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 811-3450
Name of Fund: Merrill Lynch Focus Value Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Focus Value Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ 08536.
Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 07/31/03
Date of reporting period: 08/01/02 - 1/31/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Semi-Annual Report
January 31, 2003
Merrill Lynch
Focus Value Fund, Inc.
www.mlim.ml.com
MERRILL LYNCH FOCUS VALUE FUND, INC.
DEAR SHAREHOLDER
For the six-month period ended January 31, 2003, Merrill Lynch Focus Value Fund,
Inc.'s Class A, Class B, Class C and Class D Shares had total returns of +2.09%,
+1.49%, +1.52% and +1.86%, respectively, compared to a -4.56% return for the
unmanaged benchmark Russell 1000 Value Index and a -5.26% total return for the
unmanaged Standard & Poor's 500 Index. (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 3 - 5 of this report to shareholders.)
Portfolio Matters
As has been the case in recent years, extraordinary volatility ruled the markets
as investors continued to question the direction of the economy as well as the
ultimate conclusion of several global crises. In fact, the industry groups that
performed relatively poorly tended to be companies in the consumer
discretionary, materials and information technology industries, all groups that
are highly correlated toward the level of economic activity. During these
uncertain times, we decided to focus our investments on those companies that, in
our opinion, have done an exceptional job in managing their costs and allocating
capital toward balance sheet repair rather than capacity additions. We believe
that companies such as these will benefit the most once the economic
sluggishness abates. Additionally, we were very focused on adding companies to
the portfolio that were trading at historically low valuation levels.
Much of our activity during the six-month period ended January 31, 2003 was
focused on existing companies that were being sold off because of the economic
concerns mentioned previously. Materials stocks such as Arch Coal, Inc. and
Boise Cascade Corporation reached historically low valuation levels, despite the
fact that they have become marginally profitable companies during tough economic
conditions. Portfolio activity was also concentrated in numerous
industrial-related companies such as Honeywell International, Inc., Boeing
Company and Raytheon Company, all struggling to manage earnings in this sluggish
aerospace environment. We utilized price weakness in technology companies such
as Unisys Corporation, National Semiconductor Corporation and Motorola, Inc.,
which traded near their historical lows despite possessing very strong balance
sheets, enviable market shares and significant earnings recovery potential given
their lean cost structures and modest inventory levels. New additions to the
portfolio were primarily in economically sensitive issues such as Foot Locker,
Inc. (retail), Boeing Company, Raytheon Company and Kimberly-Clark Corporation
(industrials) and Royal Dutch Petroleum Company and Exxon Mobil Corporation
(energy). All of these companies had suffered short-term operational problems
caused by a decreased level of business activity. However, even during these
depressed times we are drawn to these companies because they have managed to
downsize their businesses to the point where they are throwing off free cash
flow that is being used to pay down debt, to buy back shares and/or pay a
dividend. We believe that the substantial cost cutting that took place within
these companies during the last couple of years will enable a disproportionate
amount of revenue to fall to the bottom line once business conditions improve.
In our opinion, their current equity prices are attractive relative to their
future earnings potential.
On the sell side, we cut our exposure to a number of groups that had performed
relatively well. Media stocks rebounded off of the extremely oversold conditions
that existed in the first half of last year. As advertising rebounded, so did
the stock prices until they reached, in our opinion, relatively unattractive
levels. We sold Tribune Company and Viacom, Inc. into this strength. We traded
the highly volatile technology sector in the past six months by alternating the
level of our exposure in National Semiconductor
1
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
Corporation, Computer Associates International, Inc. and Phillips N.V. We have
been successful in buying during dips and selling during the strong, short-lived
upward moves that occurred when investor sentiment improved.
In Conclusion
As of January 31, 2003, the Fund was aggressively positioned toward economically
sensitive companies. We remain overweighted in industries such as materials,
industrials and technology (which we have learned is a very economically driven
industry), while we are underweighted in financial and utility stocks. The
majority of the financial stocks that we do own are correlated to the capital
markets where we also expect a rebound during the upcoming year. The United
States has moved quickly to address the earnings quality concerns that prevailed
during the first part of 2002. We believe the significant monetary and proposed
fiscal stimulus that has and will be introduced by the Federal government will
go a long way in improving the level of business activity. We believe that the
one wildcard remains geopolitical risk, which is much more difficult to analyze.
While we wait for a resolution of the tensions, we remain focused on owning what
we believe are modestly valued companies that have good balance sheets, are
generating free cash flow and possess management teams that have managed through
this difficult environment and have successfully positioned their companies for
better economic times ahead.
We appreciate your continued investment in Merrill Lynch Focus Value Fund, Inc.,
and we look forward to serving your investment needs in the months and years
ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Robert J. Martorelli
Robert J. Martorelli
Vice President and Co-Portfolio Manager
/s/ Kevin M. Rendino
Kevin M. Rendino
Vice President and Co-Portfolio Manager
March 5, 2003
2
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers five pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
A Shares are available only to eligible investors.
o Effective June 1, 2001, 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% and an account maintenance fee of 0.25%. These shares automatically
convert to Class D Shares after approximately eight years. (There is no
initial sales charge for automatic share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
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% and an account maintenance fee of 0.25%. Class R Shares are
available only to certain retirement plans.
None of the past results shown should be considered a representation of
future performance. Performance results do not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Figures shown in each of the following tables assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Dividends paid to each class of shares will
vary because of the different levels of account maintenance, distribution
and transfer agency fees applicable to each class, which are deducted from
the income available to be paid to shareholders.
3
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
PERFORMANCE DATA (continued)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
==============================================================================
Class A Shares*
- ------------------------------------------------------------------------------
One Year Ended 1/31/03 -22.71% -26.77%
- ------------------------------------------------------------------------------
Five Years Ended 1/31/03 + 4.53 + 3.40
- ------------------------------------------------------------------------------
Ten Years Ended 1/31/03 + 9.54 + 8.95
- ------------------------------------------------------------------------------
* Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class A Shares
were offered at a higher sales charge. Thus, actual returns would have
been lower than shown for the ten-year period.)
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
==============================================================================
Class B Shares*
==============================================================================
One Year Ended 1/31/03 -23.53% -26.59%
- ------------------------------------------------------------------------------
Five Years Ended 1/31/03 + 3.46 + 3.23
- ------------------------------------------------------------------------------
Ten Years Ended 1/31/03 + 8.42 + 8.42
- ------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
==============================================================================
% Return % Return
Without CDSC With CDSC**
==============================================================================
Class C Shares*
- ------------------------------------------------------------------------------
One Year Ended 1/31/03 -23.47% -24.24%
- ------------------------------------------------------------------------------
Five Years Ended 1/31/03 + 3.46 + 3.46
- ------------------------------------------------------------------------------
Inception (10/21/94)
through 1/31/03 + 7.70 + 7.70
- ------------------------------------------------------------------------------
* 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 D Shares*
- ------------------------------------------------------------------------------
One Year Ended 1/31/03 -22.86% -26.91%
- ------------------------------------------------------------------------------
Five Years Ended 1/31/03 + 4.27 + 3.15
- ------------------------------------------------------------------------------
Inception (10/21/94)
through 1/31/03 + 8.55 + 7.85
- ------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Aggregate Total Return
% Return Without
Sales Charge
================================================================================
Class R Shares
================================================================================
Inception (1/03/03) through 1/31/03 - 5.42%
- --------------------------------------------------------------------------------
4
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
PERFORMANCE DATA (concluded)
Recent Performance Results
Ten Years/
6-Month 12-Month Since Inception
As of January 31, 2003 Total Return Total Return Total Return
=================================================================================================================
ML Focus Value Fund, Inc. Class A Shares* +2.09% -22.71% +148.76%
- -----------------------------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class B Shares* +1.49 -23.53 +124.41
- -----------------------------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class C Shares* +1.52 -23.47 + 84.83
- -----------------------------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class D Shares* +1.86 -22.86 + 97.31
- -----------------------------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class R Shares* -- -- - 5.42
- -----------------------------------------------------------------------------------------------------------------
Russell 1000 Value Index** -4.56 -16.93 +164.53/+128.33
- -----------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index*** -5.26 -23.02 +135.46/+108.61
=================================================================================================================
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Fund's ten-year/since inception total
return periods are ten years for Class A & Class B Shares; from 10/21/94
for Class C & Class D Shares and from 1/03/03 for Class R Shares.
** This unmanaged Index measures the performance of those Russell 1000
companies with lower price-to-book ratios and lower forecasted growth
values. Ten-year/since inception total returns are for ten years and from
10/31/94, respectively.
*** This unmanaged Index covers 500 industrial, transportation and financial
companies of the U.S. Markets (mostly NYSE issues), representing about 75%
of NYSE market capitalization and 30% of NYSE issues. Ten-year/since
inception total returns are for ten years and from 10-31-94, respectively.
5
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
PORTFOLIO INFORMATION
As of January 31, 2003
Percent of
Ten Largest Equity Holdings Net Assets
Liberty Media Corporation (Class A) ................ 5.7%
3Com Corporation ................................... 4.9
The Topps Company, Inc. ............................ 4.6
Sappi Limited (ADR) ................................ 4.1
Unisys Corporation ................................. 4.1
Citigroup Inc. ..................................... 3.6
Exxon Mobil Corporation ............................ 3.5
Lucent Technologies Inc. ........................... 3.5
Borland Software Corporation ....................... 3.4
Symbol Technologies, Inc. .......................... 3.2
Percent of
Five Largest Industries* Net Assets
Communications Equipment ........................... 9.7%
Diversified Financials ............................. 8.4
Paper & Forest Products ............................ 7.1
Software ........................................... 6.8
Media .............................................. 6.5
* For Fund 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 Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease.
Percent of
Asset Mix Net Assets
Stocks ............................................. 98.7%
Bonds .............................................. 0.6
Cash & Cash Equivalents ............................ 0.7
6
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
SCHEDULE OF INVESTMENTS
Shares Percent of
Industry* Held Investments Value Net Assets
====================================================================================================================================
Discount to Assets
====================================================================================================================================
Aerospace & Defense 152,400 The Boeing Company $ 4,814,316 1.4%
13,900 General Dynamics Corporation 919,346 0.3
====================================================================================================================================
Communications 4,030,500 + 3Com Corporation 17,049,015 4.9
Equipment
====================================================================================================================================
Diversified Financials 662,500 Janus Capital Group Inc. 8,407,125 2.4
====================================================================================================================================
Diversified 177,000 Verizon Communications 6,775,560 1.9
Telecommunication
Services
====================================================================================================================================
Media 2,012,460 + Liberty Media Corporation (Class A) 20,064,226 5.7
====================================================================================================================================
Paper & Forest 434,300 Boise Cascade Corporation 10,384,113 3.0
Products 1,043,500 Sappi Limited (ADR) (a) 14,504,650 4.1
====================================================================================================================================
Specialty Retail 449,800 Circuit City Stores--Circuit City Group 2,694,302 0.8
====================================================================================================================================
Total Discount to Assets (Cost--$95,676,342) 85,612,653 24.5
====================================================================================================================================
====================================================================================================================================
Earnings Turnaround
====================================================================================================================================
Aerospace & Defense 282,500 Honeywell International Inc. 6,904,300 2.0
====================================================================================================================================
Banks 78,500 Mellon Financial Corporation 1,795,295 0.5
187,800 Wachovia Corporation 6,755,166 1.9
====================================================================================================================================
Communications 6,521,700 + Lucent Technologies Inc. 12,130,362 3.5
Equipment 587,500 Motorola, Inc. 4,688,250 1.3
====================================================================================================================================
Computers & 383,800 + Apple Computer, Inc. 5,507,530 1.6
Peripherals
====================================================================================================================================
Diversified Financials 225,400 Morgan Stanley 8,542,660 2.4
====================================================================================================================================
Energy Equipment 331,000 Diamond Offshore Drilling, Inc. 7,056,920 2.0
& Service 50,400 ENSCO International Incorporated 1,357,776 0.4
671,800 + Grant Prideco, Inc. 7,154,670 2.0
====================================================================================================================================
Food & Drug Retailing 1,833,900 + The Topps Company, Inc. 16,064,964 4.6
====================================================================================================================================
Hotels, Restaurants 334,400 McDonald's Corporation 4,761,856 1.4
& Leisure
====================================================================================================================================
Insurance 52,500 Lincoln National Corporation 1,693,125 0.5
397,623 Travelers Property Casualty Corp. (Class A) 6,445,469 1.9
====================================================================================================================================
Leisure Equipment 743,500 Hasbro, Inc. 8,922,000 2.6
& Products
====================================================================================================================================
Media 900,000 + CST Entertainment, Inc. (b) 90 0.0
95,900 + Fox Entertainment Group, Inc. (Class A) 2,649,717 0.8
====================================================================================================================================
Metals & Mining 172,900 + Phelps Dodge Corporation 5,973,695 1.7
====================================================================================================================================
Oil & Gas 358,500 Exxon Mobil Corporation 12,242,775 3.5
182,000 Unocal Corporation 5,068,700 1.5
====================================================================================================================================
7
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
SCHEDULE OF INVESTMENTS (continued)
Shares Held/ Percent of
Industry* Face Amount Investments Value Net Assets
====================================================================================================================================
Earnings Turnaround (concluded)
====================================================================================================================================
Pharmaceuticals 385,300 Schering-Plough Corporation $ 6,977,783 2.0%
====================================================================================================================================
Semiconductor 1,049,000 + Advanced Micro Devices, Inc. 5,496,760 1.6
Equipment & Products 1,505,400 + LSI Logic Corporation 6,638,814 1.9
301,900 + National Semiconductor Corporation 3,985,080 1.1
====================================================================================================================================
Software 1,147,300 + Borland Software Corporation 11,874,555 3.4
4,265,800 + Parametric Technology Corporation 9,853,998 2.8
====================================================================================================================================
Specialty Retail 879,400 Foot Locker, Inc. 8,881,940 2.6
632,600 + Toys 'R' Us, Inc. 5,718,704 1.6
====================================================================================================================================
Total Earnings Turnaround (Cost--$213,185,914) 185,142,954 53.1
====================================================================================================================================
====================================================================================================================================
Financial Restructuring
====================================================================================================================================
Commercial Services 28 + Safeguard Business Systems Inc. (d) 0 0.0
& Supplies
====================================================================================================================================
Construction & 1,079,146 + New Millennium Homes, LLC (b)(d) 10,252 0.0
Engineering 7,786 + New Millennium Homes (Preferred) (d) 739 0.0
$ 7,221,000 + New Millennium Homes, 0% due 12/31/2004 (d)(f) 2,023,685 0.6
====================================================================================================================================
Machinery $ 5,976,171 + Goss Graphic Systems, Inc., 12.25% due 11/19/2005 29,881 0.0
139,388 + Goss Holdings Inc. (Class B) 1,394 0.0
====================================================================================================================================
Oil & Gas 1,981,437 + Gulfport Energy Corporation--Litigation Trust Certificates 20 0.0
====================================================================================================================================
Total Financial Restructuring (Cost--$14,001,971) 2,065,971 0.6
====================================================================================================================================
====================================================================================================================================
Operational Restructuring
====================================================================================================================================
Aerospace & Defense 104,300 Raytheon Company 3,138,387 0.9
====================================================================================================================================
Chemicals 204,300 E.I. du Pont de Nemours and Company 7,736,841 2.2
====================================================================================================================================
Electrical Equipment 342,400 + Thomas & Betts Corporation 5,779,712 1.7
====================================================================================================================================
Electronic Equipment 1,339,600 Symbol Technologies, Inc. 11,292,828 3.2
& Instruments
====================================================================================================================================
Household Products 127,400 Kimberly-Clark Corporation 5,901,168 1.7
====================================================================================================================================
IT Consulting & Services 1,555,000 + Unisys Corporation 14,492,600 4.1
====================================================================================================================================
Software 1,500,000 + Elevon, Inc. (c) 1,950,000 0.6
====================================================================================================================================
Total Operational Restructuring (Cost--$58,781,903) 50,291,536 14.4
====================================================================================================================================
8
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
SCHEDULE OF INVESTMENTS (concluded)
Percent of
Industry* Shares Held Investments Value Net Assets
====================================================================================================================================
Price to Book
====================================================================================================================================
Diversified Financials 360,900 Citigroup Inc. $ 12,407,742 3.6%
====================================================================================================================================
Metals & Mining 627,100 Arch Coal, Inc. 10,823,746 3.1
====================================================================================================================================
Total Price to Book (Cost--$25,742,527) 23,231,488 6.7
====================================================================================================================================
Total Investments (Cost--$407,388,657) 346,344,602 99.3
====================================================================================================================================
Short-Term Securities
====================================================================================================================================
Common Stock 27,017,505 Merrill Lynch Premier Institutional Fund (e)(g) 27,017,505 7.7
====================================================================================================================================
Partnership
Interest
====================================================================================================================================
Partnership Interest $ 3,600,279 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (e) 3,600,279 1.0
33,021,396 Merrill Lynch Liquidity Series, LLC Money Market
Series (e)(g) 33,021,396 9.5
------------ -----
36,621,675 10.5
====================================================================================================================================
Total Short-Term Securities (Cost--$63,639,180) 63,639,180 18.2
====================================================================================================================================
Total Investments (Cost--$471,027,837) 409,983,782 17.5
Liabilities in Excess of Other Assets (60,964,136) (17.5)
------------ -----
Net Assets $349,019,646 100.0%
============ =====
====================================================================================================================================
+ Non-income producing security.
* For Fund 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 Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease.
(a) American Depositary Receipts (ADR).
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Investments in companies 5% or more of whose outstanding securities are
held by the Fund (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as follows:
- --------------------------------------------------------------------------------
Net Share Net Dividend
Industry Affiliate Activity Cost Income
- --------------------------------------------------------------------------------
Software Elevon, Inc. -- -- +
- --------------------------------------------------------------------------------
+ Non-income producing security.
(d) Restricted securities as to resale. The value of the Fund's investment in
restricted securities was approximately $2,035,000, representing 0.6% of
net assets.
- --------------------------------------------------------------------------------
Acquisition
Issue Date(s) Cost Value
- --------------------------------------------------------------------------------
New Millennium Homes, LLC 3/15/1996-
8/29/1997 $ 4,431,694 $ 10,252
New Millennium Homes, LLC 8/29/1997-
(Preferred) 3/05/1999 590 740
New Millennium Homes, LLC 8/29/1997-
0% due 12/31/2004 3/05/1999 6,566,417 2,023,685
Safeguard Business Systems Inc. 9/15/1995 259 --
- --------------------------------------------------------------------------------
Total $10,998,960 $2,034,677
=========== ==========
- --------------------------------------------------------------------------------
(e) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
- --------------------------------------------------------------------------------
Dividend/
Net Interest
Affiliate Activity Income
- --------------------------------------------------------------------------------
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $ 3,600,279 $21,562
Merrill Lynch Liquidity Series,
LLC Money Market Series $33,021,396 14,783
Merrill Lynch Premier
Institutional Fund 27,017,505 9,002
Merrill Lynch
Institutional Fund -- 356
- --------------------------------------------------------------------------------
(f) Represents a zero coupon bond.
(g) Security was purchased with the cash proceeds from securities loans.
See Notes to Financial Statements.
9
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 2003
===================================================================================================================================
Assets: Investments, at value (including securities loaned of $58,043,280)
(identified cost--$471,027,837) ....................................... $ 409,983,782
Receivables:
Capital shares sold ................................................ $ 547,692
Dividends .......................................................... 323,555
Loaned securities income ........................................... 50,571
Interest ........................................................... 5,227 927,045
------------
Prepaid registration fees ............................................. 38,154
-------------
Total assets .......................................................... 410,948,981
-------------
===================================================================================================================================
Liabilities: Collateral on securities loaned, at value ............................. 60,038,901
Payables:
Capital shares redeemed ............................................ 1,273,196
Investment adviser ................................................. 302,839
Distributor ........................................................ 112,760
Securities purchased ............................................... 101,159 1,789,954
------------
Accrued expenses ...................................................... 100,480
-------------
Total liabilities ..................................................... 61,929,335
-------------
===================================================================================================================================
Net Assets: Net assets ............................................................ $ 349,019,646
=============
===================================================================================================================================
Net Assets Class A Shares of Common Stock, $.10 par value, 50,000,000 shares
Consist of: authorized ............................................................ $ 1,658,050
Class B Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ............................................................ 826,365
Class C Shares of Common Stock, $.10 par value, 50,000,000 shares
authorized ............................................................ 370,528
Class D Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ............................................................ 1,214,891
Class R Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ............................................................ 1
Paid-in capital in excess of par ...................................... 465,484,992
Accumulated investment loss--net ...................................... $ (1,176,238)
Accumulated realized capital losses on investments--net ............... (58,314,888)
Unrealized depreciation on investments--net ........................... (61,044,055)
------------
Total accumulated losses--net ......................................... (120,535,181)
-------------
Net assets ............................................................ $ 349,019,646
=============
===================================================================================================================================
Net Asset Value: Class A--Based on net assets of $145,526,432 and 16,580,505 shares
outstanding ........................................................... $ 8.78
=============
Class B--Based on net assets of $67,661,440 and 8,263,653 shares
outstanding ........................................................... $ 8.19
=============
Class C--Based on net assets of $29,704,543 and 3,705,277 shares
outstanding ........................................................... $ 8.02
=============
Class D--Based on net assets of $106,127,136 and 12,148,913 shares
outstanding ........................................................... $ 8.74
=============
Class R--Based on net assets of $94.54 and 11.534 shares outstanding .. $ 8.20
=============
===================================================================================================================================
See Notes to Financial Statements.
10
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
FINANCIAL INFORMATION (continued)
Statement of Operations for the Six Months Ended January 31, 2003
===================================================================================================================================
Investment Dividends (net of $12,879 foreign withholding tax) ................... $ 1,939,767
Income: Interest ............................................................. 98,928
Securities lending--net .............................................. 24,140
------------
Total income ......................................................... 2,062,835
------------
===================================================================================================================================
Expenses: Investment advisory fees ............................................. $ 1,844,348
Account maintenance and distribution fees--Class B ................... 372,477
Account maintenance and distribution fees--Class C ................... 155,737
Account maintenance fees--Class D .................................... 138,887
Transfer agent fees--Class A ......................................... 137,948
Transfer agent fees--Class D ......................................... 100,654
Professional fees .................................................... 81,476
Accounting services .................................................. 80,329
Transfer agent fees--Class B ......................................... 78,482
Transfer agent fees--Class C ......................................... 34,216
Registration fees .................................................... 31,288
Printing and shareholder reports ..................................... 29,219
Custodian fees ....................................................... 22,494
Directors' fees and expenses ......................................... 20,751
Pricing fees ......................................................... 186
Other ................................................................ 15,781
------------
Total expenses before reimbursement .................................. 3,144,273
Reimbursement of expenses ............................................ (276,652)
------------
Total expenses after reimbursement ................................... 2,867,621
------------
Investment loss--net ................................................. (804,786)
------------
===================================================================================================================================
Realized & Realized loss on investments--net .................................... (17,857,497)
Unrealized Gain Change in unrealized depreciation on investments--net ................ 24,768,750
(Loss) on ------------
Investments--Net: Total realized and unrealized gain on investments--net ............... 6,911,253
------------
Net Increase in Net Assets Resulting from Operations ................. $ 6,106,467
============
===================================================================================================================================
See Notes to Financial Statements.
11
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2003 2002
===================================================================================================================================
Operations: Investment loss--net ....................................................... $ (804,786) $ (1,099,983)
Realized loss on investments--net .......................................... (17,857,497) (25,002,485)
Change in unrealized appreciation/depreciation on investments--net ......... 24,768,750 (94,451,583
------------- -------------
Net increase (decrease) in net assets resulting from operations ............ 6,106,467 (120,554,051)
------------- -------------
===================================================================================================================================
Distributions to Realized gain on investments--net:
Shareholders: Class A ................................................................. -- (11,856,358)
Class B ................................................................. -- (7,188,972)
Class C ................................................................. -- (1,076,312)
Class D ................................................................. -- (7,592,159)
------------- -------------
Net decrease in net assets resulting from distributions to shareholders .... -- (27,713,801)
------------- -------------
===================================================================================================================================
Capital Share Net increase (decrease) in net assets derived from capital
Transactions: share transactions ......................................................... (32,233,553) 62,344,109
------------- -------------
===================================================================================================================================
Net Assets: Total decrease in net assets ............................................... (26,127,086) (85,923,743)
Beginning of period ........................................................ 375,146,732 461,070,475
------------- -------------
End of period* ............................................................. $ 349,019,646 $ 375,146,732
============= =============
===================================================================================================================================
* Accumulated investment loss--net ........................................... $ (1,176,238) $ (371,452)
============= =============
===================================================================================================================================
See Notes to Financial Statements.
12
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights
Class A
----------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended July 31,
January 31, --------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Net asset value, beginning of period ............. $ 8.60 $ 12.04 $ 13.89 $ 13.71 $ 13.49
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net+ ................... --++++ .01 .09 .12 .13
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ........... .18 (2.71) .93 1.55 2.11
-------- -------- -------- -------- --------
Total from investment operations ................. .18 (2.70) 1.02 1.67 2.24
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ........................ -- -- (.06) (.18) (.13)
In excess of investment income--net ........... -- -- (.05) (.01) --
Realized gain on investments--net ............. -- (.74) (2.76) (1.30) (1.89)
-------- -------- -------- -------- --------
Total dividends and distributions ................ -- (.74) (2.87) (1.49) (2.02)
-------- -------- -------- -------- --------
Net asset value, end of period ................... $ 8.78 $ 8.60 $ 12.04 $ 13.89 $ 13.71
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on net asset value per share ............... 2.09%++ (22.95%) 8.00% 13.03% 24.15%
Return:** ======== ======== ======== ======== ========
===================================================================================================================================
Ratios to Average Expenses, net of reimbursement ................... 1.18%* 1.16% 1.24% 1.21% 1.27%
Net Assets: ======== ======== ======== ======== ========
Expenses ......................................... 1.33%* 1.28% 1.24% 1.21% 1.27%
======== ======== ======== ======== ========
Investment income (loss)--net .................... (.06%)* .14% .74% .87% 1.11%
======== ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $145,526 $154,734 $192,820 $223,134 $245,712
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................... 34.57% 123.59% 112.13% 95.11% 80.60%
======== ======== ======== ======== ========
===================================================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
++++ Amount is less than $.01 per share.
See Notes to Financial Statements.
13
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class B
----------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended July 31,
January 31, ----------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Net asset value, beginning of period ............. $ 8.07 $ 11.36 $ 13.23 $ 13.06 $ 12.93
Operating -------- -------- --------- -------- --------
Performance: Investment income (loss)--net+ ................... (.05) (.09) (.03) (.02) .01
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ........... .17 (2.54) .89 1.47 2.02
-------- -------- --------- -------- --------
Total from investment operations ................. .12 (2.63) .86 1.45 2.03
-------- -------- --------- -------- --------
Less dividends and distributions:
Investment income--net ........................ -- -- (.01) --++++ (.01)
In excess of investment income--net ........... -- -- (.01) --++++ --
Realized gain on investments--net ............. -- (.66) (2.71) (1.28) (1.89)
-------- -------- --------- -------- --------
Total dividends and distributions ................ -- (.66) (2.73) (1.28) (1.90)
-------- -------- --------- -------- --------
Net asset value, end of period ................... $ 8.19 $ 8.07 $ 11.36 $ 13.23 $ 13.06
======== ======== ========= ======== ========
===================================================================================================================================
Total Investment Based on net asset value per share ............... 1.49%++ (23.69%) 6.91% 11.85% 22.97%
Return:** ======== ======== ========= ======== ========
===================================================================================================================================
Ratios to Average Expenses, net of reimbursement ................... 2.21%* 2.18% 2.26% 2.23% 2.30%
Net Assets: ======== ======== ========= ======== ========
Expenses ......................................... 2.36%* 2.30% 2.26% 2.23% 2.30%
======== ======== ========= ======== ========
Investment income (loss)--net .................... (1.09%)* (.89%) (.27%) (.12%) .08%
======== ======== ========= ======== ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $ 67,662 $ 79,617 $ 132,202 $165,524 $199,132
Data: ======== ======== ========= ======== ========
Portfolio turnover ............................... 34.57% 123.59% 112.13% 95.11% 80.60%
======== ======== ========= ======== ========
===================================================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
++++ Amount is less than $.01 per share.
See Notes to Financial Statements.
14
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class C
----------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended July 31,
January 31, ---------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Net asset value, beginning of period ............. $ 7.90 $ 11.17 $ 13.07 $ 12.94 $ 12.83
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net+ ................... (.04) (.09) (.04) (.03) .01
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ........... .16 (2.50) .88 1.47 2.00
-------- -------- -------- -------- --------
Total from investment operations ................. .12 (2.59) .84 1.44 2.01
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ........................ -- -- (.02) (.01) (.01)
In excess of investment income--net ........... -- -- (.01) --++++ --
Realized gain on investments--net ............. -- (.68) (2.71) (1.30) (1.89)
-------- -------- -------- -------- --------
Total dividends and distributions ................ -- (.68) (2.74) (1.31) (1.90)
-------- -------- -------- -------- --------
Net asset value, end of period ................... $ 8.02 $ 7.90 $ 11.17 $ 13.07 $ 12.94
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on net asset value per share ............... 1.52%++ (23.73%) 6.90% 11.85% 22.95%
Return:** ======== ======== ======== ======== ========
===================================================================================================================================
Ratios to Average Expenses, net of reimbursement ................... 2.22%* 2.19% 2.27% 2.24% 2.31%
Net Assets: ======== ======== ======== ======== ========
Expenses ......................................... 2.37%* 2.32% 2.27% 2.24% 2.31%
======== ======== ======== ======== ========
Investment income (loss)--net .................... (1.10%)* (.88%) (.39%) (.24%) .06%
======== ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $ 29,705 $ 31,763 $ 16,776 $ 11,570 $ 8,245
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................... 34.57% 123.59% 112.13% 95.11% 80.60%
======== ======== ======== ======== ========
===================================================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
++++ Amount is less than $.01 per share.
See Notes to Financial Statements.
15
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class D
----------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended July 31,
January 31, ---------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Net asset value, beginning of period ............. $ 8.58 $ 12.01 $ 13.86 $ 13.67 $ 13.45
Operating --------- --------- --------- --------- --------
Performance: Investment income(loss)--net+ .................... (.01) (.01) .05 .08 .10
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ........... .17 (2.70) .94 1.56 2.11
--------- --------- --------- --------- --------
Total from investment operations ................. .16 (2.71) .99 1.64 2.21
--------- --------- --------- --------- --------
Less dividends and distributions:
Investment income--net ........................ -- -- (.05) (.14) (.10)
In excess of investment income--net ........... -- -- (.04) (.01) --
Realized gain on investments--net ............. -- (.72) (2.75) (1.30) (1.89)
--------- --------- --------- --------- --------
Total dividends and distributions ................ -- (.72) (2.84) (1.45) (1.99)
--------- --------- --------- --------- --------
Net asset value, end of period ................... $ 8.74 $ 8.58 $ 12.01 $ 13.86 $ 13.67
========= ========= ========= ========= ========
===================================================================================================================================
Total Investment Based on net asset value per share ............... 1.86%++ (23.06%) 7.73% 12.77% 23.87%
Return:** ========= ========= ========= ========= ========
===================================================================================================================================
Ratios to Average Expenses, net of reimbursement ................... 1.43%* 1.41% 1.49% 1.46% 1.52%
Net Assets: ========= ========= ========= ========= ========
Expenses ......................................... 1.58%* 1.54% 1.49% 1.46% 1.52%
========= ========= ========= ========= ========
Investment income (loss)--net .................... (.32%)* (.12%) .45% .55% .88%
========= ========= ========= ========= ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $ 106,127 $ 109,033 $ 119,272 $ 106,748 $ 84,479
Data: ========= ========= ========= ========= ========
Portfolio turnover ............................... 34.57% 123.59% 112.13% 95.11% 80.60%
========= ========= ========= ========= ========
===================================================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
16
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
Class R
----------
For the
Period
The following per share data and ratios have been derived January 3,
from information provided in the financial statements. 2003++ to
January 31,
Increase (Decrease) in Net Asset Value: 2003
========================================================================================================
Per Share Net asset value, beginning of period ......................... $ 8.67
Operating ------
Performance: Investment income--net+ ...................................... .01
Realized and unrealized loss on investments--net ............. (.48)
------
Total from investment operations ............................. (.47)
------
Net asset value, end of period ............................... $ 8.20
======
========================================================================================================
Total Investment Based on net asset value per share ........................... (5.42%)@
Return:** ======
========================================================================================================
Ratios to Average Expenses, net of reimbursement ............................... 1.72%*
Net Assets: ======
Expenses ..................................................... 1.87%*
======
Investment income--net ....................................... .55%*
======
========================================================================================================
Supplemental Net assets, end of period (in thousands) ..................... $ --
Data: ======
Portfolio turnover ........................................... 34.57%
======
========================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
17
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Focus Value Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund's financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require the use of management accruals and estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal, recurring nature. The Fund
offers five classes of shares under the Merrill Lynch Select Pricing(SM) System.
Shares of Class A and Class D are sold with a front-end sales charge. Shares of
Class B and Class C may be subject to a contingent deferred sales charge. 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 B, Class C, Class D 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.
Income, expenses (other than expenses attributable 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 -- Portfolio securities that are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
that are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments are stated at market value.
Securities and assets for which market value quotations are not available are
valued at their fair value as determined in good faith by or under the direction
of the Fund's Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
o Options -- The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
18
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
Written and purchased options are non-income producing investments.
(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 -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital gains at
various rates.
(e) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(h) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable 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 Fund could experience delays and costs in gaining access to the
collateral. The Fund 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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with FAM Distributors, Inc.
("FAMD" or the "Distributor") which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel,
19
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
NOTES TO FINANCIAL STATEMENTS (continued)
facilities, equipment and certain other services necessary to the operations of
the Fund. For such services, the Fund pays a monthly fee of 1.00%, on an annual
basis, of the average daily value of the Fund's net assets. As of October 10,
2001, FAM has contractually agreed to waive .15% of its fee resulting in an
annual fee equal to .85% of the average daily net assets of the Fund. For the
six months ended January 31, 2003, FAM earned fees of $1,844,348, of which
$276,652 was waived. FAM has entered into a Sub-Advisory Agreement with Merrill
Lynch Asset Management U.K. Limited ("MLAM U.K."), an affiliate of FAM, pursuant
to which MLAM U.K. provides investment advisory services to FAM with respect to
the Fund. There is no increase in the aggregate fees paid by the Fund for these
services.
Pursuant to the Distribution Plans adopted by the 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 as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B ................................ .25% .75%
Class C ................................ .25% .75%
Class D ................................ .25% --
Class R ................................ .25% .25%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C, Class D 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 six months ended January 31, 2003, FAMD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D
Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A $ 69 $ 946
Class D $ 343 $5,561
- --------------------------------------------------------------------------------
For the six months ended January 31, 2003, MLPF&S received contingent deferred
sales charges of $34,142 and $10,773 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred
sales charges of $7 relating to transactions subject to front-end sales charge
waivers in Class D shares.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S, or its
affiliates. As of January 31, 2003, the Fund lent securities with a value of
$15,742,524 to MLPF&S or its affiliates. Pursuant to that order, the Fund also
has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate
of 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 Fund,
invest cash collateral received by the Fund for such loans, among other things,
in a private investment company managed by MLIM, LLC or in registered money
market funds advised by MLIM or its affiliates. For the six months ended January
31, 2003, MLIM, LLC received $10,258 in securities lending agent fees.
In addition, MLPF&S received $74,677 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended January
31, 2003.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
20
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
For the six months ended January 31, 2003, the Fund reimbursed FAM $4,490 for
certain accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, FDS, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended January 31, 2003 were $123,108,738 and $141,285,019, respectively.
Net realized losses for the six months ended January 31, 2003 and net unrealized
losses as of January 31, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
- --------------------------------------------------------------------------------
Long-term investments .............. $(17,857,497) $(61,044,055)
------------ ------------
Total .............................. $(17,857,497) $(61,044,055)
============ ============
- --------------------------------------------------------------------------------
As of January 31, 2003, net unrealized depreciation for Federal income tax
purposes aggregated $69,539,079, of which $21,913,792 related to appreciated
securities and $91,452,871 related to depreciated securities. At January 31,
2003, the aggregate cost of investments for Federal income tax purposes was
$419,483,960.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $(32,233,553) for the six months ended January 31, 2003 and $62,344,109 for
the year ended July 31, 2002.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended January 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 918,054 $ 8,146,524
Shares redeemed ............................ (2,319,664) (20,035,119)
------------ ------------
Net decrease ............................... (1,401,610) $(11,888,595)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2002 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 4,427,224 $ 49,448,357
Shares issued to shareholders
in reinvestment of
distributions .............................. 1,091,861 10,391,354
------------ ------------
Total issued ............................... 5,519,085 59,839,711
Shares redeemed ............................ (3,547,384) (37,293,972)
------------ ------------
Net increase ............................... 1,971,701 $ 22,545,739
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended January 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 708,357 $ 5,722,767
Shares redeemed ............................ (1,444,614) (11,705,158)
Automatic conversion
of shares .................................. (867,066) (7,032,616)
------------ ------------
Net decrease ............................... (1,603,323) $(13,015,007)
------------ ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2002 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 3,713,183 $ 38,935,722
Shares issued to shareholders
in reinvestment of
distributions .............................. 715,182 6,470,597
------------ ------------
Total issued ............................... 4,428,365 45,406,319
Shares redeemed ............................ (3,103,680) (31,126,875)
Automatic conversion
of shares .................................. (3,094,590) (32,226,231)
------------ ------------
Net decrease ............................... (1,769,905) $(17,946,787)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended January 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 261,989 $ 2,134,835
Shares redeemed ............................ (576,949) (4,524,491)
------------ ------------
Net decrease ............................... (314,960) $ (2,389,656)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2002 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 3,061,704 $ 32,093,451
Shares issued to shareholders
in reinvestment of
distributions .............................. 109,545 972,421
------------ ------------
Total issued ............................... 3,171,249 33,065,872
Shares redeemed ............................ (653,121) (6,245,507)
------------ ------------
Net increase ............................... 2,518,128 $ 26,820,365
============ ============
- --------------------------------------------------------------------------------
21
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended January 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 729,852 $ 6,416,329
Automatic conversion
of shares .................................. 814,444 7,032,616
------------ ------------
Total issued ............................... 1,544,296 13,448,945
Shares redeemed ............................ (2,110,348) (18,389,340)
------------ ------------
Net decrease ............................... (566,052) $ (4,940,395)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 2002 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 2,133,519 $ 23,545,321
Automatic conversion
of shares .................................. 2,922,321 32,226,231
Shares issued to shareholders
in reinvestment of
distributions .............................. 729,152 6,943,222
------------ ------------
Total issued ............................... 5,784,992 62,714,774
Shares redeemed ............................ (2,998,532) (31,789,982)
------------ ------------
Net increase ............................... 2,786,460 $ 30,924,792
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class R Shares for the
Period January 3, 2003+ Dollar
to January 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 12 $ 100
------------ ------------
Net increase ............................... 12 $ 100
============ ============
- --------------------------------------------------------------------------------
+ Commencement of operations.
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by FAM and its affiliates, is a
party to a $500,000,000 credit agreement with Bank One, N.A. and certain other
lenders. The Fund may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The Fund may
borrow up to the maximum amount allowable under the Fund's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Fund pays a commitment fee of .09% per
annum based on the Fund's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50% or a base
rate as determined by Bank One, N.A. On November 29, 2002, the credit agreement
was lowered for one year under the same terms, except that the total commitment
was reduced from $1,000,000,000 to $500,000,000. The Fund did not borrow under
the credit agreement during the six months ended January 31, 2003.
6. Capital Loss Carryforward:
On July 31, 2002, the Fund had a net capital loss carryforward of $9,470,740,
all of which expires in 2010. This amount will be available to offset like
amounts of any future taxable gains.
22
Merrill Lynch Focus Value Fund, Inc. January 31, 2003
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Joe Grills, Director
Herbert I. London, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Stephen B. Swensrud, Director
Robert C. Doll, Jr., Senior Vice President
Robert J. Martorelli, Vice President and Co-Portfolio Manager
Kevin M. Rendino, Vice President and Co-Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Susan B. Baker, Secretary
Custodian
J.P. Morgan Chase Bank
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- --------------------------------------------------------------------------------
Melvin R. Seiden, Director of Merrill Lynch Focus Value Fund, Inc., has recently
retired. The Fund's Board of Directors wishes Mr. Seiden well in his retirement.
- --------------------------------------------------------------------------------
23
[LOGO] Merrill Lynch Investment Managers
[GRAPHICS OMITTED]
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Focus Value Fund, Inc.
Box 9011
Princeton, NJ
08543
[RECYCLED LOGO] Printed on post-consumer recycled paper #10263--1/03
Item 2 - Did registrant adopt 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, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (not answered until July 15, 2003 and only
annually for funds)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -N/A (not answered until July
15, 2003 and only annually for funds)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last two
fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's
annual financial statements or services that are
normally provided by the accountant in connection with
statutory and regulatory filings or engagements for
those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and related
services by the principal accountant that are
reasonably related to the performance of the
audit of the registrant's financial statements
and are not reported under paragraph (a) of this
Item. Registrants shall describe the nature of
the services comprising the fees disclosed under
this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services provided
by the principal accountant, other than the services
reported in paragraphs (a) through (c) of this Item.
Registrants shall describe the nature of the
services comprising the fees disclosed under this
category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another 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. N/A.
Items 5-6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A.
Item 8 -- Reserved
Item 9(a) - Disclose the conclusions of the registrant's principal executive
officer or officers and principal financial officer or officers, or
persons performing similar functions, about the effectiveness of the
registrant's disclosure controls and procedures (as defined in Rule
30a-2(c) under the Act (17 CFR 270.30a-2(c))) based on their
evaluation of these controls and procedures as of a date within 90
days of the filing date of the report that includes the disclosure
required by this paragraph. N/A.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications (4 in total pursuant to Sections 302 and 906 for
CEO/CFO). 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 Focus Value Fund, Inc.
By: /s/ Terry K. Glenn
------------------------------------
Terry K. Glenn,
President of
Merrill Lynch Focus Value Fund, Inc.
Date: March 17, 2003
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/ Terry K. Glenn
------------------------------------
Terry K. Glenn,
President of
Merrill Lynch Focus Value Fund, Inc.
Date: March 17, 2003
By: /s/ Donald C. Burke
------------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Focus Value Fund, Inc.
Date: March 17, 2003