UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03450
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: Robert C. Doll, Jr., Chief Executive
Officer, 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: 07/31/05
Date of reporting period: 08/01/04 - 07/31/05
Item 1 - Report to Stockholders
Merrill Lynch
Focus Value Fund, Inc.
Annual Report
July 31, 2005
Merrill Lynch Focus Value Fund, Inc.
Portfolio Information as of July 31, 2005
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
LSI Logic Corp. ................................................... 5.3%
The Topps Co., Inc. ............................................... 4.5
Rowan Cos., Inc. .................................................. 3.9
Tyco International Ltd. ........................................... 3.7
International Paper Co. ........................................... 3.7
The St. Paul Travelers Cos., Inc. ................................. 3.5
American International Group, Inc. ................................ 3.5
The Bank of New York Co., Inc. .................................... 3.4
GlobalSantaFe Corp. ............................................... 3.3
Time Warner, Inc. ................................................. 3.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Percent of
Total
Asset Mix Investments
- --------------------------------------------------------------------------------
Stocks ............................................................ 87.3%
Bonds ............................................................. 0.7
Other* ............................................................ 12.0
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
Percent of
Five Largest Industries* Net Assets
- --------------------------------------------------------------------------------
Semiconductors & Semiconductor Equipment .......................... 8.4%
Media ............................................................. 8.2
Energy Equipment & Services ....................................... 7.2
Capital Markets ................................................... 7.1
Insurance ......................................................... 7.0
- --------------------------------------------------------------------------------
* 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.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
2 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
A Letter From the President
Dear Shareholder
We have been referring to 2005 as a "muddle through" year for the financial
markets, characterized by positive and negative crosscurrents that have
conspired to create a fairly complicated investing environment. Amid these
conditions, the major market benchmarks managed to post positive results for the
current reporting period, as follows:
Total Returns as of July 31, 2005 6-month 12-month
===============================================================================================
U.S. equities (Standard & Poor's 500 Index) +5.45% +14.05%
- -----------------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) +9.58% +24.78%
- -----------------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +3.76% +21.06%
- -----------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +0.95% + 4.79%
- -----------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +1.48% + 6.35%
- -----------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) +2.16% +10.19%
- -----------------------------------------------------------------------------------------------
On August 9, the Federal Reserve Board (the Fed) increased the federal funds
rate for the tenth consecutive time since June 2004, bringing the target
short-term interest rate to 3.5%. Just months ago, some observers felt that
slowing global economic growth and subdued inflation might cause the Fed to end
its monetary tightening campaign. Most recently, however, positive economic news
(including a favorable employment report for July and resilient consumer
spending) has prompted new concerns that the Fed may increase interest rates
more than is necessary to moderate economic growth and keep inflation in check.
After ending 2004 in a strong rally, equity markets fell slightly into negative
territory in the first half of 2005. July, however, brought the strongest
monthly gain of the calendar year and helped to boost equity market returns for
the current reporting period. Working in favor of equities have been
surprisingly strong corporate earnings reports and low long-term bond yields.
Conversely, continued high oil prices and Fed interest rate hikes have exerted
downward pressure on stocks.
In the fixed income markets, the yield curve flattened considerably as
short-term rates rose in concert with the Fed rate hikes and long-term bond
yields fell. Over the past 12 months, the two-year Treasury yield rose 134 basis
points (1.34%) to 4.02% while the 10-year Treasury yield declined 22 basis
points to 4.28% -- making the spread between the two just 26 basis points. At
period-end, the 10-year Treasury yield finally appeared to be on a slow upward
trend after falling below 4% in June.
Financial markets are likely to face continued crosscurrents for the remainder
of 2005. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. As always, we thank you
for trusting Merrill Lynch Investment Managers with your investment assets, and
we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 3
A Discussion With Your Fund's Portfolio Managers
The Fund provided positive returns amid a fairly volatile environment in
which stock picking and risk management played important roles in generating
performance.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended July 31, 2005, Merrill Lynch Focus Value Fund,
Inc.'s Class A, Class B, Class C, Class I and Class R Shares had total returns
of +17.08%, +16.20%, +16.18%, +17.35% and +16.77%, respectively. (Fund results
shown do not reflect sales charges and would be lower if sales charges were
included. Complete performance information can be found on pages 6 - 8 of this
report to shareholders.) Fund performance exceeded the +14.05% return of the
broad-market Standard & Poor's 500 Index, but lagged the +19.04% return of the
Russell 1000 Value Index for the 12-month period. The Fund's comparable Lipper
category of Multi-Cap Value Funds provided an average return of +17.55% for the
same period. (Funds in this Lipper category invest in companies in a variety of
market-capitalization ranges that are considered to be undervalued relative to a
major unmanaged stock index.)
The past 12 months were a fairly volatile period for equities, as investors
struggled to assess the fate of the economy and corporate earnings, and stock
markets weathered the uncertainty. Prior to November 2004, the markets
floundered in an effort to find direction amid the uncertainty of the impending
presidential election. Following the incumbent party's victory, markets returned
to business as usual and enjoyed a strong advance through the final weeks of
2004. The positive performance was driven by better-than-expected earnings
growth as well as an extraordinary amount of corporate cash flow. The dynamics
changed in January, as questions about how the markets might react to slower
economic and corporate earnings growth in the new year caused equity markets to
retreat through May. Conditions improved toward period-end in the midst of
positive economic reports, staunch consumer spending and stronger-than-expected
corporate earnings reports for the first half of 2005.
As investors evaluated whether the economy was embarking on a meaningful
slowdown or a temporary pause, the Federal Reserve Board continued on a monetary
tightening campaign that amounted to a 200 basis point (2%) increase in the
federal funds rate over the past 12 months. Another 25 basis-point hike on
August 9 brought the federal funds rate to 3.5%. Interest rate increases
typically are not a positive for equities, and the ensuing volatility made stock
picking extremely important during the fiscal year. Aside from energy (which
benefited from record-high oil prices) and health care, no individual sectors
offered significant returns.
What factors most influenced Fund performance?
The Fund's relative performance was helped by our investments in the information
technology (IT) sector, particularly LSI Logic Corp., a manufacturer of
semiconductors. Coming off a depressed valuation a year ago, LSI has introduced
new products and recently welcomed a former Intel executive as chief executive
officer. These events have had a positive effect on the stock price. Another
strong performer in IT was Parametric Technology Corp., a software company that
enjoyed a rebound in its business, which caused the stock price to rise
accordingly.
Our investments in the energy sector continued to perform well in the context of
ever-increasing oil prices. Our emphasis has been on the oil services subsector,
including companies such as GlobalSantaFe Corp. and Rowan Cos., Inc. This served
the portfolio well, as exploration and production companies have increased their
exploration budgets in an environment where oil prices have risen well above $60
per barrel. In health care, our position in nursing home company Beverly
Enterprises, Inc. benefited performance, as the company was the subject of a
takeover offer from a private investment group.
Stock positions that detracted from performance included Unisys Corp., a
computer services company that has been struggling through the negative effects
of a few poorly priced contracts. Our investment in International Paper Co. also
disappointed amid a difficult environment globally for paper demand. We are
confident that with a recently announced restructuring, the company's asset
values eventually will be realized.
Finally, shares of American International Group, Inc. and Tyco International,
Ltd. negatively contributed to performance during the period. These and other
large, multinational corporations have become large holdings in the portfolio
given price weakness that occurred during the year. Despite the recent
underperformance, we maintain a positive long-term outlook for these companies.
What changes were made to the portfolio during the year?
We continued to look for undervalued companies that we believe are selling at a
discount to their intrinsic value and
4 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
have attractive long-term growth potential. As mentioned earlier, stock picking
was paramount in an environment where no particular sector (outside of energy
and health care) offered significantly positive returns and investor emotions
produced bouts of short-term volatility and, thus, opportunities. So, while we
did actively refresh the portfolio's individual investments, our overall sector
exposures were little changed from last year.
Additions to the portfolio included Interpublic Group of Cos., Inc., a leading
global advertising agency that is undergoing a turnaround after stumbling
through the integration of a myriad of acquisitions. The current restructuring
should result in profit margins more in line with its industry peers. We believe
this earnings power, coupled with a strong balance sheet, a new management team
and some of the most elite agencies in the industry, should tilt the risk/reward
in favor of shareholders.
We also added The Gap, Inc., an international specialty retailer. We made our
purchase as Gap shares were trading at a discount to the competition following a
string of disappointing monthly comparable store sales. The company generates a
substantial amount of free cash flow and has been aggressively buying back
shares. We believe The Gap faces easy sales comparisons as the year progresses,
and a gradual improvement in merchandise appeal should lead to improving profit
margins in 2006.
Finally, we purchased shares of Tyco International, a diversified, global
manufacturing company that is emerging from one of the largest corporate
scandals ever. In our view, the businesses that remain should experience
above-average growth, with exceptional cash-generating characteristics. We
believe the substantial discount allocated to the shares by the market will
narrow as company management continues to prune the portfolio of businesses and
return capital to shareholders.
Among the most significant sales during the period were our positions in Grant
Prideco, Inc. and Viacom Inc. Grant Prideco is an oil field services company
that manufactures a full range of drill pipe and accessories. We purchased the
stock at a time when demand for drilling rigs was somewhat depressed, which
resulted in oversupply of drill pipe in customer inventories. Given the strength
in energy-related equities, we sold our position when it approached our price
target.
Viacom was sold when its inability to capitalize on the U.S. economic rebound
became evident. Overcapacity in the media industry led to growth rates that
lagged those of the economy in general. The deflated earnings potential coming
out of the recession led to a lower valuation for the company. This prompted us
to deploy the capital into other companies that appeared to offer greater
potential.
How would you characterize the Fund's position at the close of the period?
Overall, 2005 has seen a slowdown from the robust economic growth rates
experienced in the first part of 2004. For the balance of this year, we expect
moderate growth in the economy and fairly subdued inflation, much like the
environment in the mid-1990s. Thus, we would also expect the remainder of the
year to be relatively good for large cap stocks, as investors become more
confident that the economy is not entering a period of prolonged weakness, but
instead is experiencing a transitional "pause that refreshes." At the same time,
corporate balance sheets remain healthy and we believe excess cash flow will be
deployed in shareholder-friendly ways.
Based on this scenario, the Fund remains more heavily weighted toward
large-capitalization equities and in those companies that we believe will
generate the most impressive free cash flow growth. Given that dividends are
becoming a more important part of total return, we are also focused on stocks
that are paying above-market dividend yields. At period-end, the Fund was still
somewhat geared toward a recovering economy with overweight positions in capital
goods, consumer discretionary (primarily media shares) and technology, a sector
in which Corporate America has underinvested for the past five years. In our
view, these same corporations that are generating the excess cash are likely to
begin spending that money on much needed and much delayed technology upgrades.
We remain underweight in financials, although within that sector we are
overweight in capital markets-related companies and insurance and less focused
on regional banks and those businesses that are more sensitive to interest rate
changes. We also are underweight in utilities and neutral relative to our
benchmark in energy, two groups that have done quite well and, therefore,
represent limited value in our view.
Robert J. Martorelli
Senior Vice President and Co-Portfolio Manager
Kevin M. Rendino
Senior Vice President and Co-Portfolio Manager
August 15, 2005
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 5
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and an account maintenance fee of 0.25% per year (but no
distribution fee).
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% declining to 0% after six years. In addition, Class B Shares are
subject to a distribution fee of 0.75% per year and an account maintenance
fee of 0.25% per year. These shares automatically convert to Class A
Shares after approximately eight years. (There is no initial sales charge
for automatic share conversions.) All returns for periods greater than
eight years reflect this conversion.
o Class C Shares are subject to a distribution fee of 0.75% per year and an
account maintenance fee of 0.25% per year. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase.
o Class I Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
I Shares are available only to eligible investors.
o Class R Shares do not incur a maximum sales charge (front-end load) or
deferred sales charge. These shares are subject to a distribution fee of
0.25% per year and an account maintenance fee of 0.25% per year. Class R
Shares are available only to certain retirement plans. Prior to inception,
Class R Share performance results are those of Class I Shares (which have
no distribution or account maintenance fees) restated for Class R Share
fees.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
ex-dividend date. Investment return and principal value of shares will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the different
levels of account maintenance, distribution and transfer agency fees applicable
to each class, which are deducted from the income available to be paid to
shareholders. The Fund's Investment Adviser voluntarily waived a portion of its
administrative fee. Without such waiver, the Fund's performance would have been
lower.
Recent Performance Results
6-Month 12-Month 10-Year
As of July 31, 2005 Total Return Total Return Total Return
=============================================================================================
ML Focus Value Fund, Inc. Class A Shares* +5.77% +17.08% +185.34%
- ---------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class B Shares* +5.36 +16.20 +168.27
- ---------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class C Shares* +5.39 +16.18 +163.91
- ---------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class I Shares* +5.86 +17.35 +192.44
- ---------------------------------------------------------------------------------------------
ML Focus Value Fund, Inc. Class R Shares* +5.59 +16.77 +179.95
- ---------------------------------------------------------------------------------------------
Russell 1000(R) Value Index** +6.60 +19.04 +209.61
- ---------------------------------------------------------------------------------------------
S&P 500(R) Index*** +5.45 +14.05 +158.93
- ---------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Cumulative total investment returns
are based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date.
** This unmanaged Index measures the performance of those Russell 1000
companies with lower price-to-book ratios and lower forecasted growth
values.
*** 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.
Russell 1000 is a registered trademark of the Frank Russell Company.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
6 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Performance Data (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class B Shares compared to growth of an investment in the Russell 1000 Value
Index and the S&P 500 Index. Values are from July 1995 to July 2005:
7/95 7/96 7/97 7/98 7/99
ML Focus Value Fund, Inc.+--
Class A Shares* $ 9,475 $ 9,901 $12,816 $14,187 $17,574
ML Focus Value Fund, Inc.+--
Class B Shares* $10,000 $10,367 $13,320 $14,630 $17,991
7/00 7/01 7/02 7/03 7/04 7/05
ML Focus Value Fund, Inc.+--
Class A Shares* $19,819 $21,351 $16,428 $19,721 $23,091 $27,035
ML Focus Value Fund, Inc.+--
Class B Shares* $20,123 $21,513 $16,416 $19,570 $22,914 $26,827
7/95 7/96 7/97 7/98 7/99
Russell 1000 Value
Index++ $10,000 $11,589 $17,247 $20,301 $23,344
S&P 500 Index+++ $10,000 $11,657 $17,734 $21,155 $25,428
7/00 7/01 7/02 7/03 7/04 7/05
Russell 1000 Value
Index++ $22,178 $24,116 $19,959 $22,103 $26,010 $30,961
S&P 500 Index+++ $27,711 $23,740 $18,131 $20,060 $22,702 $25,893
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ ML Focus Value Fund, Inc. invests in a diversified portfolio of equity and
fixed income securities, including municipal securities, of issues in weak
financial condition or experiencing poor operating results that management
of the Fund believes are undervalued relative to management's assessment
of the current or prospective condition of such issuers.
++ This unmanaged Index measures the performance of those Russell 1000
companies with lower price-to-book ratios and lower forecasted growth
values.
+++ 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.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 7/31/05 +17.08% +10.93%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/05 + 6.41 + 5.27
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/05 +11.05 +10.46
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Without Return With
CDSC CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 7/31/05 +16.20% +12.20%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/05 + 5.58 + 5.27
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/05 +10.37 +10.37
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 7
Performance Data (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class C, Class
I and Class R Shares compared to growth of an investment in the Russell 1000
Value Index and the S&P 500 Index. Values are from July 1995 to July 2005:
7/95 7/96 7/97 7/98 7/99
ML Focus Value Fund, Inc.+--
Class C Shares* $10,000 $10,369 $13,313 $14,631 $17,988
ML Focus Value Fund, Inc.+--
Class I Shares* $ 9,475 $ 9,928 $12,885 $14,300 $17,753
ML Focus Value Fund, Inc.+--
Class R Shares* $10,000 $10,426 $13,464 $14,868 $18,367
7/00 7/01 7/02 7/03 7/04 7/05
ML Focus Value Fund, Inc.+--
Class C Shares* $20,119 $21,508 $16,403 $19,560 $22,716 $26,391
ML Focus Value Fund, Inc.+--
Class I Shares* $20,067 $21,672 $16,699 $20,117 $23,612 $27,709
ML Focus Value Fund, Inc.+--
Class R Shares* $20,657 $22,199 $17,019 $20,546 $23,974 $27,995
7/95 7/96 7/97 7/98 7/99
Russell 1000 Value
Index++ $10,000 $11,589 $17,247 $20,301 $23,344
S&P 500 Index+++ $10,000 $11,657 $17,734 $21,155 $25,428
7/00 7/01 7/02 7/03 7/04 7/05
Russell 1000 Value
Index++ $22,178 $24,116 $19,959 $22,103 $26,010 $30,961
S&P 500 Index+++ $27,711 $23,740 $18,131 $20,060 $22,702 $25,893
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ ML Focus Value Fund, Inc. invests in a diversified portfolio of equity and
fixed income securities, including municipal securities, of issues in weak
financial condition or experiencing poor operating results that management
of the Fund believes are undervalued relative to management's assessment
of the current or prospective condition of such issuers.
++ This unmanaged Index measures the performance of those Russell 1000
companies with lower price-to-book ratios and lower forecasted growth
values.
+++ 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.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
CDSC CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 7/31/05 +16.18% +15.18%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/05 + 5.58 + 5.58
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/05 +10.19 +10.19
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming maximum sales charge.
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 7/31/05 +17.35% +11.19%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/05 + 6.67 + 5.52
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/05 +11.33 +10.73
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
- --------------------------------------------------------------------------------
Class R Shares Return
================================================================================
One Year Ended 7/31/05 +16.77%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/05 + 6.27
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/05 +10.84
- --------------------------------------------------------------------------------
8 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on February 1, 2005 and held
through July 31, 2005) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value February 1, 2005
February 1, 2005 July 31, 2005 to July 31, 2005
===========================================================================================================
Actual
===========================================================================================================
Class A $1,000 $1,057.70 $ 6.26
- -----------------------------------------------------------------------------------------------------------
Class B $1,000 $1,053.60 $10.12
- -----------------------------------------------------------------------------------------------------------
Class C $1,000 $1,053.90 $10.12
- -----------------------------------------------------------------------------------------------------------
Class I $1,000 $1,058.60 $ 5.00
- -----------------------------------------------------------------------------------------------------------
Class R $1,000 $1,055.90 $ 7.51
===========================================================================================================
Hypothetical (5% annual return before expenses)**
===========================================================================================================
Class A $1,000 $1,018.44 $ 6.14
- -----------------------------------------------------------------------------------------------------------
Class B $1,000 $1,014.66 $ 9.93
- -----------------------------------------------------------------------------------------------------------
Class C $1,000 $1,014.66 $ 9.93
- -----------------------------------------------------------------------------------------------------------
Class I $1,000 $1,019.67 $ 4.90
- -----------------------------------------------------------------------------------------------------------
Class R $1,000 $1,017.21 $ 7.37
- -----------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.24% for Class A, 2.01% for Class B, 2.01% for Class
C, .99% for Class I and 1.49% for Class R), multiplied by the average
account value over the period, multiplied by 179/365 (to reflect the
one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half-year divided by 365.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 9
Schedule of Investments
Shares
Industry* Common Stocks Held Value
===============================================================================
Above-Average Yield--9.1%
- -------------------------------------------------------------------------------
Diversified Telecommunication
Services--2.0%
BellSouth Corp. (g) 285,200 $ 7,871,520
------------------------------------------------------------------------
Metals & Mining--2.1%
Freeport--McMoRan Copper &
Gold, Inc. Class B (g) 199,400 8,031,832
------------------------------------------------------------------------
Pharmaceuticals--1.4%
AstraZeneca Group Plc (b) 119,900 5,448,256
------------------------------------------------------------------------
Trading Companies &
Distributors--2.5%
UAP Holding Corp. 490,330 9,512,402
------------------------------------------------------------------------
Transportation Infrastructure--1.1%
Macquarie Infrastructure Co. Trust 142,900 4,058,360
------------------------------------------------------------------------
Total Above-Average Yield 34,922,370
========================================================================
===============================================================================
Discount to Assets--6.7%
- -------------------------------------------------------------------------------
Communications Equipment--0.9%
3Com Corp. (c) 873,700 3,180,268
------------------------------------------------------------------------
Energy Equipment & Services--3.3%
GlobalSantaFe Corp. (g) 282,300 12,700,677
------------------------------------------------------------------------
Media--2.5%
Liberty Media Corp. Class A (c) 1,089,760 9,578,990
------------------------------------------------------------------------
Total Discount to Assets 25,459,935
========================================================================
===============================================================================
Earnings Turnaround--49.7%
- -------------------------------------------------------------------------------
Aerospace & Defense--1.3%
Goodrich Corp. 68,200 3,017,168
Honeywell International, Inc. 49,600 1,948,288
------------
4,965,456
------------------------------------------------------------------------
Beverages--1.5%
Coca-Cola Enterprises, Inc. 238,600 5,607,100
------------------------------------------------------------------------
Capital Markets--3.7%
Mellon Financial Corp. 200,700 6,113,322
Morgan Stanley 150,000 7,957,500
------------
14,070,822
------------------------------------------------------------------------
Communications Equipment--3.6%
Extreme Networks (c) 807,600 3,860,328
Motorola, Inc. 465,400 9,857,172
------------
13,717,500
------------------------------------------------------------------------
Computers & Peripherals--1.0%
Seagate Technology 195,000 3,777,150
------------------------------------------------------------------------
Energy Equipment & Services--3.9%
Rowan Cos., Inc. 441,500 15,081,640
------------------------------------------------------------------------
Food & Staples Retailing--4.5%
The Topps Co., Inc. 1,687,302 17,311,719
------------------------------------------------------------------------
Oil, Gas & Consumable Fuels--2.5%
Exxon Mobil Corp. 164,100 9,640,875
------------------------------------------------------------------------
Paper & Forest Products--3.7%
International Paper Co. (g) 446,100 14,096,760
------------------------------------------------------------------------
Pharmaceuticals--2.4%
GlaxoSmithKline Plc (b) 198,700 9,426,328
------------------------------------------------------------------------
Road & Rail--1.6%
Norfolk Southern Corp. 165,500 6,158,255
------------------------------------------------------------------------
Semiconductors & Semiconductor
Equipment--8.4%
Agere Systems, Inc. (c) 574,550 6,429,234
Applied Materials, Inc. 287,500 5,307,250
LSI Logic Corp. (c)(g) 2,082,900 20,329,104
------------
32,065,588
------------------------------------------------------------------------
Software--6.9%
BEA Systems, Inc. (c) 1,129,500 10,233,270
Borland Software Corp. (c) 1,372,300 9,208,133
Parametric Technology Corp. (c) 1,028,100 7,093,890
------------
26,535,293
------------------------------------------------------------------------
Specialty Retail--4.7%
Foot Locker, Inc. 373,500 9,337,500
The Gap, Inc. 408,100 8,614,991
------------
17,952,491
------------------------------------------------------------------------
Total Earnings Turnaround 190,406,977
========================================================================
===============================================================================
Financial Restructuring--0.0%
- -------------------------------------------------------------------------------
Construction & Engineering--0.0%
New Millennium Homes, LLC (d)(i) 3 750
------------------------------------------------------------------------
Total Financial Restructuring 750
========================================================================
===============================================================================
Operational Restructuring--23.9%
- -------------------------------------------------------------------------------
Aerospace & Defense--2.0%
Raytheon Co. 190,600 7,496,298
------------------------------------------------------------------------
Capital Markets--3.4%
The Bank of New York Co., Inc. 428,100 13,176,918
------------------------------------------------------------------------
Consumer Finance--1.0%
MBNA Corp. 150,000 3,774,000
------------------------------------------------------------------------
Diversified Financial
Services--3.0%
JPMorgan Chase & Co. 329,840 11,590,578
------------------------------------------------------------------------
Diversified Telecommunication
Services--1.5%
Sprint Corp. 213,400 5,740,460
------------------------------------------------------------------------
IT Services--2.6%
Unisys Corp. (c) 1,553,600 10,051,792
------------------------------------------------------------------------
Industrial Conglomerates--3.7%
Tyco International Ltd. 470,000 14,320,900
------------------------------------------------------------------------
10 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Schedule of Investments (concluded)
Shares
Industry* Common Stocks Held Value
===============================================================================
Operational Restructuring (concluded)
- -------------------------------------------------------------------------------
Media--5.7%
Discovery Holding Co. (c) 108,976 $ 1,555,087
Interpublic Group of Cos., Inc. (c) 667,400 8,342,500
Time Warner, Inc. 695,700 11,840,814
------------
21,738,401
------------------------------------------------------------------------
Thrifts & Mortgage Finance--1.0%
Fannie Mae 65,200 3,642,072
------------------------------------------------------------------------
Total Operational Restructuring 91,531,419
========================================================================
===============================================================================
Price-to-Book--7.9%
- -------------------------------------------------------------------------------
Diversified Financial Services--0.9%
Citigroup, Inc. 83,700 3,640,950
------------------------------------------------------------------------
Insurance--7.0%
American International Group, Inc. 217,100 13,069,420
The St. Paul Travelers Cos., Inc. (g) 308,245 13,568,945
------------
26,638,365
------------------------------------------------------------------------
Total Price-to-Book 30,279,315
========================================================================
Total Common Stocks
(Cost--$312,792,935)--97.3% 372,600,766
========================================================================
Preferred Stocks
===============================================================================
Financial Restructuring--0.0%
- -------------------------------------------------------------------------------
Construction & Engineering--0.0%
New Millennium Homes, LLC (a)(d)(i) 5,414 135,350
------------------------------------------------------------------------
Total Preferred Stocks
(Cost--$395)--0.0% 135,350
Face
Industry* Corporate Bonds Amount
===============================================================================
Financial Restructuring--0.8%
- -------------------------------------------------------------------------------
Construction & Engineering--0.8%
New Millennium Homes, LLC,
0% due 12/31/2007 (d)(f)(i) $ 5,021,000 3,012,600
------------------------------------------------------------------------
Total Corporate Bonds
(Cost--$4,396,479)--0.8% 3,012,600
------------------------------------------------------------------------
Beneficial
Other Interests (e) Interest
===============================================================================
Financial Restructuring--0.0%
- -------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels--0.0%
WRT Energy Corp. (Litigation
Trust Certificates)(i) $ 1,981,437 0
------------------------------------------------------------------------
Total Other Interests
(Cost--$202,416)--0.0% 0
========================================================================
Short-Term Securities
===============================================================================
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (j) 7,425,766 7,425,766
Merrill Lynch Liquidity Series,
LLC Money Market Series (h)(j) 43,918,500 43,918,500
- -------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$51,344,266)--13.4% 51,344,266
===============================================================================
Total Investments
(Cost--$368,736,491**)--111.5% 427,092,982
Liabilities in Excess of Other Assets--(11.5%) (44,021,761)
------------
Net Assets--100.0% $383,071,221
============
- --------------------------------------------------------------------------------
* 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. These
industry classifications are unaudited.
** The cost and unrealized appreciation (depreciation) of investments as of
July 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ......................................... $368,988,681
============
Gross unrealized appreciation .......................... $ 73,739,007
Gross unrealized depreciation .......................... (15,634,706)
------------
Net unrealized appreciation ............................ $ 58,104,301
============
(a) Convertible security.
(b) Depositary receipts.
(c) Non-income producing security.
(d) Non-income producing security; issuer filed for bankruptcy or is in
default of interest/ dividend payments.
(e) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(f) Represents a zero coupon bond.
(g) Security, or a portion of security, is on loan.
(h) Security was purchased with the cash proceeds from securities loans.
(i) Restricted securities as to resale, representing approximately 0.8% of net
assets, were as follows:
--------------------------------------------------------------------------
Acquisition
Issue Dates Cost Value
--------------------------------------------------------------------------
New Millennium 4/26/1996 -
Homes, LLC 8/29/1997 $2,891,337 $ 750
New Millennium 8/29/1997 -
Homes, LLC (Preferred) 3/05/1999 395 135,350
New Millennium Homes, LLC, 8/29/1997 -
0% due 12/31/07 3/05/1999 4,396,479 3,012,600
WRT Energy Corp.
(Litigation Trust Certificates) 7/10/1997 202,416 0
--------------------------------------------------------------------------
Totals $7,490,627 $3,148,700
======================
(j) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Affiliate Net Activity Interest Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ (2,050,928) $155,471
Merrill Lynch Liquidity Series, LLC
Money Market Series $(22,808,050) $ 13,630
--------------------------------------------------------------------------
See Notes to Financial Statements.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 11
Statement of Assets and Liabilities
As of July 31, 2005
============================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(including securities loaned of $42,993,758)
(identified cost--$317,392,225) ................................. $ 375,748,716
Investments in affiliated securities, at value
(identified cost--$51,344,266) .................................. 51,344,266
Receivables:
Dividends ..................................................... $ 623,330
Securities sold ............................................... 285,235
Capital shares sold ........................................... 166,508
Interest from affiliates ...................................... 13,198
Securities lending ............................................ 2,516 1,090,787
-------------
Prepaid expenses ................................................. 25,576
-------------
Total assets ..................................................... 428,209,345
-------------
============================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ........................ 43,918,500
Payables:
Capital shares redeemed ....................................... 719,530
Investment adviser ............................................ 217,121
Other affiliates .............................................. 85,567
Distributor ................................................... 84,955
Securities purchased .......................................... 58,810 1,165,983
-------------
Accrued expenses ................................................. 53,641
-------------
Total liabilities ................................................ 45,138,124
-------------
============================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets ....................................................... $ 383,071,221
=============
============================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ............................................... $ 961,242
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ............................................... 326,282
Class C Shares of Common Stock, $.10 par value, 50,000,000
shares authorized ............................................... 247,049
Class I Shares of Common Stock, $.10 par value, 50,000,000
shares authorized ............................................... 1,212,997
Class R Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ............................................... 3,873
Paid-in capital in excess of par ................................. 314,949,738
Undistributed investment income--net ............................. $ 854,255
Undistributed realized capital gain--net ......................... 6,159,294
Unrealized appreciation--net ..................................... 58,356,491
-------------
Total accumulated earnings--net .................................. 65,370,040
-------------
Net Assets ....................................................... $ 383,071,221
=============
============================================================================================================================
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $135,695,532 and 9,612,418
shares outstanding .............................................. $ 14.12
=============
Class B--Based on net assets of $42,351,215 and 3,262,822
shares outstanding .............................................. $ 12.98
=============
Class C--Based on net assets of $31,390,688 and 2,470,488
shares outstanding .............................................. $ 12.71
=============
Class I--Based on net assets of $173,121,270 and 12,129,967
shares outstanding .............................................. $ 14.27
=============
Class R--Based on net assets of $512,516 and 38,727
shares outstanding .............................................. $ 13.23
=============
See Notes to Financial Statements.
12 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Statement of Operations
For the Year Ended July 31, 2005
============================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Dividends (net of $31,961 foreign withholding tax) ............... $ 5,830,306
Interest from affiliates ......................................... 155,471
Securities lending--net .......................................... 13,630
-------------
Total income ..................................................... 5,999,407
-------------
============================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ......................................... $ 3,916,183
Account maintenance and distribution fees--Class B ............... 504,016
Account maintenance fees--Class A ................................ 340,666
Account maintenance and distribution fees--Class C ............... 332,900
Transfer agent fees--Class I ..................................... 239,187
Transfer agent fees--Class A ..................................... 190,354
Accounting services .............................................. 170,476
Transfer agent fees--Class B ..................................... 81,114
Professional fees ................................................ 66,888
Printing and shareholder reports ................................. 61,568
Transfer agent fees--Class C ..................................... 55,436
Custodian fees ................................................... 53,653
Registration fees ................................................ 52,129
Directors' fees and expenses ..................................... 21,611
Account maintenance and distribution fees--Class R ............... 1,994
Pricing fees ..................................................... 1,063
Transfer agent fees--Class R ..................................... 556
Other ............................................................ 38,254
-------------
Total expenses before waiver ..................................... 6,128,048
Waiver of expenses ............................................... (979,046)
-------------
Total expenses after waiver ...................................... 5,149,002
-------------
Investment income--net ........................................... 850,405
-------------
============================================================================================================================
Realized & Unrealized Gain--Net
- ----------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ................................ 45,789,886
Change in unrealized appreciation on investments--net ............ 15,033,515
-------------
Total realized and unrealized gain--net .......................... 60,823,401
-------------
Net Increase in Net Assets Resulting from Operations ............. $ 61,673,806
=============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 13
Statements of Changes in Net Assets
For the Year Ended
July 31,
-------------------------------
2005 2004
Increase (Decrease) in Net Assets: -------------------------------
============================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------------
Investment income (loss)--net .................................... $ 850,405 $ (29,746)
Realized gain--net ............................................... 45,789,886 44,470,394
Change in unrealized appreciation--net ........................... 15,033,515 19,365,944
-------------------------------
Net increase in net assets resulting from operations ............. 61,673,806 63,806,592
-------------------------------
============================================================================================================================
Capital Share Transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions (79,694,215) (43,505,395)
-------------------------------
============================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets .......................... (18,020,409) 20,301,197
Beginning of year ................................................ 401,091,630 380,790,433
-------------------------------
End of year* ..................................................... $ 383,071,221 $ 401,091,630
===============================
* Undistributed investment income--net ........................ $ 854,255 --
===============================
See Notes to Financial Statements.
14 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Financial Highlights
Class A
---------------------------------------------------------------------
For the Year Ended July 31,
The following per share data and ratios have been derived ---------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 12.06 $ 10.30 $ 8.58 $ 12.01 $ 13.86
---------------------------------------------------------------------
Investment income(loss)--net** ......... .04 .01 (.02) (.01) .05
Realized and unrealized gain (loss)--net 2.02 1.75 1.74 (2.70) .94
---------------------------------------------------------------------
Total from investment operations ....... 2.06 1.76 1.72 (2.71) .99
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. -- -- -- -- (.05)
In excess of investment income--net . -- -- -- -- (.04)
Realized gain--net .................. -- -- -- (.72) (2.75)
---------------------------------------------------------------------
Total dividends and distributions ...... -- -- -- (.72) (2.84)
---------------------------------------------------------------------
Net asset value, end of year ........... $ 14.12 $ 12.06 $ 10.30 $ 8.58 $ 12.01
=====================================================================
=================================================================================================================================
Total Investment Return*
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 17.08% 17.09% 20.05% (23.06%) 7.73%
=====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ 1.26% 1.34% 1.42% 1.41% 1.49%
=====================================================================
Expenses ............................... 1.51% 1.51% 1.57% 1.54% 1.49%
=====================================================================
Investment income (loss)--net .......... .27% .08% (.23%) (.12%) .45%
=====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $135,696 $136,688 $120,193 $109,033 $119,272
=====================================================================
Portfolio turnover ..................... 72.41% 91.79% 54.67% 123.59% 112.13%
=====================================================================
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 15
Financial Highlights (continued)
Class B
---------------------------------------------------------------------
For the Year Ended July 31,
The following per share data and ratios have been derived ---------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 11.17 $ 9.62 $ 8.07 $ 11.36 $ 13.23
---------------------------------------------------------------------
Investment loss--net** ................. (.06) (.08) (.09) (.09) (.03)
Realized and unrealized gain (loss)--net 1.87 1.63 1.64 (2.54) .89
---------------------------------------------------------------------
Total from investment operations ....... 1.81 1.55 1.55 (2.63) .86
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................ -- -- -- -- (.01)
In excess of investment income--net ... -- -- -- -- (.01)
Realized gain--net .................... -- -- -- (.66) (2.71)
---------------------------------------------------------------------
Total dividends and distributions ...... -- -- -- (.66) (2.73)
---------------------------------------------------------------------
Net asset value, end of year ........... $ 12.98 $ 11.17 $ 9.62 $ 8.07 $ 11.36
=====================================================================
=================================================================================================================================
Total Investment Return*
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 16.20% 16.11% 19.21% (23.69%) 6.91%
=====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ 2.03% 2.11% 2.20% 2.18% 2.26%
=====================================================================
Expenses ............................... 2.28% 2.27% 2.35% 2.30% 2.26%
=====================================================================
Investment loss--net ................... (.50%) (.70%) (1.02%) (.89%) (.27%)
=====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $42,351 $57,812 $67,382 $79,617 $132,202
=====================================================================
Portfolio turnover ..................... 72.41% 91.79% 54.67% 123.59% 112.13%
=====================================================================
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
16 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Financial Highlights (continued)
Class C
---------------------------------------------------------------------
For the Year Ended July 31,
The following per share data and ratios have been derived ---------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 10.94 $ 9.42 $ 7.90 $ 11.17 $ 13.07
---------------------------------------------------------------------
Investment loss--net** ................. (.06) (.08) (.08) (.09) (.04)
Realized and unrealized gain (loss)--net 1.83 1.60 1.60 (2.50) .88
---------------------------------------------------------------------
Total from investment operations ....... 1.77 1.52 1.52 (2.59) .84
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. -- -- -- -- (.02)
In excess of investment income--net . -- -- -- -- (.01)
Realized gain--net .................. -- -- -- (.68) (2.71)
---------------------------------------------------------------------
Total dividends and distributions ...... -- -- -- (.68) (2.74)
---------------------------------------------------------------------
Net asset value, end of year ........... $ 12.71 $ 10.94 $ 9.42 $ 7.90 $ 11.17
=====================================================================
=================================================================================================================================
Total Investment Return*
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 16.18% 16.14% 19.24% (23.73%) 6.90%
=====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ 2.04% 2.12% 2.21% 2.19% 2.27%
=====================================================================
Expenses ............................... 2.29% 2.28% 2.36% 2.32% 2.27%
=====================================================================
Investment loss--net ................... (.50%) (.70%) (1.02%) (.88%) (.39%)
=====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $31,391 $34,179 $31,492 $31,763 $16,776
=====================================================================
Portfolio turnover ..................... 72.41% 91.79% 54.67% 123.59% 112.13%
=====================================================================
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 17
Financial Highlights (continued)
Class I
---------------------------------------------------------------------
For the Year Ended July 31,
The following per share data and ratios have been derived ---------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 12.16 $ 10.36 $ 8.60 $ 12.04 $ 13.89
---------------------------------------------------------------------
Investment income--net** ............... .07 .04 --+ .01 .09
Realized and unrealized gain (loss)--net 2.04 1.76 1.76 (2.71) .93
---------------------------------------------------------------------
Total from investment operations ....... 2.11 1.80 1.76 (2.70) 1.02
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. -- -- -- -- (.06)
In excess of investment income--net . -- -- -- -- (.05)
Realized gain--net .................. -- -- -- (.74) (2.76)
---------------------------------------------------------------------
Total dividends and distributions ...... -- -- -- (.74) (2.87)
---------------------------------------------------------------------
Net asset value, end of year ........... $ 14.27 $ 12.16 $ 10.36 $ 8.60 $ 12.04
=====================================================================
=================================================================================================================================
Total Investment Return*
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 17.35% 17.37% 20.47% (22.95%) 8.00%
=====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ 1.01% 1.09% 1.17% 1.16% 1.24%
=====================================================================
Expenses ............................... 1.26% 1.26% 1.32% 1.28% 1.24%
=====================================================================
Investment income--net ................. .52% .33% .02% .14% .74%
=====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $173,121 $172,024 $161,723 $154,734 $192,820
=====================================================================
Portfolio turnover ..................... 72.41% 91.79% 54.67% 123.59% 112.13%
=====================================================================
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
18 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Financial Highlights (concluded)
Class R
---------------------------------------------------------
For the Year Ended For the Period
July 31, January 3, 2003+
The following per share data and ratios have been derived ----------------------------------- to July 31,
from information provided in the financial statements. 2005 2004 2003
=====================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.33 $ 9.71 $ 8.67
---------------------------------------------------------
Investment income (loss)--net*** ....... --@@@ --@@ .04
Realized and unrealized gain--net ...... 1.90 1.62 1.00
---------------------------------------------------------
Total from investment operations ....... 1.90 1.62 1.04
---------------------------------------------------------
Net asset value, end of period ......... $ 13.23 $ 11.33 $ 9.71
=========================================================
=====================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 16.77% 16.68% 12.00%@
=========================================================
=====================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ 1.51% 1.57% 1.67%*
=========================================================
Expenses ............................... 1.76% 1.75% 1.82%*
=========================================================
Investment income (loss)--net .......... .03% (.05%) (.27%)*
=========================================================
=====================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 513 $ 389 $ --++
=========================================================
Portfolio turnover ..................... 72.41% 91.79% 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.
@@@ Amount is less than $.01 per share.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 19
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 U.S. generally accepted accounting principles, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. The Fund offers multiple classes of shares. Shares of Class A
and Class I are sold with a front-end sales charge. Shares of Class B and Class
C may be subject to a contingent deferred sales charge. Class R Shares are sold
only to certain retirement plans. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that Class A, Class B, Class C and Class R Shares bear certain expenses related
to the account maintenance of such shares, and Class B, Class C and Class R
Shares also bear certain expenses related to the distribution of such shares.
Each class has exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures (except that Class B
shareholders may vote on certain changes to the Class A distribution plan).
Income, expenses (other than expenses attributable to a specific class) and
realized and unrealized gains and losses are allocated daily to each class based
on its relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Equity securities that are held by the Fund that
are traded on stock exchanges or the Nasdaq National Market are valued at the
last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available asked
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the Fund.
Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Directors of the Fund. Short positions traded in the OTC market are valued at
the last available asked price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last asked
price. Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued by quoted fair valuations received
daily by the Fund from a pricing service or counterparty. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their last sale price as of the close of such exchanges. Obligations with
remaining maturities of 60 days or less are valued at amortized cost unless the
Investment Adviser believes that this method no longer produces fair valuations.
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.
20 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
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 substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(e) 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.
(i) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $3,850 has been reclassified between paid-in capital in excess of par and
undistributed net investment income as a result of permanent differences
attributable to nondeductible expenses. This reclassification has no effect on
net assets or net asset values per share.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 21
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 at
an annual rate of 1.00% of the average daily value of the Fund's net assets. FAM
has contractually agreed to waive .25% of its fee resulting in an annual fee
equal to .75% of the average daily value of the Fund's net assets. The contract
is effective through November 30, 2005 and is automatically renewable year to
year thereafter unless terminated by the Fund. For the year ended July 31, 2005,
FAM earned fees of $3,916,183, of which $979,046 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"), an affiliate of FAM, also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the year ended July 31, 2005, 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 ............................................ $5,872 $12,220
Class I ............................................ $ 116 $ 1,420
- --------------------------------------------------------------------------------
For the year ended July 31, 2005, MLPF&S received contingent deferred sales
charges of $68,141 and $1,479 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $134 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S, or its
affiliates. As of July 31, 2005, the Fund lent securities with a value of
$660,300 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 FAM or its affiliates. For the year ended July 31, 2005, MLIM,
LLC received $5,893 in securities lending agent fees.
For the year ended July 31, 2005, the Fund reimbursed FAM $8,991 for certain
accounting services.
22 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Notes to Financial Statements (continued)
In addition, MLPF&S received $187,452 in commissions on the execution of
portfolio security transactions for the Fund for the year ended July 31, 2005.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, MLAM U.K., FDS, FAMD, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 2005 were $279,334,426 and $355,319,157, respectively.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$79,694,215 and $43,505,395 for the years ended July 31, 2005 and July 31, 2004,
respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 879,523 $ 11,215,439
Automatic conversion of shares ................ 710,053 9,250,011
------------------------------
Total issued .................................. 1,589,576 20,465,450
Shares redeemed ............................... (3,314,777) (42,874,220)
------------------------------
Net decrease .................................. (1,725,201) $(22,408,770)
==============================
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 716,143 $ 8,534,193
Automatic conversion of shares ................ 1,073,783 12,779,849
------------------------------
Total issued .................................. 1,789,926 21,314,042
Shares redeemed ............................... (2,121,354) (25,217,807)
------------------------------
Net decrease .................................. (331,428) $ (3,903,765)
==============================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 363,699 $ 4,363,728
------------------------------
Shares redeemed ............................... (1,507,186) (18,232,206)
Automatic conversion of shares ................ (768,892) (9,250,011)
------------------------------
Total redeemed ................................ (2,276,078) (27,482,217)
------------------------------
Net decrease .................................. (1,912,379) $(23,118,489)
==============================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 798,733 $ 8,796,123
------------------------------
Shares redeemed ............................... (1,474,994) (16,377,636)
Automatic conversion of shares ................ (1,154,991) (12,779,849)
------------------------------
Total redeemed ................................ (2,629,985) (29,157,485)
------------------------------
Net decrease .................................. (1,831,252) $(20,361,362)
==============================
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 169,605 $ 1,993,818
Shares redeemed ............................... (824,482) (9,753,302)
------------------------------
Net decrease .................................. (654,877) $ (7,759,484)
==============================
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 425,220 $ 4,605,702
Shares redeemed ............................... (644,419) (6,947,219)
------------------------------
Net decrease .................................. (219,199) $ (2,341,517)
==============================
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 969,812 $ 12,793,522
Shares redeemed ............................... (2,988,326) (39,257,348)
------------------------------
Net decrease .................................. (2,018,514) $(26,463,826)
==============================
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 1,628,933 $ 19,598,346
Shares redeemed ............................... (3,087,919) (36,904,286)
------------------------------
Net decrease .................................. (1,458,986) $(17,305,940)
==============================
- --------------------------------------------------------------------------------
Class R Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 21,540 $ 269,290
Shares redeemed ............................... (17,181) (212,936)
------------------------------
Net increase .................................. 4,359 $ 56,354
==============================
- --------------------------------------------------------------------------------
Class R Shares for the Year Dollar
Ended July 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................... 48,440 $ 570,646
Shares redeemed ............................... (14,083) (163,457)
------------------------------
Net increase .................................. 34,357 $ 407,189
==============================
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 23
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 a group of lenders, which expires
November 2005. The Fund may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for leverage.
The Fund may borrow up to the maximum amount allowable under the Fund's current
prospectus and statement of additional information, subject to various other
legal, regulatory or contractual limits. The Fund pays a commitment fee of .07%
per annum based on the Fund's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each Fund's election, the federal funds rate plus .50% or a base
rate as defined in the credit agreement. The Fund did not borrow under the
credit agreement during the year ended July 31, 2005.
6. Distributions to Shareholders:
As of July 31, 2005, the components of accumulated earnings on a tax basis were
as follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income--net ........................... $ 854,255
Undistributed long-term capital gains--net ................... 6,411,484
-----------
Total undistributed earnings--net ............................ 7,265,739
Capital loss carryforward .................................... --
Unrealized gains--net ........................................ 58,104,301*
-----------
Total accumulated earnings--net .............................. $65,370,040
===========
* The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales.
24 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Merrill Lynch Focus Value Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Focus Value Fund, Inc. as of July
31, 2005, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of July 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Focus Value Fund, Inc. as of July 31, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 19, 2005
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 25
Disclosure of Investment Advisory Agreement
Activities of and Composition of the Board of Directors
All but one member of the Board of Directors is an independent director whose
only affiliation with Fund Asset Management, L.P. (the "Investment Adviser") or
other Merrill Lynch affiliates is as a director of the Fund and certain other
funds advised by the Investment Adviser or its affiliates. The Co-chairmen of
the Board are also independent directors. New director nominees are chosen as
nominees by a Nominating Committee comprised of independent directors. All
independent directors also are members of the Board's Audit Committee and the
independent directors meet in executive session at each in-person Board meeting.
The Board and the Audit Committee meet in person for at least two days each
quarter and conduct other in-person and telephone meetings throughout the year,
some of which are formal board meetings, and some of which are informational
meetings. The independent counsel to the independent directors attends all
in-person Board and Audit Committee meetings and other meetings at the
independent directors' request.
Investment Advisory Agreement -- Matters Considered by the Board
Every year, the Board considers approval of the Fund's investment advisory
agreement (the "Investment Advisory Agreement"). The Board also annually reviews
and considers approval of the sub-advisory agreement on behalf of the Fund
between the Investment Adviser and an affiliate. The Board assesses the nature,
scope and quality of the services provided to the Fund by the personnel of the
Investment Adviser, the sub-adviser and their affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory requirements.
The Board also receives and assesses information regarding the services provided
to the Fund by certain unaffiliated service providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates, including the sub-adviser. Among the
matters considered are: (a) fees (in addition to management fees) paid to the
Investment Adviser and its affiliates by the Fund, such as transfer agency fees
and fees for marketing and distribution; (b) Fund operating expenses paid to
third parties; (c) the resources devoted to and compliance reports relating to
the Fund's investment objective, policies and restrictions, and its compliance
with its Code of Ethics and the Investment Adviser's compliance policies and
procedures; and (d) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by the
Investment Adviser to be generally of high quality. The Board also believes that
the Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated with one of America's largest financial firms.
The Board works closely with the Investment Adviser in overseeing the Investment
Adviser's efforts to achieve good performance. As part of this effort, the Board
discusses portfolio manager effectiveness and, when performance is not
satisfactory, discusses with the Investment Adviser taking steps such as
changing investment personnel.
Annual Consideration of Approval by the Board of Directors
In the period prior to the Board meeting to consider renewal of the Investment
Advisory Agreement and the sub-advisory agreement, the Board requests and
receives materials specifically relating to the Fund's Investment Advisory
Agreement and/or the sub-advisory agreement. These materials include (a)
information compiled by Lipper Inc. ("Lipper") on the fees and expenses and the
investment performance of the Fund as compared to a comparable group of funds as
classified by Lipper; (b) sales and redemption data for the Fund; (c) a
discussion by the Fund's portfolio management team of investment strategies used
by the Fund during its most recent fiscal year; (d) information on the
profitability to the Investment Adviser and its affiliates of the Investment
Advisory Agreement, the sub-advisory agreement and other relationships with the
Fund; and (e) information provided by the Investment Adviser concerning
investment advisory fees charged to other clients, such as offshore funds under
similar investment mandates and generally to institutional clients. The Board
also considers other matters it deems important to the approval process such as
payments made to the Investment Adviser or its affiliates relating to the
distribution of Fund shares, services related to the valuation and pricing of
Fund portfolio holdings, allocation of Fund brokerage fees (including the
related benefits to the Investment Adviser of "soft dollars"), the Fund's
portfolio turnover statistics, and direct and indirect benefits to the
Investment Adviser and the sub-adviser and their affiliates from their
relationship with the Fund.
26 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Disclosure of Investment Advisory Agreement (continued)
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's Investment Advisory
Agreement and the sub-advisory agreement in February 2005, the independent
directors' and Board's review included the following:
Services Provided by the Investment Adviser -- The Board reviewed the nature,
extent and quality of services provided by the Investment Adviser, including the
investment advisory services and the resulting performance of the Fund, and the
sub-adviser. The Board focused primarily on the Investment Adviser's investment
advisory services and the Fund's investment performance, having concluded that
the other services provided to the Fund by the Investment Adviser were
satisfactory. The Board compared Fund performance -- both including and
excluding the effects of the Fund's fees and expenses -- to the performance of a
comparable group of mutual funds, and the performance of a relevant index or
combination of indexes. While the Board reviews performance data at least
quarterly, consistent with the Investment Adviser's investment goals, the Board
attaches more importance to performance over relatively long periods of time,
typically three to five years. The Fund's performance after fees and expenses
ranked in the third quartile for the one- and three-year periods ended December
31, 2004, and in the second quartile for the five-year period ended December 31,
2004. Considering these factors, the Board concluded that the services provided
supported the continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process -- The Board reviewed
the Fund's investment objectives and strategies. The Board discussed with senior
management of the Investment Adviser responsible for investment operations and
the senior management of the Investment Adviser's equity investing group the
strategies being used to achieve the stated objectives. Among other things, the
Board considered the size, education and experience of the Investment Adviser's
investment staff, its use of technology, and the Investment Adviser's approach
to training and retaining portfolio managers and other research, advisory and
management personnel. The Board also reviewed the Investment Adviser's
compensation policies and practices with respect to the Fund's portfolio
managers. The Board also considered the experience of the Fund's portfolio
managers and noted that Mr. Martorelli and Mr. Rendino are the Fund's
co-portfolio managers and are jointly and primarily responsible for the
day-to-day management of the Fund's portfolio and the selection of its
investments. Mr. Martorelli has more than eighteen years experience in portfolio
management and Mr. Rendino has more than twelve years experience in portfolio
management. Moreover, the Investment Adviser and its investment staff have
extensive experience in analyzing and managing the types of investments used by
the Fund. The Board concluded that the Fund benefits from that expertise.
Management Fees and Other Expenses -- The Board reviewed the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds in its Lipper category. It also compared the Fund's total
expenses to those of other comparable funds. The Board considered the services
provided and fees charged by the Investment Adviser to other types of clients,
such as offshore funds, with similar investment mandates, and noted that the
fees charged by the Investment Adviser in those cases typically exceeded those
being charged to the Fund. The Board noted that, as a general matter, fees
charged to institutional clients were lower than the fees charged to the Fund,
but believed that less extensive services were being provided to such clients.
While the Fund's contractual and actual management fee rates were higher than
the median fees charged by comparable funds, the Fund's actual total expenses
were lower than the median expenses of comparable funds. The Board also
considered that following discussions with the Investment Adviser about the
level of management fees, the Investment Adviser agreed to waive 0.25% of the
fee, effective June 1, 2004, resulting in an annual fee equal to 0.75%, which
was the median of the contractual management fees of the comparable Lipper group
of funds. The Board has concluded that the Fund's management fee and fee rate
(including fee waivers) and overall expense ratio are reasonable compared to
those of other comparable funds.
Profitability -- The Board considered the cost of the services provided to the
Fund by the Investment Adviser, and the Investment Adviser's and its affiliates'
profits in relating to the management and distribution of the Fund and the
MLIM/FAM-advised funds. As part of its analysis, the Board reviewed the
Investment Adviser's methodology in allocating its costs to the management of
the Fund and concluded that there was a reasonable basis for the allocation. The
Board concluded the Investment Adviser's profits are reasonable in relation to
the nature and quality of services provided.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 27
Disclosure of Investment Advisory Agreement (concluded)
Economies of Scale -- The Board considered the extent to which economies of
scale might be realized as the assets of the Fund increase and whether there
should be changes in the management fee rate or structure in order to enable the
Fund to participate in these economies of scale. While the Board concluded that
it did not believe that the Fund's assets have reached a level where such
economies are effectively available, the Board will continue to seek information
relating to economies of scale.
Conclusion
After the independent directors deliberated in executive session, the entire
Board, including all of the independent directors, approved the renewal of the
existing Investment Advisory Agreement and sub-advisory agreement, concluding
that the advisory fee was reasonable in relation to the services provided and
that a contract renewal was in the best interests of the shareholders.
28 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 130 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 178 Portfolios
08543-9011 Director (Americas Region) thereof from 2000 to 2001 and
Age: 50 Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
since 2001; Chief Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or
FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company Act, of the
Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators. Directors serve
until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President,
Mr. Doll serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director 2002 to Director, The China Business Group, Inc. since 39 Funds None
Bodurtha** Princeton, NJ present 1996 and Executive Vice President thereof from 59 Portfolios
08543-9095 1996 to 2003; Chairman of the Board, Berkshire
Age: 61 Holding Corporation since 1980; Partner, Squire,
Sanders & Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Director 2005 to Professor, Harvard University from 1992 to 2005; 39 Funds None
Froot Princeton, NJ present Professor, Massachusetts Institute of Technology 59 Portfolios
08543-9095 from 1986 to 1992.
Age: 48
- ------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Director 1994 to Member of the Committee of Investment of 39 Funds Kimco Realty
Grills** Princeton, NJ present Employee Benefit Assets of the Association of 59 Portfolios Corporation
08543-9095 Financial Professionals ("CIEBA") since 1986;
Age: 70 Member of CIEBA's Executive Committee since
1988 and its Chairman from 1991 to 1992;
Assistant Treasurer of International Business
Machines Corporation ("IBM") and Chief
Investment Officer of IBM Retirement Funds
from 1986 to 1993; Member of the Investment
Advisory Committee of the State of New York
Common Retirement Fund since 1989; Member
of the Investment Advisory Committee of the
Howard Hughes Medical Institute from 1997 to
2000; Director, Duke University Management
Company from 1992 to 2004, Vice Chairman
thereof from 1998 to 2004 and Director Emeritus
thereof since 2004; Director, LaSalle Street Fund
from 1995 to 2001; Director, Kimco Realty
Corporation since 1997; Member of the Investment
Advisory Committee of the Virginia Retirement
System since 1998 and Vice Chairman thereof from
2002 to 2005 and Chairman thereof since 2005;
Director, Montpelier Foundation since 1998 and its
Vice Chairman thereof since 2000; Member of the
Investment Committee of the Woodberry Forest
School since 2000; Member of the Investment
Committee of the National Trust for Historic
Preservation since 2000.
MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005 29
Officers and Directors (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director 2002 to John M. Olin Professor of Humanities, New York 39 Funds None
London Princeton, NJ present University since 1993 and Professor thereof since 59 Portfolios
08543-9095 1980; President, Hudson Institute since 1997
Age: 66 and Trustee thereof since 1980; Dean, Gallatin
Division of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 39 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 59 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 62 the Board of Governors thereof from 1994 to 1997;
Shareholder, Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director, ECMC Group
(service provider to students, schools and lenders)
since 2001; Director, United New Mexico Bank (now
Wells Fargo) from 1983 to 1988; Director, First
National Bank of New Mexico (now Wells Fargo)
from 1975 to 1976; Vice President, American Law
Institute since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director 1996 to Principal of STI Management (investment adviser) 39 Funds None
Salomon, Princeton, NJ present since 1994; Chairman and CEO of Salomon 59 Portfolios
Jr. 08543-9095 Brothers Asset Management from 1992 to 1995;
Age: 68 Chairman of Salomon Brothers Equity Mutual Funds
from 1992 to 1995; regular columnist with Forbes
Magazine from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at Salomon
Brothers Inc. from 1975 to 1991; Trustee,
Commonfund from 1980 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Director 1984 to Chairman of Fernwood Advisors, Inc. (investment 40 Funds None
Swensrud Princeton, NJ present adviser) since 1996; Principal, Fernwood Associates 60 Portfolios
08543-9095 (financial consultants) since 1975; Chairman of
Age: 71 R.P.P. Corporation (manufacturing company) since
1978; Director of International Mobile
Communications, Incorporated (telecommunications)
since 1998.
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Co-Chairman of the Board and the Audit Committee.
30 MERRILL LYNCH FOCUS VALUE FUND, INC. JULY 31, 2005
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
Age: 45 Treasurer 1999 to President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
present to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. P.O. Box 9011 Vice 1986 to Managing Director of MLIM since 2000; First Vice President of MLIM from 1997
Martorelli Princeton, NJ President present to 2000.
08543-9011
Age: 48
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2000; First Vice President of MLIM from 1997
Rendino Princeton, NJ President present to 2000.
08543-9011
Age: 38
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 53 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
JPMorgan Chase Bank, N.A.
3 Chase Metrotech Center
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. JULY 31, 2005 31
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Focus Value Fund, Inc.
Box 9011
Princeton, NJ
08543
#10263 -- 7/05
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Joe Grills,
(2) Andre F. Perold (resigned as of October 1, 2004), (3) Robert S.
Salomon, Jr., and (4) Stephen B. Swensrud.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending July 31, 2005 - $39,000
Fiscal Year Ending July 31, 2004 - $37,000
(b) Audit-Related Fees - Fiscal Year Ending July 31, 2005 - $0
Fiscal Year Ending July 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending July 31, 2005 - $5,700
Fiscal Year Ending July 31, 2004 - $5,800
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending July 31, 2005 - $0
Fiscal Year Ending July 31, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending July 31, 2005 - $7,926,666
Fiscal Year Ending July 31, 2004 - $15,735,706
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,227,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Focus Value Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Focus Value Fund, Inc.
Date: September 23, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Focus Value Fund, Inc.
Date: September 23, 2005
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Focus Value Fund, Inc.
Date: September 23, 2005