MERRILL LYNCH
BASIC VALUE
FUND, INC.
FUND LOGO
Annual Report
June 30, 1997
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.
<PAGE>
Merrill Lynch
Basic Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH BASIC VALUE FUND, INC.
TO OUR SHAREHOLDERS
Shifting investor perceptions regarding the direction of the US
economy brought continued volatility to the US financial markets
during much of the quarter ended June 30, 1997. Increasing evidence
of noninflationary economic growth boosted investor confidence,
which was confirmed further shortly after the quarter's close when,
as widely expected, the Federal Reserve Board (FRB) chose to leave
monetary policy unchanged. This confluence of positive indicators
helped produce a significant rally in the US stock market. The
unmanaged Standard & Poor's 500 Composite Average, led by its 50
largest issues (in terms of stock market capitalization), generated
a +17.43% total return for the second quarter of 1997. A slight
decline in interest rates during the quarter resulted in a modest
positive total return for US fixed-income investments.
Current consensus expectations are for the US economy's rate of
growth to lose some momentum. Although gross domestic product growth
for the first quarter of the year was revised slightly upward to
5.9%, there are indications that the second quarter's rate of growth
will be lower. At the same time, inflationary pressures remain
contained, supported by the June employment report showing moderate
growth in wages along with a slight increase in unemployment. It
remains to be seen whether economic activity moderates enough to
rule out future FRB monetary policy tightenings.
The US dollar continued to be strong relative to other currencies.
In Europe, investors are uncertain regarding the viability of
economic and monetary union, while scandals continue to depress
investor confidence in Japan. At present, it appears that the US
economy is perceived most favorably by investors for its ongoing
growth and limited inflationary pressures. If economic data releases
continue to support this point of view, the outlook for the US
capital markets will remain positive.
<PAGE>
Portfolio Matters
Security purchases during the second quarter of 1997 amounted to
$384 million, while equity sales totaled $342 million. Most of the
purchases were accomplished early in the June quarter, when the
stock market was in the midst of a price correction of about 10%,
the largest decline in equity values in about six years. The ensuing
recovery in stock prices was dramatic, and the bulk of the sales
occurred late in the quarter ended June 30, 1997.
Price volatility during the June quarter was extreme, about 20% for
the stock market averages from the low in April to the late June
high. These wide price swings led to our both buying and selling
some of the same stocks during the quarter, an unusual occurrence
for the Fund. We added to Citicorp, Deere & Company, Ford Motor Co.,
Ingersoll-Rand Co., International Business Machines Corp.,
International Paper Co. and Merck & Co., Inc. during the early
quarter weakness, and also sold portions of each on subsequent late
quarter strength. The gains on these transactions averaged a 16%
profit.
Virtually all of the quarterly purchases were additions to existing
positions. In all, we added to 29 holdings with the largest
purchases in Wells Fargo & Company, Citicorp, du Pont (E.I.) de
Nemours & Co., Ameritech Corporation and Digital Equipment Corp.
Banks were our largest industry commitments, accounting for 29% of
purchases. We added to each of our four bank holdings on price
weakness related to interest rate concerns, which have failed to
materialize thus far.
On the sell side, we reduced positions in 17 holdings including the
aforementioned seven securities that we both bought and sold during
the volatile June quarter. Our largest sale was a continuing
reduction in Texas Instruments, Inc. We also cut back further in
Philip Morris Companies Inc. Overall, on the cumulative second
quarter sales, we recorded profits of over 100%.
Fiscal Year in Review
The Fund provided shareholders with a favorable and highly
competitive total return for the 1997 fiscal year, but underperformed
relative to the S&P 500 Index.
On average our ten largest holdings, which account for 26% of the
portfolio, substantially outperformed the market with an average 51%
gain for the 12 months ended June 30, 1997. There is, of course, a
bias toward the largest positions, as successful stocks tend to
become major positions. A case in point is Philips Electronics N.V.
which more than doubled in price during the fiscal year and went
from the Fund's twentieth largest holding to the seventh.
Nonetheless, the ten largest equities contributed substantially,
with eight out of ten beating the market averages.
<PAGE>
Energy, our largest industry commitment at 17% of the portfolio,
generally performed well, with most of the largest positions handily
outperforming the market. Insurance stocks, at 7% of the portfolio,
were well above-average contributors, especially the two largest:
The Allstate Corp. and Travelers Inc.
Our defensive high-yielding issues, such as electric utilities and
telephones, generally underperformed the market and impeded
performance. Also, our cash position of 15% of net assets on average
negatively impacted performance in the recent strong equity
environment.
For the fiscal year ended June 30, 1997, we purchased $1.6 billion
in equities and sold $950 million, a difference of $650 million. New
money invested in the Fund totaled $945 million. Our cash position
declined to 13.4% of net assets at fiscal year-end from 18.7% at
June 30, 1996. Total Fund assets increased to $10.2 billion from
$7.5 billion a year earlier.
Twenty Year Anniversary
Merrill Lynch Basic Value Fund, Inc. completed its twentieth year of
operations on June 30, 1997. Fund assets at inception were $82
million, and the initial offering was considered a success. It took
almost ten years to reach the first billion dollar mark (February 6,
1987). As the popularity of mutual funds accelerated, so did the
Fund's growth. Assets have more than tripled in the past four years
($3.4 billion on June 28, 1993), and have doubled in a little more
than two years ($5 billion on April 21, 1995).
Clearly, the explosive growth of mutual fund assets has been a
significant ingredient in the unprecedented stock market advance of
recent years. And while the Fund's growth has not been unique, what
is somewhat unusual is that the two signatures at the end of this
report are the same as they were 20 years ago.
In Conclusion
Thank you for your investment in Merrill Lynch Basic Value Fund,
Inc., and we look forward to reviewing our outlook and strategy
again in our upcoming quarterly report to shareholders.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Paul M. Hoffmann)
Paul M. Hoffmann
Vice President and Portfolio Manager
July 29, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
<PAGE>
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
6/30/97 3/31/97 6/30/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Basic Value Fund Class A Shares* $36.50 $31.89 $30.22 +26.58%(1) +14.46%
ML Basic Value Fund Class B Shares* 35.89 31.44 29.76 +26.46(1) +14.15
ML Basic Value Fund Class C Shares* 35.59 31.18 29.56 +26.30(1) +14.14
ML Basic Value Fund Class D Shares* 36.42 31.84 30.16 +26.56(1) +14.38
Dow Jones Industrial Average** 7,672.79 6,583.48 5,654.63 +35.69 +16.55
Standard & Poor's 500 Index** 885.14 757.12 670.63 +31.99 +16.91
ML Basic Value Fund Class A Shares--Total Return* +29.95(2) +14.46
ML Basic Value Fund Class B Shares--Total Return* +28.61(3) +14.15
ML Basic Value Fund Class C Shares--Total Return* +28.60(4) +14.14
ML Basic Value Fund Class D Shares--Total Return* +29.65(5) +14.38
Dow Jones Industrial Average--Total Return** +38.54 +17.09
Standard & Poor's 500 Index--Total Return** +34.65 +17.43
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
**An unmanaged broad-based index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
(1)Percent change includes reinvestment of $1.392 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.805 per share ordinary
income dividends and $1.392 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.510 per share ordinary
income dividends and $1.392 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.540 per share ordinary
income dividends and $1.392 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.736 per share ordinary
income dividends and $1.392 per share capital gains distributions.
</TABLE>
<PAGE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
Class A Shares
A line graph depicting the growth of an investment in the Fund's Class A
Shares compared to growth of an investment in the S&P 500 Index. Beginning
and ending values are:
6/87 6/97
ML Basic Value Fund, Inc.++--
Class A Shares* $ 9,475 $33,053
S&P 500 Index++++ $10,000 $39,281
Class B Shares
A line graph depicting the growth of an investment in the Fund's Class B
Shares compared to growth of an investment in the S&P 500 Index. Beginning
and ending values are:
10/21/88** 6/97
ML Basic Value Fund, Inc.++--
Class B Shares* $10,000 $29,929
S&P 500 Index++++ $10,000 $40,118
Class C & Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C
Shares and Class D Shares compared to growth of an investment in the
S&P 500 Index. Beginning and ending values are:
10/21/94** 6/97
ML Basic Value Fund, Inc.++--
Class C Shares* $10,000 $17,643
ML Basic Value Fund, Inc.++--
Class D Shares* $ 9,475 $17,078
S&P 500 Index++++ $10,000 $20,253
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of Operations.
++ML Basic Value Fund, Inc. invests in securities, primarily equities,
that management of the Fund believes are undervalued and therefore
represent basic investment value.
++++This unmanaged broad-based Index is comprised of common stocks.
Past performance is not predictive of future performance.
PERFORMANCE DATA (continued)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +29.95% +23.13%
Five Years Ended 6/30/97 +18.99 +17.71
Ten Years Ended 6/30/97 +13.31 +12.70
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +28.61% +24.61%
Five Years Ended 6/30/97 +17.78 +17.78
Inception (10/21/88) through 6/30/97 +13.44 +13.44
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/97 +28.60% +27.60%
Inception (10/21/94)
through 6/30/97 +23.50 +23.50
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/97 +29.65% +22.84%
Inception (10/21/94)
through 6/30/97 +24.48 +22.01
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
7/1/77--12/31/77 $ 9.60 $ 9.91 -- -- + 3.23%
1978 9.91 9.61 $ 0.270 $ 0.490 + 4.65
1979 9.61 11.46 0.460 0.550 +31.24
1980 11.46 12.46 0.940 0.600 +23.92
1981 12.46 10.62 1.370 0.690 + 1.12
1982 10.62 12.28 0.310 0.680 +28.25
1983 12.28 14.31 0.920 0.610 +30.52
1984 14.31 13.38 1.130 0.680 + 7.08
1985 13.38 15.79 1.020 0.640 +32.17
1986 15.79 17.06 0.860 0.580 +17.86
1987 17.06 15.75 1.338 0.973 + 4.36
1988 15.75 17.90 0.655 0.749 +22.73
1989 17.90 19.94 0.226 0.872 +17.54
1990 19.94 16.09 0.303 0.969 -13.07
1991 16.09 19.36 0.272 0.772 +27.23
1992 19.36 20.34 0.325 0.680 +10.36
1993 20.34 23.37 0.726 0.702 +22.16
1994 23.37 22.35 0.784 0.692 + 1.97
1995 22.35 28.31 0.511 0.820 +32.90
1996 28.31 31.00 1.392 0.805 +17.81
1/1/97--6/30/97 31.00 36.50 -- -- +17.74
------- -------
Total $13.812 Total $13.554
Cumulative total return as of 6/30/97: +1,993.11%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/88--12/31/88 $18.78 $17.89 $0.352 $0.361 - 0.91%
1989 17.89 19.83 0.226 0.756 +16.33
1990 19.83 16.01 0.303 0.781 -13.92
1991 16.01 19.25 0.272 0.583 +25.91
1992 19.25 20.21 0.325 0.481 + 9.24
1993 20.21 23.19 0.726 0.484 +20.93
1994 23.19 22.15 0.784 0.464 + 0.88
1995 22.15 28.02 0.511 0.571 +31.60
1996 28.02 30.63 1.392 0.510 +16.58
1/1/97--6/30/97 30.63 35.89 -- -- +17.17
------ ------
Total $4.891 Total $4.991
Cumulative total return as of 6/30/97: +199.29%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $22.92 $22.07 $0.099 $0.329 - 1.81%
1995 22.07 27.84 0.511 0.639 +31.59
1996 27.84 30.38 1.392 0.540 +16.56
1/1/97--6/30/97 30.38 35.59 -- -- +17.15
------ ------
Total $2.002 Total $1.508
Cumulative total return as of 6/30/97: +76.43%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $23.19 $22.35 $0.099 $0.353 - 1.64%
1995 22.35 28.29 0.511 0.770 +32.57
1996 28.29 30.96 1.392 0.736 +17.50
1/1/97--6/30/97 30.96 36.42 -- -- +17.64
------ ------
Total $2.002 Total $1.859
Cumulative total return as of 6/30/97: +80.23%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
PERFORMANCE DATA (concluded)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% current sales charge--$947.50 net amount invested; assuming
reinvestment of all dividends and capital gains distributions)
A mountain chart depicting the growth of an investment in the
Fund's Class A Shares from $947.50 on July 1, 1977 to $19,832.22
on June 30, 1997.
PORTFOLIO INFORMATION
Percent of
Ten Largest Stock Holdings Net Assets
International Business Machines Corp. 3.5%
Citicorp 3.0
Exxon Corp. 2.8
Mobil Corp. 2.7
Royal Dutch Petroleum Co. (ADR) 2.7
Deere & Company 2.4
Philips Electronics N.V. (ADR) 2.2
duPont (E.I.) de Nemours & Co. 2.2
The Allstate Corp. 2.1
Ford Motor Co. 2.1
<PAGE>
Portfolio Changes for the Quarter
Ended June 30, 1997
Addition
*Hartford Life, Inc. (Class A)
Deletions
The Energy Group PLC (ADR)
*Hartford Life, Inc. (Class A)
<FN>
*Added and deleted in the same quarter.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industry Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Low Price to Book Value
Metals/Non-Ferrous 1,400,000 ASARCO Inc. $ 36,667,971 $ 42,875,000 0.4%
Savings & Loans 1,900,000 Ahmanson (H.F.) & Co. 41,425,084 81,700,000 0.8
Insurance 2,500,000 American General Corp. 54,530,936 119,375,000 1.2
Insurance 260,000 American National
Insurance Co. 9,749,442 22,685,000 0.2
Steel 4,900,000 ++Bethlehem Steel Corp. 66,610,783 51,143,750 0.5
Restaurants 3,900,000 Darden Restaurants, Inc. 36,505,673 35,343,750 0.3
Information Processing 4,200,000 ++Digital Equipment Corp. 160,300,507 148,837,500 1.5
Utilities--Electric 2,700,000 Entergy Corp. 62,093,373 73,912,500 0.7
Retail 3,300,000 ++Federated Department Stores, Inc. 93,481,549 114,675,000 1.1
Entertainment 1,250,000 The Hartford Financial
Services Group Inc. 31,155,644 103,437,500 1.0
Insurance 2,100,000 ++ITT Corp. 76,665,244 128,231,250 1.3
Chemicals 800,000 Imperial Chemical Industries
PLC (ADR)* 45,969,824 45,500,000 0.4
Paper & Forest Products 3,400,000 International Paper Co. 115,795,809 165,112,500 1.6
Retail 4,400,000 ++Kmart Corporation 53,717,379 53,900,000 0.5
Insurance 1,400,000 PartnerRe Holdings Ltd. 29,498,937 53,375,000 0.5
Trucking 1,000,000 Scania AB (Class A) (ADR)* 28,093,817 29,625,000 0.3
Trucking 500,000 Scania AB (Class B) (ADR)* 13,565,869 14,875,000 0.1
Beverages 2,200,000 The Seagram Company Ltd. 73,951,621 88,550,000 0.9
Information Processing 2,800,000 ++Tandem Computers Inc. 34,929,327 56,700,000 0.6
Telecommunications 1,600,000 Telefonica de Espana
S.A. (ADR)* 63,336,735 138,000,000 1.3
Telecommunications 2,000,000 ++U S West Media Group, Inc. 29,542,902 40,500,000 0.4
Steel 3,150,000 USX--US Steel Group, Inc. 94,976,906 110,446,875 1.1
Banking 400,000 Wells Fargo & Company 69,745,372 107,800,000 1.1
-------------- --------------- ------
1,322,310,704 1,826,600,625 17.8
<PAGE>
Below-Average Price/Earnings Ratio
Insurance 3,000,000 The Allstate Corp. 65,873,114 219,000,000 2.1
Banking 2,500,000 Citicorp 99,909,139 301,406,250 3.0
Farm & Construction
Equipment 4,500,000 Deere & Company 103,532,247 246,937,500 2.4
Capital Goods 1,400,000 Eaton Corp. 72,067,416 122,237,500 1.2
Automotive 5,600,000 Ford Motor Co. 162,471,869 211,400,000 2.1
Automotive 2,900,000 General Motors Corp. 133,442,048 161,493,750 1.6
Conglomerates 650,000 Hanson PLC (ADR)* 27,719,944 16,250,000 0.2
Chemicals 2,300,000 Hercules Inc. 55,427,706 110,112,500 1.1
Machinery 3,650,000 ITT Industries Inc. 71,862,095 93,987,500 0.9
Information Processing 4,000,000 International Business
Machines Corp. 157,901,659 360,750,000 3.5
Semiconductors 1,000,000 Micron Technology, Inc. 26,042,512 39,937,500 0.4
Banking 2,400,000 NationsBank Corp. 55,256,525 154,800,000 1.5
Banking 3,700,000 Norwest Corp. 87,114,122 208,125,000 2.0
Tobacco 2,100,000 Philip Morris Companies Inc. 52,019,250 93,187,500 0.9
Electrical Equipment 3,150,000 Philips Electronics N.V.
(ADR)* 79,068,977 226,406,250 2.2
Retail 3,450,000 Sears, Roebuck & Co. 84,545,051 185,437,500 1.8
Electronics 1,500,000 Tektronix, Inc. 58,632,719 90,000,000 0.9
Insurance 3,000,000 Travelers Inc. 53,675,700 189,187,500 1.9
Chemicals 2,400,000 Union Carbide Corp. 75,165,781 112,950,000 1.1
Information Processing 5,600,000 ++Unisys Corp. 60,913,547 42,700,000 0.4
Retail Apparel 4,000,000 ++Woolworth Corp. 55,901,671 96,000,000 0.9
-------------- --------------- ------
1,638,543,092 3,282,306,250 32.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industry Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Above-Average Yield
Telecommunications 1,600,000 Ameritech Corporation 97,056,262 108,700,000 1.1
Telecommunications 3,500,000 AT&T Corp. 126,232,242 122,718,750 1.2
Oil--Domestic 2,200,000 Atlantic Richfield Co. 118,680,060 155,100,000 1.5
Real Estate Investment
Trust 700,000 Avalon Properties, Inc. 14,156,990 20,037,500 0.2
Telecommunications 1,550,000 Bell Atlantic Corp. 80,362,277 117,606,250 1.2
Oil--International 1,936,476 The British Petroleum Co.
PLC (ADR)* (a) 60,259,699 144,993,640 1.4
Utilities--Electric 1,550,000 CINergy Corp. 41,274,637 53,959,375 0.5
Oil--International 2,580,000 Chevron Corp. 110,551,043 190,758,750 1.9
Utilities--Electric 1,650,000 Consolidated Edison Co. of
<PAGE> New York, Inc. 39,941,210 48,571,875 0.5
Utilities--Electric 637,500 DPL Inc. 6,204,369 15,698,437 0.2
Telecommunications 3,500,000 GTE Corp. 115,931,380 153,562,500 1.5
Foods/Food Processing 1,450,000 General Mills, Inc. 67,972,787 94,431,250 0.9
Real Estate Investment
Trust 440,000 Irvine Apartment Communities,
Inc. 7,185,399 12,980,000 0.1
Real Estate Investment
Trust 900,000 Liberty Property Trust 17,601,647 22,387,500 0.2
Real Estate Investment
Trust 500,000 The Mills Corp. 10,505,625 13,843,750 0.1
Oil--International 4,000,000 Mobil Corp. 133,447,548 279,500,000 2.7
Utilities--Electric 1,200,000 NIPSCO Industries, Inc. 27,387,777 49,575,000 0.5
Oil--Domestic 4,100,000 Occidental Petroleum Corp. 89,048,665 102,756,250 1.0
Utilities--Electric 2,300,000 PECO Energy Co. 56,524,092 48,300,000 0.5
Utilities--Electric 1,800,000 Public Service Enterprise
Group Inc. 48,476,636 45,000,000 0.4
Real Estate Investment
Trust 1,600,000 Simon DeBartolo Group, Inc. 33,364,089 51,200,000 0.5
Real Estate Investment
Trust 500,000 Summit Properties Inc. 9,245,900 10,312,500 0.1
Oil--International 1,800,000 Texaco Inc. 127,207,623 195,750,000 1.9
Utilities--Electric 2,150,000 Texas Utilities Co. 74,186,490 74,040,625 0.7
Telecommunications 3,000,000 U S West Communications
Group 77,072,442 113,062,500 1.1
-------------- --------------- ------
1,589,876,889 2,244,846,452 21.9
Special Situations
Pharmaceuticals 2,000,000 Bristol-Myers Squibb Co. 57,174,206 162,000,000 1.6
Information Processing 1,400,000 ++Data General Corp. 18,155,547 36,400,000 0.4
Oil Services & Equipment 3,400,000 Dresser Industries, Inc. 79,584,474 126,650,000 1.2
Chemicals 3,500,000 duPont (E.I.) de Nemours & Co. 146,745,137 220,062,500 2.2
Oil--International 4,600,000 Exxon Corp. 156,573,580 282,900,000 2.8
Machinery 2,400,000 Ingersoll-Rand Co. 83,867,995 148,200,000 1.4
Pharmaceuticals 1,625,000 Merck & Co., Inc. 54,465,787 168,187,500 1.6
Oil--International 5,000,000 Royal Dutch Petroleum
Co. (ADR)* 101,368,943 271,875,000 2.7
Semiconductors 750,000 Texas Instruments, Inc. 35,731,664 63,046,875 0.6
Pharmaceuticals 440,000 Zeneca Group PLC (ADR)* 12,980,000 43,615,000 0.4
-------------- --------------- ------
746,647,333 1,522,936,875 14.9
Total Stocks 5,297,378,018 8,876,690,202 86.7
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Value Percent of
Amount Issue Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Short-Term Securities
Commercial Paper** ARCO British Ltd.:
$ 20,000,000 5.56% due 7/14/1997 $ 19,956,756 $ 19,956,756 0.2%
30,000,000 5.56% due 7/23/1997 29,893,433 29,893,433 0.3
28,000,000 Atlantic Asset Securitization
Corporation, 5.56% due 7/11/1997 27,952,431 27,952,431 0.2
60,000,000 CXC Inc., 5.55% due 7/22/1997 59,796,500 59,796,500 0.6
40,000,000 Ciesco L.P., 5.50% due 7/17/1997 39,896,111 39,896,111 0.4
39,200,000 Clipper Receivables Corp.,
5.55% due 7/02/1997 39,187,913 39,187,913 0.4
50,000,000 Corporate Receivables Corp.,
5.55% due 7/15/1997 49,884,375 49,884,375 0.5
50,000,000 Countrywide Home Loans,
5.56% due 7/21/1997 49,837,833 49,837,833 0.5
50,000,000 Eureka Securitization PLC,
5.58% due 8/01/1997 49,752,000 49,752,000 0.5
20,000,000 Exxon Imperial US, Inc.,
5.50% due 7/17/1997 19,948,056 19,948,056 0.2
Falcon Asset Securitization
Corp.:
53,450,000 5.55% due 7/17/1997 53,309,916 53,309,916 0.5
30,000,000 5.55% due 7/25/1997 29,884,375 29,884,375 0.3
40,000,000 GTE Corporation, 5.59% due
7/09/1997 39,944,100 39,944,100 0.4
General Motors Acceptance Corp.:
69,166,000 6.25% due 7/01/1997 69,153,992 69,153,992 0.7
60,000,000 5.53% due 7/09/1997 59,917,050 59,917,050 0.6
84,000,000 5.56% due 7/22/1997 83,714,587 83,714,587 0.8
100,000,000 Goldman Sachs Group, 5.57% due
7/02/1997 99,969,056 99,969,056 1.0
75,000,000 International Securitization
Corp., 5.61% due 7/14/1997 74,836,375 74,836,375 0.7
Lehman Brothers Holdings, Inc.:
50,000,000 5.67% due 7/11/1997 49,913,375 49,913,375 0.5
50,000,000 5.63% due 8/08/1997 49,695,042 49,695,042 0.5
41,015,000 Lexington Parker, Inc., 5.58%
due 8/19/1997 40,697,134 40,697,134 0.4
45,424,000 MetLife Funding Corp., 5.55% due
7/01/1997 45,416,997 45,416,997 0.4
25,000,000 Morgan Stanley Group Inc.,
5.58% due 8/08/1997 24,848,875 24,848,875 0.2
20,000,000 NYNEX Corporation, 5.535% due
7/18/1997 19,944,650 19,944,650 0.2
Preferred Receivable Funding
Corp.:
50,000,000 5.54% due 7/17/1997 49,869,194 49,869,194 0.5
50,000,000 5.56% due 7/23/1997 49,822,389 49,822,389 0.5
29,300,000 5.55% due 7/24/1997 29,191,590 29,191,590 0.3
35,000,000 5.57% due 7/30/1997 34,837,542 34,837,542 0.3
17,200,000 Southwestern Bell Capital Corp.,
5.51% due 7/23/1997 17,139,451 17,139,451 0.2
-------------- --------------- ------
1,308,211,098 1,308,211,098 12.8
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Issue Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Short-Term Securities (concluded)
US Government & Agency $20,000,000 Federal Home Loan Banks,
Obligations** 5.42% due 8/08/1997 $ 19,882,567 $ 19,882,567 0.2%
33,000,000 Federal Home Loan Mortgage
Corp., 5.41% due 7/15/1997 32,925,613 32,925,613 0.3
6,000,000 Federal National Mortgage
Association, 5.43% due 7/25/1997 5,977,375 5,977,375 0.1
-------------- --------------- ------
58,785,555 58,785,555 0.6
Total Short-Term Securities 1,366,996,653 1,366,996,653 13.4
Total Investments $6,664,374,671 10,243,686,855 100.1
==============
Liabilities in Excess of Other Assets (8,878,593) (0.1)
--------------- ------
Net Assets $10,234,808,262 100.0%
=============== ======
<FN>
++Non-income producing security.
*American Depositary Receipts (ADR).
**Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
(a)Investments in companies 5% or more of whose outstanding
securities are held by the Fund (such companies are defined as
"Affiliated Companies" in section 2(a)(3) of the Investment Company
Act of 1940) are as follows:
Net Share Net Dividend
Industry Affiliate Activity Cost Income
Oil-- The British Petroleum
International Co. PLC (ADR) 1,051,448 $10,387,578 $4,277,982
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of June 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value
(identified cost--$6,664,374,671) (Note 1a) $10,243,686,855
Cash 593,210
Receivables:
Capital shares sold $ 17,428,136
Dividends 13,290,322
Securities sold 4,106,363 34,824,821
---------------
Prepaid registration fees and other assets (Note 1d) 118,956
---------------
Total assets 10,279,223,842
---------------
Liabilities: Payables:
Securities purchased 21,191,229
Capital shares redeemed 12,786,909
Distributor (Note 2) 3,891,677
Investment adviser (Note 2) 3,447,783 41,317,598
---------------
Accrued expenses and other liabilities 3,097,982
---------------
Total liabilities 44,415,580
---------------
Net Assets: Net assets $10,234,808,262
===============
Net Assets Class A Shares of Common Stock, $0.10 par value, 400,000,000
Consist of: shares authorized $ 13,483,404
Class B Shares of Common Stock, $0.10 par value, 400,000,000
shares authorized 11,391,490
Class C Shares of Common Stock, $0.10 par value, 200,000,000
shares authorized 949,107
Class D Shares of Common Stock, $0.10 par value, 200,000,000
shares authorized 2,433,938
Paid-in capital in excess of par 6,190,633,026
Undistributed investment income--net 85,980,268
Undistributed realized capital gains on investments--net 350,624,845
Unrealized appreciation on investments--net 3,579,312,184
---------------
Net assets $10,234,808,262
===============
<PAGE>
Net Asset Value: Class A--Based on net assets of $4,921,834,270 and 134,834,035
shares outstanding $ 36.50
===============
Class B--Based on net assets of $4,088,755,251 and 113,914,903
shares outstanding $ 35.89
===============
Class C--Based on net assets of $337,827,530 and 9,491,071
shares outstanding $ 35.59
===============
Class D--Based on net assets of $886,391,211 and 24,339,379
shares outstanding $ 36.42
===============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended June 30, 1997
<S> <S> <C> <C>
Investment Dividends (net of $3,051,207 foreign withholding tax) $ 196,265,642
Income Interest and discount earned 72,207,262
(Notes 1b & 1c): Other 311,318
---------------
Total income 268,784,222
---------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 36,276,531
Investment advisory fees (Note 2) 35,001,183
Transfer agent fees--Class A (Note 2) 5,401,325
Transfer agent fees--Class B (Note 2) 5,385,563
Account maintenance and distribution fees--Class C (Note 2) 2,697,544
Account maintenance fees--Class D (Note 2) 1,458,562
Transfer agent fees--Class D (Note 2) 751,328
Registration fees (Note 1d) 583,079
Accounting services (Note 2) 436,837
Transfer agent fees--Class C (Note 2) 429,189
Printing and shareholder reports 360,393
Custodian fees 301,347
Professional fees 88,016
Directors' fees and expenses 41,233
Pricing fees 439
Other 78,078
---------------
Total expenses 89,290,647
---------------
Investment income--net 179,493,575
---------------
<PAGE>
Realized & Realized gain on investments--net 465,029,995
Unrealized Gain on Change in unrealized appreciation on investments--net 1,657,307,021
Investments--Net ---------------
(Notes 1c, 1e & 3): Net Increase in Net Assets Resulting from Operations $ 2,301,830,591
===============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended June 30,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 179,493,575 $ 158,628,044
Realized gain on investments--net 465,029,995 327,014,797
Change in unrealized appreciation on investments--net 1,657,307,021 639,253,232
--------------- ---------------
Net increase in net assets resulting from operations 2,301,830,591 1,124,896,073
--------------- ---------------
Dividends & Investment income--net:
Distributions to Class A (100,659,426) (83,171,240)
Shareholders Class B (58,137,865) (50,150,559)
(Note 1g): Class C (4,393,794) (2,265,975)
Class D (11,669,904) (6,929,391)
Realized gain on investments--net:
Class A (170,767,565) (63,214,864)
Class B (157,008,366) (56,947,014)
Class C (10,983,674) (2,332,735)
Class D (21,395,471) (5,725,774)
--------------- ---------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (535,016,065) (270,737,552)
--------------- ---------------
Capital Share Net increase in net assets derived from capital
Transactions share transactions 945,290,139 1,092,277,977
(Note 4): --------------- ---------------
Net Assets: Total increase in net assets 2,712,104,665 1,946,436,498
Beginning of year 7,522,703,597 5,576,267,099
--------------- ---------------
End of year* $10,234,808,262 $ 7,522,703,597
=============== ===============
<FN>
*Undistributed investment income--net (Note 1h) $ 85,980,268 $ 82,449,679
=============== ===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1997++ 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of year $ 30.22 $ 26.44 $ 23.17 $ 23.31 $ 20.57
Performance: ---------- ---------- ---------- ---------- ----------
Investment income--net .81 .80 .74 .62 .71
Realized and unrealized gain
on investments and foreign
currency transactions--net 7.66 4.31 4.01 .67 3.03
---------- ---------- ---------- ---------- ----------
Total from investment
operations 8.47 5.11 4.75 1.29 3.74
---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income--net (.80) (.76) (.69) (.70) (.64)
Realized gain on
investments--net (1.39) (.57) (.79) (.73) (.36)
---------- ---------- ---------- ---------- ----------
Total dividends and
distributions (2.19) (1.33) (1.48) (1.43) (1.00)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 36.50 $ 30.22 $ 26.44 $ 23.17 $ 23.31
========== ========== ========== ========== ==========
Total Investment Based on net asset
Return:* value per share 29.95% 19.92% 21.67% 5.68% 19.03%
========== ========== ========== ========== ==========
Ratios to Average Expenses .55% .56% .59% .53% .54%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 2.54% 2.88% 3.19% 2.76% 3.48%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $4,921,834 $3,587,558 $2,834,652 $2,272,983 $2,023,078
========== ========== ========== ========== ==========
Portfolio turnover 13.00% 13.94% 11.69% 21.79% 20.85%
========== ========== ========== ========== ==========
Average commission
rate paid+++ $ .0582 $ .0491 -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
+++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate
per share for purchase and sales of equity securities.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1997++ 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of year $ 29.76 $ 26.08 $ 22.87 $ 23.04 $ 20.35
Performance: ---------- ---------- ---------- ---------- ----------
Investment income--net .48 .53 .53 .42 .53
Realized and unrealized gain
on investments and foreign
currency transactions--net 7.55 4.23 3.93 .62 2.96
---------- ---------- ---------- ---------- ----------
Total from investment
operations 8.03 4.76 4.46 1.04 3.49
---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income--net (.51) (.51) (.46) (.48) (.44)
Realized gain on
investments--net (1.39) (.57) (.79) (.73) (.36)
---------- ---------- ---------- ---------- ----------
Total dividends and
distributions (1.90) (1.08) (1.25) (1.21) (.80)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 35.89 $ 29.76 $ 26.08 $ 22.87 $ 23.04
========== ========== ========== ========== ==========
Total Investment Based on net asset value
Return:* per share 28.61% 18.71% 20.45% 4.61% 17.81%
========== ========== ========== ========== ==========
Ratios to Average Expenses 1.57% 1.58% 1.61% 1.55% 1.56%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 1.53% 1.86% 2.16% 1.75% 2.47%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $4,088,755 $3,288,963 $2,464,248 $1,744,704 $1,383,935
========== ========== ========== ========== ==========
Portfolio turnover 13.00% 13.94% 11.69% 21.79% 20.85%
========== ========== ========== ========== ==========
Average commission
rate paid+++ $ .0582 $ .0491 -- -- --
========== ========== ========== ========== ==========
<PAGE>
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
+++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
The following per share data and ratios Period Period
have been derived from information provided For the Year Oct. 21, For the Year Oct. 21,
in the financial statements. Ended 1994++++ to Ended 1994++++ to
June 30, June 30, June 30, June 30,
Increase (Decrease) in Net Asset Value: 1997++ 1996 1995 1997++ 1996 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $ 29.56 $ 25.98 $ 22.92 $ 30.16 $ 26.41 $ 23.19
Performance: -------- -------- -------- -------- -------- --------
Investment income--net .47 .55 .44 .73 .76 .50
Realized and unrealized
gain on investments and
foreign currency
transactions--net 7.49 4.18 3.05 7.66 4.27 3.17
-------- -------- -------- -------- -------- --------
Total from investment
operations 7.96 4.73 3.49 8.39 5.03 3.67
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net (.54) (.58) (.33) (.74) (.71) (.35)
Realized gain on
investments--net (1.39) (.57) (.10) (1.39) (.57) (.10)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions (1.93) (1.15) (.43) (2.13) (1.28) (.45)
-------- -------- -------- -------- -------- --------
Net asset value,
end of period $ 35.59 $ 29.56 $ 25.98 $ 36.42 $ 30.16 $ 26.41
======== ======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value
Return: ** per share 28.60% 18.69% 15.59%+++ 29.65% 19.61% 16.23%+++
======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.58% 1.59% 1.66%* .80% .81% .87%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 1.51% 1.83% 2.09%* 2.28% 2.61% 2.88%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $337,828 $211,787 $ 74,334 $886,391 $434,396 $203,033
======== ======== ======== ======== ======== ========
Portfolio turnover 13.00% 13.94% 11.69% 13.00% 13.94% 11.69%
======== ======== ======== ======== ======== ========
Average commission
rate paid+++++ $ .0582 $ .0491 -- $ .0582 $ .0491 --
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
++++Commencement of Operations.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate
per share for purchases and sales of equity securities.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Basic Value Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
<PAGE>
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by the Board of Directors as the primary market.
Securities which are traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most
representative market. Options written are valued at the last sale
price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last asked price.
Short-term securities are valued at amortized cost, which
approximates market value. Other investments are stated at market
value. Securities and assets for which market value quotations are
not available are valued at their fair value as determined in good
faith by or under the direction of the Fund's Board of Directors.
(b) 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 its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be withheld on interest, dividends, and capital
gains at various rates.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Interest income (including amortization of discount)
is recognized on the accrual basis. Realized gains and losses on
security transactions are determined on the identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity markets. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Options--The Fund is authorized to write covered call options.
When the Fund writes an option, an amount equal to the premium
received by the Fund 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 Fund enters into a closing transaction) the Fund
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).
<PAGE>
Written options are non-income producing investments.
(f) 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 US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $1,101,997 have been reclassified from undistributed net
investment income to undistributed net realized capital gains. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and
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 has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's daily net assets at the following annual rates:
0.60% of the Fund's average daily net assets not exceeding $100
million; 0.50% of the Fund's average daily net assets in excess $100
million but not exceeding $200 million; and 0.40% of average daily
net assets in excess of $200 million.
Pursuant to the distribution plans (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, which are accrued
daily and paid monthly at annual rates based upon the average daily
net assets of the shares as follows:
<PAGE>
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended June 30, 1997, MLFD earned underwriting discounts
and direct commissions and MLPF&S earned dealer concessions on sales
of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 42,785 $ 567,567
Class D $116,447 $1,719,925
For the year ended June 30, 1997, MLPF&S received contingent
deferred sales charges of $4,711,398 and $94,100 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $73,432 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
June 30, 1997.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLFDS, MLFD, and/or ML & Co.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended June 30, 1997 were $1,589,248,795
and $949,631,024, respectively.
Net realized and unrealized gains as of June 30, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $465,029,995 $3,579,312,184
------------ --------------
Total $465,029,995 $3,579,312,184
============ ==============
As of June 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $3,576,286,295, of which $3,650,447,585
related to appreciated securities and $74,161,290 related to
depreciated securities. At June 30, 1997, the aggregate cost of
investments for Federal income tax purposes was $6,667,400,560.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $945,290,139 and $1,092,277,977 for the years ended June 30,
1997 and June 30, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended June 30, 1997 Shares Amount
Shares sold 37,081,337 $1,162,009,521
Shares issued to shareholders
in reinvestment of dividends
and distributions 8,257,275 243,407,144
----------- --------------
Total issued 45,338,612 1,405,416,665
Shares redeemed (29,216,897) (932,986,327)
----------- --------------
Net increase 16,121,715 $ 472,430,338
=========== ==============
<PAGE>
Class A Shares for the Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 23,070,207 $ 665,661,352
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,785,871 131,186,394
----------- --------------
Total issued 27,856,078 796,847,746
Shares redeemed (16,341,658) (469,020,925)
----------- --------------
Net increase 11,514,420 $ 327,826,821
=========== ==============
Class B Shares for the
Year Ended Dollar
June 30, 1997 Shares Amount
Shares sold 26,759,273 $ 836,475,969
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,603,697 191,804,853
----------- --------------
Total issued 33,362,970 1,028,280,822
Automatic conversion of
shares (5,951,632) (194,812,554)
Shares redeemed (24,018,657) (750,923,397)
----------- --------------
Net increase 3,392,681 $ 82,544,871
=========== ==============
Class B Shares for the
Year Ended Dollar
June 30, 1996 Shares Amount
Shares sold 34,258,281 $ 968,992,372
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,511,955 95,303,902
----------- --------------
Total issued 37,770,236 1,064,296,274
Automatic conversion of
shares (1,370,936) (38,128,704)
Shares redeemed (20,359,611) (573,975,897)
----------- --------------
Net increase 16,039,689 $ 452,191,673
=========== ==============
<PAGE>
Class C Shares for the
Year Ended Dollar
June 30, 1997 Shares Amount
Shares sold 4,511,986 $ 139,349,120
Shares issued to shareholders
in reinvestment of dividends
and distributions 485,970 14,024,176
----------- --------------
Total issued 4,997,956 153,373,296
Shares redeemed (2,671,622) (83,360,975)
----------- --------------
Net increase 2,326,334 $ 70,012,321
=========== ==============
Class C Shares for the
Year Ended Dollar
June 30, 1996 Shares Amount
Shares sold 6,142,278 $ 173,460,878
Shares issued to shareholders
in reinvestment of dividends
and distributions 153,247 4,142,044
----------- --------------
Total issued 6,295,525 177,602,922
Shares redeemed (1,991,553) (56,032,695)
----------- --------------
Net increase 4,303,972 $ 121,570,227
=========== ==============
Class D Shares for the Year Dollar
Ended June 30, 1997 Shares Amount
Shares sold 7,052,734 $223,824,582
Automatic conversion of
shares 5,871,627 194,812,554
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,008,878 29,701,013
----------- ------------
Total issued 13,933,239 448,338,149
Shares redeemed (3,996,236) (128,035,540)
----------- ------------
Net increase 9,937,003 $320,302,609
=========== ============
<PAGE>
Class D Shares for the Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 7,412,646 $212,175,625
Automatic conversion of
shares 1,355,250 38,128,704
Shares issued to shareholders
in reinvestment of dividends
and distributions 412,739 11,332,508
----------- ------------
Total issued 9,180,635 261,636,837
Shares redeemed (2,466,089) (70,947,581)
----------- ------------
Net increase 6,714,546 $190,689,256
=========== ============
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Basic Value Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Basic Value Fund, Inc. as of June 30, 1997, the related statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at June 30,
1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Basic Value Fund, Inc. as of June 30, 1997, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 4, 1997
</AUDIT-REPORT>
<PAGE>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share distributions
paid by Merrill Lynch Basic Value Fund, Inc. during its taxable year
ended June 30, 1997:
<CAPTION>
Qualifying Non-Qualifying Total Long-Term
Record Payable Ordinary Ordinary Ordinary Capital
Date Date Income Income Income Gains
<S> <C> <C> <C> <C> <C> <C>
Class A Shares: 8/13/96 8/21/96 $.322162 $.067398 $.389560 $.983101
12/10/96 12/18/96 $.377740 $.037275 $.415015 $.408543
Class B Shares: 8/13/96 8/21/96 $.204382 $.042758 $.247140 $.983101
12/10/96 12/18/96 $.238904 $.023575 $.262479 $.408543
Class C Shares: 8/13/96 8/21/96 $.223683 $.046795 $.270478 $.983101
12/10/96 12/18/96 $.245611 $.024237 $.269848 $.408543
Class D Shares: 8/13/96 8/21/96 $.295402 $.061799 $.357201 $.983101
12/10/96 12/18/96 $.345082 $.034053 $.379135 $.408543
The domestic qualifying ordinary income qualifies for the dividends-
received deduction for corporations.
Please retain this information for your records.
</TABLE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Paul M. Hoffmann, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Thomas D. Jones III, Secretary
<PAGE>
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
