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 811-09651
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 - 11/30/05
Item 1 - Report to Stockholders
Merrill Lynch Focus Twenty
Fund, Inc.
Annual Report
November 30, 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
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Merrill Lynch Focus Twenty Fund, Inc.
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. NOVEMBER 30, 2005
A Letter From the President
Dear Shareholder
As the financial markets continued to muddle their way through 2005, the
Federal Reserve Board (the Fed) advanced its monetary tightening campaign full
steam ahead. The 13th consecutive interest rate hike since June 2004 came on
December 13, bringing the target federal funds rate to 4.25%. Oil prices,
after reaching record highs on more than one occasion over the past several
months, moderated somewhat by period-end, as did inflation expectations.
Against this backdrop, most major market indexes managed to post positive
results for the current reporting period:
Total Returns as of November 30, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) + 5.88% + 8.44%
Small-cap U.S. equities (Russell 2000 Index) +10.47 + 8.14
International equities (MSCI Europe Australasia Far East Index) +11.23 +13.25
Fixed income (Lehman Brothers Aggregate Bond Index) - 0.48 + 2.40
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.36 + 3.88
High yield bonds (Credit Suisse First Boston High Yield Index) + 2.33 + 2.94
With the kick-off of the holiday shopping season, attention turned to the
consumer, who has remained resilient even amid high energy prices and rising
interest rates. Some observers surmise that a slowdown in residential real
estate may ultimately contribute to a weakening in consumer spending. At this
juncture, the outlook remains unclear.
Equity markets moved sideways for much of 2005, notwithstanding a strong rally
in the middle of the fourth quarter. Corporate earnings have continued to
surprise on the upside and company profit margins remain high, as does
productivity. On the other hand, high energy prices, more Fed interest rate
hikes, a consumer slowdown and/or the potential for slower earnings growth
pose the greatest risks to U.S. stocks. Internationally, many markets have
benefited from strong economic statistics, trade surpluses and solid finances.
Emerging markets have had a particularly strong year, partly reflecting high
economic growth rates and positive financial reforms.
The bond market continued to be characterized by a flattening yield curve. The
difference between the two-year and 10-year Treasury yield was just seven
basis points (.07%) at period-end, compared to 40 basis points six months ago
and 134 basis points 12 months ago.
Navigating the financial markets can be a challenge, particularly during
uncertain times. With that in mind, we invite you to visit our online magazine
at www.mlim.ml.com/shareholdermagazine. Shareholder is a publication designed
to provide insights on investing and timely "food for thought" for investors.
We are pleased to make the magazine available online, where we are able to
expand our reach in terms of content and readership.
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. NOVEMBER 30, 2005
A Discussion With Your Fund's Portfolio Managers
The Fund outperformed its benchmark for the fiscal year, benefiting from
particularly favorable results in the second half of the period when we
established an overweight position in the strong-performing energy sector.
How did the Fund perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended November 30, 2005, Merrill Lynch Focus Twenty
Fund, Inc.'s Class A, Class B, Class C and Class I Shares had total returns of
+10.43%, +8.92%, +9.62% and +10.30%, respectively. (Fund results shown do not
reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 and 7 of this report
to shareholders.) During the fiscal year, the Fund changed its benchmark from
the Russell 1000 Index to the Standard & Poor's (S&P) 500 Barra Growth Index.
We believe the new benchmark is more representative of the Fund's investing
style and provides for a better comparison. The Fund's Lipper category remains
the same. For the same 12-month period, the benchmark S&P 500 Barra Growth
Index returned +7.94% and the Lipper Multi-Cap Growth Funds category had an
average return of +12.25%. (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.)
Although equity markets moved sideways for much of 2005, the S&P 500 Index
posted a return of +8.44% for the fiscal year ended November 30, 2005. The
value style of investing outperformed the growth style for the 12-month
period, as represented by the +8.97% return of the S&P 500 Barra Value Index
versus the +7.94% return of the S&P 500 Barra Growth Index.
Equities started the fiscal year strong in December 2004 before turning
negative in the early months of 2005. The rally that followed the conclusion
of the presidential election in November 2004 was hampered by concerns over
inflation, a weak U.S. dollar and continuing interest rate hikes by the
Federal Reserve Board (the Fed). By period-end, the Fed had increased the
federal funds rate 12 consecutive times since June 2004, bringing the short-
term interest rate target to 4% (and to 4.25% on December 13).
May through July brought a stock market upturn, as a significant number of
acquisition announcements, along with a resilient economy, solid consumer
spending, a robust housing sector, and solid growth in corporate profits,
served to boost equities. The summer rally was cut short as the markets
reacted to the uncertainty created in the aftermath of Hurricanes Katrina and
Rita. Markets rallied again in the middle of the fourth quarter, bolstered by
still favorable corporate earnings reports and better-than-expected gross
domestic product growth in the third quarter. Oil made headlines throughout
the period, as prices continued to fluctuate and achieved record highs on more
than one occasion during the fiscal year. This led to inflationary concerns,
but also contributed to strong performance from the energy sector.
The semi-annual report to shareholders dated May 31, 2005, discussed the
Fund's performance in the first half of the fiscal year, changes made to the
portfolio during that six-month period and the Fund's positioning at May 31.
On June 30, 2005, we assumed responsibility for the day-to-day management of
the portfolio, and began making changes that contributed to the outperformance
of the benchmark in the second half of the fiscal year. For the six-month
period ended November 30, 2005, Merrill Lynch Focus Twenty Fund's Class A,
Class B, Class C and Class I Shares had total returns of +13.92%, +12.50%,
+13.25% and +13.04%, respectively, while the S&P 500 Barra Growth Index
returned +4.72% and the Lipper Multi-Cap Growth Funds category had an average
return of +10.76%. The strong performance in the latter six months contributed
to the Fund's outperformance of its benchmark for the full fiscal year. We
attribute this largely to the changes we made to the portfolio.
Describe the changes made to the portfolio during this period.
Upon assuming management responsibility for the Fund on June 30, we
restructured the portfolio significantly. Our team selects stock investments
through both a macro analysis of economic and industry conditions and a
fundamental analysis of the business prospects for individual companies. Our
investment process does not involve a multi-variable quantitative statistical
model. The Fund is a non-diversified, aggressive growth product that focuses
on 20 to 30 companies that the investment team believes to have strong
earnings and revenue growth and capital appreciation potential. Several
valuation parameters are evaluated against anticipated growth in earnings and
potential rates of return on equity for each company in the portfolio.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
In making adjustments to the portfolio, we most overweighted the energy
sector, with a focus on companies that provide equipment and diagnostic
services to assist governments and private corporations in finding and
developing new oil and natural gas reserves. This sector made the greatest
absolute and relative contribution to the Fund's performance in the latter
half of the fiscal year. The second most important sector, in terms of overall
weighting in the portfolio and its impact on performance, was healthcare.
Specifically, we emphasized health maintenance organizations (HMOs), such as
Coventry Health Care Inc., Humana Inc., WellPoint, Inc. and PacifiCare Health
Systems Inc. PacifiCare was sold out of the Fund at a capital gain after its
management agreed to a purchase offer from UnitedHealth Group, Inc. For the
six months ended November 30, 2005, the portfolio's average weightings in the
energy and healthcare sectors represented more than 25% and 20% of net assets,
respectively.
Conversely, we maintained a substantial underweighting in the consumer staples
sector relative to the S&P 500 Barra Growth Index. Procter & Gamble Co., our
primary position in this sector, underperformed the Fund's overall return
since it was added to the portfolio on June 30, 2005. We also slightly
underweighted the information technology sector, where key holdings included
Google, Inc., Corning, Inc., Yahoo!, Inc., Cognizant Technology Solutions
Corp., Electronics Arts, Inc. and Infosys Technologies Ltd. On average, about
20% of the Fund's net assets have been invested in the technology sector since
June 30.
At the individual stock level, the best performers in the second half of the
fiscal year were Grant Prideco, Inc., Google, Inc., Halliburton Co., Alcon,
Inc., National Oilwell Varco, Inc., Goldman Sachs Group, Inc., Schlumberger
Ltd., Coventry Health Care, Inc., Starbucks Corp., Humana, Inc. and Caremark
Rx, Inc. Each of these investments appreciated by at least 15% during the
six-month period. MGI Pharma Inc., a biotechnology company, was sold at a
capital loss after the outlook for revenue and earnings from an important
new drug were unexpectedly stretched out over a significant period of time.
How would you characterize the portfolio's position at the close of the
period?
At the end of the period, the portfolio comprised 29 holdings, which we plan
to keep about equally weighted in the portfolio. When individual positions
appreciate significantly relative to the rest of the portfolio's holdings, we
take capital gains and opportunistically reinvest the proceeds in stocks that
have been lagging the performance of the Fund at that point in time.
In our opinion, the energy and industrials sectors offer the greatest
potential to provide above-average growth in corporate revenue and earnings.
Relative to its benchmark, the portfolio had overweight positions in both of
these sectors at period-end. The stocks in the portfolio represent what we
believe to be - based on our fundamental analysis of business prospects - the
best opportunities for above-average growth in earnings and improvements in
return on equity. At the same time, we remain mindful of each stock's valuation
relative to its expected growth rate.
Lawrence R. Fuller
Vice President and Senior Portfolio Manager
Tom Burke
Vice President and Associate Portfolio Manager
December 30, 2005
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 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. 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.
Recent Performance Results
6-Month 12-Month Since Inception
As of November 30, 2005 Total Return Total Return Total Return
ML Focus Twenty Fund, Inc.--Class A Shares* +13.92% +10.43% -82.00%
ML Focus Twenty Fund, Inc.--Class B Shares* +12.50 + 8.92 -82.90
ML Focus Twenty Fund, Inc.--Class C Shares* +13.25 + 9.62 -82.90
ML Focus Twenty Fund, Inc.--Class I Shares* +13.04 +10.30 -81.80
S&P 500 (R) Index** + 5.88 + 8.44 - 2.86
S&P 500 (R) Barra Growth Index*** + 4.72 + 7.94 -26.92
Russell 1000 (R) Growth Index**** + 7.05 + 9.73 -37.32
* 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
commenced operations on 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.
**** 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.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
Russell 1000 is a registered trademark of the Frank Russell Company.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph illustrating the growth of a $10,000 investment in ML Focus
Twenty Fund, Inc.++ Class A, Class B, Class C and Class I Shares* compared to
a similar investment in S&P 500 Index++++, S&P 500 Barra Growth Index++++++
and Russell 1000 Growth Index++++++++. Values illustrated are as follows:
ML Focus Twenty Fund, Inc.++
Class A Shares*
Date Value
3/3/2000** $ 9,475.00
November 2000 $ 5,903.00
November 2001 $ 1,886.00
November 2002 $ 1,203.00
November 2003 $ 1,478.00
November 2004 $ 1,544.00
November 2005 $ 1,706.00
ML Focus Twenty Fund, Inc.++
Class B Shares*
Date Value
3/3/2000** $10,000.00
November 2000 $ 6,190.00
November 2001 $ 1,960.00
November 2002 $ 1,240.00
November 2003 $ 1,510.00
November 2004 $ 1,570.00
November 2005 $ 1,693.00
ML Focus Twenty Fund, Inc.++
Class C Shares*
Date Value
3/3/2000** $10,000.00
November 2000 $ 6,190.00
November 2001 $ 1,960.00
November 2002 $ 1,240.00
November 2003 $ 1,510.00
November 2004 $ 1,560.00
November 2005 $ 1,710.00
ML Focus Twenty Fund, Inc.++
Class I Shares*
Date Value
3/3/2000** $ 9,475.00
November 2000 $ 5,912.00
November 2001 $ 1,895.00
November 2002 $ 1,213.00
November 2003 $ 1,488.00
November 2004 $ 1,563.00
November 2005 $ 1,772.00
S&P 500 Index++++
Date Value
3/3/2000** $10,000.00
November 2000 $ 9,411.00
November 2001 $ 8,260.00
November 2002 $ 6,896.00
November 2003 $ 7,937.00
November 2004 $ 8,957.00
November 2005 $ 9,714.00
S&P 500 Barra Growth Index++++++
Date Value
3/3/2000** $10,000.00
November 2000 $ 8,243.00
November 2001 $ 6,872.00
November 2002 $ 5,624.00
November 2003 $ 6,335.00
November 2004 $ 6,771.00
November 2005 $ 7,308.00
Russell 1000 Growth Index++++++++
Date Value
3/3/2000** $10,000.00
November 2000 $ 7,745.00
November 2001 $ 5,979.00
November 2002 $ 4,623.00
November 2003 $ 5,398.00
November 2004 $ 5,712.00
November 2005 $ 6,268.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
** Commencement of operations.
++ The Fund invests all of its assets in Master Focus Twenty Trust.
The Trust invests primarily in common stocks of approximately 20
companies that Trust management believes have strong earnings growth
and capital appreciation potential.
++++ 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.
++++++ This unmanaged Index is a capitalization-weighted index of all the
stocks in the Standard & Poor's 500 Index that have higher price-to-
book ratios.
++++++++ 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.
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 11/30/05 +10.43% + 4.63%
Five Years Ended 11/30/05 -21.99 -22.83
Inception (3/03/00)
through 11/30/05 -25.81 -26.50
Return Return
Without CDSC With CDSC++++++
Class B Shares++
One Year Ended 11/30/05 + 8.92% + 4.92%
Five Years Ended 11/30/05 -22.69 -23.00
Inception (3/03/00)
through 11/30/05 -26.46 -26.59
Return Return
Without CDSC With CDSC++++++
Class C Shares++++
One Year Ended 11/30/05 + 9.62% + 8.62%
Five Years Ended 11/30/05 -22.69 -22.69
Inception (3/03/00)
through 11/30/05 -26.46 -26.46
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 11/30/05 +10.30% + 4.51%
Five Years Ended 11/30/05 -21.84 -22.68
Inception (3/03/00)
through 11/30/05 -25.66 -26.36
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
++ Maximum contingent deferred sales charge is 4% and is reduced
to 0% after six years.
++++ Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year.
++++++ Assuming payment of applicable contingent deferred sales
charge.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 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 June 1, 2005 and
held through November 30, 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 June 1, 2005 to
June 1, November 30, November 30,
2005 2005 2005
Actual
Class A $1,000 $1,139.20 $ 9.22
Class B $1,000 $1,125.00 $13.80
Class C $1,000 $1,132.50 $13.95
Class I $1,000 $1,130.40 $ 7.85
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,016.48 $ 8.69
Class B $1,000 $1,012.11 $13.06
Class C $1,000 $1,012.01 $13.16
Class I $1,000 $1,017.73 $ 7.44
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.72% for Class A, 2.59% for Class B, 2.61% for Class C and 1.47% for Class I), multiplied by
the average account value over the period, multiplied by 183/365 (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 trust 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. NOVEMBER 30, 2005
Statement of Assets and Liabilities Merrill Lynch Focus Twenty Fund, Inc.
As of November 30, 2005
Assets
Investment in Master Focus Twenty Trust (the "Trust"), at value
(identified cost--$88,142,034) $ 99,196,925
Prepaid expenses 29,213
---------------
Total assets 99,226,138
---------------
Liabilities
Payables:
Other affiliates $ 118,840
Distributor 62,176
Administrator 17,728 198,744
---------------
Accrued expenses 43,140
---------------
Total liabilities 241,884
---------------
Net Assets
Net assets $ 98,984,254
===============
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized $ 564,663
Class B Shares of Common Stock, $.10 par value, 300,000,000 shares authorized 2,634,428
Class C Shares of Common Stock, $.10 par value, 300,000,000 shares authorized 1,605,953
Class I Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 892,957
Paid-in capital in excess of par 1,652,560,616
Accumulated realized capital losses allocated from the Trust--net $(1,570,329,254)
Unrealized appreciation allocated from the Trust--net 11,054,891
----------------
Total accumulated losses--net (1,559,274,363)
---------------
Net Assets $ 98,984,254
===============
Net Asset Value
Class A--Based on net assets of $10,146,386 and 5,646,633 shares outstanding $ 1.80
===============
Class B--Based on net assets of $45,103,845 and 26,344,283 shares outstanding $ 1.71
===============
Class C--Based on net assets of $27,456,621 and 16,059,528 shares outstanding $ 1.71
===============
Class I--Based on net assets of $16,277,402 and 8,929,569 shares outstanding $ 1.82
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Statement of Operations Merrill Lynch Focus Twenty Fund, Inc.
For the Year Ended November 30, 2005
Investment Income
Net investment income allocated from the Trust:
Dividends $ 746,991
Interest from affiliates 36,317
Securities lending--net 11,528
Expenses (net of $128,851 waiver) (710,945)
---------------
Total income 83,891
---------------
Expenses
Account maintenance and distribution fees--Class B $ 526,812
Transfer agent fees--Class B 400,020
Account maintenance and distribution fees--Class C 312,973
Administration fees 280,095
Transfer agent fees--Class C 244,448
Transfer agent fees--Class I 110,059
Transfer agent fees--Class A 69,947
Printing and shareholder reports 52,179
Registration fees 39,073
Account maintenance fees--Class A 27,233
Professional fees 12,189
Other 15,320
---------------
Total expenses 2,090,348
---------------
Investment loss--net (2,006,457)
---------------
Realized & Unrealized Gain Allocated from the Trust--Net
Realized gain on investments--net 10,698,050
Change in unrealized appreciation on investments--net 18,134
---------------
Total realized and unrealized gain--net 10,716,184
---------------
Net Increase in Net Assets Resulting from Operations $ 8,709,727
===============
See Notes to Financial Statements.
Statements of Changes in Net Assets Merrill Lynch Focus Twenty Fund, Inc.
For the Year Ended
November 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment loss--net $ (2,006,457) $ (2,878,145)
Realized gain--net 10,698,050 12,303,076
Change in unrealized appreciation--net 18,134 (2,647,732)
--------------- ---------------
Net increase in net assets resulting from operations 8,709,727 6,777,199
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (53,338,381) (50,862,426)
--------------- ---------------
Net Assets
Total decrease in net assets (44,628,654) (44,085,227)
Beginning of year 143,612,908 187,698,135
--------------- ---------------
End of year $ 98,984,254 $ 143,612,908
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Financial Highlights Merrill Lynch Focus Twenty Fund, Inc.
Class A
The following per share data and ratios have been derived 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 year $ 1.63 $ 1.56 $ 1.27 $ 1.99 $ 6.23
---------- ---------- ---------- ---------- ----------
Investment loss--net (.02)++ (.02)++ (.02)++ (.03)++ (.03)
Realized and unrealized gain (loss)--net .19 .09 .31 (.69) (4.21)
---------- ---------- ---------- ---------- ----------
Total from investment operations .17 .07 .29 (.72) (4.24)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.80 $ 1.63 $ 1.56 $ 1.27 $ 1.99
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 10.43% 4.49% 22.83% (36.18%) (68.06%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets**
Expenses 1.88% 1.95% 2.10% 2.12% 1.38%
========== ========== ========== ========== ==========
Investment loss--net (1.17%) (1.08%) (1.57%) (1.87%) (.95%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 10,146 $ 13,494 $ 18,007 $ 18,664 $ 43,576
========== ========== ========== ========== ==========
Portfolio turnover of the Trust 143.17% 182.69% 316.42% 275.69% 137.66%
========== ========== ========== ========== ==========
Class B
For the Year Ended November 30,
2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 1.57 $ 1.51 $ 1.24 $ 1.96 $ 6.19
---------- ---------- ---------- ---------- ----------
Investment loss--net (.03)++ (.03)++ (.03)++ (.04)++ (.06)
Realized and unrealized gain (loss)--net .17 .09 .30 (.68) (4.17)
---------- ---------- ---------- ---------- ----------
Total from investment operations .14 .06 .27 (.72) (4.23)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.71 $ 1.57 $ 1.51 $ 1.24 $ 1.96
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 8.92% 3.97% 21.77% (36.73%) (68.34%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets**
Expenses 2.75% 2.81% 2.98% 2.98% 2.18%
========== ========== ========== ========== ==========
Investment loss--net (2.04%) (1.93%) (2.45%) (2.72%) (1.75%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 45,104 $ 67,922 $ 89,384 $ 94,834 $ 213,058
========== ========== ========== ========== ==========
Portfolio turnover of the Trust 143.17% 182.69% 316.42% 275.69% 137.66%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses and/or investment income--net.
++ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Financial Highlights (concluded) Merrill Lynch Focus Twenty Fund, Inc.
Class C
The following per share data and ratios have been derived 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 year $ 1.56 $ 1.51 $ 1.24 $ 1.96 $ 6.19
---------- ---------- ---------- ---------- ----------
Investment loss--net (.03)++ (.03)++ (.03)++ (.04)++ (.06)
Realized and unrealized gain (loss)--net .18 .08 .30 (.68) (4.17)
---------- ---------- ---------- ---------- ----------
Total from investment operations .15 .05 .27 (.72) (4.23)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.71 $ 1.56 $ 1.51 $ 1.24 $ 1.96
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 9.62% 3.31% 21.77% (36.73%) (68.34%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets**
Expenses 2.77% 2.83% 3.01% 3.01% 2.19%
========== ========== ========== ========== ==========
Investment loss--net (2.06%) (1.95%) (2.49%) (2.75%) (1.76%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 27,457 $ 41,234 $ 53,202 $ 56,512 $ 127,506
========== ========== ========== ========== ==========
Portfolio turnover of the Trust 143.17% 182.69% 316.42% 275.69% 137.66%
========== ========== ========== ========== ==========
Class I
For the Year Ended November 30,
2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 1.65 $ 1.57 $ 1.28 $ 2.00 $ 6.24
---------- ---------- ---------- ---------- ----------
Investment loss--net (.02)++ (.01)++ (.02)++ (.03)++ (.02)
Realized and unrealized gain (loss)--net .19 .09 .31 (.69) (4.22)
---------- ---------- ---------- ---------- ----------
Total from investment operations .17 .08 .29 (.72) (4.24)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.82 $ 1.65 $ 1.57 $ 1.28 $ 2.00
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 10.30% 5.10% 22.66% (36.00%) (67.95%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets**
Expenses 1.63% 1.70% 1.86% 1.90% 1.13%
========== ========== ========== ========== ==========
Investment loss--net (.92%) (.83%) (1.33%) (1.64%) (.72%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 16,277 $ 20,962 $ 27,105 $ 24,887 $ 43,081
========== ========== ========== ========== ==========
Portfolio turnover of the Trust 143.17% 182.69% 316.42% 275.69% 137.66%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Includes the Fund's share of the Trust's allocated expenses and/or investment income--net.
++ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 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. The percentage of the Trust owned by the Fund at
November 30, 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.
(d) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions in the Trust are
accounted for on a trade date basis.
(g) 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, $2,006,457 has been reclassified between paid-in capital in
excess of par and accumulated net investment loss as a result of a permanent
difference attributable to a net operating loss. This reclassification has no
effect on net assets or net asset values per share.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), 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.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Notes to Financial Statements (continued)
Merrill Lynch Focus Twenty Fund, Inc.
Pursuant to the Distribution Plan adopted by the Fund in accordance with Rule
12(b)-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
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 year ended November 30, 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 $ 93 $ 1,897
Class I $ 2 $ 46
For the year ended November 30, 2005, MLPF&S received contingent deferred
sales charges of $104,254 and $6,862 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
$53,338,381 and $50,862,426 for the years ended November 30, 2005 and November
30, 2004, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended November 30, 2005 Shares Amount
Shares sold 137,260 $ 228,798
Automatic conversion of shares 490,774 815,243
--------------- ---------------
Total issued 628,034 1,044,041
Shares redeemed (3,266,429) (5,341,604)
--------------- ---------------
Net decrease (2,638,395) $ (4,297,563)
=============== ===============
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 Year Dollar
Ended November 30, 2005 Shares Amount
Shares sold 502,667 $ 780,340
--------------- ---------------
Automatic conversion of shares (512,946) (815,243)
Shares redeemed (17,035,380) (26,681,543)
--------------- ---------------
Total redeemed (17,548,326) (27,496,786)
--------------- ---------------
Net decrease (17,045,659) $ (26,716,446)
=============== ===============
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 Year Dollar
Ended November 30, 2005 Shares Amount
Shares sold 399,034 $ 626,597
Shares redeemed (10,711,422) (16,708,936)
--------------- ---------------
Net decrease (10,312,388) $ (16,082,339)
=============== ===============
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. NOVEMBER 30, 2005
Notes to Financial Statements (concluded)
Merrill Lynch Focus Twenty Fund, Inc.
Class I Shares for the Year Dollar
Ended November 30, 2005 Shares Amount
Shares sold 441,429 $ 739,738
Shares redeemed (4,230,545) (6,981,771)
--------------- ---------------
Net decrease (3,789,116) $ (6,242,033)
=============== ===============
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. Distributions to Shareholders:
As of November 30, 2005, the components of accumulated losses on a tax
basis were as follows:
Undistributed ordinary income--net --
Undistributed long-term capital gains--net --
-----------------
Total undistributed earnings--net --
Capital loss carryforward $(1,570,329,254)*
Unrealized gains--net 11,054,891
-----------------
Total accumulated losses--net $ (1,559,274,363)
=================
* On November 30, 2005, the Fund had a net capital loss carryforward
of $1,570,329,254, of which $194,636,325 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.
Report of Independent Registered Public Accounting Firm
Merrill Lynch Focus Twenty Fund, Inc.
To the Shareholders and Board of Directors
of Merrill Lynch Focus Twenty Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Merrill Lynch Focus Twenty Fund, Inc., as of November 30, 2005, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of material
misstatement. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal 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. 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 Twenty Fund, Inc. as of November 30, 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
January 18, 2006
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Portfolio Holdings as of November 30, 2005 Master Focus Twenty Trust
Percent of
Total
Industry Classification Investments
Energy Equipment & Services 20.4%
Health Care Providers & Services 13.9
Internet & Software Services 7.0
Machinery 7.0
IT Services 6.9
Aerospace and Defense 6.5
Oil, Gas & Consumable Fuels 6.1
Chemical 3.4
Industrial Conglomerates 3.4
Biotechnology 3.4
Software 3.3
Capital Markets 3.3
Household Products 3.3
Health Care Equipment & Supplies 3.2
Hotels, Restaurants & Leisure 3.2
Communications Equipment 1.0
Other* 4.7
* Includes portfolio holdings in short-term investments.
For Trust compliance purposes, the Trust's industry classifications
refer to 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
industry sub-classifications for reporting ease.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Schedule of Investments Master Focus Twenty Trust (in U.S. dollars)
Shares
Country Industry Common Stocks Held Value
India--3.5%
IT Services--3.5%
Infosys Technologies Ltd. 48,500 $ 3,494,910
Total Common Stocks in India 3,494,910
Switzerland--3.3%
Health Care Equipment &
Supplies--3.3%
Alcon, Inc. 23,200 3,252,640
Total Common Stocks in Switzerland 3,252,640
United States--89.6%
Aerospace & Defense--6.6%
Boeing Co. 49,100 3,348,129
Lockheed Martin Corp. 52,300 3,169,380
-------------
6,517,509
Biotechnology--3.4%
Genzyme Corp. (a) 45,300 3,367,602
Capital Markets--3.3%
Goldman Sachs Group, Inc. 25,300 3,262,688
Chemicals--3.4%
The Dow Chemical Co. 75,500 3,416,375
Communications Equipment--1.0%
Corning, Inc. (a) 50,400 1,020,600
Energy Equipment & Services--20.6%
Baker Hughes, Inc. 59,900 3,435,265
Grant Prideco, Inc. (a)(d) 87,700 3,366,803
Halliburton Co. 53,600 3,411,640
National Oilwell Varco, Inc. (a) 52,000 3,152,240
Schlumberger Ltd. 37,200 3,561,156
Transocean, Inc. (a)(d) 55,500 3,543,120
-------------
20,470,224
Health Care Providers &
Services--14.0%
Caremark Rx, Inc. (a) 68,200 3,504,798
Coventry Health Care, Inc. (a) 58,800 3,502,716
Humana, Inc. (a) 74,800 3,428,084
WellPoint, Inc. (a) 45,200 3,472,716
-------------
13,908,314
Hotels, Restaurants & Leisure--3.2%
Starbucks Corp. (a) 105,100 3,200,295
Shares
Country Industry Common Stocks Held Value
United States (concluded)
Household Products--3.4%
Procter & Gamble Co. 58,300 $ 3,334,177
IT Services--3.5%
Cognizant Technology Solutions Corp. (a) 71,100 3,454,749
Industrial Conglomerates--3.5%
3M Co. 43,700 3,429,576
Internet Software & Services--7.1%
Google, Inc. Class A (a) 8,900 3,604,411
Yahoo!, Inc. (a) 85,500 3,439,665
-------------
7,044,076
Machinery--7.0%
Caterpillar, Inc. 58,500 3,380,130
ITT Industries, Inc. 33,100 3,599,956
-------------
6,980,086
Oil, Gas & Consumable Fuels--6.2%
ConocoPhillips 52,100 3,152,571
Valero Energy Corp. 31,300 3,011,060
-------------
6,163,631
Software--3.4%
Electronic Arts, Inc. (a) 59,000 3,325,240
Total Common Stocks in the United States 88,895,142
Total Common Stocks
(Cost--$84,587,801)--96.4% 95,642,692
Beneficial
Short-Term Securities Interest
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (b) $ 1,414,201 1,414,201
Merrill Lynch Liquidity Series, LLC
Money Market Series (b)(c) 3,342,400 3,342,400
Total Short-Term Securities
(Cost--$4,756,601)--4.8% 4,756,601
Total Investments (Cost--$89,344,402*)--101.2% 100,399,293
Liabilities in Excess of Other Assets--(1.2%) (1,202,368)
-------------
Net Assets--100.0% $ 99,196,925
=============
For Trust compliance purposes, the Trust's industry classifications refer
to 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 industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets. These industry
classifications are unaudited.
* The cost and unrealized appreciation (depreciation) of investments
as of November 30, 2005, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 89,344,402
================
Gross unrealized appreciation $ 12,012,336
Gross unrealized depreciation (957,445)
----------------
Net unrealized appreciation $ 11,054,891
================
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Trust,
for purposes of 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 $ 453,403 $36,317
Merrill Lynch Liquidity Series, LLC
Money Market Series $(8,534,608) $11,528
(c) Security was purchased with the cash proceeds from securities loans.
(d) Security, or a portion of security, is on loan.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Statement of Assets and Liabilities Master Focus Twenty Trust
As of November 30, 2005
Assets
Investments in unaffiliated securities, at value (including securities
loaned of $3,308,624) (identified cost--$84,587,801) $ 95,642,692
Investments in affiliated securities, at value (identified cost--$4,756,601) 4,756,601
Cash 707
Receivables:
Securities sold $ 2,518,970
Dividends 78,258
Contributions 61,510
Securities lending 368 2,659,106
---------------
Prepaid expenses 3,294
---------------
Total assets 103,062,400
---------------
Liabilities
Collateral on securities loaned, at value 3,342,400
Payables:
Withdrawals 460,040
Investment adviser 28,419
Other affiliates 906 489,365
---------------
Accrued expenses 33,710
---------------
Total liabilities 3,865,475
---------------
Net Assets
Net assets $ 99,196,925
===============
Net Assets Consist of
Investor's capital $ 88,142,034
Unrealized appreciation--net 11,054,891
---------------
Net Assets $ 99,196,925
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Statement of Operations Master Focus Twenty Trust
For the Year Ended November 30, 2005
Investment Income
Dividends $ 746,991
Interest from affiliates 36,317
Securities lending--net 11,528
---------------
Total income 794,836
---------------
Expenses
Investment advisory fees $ 673,924
Accounting services 87,908
Professional fees 27,180
Custodian fees 24,332
Trustees' fees and expenses 14,676
Pricing fees 1,178
Printing and shareholder reports 350
Other 10,248
---------------
Total expenses before waiver 839,796
Waiver of expenses (128,851)
---------------
Total expenses after waiver 710,945
---------------
Investment income--net 83,891
---------------
Realized & Unrealized Gain--Net
Realized gain on investments--net 10,698,050
Change in unrealized appreciation on investments--net 18,134
---------------
Total realized and unrealized gain--net 10,716,184
---------------
Net Increase in Net Assets Resulting from Operations $ 10,800,075
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Statements of Changes in Net Assets Master Focus Twenty Trust
For the Year Ended
November 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 83,891 $ 286,791
Realized gain--net 10,698,050 12,303,076
Change in unrealized appreciation--net 18,134 (2,647,732)
--------------- ---------------
Net increase in net assets resulting from operations 10,800,075 9,942,135
--------------- ---------------
Capital Transactions
Proceeds from contributions 2,375,473 6,017,520
Fair value of withdrawals (57,942,406) (60,067,720)
--------------- ---------------
Net decrease in net assets derived from capital transactions (55,566,933) (54,050,200)
--------------- ---------------
Net Assets
Total decrease in net assets (44,766,858) (44,108,065)
Beginning of year 143,963,783 188,071,848
--------------- ---------------
End of year $ 99,196,925 $ 143,963,783
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Financial Highlights Master Focus Twenty Trust
The following per share data and ratios have been derived For the Year Ended November 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Total Investment Return*
Total investment return 11.30% 6.07% 23.82% (34.70%) --
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses, net of waiver .63% .71% .71% .75% .68%
========== ========== ========== ========== ==========
Expenses .75% .73% .71% .75% .68%
========== ========== ========== ========== ==========
Investment income (loss)--net .07% .17% (.19%) (.49%) (.25%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 99,197 $ 143,964 $ 188,072 $ 198,406 $ 429,953
========== ========== ========== ========== ==========
Portfolio turnover 143.17% 182.69% 316.42% 275.69% 137.66%
========== ========== ========== ========== ==========
* Total return is required for fiscal years beginning after December 15, 2000.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 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. 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 based upon quoted fair
valuations received daily by the Trust 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 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, money market instruments and certain fixed income securities, 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.
* 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.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Notes to Financial Statements (continued) Master Focus Twenty Trust
* 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) 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. The Trust invests in foreign securities, which may involve a
number of risk factors and special considerations not present with investments
in securities of U.S. corporations.
(d) 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.
(e) 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.
(f) Securities lending--The Trust may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
The market value of the loaned securities is determined at the close of
business of the Trust and any additional required collateral is delivered to
the Trust on the next business day. Where the Trust receives securities as
collateral for the loaned securities, it collects a fee from the borrower. The
Trust typically receives the income on the loaned securities but does not
receive 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. NOVEMBER 30, 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. For the period ended June 13, 2005, FAM has agreed to
waive .05% of the average daily net assets of the Trust. Effective June 13,
2005, FAM agreed to waive .20% of the average daily net assets of the Trust.
This contractual waiver agreement has a one-year term and is renewable
annually. For the year ended November 30, 2005, FAM earned fees of $673,924,
of which $128,851 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. Pursuant to that order, the Trust also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Trust, invest cash collateral
received by the Trust for such loans, among other things, in a private
investment company managed by MLIM, LLC or in registered money market funds
advised by FAM or its affiliates. For the year ended November 30, 2005, MLIM,
LLC received $4,815 in securities lending agent fees.
In addition, MLPF&S received $2,760 in commissions on the execution of
portfolio security transactions for the Trust for the year ended November 30,
2005.
For the year ended November 30, 2005, the Trust reimbursed FAM $2,713 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, MLAM U.K., ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended November 30, 2005 were $157,884,718 and $216,348,074, respectively.
4. Short-Term Borrowings:
The Trust, along with certain other funds managed by FAM and its affiliates,
is a party to a $500,000,000 credit agreement with a group of lenders. The
Trust may borrow under the credit agreement to fund shareholder redemptions
and for other lawful purposes other than for leverage. The Trust may borrow up
to the maximum amount allowable under the Trust's current prospectus and
statement of additional information, subject to various other legal,
regulatory or contractual limits. The Trust pays a commitment fee of .07% per
annum based on the Trust's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the federal funds rate plus .50% or a base
rate as defined in the credit agreement. The Trust did not borrow under the
credit agreement during the year ended November 30, 2005. On November 23, 2005
the credit agreement was renewed for one year under substantially the same
terms.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Report of Independent Registered Public Accounting Firm
Master Focus Twenty Trust
To the Investor and Board of Trustees of
Master Focus Twenty Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Master Focus Twenty Trust, as of
November 30, 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, 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 Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of material
misstatement. The Trust 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
Trust's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of November 30, 2005,
by correspondence with the custodian. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Master Focus Twenty Trust as of November 30, 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
January 18, 2006
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Disclosure of Investment Advisory Agreement
Activities of and Composition of the Board of Directors/Trustees
All but one member of the Fund's Board of Directors and the Master Focus
Twenty Trust's (the "Trust") Board of Trustees, the members of which are
identical, is a non-interested director and trustee as that term is defined in
the Investment Company Act of 1940, whose only association with Fund Asset
Management, L.P., the Investment Adviser or other Merrill Lynch affiliates is
as a director and trustee of the Fund and the Trust, and of certain other
funds advised by the Investment Adviser or its affiliates. We refer to these
persons as independent directors throughout this section of this report. The
Co-chairmen of each Board are independent directors and nominees to become
independent directors are chosen by a Nominating Committee comprised of
independent directors. All independent directors also are members of each
Board's Audit Committee. The independent directors meet in executive session
at each regular Board meeting. Each Board and each Board's 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 request of the independent directors.
Investment Advisory Agreements--Matters Considered by the Board
Every year, each Board considers approval of the investment advisory agreement
with respect to the Trust and the Fund (together, the Investment Advisory
Agreement") and throughout each year, reviews and evaluates the performance
of and services provided by the Investment Adviser. Each Board also annually
reviews and considers approval of the sub-advisory agreement between the
Investment Adviser and an affiliate. Each Board assesses the nature, scope
and quality of the services provided to the Trust and/or 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. Each Board also receives and assesses information regarding the
services provided to the Trust and the Fund by certain unaffiliated service
providers.
At various times throughout the year, each 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 with respect to each Fund are: (a) fees (in addition to
management fees) paid to the Investment Adviser and its affiliates by the
Trust and the Fund, such as transfer agency fees and fees for marketing and
distribution; (b) Trust/Fund operating expenses paid to third parties; (c) the
resources devoted to and compliance reports relating to the Trust's and 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.
Each 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 of high quality. Each 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. Each Board works closely with the Investment Adviser in overseeing the
Investment Adviser's efforts to achieve good performance. As part of this
effort, each 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, each Board requests and
receives materials specifically relating to the 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 Trust's/Fund's portfolio management team regarding investment
strategies used by the Trust/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 Trust and the Fund; and (e) information
provided by the Investment Adviser concerning investment advisory fees charged
to institutional clients under similar investment mandates. Since the sub-
advisory services are provided by Merrill Lynch Asset Management U.K. Limited,
an affiliate of the Investment Adviser, and no additional fee is paid for these
services, the Board considered the sub-advisory agreement and Investment
Advisory Agreement together. 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 portfolio holdings, allocation of
brokerage fees of the Fund (including the related benefits to the Investment
Adviser of "soft dollars"), the portfolio turnover statistics of the Fund,
and direct and indirect benefits to the Investment Adviser, the sub-adviser
and their affiliates from their relationship with the Trust and the Fund.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Certain Specific Renewal Data
In connection with the most recent renewal of the Trust's/Fund's Investment
Advisory Agreement and sub-advisory agreement, in May 2005, the non-interested
Directors' and Board's review included the following:
The Investment Adviser's Services and Fund Performance--Each Board reviewed the
nature, extent and quality of services provided by the Investment Adviser and
sub-adviser, including the investment advisory services and the resulting
performance of the Fund. Each Board focused primarily on the Investment
Adviser's investment advisory services and the Fund's investment performance.
Each Board compared the Fund's performance - both including and excluding the
effects of the fees and expenses of the Trust and the Fund - to the performance
of a comparable group of mutual funds, and the performance of a relevant index
or combination of indexes. While each 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 Board noted that the Trust/Fund's
performance within the group compared for each of the one-, three-, and
five-year periods ended March 31, 2005 was in the fourth quartile. For several
years, the Board has expressed concern regarding the Fund's performance to
the Investment Adviser. In 2004, the Investment Adviser selected a new
portfolio management team for the Trust and the Fund. In connection with
the consideration of the 2005 renewal, the Board expressed continued
dissatisfaction with the Fund's performance, and considered various
alternatives, including the Investment Adviser's recommendation of a new
investment process and a new portfolio management team led by Lawrence Fuller
and Tom Burke. Each Board concluded that in light of its review and with these
proposed changes in mind the nature and quality of the services supported the
renewal of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process--Each Board reviewed
the investment objectives and strategies of the Trust and the Fund. Each 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, each 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. Each
Board also reviewed the Investment Adviser's compensation policies and
practices with respect to the Trust's and the Fund's portfolio managers. Each
Board considered the experience of the Trust's/Fund's portfolio managers and
noted that Mr. Fuller has over thirty-five years' experience in portfolio
management, while Mr. Burke has over twenty-five years' experience in
portfolio management. The Board concluded that the Investment Adviser and its
investment staff and the Trust's and the Fund's portfolio managers have
extensive experience in analyzing and managing the types of investments used
by the Trust and the Fund and that the Trust and the Fund are likely to
benefit from that expertise.
Management Fees and Other Expenses--Each Board reviewed the Trust's and 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
Trust's/Fund's total expenses to those of other comparable funds. Each Board
considered the services provided to and the fees charged by the Investment
Adviser to institutional clients with similar investment mandates and noted
that the fees charged by the Investment Adviser to the institutional client
were less than those being charged to the Trust and the Fund, but determined
that the Investment Adviser provided less extensive services to the
institutional clients. The Board noted that Fund's contractual and actual
management fee rates were lower than the median fees charged by comparable
funds, as determined by Lipper, while total expenses were higher than the
median expenses charged by such comparable funds. The Board expressed its
concern about the relatively high expense ratio and took into account the
impact of the declining assets under management on the expense ratio. The
Board also noted the Investment Adviser had paid, and agreed to continue to
pay, the significant legal expenses being incurred by the Fund. After
discussions with the Boards, the Investment Adviser proposed that the
Investment Advisory Agreement include a contractual fee waiver for the Fund,
lowering the Fund's effective management fee from 0.85% to 0.65% of average
daily net assets under management. In addition, the Investment Adviser agreed
to further waive its fee to the extent necessary to limit the total expense
ratio (excluding distribution and account maintenance fees) to 2.0% for all
classes of shares of the Fund. After considering all the foregoing factors,
including the fee waiver and expense limit, the Board has concluded that the
Trust's and the Fund's management fee and fee rate and overall expense ratio,
considering the contractual fee waiver and total expense limit, are reasonable
compared to those of other comparable funds.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Disclosure of Investment Advisory Agreement (concluded)
Profitability--The Board considered the cost of the services provided to the
Trust and/or the Fund by the Investment Adviser and the Investment Adviser's
and its affiliates' profits 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 Trust and the Fund and concluded that there was a reasonable
basis for the allocation. The Board considered federal court decisions
discussing an investment adviser's profitability and profitability levels
considered to be reasonable in those decisions. The information provided to
the Board indicated that the Investment Adviser's costs related to the Fund
were significantly in excess of its management fees in the last two calendar
years.
Economies of Scale--The Boards considered the extent to which economies of
scale might be realized as the assets of the Trust and Fund increase and
whether there should be changes in the management fee rate or structure in
order to enable the Trust and the Funds to participate in these economies of
scale. The Board noted that the fee waiver implemented by the Investment
Adviser acts as effective breakpoints reflecting the reduced assets under
management and concluded that no changes were currently necessary.
Conclusion
After the independent directors deliberated in executive session, the Board of
the Trust and the Fund including all of the independent directors, approved
the renewal of the existing Investment Advisory Agreement and sub-advisory
agreement, concluding that the advisory fee (including the fee waiver) was
reasonable in relation to the services provided and that a contract renewal
was in the best interests of the shareholders.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Officers and Directors/Trustees
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name, Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Interested Director or Trustee
Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds since 131 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 2001; 177 Portfolios
Princeton, Director/ Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 Trustee to 2001 and Senior Vice President from 1999
Age: 51 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 OppenheimerFunds,
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 described in the Investment Company Act, of the
Fund based on his current positions with MLIM, FAM, Princeton Services and
Princeton Administrators. Directors/Trustees 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/Trustees.
Independent Directors/Trustees*
James H. Bodurtha** Director/ 1999 to Director, The China Business Group, Inc. since 39 Funds None
P.O. Box 9095 Trustee present 1996 and Executive Vice President thereof from 59 Portfolios
Princeton, 1996 to 2003; Chairman of the Board, Berkshire
NJ 08543-9095 Holding Corporation since 1980; Partner, Squire,
Age: 61 Sanders & Dempsey from 1980 to 1993.
Kenneth A. Froot Director/ 2005 to Professor, Harvard University since 1992; 39 Funds None
P.O. Box 9095 Trustee present Professor, Massachusetts Institute of 59 Portfolios
Princeton, Technology from 1986 to 1992.
NJ 08543-9095
Age: 48
Joe Grills** Director/ 2002 to Member of the Committee of Investment of 39 Funds Kimco
P.O. Box 9095 Trustee present Employee Benefit Assets of the Association of 59 Portfolios Realty
Princeton, Financial Professionals ("CIEBA") since 1986; Corporation
NJ 08543-9095 Member of CIEBA's Executive Committee since
Age: 70 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, Vice Chairman thereof from 2002
to 2005, and Chairman thereof since 2005;
Director, Montpelier Foundation since 1998 and
and its Vice Chairman since 2000; Member of the
Investment Committee of the Woodberry Forest
School since 2000; Member of the Investment
Committee of the National Trust for Histotic
Preservation since 2000.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Officers and Directors/Trustees (continued)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name, Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Interested Directors/Trustees* (concluded)
Herbert I. London Director/ 1999 to John M. Olin Professor of Humanities, New 39 Funds None
P.O. Box 9095 Trustee present York University since 1993 and Professor 59 Portfolios
Princeton, thereof since 1980; President, Hudson
NJ 08543-9095 Institute since 1997 and Trustee thereof since
Age: 66 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 Cooper Ramo Director/ 1999 to Shareholder, Modrall, Sperling, Roehl, 39 Funds None
P.O. Box 9095 Trustee present Harris & Sisk, P.A. since 1993; President, 59 Portfolios
Princeton, American Bar Association from 1995 to 1996
NJ 08543-9095 and Member of the Board of Governors thereof
Age: 63 from 1994 to 1997; Shareholder, Poole, Kelly
and Ramo, Attorneys at Law P.C. from 1977 to
1993; Director of 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. Salomon, Jr. Director/ 2002 to Principal of STI Management (investment 39 Funds None
P.O. Box 9095 Trustee present adviser) since 1994; Chairman and CEO of 59 Portfolios
Princeton, Salomon Brothers Asset Management Inc. from
NJ 08543-9095 1992 to 1995; Chairman of Salomon Brothers
Age: 69 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. Swensrud Director/ 2002 to Chairman of Fernwood Advisors, Inc. 40 Funds None
P.O. Box 9095 Trustee present (investment adviser) since 1996; Principal, 60 Portfolios
Princeton, Fernwood Associates (financial consultants)
NJ 08543-9095 since 1975; Chairman of R.P.P. Corporation
Age: 72 (manufacturing company) since 1978; Director
of International Mobile Communications,
Inc. (telecommunications) since 1998.
* Directors/Trustees 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.
Effective January 1, 2006, Stephen B. Swensrud retired as Director of Merrill
Lynch Focus Twenty Fund, Inc. and Trustee of Master Focus Twenty Trust. The
Fund's/Trust's Board of Directors/Trustees wishes Mr. Swensrud well in his
retirement.
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
Officers and Directors/Trustees (concluded)
Position(s) Length of
Held with Time
Name, Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1999 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
P.O. Box 9011 President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
Princeton, and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999 and
NJ 08543-9011 Treasurer Director since 2004; Vice President of MLIM and FAM from 1990 to 1997; Director
Age: 45 of Taxation of MLIM from 1990 to 2001; Vice President, Treasurer and Secretary
of the IQ Funds since 2004.
Thomas E. Burke Vice 2005 to Director of MLIM since 1998.
P.O. Box 9011 President present
Princeton,
NJ 08543-9011
Age: 47
Lawrence R. Fuller Vice 2005 to Managing Director (Equities) of MLIM since 2000; Director of MLIM from 1997
P.O. Box 9011 President present to 2000.
Princeton,
NJ 08543-9011
Age: 64
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director
Age: 54 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. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 45
* Officers of the Fund/Trust serve at the pleasure of the Board of Directors/Trustees.
Further information about the Fund's Officers and Directors/Trustees is
available in the Fund's Statement of Additional Information, which can be
obtained without charge by calling 1-800-MER-FUND.
Custodian
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
MERRILL LYNCH FOCUS TWENTY FUND, INC. NOVEMBER 30, 2005
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) Robert S. Salomon, Jr., and (3) Stephen B. Swensrud.
Item 4 - Principal Accountant Fees and Services
Merrill Lynch Focus Twenty Fund, Inc.
(a) Audit Fees - Fiscal Year Ending November 30, 2005 - $6,500
Fiscal Year Ending November 30, 2004 - $6,200
(b) Audit-Related Fees -
Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $0
(c) Tax Fees - Fiscal Year Ending November 30, 2005 - $5,700
Fiscal Year Ending November 30, 2004 - $5,800
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $0
Master Focus Twenty Trust
(a) Audit Fees - Fiscal Year Ending November 30, 2005 - $26,000
Fiscal Year Ending November 30, 2004 - $25,000
(b) Audit-Related Fees -
Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $0
(c) Tax Fees - Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $0
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 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 November 30, 2005 - $5,738,110
Fiscal Year Ending November 30, 2004 - $12,448,225
(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 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: January 25, 2006
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: January 25, 2006
By: /s/ Donald C. Burke
----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Focus Twenty Fund, Inc. and Master Focus Twenty Trust
Date: January 25, 2006