MERRILL LYNCH
FOCUS TWENTY
FUND, INC.
FUND LOGO
Semi-Annual Report
May 31, 2000
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.
Merrill Lynch
Focus Twenty Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH FOCUS TWENTY FUND, INC.
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for
Merrill Lynch Focus Twenty Fund, Inc. The Fund's investment
objective is long-term capital appreciation. The Fund will seek to
achieve its investment objective by investing primarily in a
portfolio of common stocks of approximately 20 companies that we
believe have strong earnings growth and capital appreciation
potential. In this and future shareholder reports, we will highlight
the Fund's performance and describe recent investment activities.
Investment Environment
Since the beginning of the year, market volatility has increased
dramatically and has become an additional cost in achieving
investment returns. During volatile periods, investors can easily
lose sight of basic trends. Opinions quickly shift from too much
optimism to too much bearishness. A whipsaw effect develops that
tends to leave most investors taking too many losses over too short
a period of time. Based on the conditions that have caused this
increase in volatility, we believe the likelihood of it continuing
through the year is quite high.
Portfolio Matters
Since inception (March 3, 2000) through May 31, 2000, the Fund's
Class A, Class B, Class C and Class D Shares had total returns of
-31.20%, -31.40%, -31.40% and -31.20%, respectively. These results
are comparable to the -30.78% total return of the unmanaged National
Association of Securities Dealers Automated Quotations (NASDAQ)
Composite Index during the same period. (Fund results shown do not
reflect sales charges, and would be lower if sales charges were
included. Complete performance information can be found on page 3 of
this report to shareholders.)
Shortly after launching the Fund, the agressive growth area of the
equity market began to lose favor with investors. The resulting
dramatic contraction in valuations, driven almost entirely by
negative investor psychology (as opposed to any deterioration in
individual company business fundamentals) persisted until nearly the
end of May. This negative shift in investor psychology resulted from
confusion and concern over the growing strength of the economy and
the degree to which the Federal Reserve Board would have to raise
interest rates in order to keep inflation and the economy in check.
During times of uncertainty and lack of confidence, investors move
away from what are often viewed as higher risk (highly valued)
securities toward those that are considered more defensive in nature
(slower growth, lower price/earnings ratio stocks and fixed-income
securities).
There were some bright spots for the Fund during the period. We
benefited from strong performances by SDL Inc., Brocade
Communications Systems, Inc. and Clear Channel Communications, Inc.
Our weakest performers were Redback Networks, Inc., Exodus
Communications, Inc. and Extreme Networks, Inc. During the period we
sold Redback Networks, as well as Sycamore Networks, Inc. and Citrix
Systems, Inc. We remain very confident in the outlook for Exodus
Communications and Extreme Networks.
Despite the frustration caused by our holdings' share price declines
in the face of steadily and consistently improving business
fundamentals, we have not been swayed from our belief that a
concentrated investment approach in a handful of our "best ideas"
makes excellent sense for the longer-term investor. The risk of
short-term volatility will always be present, and we take advantage
of this characteristic to continually upgrade the Fund's holdings.
Our confidence in our investment process and its ability to identify
outstanding companies to invest in was bolstered by the financial
performance delivered by our Fund's holdings during the period. Our
Fund holdings generated average earnings growth of 86.8% and bested
Wall Street's earnings estimates by over 23% on average. This
compares favorably to the average company in the Standard & Poor's
500 Index, which generated earnings growth of 24.1%, and beat
earnings estimates by an average of just over 6%. None of our Fund
holdings missed their estimates for earnings in the period.
We were heartened at May month-end, and in the first few days of
June 2000, when equity investors seemed to embrace the notion that
the Federal Reserve Board's job of raising interest rates to slow
the economy was having the desired effect, possibly eliminating the
need for any further tightening actions. Many of our stocks
stabilized on this change in perception, and some have rebounded
substantially, aided by some positive fundamental developments at
the individual company level. We are optimistic that future economic
reports will add support to the thesis that the economy will achieve
the desired soft landing. The subsequent removal of upward pressure
on interest rates, a renewal in investor confidence and the tendency
for investors to seek out companies perceived to have high and
sustainable unit growth rates during periods of economic slowing
could represent the catalysts needed for our types of companies to
return to investor favor.
In Conclusion
We appreciate your early investment in Merrill Lynch Focus Twenty
Fund, Inc., and we are particularly grateful for your continued
support and commitment during the recent challenging period. We
continue to have high confidence in our investment process as a long-
term strategy, and we look forward to serving your investment needs
in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(James D. McCall)
James D. McCall
Senior Vice President and
Portfolio Manager
July 5, 2000
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Joseph L. May, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Arthur Zeikel, Director
Robert C. Doll, Jr., Senior Vice President
James D. McCall, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Susan B. Baker, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
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, 2000
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Aggregate Total Return" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Aggregate Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (3/3/00)
through 3/31/00 -10.30% -15.01%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (3/3/00)
through 3/31/00 -10.40% -13.98%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (3/3/00)
through 3/31/00 -10.40% -13.98%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (3/3/00)
through 3/31/00 -10.30% -15.01%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Recent Performance Results
<CAPTION>
Since Inception
As of May 31, 2000 Total Return
<S> <C>
ML Focus Twenty Fund, Inc. Class A Shares* -31.20%
ML Focus Twenty Fund, Inc. Class B Shares* -31.40
ML Focus Twenty Fund, Inc. Class C Shares* -31.40
ML Focus Twenty Fund, Inc. Class D Shares* -31.20
S&P Barra Growth Index** - 3.93
NASDAQ Composite Index*** -30.78
*Investment results shown do not reflect sales charges; results
would be lower if a sales charge was included. Total investment
returns are based on changes in net asset values for the periods
shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. The Fund's
inception date is 3/3/00.
**An unmanaged broad-based Index comprised of companies with higher
price-to-book ratios. Since inception total returns are from 3/3/00.
***An unmanaged broad-based Index comprised of common stocks. Since
inception total returns are from 3/3/00.
</TABLE>
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities Merrill Lynch Focus Twenty Fund, Inc.
<CAPTION>
As of May 31, 2000
<S> <S> <C>
Assets: Investment in Master Focus Twenty Trust, at value
(identified cost--$1,307,901,259) $1,014,522,625
Prepaid registration fees 82,962
--------------
Total assets 1,014,605,587
--------------
Liabilities: Payable to distributor 803,949
Accrued expenses and other liabilities 278,350
--------------
Total liabilities 1,082,299
--------------
Net Assets: Net assets $1,013,523,288
==============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 356,537
Class B Shares of Common Stock, $.10 par value, 200,000,000
shares authorized 7,957,285
Class C Shares of Common Stock, $.10 par value, 200,000,000
shares authorized 4,805,763
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 1,645,296
Paid-in capital in excess of par 1,399,011,116
Accumulated investment loss--net (3,054,369)
Accumulated realized capital losses on investments from the Trust--net (103,819,706)
Unrealized depreciation on investments from the Trust--net (293,378,634)
--------------
Net assets $1,013,523,288
==============
Net Asset Value: Class A--Based on net assets of $24,529,607 and 3,565,366 shares
outstanding $ 6.88
==============
Class B--Based on net assets of $546,076,188 and 79,572,851 shares
outstanding $ 6.86
==============
Class C--Based on net assets of $329,790,197 and 48,057,631 shares
outstanding $ 6.86
==============
Class D--Based on net assets of $113,127,296 and 16,452,961 shares
outstanding $ 6.88
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations Merrill Lynch Focus Twenty Fund, Inc.
<CAPTION>
For the Period March 3, 2000++ to May 31, 2000
<S> <S> <C>
Investment Investment income allocated from the Trust (net of $2,114 foreign
Income: withholding tax) $ 2,218,447
Expenses allocated from the Trust (2,355,866)
--------------
Net investment loss from the Trust (137,419)
--------------
Expenses: Account maintenance and distribution fees--Class B $ 1,377,640
Account maintenance and distribution fees--Class C 853,767
Transfer agent fees--Class B 212,974
Registration fees 153,491
Transfer agent fees--Class C 140,989
Account maintenance fees--Class D 73,209
Transfer agent fees--Class D 40,752
Offering costs 30,627
Printing and shareholder reports 20,152
Transfer agent fees--Class A 8,488
Professional fees 3,675
Accounting services 573
Other 613
--------------
Total expenses 2,916,950
--------------
Investment loss--net (3,054,369)
--------------
Realized & Realized loss from the Trust on investments--net (103,819,706)
Unrealized Unrealized depreciation on investments from the Trust--net (293,378,634)
Loss from the --------------
Trust--Net: Net Decrease in Net Assets Resulting from Operations $ (400,252,709)
==============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
FINANCIAL INFORMATION (concluded)
<TABLE>
Statement of Changes in Net Assets Merrill Lynch Focus Twenty Fund, Inc.
<CAPTION>
For the Period
March 3, 2000++
Increase (Decrease) in Net Assets: to May 31, 2000
<S> <S> <C>
Operations: Investment loss--net $ (3,054,369)
Realized loss on investments from the Trust--net (103,819,706)
Unrealized depreciation on investments from the Trust--net (293,378,634)
--------------
Net decrease in net assets resulting from operations (400,252,709)
--------------
Capital Share Net increase in net assets derived from capital share
Transactions: transactions 1,413,675,997
--------------
Net Assets: Total increase in net assets 1,013,423,288
Beginning of period 100,000
--------------
End of period $1,013,523,288
==============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
Financial Highlights Merrill Lynch Focus Twenty Fund, Inc.
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period March 3, 2000++ to May 31, 2000
Increase (Decrease) in Net Asset Value: Class A Class B Class C Class D
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
Operating ---------- ---------- ---------- ----------
Performance: Investment loss--net (.01) (.02) (.02) (.01)
Realized and unrealized loss on investments
from the Trust--net (3.11) (3.12) (3.12) (3.11)
---------- ---------- ---------- ----------
Total from investment operations (3.12) (3.14) (3.14) (3.12)
---------- ---------- ---------- ----------
Net asset value, end of period $ 6.88 $ 6.86 $ 6.86 $ 6.88
========== ========== ========== ==========
Total Investment Based on net asset value per share (31.20%)+++ (31.40%)+++ (31.40%)+++ (31.20%)+++
Return:** ========== ========== ========== ==========
Ratios to Expenses++++ 1.13%* 2.15%* 2.16%* 1.38%*
Average ========== ========== ========== ==========
Net Assets: Investment loss--net (.30%)* (1.29%)* (1.30%)* (.53%)*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 24,530 $ 546,076 $ 329,790 $ 113,127
Data: ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
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 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 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 accordance with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal recurring nature. Prior to
commencement of operations on March 3, 2000, the Fund had no
operations other than those relating to organizational matters and
the issuance of 10,000 capital shares of the Fund on October 25,
1999 to Fund Asset Management, L.P. ("FAM") for $100,000. The Fund
offers four classes of shares under the Merrill Lynch Select Pricing
SM System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
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. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed
in Note 1a of the Trust's Notes to Financial Statements, which are
included elsewhere in this report.
(b) Income--The Fund's net investment income consists of the Fund's
pro rata share of the net investment income of the Trust, less all
actual and accrued expenses of the Fund determined in accordance
with accounting principles generally accepted in the United States
of America.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital
gains at various rates.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted
for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into a Distribution Agreement and Distribution
Plans with Merrill Lynch Funds Distributor ("MLFD" or the
"Distributor"), a division of Princeton Funds Distributor, Inc.
("PFD"), which is a wholly-owned subsidiary of Merrill Lynch Group,
Inc.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B .25% .75%
Class C .25% .75%
Class D .25% --
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
Merrill Lynch Focus Twenty Fund, Inc.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D 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 period March 3, 2000 to May 31, 2000, MLFD earned
underwriting discounts and MLPF&S earned dealer concessions on sales
of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 8 $ 7,225
Class D $61,039 $5,407,154
For the period March 3, 2000 to May 31, 2000, MLPF&S received
contingent deferred sales charges of $124,413 and $60,460 relating
to transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$3,528 relating to transactions subject to front-end sales charge
waivers in Class D Shares.
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, PFD, FDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Trust for
the period March 3, 2000 to May 31, 2000 were $1,413,805,543 and
$1,947,160, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $1,413,675,997 for the period March 3, 2000 to May 31, 2000.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
March 3, 2000++ to May 31, 2000 Shares Amount
Shares sold 4,007,209 $ 37,032,108
Shares redeemed (444,343) (3,457,684)
------------ ------------
Net increase 3,562,866 $ 33,574,424
============ ============
++Prior to March 3, 2000 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
Class B Shares for the Period Dollar
March 3, 2000++ to May 31, 2000 Shares Amount
Shares sold 81,676,281 $776,450,458
Automatic conversion of
shares (165,821) (1,361,399)
Shares redeemed (1,940,109) (16,107,561)
------------ ------------
Net increase 79,570,351 $758,981,498
============ ============
++Prior to March 3, 2000 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
Class C Shares for the Period Dollar
March 3, 2000++ to May 31, 2000 Shares Amount
Shares sold 50,126,233 $478,689,577
Shares redeemed (2,071,102) (16,302,899)
------------ ------------
Net increase 48,055,131 $462,386,678
============ ============
++Prior to March 3, 2000 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
Class D Shares for the Period Dollar
March 3, 2000++ to May 31, 2000 Shares Amount
Shares sold 17,340,415 $165,699,727
Automatic conversion of
shares 165,663 1,361,399
------------ ------------
Total issued 17,506,078 167,061,126
Shares redeemed (1,055,617) (8,327,729)
------------ ------------
Net increase 16,450,461 $158,733,397
============ ============
++Prior to March 3, 2000 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Master Focus Twenty Trust
Shares Percent of
Country Industries Held Common Stocks Value Net Assets
<S> <S> <C> <S> <C>
Canada Communications 1,050,000 Nortel Networks Corporation $ 57,028,125 5.7%
Equipment
Total Common Stocks in Canada 57,028,125 5.7
United Broadcasting/Media 830,000 ++Clear Channel Communications, Inc. 62,146,250 6.1
States 524,014 ++Univision Communications Inc. (Class A) 53,973,442 5.3
-------------- ------
116,119,692 11.4
Communications 95,000 Brocade Communications Systems, Inc. 11,204,062 1.1
Equipment 400,000 CIENA Corporation 47,875,000 4.7
900,000 ++Cisco Systems, Inc. 51,243,750 5.1
840,000 Extreme Networks, Inc. 40,845,000 4.0
310,000 ++Juniper Networks, Inc. 54,308,125 5.4
770,000 ++Network Appliance, Inc. 49,665,000 4.9
-------------- ------
255,140,937 25.2
Computer Services 1,140,000 BEA Systems, Inc 41,111,250 4.0
520,000 ++VERITAS Software Corporation 60,547,500 6.0
-------------- ------
101,658,750 10.0
Diversified 345,000 Corning Incorporated 66,735,938 6.6
Companies
Electronic 425,000 ++Applied Micro Circuits Corporation 42,181,250 4.2
Components 360,000 ++PMC--Sierra, Inc. 55,170,000 5.4
-------------- ------
97,351,250 9.6
Healthcare/ 550,000 PE Corp.-PE Biosystems Group 30,525,000 3.0
Biotechnology
Internetworking 500,000 ++Exodus Communications, Inc. 35,250,000 3.5
430,000 ++Inktomi Corporation 48,106,250 4.7
-------------- ------
83,356,250 8.2
Semiconductors 350,000 ++Applied Materials, Inc. 29,225,000 2.9
Telecommunications & 105,000 ++E-Tek Dynamics, Inc. 19,320,000 1.9
Equipment 175,000 ++SDL Inc. 39,681,250 3.9
-------------- ------
59,001,250 5.8
Wireless 450,000 ++Nextel Communications, Inc. (Class A) 41,653,125 4.1
Communications--
Domestic Paging &
Cellular
Total Common Stocks in the United States 880,767,192 86.8
Total Investments in Common Stocks
(Cost--$1,231,195,168) 937,795,317 92.5
</TABLE>
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Master Focus Twenty Trust
Face Percent of
Amount Short-Term Securities Value Net Assets
<S> <C> <S> <C>
Commercial US$ 20,603,000 The CIT Group Holdings, Inc., 6.80% due
Paper* 6/01/2000 $ 20,603,000 2.0%
10,000,000 FCE Bank PLC, 6.33% due 6/01/2000 10,000,000 1.0
16,537,000 Metropolitan Life Insurance Company, 6.47%
due 6/14/2000 16,498,363 1.6
15,000,000 Wal-Mart Stores, Inc., 6.47% due 6/06/2000 14,986,521 1.5
Total Investments in Short-Term Securities
(Cost--$62,087,884) 62,087,884 6.1
Total Investments (Cost--$1,293,283,052) 999,883,201 98.6
Other Assets Less Liabilities 14,708,127 1.4
-------------- ------
Net Assets $1,014,591,328 100.0%
============== ======
*Commercial Paper is traded on a discount basis; the interest rates
shown reflect the discount rates paid at the time of purchase by the
Trust.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities Master Focus Twenty Trust
<CAPTION>
As of May 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,293,283,052) $ 999,883,201
Cash 14,804
Receivables:
Contributions $ 8,446,679
Securities sold 8,082,553
Dividends 23,375 16,552,607
-------------- --------------
Total assets 1,016,450,612
--------------
Liabilities: Payables:
Withdrawals 1,222,144
Investment adviser 618,222 1,840,366
--------------
Accrued expenses 18,918
--------------
Total liabilities 1,859,284
--------------
Net Assets: Net assets $1,014,591,328
==============
Net Assets Partners' capital $1,307,991,179
Consist of: Unrealized depreciation on investments (293,399,851)
--------------
Net assets $1,014,591,328
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations Master Focus Twenty Trust
<CAPTION>
For the Period March 3, 2000++ to May 31, 2000
<S> <S> <C> <C>
Investment Interest and discount earned $ 2,183,171
Income: Dividends (net of $2,114 foreign withholding tax) 35,354
--------------
Total income 2,218,525
--------------
Expenses: Investment advisory fees $ 2,198,776
Accounting services 84,075
Custodian fees 40,509
Offering costs 12,739
Trustees' fees and expenses 10,487
Professional fees 3,821
Pricing fees 3,057
Other 2,548
--------------
Total expenses 2,356,012
--------------
Investment loss--net (137,487)
--------------
Realized & Realized loss from investments--net (103,826,889)
Unrealized Unrealized depreciation on investments--net (293,399,851)
Loss on --------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations $ (397,364,227)
==============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
FINANCIAL INFORMATION (concluded)
<TABLE>
Statement of Changes in Net Assets Master Focus Twenty Trust
<CAPTION>
For the Period
March 3, 2000++
Increase (Decrease) in Net Assets: to May 31, 2000
<S> <S> <C>
Operations: Investment loss--net $ (137,487)
Realized loss on investments--net (103,826,889)
Unrealized depreciation on investments--net (293,399,851)
--------------
Net decrease in net assets resulting from operations (397,364,227)
--------------
Net Capital Increase in net assets derived from net capital contributions 1,411,855,455
Contributions: --------------
Net Assets: Total increase in net assets 1,014,491,228
Beginning of period 100,100
--------------
End of period $1,014,591,328
==============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
Financial Highlights Master Focus Twenty Trust
<CAPTION>
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. March 3, 2000++ to
Increase (Decrease) in Net Asset Value: May 31, 2000
<S> <S> <C>
Ratios to Expenses .91%*
Average ==============
Net Assets: Investment loss--net (.05%)*
==============
Supplemental Net assets, end of period (in thousands) $ 1,014,591
Data: ==============
Portfolio turnover 18.78%
==============
*Annualized.
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
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 and is organized as a Delaware
business trust. The Trust's financial statements are prepared in
accordance with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal recurring nature. The following
is a summary of significant accounting policies followed by the
Trust.
(a) Valuation of investments--Portfolio securities that are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued or, lacking
any sales, at the closing bid price. Securities traded in the over-
the-counter market are valued at the last quoted bid price at the
close of trading on the New York Stock Exchange on each day by
brokers that make markets in the securities. Portfolio securities
that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most
representative market. Options written or purchased are valued at
the last sale price in the case of exchange-traded options. In the
case of options traded in the over-the-counter market, valuation is
the last asked price (options written) or the last bid price
(options purchased). Short-term securities are valued at amortized
cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value.
Securities and assets for which market quotations are not readily
available are valued at fair market value, as determined in good
faith by or under the direction of the Trust's Board of Trustees.
(b) Derivative financial instruments--The Trust may engage in
various portfolio investment techniques to increase or decrease the
level of risk to which the Trust is exposed more quickly and
efficiently than transactions in other types of investments. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Trust may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. 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 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 is authorized to 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 is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Trust's records. However, the effect on
operations is recorded from the date the Trust enters into such
contracts.
Merrill Lynch Focus Twenty Fund, Inc.
May 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
Master Focus Twenty Trust
* 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-US 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 US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Income taxes--The Trust is classified as a partnership for
Federal income tax purposes. As a partnership for Federal income tax
purposes, the Trust will not incur Federal income tax liability.
Items of partnership income, gain, loss and deduction will pass
through to investors as partners in the Trust. Therefore, no Federal
income tax provision is required. Under the applicable foreign tax
law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(e) Security transactions and investment income--Security
transactions are accounted for on the date the securities are
purchased or sold (the trade dates). 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
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
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 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 .85% of
the average daily value of the Trust's net assets.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated, a
subsidiary of ML & Co., received $135,708 in commissions on the
execution of portfolio security transactions for the Trust for the
period March 3, 2000 to May 31, 2000.
Accounting services are provided to the Trust by FAM at cost.
Certain officers and/or trustees of the Trust are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period March 3, 2000 to May 31, 2000 were $1,477,233,302 and
$142,211,320, respectively.
Net realized losses for the period March 3, 2000 to May 31, 2000 and
net unrealized losses as of May 31, 2000 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $(103,826,814) $(293,399,851)
Short-term investments (75) --
------------- -------------
Total investments $(103,826,889) $(293,399,851)
============= =============
As of May 31, 2000, net unrealized depreciation for Federal income
tax purposes aggregated $293,399,851, of which $19,207,374 related
to appreciated securities and $312,607,225 related to depreciated
securities. At May 31, 2000, the aggregate cost of investments for
Federal income tax purposes was $1,293,283,052.
