UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-09651
811-09735
Name of Fund: Merrill Lynch Focus Twenty Fund, Inc.
Master Focus Twenty Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Merrill Lynch Focus Twenty Fund, Inc. and Master Focus Twenty
Trust, 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address:
P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 11/30/05
Date of reporting period: 12/01/04 - 05/31/05
Item 1 - Report to Stockholders
Merrill Lynch Focus Twenty
Fund, Inc.
Semi-Annual Report
May 31, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation
of an offer to buy shares of the Fund unless accompanied or preceded by the
Fund's current prospectus. Past performance results shown in this report
should not be considered a representation of future performance. Investment
return and principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Statements and
other information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-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 Twenty Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
(GO PAPERLESS LOGO)
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Merrill Lynch Focus Twenty Fund, Inc.
Officers and Directors/Trustees
Robert C. Doll, Jr., President and Director/Trustee
James H. Bodurtha, Director/Trustee
Joe Grills, Director/Trustee
Herbert I. London, Director/Trustee
Roberta Cooper Ramo, Director/Trustee
Robert S. Salomon, Jr., Director/Trustee
Stephen B. Swensrud, Director/Trustee
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
Change in Portfolio Management
Effective June 30, 2005, Merrill Lynch Focus Twenty Fund, Inc. is managed by
Senior Portfolio Manager Lawrence Fuller and Associate Portfolio Manager Tom
Burke, who are jointly and primarily responsible for the day-to-day management
of the Fund's portfolio. Mr. Fuller has been a Managing Director of Merrill
Lynch Investment Managers ("MLIM") since 2000. Mr. Burke has been a Director
of MLIM since 1998.
Change in Investment Process
Effective June 30, 2005, Merrill Lynch Focus Twenty Fund, Inc. has changed its
investment approach whereby companies are selected through a process of both
top-down macro-economic analysis of economic and business conditions, and
bottom-up analysis of the business fundamentals of individual companies. The
Fund will emphasize common stock of companies with mid-to-large stock market
capitalizations; however, the Fund also may invest in the common stock of
small companies. The stocks are selected from a universe of companies that
Fund management believes have above average growth potential. Management will
make investment decisions based on judgements regarding several valuation
parameters relative to anticipated rates of growth in earnings and potential
rates of return on equity.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
A Letter From the President
Dear Shareholder
After expanding at an annualized rate of 4.4% in 2004, U.S. gross domestic
product grew at an estimated 3.5% in the first quarter of 2005. The slowdown
was not entirely unexpected given last year's healthy growth and the evolution
of the economic cycle. The Federal Reserve Board - with one eye firmly affixed
on the economic indicators and the other on inflationary measures - has
increased the federal funds rate by 25 basis points (.25%) at each of its
eight meetings since June 2004. At period-end, the target short-term interest
rate stood at 3%.
U.S. equity markets ended 2004 in a strong rally, but have struggled to record
meaningful gains in 2005. The potential for slowing economic and corporate
earnings growth, as well as volatile energy prices, have intermittently
hampered equity market progress. On the positive side, corporate transactions,
such as mergers and acquisitions, stock buy-backs and dividend payouts, have
all increased. In Asia, equities have continued to benefit from higher
economic growth prospects and valuations that appear inexpensive relative to
other parts of the world.
In the bond market, the yield curve flattening "conundrum" continued as short-
term and long-term yields moved still closer together. Over the past year, the
two-year Treasury yield increased 106 basis points while the 10-year Treasury
yield declined 66 basis points. At May 31, 2005, the two-year Treasury note
yielded 3.60% and the 10-year Treasury note yielded 4%. The falling long-term
rates may be partly attributed to foreign interest in U.S. assets and
increased issuance of short-term Treasury bonds to finance the federal
deficit. Notably, the government is considering the reissuance of the 30-year
Treasury, which was suspended in August 2001. This would allow the U.S.
Treasury to adopt a more flexible approach to borrowing, while providing
investors with another long-term fixed income option.
Amid these conditions, the major benchmarks posted six-month and 12-month
returns as follows:
Total Returns as of May 31, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) +2.42% + 8.24%
Small-cap U.S. equities (Russell 2000 Index) -2.10% + 9.82%
International equities (MSCI Europe Australasia Far East Index) +1.81% +14.62%
Fixed income (Lehman Brothers Aggregate Bond Index) +2.90% + 6.82%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +3.51% + 7.96%
High yield bonds (Credit Suisse First Boston High Yield Index) +0.60% + 9.97%
While the environment is likely to remain somewhat challenging, we believe
opportunities exist for investors. With this in mind, we encourage you to meet
with your financial advisor to review your goals and asset allocation and to
rebalance your portfolio, as necessary, to ensure it remains aligned with your
objectives and risk tolerance. As always, we thank you for trusting Merrill
Lynch Investment Managers with your investment assets, and we look forward to
serving you in the months and years ahead.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Director/Trustee
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
A Discussion With Your Fund's Portfolio Management Team Leader
We continued our search for companies with superior earnings and revenue
growth and, relative to the Russell 1000 Growth Index, ended the period with a
focus on higher-beta, smaller-capitalization stocks.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended May 31, 2005, Merrill Lynch Focus Twenty
Fund, Inc.'s Class A, Class B, Class C and Class I Shares had total returns
of -3.07%, -3.18%, -3.21% and -2.42%, 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 5 - 7 of this report to
shareholders.) For the same period, the benchmark Russell 1000 Growth Index
returned +2.51% and the Lipper Multi-Cap Growth Funds category had an average
return of +1.45%. (This Lipper category includes funds that invest in a
variety of market-capitalization ranges without concentrating 75% of their
assets in any one range. Multi-Cap growth funds normally invest in companies
with long-term earnings expected to grow significantly faster than the
earnings of stocks in a major, unmanaged stock index.)
The past six months was a challenging period for investing. Similar to the
prior period, we again observed large up and down swings in the market. While
the period started with a positive tone in the fourth quarter of 2004, it
quickly turned negative. From the period's peak to its trough, we witnessed
the Russell 1000 Growth Index decline approximately 10% before recovering to
end the period in positive territory. Volatile oil prices, shifting interest
rates and conflicting economic data set the tone for the underlying investment
environment. After weathering this very volatile patch, the market embarked on
a significant rally during the final month of the period, with the Russell
1000 Growth Index providing a return of +4.84% for the month of May.
Generally speaking, industrials and healthcare companies were the biggest
detractors from relative performance while telecommunications and financial
services companies contributed positively to the Fund's relative results.
Specifically, our overweight positions in eBay, Inc., Tektronix, Inc., Boston
Scientific Corp. and Ball Corp. delivered the severest performance penalties.
Conversely, overweightings in Nextel Partners, Inc., Apple Computer, Inc. and
Caremark Rx, Inc. contributed positively to relative results.
Our investment process focused primarily on companies with superior earnings
growth and revenue acceleration. During this period and within our investment
universe, these characteristics were not rewarded. In general, these factors
returned mixed results.
What changes were made to the portfolio during the period?
Relative to its benchmark, the portfolio began the period with overweight
positions in the industrials, materials, telecommunications and technology
sectors and underweight positions in consumer staples, health care and
financials.
Overall, we added to the portfolio's positions in the technology and energy
sectors while reducing or further shortening our relative weightings in
industrials, health care and consumer discretionary. Changes in portfolio
composition were largely based on bottom-up stock picking rather than a macro
view of the economy or individual sectors.
Key purchases during this period included Apple Computer, Chicago Mercantile
Exchange Holdings, Inc., Premcor, Inc., Chevron Corp. and Activision, Inc.
Notable sales included NTL Inc., Monsanto Co., Cisco Systems, Inc.,
Caterpillar Inc., ImClone Systems Inc. and Fastenal Co.
How would you characterize the portfolio's position at the close of the
period?
At the end of the period, the portfolio was overweight in the technology,
materials and energy sectors and underweight in health care, consumer staples
and consumer discretionary. The portfolio also was positioned with a higher
beta than the Russell 1000 Growth Index and held stocks with a smaller
weighted average market capitalization. Overall, we continue to focus on
companies with compelling growth and momentum characteristics.
We remain optimistic on the U.S. economy and look for continued moderate
growth in corporate revenues and earnings.
Brian Fullerton
Portfolio Management Team Leader
June 13, 2005
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end load) of 5.25%
and an account maintenance fee of 0.25% per year (but no distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales charge of
4% declining to 0% after six years. All Class B Shares purchased prior to
June 1, 2001 maintain a four-year schedule. In addition, Class B Shares are
subject to a distribution fee of 0.75% per year and an account maintenance fee
of 0.25% per year. These shares automatically convert to Class A Shares after
approximately eight years. (There is no initial sales charge for automatic
share conversions.) All returns for periods greater than eight years reflect
this conversion.
* Class C Shares are subject to a distribution fee of 0.75% 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.
* 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.
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.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Performance Data (continued)
Recent Performance Results
6-Month 12-Month Since Inception
As of May 31, 2005 Total Return Total Return Total Return
ML Focus Twenty Fund, Inc.--Class A Shares* -3.07% -2.47% -84.20%
ML Focus Twenty Fund, Inc.--Class B Shares* -3.18 -3.18 -84.80
ML Focus Twenty Fund, Inc.--Class C Shares* -3.21 -3.21 -84.90
ML Focus Twenty Fund, Inc.--Class I Shares* -2.42 -1.83 -83.90
Russell 1000 (R) Growth Index** +2.51 +3.33 -41.45
S&P 500 (R) Index*** +2.42 +8.24 - 8.26
S&P 500 (R) Barra Growth Index**** +3.07 +4.58 -30.21
* Investment results shown do not reflect sales charges; results would be lower if a sales charge
were 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. The Fund's inception date is 3/03/00.
** This unmanaged broad-based Index is a subset of the Russell 1000 Index consisting of those
Russell 1000 securities with a greater-than-average growth orientation. Since inception total
return is from 3/03/00.
*** 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. Since inception total return is from 3/03/00.
**** This unmanaged broad-based Index is a capitalization-weighted index of all the stocks in the
Standard & Poor's 500 Index that have higher price-to-book ratios. Since inception total return
is from 3/03/00.
Russell 1000 is a registered trademark of the Frank Russell Company.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 5/31/05 - 2.47% - 7.59%
Five Years Ended 5/31/05 -25.49 -26.29
Inception (3/03/00)
through 5/31/05 -29.66 -30.38
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 5/31/05 - 3.18% - 7.06%
Five Years Ended 5/31/05 -26.02 -26.32
Inception (3/03/00)
through 5/31/05 -30.18 -30.31
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after six years.
** Assuming payment of applicable contingent deferred sales
charge.
Return Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 5/31/05 - 3.21% - 4.17%
Five Years Ended 5/31/05 -26.12 -26.12
Inception (3/03/00)
through 5/31/05 -30.27 -30.27
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year.
** Assuming payment of applicable contingent deferred sales
charge.
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 5/31/05 - 1.83% - 6.98%
Five Years Ended 5/31/05 -25.21 -26.01
Inception (3/03/00)
through 5/31/05 -29.41 -30.13
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 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 December 1, 2004
and held through May 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 December 1, 2004
December 1, May 31, to May 31,
2004 2005 2005
Actual
Class A $1,000 $969.30 $ 9.92
Class B $1,000 $968.20 $14.13
Class C $1,000 $967.90 $14.23
Class I $1,000 $975.80 $ 8.72
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,014.86 $10.15
Class B $1,000 $1,010.57 $14.44
Class C $1,000 $1,010.47 $14.54
Class I $1,000 $1,016.11 $ 8.90
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(2.02% for Class A, 2.88% for Class B, 2.90% for Class C and 1.77% for Class I), multiplied by
the average account value over the period, multiplied by 182/365 (to reflect the one-half year
period shown). Because the Fund is a feeder fund, the expense table example reflects the expenses
of both the feeder and the master fund in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the
most recent fiscal half-year divided by 365.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Statement of Assets and Liabilities Merrill Lynch Focus Twenty Fund, Inc.
As of May 31, 2005
Assets
Investment in Master Focus Twenty Trust (the "Trust"), at value
(identified cost--$101,956,790) $ 105,517,464
Prepaid expenses 22,031
---------------
Total assets 105,539,495
---------------
Liabilities
Payables:
Other affiliates $ 206,499
Distributor 70,953
Administrator 17,854 295,306
---------------
Accrued expenses 27,633
---------------
Total liabilities 322,939
---------------
Net Assets
Net assets $ 105,216,556
===============
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized $ 646,679
Class B Shares of Common Stock, $.10 par value, 300,000,000 shares authorized 3,283,045
Class C Shares of Common Stock, $.10 par value, 300,000,000 shares authorized 1,935,086
Class I Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 989,183
Paid-in capital in excess of par 1,672,193,205
Accumulated investment loss--net $ (1,138,110)
Accumulated realized capital losses allocated from the Trust--net (1,576,253,206)
Unrealized appreciation allocated from the Trust--net 3,560,674
---------------
Total accumulated losses--net (1,573,830,642)
---------------
Net Assets $ 105,216,556
===============
Net Asset Value
Class A--Based on net assets of $10,247,210 and 6,466,789 shares outstanding $ 1.58
===============
Class B--Based on net assets of $49,784,362 and 32,830,447 shares outstanding $ 1.52
===============
Class C--Based on net assets of $29,303,865 and 19,350,855 shares outstanding $ 1.51
===============
Class I--Based on net assets of $15,881,119 and 9,891,829 shares outstanding $ 1.61
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Statement of Operations Merrill Lynch Focus Twenty Fund, Inc.
For the Six Months Ended May 31, 2005
Investment Income
Net investment income allocated from the Trust:
Dividends $ 445,301
Interest from affiliates 14,771
Securities lending 6,550
Expenses (net of $30,477 waiver) (427,999)
---------------
Total income 38,623
---------------
Expenses
Account maintenance and distribution fees--Class B $ 288,141
Transfer agent fees--Class B 230,266
Account maintenance and distribution fees--Class C 171,272
Administration fees 152,000
Transfer agent fees--Class C 140,592
Transfer agent fees--Class I 61,952
Transfer agent fees--Class A 39,744
Printing and shareholder reports 31,827
Registration fees 28,172
Account maintenance fees--Class A 14,516
Professional fees 9,920
Other 8,331
---------------
Total expenses 1,176,733
---------------
Investment loss--net (1,138,110)
---------------
Realized & Unrealized Gain (Loss) Allocated from the Trust--Net
Realized gain on investments--net 4,774,098
Change in unrealized appreciation on investments--net (7,476,083)
---------------
Total realized and unrealized loss--net (2,701,985)
---------------
Net Decrease in Net Assets Resulting from Operations $ (3,840,095)
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Statements of Changes in Net Assets Merrill Lynch Focus Twenty Fund, Inc.
For the Six For the
Months Ended Year Ended
May 31, November 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment loss--net $ (1,138,110) $ (2,878,145)
Realized gain--net 4,774,098 12,303,076
Change in unrealized appreciation--net (7,476,083) (2,647,732)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations (3,840,095) 6,777,199
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (34,556,257) (50,862,426)
--------------- ---------------
Net Assets
Total decrease in net assets (38,396,352) (44,085,227)
Beginning of period 143,612,908 187,698,135
--------------- ---------------
End of period* $ 105,216,556 $ 143,612,908
=============== ===============
* Accumulated investment loss--net $ (1,138,110) --
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Financial Highlights Merrill Lynch Focus Twenty Fund, Inc.
Class A
For the Six
Months Ended
The following per share data and ratios have been derived May 31, For the Year Ended November 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of period $ 1.63 $ 1.56 $ 1.27 $ 1.99 $ 6.23
------------ ------------ ------------ ------------ ------------
Investment loss--net (.01)+++++ (.02)+++++ (.02)+++++ (.03)+++++ (.03)
Realized and unrealized gain (loss)--net (.04) .09 .31 (.69) (4.21)
------------ ------------ ------------ ------------ ------------
Total from investment operations (.05) .07 .29 (.72) (4.24)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 1.58 $ 1.63 $ 1.56 $ 1.27 $ 1.99
============ ============ ============ ============ ============
Total Investment Return**
Based on net asset value per share (3.07%)+++ 4.49% 22.83% (36.18%) (68.06%)
============ ============ ============ ============ ============
Ratios to Average Net Assets
Expenses++ 2.02%* 1.95% 2.10% 2.12% 1.38%
============ ============ ============ ============ ============
Investment loss--net (1.25%)* (1.08%) (1.57%) (1.87%) (.95%)
============ ============ ============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 10,247 $ 13,494 $ 18,007 $ 18,664 $ 43,576
============ ============ ============ ============ ============
Portfolio turnover of the Trust 44.88% 182.69% 316.42% 275.69% 137.66%
============ ============ ============ ============ ============
* Annualized.
** Total investment returns exclude the effects of sales charges.
++ Includes the Fund's share of the Trust's allocated expenses.
+++ Aggregate total investment return.
+++++ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Financial Highlights (continued) Merrill Lynch Focus Twenty Fund, Inc.
Class B
For the Six
Months Ended
The following per share data and ratios have been derived May 31, For the Year Ended November 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of period $ 1.57 $ 1.51 $ 1.24 $ 1.96 $ 6.19
------------ ------------ ------------ ------------ ------------
Investment loss--net (.02)+++++ (.03)+++++ (.03)+++++ (.04)+++++ (.06)
Realized and unrealized gain (loss)--net (.03) .09 .30 (.68) (4.17)
------------ ------------ ------------ ------------ ------------
Total from investment operations (.05) .06 .27 (.72) (4.23)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 1.52 $ 1.57 $ 1.51 $ 1.24 $ 1.96
============ ============ ============ ============ ============
Total Investment Return**
Based on net asset value per share (3.18%)+++ 3.97% 21.77% (36.73%) (68.34%)
============ ============ ============ ============ ============
Ratios to Average Net Assets
Expenses++ 2.88%* 2.81% 2.98% 2.98% 2.18%
============ ============ ============ ============ ============
Investment loss--net (2.11%)* (1.93%) (2.45%) (2.72%) (1.75%)
============ ============ ============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 49,784 $ 67,922 $ 89,384 $ 94,834 $ 213,058
============ ============ ============ ============ ============
Portfolio turnover of the Trust 44.88% 182.69% 316.42% 275.69% 137.66%
============ ============ ============ ============ ============
* Annualized.
** Total investment returns exclude the effects of sales charges.
++ Includes the Fund's share of the Trust's allocated expenses.
+++ Aggregate total investment return.
+++++ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Financial Highlights (continued) Merrill Lynch Focus Twenty Fund, Inc.
Class C
For the Six
Months Ended
The following per share data and ratios have been derived May 31, For the Year Ended November 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of period $ 1.56 $ 1.51 $ 1.24 $ 1.96 $ 6.19
------------ ------------ ------------ ------------ ------------
Investment loss--net (.02)+++++ (.03)+++++ (.03)+++++ (.04)+++++ (.06)
Realized and unrealized gain (loss)--net (.03) .08 .30 (.68) (4.17)
------------ ------------ ------------ ------------ ------------
Total from investment operations (.05) .05 .27 (.72) (4.23)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 1.51 $ 1.56 $ 1.51 $ 1.24 $ 1.96
============ ============ ============ ============ ============
Total Investment Return**
Based on net asset value per share (3.21%)+++ 3.31% 21.77% (36.73%) (68.34%)
============ ============ ============ ============ ============
Ratios to Average Net Assets
Expenses++ 2.90%* 2.83% 3.01% 3.01% 2.19%
============ ============ ============ ============ ============
Investment loss--net (2.14%)* (1.95%) (2.49%) (2.75%) (1.76%)
============ ============ ============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 29,304 $ 41,234 $ 53,202 $ 56,512 $ 127,506
============ ============ ============ ============ ============
Portfolio turnover of the Trust 44.88% 182.69% 316.42% 275.69% 137.66%
============ ============ ============ ============ ============
* Annualized.
** Total investment returns exclude the effects of sales charges.
++ Includes the Fund's share of the Trust's allocated expenses.
+++ Aggregate total investment return.
+++++ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Financial Highlights (concluded) Merrill Lynch Focus Twenty Fund, Inc.
Class I
For the Six
Months Ended
The following per share data and ratios have been derived May 31, For the Year Ended November 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of period $ 1.65 $ 1.57 $ 1.28 $ 2.00 $ 6.24
------------ ------------ ------------ ------------ ------------
Investment loss--net (.01)+++++ (.01)+++++ (.02)+++++ (.03)+++++ (.02)
Realized and unrealized gain (loss)--net (.03) .09 .31 (.69) (4.22)
------------ ------------ ------------ ------------ ------------
Total from investment operations (.04) .08 .29 (.72) (4.24)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 1.61 $ 1.65 $ 1.57 $ 1.28 $ 2.00
============ ============ ============ ============ ============
Total Investment Return**
Based on net asset value per share (2.42%)+++ 5.10% 22.66% (36.00%) (67.95%)
============ ============ ============ ============ ============
Ratios to Average Net Assets
Expenses++ 1.77%* 1.70% 1.86% 1.90% 1.13%
============ ============ ============ ============ ============
Investment loss--net (1.00%)* (.83%) (1.33%) (1.64%) (.72%)
============ ============ ============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 15,881 $ 20,962 $ 27,105 $ 24,887 $ 43,081
============ ============ ============ ============ ============
Portfolio turnover of the Trust 44.88% 182.69% 316.42% 275.69% 137.66%
============ ============ ============ ============ ============
* Annualized.
** Total investment returns exclude the effects of sales charges.
++ Includes the Fund's share of the Trust's allocated expenses.
+++ Aggregate total investment return.
+++++ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Notes to Financial Statements
Merrill Lynch Focus Twenty Fund, Inc.
1. Significant Accounting Policies:
Merrill Lynch Focus Twenty Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The Fund seeks to achieve its investment
objective by investing all of its assets in the Master Focus Twenty Trust
(the "Trust"), which has the same investment objective and strategies as the
Fund. The value of the Fund's investment in the Trust reflects the Fund's
proportionate interest in the net assets of the Trust. The performance of
the Fund is directly affected by the performance of the Trust. The financial
statements of the Trust, including the Schedule of Investments, are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements. The Fund's financial statements are prepared in
conformity with U.S. generally accepted accounting principles, which may
require the use of management accruals and estimates. Actual results may
differ from these estimates. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to present a
fair statement of the results for the interim period. All such adjustments are
of a normal, recurring nature. The percentage of the Trust owned by the Fund
at May 31, 2005 was 100.0%. 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. All
classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that Class A, Class B and
Class C Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C 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--The Fund records its investment in the Trust at
fair value. Valuation of securities held by the Trust is discussed in Note
1(a) of the Trust's Notes to Financial Statements, which are included
elsewhere in this report.
(b) Investment income and expenses--The Fund records daily its proportionate
share of the Trust's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required. Under the applicable foreign tax
law, a withholding tax may be imposed on interest, dividends and capital gains
at various rates.
(d) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions in the Trust are
accounted for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner. The Fund pays a monthly fee
at an annual rate of .25% of the Fund's average daily net assets for the
performance of administrative services (other than investment advice and
related portfolio activities) necessary for the operation of the Fund.
The Fund has also entered into a Distribution Agreement and Distribution Plan
with FAM Distributors, Inc. ("FAMD" or the "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc. Pursuant to the Distribution Plan
adopted by the Fund in accordance with Rule 12b-1 under the Investment Company
Act of 1940, the Fund pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Notes to Financial Statements (continued)
Merrill Lynch Focus Twenty Fund, Inc.
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
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 and Class C shareholders.
The ongoing distribution fee compensates the Distributor and MLPF&S for
providing shareholder and distribution-related services to Class B and
Class C shareholders.
For the six months ended May 31, 2005, FAMD earned underwriting discounts and
direct commissions and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class I Shares as follows:
FAMD MLPF&S
Class A $ 50 $ 748
Class I $ 1 $ 14
For the six months ended May 31, 2005, MLPF&S received contingent deferred
sales charges of $64,781 and $6,463 relating to transactions in Class B and
Class C Shares, respectively.
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, FAMD, FDS and/or ML & Co.
3. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$34,556,257 and $50,862,426 for the six months ended May 31, 2005 and for
the year ended November 30, 2004, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
May 31, 2005 Shares Amount
Shares sold 41,468 $ 66,538
Automatic conversion of shares 261,691 423,006
-------------- ---------------
Total issued 303,159 489,544
Shares redeemed (2,121,398) (3,407,044)
-------------- ---------------
Net decrease (1,818,239) $ (2,917,500)
=============== ===============
Class A Shares for the Year Dollar
Ended November 30, 2004 Shares Amount
Shares sold 481,329 $ 794,575
Automatic conversion of shares 652,055 1,064,480
-------------- ---------------
Total issued 1,133,384 1,859,055
Shares redeemed (4,412,770) (7,051,872)
-------------- ---------------
Net decrease (3,279,386) $ (5,192,817)
============== ===============
Class B Shares for the
Six Months Ended Dollar
May 31, 2005 Shares Amount
Shares sold 348,829 $ 531,345
-------------- ---------------
Automatic conversion of shares (272,937) (423,006)
Shares redeemed (10,635,387) (16,358,920)
-------------- ---------------
Total redeemed (10,908,324) (16,781,926)
-------------- ---------------
Net decrease (10,559,495) $ (16,250,581)
============== ===============
Class B Shares for the Year Dollar
Ended November 30, 2004 Shares Amount
Shares sold 1,378,821 $ 2,172,468
-------------- ---------------
Automatic conversion of shares (676,047) (1,064,480)
Shares redeemed (16,519,625) (25,628,371)
-------------- ---------------
Total redeemed (17,195,672) (26,692,851)
-------------- ---------------
Net decrease (15,816,851) $ (24,520,383)
============== ===============
Class C Shares for the
Six Months Ended Dollar
May 31, 2005 Shares Amount
Shares sold 219,105 $ 339,781
Shares redeemed (7,240,166) (11,143,300)
-------------- ---------------
Net decrease (7,021,061) $ (10,803,519)
============== ===============
Class C Shares for the Year Dollar
Ended November 30, 2004 Shares Amount
Shares sold 1,088,748 $ 1,725,857
Shares redeemed (9,990,558) (15,543,166)
-------------- ---------------
Net decrease (8,901,810) $ (13,817,309)
============== ===============
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Notes to Financial Statements (concluded)
Merrill Lynch Focus Twenty Fund, Inc.
Class I Shares for the
Six Months Ended Dollar
May 31, 2005 Shares Amount
Shares sold 200,294 $ 324,716
Shares redeemed (3,027,150) (4,909,373)
-------------- ---------------
Net decrease (2,826,856) $ (4,584,657)
============== ===============
Class I Shares for the Year Dollar
Ended November 30, 2004 Shares Amount
Shares sold 798,734 $ 1,324,620
Shares redeemed (5,322,105) (8,656,537)
-------------- ---------------
Net decrease (4,523,371) $ (7,331,917)
============== ===============
4. Capital Loss Carryforward:
On November 30, 2004, the Fund had a net capital loss carryforward of
$1,579,252,585, of which $203,559,656 expires in 2008, $1,109,040,883 expires
in 2009 and $266,652,046 expires in 2010. This amount will be available to
offset like amounts of any future taxable gains.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Portfolio Holdings as of May 31, 2005 Master Focus Twenty Trust
Percent of
Total
Industry* Classification Investments
Communications Equipment 9.3%
Internet & Software Services 8.8
Oil, Gas & Consumable Fuels 6.7
Health Care Providers & Services 6.1
Computers & Peripherals 4.8
Internet & Catalog Retail 4.2
Metals & Mining 3.9
Wireless Telecommunication Services 3.9
Health Care Equipment & Supplies 3.8
Insurance 3.7
Auto Components 3.6
Software 3.6
Containers & Packaging 3.5
Road & Rail 3.5
Commercial Services & Supplies 3.4
Capital Markets 2.4
Diversified Financial Services 2.4
IT Services 2.3
Household Products 2.1
Machinery 1.9
Electronic Equipment & Instruments 1.7
Other** 14.4
* For Trust compliance purposes, "industry" means any one or more
of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Trust management. This definiton may not apply for
purposes of this report, which may combine such industry
sub-classifications for reporting ease.
** Includes portfolio holdings in short-term investments.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Schedule of Investments Master Focus Twenty Trust
Shares
Industry* Common Stocks Held Value
Auto Components--4.2%
Autoliv, Inc. 95,000 $ 4,408,950
Capital Markets--2.7%
Goldman Sachs Group, Inc. 29,200 2,847,000
Commercial Services & Supplies--3.9%
Robert Half International, Inc. (d) 163,400 4,075,196
Communications Equipment--10.7%
Comverse Technology, Inc. (c)(d) 183,300 4,313,049
Juniper Networks, Inc. (c)(d) 163,800 4,199,832
Motorola, Inc. 157,500 2,735,775
-------------
11,248,656
Computers & Peripherals--5.5%
Apple Computer, Inc. (c) 146,800 5,829,428
Containers & Packaging--4.0%
Ball Corp. 112,600 4,228,130
Diversified Financial Services--2.8%
Chicago Mercantile Exchange
Holdings, Inc. 13,500 2,918,565
Electronic Equipment & Instruments--2.0%
Flir Systems, Inc. (c)(d) 78,400 2,101,120
Health Care Equipment & Supplies--4.4%
Boston Scientific Corp. (c) 75,600 2,048,004
Fisher Scientific International (c) 41,500 2,592,090
-------------
4,640,094
Health Care Providers & Services--7.0%
Aetna, Inc. New Shares 33,800 2,636,738
Caremark Rx, Inc. (c) 106,700 4,765,222
-------------
7,401,960
Household Products--2.5%
Clorox Co. 44,400 2,593,404
IT Services--2.7%
Alliance Data Systems Corp. (c) 74,500 2,810,140
Insurance--4.2%
HCC Insurance Holdings, Inc. (d) 112,900 4,426,809
Shares
Industry* Common Stocks Held Value
Internet & Catalog Retail--4.8%
eBay, Inc. (c) 132,200 $ 5,024,922
Internet Software & Services--10.0%
Akamai Technologies, Inc. (c)(d) 334,500 4,696,380
Yahoo!, Inc. (c) 159,800 5,944,560
-------------
10,640,940
Machinery--2.1%
Parker Hannifin Corp. 37,700 2,274,441
Metals & Mining--4.4%
Phelps Dodge Corp. 53,300 4,658,420
Oil, Gas & Consumable Fuels--7.6%
Chevron Corp. 84,500 4,544,410
Premcor, Inc. 51,900 3,522,453
-------------
8,066,863
Road & Rail--4.0%
Norfolk Southern Corp. 131,500 4,197,480
Software--4.1%
Activision, Inc. (c) 277,066 4,366,560
Wireless Telecommunication Services--4.4%
Nextel Partners, Inc. Class A (c)(d) 196,200 4,659,750
Total Common Stocks
(Cost--$99,858,154)--98.0% 103,418,828
Beneficial
Short-Term Securities Interest
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (a) $ 2,494,044 2,494,044
Merrill Lynch Liquidity Series, LLC
Money Market Series (a)(b) 14,959,750 14,959,750
Total Short-Term Securities
(Cost--$17,453,794)--16.6% 17,453,794
Total Investments (Cost--$117,311,948**)--114.6% 120,872,622
Liabilities in Excess of Other Assets--(14.6%) (15,355,158)
-------------
Net Assets--100.0% $ 105,517,464
=============
* For Trust compliance purposes, "Industry" means any one or more of the industry
sub-classifications used by one or more widely recognized market indexes or ratings
group indexes, and/or as defined by Trust management. This definition may not apply
for purposes of this report, which may combine such industry sub-classifications for
reporting ease.
** The cost and unrealized appreciation (depreciation) of investments as of May 31,
2005, as computed for federal income tax purposes, were as follows:
Aggregate cost $ 117,311,948
================
Gross unrealized appreciation $ 8,314,246
Gross unrealized depreciation (4,753,572)
----------------
Net unrealized appreciation $ 3,560,674
================
(a) Investments in companies considered to be an affiliate of the Trust (such companies
are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company
Act of 1940) were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $1,533,246 $14,771
Merrill Lynch Liquidity Series,
LLC Money Market Series $3,082,742 $ 6,550
(b) Security was purchased with the cash proceeds from securities loans.
(c) Non-income producing security.
(d) Security, or portion of security, is on loan.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Statement of Assets and Liabilities Master Focus Twenty Trust
As of May 31, 2005
Assets
Investments in unaffiliated securities, at value (including securities
loaned of $14,430,123) (identified cost--$99,858,154) $ 103,418,828
Investments in affiliated securities, at value (identified cost--$17,453,794) 17,453,794
Receivables:
Dividends $ 129,485
Contributions 3,429
Interest from affiliates 2,988
Securities lending 1,494 137,396
---------------
Prepaid expenses 3,677
---------------
Total assets 121,013,695
---------------
Liabilities
Collateral on securities loaned, at value 14,959,750
Payables:
Withdrawals 460,931
Investment adviser 39,388
Other affiliates 1,138 501,457
---------------
Accrued expenses 35,024
---------------
Total liabilities 15,496,231
---------------
Net Assets
Net assets $ 105,517,464
===============
Net Assets Consist of
Investors' capital $ 101,956,790
Unrealized appreciation--net 3,560,674
---------------
Net Assets $ 105,517,464
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Statement of Operations Master Focus Twenty Trust
For the Six Months Ended May 31, 2005
Investment Income
Dividends $ 445,301
Interest from affiliates 14,771
Securities lending--net 6,550
---------------
Total income 466,622
---------------
Expenses
Investment advisory fees $ 365,727
Accounting services 46,776
Professional fees 18,245
Custodian fees 14,660
Trustees' fees and expenses 7,137
Other 5,931
---------------
Total expenses before waiver 458,476
Waiver of expenses (30,477)
---------------
Total expenses after waiver 427,999
---------------
Investment income--net 38,623
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain on investments--net 4,774,098
Change in unrealized appreciation on investments--net (7,476,083)
---------------
Total realized and unrealized loss--net (2,701,985)
---------------
Net Decrease in Net Assets Resulting from Operations $ (2,663,362)
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Statements of Changes in Net Assets Master Focus Twenty Trust
For the Six For the
Months Ended Year Ended
May 31, November 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 38,623 $ 286,791
Realized gain--net 4,774,098 12,303,076
Change in unrealized appreciation--net (7,476,083) (2,647,732)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations (2,663,362) 9,942,135
--------------- ---------------
Capital Transactions
Proceeds from contributions 1,262,380 6,017,520
Fair value of withdrawals (37,045,337) (60,067,720)
--------------- ---------------
Net decrease in net assets derived from capital transactions (35,782,957) (54,050,200)
--------------- ---------------
Net Assets
Total decrease in net assets (38,446,319) (44,108,065)
Beginning of period 143,963,783 188,071,848
--------------- ---------------
End of period $ 105,517,464 $ 143,963,783
=============== ===============
See Notes to Financial Statements.
Financial Highlights Master Focus Twenty Trust
For the Six
Months Ended
The following per share data and ratios have been derived May 31, For the Year Ended November 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Total Investment Return**
Total investment return (1.89%)++ 6.07% 23.82% (34.70%) --
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses, net of waiver .70%* .71% .71% .75% .68%
========== ========== ========== ========== ==========
Expenses .75%* .73% .71% .75% .68%
========== ========== ========== ========== ==========
Investment income (loss)--net .06%* .17% (.19%) (.49%) (.25%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 105,517 $ 143,964 $ 188,072 $ 198,406 $ 429,953
========== ========== ========== ========== ==========
Portfolio turnover 44.88% 182.69% 316.42% 275.69% 137.66%
========== ========== ========== ========== ==========
* Annualized.
** Total return is required to be disclosed for fiscal years beginning after December 15, 2000.
++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Notes to Financial Statements Master Focus Twenty Trust
1. Significant Accounting Policies:
Master Focus Twenty Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, and is organized as a Delaware statutory
trust. The Declaration of Trust permits the Trustees to issue nontransferable
interest in the Trust, subject to certain limitations. The Trust's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period.
All such adjustments are of a normal, recurring nature. The following is a
summary of significant accounting policies followed by the Trust.
(a) Valuation of investments--Equity securities that are held by the Trust
that are traded on stock exchanges or the Nasdaq National Market are valued at
the last sale price or official close price on the exchange, as of the close
of business on the day the securities are being valued or, lacking any sales,
at the last available bid price for long positions, and at the last available
asked price for short positions. In cases where equity securities are traded
on more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the Board of
Trustees of the Trust. Long positions traded in the over-the-counter ("OTC")
market, Nasdaq Small Cap or Bulletin Board are valued at the last available
bid price or yield equivalent obtained from one or more dealers or pricing
services approved by the Board of Trustees of the Trust. Short positions
traded in the OTC market are valued at the last available asked price.
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 daily based upon
quotations from market makers. Financial futures contracts and options
thereon, which are traded on exchanges, are valued at their last sale price
as of the close of such exchanges. Obligations with remaining maturities of
60 days or less are valued at amortized cost unless the Investment Adviser
believes that this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Trust
employs pricing services to provide certain securities prices for the Trust.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Trust, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trust's Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed each day
at various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of
the Trust are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close
of business on the NYSE that may not be reflected in the computation of the
Trust's net assets. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected
to materially affect the value of such securities, those securities may be
valued at their fair value as determined in good faith by the Trust's Board of
Trustees or by the Investment Adviser using a pricing service and/or
procedures approved by the Trust's Board of Trustees.
(b) Derivative financial instruments--The Trust may engage in various
portfolio investment strategies both to increase the return of the Trust and
to hedge, or protect, its exposure to interest rate movements and movements
in the securities markets. Losses may arise due to changes in the value of
the contract or if the counterparty does not perform under the contract.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Notes to Financial Statements (continued) Master Focus Twenty Trust
* Financial futures contracts--The Trust may purchase or sell financial
futures contracts. Futures contracts are contracts for delayed delivery of
securities at a specific future date at a specific price or yield. Upon
entering into a contract, the Trust deposits and maintains as collateral
such initial margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Trust agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the value of
the contract. Such receipts or payments are known as variation margin and are
recorded by the Trust as unrealized gains or losses. When the contract is
closed, the Trust records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed.
* Options--The Trust may purchase and write call and put options. When the
Trust writes an option, an amount equal to the premium received by the Trust
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market
value of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added
to) the proceeds of the security sold. When an option expires (or the Trust
enters into a closing transaction), the Trust realizes a gain or loss on the
option to the extent of the premiums received or paid (or a gain or loss to
the extent that the cost of the closing transaction exceeds the premium paid
or received).
Written and purchased options are non-income producing investments.
* Forward foreign exchange contracts--The Trust may enter into forward foreign
exchange contracts as a hedge against either specific transactions or
portfolio positions. The contract is marked-to-market daily and the change in
market value is recorded by the Trust as an unrealized gain or loss. When the
contract is closed, the Trust records a realized gain or loss equal to the
difference between the value at the time it was opened and the value at the
time it was closed.
* Foreign currency options and futures--The Trust may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge
against possible variations in foreign exchange rates. Such transactions may
be effected with respect to hedges on non-U.S. dollar denominated securities
owned by the Trust, sold by the Trust but not yet delivered, or committed or
anticipated to be purchased by the Trust.
(c) Income taxes--The Trust is classified as a "pass-through entity" for
federal income tax purposes. As such, each investor in the Trust is treated
as owner of its proportionate share of the net assets, income, expenses and
realized and unrealized gains and losses of the Trust. Therefore, no federal
income tax provision is required. It is intended that the Trust's assets will
be managed so an investor in the Trust can satisfy the requirements of
subchapter M of the Internal Revenue Code.
(d) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (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 Trust has determined the ex-dividend
date. Interest income is recognized on the accrual basis.
(e) Securities lending--The Trust may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
The market value of the loaned securities is determined at the close of
business of the Trust and any additional required collateral is delivered to
the Trust on the next business day. Where the Trust receives securities as
collateral for the loaned securities, it collects a fee from the borrower. The
Trust typically receives the income on the loaned securities but does not
receive income on the collateral. Where the Trust receives cash collateral, it
may invest such collateral and retain the amount earned on such investment,
net of any amount rebated to the borrower. Loans of securities are terminable
at any time and the borrower, after notice, is required to return borrowed
securities within five business days. The Trust may pay reasonable finder's,
lending agent, administrative and custodial fees in connection with its loans.
In the event that the borrower defaults on its obligation to return borrowed
securities because of insolvency or for any other reason, the Trust could
experience delays and costs in gaining access to the collateral. The Trust
also could suffer a loss where the value of the collateral falls below the
market value of the borrowed securities, in the event of borrower default or
in the event of losses on investments made with cash collateral.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Notes to Financial Statements (concluded) Master Focus Twenty Trust
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust 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. 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 Trust. There is no increase in
the aggregate fees paid by the Trust for these services.
FAM is responsible for the management of the Trust's investments and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Trust. For such services, the Trust pays
a monthly fee at an annual rate of .60% of the average daily value of the
Trust's net assets. FAM has agreed to waive .05% of the average daily net
assets of the Trust. This contractual waiver agreement has a one-year term
and is renewable annually. For the six months ended May 31, 2005, FAM earned
fees of $365,727, of which $30,477 was waived.
The Trust has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, or its
affiliates. As of May 31, 2005, the Trust lent securities with a value of
$1,589,648 to MLPF&S or its affiliates. Pursuant to that order, the Trust
also has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an
affiliate of FAM, as the securities lending agent for a fee based on a share
of the returns on investment of cash collateral. MLIM, LLC may, on behalf of
the Trust, invest cash collateral received by the Trust for such loans, among
other things, in a private investment company managed by MLIM, LLC or in
registered money market funds advised by FAM or its affiliates. For the six
months ended May 31, 2005, MLIM, LLC received $3,234 in securities lending
agent fees.
For the six months ended May 31, 2005, the Trust reimbursed FAM $1,493 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors
of FAM, PSI, MLAM U.K., and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
six months ended May 31, 2005 were $53,065,133 and $90,334,215, respectively.
4. Short-Term Borrowings:
The Trust, along with certain other funds managed by FAM and its affiliates,
is a party to a $500,000,000 credit agreement with a group of lenders. The
Trust may borrow under the credit agreement to fund shareholder redemptions
and for other lawful purposes other than for leverage. The Trust may borrow
up to the maximum amount allowable under the Trust's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Trust pays a commitment fee of .07% per
annum based on the Trust's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the federal funds rate plus .50% or a base
rate as defined in the credit agreement. The Trust did not borrow under the
credit agreement during the six months ended May 31, 2005.
5. Subsequent Event:
Effective June 13, 2005, FAM has contractually agreed to waive .20% of its
investment advisory fee.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each
fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's
Web site at http://www.sec.gov. The Fund's Forms N-Q may also be reviewed
and copied at the SEC's Public Reference Room in Washington, DC. Information
on the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2005
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-
annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this semi-
annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the
registrant's disclosure controls and procedures are effective based
on our evaluation of these controls and procedures as of a date
within 90 days prior to the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Focus Twenty Fund, Inc. and Master Focus Twenty Trust
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Focus Twenty Fund, Inc. and Master Focus Twenty Trust
Date: July 15, 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 Twenty Fund, Inc. and Master Focus Twenty Trust
Date: July 15, 2005
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Focus Twenty Fund, Inc. and Master Focus Twenty Trust
Date: July 15, 2005