MERRILL LYNCH
BASIC VALUE
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
December 31, 1997
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
Paul M. Hoffmann, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Thomas D. Jones, III, Secretary
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
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless accompanied
or preceded by the Fund's current prospectus. Past performance results
shown in this report should not be considered a representation of
future performance. Investment return and principal value of shares
will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Statements and other information herein
are as dated and are subject to change.
Merrill Lynch
Basic Value Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10247 -- 12/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MERRILL LYNCH BASIC VALUE FUND, INC.
TO OUR SHAREHOLDERS
Volatility continued to highlight stock and bond markets worldwide
during the quarter ended December 31, 1997. The initial focus of
investor concerns was the widening financial crisis in Asia. In the
wake of a series of currency devaluations, many emerging economies are
facing the challenges of higher interest rates, slowing economic
growth and declining corporate earnings. Although the announcement of
International Monetary Fund (IMF) loan packages to Thailand, Indonesia
and Korea initially reassured investors, the stringent terms of the
loans and their potential negative impact on these already beleaguered
economies are now being called into question. In Japan, the failure of
several major financial institutions has undermined the prospects for
economic recovery.
As developments in Asia continue to unfold, US equity investors are
trying to gauge the impact of poorer Asian economic prospects on
multinational corporations. Although there have been periods of rising
share prices, investor confidence has not been definitively restored.
The US bond market benefited from a "flight to quality" as investors
anticipated slower economic growth, but the release of stronger-than-
expected economic statistics also prompted periods of declining bond
prices.
As 1998 begins, investors are likely to continue to focus on the
prospects for the US economy within the context of international
developments. Although the Federal Reserve Board did not tighten
monetary policy at its November 12 meeting, it remains to be seen
whether US economic growth remains moderate enough and inflationary
pressures sufficiently contained to preclude an increase in short-term
interest rates in early 1998. The ongoing developments in Asia will
undoubtedly also influence the central bank's monetary policy
decisions in the new year.
Portfolio Matters
Security purchases during the final quarter of 1997 amounted to $480
million, while security sales were $227 million. On the buy side, we
initiated positions in two new holdings and added to 20 existing
positions. On the sell side, we eliminated one holding and reduced
positions in ten commitments. Our cash position declined slightly to
11.6% of net assets on December 31, 1997 from 12.7% on September 30,
1997.
The two new positions were Texas Instruments Inc. and Thomas & Betts
Corporation. The reintroduction of Texas Instruments to the portfolio
is a very unusual occurrence for us, as we had just eliminated a
position in this stock in the September quarter. In our September
report to shareholders, we stated that Texas Instruments and Micron
Technology, Inc. "were purchased when they were out-of-favor and
unpopular and were sold when their renewed popularity seemed to us
somewhat excessive."
The evolving crisis in Asia led to severe overall stock market
volatility, and very sharp declines in many technology stocks. Texas
Instruments, from its high price in early October to its mid-December
low, lost over 40% of its value. While earnings estimates have been
scaled back somewhat, we believed the selling was excessive and
purchased the stock. Although we didn't sell at the peak, and possibly
bought back early, we think the risk/reward ratio is attractive on
a long-term basis.
Thomas & Betts Corporation, a leading producer of connectors and
components for electrical and electronic markets, underperformed the
stock market for most of 1997, as the company digested a number of
significant acquisitions. During the fourth quarter, there was also
some concern over incoming order trends and a possible shortfall of
earnings projections. At our entry level, we concluded the stock was
very reasonably priced and had impressive growth prospects.
Most of our fourth-quarter purchases were dedicated to increases in
established positions. The largest addition was in Eastman Kodak
Company, which was initially purchased in the September quarter. The
stock was a dismal market performer in 1997 and came under further
pressure late in the year, which we viewed as a buying opportunity.
Our second largest increase was in Citicorp. We have previously
discussed our propensity to trade around core positions, and Citicorp
was both sold and bought during the quarter. The stock hit new highs
in early October, and we secured some profits. Subsequent weakness in
the overall market led us to add to the Citicorp position some 14%
lower than the average sale price. The stock remains our second-
largest holding.
On the sell side, in addition to Citicorp, we cut back on our drug
stocks, Bristol-Myers Squibb Co. and Merck & Co., Inc., and
significantly reduced our position in ITT Corp., the subject of a
takeover. In addition, we eliminated our position in Hanson PLC.
For the full year, security purchases amounted to $1.67 billion while
security sales totaled $1.28 billion. The Fund's cash position
declined throughout the year to 11.6% of net assets at year-end 1997
from 15.7% at the end of 1996. Fund assets increased to $11.3 billion,
up 36% from the $8.6 billion at the end of 1996.
In Conclusion
The full ramifications of the Asian currency and economic crisis are
impossible to predict. Overall US stock market returns for the past
three years have been well-above historic norms, and we believe a
cautious and conservative stance is appropriate. Extreme volatility is
likely, and we will attempt to take advantage of wide price swings on
both the buy and sell sides. We thank you for your investment in
Merrill Lynch Basic Value Fund, Inc., and we look forward to reviewing
our outlook and strategy in our upcoming quarterly report to
shareholders.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/PAUL M. HOFFMANN
Paul M. Hoffmann
Senior Vice President and Portfolio Manager
January 9, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] Class D Shares incur a maximum initial sales charge of 5.25%
and an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. 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>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1997 31.00 37.08 2.081 0.924 +29.48
Total $15.893 Total $14.478
Cumulative total return as of 12/31/97: +2,201.81%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1997 30.63 36.58 2.081 0.565 +28.20
Total $6.972 Total $5.556
Cumulative total return as of 12/31/97: +227.45%**
* 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>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1997 30.38 36.23 2.081 0.589 +28.19
Total $4.083 Total $2.097
Cumulative total return as of 12/31/97: +93.05%**
* 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>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1997 30.96 37.02 2.081 0.850 +29.21
Total $4.083 Total $2.709
Cumulative total return as of 12/31/97: +97.95%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
12/31/97 9/30/97 12/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Basic Value Fund Class A Shares* $37.08 $38.02 $31.00 +26.41%(1) - 0.24%(2)
ML Basic Value Fund Class B Shares* 36.58 37.43 30.63 +26.30(1) 0.00(2)
ML Basic Value Fund Class C Shares* 36.23 37.09 30.38 +26.19(1) - 0.03(2)
ML Basic Value Fund Class D Shares* 37.02 37.93 30.96 +26.38(1) - 0.16(2)
Dow Jones Industrial Average** 7,908.25 7,945.26 6,448.27 +22.64 - 0.47
Standard & Poor's 500 Index** 970.43 947.28 740.74 +31.01 + 2.44
ML Basic Value Fund Class A Shares -- Total Return* +29.48(3) + 1.09(4)
ML Basic Value Fund Class B Shares -- Total Return* +28.20(5) + 0.84(6)
ML Basic Value Fund Class C Shares -- Total Return* +28.19(7) + 0.85(8)
ML Basic Value Fund Class D Shares -- Total Return* +29.21(9) + 1.06(10)
Dow Jones Industrial Average -- Total Return** +24.89 - 0.02
Standard & Poor's 500 Index -- Total Return** +33.36 + 2.88
* 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 $2.081 per share capital gains distributions.
(2) Percent change includes reinvestment of $0.857 per share capital gains distributions.
(3) Percent change includes reinvestment of $0.924 per share ordinary income dividends and $2.081 per share capital gains
distributions.
(4) Percent change includes reinvestment of $0.510 per share ordinary income dividends and $0.857 per share capital gains
distributions.
(5) Percent change includes reinvestment of $0.565 per share ordinary income dividends and $2.081 per share capital gains
distributions.
(6) Percent change includes reinvestment of $0.320 per share ordinary income dividends and $0.857 per share capital gains
distributions.
(7) Percent change includes reinvestment of $0.589 per share ordinary income dividends and $2.081 per share capital gains
distributions.
(8) Percent change includes reinvestment of $0.329 per share ordinary income dividends and $0.857 per share capital gains
distributions.
(9) Percent change includes reinvestment of $0.850 per share ordinary income dividends and $2.081 per share capital gains
distributions.
(10) Percent change includes reinvestment of $0.468 per share ordinary income dividends and $0.857 per share capital gains
distributions.
</TABLE>
[GRAPHIC OMITTED: MOUNTAIN CHART OF RESULTS OF A $1,000 INVESTMENT SINCE
INCEPTION -- CLASS A SHARES]
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 $21,809.65 on December
31, 1997.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 +29.48% +22.68%
Five Years Ended 12/31/97 +20.35 +19.06
Ten Years Ended 12/31/97 +16.09 +15.47
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +28.20% +24.20%
Five Years Ended 12/31/97 +19.13 +19.13
Inception (10/21/88) through
12/31/97 +13.77 +13.77
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/97 +28.19% +27.19%
Inception (10/21/94)
through 12/31/97 +22.86 +22.86
* 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 12/31/97 +29.21% +22.42%
Inception (10/21/94)
through 12/31/97 +23.83 +21.76
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Basic Value Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS
Shares Value Percent of
Industry Held Stocks Cost (Note 1a) Net Assets
Low Price to Book Value
<S> <C> <C> <C> <C> <C>
Metals/Non-Ferrous 1,400,000 ASARCO Inc. $36,667,971 $31,412,500 0.3%
Insurance 2,500,000 American General Corporation 54,530,936 135,156,250 1.2
Insurance 260,000 American National Insurance Co. 9,749,442 24,180,000 0.2
Steel 4,500,000 +Bethlehem Steel Corporation 56,745,956 38,812,500 0.3
Restaurants 3,900,000 Darden Restaurants, Inc. 36,505,673 48,750,000 0.4
Information Processing 1,200,000 +Data General Corporation 14,518,510 20,925,000 0.2
Information Processing 4,300,000 +Digital Equipment Corporation 158,790,884 159,100,000 1.4
Utilities -- Electric 3,000,000 Entergy Corporation 69,641,133 89,812,500 0.8
Retail 2,900,000 +Federated Deptartment Stores, Inc. 83,496,624 124,881,250 1.1
Entertainment 1,250,000 Hartford Financial Services Group Inc.
(The) 31,155,644 116,953,125 1.0
Chemicals 800,000 Imperial Chemical Industries PLC (ADR)* 45,969,824 51,950,000 0.5
Paper & Forest Products 3,100,000 International Paper Company 108,471,162 133,687,500 1.2
Retail 5,800,000 +Kmart Corporation 69,437,129 67,062,500 0.6
Insurance 1,400,000 PartnerRe Ltd. 29,498,937 64,925,000 0.6
Trucking 1,000,000 Scania AB (Class A)(ADR)* 28,093,817 22,000,000 0.2
Trucking 500,000 Scania AB (Class B)(ADR)* 13,565,869 11,000,000 0.1
Beverages 2,600,000 Seagram Company Ltd. (The) 87,765,911 84,012,500 0.7
Telecommunications 2,000,000 +U S West Media Group, Inc. 29,542,902 57,750,000 0.5
Steel 3,150,000 USX -- US Steel Group, Inc. 94,976,906 98,437,500 0.9
-------------- -------------- ------
1,059,125,230 1,380,808,125 12.2
Below-Average Price/Earnings Ratio
Insurance 2,700,000 Allstate Corporation (The) 61,274,819 245,362,500 2.2
Banking 2,400,000 Citicorp 127,618,755 303,450,000 2.7
Farm & Construction
Equipment 4,350,000 Deere & Company 101,162,341 253,659,375 2.3
Oil Services & Equipment 3,400,000 Dresser Industries, Inc. 79,584,474 142,587,500 1.3
Chemicals 3,650,000 duPont (E.I.) de Nemours & Co. 158,566,266 219,228,125 1.9
Photography 2,300,000 Eastman Kodak Company 132,600,048 139,868,750 1.2
Capital Goods 1,400,000 Eaton Corporation 72,067,416 124,950,000 1.1
Machinery & Equipment 2,500,000 Fluor Corporation 134,723,501 93,437,500 0.8
Automotive 5,600,000 Ford Motor Company 162,471,869 272,650,000 2.4
Automotive 2,900,000 General Motors Corporation 126,234,604 175,812,500 1.6
Chemicals 2,600,000 Hercules Inc. 69,675,936 130,162,500 1.2
Machinery 3,765,000 ITT Industries Inc. 74,801,185 118,126,875 1.0
Machinery 3,600,000 Ingersoll-Rand Company 83,867,995 145,800,000 1.3
Information Processing 3,500,000 International Business Machines Corp. 139,684,804 365,968,750 3.2
Banking 2,800,000 NationsBank Corporation 78,736,885 170,275,000 1.5
Tobacco 3,000,000 Philip Morris Companies, Inc. 91,090,560 135,937,500 1.2
Electrical Equipment 3,300,000 Philips Electronics N.V. (ADR)* 87,863,168 199,650,000 1.8
Fertilizers 1,560,000 Potash Corp. of Saskatchewan Inc. 122,174,135 129,480,000 1.2
Retail 3,800,000 Sears, Roebuck & Co. 102,817,041 171,950,000 1.5
Electronics 2,250,000 Tektronix, Inc. 58,632,719 89,296,875 0.8
Electrical Equipment 1,350,000 Thomas & Betts Corporation 63,676,485 63,787,500 0.6
Chemicals 2,600,000 Union Carbide Corporation 84,717,281 111,637,500 1.0
Retail 4,000,000 +Woolworth Corporation 55,901,671 81,500,000 0.7
-------------- -------------- ------
2,269,943,958 3,884,578,750 34.5
Above-Average Yield
Telecommunications 1,800,000 Ameritech Corporation 109,809,992 144,900,000 1.3
Oil -- Domestic 2,200,000 Atlantic Richfield Company 118,680,060 176,275,000 1.6
Real Estate Investment
Trust 700,000 Avalon Properties, Inc. 14,156,990 21,656,250 0.2
Telecommunications 1,550,000 Bell Atlantic Corporation 80,362,277 141,050,000 1.2
Oil -- International 1,966,803 British Petroleum Company PLC (The)
(ADR)* 62,673,371 156,729,615 1.4
Utilities -- Electric 1,700,000 CINergy Corp. 46,398,187 65,131,250 0.6
Oil -- International 2,800,000 Chevron Corporation 131,616,752 215,600,000 1.9
Utilities -- Electric 1,650,000 Consolidated Edison Co. of New York,
Inc. 39,941,210 67,650,000 0.6
Utilities -- Electric 637,500 DPL Inc. 6,204,369 18,328,125 0.1
Oil -- International 4,500,000 Exxon Corporation 158,275,415 275,343,750 2.5
Telecommunications 3,500,000 GTE Corporation 115,931,380 182,875,000 1.6
Foods/Food Processing 1,450,000 General Mills, Inc. 67,972,787 103,856,250 0.9
Real Estate Investment
Trust 440,000 Irvine Apartment Communities, Inc. 7,185,399 13,997,500 0.1
Real Estate Investment
Trust 900,000 Liberty Property Trust 17,601,647 25,706,250 0.2
Real Estate Investment
Trust 500,000 Mills Corporation (The) 10,505,625 12,250,000 0.1
Oil -- International 3,700,000 Mobil Corporation 124,307,498 267,093,750 2.4
Utilities -- Electric 1,200,000 NIPSCO Industries, Inc. 27,387,777 59,325,000 0.5
Oil -- Domestic 4,500,000 Occidental Petroleum Corporation 99,134,260 131,906,250 1.2
Utilities -- Electric 2,300,000 PECO Energy Company 56,524,092 55,775,000 0.5
Utilities -- Electric 1,800,000 Public Service Enterprise Group, Inc. 48,476,636 57,037,500 0.5
Oil -- International 4,600,000 Royal Dutch Petroleum Company (ADR)* 93,399,435 249,262,500 2.2
Real Estate Investment
Trust 1,600,000 Simon DeBartolo Group, Inc. 33,364,089 52,300,000 0.5
Real Estate Investment
Trust 500,000 Summit Properties Inc. 9,245,900 10,562,500 0.1
Telecommunications 1,600,000 Telefonica de Espana, S.A. (ADR)* 63,336,735 145,700,000 1.3
Oil -- International 3,900,000 Texaco Inc. 144,065,093 212,062,500 1.9
Utilities -- Electric 2,450,000 Texas Utilities Company 84,932,088 101,828,125 0.9
Telecommunications 3,000,000 U S West Communications Group, Inc. 77,072,442 135,375,000 1.2
-------------- -------------- ------
1,848,561,506 3,099,577,115 27.5
Special Situations
Telecommunications 3,500,000 AT&T Corp. 126,232,242 214,375,000 1.9
Savings & Loans 1,900,000 Ahmanson (H.F.) & Company 41,425,084 127,181,250 1.1
Pharmaceuticals 1,600,000 Bristol-Myers Squibb Co. 45,841,141 151,400,000 1.4
Insurance 1,500,000 +ITT Corporation 53,892,951 124,312,500 1.1
Pharmaceuticals 1,200,000 Merck & Co., Inc. 40,911,912 127,500,000 1.1
Banking 7,000,000 Norwest Corporation 86,170,521 270,375,000 2.4
Semiconductors 2,250,000 Texas Instruments Inc. 101,473,167 101,250,000 0.9
Insurance 3,800,000 Travelers Group, Inc. 42,076,574 204,725,000 1.8
Information Processing 5,600,000 +Unisys Corporation 60,913,547 77,700,000 0.7
Banking 475,000 Wells Fargo & Company 89,258,392 161,232,813 1.4
Pharmaceuticals 440,000 Zeneca Group PLC (ADR)* 12,980,000 47,520,000 0.4
-------------- -------------- ------
701,175,531 1,607,571,563 14.2
-------------- -------------- ------
Total Stocks 5,878,806,225 9,972,535,553 88.4
============== ============== ======
<CAPTION>
Face Value Percent of
Amount Issue Cost (Note 1a) Net Assets
Short-Term Securities
<S> <C> <C> <C> <C> <C>
Commercial Paper** $37,000,000 Aesop Funding Corp., 5.85% due
1/26/1998 36,843,675 36,843,675 0.3
25,000,000 Apreco, Inc., 5.90% due 1/07/1998 24,971,319 24,971,319 0.2
50,000,000 Bell Atlantic Financial Services Inc.,
5.69% due 1/08/1998 49,936,778 49,936,778 0.5
50,000,000 Clipper Receivables Corp., 5.85%
due 1/13/1998 49,894,375 49,894,375 0.4
35,000,000 Corporate Asset Funding Co., Inc.,
5.80% due 1/15/1998 34,915,417 34,915,417 0.3
Countrywide Home Loans, Inc.:
40,000,000 5.72% due 1/09/1998 39,942,800 39,942,800 0.4
10,000,000 6.02% due 1/09/1998 9,984,950 9,984,950 0.1
36,000,000 Delaware Funding Corp., 6% due
1/30/1998 35,820,000 35,820,000 0.3
Eureka Securitization, Inc.:
55,000,000 5.85% due 1/06/1998 54,946,375 54,946,375 0.5
25,000,000 5.87% due 1/07/1998 24,971,465 24,971,465 0.2
Falcon Asset Securitization Corp.:
52,725,000 5.85% due 1/05/1998 52,682,161 52,682,161 0.5
53,500,000 5.87% due 1/15/1998 53,369,148 53,369,148 0.5
40,000,000 Finova Capital Corp., 5.73% due
1/13/1998 39,917,233 39,917,233 0.4
50,000,000 General Electric Capital Corp., 5.70%
due 1/16/1998 49,873,333 49,873,333 0.4
33,207,000 General Motors Acceptance Corp., 6.75%
due 1/02/1998 33,194,547 33,194,547 0.3
Lehman Brothers Holdings, Inc.:
55,000,000 5.90% due 1/14/1998 54,873,806 54,873,806 0.5
66,000,000 6.15% due 1/26/1998 65,706,850 65,706,850 0.6
Lexington Parker, Inc.:
50,000,000 6.15% due 1/12/1998 49,897,500 49,897,500 0.4
50,000,000 5.75% due 1/14/1998 49,888,194 49,888,194 0.4
Morgan Stanley Group Inc.:
50,000,000 5.61% due 1/05/1998 49,961,042 49,961,042 0.5
50,000,000 5.70% due 1/12/1998 49,905,000 49,905,000 0.4
50,000,000 5.70% due 1/16/1998 49,873,333 49,873,333 0.4
Park Avenue Receivables Corp.:
27,615,000 5.75% due 1/08/1998 27,579,714 27,579,714 0.2
20,192,000 5.75% due 1/22/1998 20,121,048 20,121,048 0.2
Preferred Receivable Funding Corp.:
52,000,000 5.65% due 1/05/1998 51,959,194 51,959,194 0.5
17,275,000 5.90% due 1/06/1998 17,258,013 17,258,013 0.2
Republic Industries, Inc.:
50,000,000 5.83% due 1/15/1998 49,878,542 49,878,542 0.4
16,000,000 5.80% due 1/28/1998 15,927,822 15,927,822 0.1
Riverwoods Funding Corp.:
50,000,000 5.63% due 1/09/1998 49,929,625 49,929,625 0.5
36,000,000 5.69% due 1/16/1998 35,908,960 35,908,960 0.3
WCP Funding Inc.:
50,000,000 5.75% due 1/09/1998 49,928,125 49,928,125 0.5
15,000,000 5.85% due 1/16/1998 14,961,000 14,961,000 0.1
-------------- -------------- ------
1,294,821,344 1,294,821,344 11.5
<CAPTION>
<S> <C> <C> <C> <C> <C>
US Government Agency $30,000,000 Federal Home Loan Mortgage Corp.,
Obligations** 5.52% due 1/09/1998 $29,958,600 $29,958,600 0.3%
--------------- --------------- ------
Total Short-Term Securities 1,324,779,944 1,324,779,944 11.8
=============== =============== ======
Total Investments $7,203,586,169 11,297,315,497 100.2
===============
Liabilties in Excess of Other Assets (19,760,612) (0.2)
--------------- ------
Net Assets $11,277,554,885 100.0%
=============== ======
+ 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.
See Notes to Financial Statements.
PORTFOLIO INFORMATION
As of December 31, 1997
Percent of
Ten Largest Stock Holdings Net Assets
International Business Machines Corp. 3.2%
Citicorp 2.7
Exxon Corporation 2.5
Ford Motor Company 2.4
Norwest Corporation 2.4
Mobil Corporation 2.4
Deere & Company 2.3
Royal Dutch Petroleum Company (ADR) 2.2
Allstate Corporation (The) 2.2
duPont (E.I.) de Nemours & Co. 1.9
Portfolio Changes for the Quarter
Ended December 31, 1997
Additions
*Raytheon Company (Class A)
Texas Instruments Inc.
Thomas & Betts Corporation
Deletions
Hanson PLC (ADR)
*Raytheon Company (Class A)
* Added and deleted in the same quarter.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of December 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $7,203,586,169) (Note 1a) $11,297,315,497
Cash 1,267
Receivables:
Capital shares sold $37,198,341
Dividends 16,818,303
Securities sold 8,970,135 62,986,779
---------------
Prepaid registration fees and other assets (Note 1d) 118,956
---------------
Total assets 11,360,422,499
---------------
Liabilities: Payables:
Capital shares redeemed 55,882,064
Securities purchased 15,401,315
Distributor (Note 2) 4,558,483
Investment adviser (Note 2) 4,063,622 79,905,484
---------------
Accrued expenses and other liabilities 2,962,130
---------------
Total liabilities 82,867,614
---------------
Net Assets: Net assets $11,277,554,885
===============
Net Assets Class A Shares of Common Stock, $0.10 par value, 400,000,000 shares
Consist of: authorized $14,064,231
Class B Shares of Common Stock, $0.10 par value, 400,000,000 shares
authorized 11,971,032
Class C Shares of Common Stock, $0.10 par value, 200,000,000 shares
authorized 1,150,246
Class D Shares of Common Stock, $0.10 par value, 200,000,000 shares
authorized 3,421,559
Paid-in capital in excess of par 7,057,597,991
Undistributed investment income -- net 257,330
Undistributed realized capital gains on investments -- net 95,363,168
Unrealized appreciation on investments -- net 4,093,729,328
---------------
Net assets $11,277,554,885
===============
Net Asset Value: Class A -- Based on net assets of $5,215,229,482 and 140,642,313 shares
outstanding $37.08
===============
Class B -- Based on net assets of $4,379,119,778 and 119,710,325 shares
outstanding $36.58
===============
Class C -- Based on net assets of $416,701,644 and 11,502,460 shares
outstanding $36.23
===============
Class D -- Based on net assets of $1,266,503,981 and 34,215,589 shares
outstanding $37.02
===============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations for the Six Months Ended December 31, 1997
<S> <C> <C> <C>
Investment Dividends (net of $783,498 foreign withholding tax) $107,880,955
Income Interest and discount earned 39,849,318
(Notes 1b & 1c): Other 74,142
---------------
Total income 147,804,415
---------------
Expenses: Investment advisory fees (Note 2) $22,171,832
Account maintenance and distribution fees -- Class B (Note 2) 21,707,351
Transfer agent fees -- Class A (Note 2) 3,030,756
Transfer agent fees -- Class B (Note 2) 2,896,661
Account maintenance and distribution fees -- Class C (Note 2) 1,932,734
Account maintenance fees -- Class D (Note 2) 1,383,294
Transfer agent fees -- Class D (Note 2) 649,872
Transfer agent fees -- Class C (Note 2) 276,395
Registration fees (Note 1d) 243,842
Accounting services (Note 2) 218,743
Printing and shareholder reports 179,590
Custodian fees 176,515
Professional fees 40,536
Directors' fees and expenses 19,429
Pricing fees 1,081
Other 61,421
---------------
Total expenses 54,990,052
---------------
Investment income -- net 92,814,363
---------------
Realized & Realized gain on investments -- net 385,795,384
Unrealized Gain on Change in unrealized appreciation on investments -- net 514,417,144
Investments -- Net ---------------
(Notes 1c, 1e & 3): Net Increase in Net Assets Resulting from Operations $993,026,891
===============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 1997 1997
<S> <C> <C> <C>
Operations: Investment income -- net $92,814,363 $179,493,575
Realized gain on investments -- net 385,795,384 465,029,995
Change in unrealized appreciation on investments -- net 514,417,144 1,657,307,021
--------------- ---------------
Net increase in net assets resulting from operations 993,026,891 2,301,830,591
--------------- ---------------
Dividends & Investment income -- net:
Distributions to Class A (104,991,974) (100,659,426)
Shareholders Class B (48,188,280) (58,137,865)
(Note 1g): Class C (4,614,624) (4,393,794)
Class D (20,742,423) (11,669,904)
Realized gain on investments -- net:
Class A (298,730,147) (170,767,565)
Class B (254,752,228) (157,008,366)
Class C (22,962,880) (10,983,674)
Class D (64,611,806) (21,395,471)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (819,594,362) (535,016,065)
--------------- ---------------
Capital Share Net increase in net assets derived from capital share transactions 869,314,094 945,290,139
Transactions --------------- ---------------
(Note 4):
Net Assets: Total increase in net assets 1,042,746,623 2,712,104,665
Beginning of period 10,234,808,262 7,522,703,597
--------------- ---------------
End of period* $11,277,554,885 $10,234,808,262
=============== ===============
* Undistributed investment income -- net $257,330 $85,980,268
=============== ===============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
December 31, For the Year Ended June 30,
1997+ 1997+ 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $36.50 $30.22 $26.44 $23.17 $23.31
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income -- net .41 .81 .80 .74 .62
Realized and unrealized gain on
investments and foreign currency
transactions -- net 3.18 7.66 4.31 4.01 .67
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.59 8.47 5.11 4.75 1.29
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.78) (.80) (.76) (.69) (.70)
Realized gain on investments -- net (2.23) (1.39) (.57) (.79) (.73)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (3.01) (2.19) (1.33) (1.48) (1.43)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $37.08 $36.50 $30.22 $26.44 $23.17
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 9.97%++++ 29.95% 19.92% 21.67% 5.68%
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses .54%* .55% .56% .59% .53%
Net Assets: ========== ========== ========== ========== ==========
Investment income -- net 2.15%* 2.54% 2.88% 3.19% 2.76%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $5,215,229 $4,921,834 $3,587,558 $2,834,652 $2,272,983
========== ========== ========== ========== ==========
Portfolio turnover 7.45% 13.00% 13.94% 11.69% 21.79%
========== ========== ========== ========== ==========
Average commission rate paid+++++ $.0595 $.0582 $.0491 -- --
========== ========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++++ 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>
<TABLE>
<CAPTION>
Financial Highlights (continued)
Class B
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
December 31, For the Year Ended June 30,
1997+ 1997+ 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $35.89 $29.76 $26.08 $22.87 $23.04
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income -- net .21 .48 .53 .53 .42
Realized and unrealized gain on
investments and foreign currency
transactions -- net 3.13 7.55 4.23 3.93 .62
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.34 8.03 4.76 4.46 1.04
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.42) (.51) (.51) (.46) (.48)
Realized gain on investments -- net (2.23) (1.39) (.57) (.79) (.73)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (2.65) (1.90) (1.08) (1.25) (1.21)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $36.58 $35.89 $29.76 $26.08 $22.87
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 9.41%++++ 28.61% 18.71% 20.45% 4.61%
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.55%* 1.57% 1.58% 1.61% 1.55%
Net Assets: ========== ========== ========== ========== ==========
Investment income -- net 1.13%* 1.53% 1.86% 2.16% 1.75%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $4,379,120 $4,088,755 $3,288,963 $2,464,248 $1,744,704
========== ========== ========== ========== ==========
Portfolio turnover 7.45% 13.00% 13.94% 11.69% 21.79%
========== ========== ========== ========== ==========
Average commission rate paid+++++ $.0595 $.0582 $.0491 -- --
========== ========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++++ 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>
<TABLE>
<CAPTION>
Financial Highlights (continued)
Class C
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994++ to
Dec. 31, June 30, June 30,
1997+ 1997+ 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $35.59 $29.56 $25.98 $22.92
Operating ---------- ---------- ---------- ----------
Performance: Investment income -- net .21 .47 .55 .44
Realized and unrealized gain on investments and
foreign currency transactions -- net 3.10 7.49 4.18 3.05
---------- ---------- ---------- ----------
Total from investment operations 3.31 7.96 4.73 3.49
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.44) (.54) (.58) (.33)
Realized gain on investments -- net (2.23) (1.39) (.57) (.10)
---------- ---------- ---------- ----------
Total dividends and distributions (2.67) (1.93) (1.15) (.43)
---------- ---------- ---------- ----------
Net asset value, end of period $36.23 $35.59 $29.56 $25.98
========== ========== ========== ==========
Total Investment Based on net asset value per share 9.42%++++ 28.60% 18.69% 15.59%++++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.56%* 1.58% 1.59% 1.66%*
Net Assets: ========== ========== ========== ==========
Investment income -- net 1.12%* 1.51% 1.83% 2.09%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $416,702 $337,828 $211,787 $74,334
Data: ========== ========== ========== ==========
Portfolio turnover 7.45% 13.00% 13.94% 11.69%
========== ========== ========== ==========
Average commission rate paid+++++ $.0595 $.0582 $.0491 --
========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++ 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>
<TABLE>
<CAPTION>
Financial Highlights (continued)
Class D
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994++ to
Dec. 31, June 30, June 30,
1997+ 1997+ 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $36.42 $30.16 $26.41 $23.19
Operating ---------- ---------- ---------- ----------
Performance: Investment income -- net .36 .73 .76 .50
Realized and unrealized gain on investments and
foreign currency transactions -- net 3.17 7.66 4.27 3.17
---------- ---------- ---------- ----------
Total from investment operations 3.53 8.39 5.03 3.67
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.70) (.74) (.71) (.35)
Realized gain on investments -- net (2.23) (1.39) (.57) (.10)
---------- ---------- ---------- ----------
Total dividends and distributions (2.93) (2.13) (1.28) (.45)
---------- ---------- ---------- ----------
Net asset value, end of period $37.02 $36.42 $30.16 $26.41
========== ========== ========== ==========
Total Investment Based on net asset value per share 9.84%++++ 29.65% 19.61% 16.23%++++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses .79%* .80% .81% .87%*
Net Assets: ========== ========== ========== ==========
Investment income -- net 1.89%* 2.28% 2.61% 2.88%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $1,266,504 $886,391 $434,396 $203,033
Data: ========== ========== ========== ==========
Portfolio turnover 7.45% 13.00% 13.94% 11.69%
========== ========== ========== ==========
Average commission rate paid+++++ $.0595 $.0582 $.0491 --
========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++ 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>
Merrill Lynch Basic Value Fund, Inc. December 31, 1997
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. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature. The
Fund offers four classes of shares under the Merrill Lynch Select
PricingSM 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.
(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 or
under the authority of 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.
Options purchased by the Fund 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, at the last bid 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.
[bullet] Options -- The Fund is authorized to write and purchase
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).
Written and purchased 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.
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 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:
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 six months ended December 31, 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 $23,752 $283,644
Class D $73,352 $1,044,882
For the six months ended December 31, 1997, MLPF&S received contingent
deferred sales charges of $1,843,193 and $45,919 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $30,147 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended December 31, 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.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended December 31, 1997 were $901,170,388 and
$705,239,602, respectively.
Net realized and unrealized gains as of December 31, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $385,795,384 $4,093,729,328
------------ --------------
Total $385,795,384 $4,093,729,328
============ ==============
As of December 31, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $4,093,729,328, of which $4,173,964,241
related to appreciated securities and $80,234,913 related to
depreciated securities. At December 31, 1997, the aggregate cost of
investments for Federal income tax purposes was $7,203,586,169.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$869,314,094 and $945,290,139 for the six months ended December 31,
1997 and for the year ended June 30, 1997, respectively.
Transactions in capital shares for each class were
as follows:
Class A Shares for the Six Months Dollar
Ended December 31, 1997 Shares Amount
Shares sold 11,552,484 $434,211,828
Shares issued to shareholders
in reinvestment of dividends
and distributions 9,831,759 365,328,090
-------------- --------------
Total issued 21,384,243 799,539,918
Shares redeemed (15,575,965) (585,923,055)
-------------- --------------
Net increase 5,808,278 $213,616,863
============== ==============
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
============== ==============
Class B Shares for the Six Months Dollar
Ended December 31, 1997 Shares Amount
Shares sold 14,657,238 $542,899,996
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,366,044 269,955,814
-------------- --------------
Total issued 22,023,282 812,855,810
Automatic conversion of
shares (6,577,292) (244,706,875)
Shares redeemed (9,650,568) (356,952,498)
-------------- --------------
Net increase 5,795,422 $211,196,437
============== ==============
Class B Shares for the Year Dollar
Ended 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 C Shares for the Six Months Dollar
Ended December 31, 1997 Shares Amount
Shares sold 2,528,867 $92,852,410
Shares issued to shareholders
in reinvestment of dividends
and distributions 685,367 24,889,642
-------------- --------------
Total issued 3,214,234 117,742,052
Shares redeemed (1,202,845) (44,133,245)
-------------- --------------
Net increase 2,011,389 $73,608,807
============== ==============
Class C Shares for the Year Dollar
Ended 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 D Shares for the Six Months Dollar
Ended December 31, 1997 Shares Amount
Shares sold 4,277,073 $160,639,659
Automatic conversion of shares 6,486,742 244,706,875
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,069,455 76,804,608
-------------- --------------
Total issued 12,833,270 482,151,142
Shares redeemed (2,957,060) (111,259,155)
-------------- --------------
Net increase 9,876,210 $370,891,987
============== ==============
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
============== ==============
