
Shares redeemed (4,889,157) (144,552,781)
--------------- ---------------
Net increase 2,735,509 $ 79,044,325
=============== ===============
Class I Shares for the
Six Months Ended Dollar
December 31, 2005 Shares Amount
Shares sold 4,988,459 $ 154,328,344
Shares issued to shareholders in
reinvestment of dividends and
distributions 7,232,379 224,517,088
--------------- ---------------
Total issued 12,220,838 378,845,432
Shares redeemed (18,206,689) (561,741,829)
--------------- ---------------
Net decrease (5,985,851) $ (182,896,397)
=============== ===============
Class I Shares for the Year Dollar
Ended June 30, 2005 Shares Amount
Shares sold 16,023,285 $ 495,781,348
Shares issued to shareholders in
reinvestment of dividends and
distributions 7,112,367 212,097,286
--------------- ---------------
Total issued 23,135,652 707,878,634
Shares redeemed (27,459,560) (851,852,034)
--------------- ---------------
Net decrease (4,323,908) $ (143,973,400)
=============== ===============
Class R Shares for the
Six Months Ended Dollar
December 31, 2005 Shares Amount
Shares sold 168,329 $ 5,098,444
Shares issued to shareholders in
reinvestment of dividends and
distributions 51,206 1,550,612
--------------- ---------------
Total issued 219,535 6,649,056
Shares redeemed (155,862) (4,693,050)
--------------- ---------------
Net increase 63,673 $ 1,956,006
=============== ===============
Class R Shares for the Year Dollar
Ended June 30, 2005 Shares Amount
Shares sold 612,618 $ 18,597,681
Shares issued to shareholders in
reinvestment of dividends and
distributions 35,703 1,047,937
--------------- ---------------
Total issued 648,321 19,645,618
Shares redeemed (275,451) (8,342,851)
--------------- ---------------
Net increase 372,870 $ 11,302,767
=============== ===============
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Portfolio Information Master Basic Value Trust
As of December 31, 2005
Percent of
Ten Largest Common Stock Holdings Net Assets
JPMorgan Chase & Co. 4.1%
Exxon Mobil Corp. 3.9
Wells Fargo & Co. 3.7
Morgan Stanley 3.5
GlobalSantaFe Corp. 3.1
International Business Machines Corp. 2.7
Time Warner, Inc. 2.7
Tyco International Ltd. 2.5
Raytheon Co. 2.4
Bank of America Corp. 2.3
Percent of
Total
Investment Criteria Investments
Low Price-to-Book Value 30.2%
Above-Average Yield 27.9
Below-Average Price/Earnings Ratio 25.4
Special Situations 8.7
Price to Earnings Per Share 0.8
Other* 7.0
* Includes portfolio holdings in short-term investments
and options.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Schedule of Investments Master Basic Value Trust
Percent of
Industry Shares Held Common Stocks Value Net Assets
Above-Average Yield
Diversified Telecommunication 3,751,700 AT&T, Inc. $ 91,879,133 1.2%
Services
Metals & Mining 5,232,200 Alcoa, Inc. 154,716,154 2.0
Capital Markets 4,632,400 The Bank of New York Co., Inc. 147,541,940 1.9
Diversified Telecommunication 2,843,100 BellSouth Corp. (e) 77,048,010 1.0
Services
Multi-Utilities 754,800 Dominion Resources, Inc. 58,270,560 0.7
Chemicals 3,092,100 E.I. du Pont de Nemours & Co. 131,414,250 1.7
Oil, Gas & Consumable Fuels 5,423,600 Exxon Mobil Corp. 304,643,612 3.9
Electric Utilities 383,700 FPL Group, Inc. 15,946,572 0.2
Industrial Conglomerates 4,000,000 General Electric Co. 140,200,000 1.8
Food Products 3,191,000 General Mills, Inc. 157,380,120 2.0
Pharmaceuticals 2,562,900 GlaxoSmithKline Plc (b)(e) 129,375,192 1.6
Aerospace & Defense 3,695,300 Honeywell International, Inc. 137,649,925 1.8
Diversified Financial Services 8,079,792 JPMorgan Chase & Co. (e) 320,686,944 4.1
Capital Markets 2,449,200 Mellon Financial Corp. 83,885,100 1.1
Pharmaceuticals 3,822,000 Pfizer, Inc. 89,129,040 1.1
Multi-Utilities 1,595,200 Public Service Enterprise Group, Inc. 103,640,144 1.3
Oil, Gas & Consumable Fuels 904,200 Royal Dutch Shell Plc (b) 55,599,258 0.7
Electric Utilities 2,148,500 The Southern Co. (e) 74,187,705 0.9
Diversified Telecommunication 2,463,400 Verizon Communications, Inc. (e) 74,197,608 0.9
Services
--------------- -------
2,347,391,267 29.9
Below-Average Price/Earnings Ratio
Insurance 1,189,100 The Allstate Corp. 64,294,637 0.8
Insurance 2,304,300 American International Group, Inc. 157,222,389 2.0
Commercial Banks 3,980,600 Bank of America Corp. (e) 183,704,690 2.3
Health Care Equipment & Supplies 2,775,900 Baxter International, Inc. (e) 104,512,635 1.3
Diversified Financial Services 2,984,200 Citigroup, Inc. 144,823,226 1.8
Beverages 5,776,100 Coca-Cola Enterprises, Inc. 110,727,837 1.4
Insurance 4,411,100 Genworth Financial, Inc. Class A 152,535,838 1.9
Computers & Peripherals 4,698,200 Hewlett-Packard Co. (e) 134,509,466 1.7
Household Durables 4,097,000 Koninklijke Philips Electronics NV 127,416,700 1.6
Food Products 2,699,200 Kraft Foods, Inc. (e) 75,955,488 1.0
Consumer Finance 2,468,600 MBNA Corp. 67,022,490 0.9
Hotels, Restaurants & Leisure 3,337,300 McDonald's Corp. 112,533,756 1.4
Capital Markets 4,797,100 Morgan Stanley 272,187,454 3.5
Aerospace & Defense 2,496,600 Northrop Grumman Corp. 150,070,626 1.9
Pharmaceuticals 3,947,500 Schering-Plough Corp. (e) 82,305,375 1.1
Food Products 1,669,300 Unilever NV (b) 114,630,831 1.5
IT Services 13,631,175 Unisys Corp. (a) 79,469,750 1.0
--------------- -------
2,133,923,188 27.1
Low Price-to-Book Value
Communications Equipment 10,000,000 3Com Corp. (a) 36,000,000 0.5
Electronic Equipment 1,102,800 Agilent Technologies, Inc. (a) 37,065,070 0.5
& Instruments
Oil, Gas & Consumable Fuels 613,900 Anadarko Petroleum Corp. (e) 58,167,025 0.7
Media 3,356,200 Comcast Corp. Special Class A (a)(e) 86,220,778 1.1
Machinery 1,497,900 Deere & Co. 102,021,969 1.3
Energy Equipment & Services 1,153,000 Diamond Offshore Drilling 80,202,680 1.0
Energy Equipment & Services 5,087,300 GlobalSantaFe Corp. (e) 244,953,495 3.1
Energy Equipment & Services 1,224,000 Halliburton Co. (e) 75,839,040 1.0
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Schedule of Investments (continued) Master Basic Value Trust
Percent of
Industry Shares Held Common Stocks Value Net Assets
Low Price-to-Book Value
(concluded)
Insurance 1,004,900 Hartford Financial Services Group, Inc. $ 86,310,861 1.1%
Household Products 2,542,900 Kimberly-Clark Corp. 151,683,985 1.9
Semiconductors & Semiconductor 17,125,115 LSI Logic Corp. (a)(e) 137,000,920 1.7
Equipment
Communications Equipment 3,534,700 Motorola, Inc. (e) 79,848,873 1.0
Semiconductors & Semiconductor 3,897,200 Novellus Systems, Inc. (a) 94,000,464 1.2
Equipment
Aerospace & Defense 4,769,400 Raytheon Co. 191,491,410 2.4
Insurance 3,795,476 The St. Paul Travelers Cos., Inc. 169,543,913 2.2
Computers & Peripherals 31,309,400 Sun Microsystems, Inc. (a)(e) 131,186,386 1.7
Media 12,207,900 Time Warner, Inc. 212,905,776 2.7
Industrial Conglomerates 6,951,600 Tyco International Ltd. 200,623,176 2.5
Media 3,284,700 Walt Disney Co. (e) 78,734,259 1.0
Commercial Banks 4,577,000 Wells Fargo & Co. 287,572,910 3.7
--------------- -------
2,541,372,990 32.3
Price to Earnings Per Share
Insurance 969,500 XL Capital Ltd. Class A (e) 65,324,910 0.8
Special Situations
Semiconductors & Semiconductor 3,991,500 Applied Materials, Inc. (e) 71,607,510 0.9
Equipment
Energy Equipment & Services 2,685,300 BJ Services Co. (e) 98,469,951 1.3
Semiconductors & Semiconductor 5,514,900 Fairchild Semiconductor International,
Equipment Inc. (a)(e) 93,256,959 1.2
Specialty Retail 5,130,800 The Gap, Inc. (e) 90,507,312 1.2
Computers & Peripherals 2,605,500 International Business Machines Corp. 214,172,100 2.7
Media 11,658,800 Interpublic Group of Cos., Inc. (a)(e) 112,507,420 1.4
Communications Equipment 2,738,700 Nokia Oyj (b) 50,118,210 0.6
--------------- -------
730,639,462 9.3
Total Common Stocks
(Cost--$5,521,532,804) 7,818,651,817 99.4
Beneficial Interest Short-Term Securities
$ 78,010,981 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (c) 78,010,981 1.0
519,987,804 Merrill Lynch Liquidity Series, LLC
Money Market Series (c)(d) 519,987,804 6.6
Total Short-Term Securities
(Cost--$597,998,785) 597,998,785 7.6
Total Investments
(Cost--$6,119,531,589) 8,416,650,602 107.0
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Schedule of Investments (concluded) Master Basic Value Trust
Number of Percent of
Contracts Options Written Value Net Assets
Call Options Written 8,000 Diamond Offshore Drilling, expiring
January 2006 at USD 70 $ (1,840,000) 0.0%
70,000 Energy Select Sector SPDR Fund,
expiring March 2006 at USD 55,
Broker Deutsche Bank (5,772,200) (0.1)
GlobalSantaFe Corp.:
10,000 expiring January 2006 at USD 45 (2,950,000) (0.1)
3,000 expiring January 2006 at USD 47.5 (495,000) 0.0
McDonald's Corp.:
10,000 expiring March 2006 at USD 37.5 (600,000) 0.0
10,000 expiring March 2006 at USD 40 (300,000) 0.0
Total Options Written
(Premiums Received--$28,282,286) (11,957,200) (0.2)
Total Investments, Net of Options Written (Cost--$6,091,249,303*) 8,404,693,402 106.8
Liabilities in Excess of Other Assets (537,267,707) (6.8)
--------------- -------
Net Assets $ 7,867,425,695 100.0%
=============== =======
For Trust compliance purposes, the Trust's industry classifications refer to any one or more of the industry
sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as
defined by Trust management. This definition may not apply for purposes of this report, which may combine
industry sub-classifications for reporting ease. Industries are shown as a percent of net assets.
* The cost and unrealized appreciation (depreciation) of investments, net of options written, as of
December 31, 2005, as computed for federal income tax purposes, were as follows:
Aggregate cost $ 6,121,445,041
================
Gross unrealized appreciation $ 2,407,235,234
Gross unrealized depreciation (123,986,873)
----------------
Net unrealized appreciation $ 2,283,248,361
================
(a) Non-income producing security.
(b) Depositary receipts.
(c) Investments in companies considered to be an affiliate of the Trust, for purposes of Section 2(a)(3)
of the Investment Company Act of 1940, were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $(257,598,720) $ 911,970
Merrill Lynch Liquidity Series,
LLC Money Market Series $ 391,227,954 $ 113,819
(d) Security was purchased with the cash proceeds from securities loans.
(e) Security, or a portion of security, is on loan.
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Statement of Assets and Liabilities Master Basic Value Trust
As of December 31, 2005
Assets
Investments in unaffiliated securities, at value (including securities loaned
of $500,960,434) (identified cost--$5,521,532,804) $ 7,818,651,817
Investments in affiliated securities, at value (identified cost--$597,998,785) 597,998,785
Cash 11,846,341
Receivable from the investment adviser 5,984,099
Receivables:
Securities sold $ 49,542,579
Dividends 11,743,552
Contributions 6,748,345
Securities lending 23,465 68,057,941
---------------
Prepaid expenses 18,575
---------------
Total assets 8,502,557,558
---------------
Liabilities
Collateral on securities loaned, at value 519,987,804
Options written, at value (premiums received--$28,282,286) 11,957,200
Payables:
Withdrawals 68,785,900
Securities purchased 31,669,200
Investment adviser 2,488,503
Other affiliates 86,328 103,029,931
---------------
Accrued expenses and other liabilities 156,928
---------------
Total liabilities 635,131,863
---------------
Net Assets
Net assets $ 7,867,425,695
===============
Net Assets Consist of
Investors' capital $ 5,553,981,596
Unrealized appreciation--net 2,313,444,099
---------------
Net Assets $ 7,867,425,695
===============
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Statement of Operations Master Basic Value Trust
For the Six Months Ended December 31, 2005
Investment Income
Dividends (net of $415,777 foreign withholding tax) $ 81,340,812
Interest from affiliates 911,970
Securities lending--net 113,819
---------------
Total income 82,366,601
---------------
Expenses
Investment advisory fees $ 16,391,234
Accounting services 588,129
Custodian fees 162,634
Professional fees 113,104
Trustees' fees and expenses 27,139
Printing and shareholder reports 632
Pricing fees 632
Other 94,280
---------------
Total expenses 17,377,784
---------------
Investment income--net 64,988,817
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 254,819,668
Foreign currency transactions--net 17,368
Options written--net (34,103,899) 220,733,137
---------------
Net increase from payments by affiliates 6,201,084
Change in unrealized appreciation/depreciation on:
Investments--net (includes payment of $1,160,700 by affiliates) 168,713,774
Options written--net 16,700,720 185,414,494
--------------- ---------------
Total realized and unrealized gain--net 412,348,715
---------------
Net Increase in Net Assets Resulting from Operations $ 477,337,532
===============
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Statements of Changes in Net Assets Master Basic Value Trust
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2005 2005
Operations
Investment income--net $ 64,988,817 $ 138,365,657
Realized gain--net 226,934,221 601,504,174
Change in unrealized appreciation/depreciation--net 185,414,494 (412,242,871)
--------------- ---------------
Net increase in net assets resulting from operations 477,337,532 327,626,960
--------------- ---------------
Capital Transactions
Proceeds from contributions 360,400,909 1,525,901,828
Fair value of withdrawals (1,199,240,558) (2,371,841,107)
--------------- ---------------
Net decrease in net assets derived from capital transactions (838,839,649) (845,939,279)
--------------- ---------------
Net Assets
Total decrease in net assets (361,502,117) (518,312,319)
Beginning of period 8,228,927,812 8,747,240,131
--------------- ---------------
End of period $ 7,867,425,695 $ 8,228,927,812
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Financial Highlights Master Basic Value Trust
For the Six
Months Ended
The following ratios have been derived from December 31, For the Year Ended June 30,
information provided in the financial statements. 2005 2005 2004 2003 2002
Total Investment Return
Total investment return 6.03%*++ 3.91% 25.38% (.09%) (9.93%)
=========== =========== =========== =========== ===========
Ratios to Average Net Assets
Expenses .43%** .43% .43% .43% .42%
=========== =========== =========== =========== ===========
Investment income--net 1.60%** 1.63% 1.50% 1.66% 1.33%
=========== =========== =========== =========== ===========
Supplemental Data
Net assets, end of period (in thousands) $ 7,867,426 $ 8,228,928 $ 8,747,240 $ 7,388,495 $ 8,307,176
=========== =========== =========== =========== ===========
Portfolio turnover 21.65% 45.10% 33.32% 31.92% 38.15%
=========== =========== =========== =========== ===========
* For the six months ended December 31, 2005, +.09% of the Trust's total return consists of payments by the
Investment Adviser for compensation as a result of a securities class action entitlement recovery and a
result of a corporate action. Excluding these items, the total return would have been +5.94%.
** Annualized.
++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
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 U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period.
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--Equity securities that are held by the Trust
that are traded on stock exchanges or the Nasdaq National Market are valued at
the last sale price or official close price on the exchange, as of the close
of business on the day the securities are being valued or, lacking any sales,
at the last available bid price for long positions, and at the last available
asked price for short positions. In cases where equity securities are traded
on more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the Board of
Trustees of the Trust. Long positions traded in the over-the-counter ("OTC")
market, Nasdaq Small Cap or Bulletin Board are valued at the last available
bid price or yield equivalent obtained from one or more dealers or pricing
services approved by the Board of Trustees of the Trust. Short positions
traded in the OTC market are valued at the last available asked price.
Portfolio securities that are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of exchange-
traded options or, in the case of options traded in the OTC market, the last
asked price. Options purchased are valued at their last sale price in the case
of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued based upon quoted fair
valuations received daily by the Trust from a pricing service or counterparty.
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Trust
employs pricing services to provide certain securities prices for the Trust.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Trust, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trust's Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed each day
at various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of
the Trust are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close
of business on the NYSE that may not be reflected in the computation of the
Trust's net assets. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected
to materially affect the value of such securities, those securities may be
valued at their fair value as determined in good faith by the Trust's Board of
Trustees or by the Investment Adviser using a pricing service and/or
procedures approved by the Trust's Board of Trustees.
(b) Derivative financial instruments--The Trust may engage in various
portfolio investment strategies both to increase the return of the Trust and
to hedge, or protect, its exposure to interest rate movements and movements in
the securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Notes to Financial Statements (continued) Master Basic Value Trust
* Options--The Trust may purchase and write covered call and put options. When
the Trust writes an option, an amount equal to the premium received by the
Trust is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added
to) the proceeds of the security sold. When an option expires (or the Trust
enters into a closing transaction), the Trust realizes a gain or loss on the
option to the extent of the premiums received or paid (or gain or loss to the
extent the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized.
Assets and liabilities denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency transactions are the
result of settling (realized) or valuing (unrealized) assets or liabilities
expressed in foreign currencies into U.S. dollars. Realized and unrealized
gains or losses on investments include the effects of foreign exchange rates
on investments. The Trust invests in foreign securities, which may involve a
number of risk factors and special considerations not present with investments
in securities of U.S. corporations.
(d) Income taxes--The Trust is classified as a partnership for federal income
tax purposes. As such, each investor in the Trust is treated as owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Trust. Therefore, no federal income tax
provision is required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends and capital gains at various rates. It
is intended that the Trust's assets will be managed so an investor in the
Trust can satisfy the requirements of Subchapter M of the Internal Revenue
Code.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(f) Securities lending--The Trust may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
The market value of the loaned securities is determined at the close of
business of the Trust and any additional required collateral is delivered to
the Trust on the next business day. Where the Trust receives securities as
collateral for the loaned securities, it collects a fee from the borrower.
The Trust typically receives the income on the loaned securities but does
not receive the income on the collateral. Where the Trust receives cash
collateral, it may invest such collateral and retain the amount earned on such
investment, net of any amount rebated to the borrower. Loans of securities are
terminable at any time and the borrower, after notice, is required to return
borrowed securities within five business days. The Trust may pay reasonable
finder's, lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Trust
could experience delays and costs in gaining access to the collateral. The
Trust also could suffer a loss where the value of the collateral falls below
the market value of the borrowed securities, in the event of borrower default
or in the event of losses on investments made with cash collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Trust's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Trust. For such services, the Trust pays a
monthly fee upon the average daily value of the Trust's net assets at the
following annual rates: .60% of the Trust's average net assets not exceeding
$100 million; .50% of average daily net assets in excess of $100 million but
not exceeding $200 million; and .40% of average daily net assets in excess
of $200 million.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Notes to Financial Statements (concluded) Master Basic Value Trust
FAM compensated the Trust approximately $1,377,700 as a result of a securities
class action entitlement recovery and approximately $5,984,000 as a result of
a corporate action. Approximately $1,200,000 of the $1,377,700 resulted in the
cost basis adjustment of a security as a result of this class action
entitlement.
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"), an affiliate of FAM, or its
affiliates. As of December 31, 2005, the Trust lent securities with a value of
$145,179,426 to MLPF&S or its affiliates. Pursuant to that order, the Trust
also has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an
affiliate of FAM, as the securities lending agent for a fee based on a share
of the returns on investment of cash collateral. MLIM, LLC may, on behalf of
the Trust, invest cash collateral received by the Trust for such loans, among
other things, in a private investment company managed by MLIM, LLC or in
registered money market funds advised by FAM or its affiliates. For the six
months ended December 31, 2005, MLIM, LLC received $50,851 in securities
lending agent fees.
In addition, MLPF&S received $1,167,776 in commissions on the execution of
portfolio security transactions for the Trust for the six months ended
December 31, 2005.
For the six months ended December 31, 2005, the Trust reimbursed FAM $83,603
for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
six months ended December 31, 2005 were $1,733,468,617 and $2,277,208,722,
respectively.
Transactions in call options written for the six months ended December 31,
2005 were as follows:
Number of Premiums
Contracts Received
Outstanding call options written,
beginning of period 30,400 $ 4,796,366
Options written 193,630 42,574,460
Options closed (87,000) (17,243,866)
Options expired (26,030) (1,844,674)
--------------- ---------------
Outstanding call options written,
end of period 111,000 $ 28,282,286
=============== ===============
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 a group of lenders. The
Trust may borrow under the credit agreement to fund shareholder redemptions
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 .07% 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 Trust's election, the federal funds rate plus .50% or a base
rate as defined in the credit agreement. The Trust did not borrow under the
credit agreement during the six months ended December 31, 2005. On November
23, 2005, the credit agreement was renewed for one year under substantially
the same terms.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Disclosure of Investment Advisory Agreement
Activities and Composition of the Board of Directors/Trustees
All but one member of the Fund's Board of Directors and Master Basic Value
Trust's (the "Trust") Board of Trustees, the members of which are identical,
is a non-interested director and trustee as that term is defined in the
Investment Company Act of 1940, whose only association with Fund Asset
Management, L.P., (the "Investment Adviser") or other Merrill Lynch affiliates
is as a director and trustee of the Fund and the Trust, and of certain other
funds advised by the Investment Adviser or its affiliates. We refer to these
persons as independent directors throughout this report. The Chairman of each
Board is an independent director and nominees to become independent directors
are chosen by a Nominating Committee comprised of independent directors. All
independent directors also are members of each Board's Audit Committee. The
independent directors meet in executive session at each regular Board meeting.
Each Board and each Board's Audit Committee meet in person for at least two
days each quarter and conduct other in-person and telephone meetings
throughout the year, some of which are formal Board meetings and some of which
are informational meetings. Independent counsel to the independent directors
attends all in-person Board and Audit Committee meetings and other meetings at
the request of the independent directors.
Investment Advisory Agreements--Matters Considered by the Board
Every year, each Board considers approval of the investment advisory agreement
with respect to the Trust and the Fund (together, the "Investment Advisory
Agreement") and throughout each year, reviews and evaluates the performance of
and services provided by the Investment Adviser. Each Board assesses the
nature, scope and quality of the services provided to the Trust and/or the
Fund by the personnel of the Investment Adviser and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory
requirements. Each Board also receives and assesses information regarding the
services provided to the Trust and the Fund by certain unaffiliated service
providers.
At various times throughout the year, each Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates. Among the matters considered with
respect to each Fund are: (a) fees (in addition to management fees) paid to
the Investment Adviser and its affiliates by the Trust and the Fund, such as
transfer agency fees and fees for marketing and distribution; (b) Trust/Fund
operating expenses paid to third parties; (c) the resources devoted to and
compliance reports relating to the Trust's and the Fund's investment
objective, policies and restrictions, and the Trust's or the Fund's compliance
with its respective Code of Ethics and the Investment Adviser's compliance
policies and procedures; and (d) the nature, cost and character of non-
investment management services provided by the Investment Adviser and its
affiliates.
Each Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall quality of services
provided by the Investment Adviser to be of high quality. Each Board also
believes that the Investment Adviser is financially sound and well managed and
notes that the Investment Adviser is affiliated with one of America's largest
financial firms. Each Board works closely with the Investment Adviser in over-
seeing the Investment Adviser's efforts to achieve good performance. As part
of this effort, each Board discusses portfolio manager effectiveness and, when
performance is not satisfactory, discusses with the Investment Adviser taking
steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Directors/Trustees
In the period prior to the Board meeting to consider renewal of the Investment
Advisory Agreement, each Board requests and receives materials specifically
relating to the Investment Advisory Agreement. These materials include (a)
information compiled by Lipper Inc. ("Lipper") on the fees and expenses and
the investment performance of the Fund as compared to a comparable group of
funds as classified by Lipper; (b) sales and redemption data for the Fund; (c)
a discussion by the Trust's/Fund's portfolio management team regarding
investment strategies used by the Trust/Fund during its most recent fiscal
year; (d) information on the profitability to the Investment Adviser and its
affiliates of the Investment Advisory Agreement, and other relationships with
the Trust and the Fund; and (e) information provided by the Investment Adviser
concerning investment advisory fees charged to institutional clients under
similar investment mandates. The Board also considers other matters it deems
important to the approval process such as payments made to the Investment
Adviser or its affiliates relating to the distribution of Fund shares,
services related to the valuation and pricing of portfolio holdings,
allocation of brokerage fees of the Fund (including the related benefits to
the Investment Adviser of "soft dollars"), the portfolio turnover statistics
of the Fund, and direct and indirect benefits to the Investment Adviser and
its affiliates from their relationship with the Trust and the Fund.
Certain Specific Renewal Data
In connection with the most recent renewal of the Trust's/Fund's Investment
Advisory Agreements in November 2005, the non-interested Directors'/Trustees'
and Board's review included the following:
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Disclosure of Investment Advisory Agreement (concluded)
The Investment Adviser's Services and Fund Performance--Each Board reviewed
the nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of
the Fund. Each Board focused primarily on the Investment Adviser's investment
advisory services and the Fund's investment performance. Each Board compared
the Fund's performance - both including and excluding the effects of the fees
and expenses of the Trust and the Fund - to the performance of a comparable
group of mutual funds, and the performance of a relevant index or combination
of indexes. While each Board reviews performance data at least quarterly,
consistent with the Investment Adviser's investment goals, the Board attaches
more importance to performance over relatively long periods of time, typically
three to five years. For the periods ended August 31, 2005, the Fund's
performance after fees and expenses ranked in the fourth quintile for the one-
year period and in the second quintile for the three- and five-year periods.
Considering these factors, the Board concluded that the nature and quality of
these services supported the continuation of the Investment Advisory
Agreements.
The Investment Adviser's Personnel and Investment Process--Each Board reviewed
the investment objectives and strategies of the Trust and the Fund. Each Board
discussed with senior management of the Investment Adviser responsible for
investment operations and the senior management of the Investment Adviser's
equity investing group the strategies being used to achieve the stated
objectives. Among other things, each Board considered the size, education and
experience of the Investment Adviser's investment staff, its use of
technology, and the Investment Adviser's approach to training and retaining
portfolio managers and other research, advisory and management personnel.
The Board also reviews the Investment Adviser's compensation policies and
practices with respect to the Trust's/Fund's portfolio managers. The Board
also considered the experience of the Trust's/Fund's co-portfolio management
team and noted that Mr. Martorelli and Mr. Rendino, the Trust's/Fund's
co-portfolio managers, have over twenty and seventeen years' experience in
portfolio management, respectively. Moreover, the Investment Adviser and its
investment staff have extensive experience in analyzing and managing the types
of investments used by the Fund. The Board concluded that the Fund benefits
from that expertise.
Management Fees and Other Expenses - Each Board reviewed the Trust's and
the Fund's contractual management fee rate and actual management fee rate
as a percentage of total assets at common asset levels - the actual rate
includes advisory and administrative service fees and the effects of any fee
waivers - compared to the other funds in its Lipper category. It also compared
the Trust's/Fund's total expenses to those of other comparable funds. Each
Board considered the services provided to and the fees charged by the
Investment Adviser to institutional clients with similar investment mandates
and noted that the fees charged by the Investment Adviser to the institutional
clients were less than those being charged to the Trust and the Fund, but
determined that the Investment Adviser provided less extensive services to the
institutional clients. The Board noted that Fund's contractual and actual
management fee rates, as well as its total expenses, were below the median
management fees and total expenses charged by comparable funds, as determined
by Lipper. The Board has concluded that the Fund's management fee rate and
overall expense ratio are reasonable when compared to those of other
comparable funds.
Profitability--The Board considered the cost of the services provided to the
Trust and/or the Fund by the Investment Adviser and the Investment Adviser's
and its affiliates' profits relating to the management and distribution of the
Fund and the MLIM/FAM-advised funds. As part of its analysis, the Board
reviewed the Investment Adviser's methodology in allocating its costs to the
management of the Trust and the Fund and concluded that there was a reasonable
basis for the allocation. The Board considered federal court decisions
discussing an investment adviser's profitability and profitability levels
considered to be reasonable in those decisions. The Board believes the
Investment Adviser's profits are reasonable in relation to the nature and
quality of services provided.
Economies of Scale--The Boards considered the extent to which economies of
scale might be realized as the assets of the Trust and Fund increase and
whether there should be changes in the management fee rate or structure in
order to enable the Trust and the Funds to participate in these economies of
scale. While there was no evidence to date that the Trust's/Fund's assets
have reached a level where such economies are effectively available, the
Boards noted that the Trust and the Fund have breakpoints in place, and will
continue to seek information relating to economies of scale. The Boards
determined that the management fee structure was reasonable and that no
changes were currently necessary.
Conclusion
After the independent directors deliberated in executive session, the Board of
the Trust and of the Fund including all of the independent directors, approved
the renewal of the existing Investment Advisory Agreement, concluding that the
advisory fee was reasonable in relation to the services provided and that a
contract renewal was in the best interests of the shareholders.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Officers and Directors/Trustees
Robert C. Doll, Jr., President and Director/Trustee
Donald W. Burton, Director/Trustee
Laurie Simon Hodrick, Director/Trustee
John Francis O'Brien, Director/Trustee
David H. Walsh, Director/Trustee
Fred G. Weiss, Director/Trustee
Donald C. Burke, Vice President and Treasurer
Robert J. Martorelli, Vice President and
Co-Portfolio Manager
Kevin M. Rendino, Vice President and
Co-Portfolio Manager
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH BASIC VALUE FUND, INC. DECEMBER 31, 2005
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-
annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Basic Value Fund, Inc. and Master Basic Value Trust
By: /s/ Robert C. Doll, Jr.
-----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Basic Value Fund, Inc. and Master Basic Value Trust
Date: February 21, 2006
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/ Robert C. Doll, Jr.
-----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Basic Value Fund, Inc. and Master Basic Value Trust
Date: February 21, 2006
By: /s/ Donald C. Burke
-----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Basic Value Fund, Inc. and Master Basic Value Trust
Date: February 21, 2006