MERRILL LYNCH
BASIC VALUE
FUND, INC.
FUND LOGO
Quarterly Report
September 30, 1999
Officers and Directors
Terry K. Glenn, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Fred G. Weiss, Director
Arthur Zeikel, Director
Robert C. Doll, Senior Vice President
Paul M. Hoffmann, Senior Vice President
and Portfolio Manager
Kevin M. Rendino, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President and
Treasurer
Thomas D. Jones, III, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
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
Printed on post-consumer recycled paper
MERRILL LYNCH BASIC VALUE FUND, INC.
TO OUR SHAREHOLDERS
During the quarter ended September 30, 1999, the US financial
markets were extremely volatile. In June, the broad US stock market
averages reached record highs. However, by July, fears of
accelerating inflation and the associated risk of additional
increases in interest rates persisted. The likelihood of additional
monetary policy tightening by the Federal Reserve Board was renewed
following the release of stronger-than-expected economic data.
Stock prices declined for the third consecutive month in September
as a weakening of the US dollar against the Japanese yen prompted
worries over threats to Japan's fragile economic recovery and the
potential for accelerated repatriation of US investments. In
addition, the bulging trade deficit, coupled with rising commodity
prices and ongoing robust economic activity, suggested the Federal
Reserve Board might increase short-term interest rates for the third
time this year at its November meeting. Finally, announced earnings
short falls for many prominent companies, particularly in the
consumer arena, raised concerns over the sustainability of corporate
earnings growth.
For the September quarter, the US bond market was a beneficiary of
many of these developments. While fixed-income investors reacted
poorly to evidence of incipient inflationary pressures and the
prospect of higher interest rates in the early months of the
quarter, a significant rally ensued in September driven by a
slowdown in average hourly earnings and extremely benign inflation
reports.
Portfolio Matters
Security purchases in the third quarter of 1999 amounted to $240
million while equity sales totaled $520 million. On the buy side,
there were no new additions to the portfolio but we added to ten
existing positions. On the sell side, we eliminated two positions
and reduced 11 holdings. Stock prices generally declined in the
three-month period ended September 30, 1999, and the bulk of our
sales were accomplished early in the quarter while most purchases
were on weakness late in the quarter.
Our largest sale during the September quarter was a 17% reduction in
our largest holding, International Business Machines Corporation
(IBM). At the end of the June quarter, IBM accounted for 5.6% of
Fund assets. With early July price strength, the position approached
6%. In our opinion, prudence dictated a reduction and, while still
our largest holding, the present 4.7% position seems more
appropriate.
Early in the September quarter, we also cut back on two other of our
holdings that were among the Fund's ten largest at the close of the
June quarter: Hewlett-Packard Company and E.I. du Pont de Nemours
and Company (Du Pont). Both stocks subsequently declined about 15%
and late in the quarter, we added back to positions in both,
continuing our long-term propensity to trade around core positions.
Our largest purchase during the September quarter increased our
position in First Union Corporation, which we originally purchased
late in the June quarter. At that time we stated that, at 13 times
reduced 1999 earnings estimates and yielding over 4%, additional
price risks seemed limited. We were premature in that assessment,
since price weakness for most bank stocks continued in the September
quarter. However, we continue to believe that the bank has a strong
franchise and long-term growth prospects are favorable. At September
30, 1999, the stock was selling at less than 11 times 1999 earnings
estimates and the yield was close to 5%.
In addition to the aforementioned increases in the Hewlett-Packard
and Du Pont positions, we also added to our Caterpillar Inc., Delphi
Automotive Systems Corporation and International Paper Company
holdings during the September quarter.
Merrill Lynch Basic Value Fund, Inc.
September 30, 1999
On the sell side, we eliminated the final portion of Applied
Materials, Inc. at a significant profit. When initially purchased
about a year ago, the stock was severely depressed and decidedly out-
of-favor. Currently, the stock is extremely popular, highly
recommended and all but "priced for perfection." Accordingly, we
secured our profits. We also eliminated a small position in Data
General Corporation on the advance in price following a takeover
proposal.
In Conclusion
Although the stock market averages have been locked in a fairly
narrow range for the past six months, volatility in groups and
individual issues seems to have intensified. The fourth quarter of
the year may see an exaggeration of sharp price swings, and we hope
to take advantage on both the buy and sell sides of any dramatic
shifts.
Thank you for your investment in Merrill Lynch Basic Value Fund,
Inc. We look forward to reviewing our outlook and strategy in our
upcoming semi-annual report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Paul M. Hoffmann)
Paul M. Hoffmann
Senior Vice President and Co-Portfolio Manager
(Kevin M. Rendino)
Kevin M. Rendino
Senior Vice President and Co-Portfolio Manager
October 12, 1999
PORTFOLIO INFORMATION
As of September 30, 1999
Percent of
Ten Largest Stock Holdings Net Assets
International Business Machines
Corporation 4.7%
Citigroup Inc. 3.7
Wells Fargo Company 3.0
Royal Dutch Petroleum Company
(NY Registered Shares) 2.5
Ameritech Corporation 2.4
Exxon Corporation 2.4
Mobil Corporation 2.4
Koninklijke (Royal) Philips Electronics NV
(NY Registered Shares) 2.3
GTE Corporation 2.1
Telefonica SA (ADR) 2.0
Merrill Lynch Basic Value Fund, Inc.
September 30, 1999
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).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/99 +21.79% +15.40%
Five Years Ended 9/30/99 +19.43 +18.15
Ten Years Ended 9/30/99 +13.85 +13.24
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/99 +20.55% +16.55%
Five Years Ended 9/30/99 +18.22 +18.22
Ten Years Ended 9/30/99 +12.69 +12.69
[FN]
*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 9/30/99 +20.55% +19.55%
Inception (10/21/94)
through 9/30/99 +18.30 +18.30
[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 9/30/99 +21.47% +15.09%
Inception (10/21/94)
through 9/30/99 +19.22 +17.93
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Basic Value Fund, Inc.
September 30, 1999
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 $24,393.84 on
September 30, 1999.
<TABLE>
Recent Performance Results
<CAPTION>
Ten Years/
3 Month 12 Month Since Inception
As of September 30, 1999 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Basic Value Fund Class A Shares* -5.71% +21.79% +265.81%
ML Basic Value Fund Class B Shares* -5.96 +20.55 +230.17
ML Basic Value Fund Class C Shares* -5.96 +20.55 +129.44
ML Basic Value Fund Class D Shares* -5.77 +21.47 +138.44
Dow Jones Industrial Average** -5.40 +34.02 +399.13/+195.03
Standard & Poor's 500 Index** -6.24 +27.80 +373.34/+203.85
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund's ten-year/since inception periods are ten years for Class A &
Class B Shares and from 10/21/94 for Class C & Class D Shares,
respectively.
**An unmanaged broad-based index comprised of common stocks. Ten
years/since inception total returns are for ten years and from
10/21/94, respectively.
</TABLE>
Merrill Lynch Basic Value Fund, Inc.
September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industry Held Stocks Value Net Assets
Low Price to Book Value
<S> <C> <S> <C> <C>
Metals/Non-Ferrous 1,200,000 ASARCO Incorporated $ 32,175,000 0.3%
Telecommunications 3,800,000 AT&T Corp. 165,300,000 1.4
Insurance 2,500,000 American General Corporation 157,968,750 1.3
Insurance 260,000 American National Insurance Company 17,420,000 0.1
Steel 4,500,000 Bethlehem Steel Corporation 33,187,500 0.3
Aerospace 4,100,000 The Boeing Company 174,762,500 1.5
Restaurants 3,900,000 Darden Restaurants, Inc. 76,293,750 0.6
Farm & Construction
Equipment 4,500,000 Deere & Company 174,093,750 1.4
Oil Services & Equipment 4,300,000 Diamond Offshore Drilling, Inc. 143,512,500 1.2
Retail 3,150,000 Federated Department Stores, Inc. 137,615,625 1.2
Capital Goods 2,800,000 Fluor Corporation 112,700,000 0.9
Automotive 4,600,000 Ford Motor Company 230,862,500 1.9
Automotive 2,700,000 General Motors Corporation 169,931,250 1.4
Insurance 2,500,000 The Hartford Financial Services Group, Inc. 102,187,500 0.8
Chemicals 800,000 Imperial Chemical Industries PLC (ADR)* 34,550,000 0.3
Paper & Forest Products 1,900,000 International Paper Company 91,318,750 0.8
Retail 6,000,000 Kmart Corporation 70,125,000 0.6
Electrical Equipment 2,744,000 Koninklijke (Royal) Philips Electronics NV (NY
Registered Shares) 277,144,000 2.3
Insurance 1,400,000 PartnerRe Ltd. 48,650,000 0.4
Fertilizers 1,750,000 Potash Corporation of Saskatchewan Inc. 90,343,750 0.8
Electronics 2,400,000 Tektronix, Inc. 80,400,000 0.7
Telecommunications 4,993,920 Telefonica SA (ADR)* 239,708,160 2.0
Steel 3,000,000 USX-U.S. Steel Group 77,250,000 0.6
Chemicals 2,000,000 Union Carbide Corporation 113,625,000 1.0
Railroads 4,450,000 Union Pacific Corporation 213,878,125 1.8
Retail 4,000,000 Venator Group, Inc. 34,250,000 0.3
Banking 9,000,000 Wells Fargo Company 356,625,000 3.0
--------------- ------
3,455,878,410 28.9
Below-Average Price/Earnings Ratio
Insurance 4,700,000 The Allstate Corporation 117,206,250 1.0
Savings & Loans 3,000,000 Associates First Capital Corporation (Class A) 108,000,000 0.9
Banking 2,600,000 Bank of America Corporation 144,787,500 1.2
Farm & Construction
Equipment 3,875,000 Caterpillar Inc. 212,398,438 1.8
Banking 10,000,000 Citigroup Inc. 440,000,000 3.7
Automotive 4,100,000 Delphi Automotive Systems Corporation 65,856,250 0.5
Photography 1,800,000 Eastman Kodak Company 135,787,500 1.1
Capital Goods 2,000,000 Eaton Corporation 172,625,000 1.4
Chemicals 2,800,000 Hercules Incorporated 80,150,000 0.7
Machinery 3,400,000 ITT Industries, Inc. 108,162,500 0.9
Machinery 3,200,000 Ingersoll-Rand Company 175,800,000 1.5
Tobacco 4,400,000 Philip Morris Companies Inc. 150,425,000 1.3
Retail 4,000,000 Sears, Roebuck & Co. 125,500,000 1.0
Electrical Equipment 2,000,000 Thomas & Betts Corporation 102,000,000 0.9
Savings & Loans 2,800,000 Washington Mutual, Inc. 81,900,000 0.7
--------------- ------
2,220,598,438 18.6
</TABLE>
Merrill Lynch Basic Value Fund, Inc.
September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industry Held Stocks Value Net Assets
Above-Average Yield
<S> <C> <S> <C> <C>
Oil--Domestic 1,950,000 Atlantic Richfield Company (ARCO) $ 172,818,750 1.4%
Oil--International 1,650,000 BP Amoco PLC (ADR)* 182,840,625 1.5
Telecommunications 2,900,000 Bell Atlantic Corporation 195,206,250 1.6
Oil--International 2,000,000 Chevron Corporation 177,500,000 1.5
Utilities--Electric 2,000,000 Cinergy Corp. 56,625,000 0.5
Utilities--Electric 1,550,000 Consolidated Edison, Inc. 64,325,000 0.5
Utilities--Electric 956,250 DPL Inc. 16,853,906 0.1
Utilities--Electric 2,200,000 Duke Energy Corporation 121,275,000 1.0
Chemicals 3,700,000 E.I. du Pont de Nemours and Company 225,237,500 1.9
Electrical Equipment 2,100,000 Emerson Electric Co. 132,693,750 1.1
Utilities--Electric 3,000,000 Entergy Corporation 86,812,500 0.7
Oil--International 3,850,000 Exxon Corporation 292,359,375 2.4
Banking 3,300,000 First Union Corporation 117,356,250 1.0
Telecommunications 3,300,000 GTE Corporation 253,687,500 2.1
Foods 1,900,000 General Mills, Inc. 154,137,500 1.3
Real Estate Investment Trust 900,000 Liberty Property Trust 20,418,750 0.2
Real Estate Investment Trust 500,000 Mills Corp. 8,906,250 0.1
Oil--International 2,850,000 Mobil Corporation 287,137,500 2.4
Banking 4,000,000 National City Corporation 106,750,000 0.9
Utilities--Electric 2,400,000 NiSource Inc. 53,100,000 0.4
Utilities--Electric 2,400,000 PECO Energy Company 90,000,000 0.8
Utilities--Electric 1,800,000 Public Service Enterprise Group Incorporated 69,525,000 0.6
Oil--International 5,000,000 Royal Dutch Petroleum Company (NY Registered Shares) 295,312,500 2.5
Foods/Food Processing 5,500,000 Sara Lee Corporation 128,906,250 1.1
Real Estate Investment Trust 2,100,000 Simon Property Group, Inc. 47,118,750 0.4
Oil--International 3,000,000 Texaco Inc. 189,375,000 1.6
Utilities--Electric 2,900,000 Texas Utilities Company 108,206,250 0.9
Telecommunications 3,000,000 U S WEST, Inc. 171,187,500 1.4
--------------- ------
3,825,672,656 31.9
Special Situations
Telecommunications 4,375,000 Ameritech Corporation 293,945,313 2.4
Pharmaceuticals 1,320,000 AstraZeneca Group PLC (ADR)* 55,770,000 0.5
Oil Services & Equipment 3,600,000 Halliburton Company 147,600,000 1.2
Information Processing 2,300,000 Hewlett-Packard Company 211,600,000 1.8
Information Processing 4,650,000 International Business Machines Corporation 564,393,750 4.7
Semiconductors 1,275,000 Texas Instruments Incorporated 104,868,750 0.9
Information Processing 5,000,000 Unisys Corporation 225,625,000 1.9
--------------- ------
1,603,802,813 13.4
Total Stocks (Cost--$6,877,643,109) 11,105,952,317 92.8
</TABLE>
Merrill Lynch Basic Value Fund, Inc.
September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Percent of
Amount Issue Value Net Assets
Short-Term Securities
<S> <C> <S> <C> <C>
Commercial Paper** $ 20,000,000 American Home Products, Inc., 5.29% due 10/29/1999 $ 19,914,772 0.2%
45,000,000 Associates First Capital Corp., 5.31% due 11/08/1999 44,741,138 0.4
40,000,000 Bell South Capital Corp., 5.20% due 10/12/1999 39,930,667 0.3
50,000,000 The CIT Group Holdings, Inc., 5.28% due 11/01/1999 49,765,333 0.4
35,000,000 CSW Credit Inc., 5.30% due 10/06/1999 34,969,083 0.3
25,000,000 Gannett Company, 5.27% due 10/19/1999 24,930,465 0.2
50,000,000 General Electric Co., 5.31% due 11/23/1999 49,601,750 0.4
34,581,000 General Motors Acceptance Corp., 5.69% due 10/01/1999 34,575,534 0.3
30,000,000 H.J. Heinz Company, 5.27% due 10/14/1999 29,938,517 0.2
Metropolitan Life Insurance Company:
55,000,000 5.28% due 10/05/1999 54,959,667 0.5
30,000,000 5.30% due 10/07/1999 29,969,083 0.3
40,000,000 5.29% due 10/15/1999 39,911,833 0.3
20,000,000 Newell Rubbermaid Inc., 5.29% due 10/13/1999 19,961,795 0.2
Pfizer Inc.:
40,000,000 5.27% due 10/04/1999 39,976,578 0.3
21,000,000 5.28% due 10/20/1999 20,938,400 0.2
38,039,000 5.27% due 10/28/1999 37,883,082 0.3
35,000,000 U S A A Capital Corp., 5.27% due 10/01/1999 34,994,876 0.3
Vodaphone Airtouch PLC:
35,000,000 5.32% due 10/22/1999 34,886,211 0.3
23,000,000 5.33% due 10/25/1999 22,914,868 0.2
30,000,000 Wal-Mart Stores, Inc., 5.28% due 10/12/1999 29,947,200 0.2
Xerox Capital (Europe) PLC:
33,157,000 5.28% due 10/06/1999 33,127,822 0.3
41,000,000 5.30% due 11/16/1999 40,716,303 0.3
50,000,000 Xerox Credit Corp., 5.20% due 10/08/1999 49,942,222 0.4
--------------- ------
818,497,199 6.8
US Government Agency Federal Home Loan Mortgage Corporation:
Obligations** 17,460,000 5.21% due 10/22/1999 17,404,409 0.2
27,208,000 5.23% due 11/15/1999 27,026,175 0.2
12,000,000 Federal National Mortgage Association, 5.23% due
10/04/1999 11,993,027 0.1
--------------- ------
56,423,611 0.5
Total Short-Term Securities (Cost--$874,920,810) 874,920,810 7.3
Total Investments (Cost--$7,752,563,919) 11,980,873,127 100.1
Liabilities in Excess of Other Assets (12,476,431) (0.1)
--------------- ------
Net Assets $11,968,396,696 100.0%
=============== ======
Net Asset Value: Class A--Based on net assets of $5,131,279,761 and 133,596,333
shares outstanding $ 38.41
===============
Class B--Based on net assets of $4,455,895,605 and 118,191,986
shares outstanding $ 37.70
===============
Class C--Based on net assets of $503,685,881 and 13,521,285
shares outstanding $ 37.25
===============
Class D--Based on net assets of $1,877,535,449 and 49,029,024
shares outstanding $ 38.29
===============
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rates shown reflect the
discount rates paid at the time of purchase by the Fund.
</TABLE>
