UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-3450
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: 07/31/04
Date of reporting period: 08/01/03 - 01/31/04
Item 1 - Report to Shareholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Focus Value Fund, Inc.
Semi-Annual Report
January 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Focus Value Fund, Inc.
Portfolio Information as of January 31, 2004
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
The Topps Company, Inc. .............................................. 4.3%
Raytheon Company ..................................................... 3.8
Parametric Technology
Corporation ....................................................... 3.2
LSI Logic Corporation ................................................ 3.1
Exxon Mobil Corporation .............................................. 3.1
Citigroup Inc. ....................................................... 3.0
GlobalSantaFe Corporation ............................................ 2.7
Unisys Corporation ................................................... 2.6
Bank One Corporation ................................................. 2.6
Liberty Media Corporation
(Class A) ......................................................... 2.6
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries* Net Assets
- --------------------------------------------------------------------------------
Aerospace & Defense .................................................. 8.1%
Media ................................................................ 7.9
Energy Equipment & Service ........................................... 7.1
Software ............................................................. 5.6
Semiconductors &
Semiconductor Equipment ........................................... 5.2
- --------------------------------------------------------------------------------
* For Fund compliance purposes, "Industries" 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 ............................................................... 95.0%
Bonds ................................................................ 0.7
Cash & Cash Equivalents .............................................. 4.3
- --------------------------------------------------------------------------------
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 website
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.
2 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
A Letter From the President
Dear Shareholder
In my 35 years in the asset management business, 2003 was among the more
memorable. The year, which opened with geopolitical turmoil, unrelenting
economic uncertainty and a dismal continuation of a three-year equity market
slump, vigorously reversed course in the months that followed.
As we entered 2004, the equity markets maintained their positive momentum from
year-end 2003. For the six-month and 12-month periods ended January 31, 2004,
the Standard & Poor's (S&P) 500 Index returned +15.23% and +34.57%,
respectively. In the fixed income markets, investors willing to accept the
greatest risk were rewarded the most. The high yield market, for example,
provided a return of +12.07% over the past six months and +26.96% for the
12-month period ended January 31, 2004, as measured by the Credit Suisse First
Boston High Yield Index.
At this time, the major signposts indicate that we are seeing a shift from
economic growth fueled primarily by fiscal and monetary stimulus to a
broader-based, self-sustaining economic expansion. Gross domestic product
growth, which peaked at an annualized rate of 8.2% in the third quarter of 2003,
is estimated at a more sustainable 4% in the fourth quarter. That level of
growth is expected to repeat itself in the first quarter of 2004. For its part,
the Federal Reserve Board has reiterated its willingness to keep short-term
interest rates at current low levels to ensure the economy's strength.
Accompanying the increase in economic activity was an improvement in corporate
earnings. By the end of January, 298 of the S&P 500 companies had reported their
fourth-quarter results, and 67.4% of those exceeded expectations. In the
meantime, the American consumer, who continued to spend despite the faltering
economy, may get further incentive from another round of Federal tax refunds in
2004.
At Merrill Lynch Investment Managers, we believe the events and efforts of 2003
leave us with a much stronger economy and recent optimism suggests it is time
for investors to consider what can go right in 2004. The events and efforts of
2003 leave us with a much stronger economy in the New Year. We encourage you to
revisit your portfolio and your asset allocation strategy to ensure you are well
positioned to take advantage of the opportunities that lie ahead.
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/ Terry K. Glenn
Terry K. Glenn
President and Director
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Managers
Fund performance exceeded that of its benchmarks and its Lipper category
average for the period, having benefited significantly from a focus on cyclical
stocks that outperformed with the improving economy.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended January 31, 2004, Merrill Lynch Focus Value Fund,
Inc.'s Class A, Class B, Class C, Class I and Class R Shares had total returns
of +20.78%, +20.27%, +20.28%, +20.95% and +20.60%, respectively. (Fund results
shown do not reflect sales charges and would be lower if sales charges were
included. Complete performance information can be found on pages 6 and 7 of this
report to shareholders.) The Fund outperformed both the +15.23% return of the
unmanaged Standard & Poor's 500 Index and the +16.86% return of the Russell 1000
Value Index for the same period. Fund returns also exceeded the +17.27% average
return of the Lipper Multi Cap Value Funds category for the six-month period.
(Funds in this Lipper category invest in companies in a variety of
market-capitalization ranges and that are considered to be undervalued relative
to a major unmanaged stock index.)
At the start of the period, the Fund had a bias toward economic sensitivity. We
found valuations to be most attractive in those areas of the market that were
most likely to benefit from economic recovery. As such, we were overweight in
cyclicals, including industrials, materials and technology stocks. Although
technology is typically considered a growth industry, we have learned that
capital expenditures on technology are dependent upon a company's profitability,
so we consider technology stocks to be highly cyclical.
In initiating this cyclical approach, our feeling was that the economy had
suffered after the events of September 11, 2001 and well into the following
year. Yet the economy grew in 2002 despite a myriad of scandals and misfortunes,
including accounting irregularities, corporate governance issues and impending
war in Iraq. If the economy could grow under these extreme conditions, we felt
certain that growth would accelerate in 2003, and we positioned the portfolio
accordingly. Our thesis held true and, during the six-month period ended January
31, 2004, economic growth gained significant momentum. In turn, many stocks that
had been beaten down rebounded dramatically. The primary beneficiaries of this
upturn were higher-beta, economically sensitive stocks, and our bias in these
areas benefited performance significantly.
The majority of the Fund's relative outperformance was generated by our
investments in information technology, which led the way out of the equity
market downturn. Although these stocks were the most depressed over the last 12
to 18 months, technology companies were also among the first to realign their
costs and manage their operations in such a way that they were not losing a lot
of money at the trough in the economic cycle. When these companies started to
see returns to their revenue lines, earnings bounced back to a greater extent
than other industries. Top performers for the Fund were two of our larger
positions -- 3Com Corporation and LSI Logic Corporation.
Fund performance also benefited from our position in the consumer discretionary
sector. Stocks with a retail orientation, such as Foot Locker, Inc., Hasbro,
Inc. and McDonald's Corporation, significantly contributed to the relative
outperformance. In addition, consumer discretionary stocks in the media sector,
such as Time Warner Inc. and Liberty Media Corporation, also generated
attractive returns as investors began to anticipate that the improving economy
and a better advertising environment would benefit company earnings.
An upturn in industrial America translated into solid performance in the Fund's
industrial sector. Thomas & Betts Corporation, an electronic products
distributor, provided strong returns, while The B.F. Goodrich Company and The
Boeing Company performed well following an upturn in the aerospace business. In
the materials sector, performance was primarily driven by our investment in Arch
Coal, Inc., which benefited from increased demand and higher prices being
commanded for alternative energy sources.
Detracting from performance during the period was an underweight position in the
financials sector. As of January 31, 2004, the Russell 1000 Value Index had a
36% weighting in financials versus a portfolio position of 14%. As a diversified
mutual fund, we are precluded from investing such a large percentage of net
assets in any one sector. More so, we are concerned about the prospects for many
financial stocks given their historical tendency to underperform in periods of
rising interest rates. For these reasons, we are comfortable with our exposure
and will continue to emphasize those financial stocks positioned to benefit from
rising stock markets, such as investment banks.
4 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
What changes were made to the portfolio during the period?
While we maintained our bias toward an up-market and economic sensitivity, we
began finding more value in the defensive areas of the market as the period wore
on. True to our contrarian investment approach, we began to take profits in some
of the economically sensitive stocks that performed so well and invest in those
areas that had yet to outperform.
We added a number of consumer discretionary stocks to the portfolio, with a
focus on media. Early in the period, we initiated positions in Time Warner Inc.
and Viacom, Inc., which had not yet participated in the equity market rally.
Given the favorable economic outlook, we felt that advertising would improve,
company earnings would benefit and the company stocks would do well as a result.
As we ended the period, this scenario was already starting to play out.
We also found value in some of the more stable businesses in the consumer
staples area. We added ConAgra, Inc., maker of a variety of consumer brands,
including Healthy Choice, Butterball and Orville Reddenbacher. We also initiated
a position in Unilever NV, a major food company associated with such familiar
names as Lipton and WishBone. Investors seemed skeptical about these companies'
growth rates, instead continuing to favor higher-beta stocks. Under the
circumstances, both investments represented value in our view.
We increased the portfolio's weighting in the energy sector, where we see the
potential for positive results ahead. Historically, the energy group has moved
with the level of economic activity. We have not yet seen that play out in this
economic recovery, perhaps because investors did not expect the prevailing high
commodity prices to persist. Nevertheless, we believe the supply/demand
characteristics of oil and gas are positive and that there are good fundamental
reasons for the currently high commodity prices. These prices will last longer
than most expect, in our opinion, and stock prices will eventually need to
reflect these high price levels.
The portfolio's position in the industrials sector also increased during the
period, primarily because of the addition of two railroad stocks -- CSX
Corporation and Norfolk Southern Corporation. Like energy, this group
historically has tracked the level of economic activity, but this time has
lagged. Railroad companies are sensitive to the level of coal demand, and we
expect to see a pick-up there given the high prices of all other energy
products. This ultimately should benefit the earnings of railroad companies.
Also in industrials, we purchased additional shares of Raytheon Company, now one
of the Fund's ten largest holdings. We believe that Raytheon, a defense company,
will generate a significant amount of free cash flow that may be used for a
share repurchase or dividend increase.
On the sell side, we liquidated our position in Boise Cascade Corporation
following its acquisition of Office Max and its subsequent price appreciation.
We sold Janus Capital Group Inc. and Wachovia Corporation out of the portfolio
as they reached our price targets. While we trimmed positions in information
technology, we did not decrease our overall exposure to the sector. Given the
substantial appreciation of the sector, it remained at a 21% weighting in the
portfolio throughout the period, despite the strategic reductions.
How would you characterize the portfolio's position at the close of the period?
We believe the equity market will continue to head upward this year and that the
economy will continue to recover, although both at a slower pace than in 2003.
At the close of the period, the portfolio's largest overweight remained in
technology, where we still see some appreciation potential. Our next-largest
overweight was in energy. In our view, the underlying gas and oil supply
problems in the United States and elsewhere have been masked by lack of demand
due to soft economies. As economies and industrial production continue to
recover, so will demand for energy. We had underweights at period end in the
financials, health care, telecommunication services and utilities sectors.
Overall, we believe the market has moved to a phase where there are no major
themes to be exploited. The opportunity to uncover neglected industry groups for
capital appreciation has passed, and we are moving into more of a stock-picker's
market. Our emphasis going forward will be on uncovering individual investment
opportunities that present good long-term value. To that end, we will continue
to search for what we believe are very good companies that are temporarily
underpriced as a result of negative investor sentiment or short-term
circumstances, and that we believe have the potential to offer significant value
over a three-year time horizon.
Robert J. Martorelli
Vice President and Co-Portfolio Manager
Kevin M. Rendino
Vice President and Co-Portfolio Manager
February 12, 2004
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. Investors are able to purchase
shares of the Fund through multiple pricing alternatives:
o Class A Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (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% and an account
maintenance fee of 0.25%. These shares automatically convert to Class A
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 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% 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. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain more current performance
information. 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.
The Fund's Administrator voluntarily waived a portion of its administrative fee.
Without such waiver, the Fund's performance would have been lower.
Recent Performance Results
10-Year/
6-Month 12-Month Since Inception
As of January 31, 2004 Total Return Total Return Total Return
==================================================================================================
ML Focus Value Fund, Inc. Class A Shares* +20.78% +42.33% +180.84%
- --------------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class B Shares* +20.27 +41.27 +151.09
- --------------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class C Shares* +20.28 +41.27 +161.11
- --------------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class I Shares* +20.95 +42.71 +178.10
- --------------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class R Shares* +20.60 +42.80 + 35.06
- --------------------------------------------------------------------------------------------------
Russell 1000 Value Index** +16.86 +35.60 +201.29/+214.24/+28.35
- --------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index*** +15.23 +34.57 +181.31/+185.40/+26.88
- --------------------------------------------------------------------------------------------------
* 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 10-year/since inception total
return periods are 10 years for Class B & Class I Shares; from 10/21/94
for Class A & Class C 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 10 years, from
10/21/94 and from 1/03/03, respectively.
*** This unmanaged Index covers 500 industrial, utility, 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 10 years, from 10/21/94 and
from 1/03/03, respectively.
6 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 1/31/04 +42.33% +34.86%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +10.57 + 9.39
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 1/31/04 +11.77 +11.12
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 1/31/04 +41.27% +37.27%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 + 9.71 + 9.43
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/04 +9.64 + 9.64
- --------------------------------------------------------------------------------
* 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 1/31/04 +41.27% +40.27%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 + 9.71 + 9.71
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 1/31/04 +10.90 +10.90
- --------------------------------------------------------------------------------
* 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 1/31/04 +42.71% +35.22%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +10.84 + 9.65
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/04 +10.77 +10.17
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
- --------------------------------------------------------------------------------
Return Without
Sales Charge
================================================================================
Class R Shares
================================================================================
One Year Ended 1/31/04 +42.80%
- --------------------------------------------------------------------------------
Inception (1/03/03) through 1/31/04 +32.20%
- --------------------------------------------------------------------------------
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments
Percent of
Industry* Shares Held Common Stocks & Other Equity Interests Value Net Assets
====================================================================================================================================
Discount to Assets Aerospace & Defense 134,300 The Boeing Company $ 5,607,025 1.3%
---------------------------------------------------------------------------------------------------------------
Communications Equipment 979,400 + 3Com Corporation 7,541,380 1.7
---------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 125,900 Verizon Communications 4,640,674 1.1
Services
---------------------------------------------------------------------------------------------------------------
Energy Equipment & Service 426,500 GlobalSantaFe Corporation 11,643,450 2.7
---------------------------------------------------------------------------------------------------------------
Insurance 24,200 Marsh & McLennan Companies, Inc. 1,135,706 0.3
---------------------------------------------------------------------------------------------------------------
Media 946,560 + Liberty Media Corporation (Class A) 11,017,958 2.6
---------------------------------------------------------------------------------------------------------------
Paper & Forest Products 436,100 Sappi Limited (ADR)(a) 5,800,130 1.3
---------------------------------------------------------------------------------------------------------------
Total Discount to Assets 47,386,323 11.0
====================================================================================================================================
Earnings Turnaround Aerospace & Defense 221,600 The B.F. Goodrich Company 6,836,360 1.6
167,100 Honeywell International Inc. 6,035,652 1.4
---------------------------------------------------------------------------------------------------------------
Airlines 200,600 Delta Air Lines, Inc. 2,106,300 0.5
---------------------------------------------------------------------------------------------------------------
Capital Markets 189,100 Mellon Financial Corporation 6,185,461 1.4
151,200 Morgan Stanley 8,801,352 2.0
---------------------------------------------------------------------------------------------------------------
Commercial Banks 219,500 Bank One Corporation 11,108,895 2.6
---------------------------------------------------------------------------------------------------------------
Communications Equipment 1,007,120 + Lucent Technologies Inc. 4,511,898 1.0
---------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 185,000 SBC Communications Inc. 4,717,500 1.1
Services
---------------------------------------------------------------------------------------------------------------
Electronic Equipment & 329,400 + Celestica Inc. 5,649,210 1.3
Instruments
---------------------------------------------------------------------------------------------------------------
Energy Equipment & Service 133,000 ENSCO International Incorporated 3,790,500 0.9
771,900 + Grant Prideco, Inc. 10,497,840 2.4
178,600 + Transocean Inc. 4,811,484 1.1
---------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 144,000 Albertson's, Inc. 3,363,840 0.8
2,008,400 The Topps Company, Inc. 18,497,364 4.3
---------------------------------------------------------------------------------------------------------------
Food Products 308,900 Tyson Foods, Inc. (Class A) 4,750,882 1.1
77,200 Unilever NV (NY Registered Shares) 5,209,456 1.2
---------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 252,700 McDonald's Corporation 6,504,498 1.5
---------------------------------------------------------------------------------------------------------------
Insurance 174,800 Aon Corporation 4,294,836 1.0
74,100 The Hartford Financial Services
Group, Inc. 4,767,594 1.1
528,023 Travelers Property Casualty Corp.
(Class A) 9,588,898 2.2
---------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products 169,600 Hasbro, Inc. 3,349,600 0.8
---------------------------------------------------------------------------------------------------------------
Media 900,000 + CST Entertainment, Inc. 90 0.0
189,700 Viacom, Inc. (Class B) 7,644,910 1.8
---------------------------------------------------------------------------------------------------------------
Oil & Gas 329,800 Exxon Mobil Corporation 13,452,542 3.1
---------------------------------------------------------------------------------------------------------------
Pharmaceuticals 418,600 Schering-Plough Corporation 7,342,244 1.7
---------------------------------------------------------------------------------------------------------------
Road & Rail 110,600 CSX Corporation 3,490,536 0.8
391,200 Norfolk Southern Corporation 8,723,760 2.0
---------------------------------------------------------------------------------------------------------------
Semiconductors & 599,400 + Advanced Micro Devices, Inc. 8,907,084 2.1
Semiconductor Equipment 1,309,200 + LSI Logic Corporation 13,471,668 3.1
---------------------------------------------------------------------------------------------------------------
Software 1,019,700 + Borland Software Corporation 10,513,107 2.4
3,266,000 + Parametric Technology Corporation 13,684,540 3.2
---------------------------------------------------------------------------------------------------------------
Specialty Retail 418,200 Foot Locker, Inc. 10,346,268 2.4
652,300 + Toys 'R' Us, Inc. 9,210,476 2.1
---------------------------------------------------------------------------------------------------------------
Total Earnings Turnaround 242,166,645 56.0
====================================================================================================================================
8 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
Schedule of Investments (continued)
Percent of
Industry* Shares Held Common Stocks & Other Equity Interests Value Net Assets
====================================================================================================================================
Financial Construction & Engineering 1,079,146 + New Millennium Homes, LLC (b) $ 10,252 0.0%
Restructuring ---------------------------------------------------------------------------------------------------------------
Machinery 139,388 + Goss Holdings Inc. (Class B) 1 0.0
---------------------------------------------------------------------------------------------------------------
Oil & Gas 1,981,437 + Gulfport Energy Corporation--Litigation
Trust Certificates 20 0.0
---------------------------------------------------------------------------------------------------------------
Total Financial Restructuring 10,273 0.0
====================================================================================================================================
Operational Aerospace & Defense 544,000 Raytheon Company 16,597,440 3.8
Restructuring ---------------------------------------------------------------------------------------------------------------
Capital Markets 152,200 J.P. Morgan Chase & Co. 5,919,058 1.4
---------------------------------------------------------------------------------------------------------------
Chemicals 175,200 E.I. du Pont de Nemours and Company 7,691,280 1.8
---------------------------------------------------------------------------------------------------------------
Commercial Banks 13,900 The Bank of New York Company, Inc. 441,325 0.1
---------------------------------------------------------------------------------------------------------------
Communications Equipment 210,800 Nokia Oyj 'A' (ADR)(a) 4,355,128 1.0
---------------------------------------------------------------------------------------------------------------
Computers & Peripherals 399,800 Hewlett-Packard Company 9,511,242 2.2
---------------------------------------------------------------------------------------------------------------
Electrical Equipment 342,400 Thomas & Betts Corporation 7,097,952 1.6
---------------------------------------------------------------------------------------------------------------
Food Products 276,700 ConAgra, Inc. 7,177,598 1.6
---------------------------------------------------------------------------------------------------------------
Household Products 153,700 Kimberly-Clark Corporation 9,077,522 2.1
---------------------------------------------------------------------------------------------------------------
IT Services 804,400 + Unisys Corporation 11,132,896 2.6
---------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products 244,300 Eastman Kodak Company 6,940,563 1.6
---------------------------------------------------------------------------------------------------------------
Media 130,200 + Comcast Corporation (Special Class A) 4,290,090 1.0
610,200 + Time Warner Inc. 10,721,214 2.5
---------------------------------------------------------------------------------------------------------------
Total Operational Restructuring 100,953,308 23.3
====================================================================================================================================
Price to Book Diversified Financial Services 264,900 Citigroup Inc. 13,107,252 3.0
---------------------------------------------------------------------------------------------------------------
Metals & Mining 263,000 Arch Coal, Inc. 7,264,060 1.7
---------------------------------------------------------------------------------------------------------------
Total Price to Book 20,371,312 4.7
===============================================================================================================
Total Common Stocks & Other Equity
Interests (Cost--$332,691,700) 410,887,861 95.0
===============================================================================================================
Face Amount Corporate Bonds
====================================================================================================================================
Financial Construction & Engineering $7,221,000 + New Millennium Homes, 0%
Restructuring due 12/31/2007 (c) 2,888,400 0.7
---------------------------------------------------------------------------------------------------------------
Machinery 5,976,171 + Goss Graphic Systems, Inc., 12.25%
due 11/19/2005 1 0.0
---------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost--$9,262,471) 2,888,401 0.7
===============================================================================================================
Shares Held Preferred Stock
====================================================================================================================================
Financial Construction & Engineering 7,786 + New Millennium Homes (Convertible) 739 0.0
Restructuring ---------------------------------------------------------------------------------------------------------------
Total Preferred Stock (Cost--$590) 739 0.0
===============================================================================================================
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded)
Beneficial Interest/ Percent of
Shares Held Short-Term Securities Value Net Assets
====================================================================================================================================
$22,552,397 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (e) $ 22,552,397 5.2%
$47,135,737 Merrill Lynch Liquidity Series,
LLC Money Market Series (d)(e) 47,135,737 10.9
15,711,913 Merrill Lynch Premier Institutional Fund (d)(e) 15,711,913 3.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$85,400,047) 85,400,047 19.7
====================================================================================================================================
Total Investments (Cost--$427,354,808) 499,177,048 115.4
Liabilities in Excess of Other Assets (66,702,411 (15.4)
-----------------------
Net Assets $432,474,637 100.0%
=======================
+ 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) Represents a zero coupon bond.
(d) Security was purchased with the cash proceeds from securities loans.
(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:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $ (7,475,806) $ 150,183
Merrill Lynch Liquidity Series,
LLC Money Market Series $ 14,693,077 $ 16,280
Merrill Lynch Premier
Institutional Fund (5,916,527) $ 7,297
--------------------------------------------------------------------------
See Notes to Financial Statements.
10 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
Statement of Assets and Liabilities
As of January 31, 2004
====================================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $60,532,275)
(identified cost--$427,354,808) ............................................. $ 499,177,048
Cash ......................................................................... 3,461
Receivables: .................................................................
Securities sold ........................................................... $ 11,686,394
Dividends ................................................................. 370,308
Capital shares sold ....................................................... 187,107
Interest .................................................................. 18,154
Securities lending--net ................................................... 8,060 12,270,023
-------------
Prepaid registration fees and other assets ................................... 36,804
-------------
Total assets ................................................................. 511,487,336
-------------
====================================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value .................................... 62,847,650
Payables:
Securities purchased ...................................................... 14,213,638
Capital shares redeemed ................................................... 1,322,744
Investment adviser ........................................................ 353,779
Other affiliates .......................................................... 154,986
Distributor ............................................................... 119,902 16,165,049
--------------------------------
Total liabilities ............................................................ 79,012,699
-------------
====================================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets ................................................................... $ 432,474,637
=============
====================================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................................... $ 1,141,588
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................................... 623,822
Class C Shares of Common Stock, $.10 par value,
50,000,000 shares authorized ................................................ 322,590
Class I Shares of Common Stock, $.10 par value,
50,000,000 shares authorized ................................................ 1,449,830
Class R Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................................... 421
Paid-in capital in excess of par ............................................. 412,348,129
Accumulated investment loss--net ............................................. $ (532,578)
Accumulated realized capital losses on investments--net (54,701,405)
Unrealized appreciation on investments--net .................................. 71,822,240
-------------
Total accumulated earnings--net .............................................. 16,588,257
-------------
Net Assets ................................................................... $ 432,474,637
=============
====================================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $142,022,331 and 11,415,880 shares outstanding $ 12.44
=============
Class B--Based on net assets of $72,184,080 and 6,238,220 shares outstanding . $ 11.57
=============
Class C--Based on net assets of $36,544,767 and 3,225,900 shares outstanding . $ 11.33
=============
Class I--Based on net assets of $181,674,218 and 14,498,299 shares outstanding $ 12.53
=============
Class R--Based on net assets of $49,241 and 4,205 shares outstanding ......... $ 11.71
=============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Six Months Ended January 31, 2004
====================================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends (net of $11,167 foreign withholding tax) ........................... $ 2,620,485
Interest ..................................................................... 150,183
Securities lending--net ...................................................... 23,577
-------------
Total income ................................................................. 2,794,245
-------------
====================================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ..................................................... $ 2,031,995
Account maintenance and distribution fees--Class B ........................... 348,773
Account maintenance and distribution fees--Class C ........................... 169,069
Account maintenance fees--Class A ............................................ 163,398
Transfer agent fees--Class I ................................................. 125,345
Transfer agent fees--Class A ................................................. 95,151
Accounting services .......................................................... 84,674
Transfer agent fees--Class B ................................................. 58,496
Professional fees ............................................................ 40,318
Printing and shareholder reports ............................................. 32,744
Custodian fees ............................................................... 31,553
Transfer agent fees--Class C ................................................. 29,684
Registration fees ............................................................ 26,260
Directors' fees and expenses ................................................. 9,177
Pricing fees ................................................................. 484
Account maintenance and distribution fees--Class R ........................... 30
Transfer agent fees--Class R ................................................. 8
Other ........................................................................ 13,011
-------------
Total expenses before waiver ................................................. 3,260,170
Waiver of expenses ........................................................... (304,799)
-------------
Total expenses after waiver .................................................. 2,955,371
-------------
Investment loss--net ......................................................... (161,126)
-------------
====================================================================================================================================
Realized & Unrealized Gain on Investments--Net
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ............................................ 29,028,129
Change in unrealized appreciation on investments--net ........................ 47,865,208
-------------
Total realized and unrealized gain on investments--net ....................... 76,893,337
-------------
Net Increase in Net Assets Resulting from Operations ......................... $ 76,732,211
=============
See Notes to Financial Statements.
12 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2004 2003
====================================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Investment loss--net ............................... $ (161,126) $ (1,261,569)
Realized gain (loss) on investments--net ........... 29,028,129 (43,272,143)
Change in unrealized appreciation/depreciation on
investments--net .................................. 47,865,208 109,769,837
--------------------------------
Net increase in net assets resulting from operations 76,732,211 65,236,125
--------------------------------
====================================================================================================================================
Capital Share Transactions
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital
share transactions ................................ (25,048,007) (59,592,424)
--------------------------------
====================================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ....................... 51,684,204 5,643,701
Beginning of period ................................ 380,790,433 375,146,732
--------------------------------
End of period* ..................................... $ 432,474,637 $ 380,790,433
===============================
* Accumulated investment loss--net .............. $ (532,578) $ (371,452)
===============================
See Notes to Financial Statements.
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
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: 2004 2003 2002 2001 2000
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .. $ 10.30 $ 8.58 $ 12.01 $ 13.86 $ 13.67
-----------------------------------------------------------------------
Investment income(loss)--net*** ....... --++ (.02) (.01) .05 .08
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ................... 2.14 1.74 (2.70) .94 1.56
-----------------------------------------------------------------------
Total from investment operations ...... 2.14 1.72 (2.71) .99 1.64
-----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............. -- -- -- (.05) (.14)
In excess of investment income--net -- -- -- (.04) (.01)
Realized gain on investments--net .. -- -- (.72) (2.75) (1.30)
-----------------------------------------------------------------------
Total dividends and distributions ..... -- -- (.72) (2.84) (1.45)
-----------------------------------------------------------------------
Net asset value, end of period ........ $ 12.44 $ 10.30 $ 8.58 $ 12.01 $ 13.86
=======================================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .... 20.78%@ 20.05% (23.06%) 7.73% 12.77%
=======================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ............... 1.36%* 1.42% 1.41% 1.49% 1.46%
=======================================================================
Expenses .............................. 1.51%* 1.57% 1.54% 1.49% 1.46%
=======================================================================
Investment income (loss)--net ......... .01%* (.23%) (.12%) .45% .55%
=======================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 142,022 $ 120,193 $ 109,033 $ 119,272 $ 106,748
=======================================================================
Portfolio turnover .................... 52.10% 54.67% 123.59% 112.13% 95.11%
=======================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
++ Amount is less than $.01 per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
14 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
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: 2004 2003 2002 2001 2000
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .. $ 9.62 $ 8.07 $ 11.36 $ 13.23 $ 13.06
-----------------------------------------------------------------------
Investment loss--net*** ............... (.04) (.09) (.09) (.03) (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ................... 1.99 1.64 (2.54) .89 1.47
-----------------------------------------------------------------------
Total from investment operations ...... 1.95 1.55 (2.63) .86 1.45
-----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. -- -- -- (.01) --+
In excess of investment income--net . -- -- -- (.01) --+
Realized gain on investments--net ... -- -- (.66) (2.71) (1.28)
-----------------------------------------------------------------------
Total dividends and distributions ..... -- -- (.66) (2.73) (1.28)
-----------------------------------------------------------------------
Net asset value, end of period ........ $ 11.57 $ 9.62 $ 8.07 $ 11.36 $ 13.23
=======================================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .... 20.27%@ 19.21% (23.69%) 6.91% 11.85%
=======================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ............... 2.13%* 2.20% 2.18% 2.26% 2.23%
=======================================================================
Expenses .............................. 2.28%* 2.35% 2.30% 2.26% 2.23%
=======================================================================
Investment loss--net .................. (.76%)* (1.02%) (.89%) (.27%) (.12%)
=======================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 72,184 $ 67,382 $ 79,617 $ 132,202 $ 165,524
=======================================================================
Portfolio turnover .................... 52.10% 54.67% 123.59% 112.13% 95.11%
=======================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Amount is less than $(.01) per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
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: 2004 2003 2002 2001 2000
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .. $ 9.42 $ 7.90 $ 11.17 $ 13.07 $ 12.94
-----------------------------------------------------------------------
Investment loss--net*** ............... (.04) (.08) (.09) (.04) (.03)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ................... 1.95 1.60 (2.50) .88 1.47
-----------------------------------------------------------------------
Total from investment operations ...... 1.91 1.52 (2.59) .84 1.44
-----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............. -- -- -- (.02) (.01)
In excess of investment income--net -- -- -- (.01) --+
Realized gain on investments--net .. -- -- (.68) (2.71) (1.30)
-----------------------------------------------------------------------
Total dividends and distributions ..... -- -- (.68) (2.74) (1.31)
-----------------------------------------------------------------------
Net asset value, end of period ........ $ 11.33 $ 9.42 $ 7.90 $ 11.17 $ 13.07
=======================================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .... 20.28%@ 19.24% (23.73%) 6.90% 11.85%
=======================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ............... 2.14%* 2.21% 2.19% 2.27% 2.24%
=======================================================================
Expenses .............................. 2.29%* 2.36% 2.32% 2.27% 2.24%
=======================================================================
Investment loss--net .................. (.76%)* (1.02%) (.88%) (.39%) (.24%)
=======================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 36,545 $ 31,492 $ 31,763 $ 16,776 $ 11,570
=======================================================================
Portfolio turnover .................... 52.10% 54.67% 123.59% 112.13% 95.11%
=======================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Amount is less than $(.01) per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
16 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
Financial Highlights (continued)
Class I
-------------------------------------------------------------------------
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: 2004 2003 2002 2001 2000
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .. $ 10.36 $ 8.60 $ 12.04 $ 13.89 $ 13.71
-----------------------------------------------------------------------
Investment income--net*** ............. .01 --+ .01 .09 .12
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ................... 2.16 1.76 (2.71) .93 1.55
-----------------------------------------------------------------------
Total from investment operations ...... 2.17 1.76 (2.70) 1.02 1.67
-----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............. -- -- -- (.06) (.18)
In excess of investment income--net -- -- -- (.05) (.01)
Realized gain on investments--net .. -- -- (.74) (2.76) (1.30)
-----------------------------------------------------------------------
Total dividends and distributions ..... -- -- (.74) (2.87) (1.49)
-----------------------------------------------------------------------
Net asset value, end of period ........ $ 12.53 $ 10.36 $ 8.60 $ 12.04 $ 13.89
=======================================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .... 20.95%@ 20.47% (22.95%) 8.00% 13.03%
=======================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ............... 1.11%* 1.17% 1.16% 1.24% 1.21%
=======================================================================
Expenses .............................. 1.26%* 1.32% 1.28% 1.24% 1.21%
=======================================================================
Investment income--net ................ .26%* .02% .14% .74% .87%
=======================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 181,674 $ 161,723 $ 154,734 $ 192,820 $ 223,134
=======================================================================
Portfolio turnover .................... 52.10% 54.67% 123.59% 112.13% 95.11%
=======================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Amount is less than $.01 per share.
@ Aggregate total investment return.
@@ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (concluded)
Class R
-----------------------------------
The following per share data and ratios have been derived For the Six For the Period
from information provided in the financial statements. Month Ended January 3, 2003+
January 31, to July 31,
Increase (Decrease) in Net Asset Value: 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........................................ $ 9.71 $ 8.67
----------------------------
Investment income (loss)--net*** ............................................ --@@ .04
Realized and unrealized gain on investments--net ............................ 2.00 1.00
----------------------------
Total from investment operations ............................................ 2.00 1.04
----------------------------
Net asset value, end of period .............................................. $ 11.71 $ 9.71
============================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......................................... 20.60%@ 12.00%@
============================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ..................................................... 1.61%* 1.67%*
============================
Expenses .................................................................... 1.76%* 1.82%*
============================
Investment loss--net ........................................................ (.24%)* (.27%)*
============================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .................................... $ 49 $ --++
============================
Portfolio turnover .......................................................... 52.10% 54.67%
============================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Commencement of operations.
++ Amount is less than $1,000.
@ Aggregate total investment return.
@@ Amount is less than $(.01) per share.
See Notes to Financial Statements.
18 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
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 amended, 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 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. 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 -- Equity securities that are held by the Fund that
are traded on stock exchanges or the Nasdaq National Market are valued at the
last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available ask
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the Fund.
Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Directors of the Fund. Short positions traded in the OTC market are valued at
the last available ask price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last ask 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 Fund employs
pricing services to provide certain securities prices for the Fund. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by the pricing services
retained by the Fund, which may use a matrix system for valuations. The
procedures of a pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Fund's Board of Directors. Such
valuations and procedures will be reviewed periodically by the Board of
Directors of the Fund.
Generally, trading in foreign securities, as well as U.S. government securities
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 asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Fund's
net asset value. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may be valued
at their fair value as determined in good faith by the Fund's Board of Directors
or by the Investment Adviser using a pricing service and/or procedures approved
by the Fund's Board of Directors.
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Options -- The Fund may write and purchase call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
(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.
20 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
Notes to Financial Statements (continued)
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, 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.
FAM has 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, 2004, FAM earned fees of $2,031,995, of which $304,799 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 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"), 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 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 six months ended January 31, 2004, FAMD earned underwriting discounts
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 .................................. $ 970 $12,456
Class I .................................. $ 159 $ 2,837
- --------------------------------------------------------------------------------
For the six months ended January 31, 2004, MLPF&S received contingent deferred
sales charges of $31,410 and $695 relating to transactions in Class B and Class
C Shares, respectively.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S, or its
affiliates. 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, LLC or its affiliates. For the six months ended January 31, 2004, MLIM,
LLC received $10,274 in securities lending agent fees.
In addition, MLPF&S received $137,297 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended January
31, 2004.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
For the six months ended January 31, 2004, the Fund reimbursed FAM $4,207 for
certain accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, MLAM U.K., FDS, FAMD, and/or ML & Co.
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended January 31, 2004 were $196,485,684 and $206,825,833, respectively.
Net realized gains for the six months ended January 31, 2004 and net unrealized
gains as of January 31, 2004 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ............ $ 29,028,129 $ 71,822,240
-----------------------------------
Total ............................ $ 29,028,129 $ 71,822,240
===================================
As of January 31, 2004, net unrealized appreciation for Federal income tax
purposes aggregated $68,683,510, of which $84,833,707 related to appreciated
securities and $16,150,197 related to depreciated securities. At January 31,
2004, the aggregate cost of investments for Federal income tax purposes was
$430,493,538.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$25,048,007 and $59,592,424 for the six months ended January 31, 2004 and for
the year ended July 31, 2003, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 419,590 $ 4,826,607
Automatic conversion of shares ... 458,440 5,184,780
---------------------------------
Total issued ..................... 878,030 10,011,387
Shares redeemed .................. (1,131,197) (12,895,522)
---------------------------------
Net decrease ..................... (253,167) $ (2,884,135)
=================================
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 1,115,902 $ 10,008,293
Automatic conversion of shares ... 1,361,432 12,141,237
---------------------------------
Total issued ..................... 2,477,334 22,149,530
Shares redeemed .................. (3,523,252) (31,438,321)
---------------------------------
Net decrease ..................... (1,045,918) $ (9,288,791)
=================================
- --------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 427,759 $ 4,487,494
Shares redeemed .................. (704,024) (7,450,839)
Automatic conversion of shares ... (491,968) (5,184,780)
---------------------------------
Net decrease ..................... (768,233) $ (8,148,125)
=================================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 1,415,246 $ 12,132,676
Shares redeemed .................. (2,824,190) (23,919,437)
Automatic conversion of shares ... (1,451,579) (12,141,237)
---------------------------------
Net decrease ..................... (2,860,523) $(23,927,998)
=================================
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 215,556 $ 2,232,001
Shares redeemed .................. (334,220) (3,437,555)
---------------------------------
Net decrease ..................... (118,664) $ (1,205,554)
=================================
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 379,209 $ 3,177,634
Shares redeemed .................. (1,054,882) (8,592,904)
---------------------------------
Net decrease ..................... (675,673) $ (5,415,270)
=================================
- --------------------------------------------------------------------------------
Class I Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 904,951 $ 10,521,632
Shares redeemed .................. (2,014,119) (23,379,230)
---------------------------------
Net decrease ..................... (1,109,168) $(12,857,598)
=================================
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 1,542,400 $ 14,042,891
Shares redeemed .................. (3,917,048) (35,003,356)
---------------------------------
Net decrease ..................... (2,374,648) $(20,960,465)
=================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class R Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 4,882 $ 55,173
Shares redeemed .................. (689) (7,768)
---------------------------------
Net increase ..................... 4,193 $ 47,405
=================================
- --------------------------------------------------------------------------------
Class R Shares for the
Period January 3, 2003+ Dollar
to July 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 12 $ 100
---------------------------------
Net increase ..................... 12 $ 100
=================================
+ Commencement of operations.
22 MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004
Notes to Financial Statements (concluded)
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 28, 2003, the credit agreement
was renewed for one year under the same terms. The Fund did not borrow under the
credit agreement during the six months ended January 31, 2004.
6. Capital Loss Carryforward:
On July 31, 2003, the Fund had a net capital loss carryforward of $40,161,609,
of which $9,470,740 expires in 2010 and $30,690,869 expires in 2011. This amount
will be available to offset like amounts of any future taxable gains.
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
Phillip S. Gillespie, 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
MERRILL LYNCH FOCUS VALUE FUND, INC. JANUARY 31, 2004 23
[LOGO] Merrill Lynch Investment Managers www.mlim.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)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Merrill Lynch Focus Value Fund, Inc.
Box 9011
Princeton, NJ
08543
#10263 -- 1/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Reserved
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(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.
10(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 11 - Exhibits attached hereto
11(a) - Not Applicable
11(b) - 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 19, 2004
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 19, 2004
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Focus Value Fund, Inc.
Date: March 19, 2004