UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07177
Name of Fund: Merrill Lynch Mid Cap Value Opportunities Fund of
The Asset Program, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Merrill Lynch Mid Cap Value Opportunities Fund of The Asset
Program, Inc., 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing
address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 01/31/07
Date of reporting period: 02/01/06 - 07/31/06
Item 1 - Report to Stockholders
Semi-Annual Report
July 31, 2006
Merrill Lynch
Mid Cap Value
Opportunities Fund
Of The Asset Program, Inc.
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation
of an offer to buy shares of the Fund unless accompanied or preceded by the
Fund's current prospectus. Past performance results shown in this report
should not be considered a representation of future performance. Investment
return and principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Statements and
other information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available (1)
without charge, upon request, by calling toll-free 1-800-637-3863; (2) at
www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com; and
(2) on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Mid Cap Value Opportunities Fund of
The Asset Program, Inc.
Box 9011
Princeton, NJ 08543-9011
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Merrill Lynch Mid Cap Value Opportunities Fund
Announcement to Shareholders
On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co.,
Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's
investment management business, Merrill Lynch Investment Managers, L.P. and
certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch
Investment Managers International Limited), to BlackRock to create a new
independent company ("New BlackRock") that will be one of the world's largest
asset management firms with over $1 trillion in assets under management (based
on combined assets under management as of June 30, 2006) (the "Transaction").
The Transaction is expected to close around the end of the third quarter of
2006, at which time the new company will operate under the BlackRock name. The
Fund's Board of Directors and shareholders have approved a new investment
advisory agreement with BlackRock Advisors, Inc. or its successor on
substantially the same terms and for the same advisory fee as the current
investment advisory agreement with the Investment Adviser. BlackRock Advisors,
Inc. or its successor is expected to become the investment adviser of the Fund
upon the closing of the Transaction.
Portfolio Information as of July 31, 2006
Percent of
Ten Largest Equity Holdings Net Assets
Newfield Exploration Co. 2.5%
Medicis Pharmaceutical Corp. Class A 2.5
Allied Waste Industries, Inc. 2.4
Timken Co. 2.4
Conseco, Inc. 2.3
Foot Locker, Inc. 2.1
BJ Services Co. 2.1
Noble Energy, Inc. 2.1
The Gap, Inc. 2.0
MedImmune, Inc. 2.0
Percent of
Five Largest Industries Net Assets
Oil, Gas & Consumable Fuels 8.0%
Real Estate Investment Trusts (REITs) 6.6
Specialty Retail 6.0
Commercial Banks 5.7
Biotechnology 4.7
Percent of
Total
Sector Representation Investments
Financials 17.3%
Information Technology 13.1
Industrials 11.7
Energy 10.1
Consumer Discretionary 9.7
Health Care 8.8
Materials 4.6
Utilities 4.0
Telecommunication Services 1.4
Consumer Staples 0.6
Other* 18.7
* Includes portfolio holdings in short-term investments and
certain exchange-traded funds.
For Fund compliance purposes, the Fund's industry and sector
classifications refer to any one or more of the industry and
sector sub-classifications used by one or more widely recognized
market indexes or ratings group indexes, and/or as defined by
Fund management. This definition may not apply for purposes
of this report, which may combine such industry and sector
sub-classifications for reporting ease.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
A Letter From the President
Dear Shareholder
By now, you have probably heard of the important changes unfolding at Merrill
Lynch Investment Managers ("MLIM"). We have been communicating with
shareholders, via letters like this and in a detailed proxy mailing, about
MLIM's impending union with another highly regarded investment manager -
BlackRock, Inc. ("BlackRock"). This transaction marks the next chapter in
MLIM's growth story and, we believe, will be a benefit to our investors.
MLIM, a division of Merrill Lynch with over $583 billion in assets under
management, is a leading investment manager offering more than 100 investment
strategies in vehicles ranging from mutual funds to institutional portfolios.
BlackRock, with $464.1 billion in assets under management, is one of the
largest publicly traded investment management firms in the United States
managing assets on behalf of institutional and individual investors worldwide
through a variety of equity, fixed income, liquidity and alternative investment
products. At the completion of the transaction, which is expected around the
end of the third quarter of 2006, the resultant firm will be a top-10
investment manager worldwide with over $1 trillion in assets under management.*
The combined company, to be known as BlackRock, will provide a wide selection
of high-quality investment solutions across a range of asset classes and
investment styles. The organization will have over 4,500 employees in 18
countries and a major presence in key markets worldwide. MLIM and BlackRock
possess complementary capabilities that together create a well-rounded
organization uniting some of the finest money managers in the industry. The
firms share similar values and beliefs - each strives for excellence in all
areas, and both make investment performance their single most important
mission. As such, our combination only reinforces our commitment to
shareholders.
Most of MLIM's investment products - including mutual funds, separately managed
accounts, annuities and variable insurance funds - eventually will carry the
"BlackRock" name. This will be reflected in newspaper and online information
sources beginning in October. Your account statements will reflect the
BlackRock name beginning with the October month-end reporting period. Unless
otherwise communicated via a proxy statement, your funds will maintain the
same investment objectives that they do today. Importantly, the MLIM/BlackRock
union will not affect your brokerage account or your relationship with your
financial advisor. If you are a client of Merrill Lynch, you will remain a
client of Merrill Lynch.
As always, we thank you for entrusting us with your investment assets. We look
forward to continuing to serve your investment needs with even greater
strength and scale as the new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
* $1.047 trillion in assets under management as of June 30, 2006.
Data, including assets under management, are as of June 30, 2006.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
A Discussion With Your Fund's Portfolio Manager
Strong stock selection helped the Fund to outpace its benchmark in a declining
market, though we believe mid cap stocks are poised for a return to favorable
relative performance.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended July 31, 2006, Merrill Lynch Mid Cap Value
Opportunities Fund's Class A, Class B, Class C, Class I and Class R Shares had
total returns of -2.42%, -2.84%, -2.84%, -2.32% and -2.54%, respectively.
(Fund results shown do not reflect sales charges and would be lower if sales
charges were included. Complete performance information can be found on pages
6 and 7 of this report to shareholders.) For the same period, the benchmark
Standard & Poor's (S&P) MidCap 400 Index returned -4.37% and the Lipper Mid
Cap Value Funds category had an average return of -1.66%. (Funds in this
Lipper category invest primarily in stocks of mid-capitalization companies
that are considered to be undervalued relative to a major unmanaged stock
index.) The Fund's modest underperformance of the Lipper average reflects the
peer group's deep value orientation in a period when value stocks outperformed
growth stocks and the broader market.
The equity markets were volatile during the six-month period. From the
beginning of 2006 through mid May, equities staged a broad advance, based on
strong corporate earnings and anticipation that the Federal Reserve Board (the
Fed) was nearing the end of its rate tightening cycle. Gross domestic product
(GDP) grew at an annualized rate of 5.6% in the first quarter of the year,
representing the strongest growth rate since the third quarter of 2003.
Beginning in mid-May, however, stock prices dropped sharply in almost every
market around the world. Concerns over inflation and fears that the Fed would
continue to raise interest rates, possibly causing a recession, were the major
factors behind the severe price declines, which were even more pronounced in
the riskier asset classes. Following the strong first quarter GDP report,
estimated second-quarter growth came in at a weaker-than-expected 2.5%. Mid
and small cap companies were hard hit in the market correction, and were
particularly weak in July. The S&P Mid Cap 400, which had a year-to-date lead
on the large cap S&P 500 Index at the end of June, declined 2.85% in July,
putting the index in negative territory and behind the S&P 500 for the
six-month period ended July 31, 2006.
What factors most influenced Fund performance?
The Fund was able to outpace its benchmark in the turbulent market environment
described above. Strong stock selection was primarily responsible for the
outperformance, with a modest benefit from our sector positioning.
In particular, our stock picks in industrials, information technology (IT) and
consumer discretionary contributed most to results. To some extent, this
reflected a move toward more defensive stocks. In IT, for example, we had
lower-beta names such as Anixter International, Inc. and Convergys Corp.,
which rely on recurring revenue from their existing products and services for
their fortunes. Anixter, a global distributor of wiring systems and networking
products, was the top-performing stock in the portfolio overall. The company
benefited indirectly from rising copper prices, in that it was able to pass
the high materials costs on to customers. Anixter also saw strong demand for
its products and turned in solid operating results in the second quarter.
In industrials, we saw healthy gains from our transportation stocks,
particularly in the railroad, trucking and less-than-truckload carriers. Top
among them was Swift Transportation, which benefited from the successful
implementation of a restructuring plan that resulted in improved operating
results. A strong performer in the consumer discretionary sector was Foot
Locker, Inc., our largest retail position and one of the Fund's ten largest
holdings. Rumors that Foot Locker is being pursued as a leveraged buyout
candidate led to strong stock price appreciation. Also among our top
performers for the period was NuCor Corp., a manufacturer of steel products,
which benefited from solid operating leverage amid continued high commodities
prices.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Stocks that detracted most from Fund performance during the six-month period
included Andrew Corp., a telecommunications equipment provider. Andrew
declined when the company received an all-stock acquisition offer from ADC
Telecommunications, Inc. that was substantially less than expected. We
continue to hold shares of Andrew based on favorable business trends and the
likelihood that the company will receive a higher acquisition offer.
Marketing company Valassis Communications, Inc. declined after it acquired
direct marketing company ADVO at a high premium, a development that
disappointed investors. We retained our position based on our belief that
Valassis still represents value given its good cash flow and modest
valuation. Networking company Novell, Inc., a top performer in our last
report to shareholders, also underperformed during this period. Investors
lost confidence in management's ability to implement a successful business
plan after two concurrent quarters where market expectations were not
achieved. Since then, a new management team with a well-articulated business
plan has been put in place. At current levels, Novell shares remain
attractive based on our internal price and valuation parameters, prompting us
to retain our position.
Mergers and acquisitions continued at a robust pace with several Fund holdings
participating in the consolidation activity. For example, Cinergy Corp., a
regulated utility, was acquired by Duke Energy Corp. Knight Ridder, Inc. was
acquired by McClatchy Co. to become the fourth-largest U.S. newspaper
publisher. Maverick Tube Corp., a manufacturer of steel and tubular products,
was the target of an acquisition by Tenaris SA., and Siebel Systems, Inc., a
provider of customer-related management software, was acquired by Oracle Corp.
We anticipate that further leveraged buyouts and mergers and acquisitions will
support mid cap valuations at least through year-end.
What changes were made to the portfolio during the period?
We made several enhancements to the portfolio, eliminating certain investments
and replacing them with what we believe are more compelling opportunities.
In the biotechnology area, we reduced or eliminated several companies that had
attained or exceeded our internal price targets. One example was Cephalon,
Inc., a company that develops and markets products to treat neurological
disorders and cancer. As the company neared Food and Drug Administration (FDA)
approval for its drug to treat attention deficit hyperactivity disorder, there
was a fair amount of investor optimism about the drug's prospects, and this
propelled the company's stock higher. As a result of the sharp price
appreciation, we sold our position to lock in gains.
We made similar changes in other areas of the Fund. In industrials, we
increased our position in defense electronics providers, while scaling back
investments in engineering and construction companies. Goodrich Corp., a
supplier of aerospace components and systems, is an example of an addition in
the defense electronics area. Another important addition in industrials was
The Timken Company, one of the Fund's ten largest holdings at period-end.
Timken makes bearings used in various products, from computers to railroad
cars, and also manufactures alloy and specialty steel products. Also in
industrials, we eliminated our position in Ryder System, Inc., a transportation
and logistics provider, as shares reached our internal price targets and the
resultant risk/reward proposition became unfavorable.
In IT, we moved to a slightly underweight position after reducing or
eliminating companies that had delivered very favorable results at the end of
2005, when technology stocks made a particularly strong showing. One notable
deletion was Tech Data Corporation. Still, information technology remains an
attractive sector, in our view, and we continue to search for opportunities in
software and telecommunications companies in particular.
Finally, we rebalanced our positions in the financial services sector. While
we are still overweight compared to the benchmark S&P MidCap 400 Index, we
reduced our holdings in regional banks and thrifts in favor of more exposure
to real estate investment trusts (REITs) and capital markets exposure. Our
REIT investments were increased through the addition of Crescent Real Estate
Equities, which has properties in the office, retail and leisure markets. In
some of its most important markets, vacancies are declining and pricing is
improving, which is a positive for Crescent. We also believe the company has a
hidden asset with its ownership interest in Canyon Ranch resorts.
How would you characterize the Fund's position at the close of the period?
As of June 30, 2006, the Fund was most overweight in the financial services
and energy sectors. Given the Fund's above-average exposure to the energy
sector and the strong performance of energy stocks, we trimmed several
positions on share price appreciation. Still, we believe energy stocks are
poised for further outperformance amid strength in the world economy and tight
energy supplies. As a corollary, the Fund remained underweight in the consumer
discretionary sector based on our concern that higher energy prices may dampen
consumer spending.
Looking ahead, we believe that mid cap stocks are poised for positive
performance. Merger-and-acquisition activity has remained strong, which tends
to support stock prices. Furthermore, we believe that mid caps will continue
to exhibit robust earnings and their valuations appear reasonable.
R. Elise Baum, CFA
Vice President and Portfolio Manager
August 2, 2006
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end load) of 5.25%
and an account maintenance fee of 0.25% per year (but no distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales charge of
4% declining to 0% after 6 years. In addition, Class B Shares are subject to a
distribution fee of 0.75% per year and an account maintenance fee of 0.25% per
year. These shares automatically convert to Class A Shares after approximately
eight years. (There is no initial sales charge for automatic share
conversions.) All returns for periods greater than eight years reflect this
conversion.
* Class C Shares are subject to a distribution fee of 0.75% per year and an
account maintenance fee of 0.25% per year. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one year
of purchase.
* Effective December 28, 2005, Class I Shares are no longer subject to any
front-end sales charge. Class I Shares bear no ongoing distribution or account
maintenance fees and are available only to eligible investors. Had the sales
charge been included, the Fund's Class I Shares' performance would have been
lower.
* Class R Shares do not incur a maximum sales charge (front-end load) or
deferred sales charge. These shares are subject to a distribution fee of 0.25%
per year and an account maintenance fee of 0.25% per year. Class R Shares are
available only to certain retirement plans. Prior to inception, Class R Share
performance results are those of Class I Shares (which have no distribution or
account maintenance fees) restated for Class R Share fees.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to
the most recent month-end. Performance results do not include the deduction of
taxes that a shareholder would pay on fund distributions or the redemption of
fund shares. Figures shown in each of the following tables assume reinvestment
of all dividends and capital gain distributions, if any, at net asset value on
the ex-dividend date. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer agency fees
applicable to each class, which are deducted from the income available to be
paid to shareholders.
Recent Performance Results
6-Month 12-Month 10-Year
As of July 31, 2006 Total Return Total Return Total Return
ML Mid Cap Value Opportunities Fund--Class A Shares* -2.42% +9.64% +217.53%
ML Mid Cap Value Opportunities Fund--Class B Shares* -2.84 +8.81 +197.37
ML Mid Cap Value Opportunities Fund--Class C Shares* -2.84 +8.83 +192.11
ML Mid Cap Value Opportunities Fund--Class I Shares* -2.32 +9.99 +225.67
ML Mid Cap Value Opportunities Fund--Class R Shares* -2.54 +9.42 +211.25
S&P MidCap 400 Index** -4.37 +4.28 +280.36
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge
was included. Cumulative total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date.
** This unmanaged Index is a market value-weighted index that consists of 400 domestic stocks and measures
the performance of the mid-size company segment of the U.S. market.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Performance Data (concluded)
Average Annual Total Returns
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 7/31/06 + 9.64% + 3.88%
Five Years Ended 7/31/06 + 8.49 + 7.33
Ten Years Ended 7/31/06 +12.25 +11.64
Return Return
Without CDSC With CDSC++++++
Class B Shares++
One Year Ended 7/31/06 + 8.81% + 5.28%
Five Years Ended 7/31/06 + 7.62 + 7.32
Ten Years Ended 7/31/06 +11.51 +11.51
Return Return
Without CDSC With CDSC++++++
Class C Shares++++
One Year Ended 7/31/06 + 8.83% + 7.95%
Five Years Ended 7/31/06 + 7.61 + 7.61
Ten Years Ended 7/31/06 +11.32 +11.32
Class I Shares Return
One Year Ended 7/31/06 + 9.99%
Five Years Ended 7/31/06 + 8.76
Ten Years Ended 7/31/06 +12.53
Class R Shares Return
One Year Ended 7/31/06 + 9.42%
Five Years Ended 7/31/06 + 8.31
Ten Years Ended 7/31/06 +12.02
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
++ Maximum contingent deferred sales charge is 4% and is reduced
to 0% after six years.
++++ Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year.
++++++ Assuming payment of applicable contingent deferred sales
charge.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses
related to transactions, including sales charges, redemption fees and exchange
fees; and (b) operating expenses including advisory fees, distribution fees
including 12b-1 fees, and other Fund expenses. The following example (which is
based on a hypothetical investment of $1,000 invested on February 1, 2006 and
held through July 31, 2006) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in comparing these
expenses with similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during
the period covered by this report, shareholders can divide their account value
by $1,000 and then multiply the result by the number in the first line under
the heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as
sales charges, redemption fees or exchange fees. Therefore, the second table
is useful in comparing ongoing expenses only, and will not help shareholders
determine the relative total expenses of owning different funds. If these
transactional expenses were included, shareholder expenses would have been
higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value February 1, 2006
February 1, July 31, to July 31,
2006 2006 2006
Actual
Class A $1,000 $ 975.80 $ 6.07
Class B $1,000 $ 971.60 $ 9.87
Class C $1,000 $ 971.60 $ 9.92
Class I $1,000 $ 976.80 $ 4.85
Class R $1,000 $ 974.60 $ 7.34
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,018.65 $ 6.21
Class B $1,000 $1,014.78 $10.09
Class C $1,000 $1,014.73 $10.14
Class I $1,000 $1,019.89 $ 4.96
Class R $1,000 $1,017.36 $ 7.50
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.24% for Class A, 2.02% for Class B, 2.03% for Class C, 0.99% for Class I and 1.50% for Class R),
multiplied by the average account value over the period, multiplied by 181/365 (to reflect the
one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the
most recent fiscal half year divided by 365.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Schedule of Investments (in U.S. dollars)
Shares
Industry Common Stocks Held Value
North America
Canada--1.7%
Diversified Telecommunication
Services--1.7%
BCE, Inc. 313,662 $ 7,164,040
Total Common Stocks in Canada 7,164,040
United States--89.5%
Aerospace & Defense--2.0%
Curtiss-Wright Corp. 48,800 1,418,128
Goodrich Corp. 179,400 7,242,378
-------------
8,660,506
Biotechnology--2.8%
Cephalon, Inc. (b)(e) 53,500 3,517,090
MedImmune, Inc. (b)(e) 343,200 8,710,416
-------------
12,227,506
Capital Markets--2.9%
E*Trade Financial Corp. (b)(e) 245,700 5,727,267
Janus Capital Group, Inc. 348,800 5,647,072
TD Ameritrade Holding Corp. 61,100 1,000,818
-------------
12,375,157
Commercial Banks--5.7%
The Colonial BancGroup, Inc. 327,600 8,321,040
Compass Bancshares, Inc. 78,900 4,650,366
First Midwest Bancorp, Inc. 179,975 6,425,108
TD Banknorth, Inc. 183,628 5,325,212
-------------
24,721,726
Commercial Services &
Supplies--4.0%
Allied Waste Industries, Inc. (b) 1,033,500 10,500,360
Cendant Corp. 448,800 6,736,488
-------------
17,236,848
Communications Equipment--3.3%
Andrew Corp. (b) 916,900 7,747,805
Tellabs, Inc. (b) 700,800 6,587,520
-------------
14,335,325
Containers & Packaging--4.0%
Owens-Illinois, Inc. (b) 447,300 6,767,649
Smurfit-Stone Container Corp. (b) 807,700 8,173,924
Temple-Inland, Inc. 49,500 2,105,730
-------------
17,047,303
Electronic Equipment &
Instruments--3.1%
Anixter International, Inc. 134,300 7,403,959
Ingram Micro, Inc. Class A (b) 350,800 6,184,604
-------------
13,588,563
Energy Equipment & Services--4.0%
BJ Services Co. (e) 245,100 8,889,777
Diamond Offshore Drilling Inc. (e) 31,400 2,478,402
Rowan Cos., Inc. 174,100 5,896,767
-------------
17,264,946
Shares
Industry Common Stocks Held Value
North America (continued)
United States (continued)
Food Products--0.7%
Smithfield Foods, Inc. (b) 112,800 $ 3,209,160
Gas Utilities--1.6%
Questar Corp. 75,700 6,707,020
Health Care Providers &
Services--1.6%
Tenet Healthcare Corp. (b)(e) 1,159,700 6,865,424
Health Care Technology--0.6%
Emdeon Corp. (b) 213,743 2,571,328
Hotels, Restaurants &
Leisure--1.1%
OSI Restaurant Partners, Inc. 163,400 4,720,626
IT Services--3.8%
Convergys Corp. (b) 440,000 8,395,200
Sabre Holdings Corp. Class A 393,500 8,145,450
-------------
16,540,650
Insurance--2.3%
Conseco, Inc. (b)(e) 443,700 10,116,360
Internet Software &
Services--0.6%
CNET Networks, Inc. (b) 320,800 2,707,552
Life Sciences Tools &
Services--1.1%
Affymetrix, Inc. (b) 114,600 2,471,922
Charles River Laboratories
International, Inc. (b) 63,700 2,261,350
-------------
4,733,272
Machinery--3.3%
AGCO Corp. (b) 161,700 3,712,632
Timken Co. 324,200 10,439,240
-------------
14,151,872
Media--2.9%
Interpublic Group of Cos., Inc. (b)(e) 350,951 2,874,289
Liberty Global, Inc. Series C (b) 163,379 3,460,367
Valassis Communications, Inc. (b) 310,000 6,364,300
-------------
12,698,956
Metals & Mining--1.5%
NuCor Corp. 119,600 6,359,132
Multi-Utilities--1.8%
OGE Energy Corp. (e) 202,100 7,649,485
Multiline Retail--1.6%
Dollar General Corp. 87,000 1,167,540
Dollar Tree Stores, Inc. (b) 214,200 5,697,720
-------------
6,865,260
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Schedule of Investments (continued) (in U.S. dollars)
Shares
Industry Common Stocks Held Value
North America (concluded)
United States (concluded)
Oil, Gas & Consumable Fuels--8.0%
Aventine Renewable Energy
Holdings, Inc. (b)(e) 13,600 $ 402,560
Cabot Oil & Gas Corp. Class A 139,900 7,379,725
Murphy Oil Corp. (e) 136,900 7,044,874
Newfield Exploration Co. (b) 237,100 10,996,698
Noble Energy, Inc. (e) 175,300 8,871,933
-------------
34,695,790
Pharmaceuticals--2.5%
Medicis Pharmaceutical Corp. Class A 390,300 10,756,668
Real Estate Investment Trusts
(REITs)--5.8%
Crescent Real Estate EQT Co. 365,200 7,128,704
Equity Office Properties Trust 41,100 1,558,101
Friedman Billings Ramsey Group, Inc.
Class A 465,000 4,268,700
New Plan Excel Realty Trust 200,800 5,204,736
Rayonier, Inc. 174,200 6,934,902
-------------
25,095,143
Road & Rail--1.6%
JB Hunt Transport Services, Inc. 333,800 6,866,266
Semiconductors & Semiconductor
Equipment--0.5%
Micron Technology, Inc. (b) 145,900 2,274,581
Software--4.2%
Hyperion Solutions Corp. (b) 209,800 6,537,368
Novell, Inc. (b)(e) 1,224,500 7,947,005
TIBCO Software, Inc. (b) 462,500 3,681,500
-------------
18,165,873
Specialty Retail--6.0%
Foot Locker, Inc. 327,800 8,906,326
The Gap, Inc. 507,200 8,799,920
RadioShack Corp. (e) 303,900 4,914,063
TJX Cos., Inc. 132,500 3,229,025
-------------
25,849,334
Thrifts & Mortgage Finance--3.1%
Sovereign Bancorp, Inc. (e) 348,495 7,192,937
Webster Financial Corp. 129,800 6,121,368
-------------
13,314,305
Trading Companies &
Distributors--1.5%
United Rentals, Inc. (b) 236,200 6,594,704
Total Common Stocks in the
United States 386,966,641
Total Common Stocks in
North America--91.2% 394,130,681
Shares
Industry Common Stocks Held Value
Western Europe
Netherlands--1.6%
Construction & Engineering--1.6%
Chicago Bridge & Iron Co. NV 286,900 $ 6,960,194
Total Common Stocks in
the Netherlands 6,960,194
Switzerland--1.9%
Biotechnology--1.9%
Serono SA (a) 485,900 8,206,851
Total Common Stocks in
Switzerland 8,206,851
Total Common Stocks in
Western Europe--3.5% 15,167,045
Total Common Stocks
(Cost--$383,401,807)--94.7% 409,297,726
Exchange-Traded
Funds
North America
United States--5.0%
iShares Dow Jones US Real Estate Index
Fund (e) 46,100 3,399,875
iShares Dow Jones US Utilities Sector
Index Fund (e) 77,700 6,438,999
iShares Goldman Sachs Natural Resources
Index Fund (e) 28,600 2,908,620
iShares S&P SmallCap 600 Index Fund (e) 56,200 3,372,562
Midcap SPDR Trust Series 1 (a)(e) 38,400 5,204,736
Total Exchange-Traded Funds
(Cost--$18,287,913)--5.0% 21,324,792
Short-Term Beneficial
Securities Interest
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I,
5.07% (c)(d) $ 6,369,550 6,369,550
Merrill Lynch Liquidity Series, LLC
Money, Market Series,
5.33% (c)(d)(f) 78,764,850 78,764,850
Total Short-Term Securities
(Cost--$85,134,400)--19.7% 85,134,400
Total Investments (Cost--$486,824,120*)--119.4% 515,756,918
Liabilities in Excess of Other Assets--(19.4%) (83,655,427)
-------------
Net Assets--100.0% $ 432,101,491
=============
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Schedule of Investments (concluded) (in U.S. dollars)
* The cost and unrealized appreciation (depreciation) of investments
as of July 31, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 489,277,596
================
Gross unrealized appreciation $ 47,429,211
Gross unrealized depreciation (20,949,889)
----------------
Net unrealized appreciation $ 26,479,322
================
(a) Depositary Receipts.
(b) Non-income producing security.
(c) Investments in companies considered to be an affiliate of the Fund,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $(5,292,525) $193,683
Merrill Lynch Liquidity Series, LLC
Money Market Series $ 8,121,950 $ 99,242
(d) Represents the current yield as of July 31, 2006.
(e) Security, or a portion of security, is on loan.
(f) Security was purchased with the cash proceeds from securities loans.
o For Fund compliance purposes, the Fund's industry classifications
refer to any one or more of the industry sub-classifications used by
one or more widely recognized market indexes or ratings group indexes,
and/or as defined by Fund management. This definition may not apply for
purposes of this report, which may combine industry sub-classifications
for reporting ease. Industries are shown as a percent of net assets.
See Notes to Financial Statements.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Statement of Assets and Liabilities
As of July 31, 2006
Assets
Investments in unaffiliated securities, at value (including securities loaned
of $76,126,298) (identified cost--$401,689,720) $ 430,622,518
Investments in affiliated securities, at value (identified cost--$85,134,400) 85,134,400
Receivables:
Securities sold $ 9,266,690
Capital shares sold 465,175
Dividends 326,772
Securities lending 41,784 10,100,421
---------------
Prepaid expenses and other assets 65,549
---------------
Total assets 525,922,888
---------------
Liabilities
Collateral on securities loaned, at value 78,764,850
Payables:
Securities purchased 13,361,128
Capital shares redeemed 1,070,341
Investment adviser 236,414
Other affiliates 196,309
Distributor 192,355 15,056,547
--------------- ---------------
Total liabilities 93,821,397
---------------
Net Assets
Net assets $ 432,101,491
===============
Net Assets Consist of
Class A Shares of Capital Stock, $.10 par value, 40,000,000 shares authorized $ 584,133
Class B Shares of Capital Stock, $.10 par value, 40,000,000 shares authorized 511,451
Class C Shares of Capital Stock, $.10 par value, 40,000,000 shares authorized 575,747
Class I Shares of Capital Stock, $.10 par value, 20,000,000 shares authorized 603,050
Class R Shares of Capital Stock, $.10 par value, 40,000,000 shares authorized 132,788
Paid-in capital in excess of par 368,444,879
Undistributed investment income--net $ 35,145
Undistributed realized capital gains--net 32,281,500
Unrealized appreciation--net 28,932,798
---------------
Total accumulated earnings--net 61,249,443
---------------
Net Assets $ 432,101,491
===============
Net Asset Value
Class A--Based on net assets of $107,345,676 and 5,841,327 shares outstanding $ 18.38
===============
Class B--Based on net assets of $89,214,164 and 5,114,511 shares outstanding $ 17.44
===============
Class C--Based on net assets of $99,744,064 and 5,757,466 shares outstanding $ 17.32
===============
Class I--Based on net assets of $112,477,135 and 6,030,500 shares outstanding $ 18.65
===============
Class R--Based on net assets of $23,320,452 and 1,327,875 shares outstanding $ 17.56
===============
See Notes to Financial Statements.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Statement of Operations
For the Six Months Ended July 31, 2006
Investment Income
Dividends (net of $43,876 foreign withholding tax) $ 3,133,123
Interest from affiliates 193,683
Securities lending--net 99,242
---------------
Total income 3,426,048
---------------
Expenses
Investment advisory fees $ 1,421,217
Account maintenance and distribution fees--Class C 505,576
Account maintenance and distribution fees--Class B 499,599
Transfer agent fees--Class C 139,680
Transfer agent fees--Class I 137,377
Transfer agent fees--Class B 135,798
Account maintenance fees--Class A 127,546
Transfer agent fees--Class A 123,143
Accounting services 80,580
Account maintenance and distribution fees--Class R 50,653
Registration fees 32,600
Custodian fees 32,052
Printing and shareholder reports 27,072
Professional fees 26,854
Transfer agent fees--Class R 24,484
Directors' fees and expenses 10,888
Pricing fees 496
Other 15,288
---------------
Total expenses 3,390,903
---------------
Investment income--net 35,145
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 34,736,009
Foreign currency transactions--net (1,008) 34,735,001
---------------
Change in unrealized appreciation on investments--net (46,323,479)
---------------
Total realized and unrealized loss--net (11,588,478)
---------------
Net Decrease in Net Assets Resulting from Operations $ (11,553,333)
===============
See Notes to Financial Statements.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
July 31, January 31,
Increase (Decrease) in Net Assets: 2006 2006
Operations
Investment income (loss)--net $ 35,145 $ (884,121)
Realized gain--net 34,735,001 84,943,867
Change in unrealized appreciation--net (46,323,479) 6,930,357
--------------- ---------------
Net increase (decrease) in net assets resulting from operations (11,553,333) 90,990,103
--------------- ---------------
Distributions to Shareholders
Realized gain--net:
Class A (4,192,525) (18,957,861)
Class B (3,689,518) (19,783,802)
Class C (4,103,979) (17,621,953)
Class I (4,389,645) (19,951,209)
Class R (926,141) (2,755,527)
--------------- ---------------
Net decrease in net assets resulting from distributions to shareholders (17,301,808) (79,070,352)
--------------- ---------------
Capital Share Transactions
Net increase in net assets derived from capital share transactions 14,169,601 760,761
--------------- ---------------
Net Assets
Total increase (decrease) in net assets (14,685,540) 12,680,512
Beginning of period 446,787,031 434,106,519
--------------- ---------------
End of period* $ 432,101,491 $ 446,787,031
=============== ===============
* Undistributed investment income--net $ 35,145 --
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Financial Highlights
Class A Class B
The following per share For the For the
data and ratios have Six Months Six Months
been derived from Ended Ended
information provided in July 31, For the Year Ended January 31, July 31, For the Year Ended January 31,
the financial statements. 2006 2006 2005 2004 2003 2006 2006 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of
period $ 19.63 $ 19.33 $ 17.39 $ 12.29 $ 17.04 $ 18.73 $ 18.43 $ 16.72 $ 11.90 $ 16.64
---------------------------------------------- ----------------------------------------------
Investment income (loss)--net** .03 .03 (.04) (.05) (.04) (.05) (.13) (.17) (.16) (.15)
Realized and unrealized gain
(loss)--net (.53) 4.28 2.11 5.15 (4.40) (.50) 4.09 2.01 4.98 (4.29)
---------------------------------------------- ----------------------------------------------
Total from investment operations (.50) 4.31 2.07 5.10 (4.44) (.55) 3.96 1.84 4.82 (4.44)
---------------------------------------------- ----------------------------------------------
Less distributions from realized
gain--net (.75) (4.01) (.13) -- (.31) (.74) (3.66) (.13) -- (.30)
---------------------------------------------- ----------------------------------------------
Net asset value, end of period $ 18.38 $ 19.63 $ 19.33 $ 17.39 $ 12.29 $ 17.44 $ 18.73 $ 18.43 $ 16.72 $ 11.90
============================================== ==============================================
Total Investment Return***
Based on net asset value
per share (2.42%)++ 23.66% 11.90% 41.50% (26.12%) (2.84%)++ 22.69% 11.00% 40.50% (26.75%)
============================================== ==============================================
Ratios to Average Net Assets
Expenses 1.24%* 1.26% 1.26% 1.34% 1.37% 2.02%* 2.04% 2.05% 2.15% 2.17%
============================================== ==============================================
Investment income (loss)--net .35%* .13% (.20%) (.34%) (.26%) (.49%)* (.67%) (.99%) (1.14%) (1.05%)
============================================== ==============================================
Supplemental Data
Net assets, end of period
(in thousands) $ 107,346 $ 98,343 $ 85,184 $ 62,061 $ 31,504 $ 89,214 $112,073 $125,145 $139,610 $115,748
============================================== ==============================================
Portfolio turnover 49.30% 109.99% 82.43% 86.16% 73.90% 49.30% 109.99% 82.43% 86.16% 73.90%
============================================== ==============================================
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude the effects of sales charges.
++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Financial Highlights (continued)
Class C Class I
The following per share For the For the
data and ratios have Six Months Six Months
been derived from Ended Ended
information provided in July 31, For the Year Ended January 31, July 31, For the Year Ended January 31,
the financial statements. 2006 2006 2005 2004 2003 2006 2006 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of
period $ 18.61 $ 18.39 $ 16.68 $ 11.88 $ 16.61 $ 19.89 $ 19.58 $ 17.56 $ 12.38 $ 17.12
---------------------------------------------- ----------------------------------------------
Investment income (loss)--net** (.04) (.13) (.18) (.16) (.15) .06 .07 .01 (.01) --+++
Realized and unrealized gain
(loss)--net (.51) 4.07 2.02 4.96 (4.27) (.54) 4.34 2.14 5.19 (4.42)
---------------------------------------------- ----------------------------------------------
Total from investment operations (.55) 3.94 1.84 4.80 (4.42) (.48) 4.41 2.15 5.18 (4.42)
---------------------------------------------- ----------------------------------------------
Less distributions from realized
gain--net (.74) (3.72) (.13) -- (.31) (.76) (4.10) (.13) -- (.32)
---------------------------------------------- ----------------------------------------------
Net asset value, end of period $ 17.32 $ 18.61 $ 18.39 $ 16.68 $ 11.88 $ 18.65 $ 19.89 $ 19.58 $ 17.56 $ 12.38
============================================== ==============================================
Total Investment Return***
Based on net asset value
per share (2.84%)++ 22.65% 11.03% 40.40% (26.73%) (2.32%)++ 23.90% 12.24% 41.84% (25.92%)
============================================== ==============================================
Ratios to Average Net Assets
Expenses 2.03%* 2.05% 2.06% 2.16% 2.19% .99%* 1.01% 1.01% 1.09% 1.12%
============================================== ==============================================
Investment income (loss)--net (.46%)* (.67%) (1.00%) (1.15%) (1.07%) .57%* .34% .04% (.09%) (.01%)
============================================== ==============================================
Supplemental Data
Net assets, end of period
(in thousands) $ 99,744 $103,468 $ 89,771 $ 84,755 $ 67,233 $112,477 $114,921 $126,651 $ 91,845 $ 59,125
============================================== ==============================================
Portfolio turnover 49.30% 109.99% 82.43% 86.16% 73.90% 49.30% 109.99% 82.43% 86.16% 73.90%
============================================== ==============================================
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude the effects of sales charges. Effective December 28, 2005,
Class I Shares are no longer subject to any front-end sales charge.
++ Aggregate total investment return.
+++ Amount is less than $(.01) per share.
See Notes to Financial Statements.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Financial Highlights (concluded)
Class R
For the Period
For the Six February 4,
Months Ended For the Year Ended 2003+++ to
The following per share data and ratios have been derived July 31, January 31, January 31,
from information provided in the financial statements. 2006 2006 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 18.81 $ 18.71 $ 16.87 $ 11.81
------------ ------------ ------------ ------------
Investment income (loss)--net** .01 (.02) (.08) (.09)
Realized and unrealized gain (loss)--net (.51) 4.11 2.05 5.15
------------ ------------ ------------ ------------
Total from investment operations (.50) 4.09 1.97 5.06
------------ ------------ ------------ ------------
Less distributions from realized gain--net (.75) (3.99) (.13) --
------------ ------------ ------------ ------------
Net asset value, end of period $ 17.56 $ 18.81 $ 18.71 $ 16.87
============ ============ ============ ============
Total Investment Return
Based on net asset value per share (2.54%)++ 23.26% 11.68% 42.85%++
============ ============ ============ ============
Ratios to Average Net Assets
Expenses 1.50%* 1.51% 1.51% 1.53%*
============ ============ ============ ============
Investment income (loss)--net .13%* (.11%) (.45%) (.58%)*
============ ============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 23,320 $ 17,981 $ 7,356 $ 467
============ ============ ============ ============
Portfolio turnover 49.30% 109.99% 82.43% 86.16%
============ ============ ============ ============
* Annualized.
** Based on average shares outstanding.
++ Aggregate total investment return.
+++ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch Mid Cap Value Opportunities Fund, (the "Fund") is a series of
The Asset Program, Inc. (the "Program"), which is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's financial statements are prepared
in conformity with U.S. generally accepted accounting principles, which may
require the use of management accruals and estimates. Actual results may
differ from these estimates. These unaudited financial statements reflect all
adjustments, which are, in the opinion of management, necessary to present a
fair statement of the results for the interim period. All such adjustments are
of a normal, recurring nature. The Fund offers multiple classes of shares.
Effective December 28, 2005, Class I Shares are no longer subject to any front-
end sales charge. Class A Shares are sold with a front-end sales charge.
Shares of Class B and Class C may be subject to a contingent deferred sales
charge. Class I Shares are sold only to certain eligible investors. Class R
Shares are sold only to certain retirement plans. All classes of shares have
identical voting, dividend, liquidation and other rights and the same terms
and conditions, except that Class A, Class B, Class C and Class R Shares bear
certain expenses related to the account maintenance of such shares, and Class
B, Class C and Class R Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to its account maintenance and distribution
expenditures (except that Class B shareholders may vote on certain changes
to the Class A distribution plan). Income, expenses (other than expenses
attributable to a specific class) and realized and unrealized gains and losses
are allocated daily to each class based on its relative net assets. The
following is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments--Equity securities that are held by the Fund that
are traded on stock exchanges or the Nasdaq National Market are valued at the
last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available
asked price for short positions. In cases where equity securities are traded
on more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the Board of
Directors of the Fund. Long positions traded in the over-the-counter ("OTC")
market, Nasdaq Small Cap or Bulletin Board are valued at the last available
bid price or yield equivalent obtained from one or more dealers or pricing
services approved by the Board of Directors of the Fund. Short positions
traded in the OTC market are valued at the last available asked price.
Portfolio securities that are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of exchange-
traded options or, in the case of options traded in the OTC market, the last
asked price. Options purchased are valued at their last sale price in the case
of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued based upon quoted fair
valuations received daily by the Fund from a pricing service or counterparty.
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations. Valuation of other short-term investment
vehicles is generally based on the net asset value of the underlying
investment vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Board of Directors of the Fund, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are
reviewed by the officers of the Fund under the general supervision of the
Fund's Board of Directors. Such valuations and procedures will be reviewed
periodically by the Board of Directors of the Fund.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of
business on the New York Stock Exchange ("NYSE"). The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates also are
generally determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of business
on the NYSE that may not be reflected in the computation of the Fund's net
asset value. If events (for example, a company announcement, market volatility
or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may be valued
at their fair value as determined in good faith by the Fund's Board of
Directors or by the Investment Adviser using a pricing service and/or
procedures approved by the Fund's Board of Directors.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Notes to Financial Statements (continued)
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies both to increase the return of the Fund and to hedge, or protect
its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such financial futures contracts. Financial futures
contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract,
the Fund deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
* Options--The Fund may write and purchase call and put 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 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.
* Foreign currency options and futures--The Fund may also purchase or sell
listed or OTC foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. dollar-denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
* Forward foreign exchange contracts--The Fund may enter into forward foreign
exchange contracts as a hedge against either specific transactions or
portfolio positions. The contract is marked-to-market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value at the time it was opened and the value at the
time it was closed.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized.
Assets and liabilities denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency transactions are the
result of settling (realized) or valuing (unrealized) assets or liabilities
expressed in foreign currencies into U.S. dollars. Realized and unrealized
gains or losses from investments include the effects of foreign exchange rates
on investments. The Fund invests in foreign securities, which may involve a
number of risk factors and special considerations not present with investments
in securities of U.S. corporations.
(d) Income taxes--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 imposed on interest, dividends and
capital gains at various rates.
(e) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109". FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements. FIN 48
is effective for fiscal years beginning after December 15, 2006. The Fund will
adopt FIN 48 during the fiscal 2008 year and the impact on the Fund's
financial statements, if any, is currently being assessed.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Notes to Financial Statements (continued)
(f) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed
are subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(g) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(h) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(i) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The market
value of the loaned securities is determined at the close of business of the
Fund and any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Fund typically
receives the income on the loaned securities but does not receive the income
on the collateral. Where the Fund receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and
the borrower, after notice, is required to return borrowed securities within
five business days. The Fund may pay reasonable finders, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Fund could experience
delays and costs in gaining access to the collateral. The Fund also
couldsuffer a loss where the value of the collateral falls below the market
value of the borrowed securities, in the event of borrower default or in the
event of losses on investments made with cash collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch
& Co., Inc. ("ML & Co."), which is the limited partner of MLIM. The Program
has also entered into a Distribution Agreement and Distribution Plans with FAM
Distributors, Inc. ("FAMD" or the "Distributor"), which is a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLIM 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 at the annual rate of .65% of the average net assets of the Fund.
MLIM has entered into a Sub-Advisory Agreement with Merrill Lynch Asset
Management U.K. Limited ("MLAM U.K."), an affiliate of MLIM, pursuant to which
MLAM U.K. provides investment advisory services to MLIM with respect to the
Fund. There is no increase in the aggregate fees paid by the Fund for these
services.
Pursuant to the Distribution Plans adopted by the Program in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the average daily
net assets of the shares as follows:
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
Class R .25% .25%
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of MLIM, also provides
account maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders.
The ongoing distribution fee compensates the Distributor and MLPF&S for
providing shareholder and distribution-related services to Class B, Class C
and Class R shareholders.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Notes to Financial Statements (continued)
For the six months ended July 31, 2006, FAMD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A Shares as
follows:
FAMD MLPF&S
Class A $2,302 $29,262
For the six months ended July 31, 2006, MLPF&S received contingent deferred
sales charges of $79,447 and $2,270 relating to transactions in Class B and
Class C Shares, respectively.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S or its
affiliates. As of July 31, 2006, the Fund lent securities with a value of
$22,898,507 to MLPF&S or its affiliates. Pursuant to that order, the Fund also
has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an
affiliate of MLIM, as the securities lending agent for a fee based on a share
of the returns on investment of cash collateral. MLIM, LLC may, on behalf of
the Fund, invest cash collateral received by the Fund for such loans, among
other things, in a private investment company managed by MLIM, LLC or in
registered money market funds advised by MLIM. For the six months ended July
31, 2006, MLIM, LLC received $43,591 in securities lending agent fees.
In addition, MLPF&S received $73,432 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended
July 31, 2006.
For the six months ended July 31, 2006, the Fund reimbursed MLIM $4,363 for
certain accounting services.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co.,
is the Program's transfer agent.
Certain officers and/or directors of the Program are officers and/or directors
of MLAM U.K., PSI, FAMD, FDS, ML & Co., MLIM, and/or MLIM, LLC.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including MLIM, to the
investment management business of BlackRock, Inc. The transaction is expected
to close around the end of the third quarter of 2006.
On August 31, 2006, shareholders of the Fund approved a new Investment
Advisory Agreement with BlackRock Advisors, Inc., a subsidiary of BlackRock,
Inc., as well as a contingent sub-advisory agreement with BlackRock Advisors,
Inc. The new advisory agreement will become effective upon the closing of the
BlackRock transaction described above and the investment advisory fee will be
unchanged.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
six months ended July 31, 2006 were $222,043,502 and $215,656,093,
respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions were
$14,169,601 and $760,761 for the six months ended July 31, 2006 and year ended
January 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
July 31, 2006 Shares Amount
Shares sold 925,148 $ 17,762,916
Automatic conversion of shares 475,275 9,229,086
Shares issued to shareholders in
reinvestment of distributions 211,345 3,770,396
-------------- ---------------
Total issued 1,611,768 30,762,398
Shares redeemed (781,204) (15,043,587)
-------------- ---------------
Net increase 830,564 $ 15,718,811
============== ===============
Class A Shares for the Year Dollar
Ended January 31, 2006 Shares Amount
Shares sold 1,032,545 $ 20,549,444
Automatic conversion of shares 623,681 12,627,661
Shares issued to shareholders in
reinvestment of distributions 901,960 17,064,915
-------------- ---------------
Total issued 2,558,186 50,242,020
Shares redeemed (1,953,199) (38,573,512)
-------------- ---------------
Net increase 604,987 $ 11,668,508
============== ===============
Class B Shares for the
Six Months Ended Dollar
July 31, 2006 Shares Amount
Shares sold 262,275 $ 4,837,706
Shares issued to shareholders in
reinvestment of distributions 195,487 3,311,547
-------------- ---------------
Total issued 457,762 8,149,253
-------------- ---------------
Automatic conversion of shares (499,048) (9,229,086)
Shares redeemed (829,389) (15,258,965)
-------------- ---------------
Total redeemed (1,328,437) (24,488,051)
-------------- ---------------
Net decrease (870,675) $ (16,338,798)
============== ===============
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Notes to Financial Statements (concluded)
Class B Shares for the Year Dollar
Ended January 31, 2006 Shares Amount
Shares sold 626,157 $ 11,871,896
Shares issued to shareholders in
reinvestment of distributions 968,838 17,469,232
-------------- ---------------
Total issued 1,594,995 29,341,128
-------------- ---------------
Automatic conversion of shares (654,092) (12,627,661)
Shares redeemed (1,745,575) (33,100,238)
-------------- ---------------
Total redeemed (2,399,667) (45,727,899)
-------------- ---------------
Net decrease (804,672) $ (16,386,771)
============== ===============
Class C Shares for the
Six Months Ended Dollar
July 31, 2006 Shares Amount
Shares sold 609,080 $ 11,178,067
Shares issued to shareholders in
reinvestment of distributions 222,506 3,742,550
-------------- ---------------
Total issued 831,586 14,920,617
Shares redeemed (634,958) (11,630,538)
-------------- ---------------
Net increase 196,628 $ 3,290,079
============== ===============
Class C Shares for the Year Dollar
Ended January 31, 2006 Shares Amount
Shares sold 916,089 $ 17,348,535
Shares issued to shareholders in
reinvestment of distributions 878,282 15,734,085
-------------- ---------------
Total issued 1,794,371 33,082,620
Shares redeemed (1,115,273) (21,071,362)
-------------- ---------------
Net increase 679,098 $ 12,011,258
============== ===============
Class I Shares for the
Six Months Ended Dollar
July 31, 2006 Shares Amount
Shares sold 621,200 $ 12,257,770
Shares issued to shareholders in
reinvestment of distributions 234,502 4,244,483
-------------- ---------------
Total issued 855,702 16,502,253
Shares redeemed (603,833) (11,820,786)
-------------- ---------------
Net increase 251,869 $ 4,681,467
============== ===============
Class I Shares for the Year Dollar
Ended January 31, 2006 Shares Amount
Shares sold 1,884,350 $ 37,494,711
Shares issued to shareholders in
reinvestment of distributions 908,270 17,412,018
-------------- ---------------
Total issued 2,792,620 54,906,729
Shares redeemed (3,483,851) (72,091,931)
-------------- ---------------
Net decrease (691,231) $ (17,185,202)
============== ===============
Class R Shares for the
Six Months Ended Dollar
July 31, 2006 Shares Amount
Shares sold 479,699 $ 8,886,343
Shares issued to shareholders in
reinvestment of distributions 54,314 926,054
-------------- ---------------
Total issued 534,013 9,812,397
Shares redeemed (161,946) (2,994,355)
-------------- ---------------
Net increase 372,067 $ 6,818,042
============== ===============
Class R Shares for the Year Dollar
Ended January 31, 2006 Shares Amount
Shares sold 655,688 $ 12,586,153
Shares issued to shareholders in
reinvestment of distributions 152,153 2,754,611
-------------- ---------------
Total issued 807,841 15,340,764
Shares redeemed (245,269) (4,687,796)
-------------- ---------------
Net increase 562,572 $ 10,652,968
============== ===============
5. Short-Term Borrowings:
The Program, on behalf of the Fund, along with certain other funds managed by
MLIM and its affiliates, is a party to a $500,000,000 credit agreement with a
group of lenders, which expires November 2006. The Fund may borrow under the
credit agreement to fund shareholder redemptions and for other lawful purposes
other than for leverage. The Fund may borrow up to the maximum amount
allowable under the Fund's current prospectus and statement of additional
information, subject to various other legal, regulatory or contractual limits.
The Fund pays a commitment fee of .07% per annum based on the Fund's pro rata
share of the unused portion of the credit agreement. Amounts borrowed under
the credit agreement bear interest at a rate equal to, at each Fund's
election, the federal funds rate plus .50% or a base rate as defined in the
credit agreement. The Fund did not borrow under the credit agreement during
the six months ended July 31, 2006.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Officers and Directors
Robert C. Doll, Jr., President and Director
James H. Bodurtha, Director
Kenneth A. Froot, Director
Joe Grills, Director
Herbert I. London, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Donald C. Burke, Vice President and Treasurer
R. Elise Baum, Vice President and Portfolio Manager
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Disclosure of Investment Advisory Agreement
Activities and Composition of the Board of Directors
All but one member of the Board of Directors is an independent director whose
only association with Merrill Lynch Investment Managers, L.P. (the "Investment
Adviser") or other Merrill Lynch affiliates is as a director of the Fund and
as a trustee or director of certain other funds advised by the Investment
Adviser or its affiliates. The Co-chairmen of the Board are also independent
directors. New director nominees are chosen by a Nominating Committee
comprised of independent directors. All independent directors also are members
of the Board's Audit Committee, and the independent directors meet in
executive session at each in-person Board meeting. The Board and the Audit
Committee meet in person for at least two days each quarter and conduct other
in-person and telephone meetings throughout the year, some of which are formal
Board meetings and some of which are informational meetings. The independent
counsel to the independent directors attends all in-person Board and Audit
Committee meetings and other meetings at the independent directors' request.
Investment Advisory Agreement--Matters Considered by the Board
Every year, the Board considers approval of the Fund's investment advisory
agreement (the "Investment Advisory Agreement"). The Board also annually
reviews and considers approval of the sub-advisory agreement on behalf of the
Fund between the Investment Adviser and Merrill Lynch Asset Management U.K.
Limited (the "sub-adviser"). The Board assesses the nature, scope and quality
of the services provided to the Fund by the personnel of the Investment
Adviser, the sub-adviser and their affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing
services and assistance in meeting legal and regulatory requirements. The
Board also receives and assesses information regarding the services provided
to the Fund by certain unaffiliated service providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates, including the sub-adviser. Among the
matters considered are: (a) fees (in addition to management fees) paid to the
Investment Adviser and its affiliates by the Fund, such as transfer agency
fees and fees for marketing and distribution; (b) Fund operating expenses paid
to third parties; (c) the resources devoted to and compliance reports relating
to the Fund's investment objective, policies and restrictions, and its
compliance with its Code of Ethics and compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services
provided by the Investment Adviser and its affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by
the Investment Adviser to be of high quality. The Board also believes that the
Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated with one of America's largest financial
firms. The Board works closely with the Investment Adviser in overseeing the
Investment Adviser's efforts to achieve good performance. As part of this
effort, the Board discusses portfolio manager effectiveness and, when
performance is not satisfactory, discusses with the Investment Adviser taking
steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Directors
In the period prior to the Board meeting to consider renewal of the Investment
Advisory Agreement and the sub-advisory agreement, the Board requests and
receives materials specifically relating to the Investment Advisory Agreement
and/or the sub-advisory agreement. These materials include (a) information
compiled by Lipper Inc. ("Lipper") on the fees and expenses and the investment
performance of the Fund as compared to a comparable group of funds as
classified by Lipper; (b) sales and redemption data for the Fund; (c) a
discussion by the Fund's portfolio management team regarding investment
strategies used by the Fund during its most recent fiscal year; (d)
information on the profitability to the Investment Adviser and its affiliates
of the Investment Advisory Agreement, the sub-advisory agreement and other
relationships with the Fund; and (e) information provided by the Investment
Adviser concerning investment advisory fees charged to other clients, such as
retail offshore funds, under similar investment mandates. Since the sub-
advisory services are provided by an affiliate of the Investment Adviser, and
no additional fee is paid for these services, the Board considered the sub-
advisory agreement and Investment Advisory Agreement together. The Board also
considers other matters it deems important to the approval process, such as
payments made to the Investment Adviser or its affiliates relating to the
distribution of Fund shares, services related to the valuation and pricing of
Fund portfolio holdings, allocation of Fund brokerage fees (including the
related benefits to the Investment Adviser of "soft dollars"), the Fund's
portfolio turnover statistics, and direct and indirect benefits to the
Investment Adviser and the sub-adviser and their affiliates from their
relationship with the Fund.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's Investment Advisory
Agreement and the sub-advisory agreement in June 2006, the independent
directors' and Board's review included the following:
Services Provided by the Investment Adviser--The Board reviewed the nature,
extent and quality of services provided by the Investment Adviser and the sub-
adviser, focusing on the investment advisory services and the resulting
performance of the Fund. The Board uses data provided by Lipper and by
management in its review of advisory services. The Board compared Fund
performance - both including and excluding the effects of the Fund's fees and
expenses - to the performance of a comparable group of mutual funds and the
performance of a relevant index or combination of indexes. While the Board
reviews performance data at least quarterly, the Board attaches more
importance to performance over relatively long periods of time, typically
three to five years. The Board concluded that the comparative data indicated
that performance was competitive. Considering all these factors, the Board
concluded that the nature and quality of the services provided supported the
continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process--The Board reviewed
the Fund's investment objectives and strategies. The Board discusses with
senior management of the Investment Adviser responsible for investment
operations and the senior management of the Investment Adviser's equity
investing group the strategies being used to achieve the stated objectives.
Among other things, the Board considers the size, education and experience of
the Investment Adviser's investment staff, its use of technology, and the
Investment Adviser's approach to training and retaining portfolio managers and
other research, advisory and management personnel. The Board also reviews the
Investment Adviser's compensation policies and practices with respect to the
Fund's portfolio managers. The Board also considered the experience of the
Fund's portfolio manager and noted that Ms. Baum, the Fund's portfolio
manager, has more than 14 years experience in portfolio management. The Board
concluded that the Investment Adviser and its investment staff have extensive
experience in analyzing and managing the types of investments used by the Fund
and that the Fund benefits from that experience.
Management Fees and Other Expenses--The Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared to
the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. The Board considered the services
provided to and the fees charged by the Investment Adviser to other types of
clients with similar investment mandates. The Board determined that the Fund's
contractual and actual management fee rates, as well as total expenses, were
competitive with those of comparable funds. The Board concluded that the
Fund's management fee rate and overall expense ratio are reasonable.
Profitability--The Board considers the cost of the services provided to the
Fund by the Investment Adviser and the Investment Adviser's and its affiliates'
profits relating to the management and distribution of the Fund and the MLIM/
FAM-advised funds. As part of its analysis, the Board reviewed the Investment
Adviser's methodology in allocating its costs to the management of the Fund and
concluded that there was a reasonable basis for the allocation. The Board
concluded that the profits of the Investment Adviser and its affiliates are
acceptable in relation to the nature and quality of services provided.
Economies of Scale--The Board considered the extent to which economies of
scale might be realized as the assets of the Fund increase and whether there
should be changes in the management fee rate or structure in order to enable
the Fund to participate in these economies of scale. While the Board concluded
that the Fund's assets have not reached a level where such economies are
sufficiently available that breakpoints should be introduced, the Board noted
that they would continue to seek information relating to economies of scale.
The Board determined that the management fee structure was reasonable and that
no changes were currently necessary.
Conclusion
After the independent directors deliberated in executive session, the entire
Board, including all of the independent directors, approved the renewal of the
existing Investment Advisory Agreement and sub-advisory agreement, concluding
that the advisory fee was reasonable in relation to the services provided and
that a contract renewal was in the best interests of the shareholders.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement--Matters Considered by the Board
In connection with the Transaction between Merrill Lynch and BlackRock, the
Fund's Board of Directors considered a new investment advisory agreement (the
"New Investment Advisory Agreement") between the Fund and BlackRock Advisors,
Inc. or its successor ("BlackRock Advisors"). The New Investment Advisory
Agreement has been approved by the Fund's shareholders and is expected to
become effective upon the closing of the Transaction in the third quarter
of 2006.
The Board discussed the New Investment Advisory Agreement at telephonic and
in-person meetings held during April and May 2006. The Board, including the
independent directors, approved the New Investment Advisory Agreement at a
meeting held on May 9, 2006.
To assist the Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the New Investment
Advisory Agreement. The additional information was provided in advance of the
May 9, 2006 meeting. In addition, the independent directors consulted with
their counsel and Fund counsel on numerous occasions, discussing, among other
things, the legal standards and certain other considerations relevant to the
directors' deliberations.
At the Board meetings, the directors discussed with Merrill Lynch management
and certain BlackRock representatives the Transaction, its strategic rationale
and BlackRock's general plans and intentions regarding the Fund. At these
Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Board. The directors also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Investment Adviser and certain
affiliates being transferred to BlackRock in connection with the Transaction.
The independent directors of the Board also conferred separately and with
their counsel about the Transaction and other matters related to the
Transaction on a number of occasions, including in connection with the April
and May 2006 meetings. After the presentations and after reviewing the written
materials provided, the independent directors met in executive sessions with
their counsel to consider the New Investment Advisory Agreement.
In connection with the Board's review of the New Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the directors about a
variety of matters. The advice included the following, among other matters:
* that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and its shareholders by BlackRock
Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
* that the Fund should benefit from having access to BlackRock's state of
the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions (R) brand name;
* that BlackRock has no present intention to alter any applicable expense
waivers or reimbursements currently in effect and, while it reserves the
right to do so in the future, it would seek the approval of the Board
before making any changes;
* that BlackRock and Merrill Lynch will enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill Lynch-
affiliated broker-dealers will continue to offer the Fund as an investment
product;
* that BlackRock Advisors will have substantially the same access to the
Merrill Lynch sales force when distributing shares of the Fund as is
currently provided to the Investment Adviser and that other arrangements
between the Investment Adviser and Merrill Lynch sales channels will be
preserved;
* that the Fund will have access to BlackRock's network of third party
brokers, retirement plan platforms and registered investment advisers;
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
* that in connection with the Transaction, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Investment Adviser (or its affiliates), respectively; and
* that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund
shareholders.
The directors considered the information provided by Merrill Lynch and
BlackRock above, and, among other factors, the following:
* the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
* the potential for expanding distribution of Fund shares through improved
access to third party distribution;
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of the New Investment Advisory Agreement,
including the fact that the Fund's advisory fee schedule will not increase
by virtue of the New Investment Advisory Agreement, but will remain the
same;
* that in June 2005, the Board performed a full annual review of the
investment advisory agreement currently in effect for the Fund (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Fund; and that the advisory and/or
management fees paid by the Fund, taking into account any applicable
agreed-upon fee waivers and breakpoints, represent reasonable compensation
to the Investment Adviser in light of the services provided, the costs to
the Investment Adviser of providing those services, economies of scale,
the fees and other expenses paid by similar funds (including information
provided by Lipper Inc. ["Lipper"]), and such other matters as the
directors have considered relevant in the exercise of their reasonable
judgment; and
* that Merrill Lynch agreed to pay all expenses of the Fund in connection
with the Board's consideration of the New Investment Advisory Agreement
and related agreements and all costs of shareholder approval of the New
Investment Advisory Agreement and as a result the Fund would bear no costs
in obtaining shareholder approval of the New Investment Advisory
Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, the Board assessed the
nature, scope and quality of the services to be provided to the Fund by the
personnel of BlackRock Advisors and its affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing
services and assistance in meeting legal and regulatory requirements. In its
review of the New Investment Advisory Agreement, the Board also considered a
range of information in connection with its oversight of the services to be
provided by BlackRock Advisors and its affiliates. Among the matters
considered were: (a) fees (in addition to management fees) to be paid to
BlackRock Advisors and its affiliates by the Fund; (b) Fund operating expenses
paid to third parties; (c) the resources devoted to and compliance reports
relating to the Fund's investment objective, policies and restrictions, and
its compliance with its Code of Ethics and BlackRock Advisors' compliance
policies and procedures; and (d) the nature, cost and character of non-
investment management services to be provided by BlackRock Advisors and its
affiliates.
In the period prior to the Board meetings to consider renewal of the Current
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Current Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Fund as compared to a comparable group
of funds as classified by Lipper; (b) a discussion by the Fund's portfolio
management team on investment strategies used by the Fund during its most
recent fiscal year; (c) information on the profitability to the Investment
Adviser of the Current Investment Advisory Agreement and other payments
received by the Investment Adviser and its affiliates from the Fund; and (d)
information provided by the Investment Adviser concerning services related to
the valuation and pricing of Fund portfolio holdings, allocation of Fund
brokerage fees, the Fund's portfolio turnover statistics, and direct and
indirect benefits to the Investment Adviser and its affiliates from their
relationship with the Fund.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Disclosure of New Investment Advisory Agreement (continued)
In their deliberations, the directors considered information received in
connection with their most recent continuation of the Current Investment
Advisory Agreement, in addition to information provided by BlackRock and
BlackRock Advisors in connection with their evaluation of the terms and
conditions of the New Investment Advisory Agreement. The directors did not
identify any particular information that was all-important or controlling. The
directors, including a majority of the independent directors, concluded that
the terms of the New Investment Advisory Agreement are appropriate, that the
fees to be paid are reasonable in light of the services to be provided to the
Fund, and that the New Investment Advisory Agreement should be approved and
recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided--The Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of
the Fund, as well as the nature, quality and extent of services expected to be
provided by BlackRock Advisors. The Board focused primarily on the Investment
Adviser's investment advisory services and the Fund's investment performance,
but also considered certain areas in which both the Investment Adviser and the
Fund receive services as part of the Merrill Lynch complex. The Board compared
the Fund's performance - both including and excluding the effects of fees and
expenses - to the performance of a comparable group of mutual funds, and the
performance of a relevant index or combination of indexes. While the Board
reviews performance data at least quarterly, consistent with the Investment
Adviser's investment goals, the Board attaches more importance to performance
over relatively long periods of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, the directors
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund; the ability of BlackRock Advisors to perform its duties
after the Transaction; and any anticipated changes to the current investment
and other practices of the Fund.
The directors were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the
art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Fund will continue to be
subject to restrictions concerning certain transactions involving Merrill
Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer
acting as principal) absent revised or new regulatory relief. The directors
were advised that a revision of existing regulatory relief with respect to
these restrictions was being sought from the Securities and Exchange
Commission and were advised of the possibility of receipt of such revised
regulatory relief. There can be no assurance that such relief will be
obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Fund
under the New Investment Advisory Agreement were expected to be as good or
better than that provided under the Current Investment Advisory Agreement. It
was noted, however, that it is expected that there will be changes in
personnel following the Transaction and the combination of the operations of
the Investment Adviser and its affiliates with those of BlackRock. The
directors noted that if current portfolio managers or other personnel cease to
be available, the Board would consider all available options, which could
include seeking the investment advisory or other services of BlackRock
affiliates. Accordingly, the directors concluded that, overall, they were
satisfied at the present time with assurances from BlackRock and BlackRock
Advisors as to the expected nature, extent and quality of the services to be
provided to the Fund under the New Investment Advisory Agreement.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the recent review of the Current Investment Advisory
Agreement, the directors had received, among other things, a report from
Lipper comparing the Fund's fees, expenses and performance to those of a peer
group selected by Lipper, and information as to the fees charged by the
Investment Adviser or its affiliates to other registered investment company
clients for investment management services. The Board reviewed the Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels - the actual rate includes advisory
fees and the effects of any fee waivers - compared to the other funds in its
Lipper category. They also compared the Fund's total expenses to those of
other comparable funds. The information showed that the Fund had fees and
expenses within the range of fees and expenses of comparable funds. The Board
considered the services to be provided by and the fees to be charged by
BlackRock Advisors to other funds with similar investment mandates and noted
that the fees charged by BlackRock Advisors in those cases, including fee
waivers and expense reimbursements, were generally comparable to those being
charged to the Fund. The Board also noted that, as a general matter, according
to the information provided by BlackRock, fees charged to institutional
clients were lower than the fees charged to the Fund, but BlackRock Advisors
provided less extensive services to such clients. The Board concluded that the
Fund's management fee and fee rate and overall expense ratio are reasonable
compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, the directors considered, among
other things, whether advisory fees or other expenses would change as a result
of the Transaction. Based on their review of the materials provided and the
fact that the New Investment Advisory Agreement is substantially similar to
the Current Investment Advisory Agreement in all material respects, including
the rate of compensation, the directors determined that the Transaction should
not increase the total fees payable, including any fee waivers or after any
expense caps or expense reimbursements, for advisory and administrative
services. The directors noted that it was not possible to predict how the
Transaction would affect BlackRock Advisors' profitability from its
relationship with the Fund.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with
the Fund and noted that they expect to receive profitability information from
BlackRock Advisors on at least an annual basis.
Fees and Economies of Scale--The Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in
order to enable the Fund to participate in these economies of scale. The Board
determined that changes were not currently necessary and that the Fund
appropriately participated in these economies of scale.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the New Investment Advisory Agreement is
substantially similar to the Current Investment Advisory Agreement in all
material respects, including the rate of compensation, the directors
determined that as a result of the Transaction, the Fund's total advisory fees
would be no higher than the fees under its Current Investment Advisory
Agreement. The directors concluded that, because the rates for advisory fees
for the Fund would be no higher than its current fee rates, the proposed
management fee structure, including any fee waivers, was reasonable and that
no additional changes were currently necessary.
Fall-Out Benefits--The directors considered whether the Fund would generate
any fall-out benefits to BlackRock Advisors. Fall-out benefits are indirect
profits from other activities that accrue to the adviser or its affiliates
solely because of the existence of the Fund. In evaluating the fall-out
benefits to be received by BlackRock Advisors under the New Investment
Advisory Agreement, the directors considered whether the Transaction would
have an impact on the fall-out benefits received by the Investment Adviser by
virtue of the Current Investment Advisory Agreement. Based on their review of
the materials provided, including materials received in connection with their
most recent approval or continuance of the Current Investment Advisory
Agreement, and their discussions with management of the Investment Adviser and
BlackRock, the directors determined that those benefits could include
increased ability for BlackRock to distribute shares of its funds and other
investment products and to obtain research services using the Fund's portfolio
transaction brokerage commissions. The directors noted that any such benefits
were difficult to quantify with certainty at this time, and indicated that
they would continue to evaluate them going forward.
Investment Performance--The directors considered investment performance for
the Fund. The directors compared the Fund's performance - both including and
excluding the effects of fees and expenses - to the performance of a
comparable group of mutual funds, and the performance of a relevant index or
combination of indexes.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Disclosure of New Investment Advisory Agreement (concluded)
The comparative information received from Lipper showed Fund performance at
various levels within the range of performance of comparable funds over
different time periods. The directors believed the Fund's performance was
satisfactory. Also, the directors took into account the investment performance
of funds currently advised by BlackRock Advisors. The Board considered
comparative information from Lipper which showed that the performance of the
funds advised by BlackRock Advisors was within the range of performance of
comparable funds over different time periods. The Board noted BlackRock's
considerable investment management experience and capabilities, but was unable
to predict what effect, if any, consummation of the Transaction would have on
the future performance of the Fund.
Conclusion--After the independent directors of the Fund deliberated in
executive session, the entire Board, including the independent directors,
approved the New Investment Advisory Agreement, concluding that the advisory
fee rate was reasonable in relation to the services provided and that the New
Investment Advisory Agreement was in the best interests of the shareholders.
In approving the New Investment Advisory Agreement, the Board noted that it
anticipated reviewing the continuance of the agreement in advance of the
expiration of the initial two-year period.
Contingent BlackRock Subadvisory Agreement--Matters Considered by the Board
At the telephonic and in-person meetings held during April and May 2006 at
which the Board of Directors discussed and approved the New Investment
Advisory Agreement, the Board, including the independent directors, also
discussed and approved a contingent subadvisory agreement (the "Contingent
Subadvisory Agreement") between the Investment Adviser and BlackRock Advisors
(the "BlackRock Subadviser"). The Contingent Subadvisory Agreement is intended
to ensure that the Fund operates with efficient portfolio management services
until the closing of the Transaction, in the event that the Board deems it
necessary and in the best interests of the Fund and its shareholders that the
BlackRock Subadviser assist in managing the operations of the Fund during
the interim period until the closing of the Transaction. The Contingent
Subadvisory Agreement would take effect only upon recommendation from the
Investment Adviser and upon subsequent approval of the Board in the period up
to the closing of the Transaction. The effectiveness of the Contingent
Subadvisory Agreement, therefore, is contingent on further Board approval.
Pursuant to the Contingent Subadvisory Agreement, the BlackRock Subadviser
would receive a monthly fee from the Investment Adviser equal to 50% of the
advisory fee received by the Investment Adviser. The Investment Adviser would
pay the BlackRock Sub-adviser out of its own resources. There would be no
increase in Fund expenses as a result of the Contingent Subadvisory Agreement.
In making its approval at the May in-person meeting, the Board considered the
Contingent Subadvisory Agreement in conjunction with the New Investment
Advisory Agreement and reviewed the same information and factors discussed
above, and came to the same conclusions. The Board also considered in
conjunction with the Contingent Subadvisory Agreement the necessity of
ensuring that the Fund operates with effective management services until the
closing of the Transaction. In reviewing the subadvisory fee rate provided in
the Contingent Subadvisory Agreement, the Board took note of the fact that
both the Investment Adviser and the BlackRock Subadviser would have significant
responsibilities under their respective advisory agreements. The Investment
Adviser would remain responsible for oversight of the Fund's operations and
administration and the BlackRock Subadviser would provide advisory services to
the Fund under the Contingent Subadvisory Agreement. The Board also took into
account the expected short duration of the term of any Contingent Subadvisory
Agreement and the fact that total advisory fees paid by the Fund would not
increase as a result of the Contingent Subadvisory Agreement. Under all of
the circumstances, the Board concluded that it was a reasonable allocation of
fees for the BlackRock Subadviser to receive 50% of the advisory fee paid by
the Fund to the Investment Adviser.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the Contingent
Subadvisory Agreement, concluding that the advisory fee was reasonable in
relation to the services provided and that the Contingent Subadvisory
Agreement was in the best interests of shareholders.
MERRILL LYNCH MID CAP VALUE OPPORTUNITIES FUND JULY 31, 2006
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-
annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined
that the registrant's disclosure controls and procedures are
effective based on our evaluation of these controls and procedures
as of a date within 90 days prior to the filing date of this
report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Mid Cap Value Opportunities Fund of The Asset Program, Inc.
By: /s/ Robert C. Doll, Jr.
-------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Mid Cap Value Opportunities Fund of
The Asset Program, Inc.
Date: September 20, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Robert C. Doll, Jr.
-------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Mid Cap Value Opportunities Fund of
The Asset Program, Inc.
Date: September 20, 2006
By: /s/ Donald C. Burke
----------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Mid Cap Value Opportunities Fund of
The Asset Program, Inc.
Date: September 20, 2006