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 811-21162
Name of Fund: Merrill Lynch Fundamental Growth Principal Protected
Fund of Merrill Lynch Principal Protected Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Merrill Lynch Fundamental Growth Principal Protected Fund of Merrill
Lynch Principal Protected 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: 08/31/04
Date of reporting period: 09/01/03 - 02/29/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Merrill Lynch
Fundamental Growth
Principal Protected Fund
Semi-Annual Report
February 29, 2004
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's website at
http://www.sec.gov.
Merrill Lynch Fundamental Growth
Principal Protected Fund
Box 9011
Princeton, NJ
08543-9011
(GO PAPERLESS LOGO)
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Merrill Lynch Fundamental Growth Principal Protected Fund
Portfolio Information As of February 29, 2004
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
General Electric Company 3.5%
Intel Corporation 2.9
Cisco Systems, Inc. 2.7
3M Co. 2.4
Lowe's Companies, Inc. 1.7
Forest Laboratories, Inc. 1.5
Schlumberger Limited 1.5
Coach, Inc. 1.4
Boston Scientific Corporation 1.4
Medtronic, Inc. 1.4
Five Largest Industries Percent of
(Equity Investments)* Net Assets
Specialty Retail 6.1%
Industrial Conglomerates 5.9
Semiconductors & Semiconductor Equipment 5.7
Health Care Equipment & Supplies 5.3
Communications Equipment 4.8
*For Fund compliance purposes, "Industries" means any one or more
of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease.
Geographic Allocation of Stocks & Percent of
Fixed Income Securities Net Assets*
United States 95.0%
Switzerland 1.3
Germany 0.7
Finland 0.7
Canada 0.6
Japan 0.6
*Total may not equal 100%.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
A Letter From the President
Dear Shareholder
As I write to you at February month-end, the equity markets
maintained their positive momentum from year-end 2003. For the six-
month and 12-month periods ended February 29, 2004, the Standard &
Poor's (S&P) 500 Index returned +14.59% and +38.52%, respectively.
Much of the boost came from improving economic conditions in the
United States.
As we enter 2004, the major signposts indicate that we are seeing a
shift from economic growth fueled primarily by fiscal and monetary
stimulus to a broader-based, self-sustaining economic expansion.
U.S. gross domestic product growth, which peaked at an annualized
rate of 8.2% in the third quarter of 2003, was 4.1% in the fourth
quarter. A similar level of growth is expected in the first quarter
of 2004. For its part, the Federal Reserve Board has reiterated its
willingness to keep short-term interest rates at current low levels
to ensure the economy's strength.
Accompanying the increase in economic activity was an improvement
in corporate earnings. By February 10, 2004, 392 of the S&P 500
companies had reported their fourth-quarter 2003 results, and
67.6% of those exceeded expectations. In the meantime, the American
consumer, who continued to spend despite the faltering economy, may
get further incentive from another round of Federal tax refunds this
year.
At Merrill Lynch Investment Managers, we believe the events and
efforts of 2003 leave us with a much stronger economy and that
recent optimism suggests it is time for investors to consider what
can go right in 2004. We encourage you to revisit your portfolio and
your asset allocation strategy to ensure you are well positioned to
take advantage of the opportunities that lie ahead.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
A Discussion With Your Fund's Portfolio Manager
The Fund was effectively able to preserve investor principal during
the period while also providing capital appreciation.
How did the Fund perform during the period in light of the existing
market conditions?
For the six-month period ended February 29, 2004, Merrill Lynch
Fundamental Growth Principal Protected Fund's Class A, Class B,
Class C and Class I Shares had total returns of +7.70%, +7.31%,
+7.37% and +7.79%, 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.) The Fund's unmanaged equity
benchmarks, the Standard & Poor's 500 (S&P 500) Index and the S&P
500/Barra Growth Index, had total returns of +14.59% and +12.25%,
respectively, for the same period.
Because the Fund incorporates a fixed income component, it will, at
times, outperform or underperform its all-equity benchmarks. As of
February 29, 2004, the Fund's allocation was 59.3% in equities and
41.7% in fixed income securities. We use a mathematical formula to
determine the allocation between these two components with the
objective of preserving the principal value of Fund shares. The U.S.
stock market continued its rally during the period; therefore, the
Fund's fixed income position served to hamper returns relative to
the all-equity benchmarks. In addition, in managing the equity
component of the Fund, we focus on what we believe to be the highest-
quality and largest-capitalization growth stocks in our benchmark
index. As a group, these companies continued to provide lower total
returns during the period than the lower-quality, smaller-
capitalization growth stocks in the S&P 500/Barra Growth Index.
Nevertheless, the Fund was successfully able to preserve investor
principal during the period while also providing capital
appreciation.
Specific stocks that had a negative absolute and relative impact on
the Fund's performance were General Dynamics Corporation and
Rockwell Automation, Inc. We eliminated our position in General
Dynamics, but maintained Rockwell in the portfolio in anticipation
of better earnings results and a rising stock price. Rockwell's
business outlook improved as capital investment continued to gain a
stronger foothold in America.
A number of stocks in the consumer discretionary sector hindered
Fund results. These included InterActiveCorp, Krispy Kreme
Doughnuts, Inc., Lowe's Companies, Inc., Bed Bath & Beyond Inc.,
Best Buy Co., Inc., Fox Entertainment Group, Inc., AutoZone, Inc.,
Rent A Center Inc. and Brinker International, Inc. We sold our
holdings in Brinker International, Autozone, Fox Entertainment and
Bed Bath & Beyond with capital gains. We chose to liquidate these
positions based on each company's deteriorating business
fundamentals.
The most positive absolute and relative investment returns came from
our investments in the health care, energy and information
technology sectors. In the health care sector, Forest Laboratories,
Inc., Varian Medical Systems, Inc., Boston Scientific Corporation,
WellPoint Health Networks Inc., Alcon Inc., UnitedHealth Group
Incorporated, Amgen Inc. and Genentech Inc. were the major positive
contributors to Fund performance. We sold WellPoint, UnitedHealth
Group and Genentech out of the portfolio at a profit.
In the energy sector, oil service companies Schlumberger Ltd.,
Apache Corporation and BJ Services Company made significant
contributions to performance. Declining reserves and high demand for
oil benefited the energy service sector.
The information technology (IT) sector benefited from increased
spending and outsourcing of corporate IT. In this area, Nortel
Networks Corporation, Infosys Technologies Ltd., Nokia Corp., SAP AG
and Hewitt Associates, Inc. provided a positive boost to Fund
results. We sold our position in Infosys Technologies based on its
strong performance and relatively high stock valuation.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
What changes were made to the portfolio during the period?
The allocation between the portfolio's equity and bond components
has varied during the past six months, with the equity allocation
ranging from 47% to 60% of portfolio assets and the fixed income
allocation ranging from 40% to 53% as we saw interest rates change
in a somewhat volatile market. During the period, the Fund's fixed
income component was invested in U.S. Treasury zero coupon bonds set
to mature close to the expiration of the Fund, which is seven years
from its commencement of operations (November 13, 2009).
In terms of the Fund's equity portfolio, we made no major changes in
our sector weightings or our investment strategy. In the health care
sector, we continued to avoid the large-capitalization
pharmaceutical companies based on our belief that the Federal
legislation on Medicare reform and drug benefits will not support
the profits of these companies. We also remain concerned about a
continued erosion of pricing power as Federal and state regulators
continue to reduce the cost of pharmaceuticals in an effort to
manage the overall cost of national health care. In addition, we are
not impressed with the pipeline of new drugs.
We were underweight in the financial and consumer staples sectors,
as we see better growth opportunities in other areas of the
marketplace. These include the consumer discretionary and IT
sectors. Our overweight in consumer discretionary arises from our
belief that tax relief should encourage consumer spending, and that
the sector will be further supported by continued low interest rates
and an improving economy. The Fund also has a large position, fairly
consistent with the benchmark weighting, in the IT sector.
How would you characterize the portfolio's position at the close of
the period?
We continue to strive to protect the original principal value of
shares, while also offering shareholders some capital appreciation
potential. To this end, the allocation between the Fund's fixed
income and equity components will continue to vary as market
conditions change. At the close of the period, the Fund's allocation
favored equities.
We expect to see a shift in U.S. economic growth propelled by
consumer spending in the first half of 2004 to economic growth
fueled by increased capital spending later in the year. Many
forecasters have articulated a negative outlook on consumer
spending, citing a decline in retailing stock prices in December
2003 and January 2004. However, reports in February and March 2004
have shown a substantial rise in real and nominal consumer spending.
We believe this was prompted by the start of the Federal
disbursement of tax rebate checks for the over-withholding of 2003
individual income taxes (that is, taxes paid prior to the passage of
the Federal tax cut).
Orders for capital goods have grown in recent months, partly because
of the accelerated depreciation incentive passed by federal
legislators in 2003. This could result in improved employment in the
manufacturing sector and higher profits for information technology
and industrial goods companies in 2004. For 2003, even before the
reporting of fourth-quarter results, taxable corporate profits, cash
flow and reported profits - as measured by the U.S. Department of
Commerce - were at absolute record levels. In addition, interest
rates remain at historic lows. Nevertheless, stock market levels
have not come close to their most recent historic highs.
Against this backdrop, we have positioned the Fund's equity
component to take advantage of the profit opportunities that may
arise from a continued real economic expansion, with the majority of
the growth generated from capital investment rather than from
consumer spending on durable goods. A continuation of above-average
real economic growth could result in moderately rising inflation and
somewhat higher interest rates.
Lawrence R. Fuller
Vice President and Portfolio Manager
March 10, 2004
If you would like a copy, free of charge, of the most recent annual
or quarterly report of Main Place Funding, LLC, the Warranty
Provider, or its parent corporation, Bank of America Corporation,
please contact the Fund at 1-800-MER-FUND.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Performance Data
About Fund Performance
Effective April 14, 2003, Class A Shares were redesignated Class I
Shares and Class D Shares were redesignated Class A Shares.
Investors are able to purchase shares of the Fund through multiple
pricing alternatives:
* Class A Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (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% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class A Shares after approximately eight 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 I Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class I Shares are available only to eligible
investors.
None of the past results shown should be considered a representation
of future performance. Current performance may be lower or higher
than the performance data quoted. Refer to www.mlim.ml.com to obtain
more current performance information. 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 February 29, 2004 Total Return Total Return Total Return
ML Fundamental Growth Principal Protected Fund Class A Shares* + 7.70% +13.26% +11.90%
ML Fundamental Growth Principal Protected Fund Class B Shares* + 7.31 +12.32 +10.74
ML Fundamental Growth Principal Protected Fund Class C Shares* + 7.37 +12.39 +10.81
ML Fundamental Growth Principal Protected Fund Class I Shares* + 7.79 +13.46 +12.21
Standard & Poor's 500 Index** +14.59 +38.52 +32.78
Standard & Poor's 500/Barra Growth Index*** +12.25 +32.41 +25.90
*Investment results shown do not reflect sales charges; results
shown 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 11/13/02.
**This unmanaged Index covers 500 industrial, utility, transporta-
tion 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 11/13/02.
***This unmanaged Index is a capitalization-weighted index of all
stocks in the Standard & Poor's 500 Index that have higher price-to-
book ratios. Since inception total return is from 11/13/02.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 2/29/04 +13.26% + 7.31%
Inception (11/13/02)
through 2/29/04 + 9.08 + 4.63
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Return Without Return With
Sales Charge Sales Charge**
Class B Shares*
One Year Ended 2/29/04 +12.32% + 8.32%
Inception (11/13/02)
through 2/29/04 + 8.21 + 5.17
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after six years.
**Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
Class C Shares*
One Year Ended 2/29/04 +12.39% +11.39%
Inception (11/13/02)
through 2/29/04 + 8.26 + 8.26
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one year.
**Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 2/29/04 +13.46% + 7.50%
Inception (11/13/02)
through 2/29/04 + 9.32 + 4.85
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Schedule of Investments
Percent of
Industry* Shares Held Common Stocks Value Net Assets
Biotechnology 26,700 ++Biogen Idec Inc. $ 1,480,515 0.6%
36,400 ++Gilead Sciences, Inc. 1,973,244 0.9
--------------- ------
3,453,759 1.5
Chemicals 28,500 Air Products and Chemicals, Inc. 1,374,840 0.6
86,400 Ecolab Inc. 2,359,584 1.0
37,600 Praxair, Inc. 1,365,632 0.6
--------------- ------
5,100,056 2.2
Commercial Services 21,600 ++Apollo Group, Inc. (Class A) 1,644,840 0.7
& Supplies
Communications 268,600 ++Cisco Systems, Inc. 6,204,660 2.7
Equipment 406,800 ++Lucent Technologies Inc. 1,704,492 0.8
75,300 Nokia Oyj 'A' (ADR) (b) 1,639,281 0.7
176,500 ++Nortel Networks Corporation 1,408,470 0.6
--------------- ------
10,956,903 4.8
Computers & 152,900 ++EMC Corporation 2,189,528 1.0
Peripherals 101,500 Hewlett-Packard Company 2,305,065 1.0
42,600 ++SanDisk Corporation 1,080,336 0.5
--------------- ------
5,574,929 2.5
Consumer Finance 44,200 American Express Company 2,361,164 1.0
Diversified Financial 29,100 Citigroup Inc. 1,462,566 0.7
Services
Electrical Equipment 52,300 Rockwell Automation, Inc. 1,593,058 0.7
Electronic Equipment 39,600 ++Agilent Technologies, Inc. 1,353,924 0.6
& Instruments 46,700 Tektronix, Inc. 1,496,735 0.7
--------------- ------
2,850,659 1.3
Energy Equipment 48,400 Baker Hughes Incorporated 1,820,808 0.8
& Service 51,400 Schlumberger Limited 3,314,786 1.5
--------------- ------
5,135,594 2.3
Food & Staples 69,900 SUPERVALU Inc. 1,978,170 0.9
Retailing 44,500 SYSCO Corporation 1,764,425 0.8
--------------- ------
3,742,595 1.7
Health Care Equipment 47,500 Alcon, Inc. 2,985,850 1.3
& Supplies 79,900 ++Boston Scientific Corporation 3,263,915 1.4
30,300 DENTSPLY International Inc. 1,327,443 0.6
68,300 Medtronic, Inc. 3,203,270 1.4
17,200 ++Varian Medical Systems, Inc. 1,440,328 0.6
--------------- ------
12,220,806 5.3
Hotels, Restaurants 29,800 ++Krispy Kreme Doughnuts, Inc. 1,146,108 0.5
& Leisure 64,300 ++Starbucks Corporation 2,405,463 1.1
--------------- ------
3,551,571 1.6
IT Services 47,900 First Data Corporation 1,962,942 0.9
16,300 ++Hewitt Associates, Inc. (Class A) 530,565 0.2
14,000 Paychex, Inc. 450,380 0.2
--------------- ------
2,943,887 1.3
Industrial 70,500 3M Co. 5,500,410 2.4
Conglomerates 245,300 General Electric Company 7,977,156 3.5
--------------- ------
13,477,566 5.9
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Schedule of Investments (continued)
Percent of
Industry* Shares Held Common Stocks Value Net Assets
Internet & Catalog 41,500 ++eBay Inc. $ 2,857,690 1.2%
Retail 47,100 ++InterActiveCorp 1,534,047 0.7
--------------- ------
4,391,737 1.9
Internet Software 35,200 ++Yahoo! Inc. 1,562,880 0.7
& Services
Metals & Mining 34,500 Freeport-McMoRan Copper & Gold, Inc. (Class B) 1,471,425 0.6
9,400 ++Phelps Dodge Corporation 810,844 0.4
--------------- ------
2,282,269 1.0
Office Electronics 28,000 Canon, Inc. 1,365,916 0.6
Oil & Gas 40,100 Apache Corporation 1,650,917 0.7
33,200 Devon Energy Corporation 1,885,096 0.8
--------------- ------
3,536,013 1.5
Pharmaceuticals 45,700 ++Forest Laboratories, Inc. 3,449,436 1.5
Semiconductors & 91,000 ++Altera Corporation 2,009,280 0.9
Semiconductor Equipment 29,500 Analog Devices, Inc. 1,472,050 0.7
227,500 Intel Corporation 6,649,825 2.9
92,300 Texas Instruments Incorporated 2,828,995 1.2
--------------- ------
12,960,150 5.7
Software 70,800 ++Citrix Systems, Inc. 1,499,544 0.7
43,300 ++Electronic Arts Inc. 2,042,028 0.9
31,600 ++Mercury Interactive Corporation 1,533,864 0.7
198,600 ++Oracle Corporation 2,557,968 1.1
42,700 SAP AG (Systeme, Anwendungen, Produkte in der
Datenverarbeitung) (ADR) (b) 1,690,920 0.7
--------------- ------
9,324,324 4.1
Specialty Retail 40,700 Best Buy Co., Inc. 2,167,275 0.9
69,300 Lowe's Companies, Inc. 3,880,800 1.7
64,000 PETsMART, Inc. 1,736,960 0.8
42,100 ++Rent A Center Inc. 1,368,671 0.6
68,000 Ross Stores, Inc. 2,179,400 1.0
52,300 ++Staples, Inc. 1,371,306 0.6
29,300 Tiffany & Co. 1,232,065 0.5
--------------- ------
13,936,477 6.1
Textiles, Apparel 82,600 ++Coach, Inc. 3,273,438 1.4
& Luxury Goods 39,200 Nike, Inc. (Class B) 2,871,400 1.3
--------------- ------
6,144,838 2.7
Total Common Stocks
(Cost--$114,757,535) 135,023,993 59.3
Face
Amount U.S. Government Obligations
U.S. Treasury STRIPS (a):
$11,398,000 2.993%** due 8/15/2009 9,575,118 4.2
97,216,000 3.748%** due 11/15/2009 81,018,648 35.6
Total U.S. Government Obligations
(Cost--$88,361,028) 90,593,766 39.8
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Schedule of Investments (concluded)
Beneficial Percent of
Interest Short-Term Securities Value Net Assets
$805,481 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series (c) $ 805,481 0.3%
Total Short-Term Securities
(Cost--$805,481) 805,481 0.3
Total Investments (Cost--$203,924,044) 226,423,240 99.4
Other Assets Less Liabilities 1,401,893 0.6
--------------- ------
Net Assets $ 227,825,133 100.0%
=============== ======
++Non-income producing security.
*For Fund compliance purposes, "Industry" means any one or more
of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease.
**Represents a zero coupon bond; the interest rate shown reflects
the discount rate paid at the time of purchase by the Fund.
(a)Separately Traded Registered Interest and Principal of Securities
(STRIPS).
(b)American Depository Receipts (ADR).
(c)Investments in companies considered to be an affiliate of the
Fund (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as
follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $(1,604,395) $21,402
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Statement of Assets and Liabilities
As of February 29, 2004
Assets
Investments, at value (identified cost--$203,924,044) $ 226,423,240
Receivables:
Securities sold $ 5,275,901
Dividends 124,090
Interest from affiliates 2,634 5,402,625
---------------
Prepaid registration fees 107,785
---------------
Total assets 231,933,650
---------------
Liabilities
Payables:
Securities purchased 2,176,086
Capital shares redeemed 1,373,236
Distributor 159,413
Financial warranty fee 139,068
Investment adviser 115,295
Other affiliates 72,232 4,035,330
---------------
Accrued expenses and other liabilities 73,187
---------------
Total liabilities 4,108,517
---------------
Net Assets
Net assets $ 227,825,133
===============
Net Assets Consist of
Paid-in capital, unlimited number of shares authorized $ 201,696,709
Accumulated investment loss--net $ (763,279)
Accumulated realized capital gains on investments and foreign currency
transactions--net 4,392,674
Unrealized appreciation on investments and foreign currency
transactions--net 22,499,029
---------------
Total accumulated earnings--net 26,128,424
---------------
Net Assets $ 227,825,133
===============
Net Asset Value
Class A--Based on net assets of $10,619,324 and 954,222 shares outstanding $ 11.13
===============
Class B--Based on net assets of $113,277,991 and 10,238,445 shares outstanding $ 11.06
===============
Class C--Based on net assets of $89,195,845 and 8,059,712 shares outstanding $ 11.07
===============
Class I--Based on net assets of $14,731,973 and 1,322,025 shares outstanding $ 11.14
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Statement of Operations
For the Six Months Ended February 29, 2004
Investment Income
Interest (including $21,402 from affiliates) $ 1,968,304
Dividends (net of $636 foreign withholding tax) 485,752
---------------
Total income 2,454,056
---------------
Expenses
Financial warranty fee $ 984,746
Investment advisory fees 786,990
Account maintenance and distribution fees--Class B 578,892
Account maintenance and distribution fees--Class C 483,121
Transfer agent fees--Class B 74,474
Transfer agent fees--Class C 63,641
Accounting services 61,402
Offering costs 54,315
Professional fees 35,954
Printing and shareholder reports 24,476
Account maintenance fees--Class A 16,980
Custodian fees 14,233
Trustees' fees and expenses 12,641
Transfer agent fees--Class I 9,054
Transfer agent fees--Class A 7,615
Registration fees 3,197
Pricing fees 1,787
Other 6,084
---------------
Total expenses before waiver 3,219,602
Waiver of expenses (2,278)
---------------
Total expenses after waiver 3,217,324
---------------
Investment loss--net (763,268)
---------------
Realized & Unrealized Gain (Loss) on Investments and Foreign Currency Transactions--Net
Realized gain (loss)from:
Investments--net 8,791,114
Foreign currency transactions--net (7,286) 8,783,828
---------------
Change in unrealized appreciation/depreciation on:
Investments--net 9,333,881
Foreign currency transactions--net 5,160 9,339,041
--------------- ---------------
Total realized and unrealized gain on investments and foreign currency
transactions--net 18,122,869
---------------
Net Increase in Net Assets Resulting from Operations $ 17,359,601
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Statements of Changes in Net Assets
For the For the Period
Six Months November 13,
Ended 2002++ to
February 29, August 31,
Increase (Decrease) in Net Asset Value: 2004 2003
Operations
Investment loss--net $ (763,268) $ (460,588)
Realized gain (loss) on investments and foreign currency transactions--net 8,783,828 (4,391,154)
Unrealized appreciation/depreciation on investments and foreign currency
transactions--net 9,339,041 13,159,988
--------------- ---------------
Net increase in net assets resulting from operations 17,359,601 8,308,246
--------------- ---------------
Dividends to Shareholders
Investment income--net:
Class A (54,637) (16,518)
Class B (36,406) (112,921)
Class C -- (99,164)
Class I (97,873) (21,410)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (188,916) (250,013)
--------------- ---------------
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share
transactions (41,053,996) 243,550,211
--------------- ---------------
Net Assets
Total increase (decrease) in net assets (23,883,311) 251,608,444
Beginning of period 251,708,444 100,000
--------------- ---------------
End of period* $ 227,825,133 $ 251,708,444
=============== ===============
*Undistributed (accumulated) investment income (loss)--net $ (763,279) $ 188,905
=============== ===============
++Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Financial Highlights
Class A
For the For the Period
The following per share data and ratios have been derived Six Months November 13,
from information provided in the financial statements. Ended 2002++ to
February 29, August 31,
Increase (Decrease) in Net Asset Value: 2004 2003++++
Per Share Operating Performance
Net asset value, beginning of period $ 10.38 $ 10.00
--------------- ---------------
Investment income--net --+++++*** .04
Realized and unrealized gain on investments and foreign currency
transactions--net .80 .35
--------------- ---------------
Total from investment operations .80 .39
--------------- ---------------
Less dividends from investment income--net (.05) (.01)
--------------- ---------------
Net asset value, end of period $ 11.13 $ 10.38
=============== ===============
Total Investment Return**
Based on net asset value per share 7.70%+++ 3.90%+++
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver 2.00%* 2.11%*
=============== ===============
Expenses 2.00%* 2.11%*
=============== ===============
Investment income--net .02%* .41%*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 10,619 $ 15,668
=============== ===============
Portfolio turnover 29.64% 106.91%
=============== ===============
*Annualized.
**Total investment returns exclude the effects of sales charges.
***Based on average shares outstanding.
++Commencement of operations.
++++Effective April 14, 2003, Class D Shares were redesignated Class
A Shares.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Financial Highlights (continued)
Class B
For the For the Period
The following per share data and ratios have been derived Six Months November 13,
from information provided in the financial statements. Ended 2002++ to
February 29, August 31,
Increase (Decrease) in Net Asset Value: 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 10.31 $ 10.00
--------------- ---------------
Investment loss--net (.04)*** (.03)
Realized and unrealized gain on investments and foreign currency
transactions--net .79 .35
--------------- ---------------
Total from investment operations .75 .32
--------------- ---------------
Less dividends from investment income--net --+++++ (.01)
--------------- ---------------
Net asset value, end of period $ 11.06 $ 10.31
=============== ===============
Total Investment Return**
Based on net asset value per share 7.31%+++ 3.20%+++
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver 2.76%* 2.88%*
=============== ===============
Expenses 2.76%* 2.88%*
=============== ===============
Investment loss--net (.74%)* (.36%)*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 113,278 $ 117,426
=============== ===============
Portfolio turnover 29.64% 106.91%
=============== ===============
*Annualized.
**Total investment returns exclude the effects of sales charges.
***Based on average shares outstanding.
++Commencement of operations.
+++Aggregate total investment return.
+++++Amount is less than $(.01) per share.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Financial Highlights (continued)
Class C
For the For the Period
The following per share data and ratios have been derived Six Months November 13,
from information provided in the financial statements. Ended 2002++ to
February 29, August 31,
Increase (Decrease) in Net Asset Value: 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 10.31 $ 10.00
--------------- ---------------
Investment loss--net (.04)*** (.03)
Realized and unrealized gain on investments and foreign currency
transactions--net .80 .35
--------------- ---------------
Total from investment operations .76 .32
--------------- ---------------
Less dividends from investment income--net -- (.01)
--------------- ---------------
Net asset value, end of period $ 11.07 $ 10.31
=============== ===============
Total Investment Return**
Based on net asset value per share 7.37%+++ 3.20%+++
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver 2.76%* 2.88%*
=============== ===============
Expenses 2.76%* 2.88%*
=============== ===============
Investment loss--net (.74%)* (.36%)*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 89,196 $ 101,111
=============== ===============
Portfolio turnover 29.64% 106.91%
=============== ===============
*Annualized.
**Total investment returns exclude the effects of sales charges.
***Based on average shares outstanding.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Financial Highlights (concluded)
Class I
For the For the Period
The following per share data and ratios have been derived Six Months November 13,
from information provided in the financial statements. Ended 2002++ to
February 29, August 31,
Increase (Decrease) in Net Asset Value: 2004 2003++++
Per Share Operating Performance
Net asset value, beginning of period $ 10.40 $ 10.00
--------------- ---------------
Investment income--net .02*** .06
Realized and unrealized gain on investments and foreign currency
transactions--net .79 .35
--------------- ---------------
Total from investment operations .81 .41
--------------- ---------------
Less dividends from investment income--net (.07) (.01)
--------------- ---------------
Net asset value, end of period $ 11.14 $ 10.40
=============== ===============
Total Investment Return**
Based on net asset value per share 7.79%+++ 4.10%+++
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver 1.75%* 1.86%*
=============== ===============
Expenses 1.75%* 1.86%*
=============== ===============
Investment income--net .28%* .67%*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 14,732 $ 17,503
=============== ===============
Portfolio turnover 29.64% 106.91%
=============== ===============
*Annualized.
**Total investment returns exclude the effects of sales charges.
***Based on average shares outstanding.
++Commencement of operations.
++++Effective April 14, 2003, Class A Shares were redesignated Class
I Shares.
+++Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch Fundamental Growth Principal Protected Fund (the
"Fund") is part of Merrill Lynch Principal Protected Trust (the
"Trust"). Under the Investment Company Act of 1940, as amended, the
Fund is diversified and the Trust is registered as an open-end
management investment company. The Fund's financial statements are
prepared in conformity 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. Shares of the Fund were offered during the initial
offering period but will not be offered during the Guarantee Period
from November 13, 2002 through November 13, 2009 (the "Guarantee
Maturity Date"), except in connection with reinvestment of dividends
and distributions. The Fund will be offered on a continuous basis
after the Guarantee Maturity Date without the principal protection
feature. The Fund offers multiple classes of shares. Shares of Class
A and Class I are sold with a front-end sales charge. Shares of
Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class A, Class B and Class C Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. Income, expenses (other than expenses
attributable to a specific class) and realized and unrealized gains
and losses on investments and foreign currency transactions are
allocated daily to each class based on its relative net assets. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments--Equity securities that are held by the
Fund that are traded on stock exchanges or the Nasdaq National
Market are valued at the last sale price or official close price on
the exchange, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available ask 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 Fund. Long positions traded in the over-the-
counter ("OTC") market, Nasdaq Small Cap or Bulletin Board are
valued at the last available bid price or yield equivalent obtained
from one or more dealers or pricing services approved by the Board
of Trustees of the Fund. Short positions traded in the OTC market
are valued at the last available ask 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 ask price. Options purchased are valued at their
last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last bid price. Swap
agreements are valued daily based upon quotations from market
makers. Financial futures contracts and options thereon, which are
traded on exchanges, are valued at their last sale price as of the
close of such exchanges. Obligations with remaining maturities of 60
days or less are valued at amortized cost unless the Investment
Adviser believes that this method no longer produces fair
valuations.
Repurchase agreements are valued at cost plus accrued interest. The
Fund employs pricing services to provide certain securities prices
for the Fund. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good
faith by or under the direction of the Board of Trustees of the
Fund, including valuations furnished by the pricing services
retained by the Fund, which may use a matrix system for valuations.
The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the
Fund's Board of Trustees. Such valuations and procedures will be
reviewed periodically by the Board of Trustees of the Fund.
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed
each day at various times prior to the close of business on the New
York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as
of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and
the close of business on the NYSE that may not be reflected in the
computation of the Fund's net asset value. If events (for example, a
company announcement, market volatility or a natural disaster) occur
during such periods that are expected to materially affect the value
of such securities, those securities may be valued at their fair
value as determined in good faith by the Fund's Board of Trustees or
by the Investment Adviser using a pricing service and/or procedures
approved by the Fund's Board of Trustees.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Notes to Financial Statements (continued)
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies both to increase the return of the Fund and to
hedge, or protect, its exposure to interest rate movements and
movements in the securities markets. Losses may arise due to changes
in the value of the contract or if the counterparty does not perform
under the contract.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts.
Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund
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 Fund
as unrealized gains or losses. When the contract is closed, the Fund
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 Fund may write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to
market to reflect the current value of the option written. When a
security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the
Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option to the extent of the premiums received or paid
(or gain or loss to the extent the cost of the closing transaction
exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into U.S. dollars. Realized and unrealized gains or
losses from investments include the effects of foreign exchange
rates on investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend
date. Interest income is recognized on the accrual basis.
(f) Prepaid registration fees--Prepaid registration fees were
amortized over a twelve month period beginning with the commencement
of operations of the Fund.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Notes to Financial Statements (continued)
(h) Securities lending--The Fund may lend securities to financial
institutions that provide cash or securities issued or guaranteed by
the U.S. government as collateral, which will be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities. The market value of the loaned
securities is determined at the close of business of the Fund and
any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral
for the loaned securities, it collects a fee from the borrower. The
Fund typically receives the income on the loaned securities but does
not receive the income on the collateral. Where the Fund receives
cash collateral, it may invest such collateral and retain the amount
earned on such investment, net of any amount rebated to the
borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities
within five business days. The Fund may pay reasonable finder's,
lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation
to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access
to the collateral. The Fund also could suffer a loss where the value
of the collateral falls below the market value of the borrowed
securities, in the event of borrower default or in the event of
losses on investments made with cash collateral.
(i) Offering costs--Prepaid offering costs were amortized over a
twelve month period beginning with the commencement of operations of
the Fund.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general
partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect,
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with FAM Distributors,
Inc. ("FAMD" or the "Distributor"), which is a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLIM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at the annual rate of .65% of
the Fund's average daily net assets. MLIM has entered into a
contractual arrangement with the Fund under which the expenses
incurred by each class of shares of the Fund (excluding distribution
and/or account maintenance fees) will not exceed 1.99%. This
arrangement has a one-year term and is renewable. For the six months
ended February 29, 2004, MLIM earned fees of $786,990, of which
$2,278 was waived.
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
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), 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 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 February 29, 2004, MLPF&S received
contingent deferred sales charges of $289,179 and $19,944 relating
to transactions in Class B and Class C Shares, respectively.
The Trust, on behalf of the Fund, has entered into a Financial
Warranty Agreement with Main Place Funding, LLC (the "Warranty
Provider"). The Financial Warranty Agreement is intended to make
sure that on the Guarantee Maturity Date, each shareholder of the
Fund will be entitled to redeem his or her shares for an amount no
less than the initial value of that shareholder's account (less
expenses and sales charges not covered by the Financial Warranty
Agreement), provided that all dividends and distributions received
from the Fund have been reinvested and no shares have been redeemed
(the "Guaranteed Amount"). The Fund will pay to the Warranty
Provider, under the Financial Warranty Agreement, an annual fee
equal to .80% of the Fund's average daily net assets during the
Guarantee Period. If the value of the Fund's assets on the Guarantee
Maturity Date is insufficient to result in the value of each
shareholder's account being at least equal to the shareholder's
Guaranteed Amount, the Warranty Provider will pay the Fund an amount
sufficient to make sure that each shareholder's account can be
redeemed for an amount equal to his or her Guaranteed Amount.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Notes to Financial Statements (continued)
The Fund has received an exemptive order from the Securities and
Exchange Commission permitting it to lend portfolio securities to
MLPF&S or its affiliates. Pursuant to that order, the Fund also has
retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an
affiliate of MLIM, as the securities lending agent for a fee based
on a share of the returns on investment of cash collateral. MLIM,
LLC may, on behalf of the Fund, invest cash collateral received by
the Fund for such loans, among other things, in a private investment
company managed by MLIM, LLC or in registered money market funds
advised by MLIM or its affiliates.
In addition, MLPF&S received $33,170 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended February 29, 2004.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the six months ended February 29, 2004, the Fund reimbursed MLIM
$2,679 for certain accounting services.
Certain officers and/or Trustees of the Fund are officers and/or
Trustees of MLIM, FDS, PSI, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 29, 2004 were $71,124,478 and
$114,797,106, respectively.
Net realized gains (losses) for the six months ended February 29,
2004 and net unrealized gains (losses) as of February 29, 2004 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 8,791,114 $ 22,499,196
Foreign currency transactions (7,286) (167)
--------------- ---------------
Total $ 8,783,828 $ 22,499,029
=============== ===============
As of February 29, 2004, net unrealized appreciation for Federal
income tax purposes aggregated $20,237,975, of which $22,686,274
related to appreciated securities and $2,448,299 related to
depreciated securities. At February 29, 2004, the aggregate cost of
investments for Federal income tax purposes was $206,185,265.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(41,053,996) and $243,550,211 for the six months
ended February 29, 2004 and the period ended November 13, 2002 to
August 31, 2003, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
February 29, 2004 Shares Amount
Shares issued to shareholders
in reinvestment of dividends 4,984 $ 53,125
Shares redeemed (560,916) (6,059,931)
-------------- ---------------
Net decrease (555,932) $ (6,006,806)
============== ===============
Class A Shares for the Period
November 13, 2002++ Dollar
to August 31, 2003 Shares Amount
Shares sold 1,728,903 $ 17,289,025
Shares issued to shareholders
in reinvestment of dividends 1,644 16,277
-------------- ---------------
Total issued 1,730,547 17,305,302
Shares redeemed (222,893) (2,261,216)
-------------- ---------------
Net increase 1,507,654 $ 15,044,086
============== ===============
++Prior to November 13, 2002 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Notes to Financial Statements (concluded)
Class B Shares for the
Six Months Ended Dollar
February 29, 2004 Shares Amount
Shares issued to shareholders
in reinvestment of dividends 3,327 $ 35,303
Shares redeemed (1,151,745) (12,396,086)
-------------- ---------------
Net decrease (1,148,418) $ (12,360,783)
============== ===============
Class B Shares for the Period
November 13, 2002++ Dollar
to August 31, 2003 Shares Amount
Shares sold 12,121,294 $ 121,213,321
Shares issued to shareholders
in reinvestment of dividends 11,179 110,673
-------------- ---------------
Total issued 12,132,473 121,323,994
Shares redeemed (748,110) (7,526,686)
-------------- ---------------
Net increase 11,384,363 $ 113,797,308
============== ===============
++Prior to November 13, 2002 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
Class C Shares for the
Six Months Ended Dollar
February 29, 2004 Shares Amount
Shares redeemed (1,745,224) $ (18,765,457)
-------------- ---------------
Net decrease (1,745,224) $ (18,765,457)
============== ===============
Class C Shares for the Period
November 13, 2002++ Dollar
to August 31, 2003 Shares Amount
Shares sold 10,623,580 $ 106,236,510
Shares issued to shareholders
in reinvestment of dividends 9,891 97,927
-------------- ---------------
Total issued 10,633,471 106,334,437
Shares redeemed (831,035) (8,359,445)
-------------- ---------------
Net increase 9,802,436 $ 97,974,992
============== ===============
++Prior to November 13, 2002 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
Class I Shares for the
Six Months Ended Dollar
February 29, 2004 Shares Amount
Shares issued to shareholders
in reinvestment of dividends 8,785 $ 93,726
Shares redeemed (370,450) (4,014,676)
-------------- ---------------
Net decrease (361,665) $ (3,920,950)
============== ===============
Class I Shares for the Period
November 13, 2002++ Dollar
to August 31, 2003 Shares Amount
Shares sold 2,268,099 $ 22,681,653
Shares issued to shareholders
in reinvestment of dividends 2,138 21,183
-------------- ---------------
Total issued 2,270,237 22,702,836
Shares redeemed (589,047) (5,969,011)
-------------- ---------------
Net increase 1,681,190 $ 16,733,825
============== ===============
++Prior to November 13, 2002 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by MLIM and its
affiliates, is a party to a $500,000,000 credit agreement with Bank
One, N.A. and certain other lenders. The Fund may borrow under the
credit agreement to fund shareholder redemptions and for other
lawful purposes other than for leverage. The Fund may borrow up to
the maximum amount allowable under the Fund's current prospectus and
statement of additional information, subject to various other legal,
regulatory or contractual limits. The Fund pays a commitment fee of
..09% per annum based on the Fund's pro rata share of the unused
portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election,
the Federal Funds rate plus .50% or a base rate as determined by
Bank One, N.A. On November 28, 2003, the credit agreement was
renewed for one year under the same terms. The Fund did not
borrow under the credit agreement during the six months ended
February 29, 2004.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
Officers and Trustees
Terry K. Glenn, President and Trustee
David O. Beim, Trustee
James T. Flynn, Trustee
W. Carl Kester, Trustee
Karen P. Robards, Trustee
Robert C. Doll, Jr., Senior Vice President
Lawrence R. Fuller, Vice President and Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Todd Goodwin and George W. Holbrook, Trustees of Merrill Lynch
Fundamental Growth Principal Protected Fund, have recently retired.
The Fund's Board of Trustees wishes Messrs. Goodwin and Holbrook
well in their retirements.
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
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 website
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 FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 29, 2004
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 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual
report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(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 Fundamental Growth Principal Protected Fund of Merrill
Lynch Principal Protected Trust
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Merrill Lynch Fundamental Growth Principal Protected Fund of
Merrill Lynch Principal Protected Trust
Date: April 16, 2004
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/ Terry K. Glenn________
Terry K. Glenn,
President of
Merrill Lynch Fundamental Growth Principal Protected Fund of
Merrill Lynch Principal Protected Trust
Date: April 16, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Fundamental Growth Principal Protected Fund of
Merrill Lynch Principal Protected Trust
Date: April 16, 2004