UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-02809
811-10095
Name of Fund: Merrill Lynch Value Opportunities Fund, Inc.
Master Value Opportunities Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Merrill Lynch Value Opportunities Fund, Inc. and Master Value
Opportunities Trust, 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing
address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 03/31/05
Date of reporting period: 04/01/04 - 03/31/05
Item 1 - Report to Stockholders
Merrill Lynch
Value Opportunities
Fund, Inc.
Annual Report
March 31, 2005
Merrill Lynch Value Opportunities Fund, Inc.
Portfolio Information as of March 31, 2005
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
WebMD Corp. ......................................................... 3.0%
Convergys Corp. ..................................................... 2.8
Foot Locker, Inc. ................................................... 2.1
Triumph Group, Inc. ................................................. 2.1
Diamond Offshore Drilling, Inc. ..................................... 1.9
Noble Energy, Inc. .................................................. 1.8
Conseco, Inc. ....................................................... 1.7
Tech Data Corp. ..................................................... 1.7
CommScope, Inc. ..................................................... 1.6
Protective Life Corp. ............................................... 1.6
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries Net Assets
- --------------------------------------------------------------------------------
Commercial Banks .................................................... 7.2%
Oil & Gas ........................................................... 6.4
IT Services ......................................................... 4.9
Energy Equipment & Services ......................................... 4.5
Insurance ........................................................... 4.4
- --------------------------------------------------------------------------------
Percent of
Sector Weightings Total Investments
- --------------------------------------------------------------------------------
Financials ................................................ 22.1%
Information Technology .................................... 16.4
Industrials ............................................... 11.9
Consumer Discretionary .................................... 10.9
Health Care ............................................... 10.5
Energy .................................................... 10.1
Materials ................................................. 6.5
Consumer Staples .......................................... 2.5
Utilities ................................................. 1.2
Other* .................................................... 7.9
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term securities.
Proxy Results
During the six-month period ended March 31, 2005, Merrill Lynch Value
Opportunities Fund, Inc.'s shareholders voted on the following proposals.
Proposals 1, 2A, 2B and 3 were approved at a shareholders' meeting on February
28, 2005. With respect to Proposals 4A and 4B, the proposals were adjourned at a
shareholders' meeting on April 5, 2005. A description of the proposals and
number of shares voted are as follows:
- --------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- --------------------------------------------------------------------------------------------------------------------
1. To elect the Fund's Board of Directors: Robert C. Doll, Jr. 100,527,148 2,723,625
Donald W. Burton 100,507,869 2,742,904
Laurie Simon Hodrick 100,521,539 2,729,234
John F. O'Brien 100,505,300 2,745,473
David H. Walsh 100,517,680 2,733,093
Fred G. Weiss 100,520,357 2,730,416
- --------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- --------------------------------------------------------------------------------------------------------------------
2A. To approve changes to fundamental investment
restriction on borrowing. 94,344,410 5,329,706 3,576,657
- --------------------------------------------------------------------------------------------------------------------
2B. To approve changes to fundamental investment
restriction on lending. 94,260,810 5,377,357 3,612,606
- --------------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposed investment advisory
agreement for the Fund. 95,430,156 3,989,668 3,830,949
- --------------------------------------------------------------------------------------------------------------------
4A. To approve the charter amendment relating to
shareholder voting. Adjourned Adjourned Adjourned
- --------------------------------------------------------------------------------------------------------------------
4B. To approve an amendment and restatement of the charter
provision regarding redemption of Fund shares. Adjourned Adjourned Adjourned
- --------------------------------------------------------------------------------------------------------------------
2 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
A Letter From the President
Dear Shareholder
Financial markets broadly posted positive returns over the most recent reporting
period, with international equities providing some of the most impressive
results.
Total Returns as of March 31, 2005 6-month 12-month
===============================================================================================
U.S. equities (Standard & Poor's 500 Index) + 6.88% + 6.69%
- -----------------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) + 8.00 + 5.41
- -----------------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +15.13 +15.06
- -----------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 0.47 + 1.15
- -----------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 1.21 + 2.67
- -----------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) + 3.39 + 7.84
- -----------------------------------------------------------------------------------------------
The U.S. economy continued to show resilience in the face of the Federal Reserve
Board's (the Fed's) continued interest rate hikes and, more recently, higher oil
prices. The Fed's measured tightening program brought the federal funds rate to
2.75% by period-end as the central bank continued its campaign to combat
emergent inflation. In fact, business costs have been rising, which is beginning
to put pressure on corporate profit margins. Consumer prices have been moving up
as well, particularly in the areas of gasoline prices, healthcare costs, housing
and education.
U.S. equities ended 2004 in a strong rally, but stumbled into negative territory
in the first quarter of 2005. On the positive side, corporations have been
accelerating their hiring plans, capital spending remains reasonably robust and
merger-and-acquisition activity has increased. Offsetting the positives are
slowing corporate earnings growth, renewed energy price concerns and the
potential for an economic slowdown later this year. International equities,
especially in Asia, have benefited from higher economic growth rates. China, in
particular, recorded growth of more than 9% in 2004.
In the bond market, long-term interest rates finally began to inch higher while
significant increases have been recorded on the short end. This resulted in a
flattening of the yield curve throughout much of the current reporting period.
At March 31, 2005, the two-year Treasury note yielded 3.80% and the 10-year note
yielded 4.50%, a difference of 70 basis points (.70%). This compared to a spread
of 151 basis points six months earlier and 226 basis points 12 months ago.
Looking ahead, the environment is likely to be a challenging one for investors,
with diversification and selectivity becoming increasingly important themes.
With this in mind, we encourage you to meet with your financial advisor to
review your goals and asset allocation and to rebalance your portfolio, as
necessary, to ensure it remains aligned with your objectives and risk tolerance.
As always, we thank you for trusting Merrill Lynch Investment Managers with your
investment assets, and we look forward to serving you in the months and years
ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director/Trustee
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 3
A Discussion With Your Fund's Portfolio Manager
We maintained a defensive market position this fiscal year and continued
to find new opportunities at the higher end of our market-capitalization range.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended March 31, 2005, Merrill Lynch Value Opportunities
Fund, Inc.'s Class A, Class B, Class C, Class I and Class R Shares had total
returns of +3.77%, +2.96%, +2.95%, +3.99% and +3.53%, 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 - 8 of
this report to shareholders.) For the same period, the benchmark Russell 2000
Index posted a total return of +5.41% and the Lipper Small Cap Value Funds
category had an average return of +11.42%. (Funds in this Lipper category seek
long-term growth of capital by investing in small-capitalization companies that
are considered to be undervalued relative to a major unmanaged stock index.)
U.S. stock markets struggled for much of the fiscal year, with the notable
exception of the final four months of calendar year 2004, which was an
extraordinary period for small cap stocks. During this time, small cap stocks
reversed their calendar-year-to-date slide and the Russell 2000 Index climbed
19.5%. Catalysts for the year-end rally were easing oil prices and the
conclusion of U.S. presidential election uncertainties. We witnessed a
pronounced return to high-beta small cap stocks and a move away from the
defensive, larger-capitalization issues that had performed well earlier in the
year.
The Fund essentially tracked the performance of the Russell 2000 Index for the
first few months of the fiscal year, but our defensive posture caused us to lose
ground during the final four months of 2004 when speculative, small cap stocks
experienced a resurgence. In the March quarter of 2005 -- the last quarter of
the Fund's fiscal year -- performance relative to the Russell benchmark began to
improve as market sentiment again turned cautious.
We believe it is late in the U.S. economic recovery to overweight cyclical
stocks. We are concerned that the early cyclical companies are discounting peak
earnings potential. Calendar year 2004 represented the sixth consecutive year
that small cap stocks outperformed large cap stocks. For the first extended
period in years, the Russell 2000 small cap index lagged the S&P 500 Index over
the three-month and 12-month periods ended March 31, 2005. The recent
underperformance of small caps underscores our concern about being too
aggressive at this stage of the economic expansion. With respect to investment
style, value stocks have outperformed growth stocks for four of the last five
calendar years. Most recently, the Russell 2000 Value Index performed 892 basis
points (8.92%) ahead of the Russell 2000 Growth Index for the 12-month period
ended March 31, 2005.
What factors most influenced Fund performance during the fiscal year?
Over the trailing 12-month period, the portfolio was positioned more defensively
than the Russell 2000 Index. The portfolio was underweighted in industrial and
basic material stocks compared to its Lipper group. In last year's environment
of rising commodity prices, cyclical investments were rewarded. Our early move
to defensive positioning hindered the Fund's relative results. The market
pendulum has swayed from aggressive to defensive and from small to large cap
stocks, while our approach has been to move gradually away from deep cyclical
stocks and toward larger, late-cycle companies still within the small cap
universe.
In terms of individual stock performance, the three leading detractors over the
past 12 months were King Pharmaceuticals, Inc., GrafTech International Ltd. and
Allied Waste Industries Inc. We liquidated our position in Allied Waste, a
provider of non-hazardous waste disposal, and significantly reduced our holdings
in GrafTech, a maker of graphite electrodes. We remain committed, however, to
our investment in King Pharmaceuticals, a maker of generic and brand-name
prescription drugs. Although King's merger with Mylan Laboratories Inc.
collapsed, we believe there is substantial value in King's branded drugs,
development pipeline, and targeted sales force.
The information technology (IT) sector most benefited Fund results relative to
the Russell 2000 Index. Recently, we have moved the Trust's technology exposure
toward a more neutral sector position. The calendar year-end rally in
speculative stocks provided an excellent opportunity to unload some of these
holdings.
4 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
In absolute terms, the Trust's top-performing sector during the past 12 months
was energy. This was primarily attributed to being overweighted in a strong
sector rather than being the result of favorable stock selection. Higher oil and
natural gas prices have improved the fortunes of all stocks in the energy sector
and have caused an increase in merger-and-acquisition activity. This, in turn,
has stimulated further share price appreciation. The Trust's two top-performing
stocks -- Diamond Offshore Drilling, Inc., a deep water drilling company, and
Denbury Resources, Inc., an exploration and production company -- fall into the
energy category. Our third-best performer, CNF, Inc., a transportation and
logistics company, benefited from improved results at its trucking division and
the announced sale of its freight forwarding business to United Parcel Service.
What changes were made to the portfolio during the year?
We significantly reduced the Trust's technology exposure during the final few
months of the fiscal year. As of March 31, 2005, the Trust's IT exposure was
approximately in line with the Russell 2000 Index at 17.6% of net assets, down
from 21.8% at the end of the prior fiscal year. Proceeds from our technology
sales were largely invested in the financial services sector. Having been
underweighted in regional banks over the past few years, we now believe that
financial services stocks have declined to more attractive levels on interest
rate fears.
We have been active buyers in the health care sector, particularly of specialty
pharmaceutical stocks. We believe that valuations are compelling by historical
standards based on concerns about generic competition. In certain instances, we
believe investors are underestimating the ability of specialty pharmaceutical
companies to respond with licensing agreements and further market consolidation.
There are specific steps specialty pharmaceutical companies can take to
strengthen their competitive position. Additions to the portfolio within health
care included Cephalon Inc., a biopharmaceutical company; Medicis Pharmaceutical
Corp., maker of dermatological medications; and Lifepoint Hospitals Inc., a
regional hospital operator in the United States.
As mentioned previously, energy has been a top performer for the Trust over the
past 12 months. Based on sharp stock appreciation and record high energy prices,
we have taken some profits in Diamond Offshore, Noble Drilling and National
Oilwell, Inc. We continued to express our favorable view of the energy sector by
adding to Rowan Cos., Inc., a driller of oil and gas wells, and Maverick Tube
Corp., a leading manufacturer of steel tubular products used to drill for oil
and gas.
How would you characterize the portfolio's position at the close of the period?
Relative to the Russell 2000 Index, the Trust ended the period significantly
overweight in the energy sector and modestly overweight in IT, though we
continue to trim our IT exposure. As of March 31, 2005, we were underweight in
the consumer discretionary, industrials and utilities sectors. We were also
modestly underweight in financial services stocks, but have been gradually
building our exposure in this area.
In general, we see less opportunity in the equity markets than just six months
ago. Following the 2004 year-end rally in small cap equities, there are fewer
variations in valuation and no single sector stands out. Speculative stocks
rallied sharply, and much of the opportunity we identified going into the
presidential election has been rewarded with share price appreciation. As a
result, we favor a more cautious stance in 2005, with the Trust positioned
closer to market weights and with a higher median market cap. We are concerned
that further meaningful outperformance of very small companies is unsustainable.
Although a continuation of merger-and-acquisition activity could prolong the
cycle, small cap stocks appear fully valued on a wide range of metrics. New
purchases are focused on companies at the high end of our market cap universe
where we believe small cap value opportunities are most plentiful.
R. Elise Baum, CFA
Vice President and Portfolio Manager
April 6, 2005
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 5
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
o 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).
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4%, declining to 0% after six years. All Class B Shares purchased prior
to June 1, 2001 will maintain the four-year schedule. 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.
o 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.
o Class I Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
I Shares are available only to eligible investors.
o 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 the 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 reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. The Fund may charge a 2% redemption fee for sales or exchange of shares
within 30 days of purchase. Performance data does not reflect this potential
fee. 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 March 31, 2005 Total Return Total Return Total Return
==================================================================================================
ML Value Opportunities Fund, Inc. Class A Shares* +6.22% +3.77% +297.72%
- --------------------------------------------------------------------------------------------------
ML Value Opportunities Fund, Inc. Class B Shares* +5.78 +2.96 +273.56
- --------------------------------------------------------------------------------------------------
ML Value Opportunities Fund, Inc. Class C Shares* +5.79 +2.95 +267.48
- --------------------------------------------------------------------------------------------------
ML Value Opportunities Fund, Inc. Class I Shares* +6.32 +3.99 +307.52
- --------------------------------------------------------------------------------------------------
ML Value Opportunities Fund, Inc. Class R Shares* +6.12 +3.53 +287.09
- --------------------------------------------------------------------------------------------------
Russell 2000(R) Index** +8.00 +5.41 +169.60
- --------------------------------------------------------------------------------------------------
* 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.
** An unmanaged broad-based Index comprised of approximately 2,000
small-capitalization common stocks from various industrial sectors.
Russell 2000 is a registered trademark of the Frank Russell Company.
6 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class A & Class B Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class B Shares compared to growth of an investment in the Russell 2000
Index. Values are from March 1995 to March 2005.
3/95 3/96 3/97 3/98 3/99 3/00
ML Value Opportunities
Fund, Inc.+--Class A Shares* $ 9,475 $11,300 $13,264 $18,940 $14,703 $23,080
ML Value Opportunities
Fund, Inc.+--Class B Shares* $10,000 $11,837 $13,783 $19,534 $15,048 $23,433
Russell 2000 Index++ $10,000 $12,905 $13,564 $19,263 $16,131 $22,147
3/01 3/02 3/03 3/04 3/05
ML Value Opportunities
Fund, Inc.+--Class A Shares* $24,491 $32,124 $23,101 $36,315 $37,684
ML Value Opportunities
Fund, Inc.+--Class B Shares* $24,666 $32,119 $22,900 $35,999 $37,356
Russell 2000 Index++ $18,753 $21,375 $15,611 $25,576 $26,960
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ The Fund invests all of its assets in Master Value Opportunities Trust.
The Trust invests in a diversified portfolio of securities, primarily
common stocks, of relatively small companies which the Trust's management
believes have special investment value, and emerging growth companies
regardless of size.
++ This unmanaged Index is comprised of approximately 2,000
small-capitalization common stocks from various industrial sectors.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 3/31/05 + 3.77% - 1.68%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/05 +10.30 + 9.12
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/05 +14.80 +14.19
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 3/31/05 + 2.96% - 0.87%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/05 + 9.45 + 9.17
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/05 +14.09 +14.09
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 7
Performance Data (concluded)
Total Return Based on a $10,000 Investment--Class C, Class I and Class R Shares
A line graph depicting the growth of an investment in the Fund's Class C Shares,
Class I and Class R Shares compared to growth of an investment in the Russell
2000 Index. Values are from March 1995 to March 2005.
3/95 3/96 3/97 3/98 3/99
ML Value Opportunities
Fund, Inc.+--Class C Shares* $10,000 $11,834 $13,774 $19,522 $15,035
ML Value Opportunities
Fund, Inc.+--Class I Shares* $ 9,475 $11,329 $13,325 $19,079 $14,848
ML Value Opportunities
Fund, Inc.+--Class R Shares* $10,000 $11,897 $13,924 $19,839 $15,361
Russell 2000 Index++ $10,000 $12,905 $13,564 $19,263 $16,131
3/00 3/01 3/02 3/03 3/04 3/05
ML Value Opportunities
Fund, Inc.+--Class C Shares* $23,401 $24,639 $32,088 $22,881 $35,694 $36,748
ML Value Opportunities
Fund, Inc.+--Class I Shares* $23,355 $24,847 $32,688 $23,558 $37,131 $38,612
ML Value Opportunities
Fund, Inc.+--Class R Shares* $24,043 $25,453 $33,319 $23,802 $37,390 $38,709
Russell 2000 Index++ $22,147 $18,753 $21,375 $15,611 $25,576 $26,960
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ The Fund invests all of its assets in Master Value Opportunities Trust.
The Trust invests in a diversified portfolio of securities, primarily
common stocks, of relatively small companies which the Trust's management
believes have special investment value, and emerging growth companies
regardless of size.
++ This unmanaged Index is comprised of approximately 2,000
small-capitalization common stocks from various industrial sectors.
Past performance is not predictive of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 3/31/05 + 2.95% + 2.00%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/05 + 9.45 + 9.45
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/05 +13.90 +13.90
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 3/31/05 + 3.99% - 1.47%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/05 +10.58 + 9.39
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/05 +15.08 +14.46
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
- --------------------------------------------------------------------------------
Class R Shares Return
================================================================================
One Year Ended 3/31/05 + 3.53%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/05 + 9.99
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/05 +14.49
- --------------------------------------------------------------------------------
8 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses, including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on October 1, 2004 and held through
March 31, 2005) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value October 1, 2004 to
October 1, 2004 March 31, 2005 March 31, 2005
====================================================================================================================
Actual
====================================================================================================================
Class A $1,000 $1,062.20 $ 6.44
- --------------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,057.80 $10.36
- --------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,057.90 $10.44
- --------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,063.20 $ 5.15
- --------------------------------------------------------------------------------------------------------------------
Class R $1,000 $1,061.20 $ 7.76
====================================================================================================================
Hypothetical (5% annual return before expenses)**
====================================================================================================================
Class A $1,000 $1,018.68 $ 6.30
- --------------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,014.86 $10.14
- --------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,014.79 $10.22
- --------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,019.94 $ 5.05
- --------------------------------------------------------------------------------------------------------------------
Class R $1,000 $1,017.40 $ 7.60
- --------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.25% for Class A, 2.02% for Class B, 2.03% for Class
C, 1.00% for Class I and 1.51% for Class R), multiplied by the average
account value over the period, multiplied by 182/365 (to reflect the
one-half year period shown). Because the Fund is a feeder fund, the
expense table example reflects the expenses of both the feeder fund and
the master fund in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half-year divided by 365.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 9
Statement of Assets and Liabilities
Merrill Lynch Value Opportunities Fund, Inc.
As of March 31, 2005
==============================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Investment in Master Value Opportunities Trust (the "Trust"),
at value (identified cost--$2,641,247,713) .................... $ 3,005,948,592
Prepaid expenses ............................................... 42,833
---------------
Total assets ................................................... 3,005,991,425
---------------
==============================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Payables:
Other affiliates ............................................ $ 2,009,729
Distributor ................................................. 1,315,867
Administrative fees ......................................... 570,614 3,896,210
---------------
Accrued expenses ............................................... 70,420
---------------
Total liabilities .............................................. 3,966,630
---------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets ..................................................... $ 3,002,024,795
===============
==============================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ............................................. $ 2,475,868
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ............................................. 3,421,498
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ............................................. 2,268,987
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ............................................. 3,825,969
Class R Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ............................................. 78,598
Paid-in capital in excess of par ............................... 2,485,034,606
Undistributed realized capital gains allocated from the
Trust--net .................................................... $ 140,218,390
Unrealized appreciation allocated from the Trust--net .......... 364,700,879
---------------
Total accumulated earnings--net ................................ 504,919,269
---------------
Net Assets ..................................................... $ 3,002,024,795
===============
==============================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $643,904,194 and 24,758,683
shares outstanding ............................................ $ 26.01
===============
Class B--Based on net assets of $809,643,403 and 34,214,983
shares outstanding ............................................ $ 23.66
===============
Class C--Based on net assets of $524,132,085 and 22,689,871
shares outstanding ............................................ $ 23.10
===============
Class I--Based on net assets of $1,005,642,399 and 38,259,694
shares outstanding ............................................ $ 26.28
===============
Class R--Based on net assets of $18,702,714 and 785,978 shares
outstanding ................................................... $ 23.80
===============
See Notes to Financial Statements.
10 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Statement of Operations Merrill Lynch Value Opportunities Fund, Inc.
For the Year Ended March 31, 2005
==============================================================================================================================
Investment Income--Net
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Trust:
Dividends (including $728,808 from affiliates and net of
$9,814 foreign withholding tax) ............................ $ 24,562,863
Interest from affiliates .................................... 1,541,917
Securities lending--net ..................................... 478,095
Expenses .................................................... (15,707,695)
---------------
Total income ................................................... 10,875,180
---------------
==============================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------
Account maintenance and distribution fees--Class B ............. $ 8,774,762
Administration fees ............................................ 7,788,239
Account maintenance and distribution fees--Class C ............. 5,372,749
Transfer agent fees--Class I ................................... 2,401,178
Transfer agent fees--Class B ................................... 2,170,938
Account maintenance fees--Class A .............................. 1,594,329
Transfer agent fees--Class A ................................... 1,456,598
Transfer agent fees--Class C ................................... 1,403,507
Printing and shareholder reports ............................... 256,271
Registration fees .............................................. 149,985
Professional fees .............................................. 68,695
Account maintenance and distribution fees--Class R ............. 55,174
Directors' fees and expenses ................................... 32,937
Transfer agent fees--Class R ................................... 25,370
Other .......................................................... 34,056
---------------
Total expenses ................................................. 31,584,788
---------------
Investment loss--net ........................................... (20,709,608)
---------------
==============================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Trust--Net
- ------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments (including $(55,378,378) from affiliates)--net .... 205,912,790
Foreign currency transactions--net ............................ (14,284) 205,898,506
---------------
Change in unrealized appreciation--net ......................... (79,095,105)
---------------
Total realized and unrealized gain--net ........................ 126,803,401
---------------
Net Increase in Net Assets Resulting from Operations ........... $ 106,093,793
===============
See Notes to Financial Statements.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 11
Statements of Changes in Net Assets
Merrill Lynch Value Opportunities Fund, Inc.
For the Year Ended
March 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2005 2004
==============================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------
Investment loss--net ........................................... $ (20,709,608) $ (16,953,828)
Realized gain--net ............................................. 205,898,506 248,569,142
Change in unrealized appreciation--net ......................... (79,095,105) 878,215,072
-----------------------------------
Net increase in net assets resulting from operations ........... 106,093,793 1,109,830,386
-----------------------------------
==============================================================================================================================
Distributions to Shareholders
- ------------------------------------------------------------------------------------------------------------------------------
Realized gain--net:
Class A ..................................................... (43,952,529) --
Class B ..................................................... (60,980,285) --
Class C ..................................................... (38,412,279) --
Class I ..................................................... (74,900,960) --
Class R ..................................................... (613,903) --
-----------------------------------
Net decrease in net assets resulting from distributions to
shareholders .................................................. (218,859,956) --
-----------------------------------
==============================================================================================================================
Capital Share Transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from capital share
transactions .................................................. (71,827,902) 146,819,263
-----------------------------------
==============================================================================================================================
Redemption Fees
- ------------------------------------------------------------------------------------------------------------------------------
Redemption fees ................................................ 12,341 --
-----------------------------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ........................ (184,581,724) 1,256,649,649
Beginning of year .............................................. 3,186,606,519 1,929,956,870
-----------------------------------
End of year .................................................... $ 3,002,024,795 $ 3,186,606,519
===================================
See Notes to Financial Statements.
12 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Financial Highlights Merrill Lynch Value Opportunities Fund, Inc.
Class A
----------------------------------------------------------------------
For the Year Ended March 31,
The following per share data and ratios have been derived ----------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001@
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 26.96 $ 17.15 $ 24.45 $ 19.73 $ 22.80
----------------------------------------------------------------------
Investment loss--net*** ................ (.10) (.08) (.09) (.07) --@@
Realized and unrealized gain (loss)--net .97 9.89 (6.73) 6.08 1.23
----------------------------------------------------------------------
Total from investment operations ....... .87 9.81 (6.82) 6.01 1.23
----------------------------------------------------------------------
Less distributions from realized gain .. (1.82) -- (.48) (1.29) (4.30)
----------------------------------------------------------------------
Net asset value, end of year ........... $ 26.01 $ 26.96 $ 17.15 $ 24.45 $ 19.73
======================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 3.77% 57.20% (28.09%) 31.17% 6.11%
======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses** ............................. 1.25% 1.27% 1.33% 1.25% 1.30%
======================================================================
Investment loss--net ................... (.39%) (.34%) (.48%) (.30%) (.02%)
======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 643,904 $ 620,193 $ 347,736 $ 467,733 $ 198,094
======================================================================
Portfolio turnover ..................... 74.31%++ 80.35%++ 68.27%++ 54.14%++ 42.30%+
======================================================================
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses.
*** Based on average shares outstanding.
+ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
++ Portfolio turnover for the Trust.
@ On September 1, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment objective
by investing all of its assets in the Trust, which has the same investment
objective as the Fund. All investments are made at the Trust level. This
structure is sometimes called a "master/feeder" structure.
@@ Amount is less than $(.01) per share.
See Notes to Financial Statements.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 13
Financial Highlights (continued) Merrill Lynch Value Opportunities Fund, Inc.
Class B
----------------------------------------------------------------------
For the Year Ended March 31,
The following per share data and ratios have been derived ----------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001@
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 24.69 $ 15.82 $ 22.74 $ 18.44 $ 21.59
----------------------------------------------------------------------
Investment loss--net*** ................ (.27) (.24) (.23) (.22) (.15)
Realized and unrealized gain (loss)--net .88 9.11 (6.25) 5.67 1.15
----------------------------------------------------------------------
Total from investment operations ....... .61 8.87 (6.48) 5.45 1.00
----------------------------------------------------------------------
Less distributions from realized gain .. (1.64) -- (.44) (1.15) (4.15)
----------------------------------------------------------------------
Net asset value, end of year ........... $ 23.66 $ 24.69 $ 15.82 $ 22.74 $ 18.44
======================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 2.96% 56.07% (28.70%) 30.22% 5.26%
======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses** ............................. 2.02% 2.04% 2.10% 2.01% 2.06%
======================================================================
Investment loss--net ................... (1.17%) (1.11%) (1.26%) (1.04%) (.75%)
======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 809,643 $ 951,562 $ 640,017 $1,003,961 $ 563,316
======================================================================
Portfolio turnover ..................... 74.31%++ 80.35%++ 68.27%++ 54.14%++ 42.30%+
======================================================================
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses.
*** Based on average shares outstanding.
+ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
++ Portfolio turnover for the Trust.
@ On September 1, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment objective
by investing all of its assets in the Trust, which has the same investment
objective as the Fund. All investments are made at the Trust level. This
structure is sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
14 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Financial Highlights (continued) Merrill Lynch Value Opportunities Fund, Inc.
Class C
----------------------------------------------------------------------
For the Year Ended March 31,
The following per share data and ratios have been derived ----------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001@
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 24.18 $ 15.50 $ 22.30 $ 18.13 $ 21.32
----------------------------------------------------------------------
Investment loss--net*** ................ (.27) (.23) (.23) (.23) (.15)
Realized and unrealized gain (loss)--net .86 8.91 (6.13) 5.58 1.14
----------------------------------------------------------------------
Total from investment operations ....... .59 8.68 (6.36) 5.35 .99
----------------------------------------------------------------------
Less distributions from realized gain .. (1.67) -- (.44) (1.18) (4.18)
----------------------------------------------------------------------
Net asset value, end of year ........... $ 23.10 $ 24.18 $ 15.50 $ 22.30 $ 18.13
======================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 2.95% 56.00% (28.69%) 30.23% 5.29%
======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses** ............................. 2.03% 2.05% 2.12% 2.02% 2.08%
======================================================================
Investment loss--net ................... (1.18%) (1.13%) (1.27%) (1.11%) (.75%)
======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 524,132 $ 539,393 $ 334,720 $ 504,537 $ 140,610
======================================================================
Portfolio turnover ..................... 74.31%++ 80.35%++ 68.27%++ 54.14%++ 42.30%+
======================================================================
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses.
*** Based on average shares outstanding.
+ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
++ Portfolio turnover for the Trust.
@ On September 1, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment objective
by investing all of its assets in the Trust, which has the same investment
objective as the Fund. All investments are made at the Trust level. This
structure is sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 15
Financial Highlights (continued) Merrill Lynch Value Opportunities Fund, Inc.
Class I
----------------------------------------------------------------------
For the Year Ended March 31,
The following per share data and ratios have been derived ----------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001@
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 27.22 $ 17.27 $ 24.58 $ 19.81 $ 22.87
----------------------------------------------------------------------
Investment income (loss)--net*** ....... (.04) (.02) (.05) (.01) .06
Realized and unrealized gain (loss)--net .97 9.97 (6.77) 5.84 1.23
----------------------------------------------------------------------
Total from investment operations ....... .93 9.95 (6.82) 5.83 1.29
----------------------------------------------------------------------
Less distributions from realized gain .. (1.87) -- (.49) (1.06) (4.35)
----------------------------------------------------------------------
Net asset value, end of year ........... $ 26.28 $ 27.22 $ 17.27 $ 24.58 $ 19.81
======================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 3.99% 57.61% (27.93%) 31.56% 6.39%
======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses** ............................. 1.00% 1.02% 1.07% .99% 1.04%
======================================================================
Investment income (loss)--net .......... (.15%) (.09%) (.24%) (.03%) .27%
======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $1,005,642 $1,072,299 $ 607,484 $1,259,688 $ 648,806
======================================================================
Portfolio turnover ..................... 74.31%++ 80.35%++ 68.27%++ 54.14%++ 42.30%+
======================================================================
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses.
*** Based on average shares outstanding.
+ Portfolio turnover for the Trust for the period September 1, 2000
(commencement of operations of the Trust) to March 31, 2001.
++ Portfolio turnover for the Trust.
@ On September 1, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment objective
by investing all of its assets in the Trust, which has the same investment
objective as the Fund. All investments are made at the Trust level. This
structure is sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
16 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Financial Highlights (concluded) Merrill Lynch Value Opportunities Fund, Inc.
Class R
-----------------------------------------------------
For the Period
For the Year Ended February 4,
March 31, 2003+
The following per share data and ratios have been derived -------------------------------- to March 31,
from information provided in the financial statements. 2005 2004 2003
================================================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..... $ 24.93 $ 15.87 $ 16.12
-----------------------------------------------------
Investment loss--net*** .................. (.15) (.12) --@@@
Realized and unrealized gain (loss)--net . .88 9.18 (.25)
-----------------------------------------------------
Total from investment operations ......... .73 9.06 (.25)
-----------------------------------------------------
Less distributions from realized gain--net (1.86) -- --
-----------------------------------------------------
Net asset value, end of period ........... $ 23.80 $ 24.93 $ 15.87
=====================================================
================================================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....... 3.53% 57.09% (1.55%)@
=====================================================
================================================================================================================================
Ratios to Average Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
Expenses++ ............................... 1.50% 1.52% 1.66%*
=====================================================
Investment loss--net ..................... (.61%) (.59%) (.65%)*
=====================================================
================================================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) . $ 18,703 $ 3,160 --@@
=====================================================
Portfolio turnover of the Trust .......... 74.31% 80.35% 68.27%
=====================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Commencement of operations.
++ Includes the Fund's share of the Trust's allocated expenses.
@ Aggregate total investment return.
@@ Amount is less than $1,000.
@@@ Amount is less than $(.01) per share.
See Notes to Financial Statements.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 17
Notes to Financial Statements Merrill Lynch Value Opportunities Fund, Inc.
1. Significant Accounting Policies:
Merrill Lynch Value Opportunities Fund, Inc., (the "Fund") (formerly Merrill
Lynch Small Cap Value Fund, Inc.) is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end investment company. The Fund
seeks to achieve its investment objective by investing all of its assets in
Master Value Opportunities Trust (the "Trust") (formerly Master Small Cap Value
Trust), which has the same investment objective and strategies as the Fund. The
value of the Fund's investment in the Trust reflects the Fund's proportionate
interest in the net assets of the Trust. The performance of the Fund is directly
affected by the performance of the Trust. The financial statements of the Trust,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. The percentage of the
Trust owned by the Fund at March 31, 2005 was 100%. The Fund offers multiple
classes of shares. Shares of Class A and Class I 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 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
attributed to a specific class) and realized and unrealized gains and losses on
investments are allocated daily to each class based on its relative net assets.
The following is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments -- The Fund records its investment in the Trust at
fair value. Valuation of securities held by the Trust is discussed in Note 1a of
the Trust's Notes to Financial Statements, which are included elsewhere in this
report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Trust's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required. Under the applicable foreign tax
law, withholding taxes may be imposed on interest, dividends, and capital gains
at various rates.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Trust are
accounted for on a trade date basis.
(g) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $20,705,355 has been reclassified between undistributed net realized
capital gains and accumulated net investment loss and $4,253 has been
reclassified between paid-in capital in excess of par and accumulated net
investment loss as a result of permanent differences attributable to net
operating losses, foreign currency transactions and non-deductible expenses.
These reclassifications have no effect on net assets or net asset values per
share.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
The Fund has also entered into a Distribution Agreement and Distribution Plan
with FAM Distributors, Inc. ("FAMD" or the "Distributor"), a wholly-owned
subsidiary of Merrill
18 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Notes to Financial Statements (continued)
Merrill Lynch Value Opportunities Fund, Inc.
Lynch Group, Inc. Pursuant to the Distribution Plan adopted by the Fund in
accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution fees. The fees
are accrued daily and paid monthly at annual rates based upon the average daily
net assets of the shares of the Fund as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A .............................. .25% --
Class B .............................. .25% .75%
Class C .............................. .25% .75%
Class R .............................. .25% .25%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), an affiliate of FAM, also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the year ended March 31, 2005, FAMD earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class I Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A ........................ $ 18,552 $241,544
Class I ........................ $ 1,843 $ 13,037
- --------------------------------------------------------------------------------
For the year ended March 31, 2005, MLPF&S received contingent deferred sales
charges of $750,880 and $71,990 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $1,795 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $(71,827,902) and $146,819,263 for the years ended March 31, 2005 and March
31, 2004, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 6,228,570 $ 160,460,362
Automatic conversion of shares ......... 1,600,696 41,149,466
Shares issued to shareholders in
reinvestment of distributions ....... 1,714,044 41,587,287
---------------------------------
Total issued ........................... 9,543,310 243,197,115
Shares redeemed ........................ (7,786,984) (200,430,174)
---------------------------------
Net increase ........................... 1,756,326 $ 42,766,941
=================================
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 7,355,410 $ 171,011,025
Automatic conversion of shares ......... 1,839,213 41,811,547
---------------------------------
Total issued ........................... 9,194,623 212,822,572
Shares redeemed ........................ (6,474,293) (150,175,716)
---------------------------------
Net increase ........................... 2,720,330 $ 62,646,856
=================================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 6,316,450 $ 148,268,872
Shares issued to shareholders in
reinvestment of distributions ....... 2,573,022 57,177,124
---------------------------------
Total issued ........................... 8,889,472 205,445,996
---------------------------------
Automatic conversion of shares ......... (1,752,553) (41,149,466)
Shares redeemed ........................ (11,454,692) (268,628,432)
---------------------------------
Total redeemed ......................... (13,207,245) (309,777,898)
---------------------------------
Net decrease ........................... (4,317,773) $(104,331,902)
=================================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 10,154,910 $ 215,460,830
---------------------------------
Automatic conversion of shares ......... (1,999,667) (41,811,547)
Shares redeemed ........................ (10,066,295) (215,593,957)
---------------------------------
Total redeemed ......................... (12,065,962) (257,405,504)
---------------------------------
Net decrease ........................... (1,911,052) $ (41,944,674)
=================================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 5,045,226 $ 115,757,806
Shares issued to shareholders in
reinvestment of distributions ....... 1,627,214 35,309,619
---------------------------------
Total issued ........................... 6,672,440 151,067,425
Shares redeemed ........................ (6,287,728) (144,155,903)
---------------------------------
Net increase ........................... 384,712 $ 6,911,522
=================================
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 19
Notes to Financial Statements (concluded)
Merrill Lynch Value Opportunities Fund, Inc.
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 5,342,274 $ 115,762,960
Shares redeemed ........................ (4,633,448) (95,640,822)
---------------------------------
Net increase ........................... 708,826 $ 20,122,138
=================================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended March 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 10,043,727 $ 261,511,800
Shares issued to shareholders in
reinvestment of distributions ....... 2,895,059 70,843,252
---------------------------------
Total issued ........................... 12,938,786 332,355,052
Shares redeemed ........................ (14,073,876) (365,025,967)
---------------------------------
Net decrease ........................... (1,135,090) $ (32,670,915)
=================================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 15,484,530 $ 367,911,503
Shares redeemed ........................ (11,274,789) (264,974,932)
---------------------------------
Net increase ........................... 4,209,741 $ 102,936,571
=================================
- -------------------------------------------------------------------------------
Class R Shares for the Year Dollar
Ended March 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 893,962 $ 21,064,961
Shares issued to shareholders in
reinvestment of distributions ....... 27,094 608,284
---------------------------------
Total issued ........................... 921,056 21,673,245
Shares redeemed ........................ (261,821) (6,176,793)
---------------------------------
Net increase ........................... 659,235 $ 15,496,452
=================================
- -------------------------------------------------------------------------------
Class R Shares for the Year Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 167,761 $ 4,074,962
Shares redeemed ........................ (41,024) (1,016,590)
---------------------------------
Net increase ........................... 126,737 $ 3,058,372
=================================
The Fund charges a 2% redemption fee on the proceeds (calculated at market
value) of a redemption (either by sale or exchange) of Fund shares made within
30 days of purchase. The redemption fee is paid to the Fund and is intended to
offset the trading costs, market impact and other costs associated with
short-term trading into and out of the Fund.
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended March 31,
2005 and March 31, 2004 was as follows:
- --------------------------------------------------------------------------------
3/31/2005 3/31/2004
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ................... $117,682,392 $ --
Net long-term capital gains ....... 101,177,564 --
---------------------------------
Total taxable distributions .......... $218,859,956 $ --
=================================
As of March 31, 2005, the components of accumulated earnings on a tax basis were
as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income--net ..................... $ 58,972,948
Undistributed long-term capital gains--net ............. 99,753,706
-------------
Total undistributed earnings--net ...................... 158,726,654
Capital loss carryforward .............................. (216,397)*
Unrealized gains--net .................................. 346,409,012**
-------------
Total accumulated earnings--net ........................ $ 504,919,269
=============
* On March 31, 2005, the Fund had a net capital loss carryforward of
$216,397, all of which expires in 2010. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales and the
limitation on the utilization of capital loss carryforwards for tax
purposes.
20 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Report of Independent Registered Public Accounting Firm
Merrill Lynch Value Opportunities Fund, Inc.
To the Shareholders and Board of Directors of
Merrill Lynch Value Opportunities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Value Opportunities Fund, Inc. as of March 31, 2005, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal controls of financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Value Opportunities Fund, Inc. as of March 31, 2005, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and its financial highlights for
each of the five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 20, 2005
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distribution paid by Merrill Lynch Value Opportunities Fund, Inc. to
shareholders of record on July 21, 2004:
- --------------------------------------------------------------------------------
Qualified Dividend Income for Individuals ....................... 15.21%
Dividends Qualifying for the Dividends Received
Deduction for Corporations ...................................... 15.47%
- --------------------------------------------------------------------------------
Additionally, the Fund distributed long-term capital gains of $.578701 per share
to shareholders of record on July 21, 2004 and $.229360 per share to
shareholders of record on December 3, 2004.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 21
Schedule of Investments Master Value Opportunities Trust
Industry* Shares Held Common Stocks Value
==========================================================================================================================
Aerospace & Defense--2.1% 1,638,200 Triumph Group, Inc. (a)(d) $ 63,791,508
==========================================================================================================================
Auto Components--1.2% 1,238,900 American Axle & Manufacturing Holdings, Inc. 30,353,050
945,500 Hayes Lemmerz International, Inc. (d) 4,916,600
---------------
35,269,650
==========================================================================================================================
Biotechnology--2.1% 407,400 Applera Corp.--Celera Genomics Group (d) 4,175,850
194,600 Cephalon, Inc. (d)(l) 9,113,118
543,800 Exelixis, Inc. (d) 3,686,964
1,593,100 Human Genome Sciences, Inc. (d)(l) 14,688,382
1,931,000 Maxygen, Inc. (a)(d) 16,567,980
1,036,900 Neurogen Corp. (d) 7,341,252
1,542,103 Vical, Inc. (a)(d) 6,168,412
---------------
61,741,958
==========================================================================================================================
Building Products--0.1% 93,000 Simpson Manufacturing Co., Inc. 2,873,700
==========================================================================================================================
Capital Markets--1.6% 2,230,100 Janus Capital Group, Inc. (l) 31,109,895
771,700 W.P. Stewart & Co. Ltd. 17,486,722
---------------
48,596,617
==========================================================================================================================
Chemicals--1.5% 227,000 Cytec Industries, Inc. 12,314,750
120,100 OM Group, Inc. (d) 3,653,442
262,300 Schulman A., Inc. 4,569,266
525,100 Valspar Corp. 24,438,154
---------------
44,975,612
==========================================================================================================================
Commercial Banks--7.2% 439,300 Bank of Hawaii Corp. 19,882,718
92,600 Banner Corp. 2,497,422
2,198,900 The Colonial BancGroup, Inc. 45,121,428
693,300 Compass Bancshares, Inc. 31,475,820
215,600 First Merchants Corp. 5,584,040
1,358,500 First Midwest Bancorp, Inc. 44,124,080
212,400 Mid-State Bancshares 5,649,840
1,600,045 Old National Bancorp 32,480,914
304,600 Susquehanna Bancshares, Inc. 7,426,148
340,893 TD Banknorth, Inc. (d) 10,649,497
277,500 Texas Capital Bancshares, Inc. (d) 5,827,500
163,559 Toronto-Dominion Bank 6,763,165
---------------
217,482,572
==========================================================================================================================
Commercial Services 666,800 Administaff, Inc. 9,735,280
& Supplies--2.7% 489,900 Ambassadors International, Inc. 6,873,787
1,306,400 Cornell Cos., Inc. (a)(d) 16,460,640
826,700 Corrections Corp. of America (d) 31,910,620
1,204,700 Tetra Tech, Inc. (d)(l) 15,203,314
---------------
80,183,641
==========================================================================================================================
Communications 1,230,550 Belden CDT, Inc. 27,330,516
Equipment--3.8% 3,259,900 CommScope, Inc. (a)(d)(l) 48,768,104
4,934,972 Tellabs, Inc. (d) 36,025,296
---------------
112,123,916
==========================================================================================================================
Construction & 797,400 Fluor Corp. 44,199,882
Engineering--1.9% 701,400 McDermott International, Inc. (d) 13,277,502
---------------
57,477,384
==========================================================================================================================
Construction Materials--1.2% 613,800 Martin Marietta Materials, Inc. 34,323,696
==========================================================================================================================
Containers & Packaging--2.0% 1,734,200 Crown Holdings, Inc. (d) 26,984,152
2,135,800 Smurfit-Stone Container Corp. (d) 33,040,826
---------------
60,024,978
==========================================================================================================================
22 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Schedule of Investments (continued) Master Value Opportunities Trust
Industry* Shares Held Common Stocks Value
==========================================================================================================================
Diversified Financial 619,600 Citigroup, Inc. $ 27,844,824
Services--2.5% 425,300 Financial Select Sector SPDR Fund (k) 12,074,267
63,100 International Securities Exchange, Inc. (d)(l) 1,640,600
104,100 iShares S&P SmallCap 600 Index Fund (h) 16,511,301
142,100 iShares S&P SmallCap 600/BARRA Value Index Fund (g) 16,763,537
---------------
74,834,529
==========================================================================================================================
Electric Utilities--1.2% 915,800 Cinergy Corp. 37,108,216
==========================================================================================================================
Electrical Equipment--1.3% 156,000 General Cable Corp. (d) 1,882,920
290,700 Global Power Equipment Group, Inc. (d)(l) 2,784,906
1,848,600 GrafTech International Ltd. (d)(l) 10,518,534
742,100 Industrial Select Sector SPDR Fund (m) 22,582,103
---------------
37,768,463
==========================================================================================================================
Electronic Equipment 950,100 Anixter International, Inc. (d)(l) 34,346,115
& Instruments--4.0% 1,817,600 Ingram Micro, Inc. Class A (d) 30,299,392
666,128 Nu Horizons Electronics Corp. (d) 4,762,815
1,384,500 Tech Data Corp. (d) 51,309,570
---------------
120,717,892
==========================================================================================================================
Energy Equipment & 1,127,100 Diamond Offshore Drilling, Inc. 56,242,290
Services--4.5% 50,700 Energy Select Sector SPDR Fund (j)(l) 2,171,988
263,500 FMC Technologies, Inc. (d) 8,742,930
2,055,800 Key Energy Services, Inc. (d) 23,580,026
368,900 Maverick Tube Corp. (d)(l) 11,992,939
65,700 Oil Service HOLDRs Trust (b) 6,323,625
855,500 Rowan Cos., Inc. 25,605,115
---------------
134,658,913
==========================================================================================================================
Food Products--2.7% 2,973,100 Del Monte Foods Co. (d) 32,258,135
481,825 Hain Celestial Group, Inc. (d)(l) 8,981,218
280,300 The J.M. Smucker Co. 14,099,090
779,500 Smithfield Foods, Inc. (d) 24,593,225
---------------
79,931,668
==========================================================================================================================
Gas Utilities--0.0% 41,416 Delta Natural Gas Co., Inc. 1,066,876
==========================================================================================================================
Health Care Equipment 206,500 Cardiodynamics International Corp. (d) 602,980
& Supplies--3.0% 363,100 Invacare Corp. 16,205,153
1,038,600 Mentor Corp. 33,339,060
504,300 Steris Corp. (d) 12,733,575
164,107 Utah Medical Products, Inc. 3,610,354
983,600 Wright Medical Group, Inc. (d)(l) 23,606,400
---------------
90,097,522
==========================================================================================================================
Health Care Providers 1,940,900 Hooper Holmes, Inc. 7,414,238
& Services--3.7% 158,300 LifePoint Hospitals, Inc. (d)(l) 6,939,872
209,200 Odyssey HealthCare, Inc. (d) 2,460,192
88,900 Triad Hospitals, Inc. (d) 4,453,890
10,620,900 WebMD Corp. (d)(l) 90,277,650
---------------
111,545,842
==========================================================================================================================
Hotels, Restaurants 547,055 Ambassadors Group, Inc. (a) 18,282,578
& Leisure--2.4% 309,926 Dover Downs Gaming & Entertainment, Inc. 3,858,579
244,800 Isle of Capri Casinos, Inc. (d) 6,496,992
3,586,000 La Quinta Corp. (d)(l) 30,481,000
490,100 Ruby Tuesday, Inc. 11,904,529
---------------
71,023,678
==========================================================================================================================
Household Durables--0.4% 231,000 Furniture Brands International, Inc. 5,038,110
506,000 La-Z-Boy, Inc. 7,048,580
---------------
12,086,690
==========================================================================================================================
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 23
Schedule of Investments (continued) Master Value Opportunities Trust
Industry* Shares Held Common Stocks Value
==========================================================================================================================
IT Services--4.9% 1,056,600 Acxiom Corp. $ 22,114,638
5,687,800 Convergys Corp. (d)(l) 84,918,854
1,734,000 Sabre Holdings Corp. Class A 37,939,920
169,400 Titan Corp. (d) 3,076,304
---------------
148,049,716
==========================================================================================================================
Industrial Conglomerates--0.8% 481,700 Teleflex, Inc. 24,653,406
==========================================================================================================================
Insurance--4.4% 93,200 American National Insurance 9,869,880
2,501,300 Conseco, Inc. (d)(l) 51,076,546
372,500 First American Corp. 12,270,150
600,971 Presidential Life Corp. 9,783,806
1,229,000 Protective Life Corp. 48,299,700
---------------
131,300,082
==========================================================================================================================
Internet & Catalog Retail--0.2% 807,400 1-800-FLOWERS.COM, Inc. Class A (d) 6,112,018
==========================================================================================================================
Internet Software 1,730,300 DoubleClick, Inc. (d)(l) 13,323,310
& Services--1.6% 292,300 Entrust, Inc. (d) 1,096,125
196,300 Fastclick, Inc. 2,355,600
24,248,271 Vignette Corp. (a)(d) 31,765,235
---------------
48,540,270
==========================================================================================================================
Leisure Equipment 542,000 Nautilus, Inc. 12,877,920
& Products--0.4%
==========================================================================================================================
Machinery--1.4% 1,084,700 Kaydon Corp. 34,059,580
817,300 Wolverine Tube, Inc. (a)(d) 7,314,835
---------------
41,374,415
==========================================================================================================================
Media--3.1% 1,146,300 Harte-Hanks, Inc. 31,592,028
1,488,300 Paxson Communications Corp. (d) 1,026,927
1,721,700 The Reader's Digest Association, Inc. Class A 29,802,627
853,400 Scholastic Corp. (d) 31,481,926
---------------
93,903,508
==========================================================================================================================
Metals & Mining--2.4% 1,352,550 Gibraltar Industries, Inc. 29,674,947
601,400 Golden Star Resources Ltd. (d)(l) 1,719,964
789,900 Reliance Steel & Aluminum Co. 31,603,899
308,600 Wheeling-Pittsburgh Corp. (d) 9,582,030
---------------
72,580,840
==========================================================================================================================
Oil & Gas--6.4% 1,196,700 Denbury Resources, Inc. (d) 42,159,741
800,400 Noble Energy, Inc. (l) 54,443,208
1,037,991 Plains Exploration & Production Co. (d)(l) 36,225,886
401,900 Spinnaker Exploration Co. (d) 14,279,507
792,600 Stone Energy Corp. (d) 38,496,582
244,100 Vintage Petroleum, Inc. 7,679,386
---------------
193,284,310
==========================================================================================================================
Pharmaceuticals--2.6% 5,338,300 King Pharmaceuticals, Inc. (d) 44,361,273
1,125,200 Medicis Pharmaceutical Corp. Class A 33,733,496
---------------
78,094,769
==========================================================================================================================
Real Estate--2.1% 735,200 Brandywine Realty Trust 20,879,680
956,600 Friedman Billings Ramsey Group, Inc. Class A 15,181,242
1,490,593 Trizec Properties, Inc. 28,321,267
---------------
64,382,189
==========================================================================================================================
Road & Rail--1.6% 2,309,100 Kansas City Southern (d)(l) 44,473,266
93,431 USF Corp. 4,508,980
---------------
48,982,246
==========================================================================================================================
24 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Schedule of Investments (continued) Master Value Opportunities Trust
Industry* Shares Held Common Stocks Value
==========================================================================================================================
Semiconductors & Semiconductor 478,100 Actel Corp. (d) $ 7,353,178
Equipment--1.2% 3,936,100 ANADIGICS, Inc. (a)(d)(l) 5,667,984
443,700 DSP Group, Inc. (d) 11,429,712
1,180,000 Zoran Corp. (d) 12,213,000
---------------
36,663,874
==========================================================================================================================
Software--2.2% 553,800 Agile Software Corp. (d) 4,031,664
1,197,300 Ascential Software Corp. (d) 22,185,969
110,147 Compuware Corp. (d) 793,058
4,079,955 E.piphany, Inc. (a)(d) 14,483,840
452,000 Lawson Software, Inc. (d) 2,666,800
199,606 NetIQ Corp. (d) 2,281,497
3,676,762 Parametric Technology Corp. (d) 20,553,100
---------------
66,995,928
==========================================================================================================================
Specialty Retail--4.2% 166,900 AnnTaylor Stores Corp. (d) 4,270,971
2,188,500 Foot Locker, Inc. 64,123,050
1,488,000 Linens `n Things, Inc. (d) 36,947,040
196,800 The Men's Wearhouse, Inc. (d) 8,306,928
601,000 Pier 1 Imports, Inc. 10,956,230
---------------
124,604,219
==========================================================================================================================
Thrifts & Mortgage 208,000 Anchor Bancorp Wisconsin, Inc. 5,846,880
Finance--3.7% 363,700 Dime Community Bancshares 5,528,240
250,100 Fidelity Bankshares, Inc. 5,747,298
109,000 FirstFed Financial Corp. (d) 5,560,090
319,400 Franklin Bank Corp. (d)(l) 5,509,650
2,060,600 Sovereign Bancorp, Inc. 45,662,896
144,400 Sterling Financial Corp. 5,155,080
739,300 Webster Financial Corp. 33,571,613
---------------
112,581,747
==========================================================================================================================
Trading Companies 585,950 Applied Industrial Technologies, Inc. 15,937,840
& Distributors--1.1% 384,100 Watsco, Inc. 16,170,610
---------------
32,108,450
==========================================================================================================================
Total Common Stocks (Cost--$2,560,918,547)--97.4% 2,926,795,428
==========================================================================================================================
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 25
Schedule of Investments (continued) Master Value Opportunities Trust
Industry* Shares Held Preferred Stocks Value
==========================================================================================================================
Personal Products--0.0% 1,317 Adrien Arpel, Inc. (d) $ 0
==========================================================================================================================
Total Preferred Stocks (Cost--$0)--0.0% 0
==========================================================================================================================
Warrants (f)(i)
==========================================================================================================================
Capital Markets--2.4% 610,000 UBS AG (expires 7/29/2005) 30,103,500
856,000 UBS AG (expires 3/29/2006) 41,464,640
==========================================================================================================================
Total Warrants (Cost--$72,744,142)--2.4% 71,568,140
==========================================================================================================================
Beneficial Interest Short-Term Securities
==========================================================================================================================
$ 10,539,110 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (c) 10,539,110
248,594,500 Merrill Lynch Liquidity Series, LLC Money Market
Series (c)(e) 248,594,500
==========================================================================================================================
Total Short-Term Securities
(Cost--$259,133,610)--8.6% 259,133,610
==========================================================================================================================
Total Investments (Cost--$2,892,796,299**)--108.4% 3,257,497,178
Liabilities in Excess of Other Assets--(8.4%) (251,548,586)
---------------
Net Assets--100.0% $ 3,005,948,592
===============
* For Trust compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Trust management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease. These
industry classifications are unaudited.
** The cost and unrealized appreciation (depreciation) of investments as of
March 31, 2005, as computed for federal income tax purposes, were as
follows:
-------------------------------------------------------------------------
Aggregate cost ............................. $ 2,911,088,166
===============
Gross unrealized appreciation .............. $ 527,995,935
Gross unrealized depreciation .............. (181,586,923)
---------------
Net unrealized appreciation ................ $ 346,409,012
===============
(a) Investments in companies 5% or more of whose outstanding securities are
held by the Trust (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) were as follows:
-----------------------------------------------------------------------------------------------------------------------
Net Share Purchase Sales Realized Dividend
Affiliate Activity Cost Cost Gain (Loss) Income
-----------------------------------------------------------------------------------------------------------------------
ANADIGICS, Inc 2,058,900 $ 9,548,410 -- -- +
Ambassadors Group, Inc. (146,800) $ 108,320 $ 1,648,393 $ 2,688,979 $293,776
Ambassadors International, Inc.* (197,500) $ 116,023 $ 1,535,877 $ 1,152,671 $246,350
CommScope, Inc. 1,266,100 $ 29,962,166 $ 9,000,471 $ 93,860 +
Cornell Cos., Inc. (180,800) $ 49,248 $ 3,038,572 $ (761,831) +
Dover Downs Gaming & Entertainment, Inc.* (287,114) $ 41,999 $ 2,745,593 $ 341,473 $136,347
Dover Motorsports Inc.* (1,019,700) -- $ 5,283,393 $ (235,798) --
E.piphany, Inc. 1,307,487 $ 11,066,851 $ 6,186,389 $ 35,871 +
Gibraltar Industries, Inc.* (225,500) $ 1,123,837 $ 5,589,461 $ 1,022,875 $ 52,335
Itron* (1,811,773) $ 53,360 $ 37,035,901 $ 23,595 --
Maxygen, Inc. 565,700 $ 5,871,637 -- -- +
McData Corp. Class B* (1,856,300) $ 2,182,111 $ 20,160,460 $ (6,187,822) --
Parametric Technology Corp.* (13,897,538) $ 413,056 $ 68,959,546 $ (7,293,908) --
Paxson Communications Corp.* (3,582,100) $ 16,766 $ 36,801,654 $(32,198,774) --
QRS Corp.* (1,494,375) -- $ 11,132,433 $ (2,518,362) --
Triumph Group, Inc. (131,100) $ 462,147 $ 5,880,600 $ (210,102) +
Vical, Inc. (662,754) $ 434,835 $ 10,601,678 $ (6,561,959) +
Vignette Corp. 2,949,754 $ 5,163,276 $ 5,944,303 $ (4,954,188) +
Watsco, Inc.* (824,100) $ 494,195 $ 9,243,350 $ 857,837 --
Wolverine Tube, Inc. (155,300) $ 78,162 $ 2,469,454 $ (672,795) +
-----------------------------------------------------------------------------------------------------------------------
+ Non-income producing security.
* No longer an affiliated company as of March 31, 2005.
26 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Schedule of Investments (concluded) Master Value Opportunities Trust
(b) Represents ownership in Oil Services HOLDRs Trust. The Oil Services HOLDRs
Trust holds shares of common stock issued by 20 specified companies
generally considered to be involved in various segments of the oil service
industry.
(c) Investments in companies considered to be an affiliate of the Trust (such
companies are defined as "Affiliated Companies" in Section 2 (a)(3) of the
Investment Company Act of 1940) were as follows:
------------------------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $(108,733,187) $ 1,541,917
Merrill Lynch Liquidity Series, LLC Money Market Series $ 136,472,687 $ 468,433
Merrill Lynch Premier Institutional Fund (37,373,937) $ 9,662
------------------------------------------------------------------------------------------
(d) Non-income producing security.
(e) Security was purchased with the cash proceeds from securities loans.
(f) Warrants entitle the Trust to purchase a predetermined number of shares of
a basket of common stocks and are non-income producing. The purchase price
and number of shares are subject to adjustment under certain conditions
until the expiration date.
(g) iShares S&P SmallCap 600/BARRA Value Index Fund is an exchange traded
Fund. The Fund seeks investment results that correspond to the performance
of the S&P SmallCap 600/BARRA Value Index.
(h) iShares S&P SmallCap 600 Index Fund is an exchange traded Fund. The Fund
seeks investment results that correspond to the performance of the S&P
SmallCap 600 Index.
(i) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(j) Represents ownership in Energy Select Sector SPDR Fund, registered in the
United States. The investment objective of the Energy Select Sector SPDR
Fund is to provide investment results that correspond to the performance
of the Energy Select Sector Index.
(k) Represents ownership in Financial Select Sector SPDR Fund, registered in
the United States. The investment objective of the Financial Select Sector
SPDR Fund is to provide investment results that correspond to the
performance of the Financial Select Sector Index.
(l) Security, or a portion of security, is on loan.
(m) Represents ownership in Industrial Select Sector SPDR Fund, registered in
the United States. The investment objective of the Industrial Select
Sector SPDR is to provide investment results that correspond to the
performance of the Industrial Select Sector Index.
See Notes to Financial Statements.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 27
Statement of Assets and Liabilities Master Value Opportunities Trust
As of March 31, 2005
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including
securities loaned of $240,917,902) (identified cost--$2,359,160,798) . $ 2,769,092,452
Investments in affiliated securities, at value (identified
cost--$533,635,501) .................................................. 488,404,726
Cash .................................................................. 12,665
Receivables:
Securities sold .................................................... $ 42,141,412
Contributions ...................................................... 3,582,398
Dividends .......................................................... 2,586,679
Interest from affiliates ........................................... 26,220
Securities lending ................................................. 17,281 48,353,990
---------------
Prepaid expenses ...................................................... 13,640
---------------
Total assets .......................................................... 3,305,877,473
---------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ............................. 248,594,500
Payables:
Securities purchased ............................................... 40,628,126
Withdrawals ........................................................ 9,483,744
Investment adviser ................................................. 1,074,376
Other affiliates ................................................... 33,222 51,219,468
---------------
Accrued expenses ...................................................... 114,913
---------------
Total liabilities ..................................................... 299,928,881
---------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................ $ 3,005,948,592
===============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Investor's capital .................................................... $ 2,641,247,713
Unrealized appreciation--net .......................................... 364,700,879
---------------
Net Assets ............................................................ $ 3,005,948,592
===============
See Notes to Financial Statements.
28 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Statement of Operations Master Value Opportunities Trust
For the Year Ended March 31, 2005
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (including $728,808 from affiliates and net of
$9,814 foreign withholding tax) ...................................... $ 24,562,863
Interest from affiliates .............................................. 1,541,917
Securities lending--net ............................................... 478,095
---------------
Total income .......................................................... 26,582,875
---------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees .............................................. $ 14,654,686
Accounting services ................................................... 594,635
Custodian fees ........................................................ 211,969
Professional fees ..................................................... 82,724
Trustees' fees and expenses ........................................... 49,004
Printing and shareholder reports ...................................... 43,236
Pricing fees .......................................................... 3,442
Other ................................................................. 67,999
---------------
Total expenses ........................................................ 15,707,695
---------------
Investment income--net ................................................ 10,875,180
---------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments (including $(55,378,378) from affiliates)--net ......... 205,912,790
Foreign currency transactions--net ................................. (14,284) 205,898,506
---------------
Change in unrealized appreciation on investments--net ................. (79,095,105)
---------------
Total realized and unrealized gain--net ............................... 126,803,401
---------------
Net Increase in Net Assets Resulting from Operations .................. $ 137,678,581
===============
See Notes to Financial Statements.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 29
Statements of Changes in Net Assets Master Value Opportunities Trust
For the Year Ended
March 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2005 2004
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................ $ 10,875,180 $ 11,149,547
Realized gain--net .................................................... 205,898,506 248,569,142
Change in unrealized appreciation--net ................................ (79,095,105) 878,215,072
-----------------------------------
Net increase in net assets resulting from operations .................. 137,678,581 1,137,933,761
-----------------------------------
===================================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ........................................... 912,589,367 874,221,280
Fair value of withdrawals ............................................. (1,233,630,806) (755,260,753)
-----------------------------------
Net increase (decrease) in net assets derived from capital transactions (321,041,439) 118,960,527
-----------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................... (183,362,858) 1,256,894,288
Beginning of year ..................................................... 3,189,311,450 1,932,417,162
-----------------------------------
End of year ........................................................... $ 3,005,948,592 $ 3,189,311,450
===================================
See Notes to Financial Statements.
30 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Financial Highlights Master Value Opportunities Trust
For the Year Ended For the Period
March 31, Sept. 1, 2000+
The following ratios have been derived from -------------------------------------------------- to March 31,
information provided in the financial statements. 2005 2004 2003 2002 2001
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 4.48% 58.26% (27.31%)++ 32.13% --
=================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .50% .51% .51% .52% .54%*
=================================================================
Investment income--net ................. .35% .42% .32% .44% .85%*
=================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $3,005,949 $3,189,311 $1,932,417 $3,248,959 $1,553,556
=================================================================
Portfolio turnover ..................... 74.31% 80.35% 68.27% 54.14% 42.30%
=================================================================
* Annualized.
** Total investment return is required to be disclosed for fiscal years
beginning after December 15, 2000.
+ Commencement of operations.
++ FAM fully reimbursed the Trust for a loss on a transaction not meeting the
Trust's investment guidelines, which had no impact on total return.
See Notes to Financial Statements.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 31
Notes to Financial Statements Master Value Opportunities Trust
1. Significant Accounting Policies:
Master Value Opportunities Trust (the "Trust") (formerly Master Small Cap Value
Trust) is registered under the Investment Company Act of 1940, as amended, and
is organized as a Delaware statutory trust. The Declaration of Trust permits the
Trustees to issue and redeem nontransferable interests in the Trust, subject to
certain limitations. The Trust's financial statements are prepared in conformity
with U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The following is a summary of significant accounting policies
followed by the Trust.
(a) Valuation of investments -- Equity securities that are held by the Trust
that are traded on stock exchanges or the Nasdaq National Market are valued at
the last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available asked
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Trustees of the Trust.
Long positions in securities traded in the over-the-counter ("OTC") market,
Nasdaq Small Cap or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Trustees of the Trust. Short positions traded in the OTC market
are valued at the last available asked price. Trust 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 daily based upon quotations from
market makers. Financial futures contracts and options thereon, which are traded
on exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Trust
employs certain pricing services to provide certain securities prices for the
Trust. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Trust, including valuations furnished
by the pricing services retained by the Trust, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Trust under the general supervision of the Trust's Board
of Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. Government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the New York Stock Exchange ("NYSE").
The values of such securities used in computing the net assets of the Trust are
determined as of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Trust's net assets. If
events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities may be valued at their fair value as
determined in good faith by the Trust's Board of Trustees or by the Investment
Adviser using a pricing service and/or procedures approved by the Trust's Board
of Trustees.
(b) Derivative financial instruments -- The Trust may engage in various
portfolio investment strategies both to increase the return of the Trust and to
hedge, or protect, its exposure to interest rate movements and movements in the
securities market. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
o Financial futures contracts -- The Trust may purchase or sell financial
futures contracts and options on such futures contracts. 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 Trust
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Trust 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
Trust as unrealized gains or losses. When the contract is closed, the
Trust records a
32 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Notes to Financial Statements (continued) Master Value Opportunities Trust
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.
o Options -- The Trust may write put and covered call options and purchase
and write call and put options. When the Trust writes an option, an amount
equal to the premium received by the Trust is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Trust
enters into a closing transaction), the Trust realizes a gain or loss on
the option to the extent of the premiums received or paid (or a gain or
loss to the extent that the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts -- The Trust 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 Trust as an unrealized gain or
loss. When the contract is closed, the Trust 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.
o Foreign currency options and futures -- The Trust may purchase or sell
listed or over-the-counter 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 Trust, sold by the Trust but
not yet delivered, or committed or anticipated to be purchased by the
Trust.
(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.
(d) Income taxes -- The Trust is considered as a "pass through" entity for
federal income tax purposes. As such, each investor in the Trust is treated as
owner of its proportionate share of the net assets, income, expenses and
realized and unrealized gains and losses of the Trust. Therefore, no federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital gains at
various rates. It is intended that the Trust's assets will be managed so an
investor in the Trust can satisfy the requirements of subchapter M of the
Internal Revenue Code.
(e) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(f) Securities lending -- The Trust may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Trust and any additional required collateral is delivered to the Trust on
the next business day. Where the Trust receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Trust typically
receives the income on the loaned securities but does not receive the income on
the collateral. Where the Trust receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Trust may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Trust could experience delays
and costs in gaining access to the collateral. The Trust also could suffer a
loss where the value of the collateral falls below the market value of the
borrowed securities, in the event of borrower default or in the event of losses
on investments made with cash collateral.
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 33
Notes to Financial Statements (concluded) Master Value Opportunities Trust
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agree-ment with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Trust's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Trust. For such services, the Trust pays a monthly fee
upon the average daily value of the Trust's net assets at the following annual
rates: .50% of the Trust's average net assets not exceeding $1 billion, and
..475% of average daily net assets in excess of $1 billion but not exceeding $1.5
billion; and .45% of average daily net assets in excess of 1.5 billion.
The Trust has received an exemptive order from the Securities and Exchange
Commission permitting it to lend Trust securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its
affiliates. Pursuant to that order, the Trust also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Trust, invest cash collateral
received by the Trust for such loans, among other things, in a private
investment company managed by MLIM, LLC or in registered money market funds
advised by FAM or its affiliates. For the year ended March 31, 2005, MLIM, LLC
received $206,256 in securities lending agent fees.
In addition, MLPF&S received $868,507 in commissions on the execution of
portfolio security transactions for the Trust for the year ended March 31, 2005.
For the year ended March 31, 2005, the Trust reimbursed FAM $69,126 for certain
accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
Mercury Trusts, Inc., FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended March 31, 2005 were $2,259,171,331 and $2,481,347,972, respectively.
4. Short-Term Borrowings:
The Trust, along with certain other funds managed by FAM and its affiliates, is
a party to a $500,000,000 credit agreement with a group of lenders. The Trust
may borrow under the credit agreement to fund shareholder redemptions and for
other lawful purposes other than for leverage. The Trust may borrow up to the
maximum amount allowable under the Trust's current prospectus and statement of
additional information, subject to various other legal, regulatory or
contractual limits. The Trust pays a commitment fee of .07% per annum based on
the Trust's pro rata share of the unused portion of the credit agreement.
Amounts borrowed under the credit agreement bear interest at a rate equal to, at
each fund's election, the federal funds rate plus .50% or a base rate as defined
in the credit agreement. The Trust did not borrow under the credit agreement
during the year ended March 31, 2005. On November 26, 2004, the credit agreement
was renewed for one year under substantially the same terms.
34 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Report of Independent Registered Public Accounting Firm
Master Value Opportunities Trust
To the Investor and Board of Trustees of
Master Value Opportunities Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master Value Opportunities Trust as of March 31,
2005, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the respective periods then
ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free from material misstatement. The
Trust is not required to have, nor were we engaged to perform, an audit of its
internal control of financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of March 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Master
Value Opportunities Trust as of March 31, 2005, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the
respective periods then ended, in conformity with U.S. generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 20, 2005
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 35
Officers and Directors/Trustees
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Director/Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 124 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 163 Portfolios
08543-9011 Director/ (Americas Region) thereof from 2000 to 2001 and
Age: 50 Trustee Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators") since
2001; Chief Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or
FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company Act, of the
Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators, L.P.
Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they
turn 72. As Fund/Trust President, Mr. Doll serves at the pleasure of the Board of Directors/Trustees.
====================================================================================================================================
Independent Directors/Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. P.O. Box 9095 Director/ 2002 to General Partner of The Burton Partnership, Limited 23 Funds Knology, Inc.
Burton Princeton, NJ Trustee present Partnership (an investment partnership) since 1979; 42 Portfolios (telecommuni-
08543-9095 Managing General Partner of the South Atlantic cations) and
Age: 61 Venture Funds since 1983; Member of the Investment Symbion, Inc.
Advisory Council of the Florida State Board of (healthcare)
Administration since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie P.O. Box 9095 Director/ 1999 to Professor of Finance and Economics, Graduate 23 Funds None
Simon Princeton, NJ Trustee present School of Business, Columbia University since 1998. 42 Portfolios
Hodrick 08543-9095
Age: 42
- ------------------------------------------------------------------------------------------------------------------------------------
John P.O. Box 9095 Director/ 2005 to President and Chief Executive Officer of Allmerica 23 Funds ABIOMED
Francis Princeton, NJ Trustee present Financial Corporation (financial services holding 42 Portfolios (medical
O'Brien 08543-9095 company) from 1995 to 2002 and Director from device
Age: 61 1995 to 2003; President of Allmerica Investment manufacturer),
Management Co., Inc. (investment adviser) from Cabot
1989 to 2002; Director from 1989 to 2002 and Corporation
Chairman of the Board from 1989 to 1990; President, (manu-
Chief Executive Officer and Director of First Allmerica facturing),
Financial Life Insurance Company from 1989 to 2002 LKQ Corpor-
and Director of various other Allmerica Financial ation (auto
companies until 2002; currently Director since 1989 parts manu-
and since 2004 member of the Governance facturing)
Nominating Committee; Member of the Compensation and TJX Com-
Committee of ABIOMED since 1989 and Member of panies, Inc.
the Audit Committee of ABIOMED from 1990 to 2004; (retailer)
Director and member of the Governance and
Nomination Committee of Cabot Corporation and
member of the Audit Committee since 1990; Director
and member of the Audit Committee and
Compensation Committee of LKQ Corporation from
2003; Lead Director of TJX Companies, Inc. since
1999; Trustee of the Woods Hole Oceanographic
Institute since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
36 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Officers and Directors/Trustees (continued)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
David H. P.O. Box 9095 Director/ 2003 to Consultant with Putnam Investments from 1993 to 23 Funds None
Walsh Princeton, NJ Trustee present 2003, and employed in various capacities from 1973 42 Portfolios
08543-9095 to 1992; Director, The National Audubon Society since
Age: 63 1998; Director, The American Museum of Fly Fishing
since 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. P.O. Box 9095 Director/ 1998 to Managing Director of FGW Associates since 1997; 23 Funds Watson
Weiss Princeton, NJ Trustee present Vice President, Planning, Investment and Devel- 42 Portfolios Pharma-
08543-9095 opment of Warner Lambert Co. from 1979 to 1997; ceuticals
Age: 63 Director of the Michael J. Fox Foundation for Inc.
Parkinson's Research since 2000; Director of BTG (pharma-
International Plc (a global technology commercial- ceutical
ization company) since 2001. company)
------------------------------------------------------------------------------------------------------------------------
* Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they
turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 37
Officers and Directors/Trustees (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and and since 2004; Vice President of FAMD since 1999; Vice President of MLIMand FAM from
Age: 44 Treasurer 1999 to 1990 to 1997; Director of Taxation of MLIM from 1990 to 2001; Vice President,
present Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Robin P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2000; First Vice President of MLIM from 1999 to
Elise Baum Princeton, NJ President present 2000; Director of MLIM from 1997 to 1999; Vice President of MLIM from 1995 to 1997.
08543-9011
Age: 44
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 53 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Effective January 1, 2005, Terry K. Glenn, President and Director/Trustee and M.
Colyer Crum, Director/Trustee of Merrill Lynch Value Opportunities Fund, Inc.
and Master Value Opportunities Trust retired. The Fund's/Trust's Board of
Directors/Trustees wishes Mr. Glenn and Professor Crum well in their
retirements.
Effective January 1, 2005, Robert C. Doll, Jr. became Executive Vice President
and Chief Executive Officer of the Fund and the Trust. Effective February 28,
2005, Mr. Doll became President and Director/Trustee of the Fund and the Trust.
- --------------------------------------------------------------------------------
38 MERRILL LYNCH VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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 VALUE OPPORTUNITIES FUND, INC. MARCH 31, 2005 39
[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-MER-FUND (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. Infor-mation 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 Value Opportunities Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
#10253 -- 3/05
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Ronald W.
Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
Merrill Lynch Value Opportunities Fund, Inc.
(a) Audit Fees - Fiscal Year Ending March 31, 2005 - $6,500
Fiscal Year Ending March 31, 2004 - $6,200
(b) Audit-Related Fees - Fiscal Year Ending March 31, 2005 - $0
Fiscal Year Ending March 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending March 31, 2005 - $6,300
Fiscal Year Ending March 31, 2004 - $5,800
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending March 31, 2005 - $0
Fiscal Year Ending March 31, 2004 - $0
Master Value Opportunities Trust
(a) Audit Fees - Fiscal Year Ending March 31, 2005 - $40,500
Fiscal Year Ending March 31, 2004 - $38,000
(b) Audit-Related Fees - Fiscal Year Ending March 31, 2005 - $0
Fiscal Year Ending March 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending March 31, 2005 - $0
Fiscal Year Ending March 31, 2004 - $0
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending March 31, 2005 - $0
Fiscal Year Ending March 31, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be deemed
pre-approved provided that any individual project does not exceed
$5,000 attributable to the registrant or $50,000 for all of the
registrants the Committee oversees. Any proposed services exceeding the
pre-approved cost levels will require specific pre-approval by the
Committee, as will any other services not subject to general
pre-approval (e.g., unanticipated but permissible services). The
Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending March 31, 2005 - $10,018,400
Fiscal Year Ending March 31, 2004 - $16,708,160
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
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 second 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 - See Item 2
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 Value Opportunities Fund, Inc. and Master Value Opportunities
Trust
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Value Opportunities Fund, Inc. and Master Value Opportunities
Trust
Date: May 23, 2005
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 Value Opportunities Fund, Inc. and Master Value Opportunities
Trust
Date: May 23, 2005
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Value Opportunities Fund, Inc. and Master Value Opportunities
Trust
Date: May 23, 2005