UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-09651
811-09735
Name of Fund: Merrill Lynch Focus Twenty Fund, Inc.
Master Focus Twenty Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Merrill Lynch Focus Twenty Fund, Inc. and Master Focus Twenty
Trust, 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address:
P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 11/30/06
Date of reporting period: 12/01/05 - 05/31/06
Item 1 - Report to Stockholders
Semi-Annual Report
May 31, 2006
Merrill Lynch
Focus Twenty Fund, Inc.
(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 1-800-637-3863; (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.
Announcement to Shareholders
On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co.,
Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's
investment management business, Merrill Lynch Investment Managers, L.P. and
certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch
Investment Managers International Limited), to BlackRock to create a new
independent company ("New BlackRock") that will be one of the world's largest
asset management firms with approximately $1 trillion in assets under
management (based on combined assets under management as of March 31, 2006)
(the "Transaction"). The Transaction is expected to close in the third quarter
of 2006, at which time the new company will operate under the BlackRock name.
The Fund's/Trust's Board of Directors/Trustees has approved a new investment
advisory agreement with BlackRock Advisors, Inc. or its successor on
substantially the same terms and for the same advisory fee as the current
investment advisory agreement with the Investment Adviser. If the new
agreement is approved by the Fund's/Trust's shareholders, BlackRock Advisors,
Inc. or its successor is expected to become the investment adviser of the
Fund/Trust upon the closing of the Transaction.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at
the SEC's Public Reference Room in Washington, DC. Information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
A Letter From the President
Dear Shareholder
You may be aware that changes are on the horizon at Merrill Lynch Investment
Managers ("MLIM"). Earlier this year, Merrill Lynch announced plans to combine
its investment advisory business, including MLIM, with another highly regarded
investment manager - BlackRock, Inc. ("BlackRock").
At the completion of the transaction, which is expected at the end of the
third quarter of this year (subject to regulatory and shareholder approvals),
the resultant firm will be a top-10 investment manager worldwide with
approximately $1 trillion in assets under management.* The combined company
will provide a wider selection of high-quality investment solutions across a
range of asset classes and investment styles. MLIM and BlackRock possess
complementary capabilities that together create a well-rounded organization
uniting some of the finest money managers in the industry. At the same time,
the firms share similar values and beliefs - they are focused on delivering
excellence on behalf of clients, and both make investment performance their
single most important mission. In short, the combination only reinforces our
commitment to shareholders.
Most of MLIM's investment products - including mutual funds, separately
managed accounts, annuities and variable insurance funds - eventually will
carry the "BlackRock" name. As a shareholder in one or more MLIM-advised
mutual funds, you recently were mailed a proxy package asking you to vote on
proposed changes that affect those funds. The proposals vary based on the
funds in which you invest. However, all shareholders are asked to vote on a
new investment advisory agreement with BlackRock Advisors, Inc. Your Fund's
Board of Directors has approved, and recommends that you approve, the new
agreement. Your Fund's Board also has approved, and recommends that you
approve, a contingent subadvisory agreement that will serve to ensure that
management services can continue during the course of completing the
transaction.
It is important that you exercise your right as a mutual fund shareholder by
voting on the proposals that are presented to you in your funds' proxy
statements. Your participation - via phone, mail, online or in person - is
critical. (Refer to your proxy card for detailed voting procedures and
deadlines.) You should know that your vote on these proposals will not affect
your brokerage account or change your relationship with your financial
advisor. If you are a client of Merrill Lynch, you will remain a client of
Merrill Lynch.
Should you have any questions or concerns, please do not hesitate to call
1.866.752.6486.
As always, we thank you for entrusting us with your investment assets, and we
look forward to continuing to serve your investment needs with even greater
strength and scale as the new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
* $1.039 trillion in assets under management as of March 31, 2006.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
A Discussion With Your Fund's Portfolio Managers
The Fund significantly outperformed its benchmark and its comparable Lipper
category average for the period, benefiting from successful stock selection
and favorable sector weightings.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended May 31, 2006, Merrill Lynch Focus Twenty Fund,
Inc.'s Class A, Class B, Class C and Class I Shares had total returns of
+6.11%, +6.43%, +5.85% and +6.59%, 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.) For the same period, the benchmark S&P 500 Citigroup Growth
Index returned -0.85% and the Lipper Multi-Cap Growth Funds category had an
average return of +0.58%. (This Lipper category includes funds that invest in
a variety of market-capitalization ranges without concentrating 75% of their
assets in any one range. Multi-cap growth funds normally invest in companies
with long-term earnings expected to grow significantly faster than the
earnings of stocks in a major, unmanaged stock index.)
The broader stock market, as measured by the S&P 500 Index, gained 2.60% for
the six-month period ended May 31, 2006. The value style of investing
significantly outperformed the growth style for the six-month period, as
represented by the +6.21% return of the S&P 500 Citigroup Value Index. We are
pleased with the Fund's ability to outperform its benchmark and its Lipper
peers, as well as the broader stock market and the relatively strong value
category.
The environment for investors in U.S. equity markets was profitable but
challenging during the semi-annual reporting period, as the markets appeared
to begin a price correction toward the end of the six months. The economy, as
measured by gross domestic product (GDP), continued to grow at a robust pace,
with an annualized rate of expansion estimated at 5.3% in the first quarter of
2006. This was significantly ahead of the 1.7% rate of growth recorded in the
fourth quarter of 2005. The relatively solid economic environment has enabled
job creation and strong corporate earnings growth.
The Federal Reserve Board (the Fed), with new leadership in Chairman Ben
Bernanke, continued to remove economic stimulus with a policy of measured
interest rate increases totaling 16 since June 2004. This brought the short-
term interest rate target from 1% at the start of the monetary tightening
campaign to 5% by the end of this reporting period. Heightened inflation
expectations and escalating energy prices have become a concern for investors
as well as the Fed. The price of crude oil reached record levels during the
past six months amid supply disruptions and geopolitical fears. This
contributed to solid performance in the energy sector but caused some to
question the sustainability of future economic growth given the related
inflationary implications. We believe such concerns will be temporary and that
investor confidence will return with improved growth prospects in the latter
part of 2006.
What factors most influenced Fund performance for the period?
The Fund's outperformance of its benchmark for the period is attributable to a
combination of successful stock selection and meaningful overweightings in the
energy and industrials sectors, together with favorable stock selection in the
consumer discretionary sector. Returns in these sectors reflect strong
performance by energy and equipment service companies Baker Hughes, Inc.,
Schlumberger Ltd., Grant Prideco, Inc. and Transocean, Inc.; oil refining
company Valero Energy Corp.; hotel/gaming company Las Vegas Sands Corp.;
aerospace/defense contractor Boeing Co.; and construction equipment company
Caterpillar, Inc.
Offsetting the positives somewhat, although not enough to derail the Fund's
strong performance, was stock selection in the health care and materials
sectors. Holdings in specialty pharmaceutical company Alcon, Inc.,
biotechnology company Genzyme Corp. and pharmacy benefit manager Caremark Rx,
Inc. detracted from performance in the health care sector during the period.
Chemicals company The Dow Chemical Co. was responsible for the underperformance
in the materials sector. We liquidated our positions in Genzyme, Caremark Rx
and Dow Chemical, but retained Alcon for its favorable long-term growth
prospects.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
What changes were made to the portfolio during the period?
The Fund is a non-diversified, aggressive growth product that focuses on 20 to
30 companies. We use an equal-weight portfolio construction that emphasizes
full investment positions. Thus, changes to the portfolio tend to appear
rather significant when measured versus the more diversified benchmark.
During the six-month period, we added to our position in the industrials
sector, overweighting our holdings in electrical equipment and aerospace/
defense industries in an effort to capture a later-cycle growth opportunity.
New names in the industrials sector included Emerson Electric Co., Roper
Industries, Inc. and BE Aerospace, Inc. Conversely, we reduced our exposure
to the information technology sector to an underweight by eliminating Google
and Electronic Arts, Inc. from the portfolio. We reduced and restructured
our holdings in the health care sector, eliminating Genzyme, Caremark Rx,
Coventry Health Care, Inc. and Humana, Inc. from the portfolio and replacing
them with investments in Cerner Corp. and Sierra Health Services, Inc.
We also selectively added and replaced names within other sectors of the
portfolio, although the aforementioned changes had the greatest impact in
terms of overall portfolio composition.
How would you characterize the portfolio's position at the close of the
period?
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 focus is on companies that we believe have a
strong earnings and revenue growth profile with commensurate 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.
We are focused on taking advantage of the most attractive growth stock
opportunities that we can find while also carefully considering valuation
parameters. We readily eliminate companies whose growth prospects are at an
inflection point or may be deteriorating. The portfolio is currently
positioned for a continuation of strong global economic growth and demand for
the energy and materials to support that growth. As such, we ended the period
overweight versus the benchmark S&P 500 Citigroup Growth Index in industrials,
energy and materials, and underweight in information technology, health care,
consumer staples, financials and consumer discretionary.
Thomas E. Burke, CFA
Vice President and Portfolio Manager
June 12, 2006
After a distinguished 38-year career, the Fund's Senior Portfolio Manager
Larry Fuller announced his retirement from the investment management business,
effective March 31, 2006. Thomas E. Burke, the Fund's associate portfolio
manager who worked closely with Mr. Fuller for 13 years, became Portfolio
Manager of the Fund, effective the same date. Mr. Fuller has been a successful
portfolio manager highly regarded for his experience, insights and warmth. His
colleagues at MLIM join the Fund's Board of Directors in wishing Mr. Fuller
well in his retirement.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
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.
* Effective December 28, 2005, Class I Shares are no longer subject to any
front-end sales charge. Class I Shares bear no ongoing distribution or account
maintenance fees and are available only to eligible investors. Had the sales
charge been included, the Fund's Class I Shares' performance would have been
lower.
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 May 31, 2006 Total Return Total Return Total Return
ML Focus Twenty Fund, Inc.--Class A Shares* +6.11% +20.89% -80.90%
ML Focus Twenty Fund, Inc.--Class B Shares* +6.43 +19.74 -81.80
ML Focus Twenty Fund, Inc.--Class C Shares* +5.85 +19.87 -81.90
ML Focus Twenty Fund, Inc.--Class I Shares* +6.59 +20.50 -80.60
S&P 500 (R) Index** +2.60 + 8.64 - 0.33
S&P 500 (R) Citigroup Growth Index*** -0.85 + 2.29 -32.58
* Investment results shown do not reflect sales charges; results would be lower if a sales charge
was included. Cumulative total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. 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 designed to provide a comprehensive measure of large-cap U.S.
equity "growth" performance. It is an unmanaged float adjusted market capitalization weighted index
comprised of stocks representing approximately half the market capitalization of the S&P 500 Index
that have been identified as being on the growth end of the growth-value spectrum. Since inception
total return is from 3/03/00.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 5/31/06 +20.89% +14.54%
Five Years Ended 5/31/06 -11.41 -12.36
Inception (3/03/00)
through 5/31/06 -23.29 -23.95
Return Return
Without CDSC With CDSC++++++
Class B Shares++
One Year Ended 5/31/06 +19.74% +15.74%
Five Years Ended 5/31/06 -12.06 -12.41
Inception (3/03/00)
through 5/31/06 -23.88 -23.88
Return Return
Without CDSC With CDSC++++++
Class C Shares++++
One Year Ended 5/31/06 +19.87% +18.87%
Five Years Ended 5/31/06 -12.15 -12.15
Inception (3/03/00)
through 5/31/06 -23.95 -23.95
Class I Shares Return
One Year Ended 5/31/06 +20.50%
Five Years Ended 5/31/06 -11.18
Inception (3/03/00)
through 5/31/06 -23.10
* 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. MAY 31, 2006
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 12b-1 fees, and other Fund expenses. The following example (which is
based on a hypothetical investment of $1,000 invested on December 1, 2005 and
held through May 31, 2006) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in comparing these
expenses with similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during
the period covered by this report, shareholders can divide their account value
by $1,000 and then multiply the result by the number in the first line under
the heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as
sales charges, redemption fees or exchange fees. Therefore, the second table
is useful in comparing ongoing expenses only, and will not help shareholders
determine the relative total expenses of owning different funds. If these
transactional expenses were included, shareholder expenses would have been
higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value December 1, 2005 to
December 1, May 31, May 31,
2005 2006 2006
Actual
Class A $1,000 $1,061.10 $ 9.51
Class B $1,000 $1,064.30 $13.90
Class C $1,000 $1,058.50 $14.01
Class I $1,000 $1,065.90 $ 8.24
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,015.68 $ 9.30
Class B $1,000 $1,011.44 $13.54
Class C $1,000 $1,011.29 $13.69
Class I $1,000 $1,016.92 $ 8.05
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.85% for Class A, 2.70% for Class B, 2.73% for Class C and 1.60% for Class I), multiplied by
the average account value over the period, multiplied by 182/365 (to reflect the one-half year
period shown). Because the Fund is a feeder fund, the expense table example reflects the expenses
of both the feeder and the master 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. MAY 31, 2006
Statement of Assets and Liabilities Merrill Lynch Focus Twenty Fund, Inc.
As of May 31, 2006
Assets
Investment in Master Focus Twenty Trust (the "Trust"), at value
(identified cost--$75,501,802) $ 86,786,080
Prepaid expenses 29,213
---------------
Total assets 86,815,293
---------------
Liabilities
Payables:
Other affiliates $ 95,190
Distributor 60,568
Administrator 15,891 171,649
---------------
Accrued expenses 61,278
---------------
Total liabilities 232,927
---------------
Net Assets
Net assets $ 86,582,366
===============
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized $ 474,107
Class B Shares of Common Stock, $.10 par value, 300,000,000 shares authorized 2,135,576
Class C Shares of Common Stock, $.10 par value, 300,000,000 shares authorized 1,285,639
Class I Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 794,523
Paid-in capital in excess of par 1,635,293,557
Accumulated investment loss--net $ (593,582)
Accumulated realized capital losses allocated from the Trust--net (1,564,091,732)
Unrealized appreciation allocated from the Trust--net 11,284,278
---------------
Total accumulated losses--net (1,553,401,036)
---------------
Net Assets $ 86,582,366
===============
Net Asset Value
Class A--Based on net assets of $9,071,257 and 4,741,072 shares outstanding $ 1.91
===============
Class B--Based on net assets of $38,765,806 and 21,355,755 shares outstanding $ 1.82
===============
Class C--Based on net assets of $23,304,066 and 12,856,391 shares outstanding $ 1.81
===============
Class I--Based on net assets of $15,441,237 and 7,945,225 shares outstanding $ 1.94
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Statement of Operations Merrill Lynch Focus Twenty Fund, Inc.
For the Six Months Ended May 31, 2006
Investment Income
Net investment income allocated from the Trust:
Dividends $ 491,573
Interest from affiliates 37,732
Securities lending--net 11,556
Expenses (net of $93,463 waiver) (268,297)
---------------
Total income 272,564
---------------
Expenses
Account maintenance and distribution fees--Class B $ 211,884
Transfer agent fees--Class B 152,913
Account maintenance and distribution fees--Class C 126,274
Administration fees 116,623
Transfer agent fees--Class C 93,823
Transfer agent fees--Class I 49,561
Printing and shareholder reports 30,112
Transfer agent fees--Class A 29,619
Registration fees 19,728
Professional fees 16,453
Account maintenance fees--Class A 12,009
Other 7,147
---------------
Total expenses 866,146
---------------
Investment loss--net (593,582)
---------------
Realized & Unrealized Gain Allocated from the Trust--Net
Realized gain on:
Investments--net 6,130,515
Options written--net 107,007 6,237,522
---------------
Change in unrealized appreciation on:
Investments--net 179,144
Options written--net 50,243 229,387
--------------- ---------------
Total realized and unrealized gain--net 6,466,909
---------------
Net Increase in Net Assets Resulting from Operations $ 5,873,327
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Statements of Changes in Net Assets Merrill Lynch Focus Twenty Fund, Inc.
For the Six For the
Months Ended Year Ended
May 31, November 30,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment loss--net $ (593,582) $ (2,006,457)
Realized gain--net 6,237,522 10,698,050
Change in unrealized appreciation--net 229,387 18,134
--------------- ---------------
Net increase in net assets resulting from operations 5,873,327 8,709,727
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (18,275,215) (53,338,381)
--------------- ---------------
Net Assets
Total decrease in net assets (12,401,888) (44,628,654)
Beginning of period 98,984,254 143,612,908
--------------- ---------------
End of period $ 86,582,366 $ 98,984,254
=============== ===============
* Accumulated investment loss--net $ (593,582) --
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Financial Highlights Merrill Lynch Focus Twenty Fund, Inc.
Class A Class B
For the For the
The following per share data Six Months Six Months
and ratios have been derived Ended Ended
from information provided in May 31, For the Year Ended November 30, May 31, For the Year Ended November 30,
the financial statements. 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning
of period $ 1.80 $ 1.63 $ 1.56 $ 1.27 $ 1.99 $ 1.71 $ 1.57 $ 1.51 $ 1.24 $ 1.96
---------------------------------------------- ----------------------------------------------
Investment loss--net** (.01) (.02) (.02) (.02) (.03) (.01) (.03) (.03) (.03) (.04)
Realized and unrealized gain
(loss)--net .12 .19 .09 .31 (.69) .12 .17 .09 .30 (.68)
---------------------------------------------- ----------------------------------------------
Total from investment operations .11 .17 .07 .29 (.72) .11 .14 .06 .27 (.72)
---------------------------------------------- ----------------------------------------------
Net asset value, end of period $ 1.91 $ 1.80 $ 1.63 $ 1.56 $ 1.27 $ 1.82 $ 1.71 $ 1.57 $ 1.51 $ 1.24
============================================== ==============================================
Total Investment Return*
Based on net asset value
per share 6.11%+++++ 10.43% 4.49% 22.83% (36.18%) 6.43%+++++ 8.92% 3.97% 21.77% (36.73%)
============================================== ==============================================
Ratios to Average Net Assets++
Expenses 1.85%+++ 1.88% 1.95% 2.10% 2.12% 2.70%+++ 2.75% 2.81% 2.98% 2.98%
============================================== ==============================================
Investment loss--net (.68%)+++ (1.17%) (1.08%) (1.57%) (1.87%) (1.55%)+++ (2.04%) (1.93%) (2.45%) (2.72%)
============================================== ==============================================
Supplemental Data
Net assets, end of period
(in thousands) $ 9,071 $ 10,146 $ 13,494 $ 18,007 $ 18,664 $ 38,766 $ 45,104 $ 67,922 $ 89,384 $ 94,834
============================================== ==============================================
Portfolio turnover of the Trust 41.94% 143.17% 182.69% 316.42% 275.69% 41.94% 143.17% 182.69% 316.42% 275.69%
============================================== ==============================================
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses and/or investment loss--net.
+++ Annualized.
+++++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Financial Highlights (concluded) Merrill Lynch Focus Twenty Fund, Inc.
Class C Class I
For the For the
The following per share data Six Months Six Months
and ratios have been derived Ended Ended
from information provided in May 31, For the Year Ended November 30, May 31, For the Year Ended November 30,
the financial statements. 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of
period $ 1.71 $ 1.56 $ 1.51 $ 1.24 $ 1.96 $ 1.82 $ 1.65 $ 1.57 $ 1.28 $ 2.00
---------------------------------------------- ----------------------------------------------
Investment loss--net** (.01) (.03) (.03) (.03) (.04) --++++ (.02) (.01) (.02) (.03)
Realized and unrealized gain
(loss)--net .11 .18 .08 .30 (.68) .12 .19 .09 .31 (.69)
---------------------------------------------- ----------------------------------------------
Total from investment operations .10 .15 .05 .27 (.72) .12 .17 .08 .29 (.72)
---------------------------------------------- ----------------------------------------------
Net asset value, end of period $ 1.81 $ 1.71 $ 1.56 $ 1.51 $ 1.24 $ 1.94 $ 1.82 $ 1.65 $ 1.57 $ 1.28
============================================== ==============================================
Total Investment Return*
Based on net asset value
per share 5.85%+++++ 9.62% 3.31% 21.77% (36.73%) 6.59%+++++ 10.30% 5.10% 22.66% (36.00%)
============================================== ==============================================
Ratios to Average Net Assets++
Expenses 2.73%+++ 2.77% 2.83% 3.01% 3.01% 1.60%+++ 1.63% 1.70% 1.86% 1.90%
============================================== ==============================================
Investment loss--net (1.57%)+++ (2.06%) (1.95%) (2.49%) (2.75%) (.43%)+++ (.92%) (.83%) (1.33%) (1.64%)
============================================== ==============================================
Supplemental Data
Net assets, end of period
(in thousands) $ 23,304 $ 27,457 $ 41,234 $ 53,202 $ 56,512 $ 15,441 $ 16,277 $ 20,962 $ 27,105 $ 24,887
============================================== ==============================================
Portfolio turnover of the Trust 41.94% 143.17% 182.69% 316.42% 275.69% 41.94% 143.17% 182.69% 316.42% 275.69%
============================================== ==============================================
* Total investment returns exclude the effects of sales charges. Effective December 28, 2005, Class I Shares
are no longer subject to any front-end sales charge.
** Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses and/or investment loss--net.
++++ Amount is less than $(.01) per share.
+++ Annualized.
+++++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Notes to Financial Statements
Merrill Lynch Focus Twenty Fund, Inc.
1. Significant Accounting Policies:
Merrill Lynch Focus Twenty Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The Fund seeks to achieve its investment
objective by investing all of its assets in the Master Focus Twenty Trust (the
"Trust"), which has the same investment objective and strategies as the Fund.
The value of the Fund's investment in the Trust reflects the Fund's
proportionate interest in the net assets of the Trust. The performance of the
Fund is directly affected by the performance of the Trust. The financial
statements of the Trust, including the Schedule of Investments, are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements. The Fund's financial statements are prepared in
conformity with U.S. generally accepted accounting principles, which may
require the use of management accruals and estimates. Actual results may
differ from these estimates. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to present a
fair statement of the results for the interim period. All such adjustments are
of a normal, recurring nature. The percentage of the Trust owned by the Fund
at May 31, 2006 was 100.0%. The Fund offers multiple classes of shares.
Effective December 28, 2005, Class I Shares are no longer subject to any front-
end sales charge. Class A Shares are sold with a front-end sales charge.
Shares of Class B and Class C may be subject to a contingent deferred sales
charge. Class I Shares are sold only to certain eligible investors. 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 its 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.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner. The Fund pays a monthly fee
at an annual rate of .25% of the Fund's average daily net assets for the
performance of administrative services (other than investment advice and
related portfolio activities) necessary for the operation of the Fund. The
Fund has also entered into a Distribution Agreement and Distribution Plan with
FAM Distributors, Inc. ("FAMD" or the "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
Pursuant to the Distribution Plan adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of
the shares as follows:
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Notes to Financial Statements (continued)
Merrill Lynch Focus Twenty Fund, Inc.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, also provides
account maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended May 31, 2006, 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 $ 640 $ 3,903
Class I $ 757 $ 14
For the six months ended May 31, 2006, MLPF&S received contingent deferred
sales charges of $25,239 and $187 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred
sales charges of $1,000, relating to transactions subject to front-end sales
charge waivers in Class A.
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.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected
to close in the third quarter of 2006.
3. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$18,275,215 and $53,338,381 for the six months ended May 31, 2006 and the year
ended November 30, 2005, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
May 31, 2006 Shares Amount
Shares sold 94,780 $ 179,178
Automatic conversion of shares 211,092 397,481
--------------- ---------------
Total issued 305,872 576,659
Shares redeemed (1,211,433) (2,286,623)
--------------- ---------------
Net decrease (905,561) $ (1,709,964)
=============== ===============
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 B Shares for the
Six Months Ended Dollar
May 31, 2006 Shares Amount
Shares sold 144,759 $ 259,849
--------------- ---------------
Automatic conversion of shares (221,884) (397,481)
Shares redeemed (4,911,403) (8,819,291)
--------------- ---------------
Total redeemed (5,133,287) (9,216,772)
--------------- ---------------
Net decrease (4,988,528) $ (8,956,923)
=============== ===============
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 C Shares for the
Six Months Ended Dollar
May 31, 2006 Shares Amount
Shares sold 222,733 $ 402,588
Shares redeemed (3,425,870) (6,123,249)
--------------- ---------------
Net decrease (3,203,137) $ (5,720,661)
=============== ===============
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)
=============== ===============
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Notes to Financial Statements (concluded)
Merrill Lynch Focus Twenty Fund, Inc.
Class I Shares for the
Six Months Ended Dollar
May 31, 2006 Shares Amount
Shares sold 193,678 $ 378,023
Shares redeemed (1,178,022) (2,265,690)
--------------- ---------------
Net decrease (984,344) $ (1,887,667)
=============== ===============
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)
=============== ===============
4. Capital Loss Carryforward:
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.
Portfolio Information as of May 31, 2006 Master Focus Twenty Trust
Percent of
Total
Industry Classification Investments
Energy Equipment & Services 19.8%
Aerospace and Defense 9.7
Hotels, Restaurants & Leisure 7.2
Health Care Providers & Services 6.6
Electrical Equipment 6.5
Machinery 6.4
IT Services 6.2
Food Products 3.3
Oil, Gas & Consumable Fuels 3.3
Capital Markets 3.2
Industrial Conglomerates 3.2
Metals & Mining 3.1
Construction & Engineering 3.0
Household Products 2.9
Internet & Software Services 2.7
Health Care Equipment & Supplies 2.7
Other* 10.2
* Includes portfolio holdings in short-term investments and
options written.
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. MAY 31, 2006
Schedule of Investments Master Focus Twenty Trust (in U.S. dollars)
Shares
Country Industry Common Stocks Held Value
India--3.4%
IT Services--3.4%
Infosys Technologies Ltd. 41,700 $ 2,944,020
Total Common Stocks in India 2,944,020
Switzerland--2.9%
Health Care Equipment
& Supplies--2.9%
Alcon, Inc. 23,200 2,507,456
Total Common Stocks in Switzerland 2,507,456
United States--90.9%
Aerospace & Defense--10.6%
BE Aerospace, Inc. (a) 123,600 2,740,212
Boeing Co. 38,700 3,221,775
Lockheed Martin Corp. 44,000 3,189,560
-------------
9,151,547
Capital Markets--3.4%
The Charles Schwab Corp. 178,700 2,977,142
Construction & Engineering--3.3%
Jacobs Engineering Group, Inc. (a) 36,800 2,871,504
Electrical Equipment--7.0%
Emerson Electric Co. 37,000 3,053,240
Roper Industries, Inc. 64,600 3,025,864
-------------
6,079,104
Food Products--3.6%
Bunge Ltd. 54,900 3,107,340
Energy Equipment
& Services--21.4%
Baker Hughes, Inc. 35,700 3,080,910
Grant Prideco, Inc. (a)(d) 62,800 3,016,912
Halliburton Co. (d) 41,400 3,088,026
National Oilwell Varco, Inc. (a) 48,000 3,170,880
Schlumberger Ltd. 47,400 3,108,018
Transocean, Inc. (a)(d) 38,100 3,100,197
-------------
18,564,943
Health Care Providers
& Services--7.2%
Cerner Corp. (a) 12,700 482,346
Sierra Health Services, Inc. (a) 70,200 2,892,240
WellPoint, Inc. (a) 39,900 2,856,042
-------------
6,230,628
Hotels, Restaurants
& Leisure--7.8%
Las Vegas Sands Corp. (a) 51,800 3,657,598
Starbucks Corp. (a) 86,300 3,076,595
-------------
6,734,193
Shares
Country Industry Common Stocks Held Value
United States (concluded)
Household Products--3.2%
Procter & Gamble Co. 51,000 $ 2,766,750
IT Services--3.3%
Cognizant Technology Solutions Corp. (a) 48,700 2,873,300
Industrial Conglomerates--3.4%
3M Co. 35,500 2,969,930
Internet Software & Services--2.9%
Yahoo!, Inc. (a) 80,900 2,555,631
Machinery--6.9%
Caterpillar, Inc. 42,000 3,063,900
ITT Industries, Inc. 56,500 2,946,475
-------------
6,010,375
Metals & Mining--3.4%
Phelps Dodge Corp. 34,500 2,956,305
Oil, Gas & Consumable Fuels--3.5%
Valero Energy Corp. 50,100 3,073,635
Total Common Stocks in the United States 78,922,327
Total Common Stocks
(Cost--$73,139,768)--97.2% 84,373,803
Beneficial
Short-Term Securities Interest
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I, 4.85% (b)(c) $3,823,530 3,823,530
Merrill Lynch Liquidity Series, LLC
Money Market Series, 5.04% (b)(c)(e) 5,793,500 5,793,500
Total Short-Term Securities
(Cost--$9,617,030)--11.1% 9,617,030
Total Investments
(Cost--$82,756,798)--108.3% 93,990,833
Number of
Options Written Contracts
Call Options Written--0.0%
Las Vegas Sands Corp., expiring June 2006
at USD 75 518 (36,260)
Total Options Written
(Premiums Received--$86,503)--0.0% (36,260)
Total Investments, net of options written,
(Cost--$82,670,295*)--108.3% 93,954,573
Liabilities in Excess of Other Assets--(8.3%) (7,168,493)
-------------
Net Assets--100.0% $ 86,786,080
=============
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Schedule of Investments (concluded) Master Focus Twenty Trust (in U.S. dollars)
* The cost and unrealized appreciation (depreciation) of investments,
net of options written, as of May 31, 2006, as computed for federal
income tax purposes, were as follows:
Aggregate cost $ 82,670,295
=================
Gross unrealized appreciation $ 12,944,081
Gross unrealized depreciation (1,659,803)
-----------------
Net unrealized appreciation $ 11,284,278
=================
(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 $2,409,329 $37,732
Merrill Lynch Liquidity Series, LLC
Money Market Series $2,451,100 $11,556
(c) Represents the current yield as of 5/31/2006.
(d) Security, or a portion of security, is on loan.
(e) Security was purchased with the cash proceeds from securities loans.
o 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.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Statement of Assets and Liabilities Master Focus Twenty Trust
As of May 31, 2006
Assets
Investments in unaffiliated securities, at value (including securities
loaned of $5,901,400) (identified cost--$73,139,768) $ 84,373,803
Investments in affiliated securities, at value (identified cost--$9,617,030) 9,617,030
Receivables:
Securities sold $ 1,986,511
Dividends 193,170
Contributions 17,478
Securities lending 5,808 2,202,967
---------------
Prepaid expenses 3,294
---------------
Total assets 96,197,094
---------------
Liabilities
Collateral on securities loaned, at value 5,793,500
Options written, at value (premiums received $86,503) 36,260
Payables:
Securities purchased 3,377,366
Withdrawals 146,054
Investment adviser 25,588
Other affiliates 815 3,549,823
---------------
Accrued expenses 31,431
---------------
Total liabilities 9,411,014
---------------
Net Assets
Net assets $ 86,786,080
===============
Net Assets Consist of
Investor's capital $ 75,501,802
Unrealized appreciation--net 11,284,278
---------------
Net Assets $ 86,786,080
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Statement of Operations Master Focus Twenty Trust
For the Six Months Ended May 31, 2006
Investment Income
Dividends (net of $4,801 foreign withholding tax) $ 491,573
Interest from affiliates 37,732
Securities lending--net 11,556
---------------
Total income 540,861
---------------
Expenses
Investment advisory fees $ 280,389
Accounting services 43,357
Professional fees 14,596
Custodian fees 10,606
Trustees' fees and expenses 6,786
Printing and shareholder reports 1,068
Pricing fees 511
Other 4,447
---------------
Total expenses before waiver 361,760
Waiver of expenses (93,463)
---------------
Total expenses after waiver 268,297
---------------
Investment income--net 272,564
---------------
Realized & Unrealized Gain--Net
Realized gain on:
Investments--net 6,130,515
Options written--net 107,007 6,237,522
---------------
Change in unrealized appreciation on:
Investments--net 179,144
Options written--net 50,243 229,387
--------------- ---------------
Total realized and unrealized gain--net 6,466,909
---------------
Net Increase in Net Assets Resulting from Operations $ 6,739,473
===============
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Statements of Changes in Net Assets Master Focus Twenty Trust
For the Six For the
Months Ended Year Ended
May 31, November 30,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income--net $ 272,564 $ 83,891
Realized gain--net 6,237,522 10,698,050
Change in unrealized appreciation--net 229,387 18,134
--------------- ---------------
Net increase in net assets resulting from operations 6,739,473 10,800,075
--------------- ---------------
Capital Transactions
Proceeds from contributions 1,219,638 2,375,473
Fair value of withdrawals (20,369,956) (57,942,406)
--------------- ---------------
Net decrease in net assets derived from capital transactions (19,150,318) (55,566,933)
--------------- ---------------
Net Assets
Total decrease in net assets (12,410,845) (44,766,858)
Beginning of period 99,196,925 143,963,783
--------------- ---------------
End of period $ 86,786,080 $ 99,196,925
=============== ===============
See Notes to Financial Statements.
Financial Highlights Master Focus Twenty Trust
For the Six
Months Ended
The following per share data and ratios have been derived May 31, For the Year Ended November 30,
from information provided in the financial statements. 2006 2005 2004 2003 2002
Total Investment Return
Total investment return 7.10%++ 11.30% 6.07% 23.82% (34.70%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses, net of waiver .57%++++ .63% .71% .71% .75%
========== ========== ========== ========== ==========
Expenses .77%++++ .75% .73% .71% .75%
========== ========== ========== ========== ==========
Investment income (loss)--net .58%++++ .07% .17% (.19%) (.49%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 86,786 $ 99,197 $ 143,964 $ 188,072 $ 198,406
========== ========== ========== ========== ==========
Portfolio turnover 41.94% 143.17% 182.69% 316.42% 275.69%
========== ========== ========== ========== ==========
++ Aggregate total investment return.
++++ Annualized.
See Notes to Financial Statements.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
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
interests in the Trust, subject to certain limitations. The Trust's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period.
All such adjustments are of a normal recurring nature. The following is a
summary of significant accounting policies followed by the Trust.
(a) Valuation of investments--Equity securities that are held by the Trust
that are traded on stock exchanges or the Nasdaq National Market are valued at
the last sale price or official close price on the exchange, as of the close
of business on the day the securities are being valued or, lacking any sales,
at the last available bid price for long positions, and at the last available
asked price for short positions. In cases where equity securities are traded
on more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the Board of
Trustees of the Trust. Long positions traded in the over-the-counter ("OTC")
market, Nasdaq Small Cap or Bulletin Board are valued at the last available
bid price or yield equivalent obtained from one or more dealers or pricing
services approved by the Board of Trustees of the Trust. Short positions
traded in the OTC market are valued at the last available asked price.
Portfolio securities that are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of exchange-
traded options or, in the case of options traded in the OTC market, the last
asked price. Options purchased are valued at their last sale price in the case
of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued 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. Valuation of other short-term investment
vehicles is generally based on the net asset value of the underlying
investment vehicle or amortized cost.
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.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Notes to Financial Statements (continued) Master Focus Twenty Trust
* Financial futures contracts--The Trust may purchase or sell financial
futures contracts. Futures contracts are contracts for delayed delivery of
securities at a specific future date at a specific price or yield. Upon
entering into a contract, the Trust deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Trust agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the value of
the contract. Such receipts or payments are known as variation margin and are
recorded by the Trust as unrealized gains or losses. When the contract is
closed, the Trust records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed.
* Options--The Trust may purchase and write call and put options. When the
Trust writes an option, an amount equal to the premium received by the Trust
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added
to) the proceeds of the security sold. When an option expires (or the Trust
enters into a closing transaction), the Trust realizes a gain or loss on the
option to the extent of the premiums received or paid (or a gain or loss to
the extent that the cost of the closing transaction exceeds the premium paid
or received).
Written and purchased options are non-income producing investments.
* Forward foreign exchange contracts--The Trust may enter into forward foreign
exchange contracts as a hedge against either specific transactions or
portfolio positions. The contract is marked-to-market daily and the change in
market value is recorded by the Trust as an unrealized gain or loss. When the
contract is closed, the Trust records a realized gain or loss equal to the
difference between the value at the time it was opened and the value at the
time it was closed.
* Foreign currency options and futures--The Trust may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge
against possible variations in foreign exchange rates. Such transactions may
be effected with respect to hedges on non-U.S. dollar-denominated securities
owned by the Trust, sold by the Trust but not yet delivered, or committed or
anticipated to be purchased by the Trust.
(c) 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.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Notes to Financial Statements (continued) Master Focus Twenty Trust
(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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner. FAM has entered into a Sub-
Advisory Agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K."), an affiliate of FAM, pursuant to which MLAM U.K. provides investment
advisory services to FAM with respect to the Trust. There is no increase in
the aggregate fees paid by the Trust for these services.
FAM is responsible for the management of the Trust's investments and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Trust. For such services, the Trust pays a
monthly fee at an annual rate of .60% of the average daily value of the
Trust's net assets. FAM has agreed to waive .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 six months ended May 31, 2006, FAM earned fees
of $280,389, of which $93,463 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 Merrill Lynch Investment Managers, L.P. ("MLIM"), an affiliate of
FAM, or its affiliates. For the six months ended May 31, 2006, MLIM, LLC
received $5,407 in securities lending agent fees.
In addition, MLPF&S received $5,179 in commissions on the execution of
portfolio security transactions for the Trust for the six months ended May 31,
2006.
For the six months ended May 31, 2006, the Trust reimbursed FAM $1,235 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., MLIM, and/or MLIM, LLC.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected
to close in the third quarter of 2006.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
six months ended May 31, 2006 were $38,149,963 and $55,728,512, respectively.
Transactions in call options written for the six months ended May 31, 2006
were as follows:
Number of Premiums
Contracts Received
Outstanding call options written,
beginning of period -- --
Options written 1,231 $ 228,414
Options exercised (72) (18,504)
Options expired (241) (99,808)
Options closed (400) (23,599)
--------------- ---------------
Outstanding call options written,
end of period 518 $ 86,503
=============== ===============
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Notes to Financial Statements (concluded) Master Focus Twenty Trust
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, which
expires November 2006. The Trust may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for leverage.
The Trust may borrow up to the maximum amount allowable under the Trust's
current prospectus and statement of additional information, subject to various
other legal, regulatory or contractual limits. The Trust pays a commitment fee
of .07% per annum based on the Trust's pro rata share of the unused portion of
the credit agreement. Amounts borrowed under the credit agreement bear
interest at a rate equal to, at each fund's election, the federal funds rate
plus .50% or a base rate as defined in the credit agreement. The Trust did not
borrow under the credit agreement during the six months ended May 31, 2006.
Officers and Directors/Trustees
Robert C. Doll, Jr., President and Director/Trustee
James H. Bodurtha, Director/Trustee
Kenneth A. Froot, Director/Trustee
Joe Grills, Director/Trustee
Herbert I. London, Director/Trustee
Roberta Cooper Ramo, Director/Trustee
Robert S. Salomon, Jr., Director/Trustee
Donald C. Burke, Vice President and Treasurer
Thomas E. Burke, Vice President and Portfolio Manager
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement--Matters Considered by Each Board
In connection with the Transaction between Merrill Lynch and BlackRock, the
Board of Directors of Merrill Lynch Focus Twenty Fund, Inc. and the Board of
Trustees of Master Focus Twenty Trust considered a new investment advisory
agreement (the "New Investment Advisory Agreement") between the Trust and
BlackRock Advisors, Inc. or its successor ("BlackRock Advisors"). If the New
Investment Advisory Agreement is approved by the Fund's shareholders, it will
become effective upon the closing of the Transaction, which is expected in the
third quarter of 2006.
Each Board discussed the New Investment Advisory Agreement at telephonic and
in-person meetings held during April and May 2006. Each Board, including the
independent directors/trustees, approved the New Investment Advisory Agreement
at a meeting held on May 9, 2006.
To assist each Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors/trustees, through their independent
legal counsel, also requested and received additional information from Merrill
Lynch and BlackRock in connection with their consideration of the New
Investment Advisory Agreement. The additional information was provided in
advance of the May 9, 2006 meetings. In addition, the independent directors/
trustees consulted with their counsel and counsel for the Fund and Trust on
numerous occasions, discussing, among other things, the legal standards and
certain other considerations relevant to each Board's deliberations.
At each Board meeting, Board members discussed with Merrill Lynch management
and certain BlackRock representatives the Transaction, its strategic rationale
and BlackRock's general plans and intentions regarding the Fund and the Trust.
At these Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from each Board. Each Board also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Investment Adviser and certain
affiliates being transferred to BlackRock in connection with the Transaction.
The independent directors/trustees also conferred separately and with their
counsel about the Transaction and other matters related to the Transaction on
a number of occasions, including in connection with the April and May 2006
meetings. After the presentations and after reviewing the written materials
provided, the independent directors/trustees met in executive sessions with
their counsel to consider the New Investment Advisory Agreement.
In connection with each Board's review of the New Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the Board about a variety of
matters. The advice included the following, among other matters:
* that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and the Trust and their
shareholders by BlackRock Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented professionals;
* that the Fund and Trust should benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions (R) brand name;
* that BlackRock has no present intention to alter any applicable expense
waivers, expense caps and reimbursements currently in effect and, while it
reserves the right to do so in the future, it would seek the approval of
each Board before making any changes;
* that BlackRock and Merrill Lynch will enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill Lynch-
affiliated broker-dealers will continue to offer the Fund as an investment
product;
* that BlackRock Advisors will have substantially the same access to the
Merrill Lynch sales force when distributing shares of the Fund as is
currently provided to the Investment Adviser and that other arrangements
between the Investment Adviser and Merrill Lynch sales channels will be
preserved;
* that the Fund will have access to BlackRock's network of third party
brokers, retirement plan platforms and registered investment advisers;
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
* that under the Transaction Agreement, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in compliance
with the conditions of Section 15(f) of the Investment Company Act of 1940
(the "1940 Act") in relation to any public funds advised by BlackRock or
the Investment Adviser (or its affiliates), respectively; and
* that Merrill Lynch and BlackRock would derive benefits from the Transaction
and that, as a result, they have a different financial interest in the
matters that were being considered than do Fund or Trust shareholders;
Each Board considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
* the potential benefits to Fund and Trust shareholders from being part of a
combined fund family with BlackRock-sponsored funds, including possible
economies of scale and access to investment opportunities;
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength and
resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of the New Investment Advisory Agreement,
including the fact that the schedule of the Fund's/Trust's total advisory
and administrative fees will not increase by virtue of the New Investment
Advisory Agreement, but will remain the same;
* that within the past year each Board performed a full annual review of the
investment advisory agreement currently in effect for the Fund/Trust (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative services
currently provided to the Fund/Trust; and that the advisory and/or
management fees paid by the Trust, taking into account any applicable
agreed-upon fee waivers and breakpoints, represent reasonable compensation
to the Investment Adviser in light of the services provided, the costs to
the Investment Adviser of providing those services, economies of scale, the
fees and other expenses paid by similar funds (including information
provided by Lipper), and such other matters as the directors/trustees have
considered relevant in the exercise of their reasonable judgment (each
Board had most recently performed a full annual review of the Current
Investment Advisory Agreement in June 2005); and
* that Merrill Lynch agreed to pay all expenses of the Fund and Trust in
connection with each Board's consideration of the New Investment Advisory
Agreement and related agreements and all costs of shareholder approval of
the New Investment Advisory Agreement and as a result neither the Fund nor
Trust would bear costs in obtaining shareholder approval of the New
Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, each Board assessed
the nature, scope and quality of the services to be provided to the Fund and
the Trust by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory
requirements. In its review of the New Investment Advisory Agreement, each
Board also considered a range of information in connection with its oversight
of the services to be provided by BlackRock Advisors and its affiliates. Among
the matters considered were: (a) fees (in addition to management fees) to be
paid to BlackRock Advisors and its affiliates by the Fund and Trust; (b) Fund
and Trust operating expenses paid to third parties; (c) the resources devoted
to and compliance reports relating to the Fund's and Trust's investment
objectives, policies and restrictions, and their compliance with their Code of
Ethics and BlackRock Advisors' compliance policies and procedures; and (d) the
nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meetings to consider renewal of the Current
Investment Advisory Agreement, each Board had requested and received materials
specifically relating to the agreement. These materials included (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) a discussion by the Trust's portfolio
management team on investment strategies used by the Trust during its most
recent fiscal year; (c) information on the profitability to the Investment
Adviser of the Current Investment Advisory Agreement and other payments
received by the Investment Adviser and its affiliates from the Fund and the
Trust; and (d) information provided by the Investment Adviser concerning
services related to the valuation and pricing of Trust portfolio holdings,
allocation of Trust brokerage fees, the Trust's portfolio turnover statistics,
and direct and indirect benefits to the Investment Adviser and its affiliates
from their relationship with the Fund and the Trust.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Disclosure of New Investment Advisory Agreement (continued)
In its deliberations, each Board considered information received in connection
with its most recent continuation of the Current Investment Advisory
Agreement, in addition to information provided by BlackRock and BlackRock
Advisors in connection with its evaluation of the terms and conditions of the
New Investment Advisory Agreement. The directors/trustees did not identify any
particular information that was all-important or controlling. Each Board,
including a majority of the Board's independent directors/trustees, concluded
that the terms of the New Investment Advisory Agreement are appropriate, that
the fees to be paid are reasonable in light of the services to be provided to
the Fund/Trust, and that the New Investment Advisory Agreement should be
approved and recommended to Fund/Trust shareholders.
Nature, Quality and Extent of Services Provided--Each Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of
the Fund and Trust, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. Each Board focused primarily on
the Investment Adviser's investment advisory services and the investment
performance of the Fund and Trust, but also considered certain areas in which
both the Investment Adviser and the Fund/Trust receive services as part of the
Merrill Lynch complex. Each Board compared the performance of the Fund - both
including and excluding the effects of the Fund's fees and expenses - to the
performance of a comparable group of mutual funds, and the performance of a
relevant index or combination of indexes. While 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.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, each Board
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund and the Trust; the ability of BlackRock Advisors to
perform its duties after the Transaction; and any anticipated changes to the
current investment and other practices of the Fund or Trust.
Each Board was given information with respect to the potential benefits to the
Fund and Trust and their shareholders from having access to BlackRock's state
of the art technology and risk management analytic tools, including the
investment tools provided under the BlackRock Solutions brand name.
Each Board was advised that, as a result of Merrill Lynch's equity interest in
BlackRock after the Transaction, the Fund and Trust will continue to be
subject to restrictions concerning certain transactions involving Merrill
Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer
acting as principal) absent revised or new regulatory relief. Each Board was
advised that a revision of existing regulatory relief with respect to these
restrictions was being sought from the Securities and Exchange Commission and
were advised of the possibility of receipt of such revised regulatory relief.
There can be no assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the
directors/trustees determined that the nature and quality of services to be
provided to the Fund/Trust under the New Investment Advisory Agreement were
expected to be as good or better than that provided under the Current
Investment Advisory Agreement. It was noted, however, that it is expected that
there will be changes in personnel following the Transaction and the
combination of the operations of the Investment Adviser and its affiliates
with those of BlackRock. Each Board noted that if current portfolio managers
or other personnel cease to be available, the Board would consider all
available options, which could include seeking the investment advisory or
other services of BlackRock affiliates. Accordingly, each Board concluded
that, overall, the Board was satisfied at the present time with assurances
from BlackRock and BlackRock Advisors as to the expected nature, extent and
quality of the services to be provided to the Fund/Trust under the New
Investment Advisory Agreement.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the recent review of the Current Investment Advisory
Agreement, each Board had received, among other things, a report from Lipper
comparing the Fund's fees, expenses and performance to those of a peer group
selected by Lipper, and information as to the fees charged by the Investment
Adviser or its affiliates to other registered investment company clients for
investment management services. Each Board reviewed the Fund's/Trust'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 the Fund's Lipper category. They also compared the Fund's
total expenses to those of other comparable funds. The information showed that
the Fund had fees and expenses within the range of fees and expenses of
comparable funds. Each Board considered the services to be provided by and the
fees to be charged by BlackRock Advisors to other funds with similar
investment mandates and noted that the fees charged by BlackRock Advisors in
those cases, including fee waivers and expense reimbursements, were generally
comparable to those being charged to the Fund/Trust. Each Board also noted
that, as a general matter, according to the information provided by BlackRock,
fees charged to institutional clients were lower than the fees charged to the
Fund, but BlackRock Advisors provided less extensive services to such clients.
Each Board concluded that the Fund's/Trust's management fee and fee rate and
overall expense ratio are reasonable compared to those of other comparable
funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, each Board considered, among
other things, whether advisory and administrative fees or other expenses would
change as a result of the Transaction. Based on its review of the materials
provided and the fact that the New Investment Advisory Agreement and
administrative agreement are substantially similar to the Current Investment
Advisory Agreement and administrative agreement in all material respects,
including the rate of compensation, each Board determined that the Transaction
should not increase the total fees payable, including any fee waivers, expense
caps and expense reimbursements, for advisory and administrative services.
Each Board noted that it was not possible to predict how the Transaction would
affect BlackRock Advisors' profitability from its relationship with the Fund
and Trust.
Each Board discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with
the Fund and Trust. Each Board noted that the Board expects to receive
profitability information from BlackRock Advisors on at least an annual basis
and thus be in a position to evaluate whether any adjustments in fees and/or
fee breakpoints would be appropriate.
Fees and Economies of Scale--Each Board considered the extent to which
economies of scale might be realized as the assets of the Fund and Trust
increase and whether there should be changes in the management fee rate or
structure in order to enable the Fund and Trust to participate in these
economies of scale. Each Board determined these economies of scale are
currently not available in the Fund or Trust.
In reviewing the Transaction, each Board considered, among other things,
whether advisory and administrative fees or other expenses would change as a
result of the Transaction. Based on the fact that the New Investment Advisory
Agreement and administrative agreement are substantially similar to the
Current Investment Advisory Agreement and administrative agreement in all
material respects, including the rate of compensation, each Board determined
that as a result of the Transaction, the Fund's/Trust's total advisory and
administrative fees would be no higher than the fees under the Current
Investment Advisory Agreement. Each Board noted that in conjunction with the
Board's most recent deliberations concerning the Current Investment Advisory
Agreement, the Board had determined that the total fees for advisory and
administrative services for the Fund and Trust were reasonable in light of the
services provided. It was noted that in conjunction with the recent review of
the Current Investment Advisory Agreement, each Board had received, among
other things, a report from Lipper comparing the Fund's fees, expenses and
performance to those of a peer group selected by Lipper, and information as to
the fees charged by the Investment Adviser to other registered investment
company clients for investment management services. Each Board concluded that,
because the rates for advisory and administrative fees for the Fund/Trust
would be no higher than current fee rates, the proposed management fee
structure, including any fee waivers, was reasonable and that no additional
changes were currently necessary.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Disclosure of New Investment Advisory Agreement (concluded)
Fall-Out Benefits--In evaluating the fall-out benefits to be received by
BlackRock Advisors under the New Investment Advisory Agreement, each Board
considered whether the Transaction would have an impact on the fall-out
benefits received by the Investment Adviser by virtue of the Current
Investment Advisory Agreement. Based on their review of the materials
provided, including materials received in connection with their most recent
approval or continuance of the Current Investment Advisory Agreement, and
their discussions with management of the Investment Adviser and BlackRock, the
directors/trustees determined that those benefits could include increased
ability for BlackRock to distribute shares of its funds and other investment
products and, where applicable, to obtain research services using the Trust's
portfolio transaction brokerage commissions. Each Board noted that any such
benefits were difficult to quantify with certainty at this time, and indicated
that the Board would continue to evaluate them going forward.
Investment Performance--Each Board considered investment performance for the
Fund and Trust. Each Board compared the performance of the Fund and Trust -
both including and excluding the effects of fees and expenses - to the
performance of a comparable group of mutual funds, and the performance of a
relevant index or combination of indexes. The comparative information received
from Lipper showed Fund performance at various levels within the range of
performance of comparable funds over different time periods. While each Board
reviews performance data at least quarterly, consistent with the Investment
Adviser's investment goals, the Board attaches more importance over relatively
long periods of time, typically three to five years. Each Board noted recent
improvement in Fund performance, and determined to continue to monitor such
performance. Also, each Board took into account the investment performance of
funds currently advised by BlackRock Advisors. Each Board noted BlackRock's
considerable investment management experience and capabilities, but was unable
to predict what effect, if any, consummation of the Transaction would have on
the future performance of the Fund.
Conclusion--After the independent directors of the Fund and independent
trustees of the Trust deliberated in executive session, each entire Board,
including the independent directors/trustees, approved the New Investment
Advisory Agreement, concluding that the advisory fee rate was reasonable in
relation to the services provided and that the New Investment Advisory
Agreement was in the best interests of the shareholders. In approving the New
Investment Advisory Agreement, each Board noted that it anticipated reviewing
the continuance of the agreement in advance of the expiration of the initial
two-year period.
Contingent BlackRock Subadvisory Agreement--Matters Considered by Each Board
At the telephonic and in-person meetings held during April and May 2006 at
which each Board discussed and approved the New Investment Advisory
Agreement, the Board, including the independent directors/trustees, also
discussed and approved a contingent subadvisory agreement (the "Contingent
Subadvisory Agreement") between the Investment Adviser and BlackRock Advisors
(the "BlackRock Subadviser"). The Contingent Subadvisory Agreement is
intended to ensure that the Trust operates with efficient portfolio
management services until the closing of the Transaction, in the event that
each Board deems it necessary and in the best interests of the Fund and Trust
and their shareholders that the BlackRock Subadviser assist in managing the
operations of the Trust during the interim period until the closing of the
Transaction. If shareholders approve the Contingent Subadvisory Agreement, it
will take effect only upon recommendation from the Investment Adviser and
upon subsequent approval of each Board in the period up to the closing of the
Transaction. The effectiveness of the Contingent Subadvisory Agreement,
therefore, would be contingent on further Board approval after shareholders
approve it. Pursuant to the Contingent Subadvisory Agreement, the BlackRock
Subadviser would receive a monthly fee from the Investment Adviser equal to
50% of the advisory fee received by the Investment Adviser. The Investment
Adviser would pay the BlackRock Subadviser out of its own resources. There
would be no increase in Fund expenses as a result of the Contingent
Subadvisory Agreement.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
In making its approval, each Board considered the Contingent Subadvisory
Agreement in conjunction with the New Investment Advisory Agreement and
reviewed the same information and factors discussed above, and came to the
same conclusions. Each Board also considered in conjunction with the
Contingent Subadvisory Agreement the necessity of ensuring that the Trust
operates with effective management services until the closing of the
Transaction. In reviewing the subadvisory fee rate provided in the Contingent
Subadvisory Agreement, each Board took note of the fact that both the
Investment Adviser and the BlackRock Subadviser would have significant
responsibilities under their respective advisory agreements. The Investment
Adviser would remain responsible for oversight of the operations and
administration of the Fund and Trust, and the BlackRock Subadviser would
provide advisory services to the Trust under the Contingent Subadvisory
Agreement. Each Board also took into account the expected short duration of
the term of any Contingent Subadvisory Agreement and the fact that total
advisory fees paid by the Fund and Trust would not increase as a result of the
Contingent Subadvisory Agreement. Under all of the circumstances, each Board
concluded that it was a reasonable allocation of fees for the BlackRock
Subadviser to receive 50% of the advisory fee paid by the Trust to the
Investment Adviser.
After the independent directors/trustees deliberated in executive session,
each entire Board, including the independent directors/trustees, approved the
Contingent Subadvisory Agreement, concluding that the advisory fee was
reasonable in relation to the services provided and that the Contingent
Subadvisory Agreement was in the best interests of shareholders.
MERRILL LYNCH FOCUS TWENTY FUND, INC. MAY 31, 2006
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-
annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined
that the registrant's disclosure controls and procedures are
effective based on our evaluation of these controls and procedures
as of a date within 90 days prior to the filing date of this
report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the 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 - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Focus Twenty Fund, Inc. and Master Focus Twenty Trust
By: /s/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Focus Twenty Fund, Inc. and Master Focus Twenty Trust
Date: July 21, 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: July 21, 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: July 21, 2006