UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-21162
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 - 08/31/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Merrill Lynch
Fundamental Growth
Principal Protected Fund
Annual Report
August 31, 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) at www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's Web site at
http://www.sec.gov.Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most
recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com and (2) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Merrill Lynch 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 August 31, 2004 (unaudited)
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
General Electric Company 2.7%
Microsoft Corporation 2.3
3M Co. 2.0
Intel Corporation 1.7
Cisco Systems, Inc. 1.7
Alcon, Inc. 1.2
Medtronic, Inc. 1.2
Schlumberger Limited 1.2
Nike, Inc. (Class B) 1.0
eBay Inc. 0.9
Five Largest Industries Percent of
(Equity Investments)* Net Assets
Industrial Conglomerates 4.7%
Health Care Equipment & Supplies 4.3
Software 4.0
Communications Equipment 3.0
Semiconductors & Semiconductor Equipment 2.7
*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.
Percent of
Total
Asset Mix Investments
Fixed Income 59.7%
Common Stocks 39.6
Other* 0.7
*Includes portfolio holdings in short-term investments.
Electronic Delivery
The Fund offers electronic delivery of communications to its
shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this Web site
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
AUGUST 31, 2004
A Letter From the President
Dear Shareholder
In recent months, the Federal Reserve Board (the Fed) has taken
center stage as it shifts away from its long-accommodative monetary
stance. The Fed raised the Federal Funds rate 75 basis points (.75%)
in three separate moves since June, bringing the target short-term
interest rate to 1.75% - still low by historical standards. The Fed
has been deliberate in telegraphing its intention to take a
"measured" approach to interest rate increases in order to avoid
upsetting the economy or the financial markets, while still leaving
room to move more aggressively if inflation and economic growth
accelerate more than anticipated. The forward curve currently
projects further increases in short-term interest rates before year-
end.
In addition to the monetary policy change, the financial markets
recently have had to grapple with a tense geopolitical environment,
higher oil prices and the worry and anticipation that accompanies a
presidential election. While recent months brought intermittent
equity market weakness, returns for the year remained positive.
The Standard & Poor's 500 (S&P 500) Index returned +11.46% for the
12-month period ended August 31, 2004. Supporting the stock market,
despite the aforementioned uncertainties, was continued strong
corporate earnings growth. Company reports have continued to
surprise investors, in many cases still exceeding consensus earnings
forecasts.
As always, our investment professionals are closely monitoring the
markets, the economy and the overall environment in an effort to
make well-informed decisions for the portfolios they manage. Our
goal is to provide shareholders with competitive returns, while
always keeping one eye on managing the unavoidable risk inherent in
investing.
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
AUGUST 31, 2004
A Discussion With Your Fund's Portfolio Manager
The Fund was effectively able to preserve investor principal during
the fiscal year while also providing modest capital appreciation.
How did the Fund perform during the fiscal year in light of the
existing market conditions?
For the 12-month period ended August 31, 2004, Merrill Lynch
Fundamental Growth Principal Protected Fund's Class A, Class B,
Class C and Class I Shares had total returns of +1.50%, +0.81%,
+0.78% and +1.79%, 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 - 8 of this
report to shareholders.) For the same period, the Fund's all-equity
benchmarks, the Standard & Poor's 500 (S&P 500) Index and the S&P
500 Barra Growth Index, returned +11.46% and +6.94%, respectively.
The Lipper Balanced Target Maturity Funds category provided an
average return of +3.37% for the 12-month period. (Funds in this
Lipper category invest to provide a guaranteed return of investment
at maturity. Some of the assets are invested in zero coupon U.S.
Treasury securities, while the remainder is in equity securities for
long-term growth of capital and income.)
Because the Fund incorporates a fixed income component, it will, at
times, outperform or underperform its all-equity benchmarks. As of
August 31, 2004, the Fund's allocation was 39.6% in equities and
59.7% 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 remained strong for the majority of the year;
therefore, the Fund's fixed income position served to hamper returns
relative to the all-equity benchmarks. Nevertheless, the Fund was
successfully able to preserve investor principal during the period
while also providing modest capital appreciation.
The performance of the Fund's equity component was hampered in the
final month of the period, when several of the largest and highest-
quality information technology (IT) companies in the portfolio
suffered substantial stock price declines. The two largest
detractors during this time were Intel Corporation and Cisco Systems
Inc. Other major IT holdings experienced more than 10 percentage
points in stock price depreciation in August. These were Agilent
Technologies Inc., Analog Devices Inc., Hewlett-Packard Co. and
Corning Inc. Nevertheless, we maintained our positions in these
companies, based on what we believe is a compelling investment case.
These companies' managements have articulated ongoing prospects for
continued above-average growth in revenues and earnings, while the
stock market valuations for these same companies have declined to
below-average levels compared to the last decade. However, we did
liquidate our positions in Nortel Networks Corp. and EMC Corp., two
IT companies that had the most negative effect on performance in the
second half of the fiscal year. In the 12 months ended August 31,
2004, the IT sector declined by more than twice as much as the
consumer discretionary sector, which was the next worst-performing
sector in the S&P 500 Index.
Within the equity portfolio, the most favorable performance results
for the year came from our investments in the healthcare sector.
Individual stocks that provided substantial positive returns were
Alcon Inc., Boston Scientific Corp., Wellpoint Health Networks Inc.,
Varian Medical Systems Inc., Dentsply International Inc., Genentech
Inc. and UnitedHealth Group Inc. We liquidated our positions in
Wellpoint, Genentech and UnitedHealth Group, based on both their
relatively high valuations and anticipated changes in the companies'
business fundamentals. The poorest relative return in the healthcare
sector came from Forest Laboratories Inc., which declined 2.45% for
the fiscal year. The stock price has been depressed since February
2004 on investor worries about a U.S. Food and Drug Administration
investigation of the use of antidepressant drugs, including Forest
Laboratories' drugs, in the treatment of childhood depression. The
selloff of the company's stock was the single most negative factor
in the healthcare sector in the final six months of the period.
However, we maintained our position given a positive outlook for the
company's new Alzheimer's drug.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
The second-largest positive contribution to equity performance came
from our stock selection and investment strategy in the energy
sector. The leading investments were Schlumberger Ltd., Apache
Corp., Devon Energy Corp. and Baker Hughes Inc. Finally, the
industrials sector was the third most positive industry for the
equity portion of the Fund this year. Contributing most to
performance in this sector were 3M Co., Rockwell Automation Inc.,
Apollo Group Inc., Cummins Inc. and Paccar Inc.
What changes were made to the portfolio during the fiscal year?
The allocation between the portfolio's equity and bond components
has varied during the past 12 months, with the equity allocation
ranging from 39% of portfolio assets to 60% and the fixed income
allocation ranging from 38% to 60%, 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 component, we made no major changes in
our sector weightings or investment strategy in the first half of
the year. In the six months that followed, however, we meaningfully
reduced our position in the consumer discretionary sector and
shifted the exposure to the industrials and energy sectors. In the
consumer discretionary sector, we eliminated our positions in Krispy
Kreme Doughnuts Inc., Ross Stores Inc., Tiffany & Co., PETsMart Inc.
and Mandalay Resort Group. In the industrials sector, we introduced
positions in Cummins Inc., PACCAR Inc. and Eaton Corp. The heavy-
duty truck market is experiencing a major cyclical growth in demand
for replacement and more environmentally safe vehicles. We expect
this trend to continue for a meaningful time period. We also added
Monster Worldwide Inc., as employment growth in the service sector
of the U.S. economy is causing a cyclical upturn in the growth rates
for employment-search and advertising services. Our increased
investment weighting in the energy sector was primarily the result
of the capital appreciation of our stock holdings in this sector.
How would you characterize the Fund'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 fixed income.
Entering 2004, we anticipated that real growth in the U.S. economy
would shift from being led by consumer spending to being fueled by
increased capital spending. In fact, we have seen this transition
take place. The demand for capital goods - ranging from the latest
wireless communication infrastructure to rail locomotives and heavy-
duty commercial trucks - has been in a rising trend so far in 2004.
The U.S. steel industry is in its most profitable position in
decades due to the global demand for its products for use in motor
vehicles, large crude oil carriers and new liquefied natural gas
vessels, among other things.
Overall, the levels of corporate free cash flow and reported profits
are close to record highs. Although the Federal Reserve Board (the
Fed) has started to gradually raise short-term interest rates from
their record low levels, the Fed seems committed to following a
measured pace, and it appears this tightening process is not likely
to retard capital investment plans by small businesses and
corporations. Against this backdrop, our equity investment strategy
remains focused on the largest and highest-quality companies in the
capital goods sectors of the stock market.
Lawrence R. Fuller
Vice President and Equity Portfolio Manager
September 24, 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
AUGUST 31, 2004
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple
pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and an account maintenance fee of 0.25% per year (but
no distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% declining to 0% after six years. In addition, Class B
Shares are subject to a distribution fee of 0.75% per year and
an account maintenance fee of 0.25% per year. These shares
automatically convert to Class A Shares after approximately
eight years. (There is no initial sales charge for automatic
share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% per year
and an account maintenance fee of 0.25% per year. In addition, Class
C Shares are subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase.
* Class I Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class I Shares are available only to eligible
investors.
None of the past results shown should be considered a representation
of future performance. Current performance may be lower or higher
than the performance data quoted. Refer to www.mlim.ml.com to obtain
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 August 31, 2004 Total Return Total Return Total Return
ML Fundamental Growth Principal Protected Fund Class A Shares* -5.75% + 1.50% + 5.46%
ML Fundamental Growth Principal Protected Fund Class B Shares* -6.06 + 0.81 + 4.03
ML Fundamental Growth Principal Protected Fund Class C Shares* -6.14 + 0.78 + 4.00
ML Fundamental Growth Principal Protected Fund Class I Shares* -5.57 + 1.79 + 5.96
S&P 500 R Index** -2.74 +11.46 +29.15
S&P 500/Barra Growth Index*** -4.73 + 6.94 +19.95
Lehman Brothers Aggregate Bond Index**** +1.15 + 6.13 + 8.78
* 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, transportation and financial companies of
the U.S. markets (mostly NYSE issues) representing about 75% of NYSE market capitalization and
30% of NYSE issues. Since inception total return is from 11/13/02.
*** This unmanaged Index is a capitalization-weighted index of all stocks in the S&P 500 Index that
have higher price-to-book ratios. Since inception total return is from 11/13/02.
**** This unmanaged market-weighted Index is comprised of investment-grade corporate bonds (rated BBB
or better), mortgages and U.S. Treasury and government agency issues with at least one year to
maturity. Since inception total return is from 11/13/02.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class A & Class B Shares
A line graph illustrating the growth of a $10,000 investment in
ML Fundamental Growth Principal Protected Fund++ Class A and Class B
Shares* compared to a similar investment in S&P 500 Index++++,
S&P 500/Barra Growth Index++++++ and Lehman Brothers Aggregate Bond
Index++++++++. Values illustrated are as follows:
ML Fundamental Growth Principal Protected Fund++
Class A Shares*
Date Value
11/13/2002** $ 9,475.00
August 2003 $ 9,845.00
August 2004 $ 9,993.00
ML Fundamental Growth Principal Protected Fund++
Class B Shares*
Date Value
11/13/2002** $10,000.00
August 2003 $10,320.00
August 2004 $10,003.00
S&P 500 Index++++
Date Value
11/13/2002** $10,000.00
August 2003 $11,587.00
August 2004 $12,915.00
S&P 500/Barra Growth Index++++++
Date Value
11/13/2002** $10,000.00
August 2003 $11,217.00
August 2004 $11,995.00
Lehman Brothers Aggregate Bond Index++++++++
Date Value
11/13/2002** $10,000.00
August 2003 $10,249.00
August 2004 $10,878.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
** Commencement of operations.
++ ML Fundamental Growth Principal Protected Fund consists
primarily of common stocks and U.S. Treasury bonds,
including zero coupon bonds.
++++ This unmanaged Index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets
(mostly NYSE issues) representing about 75% of NYSE market
capitalization and 30% of NYSE issues.
++++++ This unmanaged Index is a capitalization-weighted index of
all stocks in the Standard & Poor's 500 Index that have
higher price-to-book ratios.
++++++++ This unmanaged market-weighted Index is comprised of
investment-grade corporate bonds (rated BBB or better),
mortgages and U.S. Treasury and government agency issues
with at least one year to maturity.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 8/31/04 +1.50% -3.83%
Inception (11/13/02)
through 8/31/04 +3.00 -0.04
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 8/31/04 +0.81% -3.19%
Inception (11/13/02)
through 8/31/04 +2.22 +0.02
* Maximum contingent deferred sales charge is 4% and is reduced to
0% after six years.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class C & Class I Shares
A line graph illustrating the growth of a $10,000 investment in
ML Fundamental Growth Principal Protected Fund++ Class C and Class I
Shares* compared to a similar investment in S&P 500 Index++++,
S&P 500/Barra Growth Index++++++ and Lehman Brothers Aggregate Bond
Index++++++++. Values illustrated are as follows:
ML Fundamental Growth Principal Protected Fund++
Class C Shares*
Date Value
11/13/2002** $10,000.00
August 2003 $10,320.00
August 2004 $10,400.00
ML Fundamental Growth Principal Protected Fund++
Class I Shares*
Date Value
11/13/2002** $ 9,475.00
August 2003 $ 9,864.00
August 2004 $10,040.00
S&P 500 Index++++
Date Value
11/13/2002** $10,000.00
August 2003 $11,587.00
August 2004 $12,915.00
S&P 500/Barra Growth Index++++++
Date Value
11/13/2002** $10,000.00
August 2003 $11,217.00
August 2004 $11,995.00
Lehman Brothers Aggregate Bond Index++++++++
Date Value
11/13/2002** $10,000.00
August 2003 $10,249.00
August 2004 $10,878.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
** Commencement of operations.
++ ML Fundamental Growth Principal Protected Fund consists
primarily of common stocks and U.S. Treasury bonds,
including zero coupon bonds.
++++ This unmanaged Index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets
(mostly NYSE issues) representing about 75% of NYSE market
capitalization and 30% of NYSE issues.
++++++ This unmanaged Index is a capitalization-weighted index of
all stocks in the S&P 500 Index that have higher price-to-
book ratios.
++++++++ This unmanaged market-weighted Index is comprised of
investment-grade corporate bonds (rated BBB or better),
mortgages and U.S. Treasury and government agency issues
with at least one year to maturity.
Past performance is not predictive of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 8/31/04 +0.78% -0.22%
Inception (11/13/02)
through 8/31/04 +2.21 +2.21
* 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 8/31/04 +1.79% -3.56%
Inception (11/13/02)
through 8/31/04 +3.27 +0.22
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a)
expenses related to transactions, including sales charges,
redemption fees and exchange fees; and (b) operating expenses
including advisory fees, distribution fees including 12(b)-1 fees,
and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on March 1, 2004 and held
through August 31, 2004) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in
comparing these expenses with similar costs of investing in other
mutual funds.
The first table below provides information about actual account
values and actual expenses. In order to estimate the expenses a
shareholder paid during the period covered by this report,
shareholders can divide their account value by $1,000 and then
multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
expenses. In order to assist shareholders in comparing the ongoing
expenses of investing in this Fund and other funds, compare the 5%
hypothetical example with the 5% hypothetical examples that appear
in other funds' shareholder reports.
The expenses shown in the table are intended to highlight
shareholders ongoing costs only and do not reflect any transactional
expenses, such as sales charges, redemption fees, or exchange fees.
Therefore, the second table is useful in comparing ongoing expenses
only, and will not help shareholders determine the relative total
expenses of owning different funds. If these transactional expenses
were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value March 1, 2004
March 1, 2004 August 31, 2004 to August 31, 2004
Actual
Class A $1,000 $ 942.50 $ 9.77
Class B $1,000 $ 939.40 $13.53
Class C $1,000 $ 938.60 $13.52
Class I $1,000 $ 944.30 $ 8.55
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,015.21 $10.13
Class B $1,000 $1,011.32 $14.03
Class C $1,000 $1,011.32 $14.03
Class I $1,000 $1,016.48 $ 8.87
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.99% for Class A, 2.76% for Class B, 2.76% for Class C and 1.74% for Class I), multiplied by
the average account value over the period, multiplied by 186/368 (to reflect the one-half year
period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in
the most recent fiscal half-year divided by 368.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Schedule of Investments
Industry* Shares Held Common Stocks Value
Biotechnology--0.9% 23,800 ++Gilead Sciences, Inc. $ 1,645,294
Chemicals--1.0% 18,700 Air Products and Chemicals, Inc. 979,506
24,500 Praxair, Inc. 994,210
-------------
1,973,716
Commercial Services 10,200 ++Monster Worldwide Inc. 206,346
& Supplies--0.1%
Communications 16,200 ++Avaya Inc. 196,344
Equipment--3.0% 166,100 ++Cisco Systems, Inc. 3,116,036
75,700 ++Corning Incorporated 766,084
280,100 ++Lucent Technologies Inc. 876,713
44,800 Motorola, Inc. 723,520
-------------
5,678,697
Computers & Peripherals--1.0% 66,300 Hewlett-Packard Company 1,186,107
32,000 ++SanDisk Corporation 747,200
-------------
1,933,307
Consumer Finance--0.6% 22,500 American Express Company 1,125,450
Electrical Equipment--1.2% 15,600 Emerson Electric Company 971,100
34,200 Rockwell Automation, Inc. 1,333,800
-------------
2,304,900
Electronic Equipment 26,800 ++Agilent Technologies, Inc. 549,400
& Instruments--0.8% 30,400 Tektronix, Inc. 868,528
-------------
1,417,928
Energy Equipment 32,500 Baker Hughes Incorporated 1,278,225
& Service--1.9% 35,800 Schlumberger Limited 2,212,440
-------------
3,490,665
Food Products--0.4% 24,100 McCormick & Company Incorporated 808,555
Health Care Equipment 30,900 Alcon, Inc. 2,312,556
& Supplies--4.3% 47,900 ++Boston Scientific Corporation 1,711,467
20,600 DENTSPLY International Inc. 1,049,570
44,600 Medtronic, Inc. 2,218,850
24,300 ++Varian Medical Systems, Inc. 805,545
-------------
8,097,988
Hotels, Restaurants 16,300 Marriott International, Inc. (Class A) 773,435
& Leisure--1.3% 20,000 ++Starbucks Corporation 864,800
19,700 Starwood Hotels & Resorts Worldwide, Inc. 870,740
-------------
2,508,975
IT Services--0.9% 28,000 First Data Corporation 1,183,000
10,700 ++Hewitt Associates, Inc. (Class A) 282,587
9,100 Paychex, Inc. 269,997
-------------
1,735,584
Industrial Conglomerates--4.7% 46,100 3M Co. 3,796,796
152,900 General Electric Company 5,013,591
-------------
8,810,387
Internet & Catalog Retail--1.3% 20,500 ++eBay Inc. 1,774,070
30,800 ++IAC/InterActiveCorp 702,548
-------------
2,476,618
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Schedule of Investments (continued)
Industry* Shares Held Common Stocks Value
Internet Software 24,800 ++Yahoo! Inc. $ 707,048
& Services--0.4%
Machinery--1.6% 14,600 Cummins Inc. 982,434
14,000 Eaton Corporation 844,900
18,800 PACCAR Inc. 1,131,572
-------------
2,958,906
Metals & Mining--0.9% 22,600 Freeport-McMoRan Copper & Gold, Inc. (Class B) 850,438
9,900 Phelps Dodge Corporation 807,444
-------------
1,657,882
Office Electronics--0.6% 24,000 Canon, Inc. 1,141,555
Oil & Gas--1.7% 26,200 Apache Corporation 1,170,878
20,600 Devon Energy Corporation 1,335,086
23,400 Pioneer Natural Resources Company 782,730
-------------
3,288,694
Pharmaceuticals--0.8% 30,600 ++Forest Laboratories, Inc. 1,403,010
Semiconductors & Semiconductor 21,600 Analog Devices, Inc. 749,952
Equipment--2.7% 148,500 Intel Corporation 3,161,565
60,200 Texas Instruments Incorporated 1,176,308
-------------
5,087,825
Software--4.0% 20,100 Adobe Systems Incorporated 921,987
18,100 ++Electronic Arts Inc. 901,018
156,900 Microsoft Corporation 4,283,370
129,600 ++Oracle Corporation 1,292,112
-------------
7,398,487
Specialty Retail--2.1% 26,600 Best Buy Co., Inc. 1,237,432
16,200 Lowe's Companies, Inc. 805,140
27,400 ++Rent A Center Inc. 824,740
40,500 Staples, Inc. 1,161,540
-------------
4,028,852
Textiles, Apparel & 20,200 ++Coach, Inc. 851,430
Luxury Goods--1.5% 25,600 Nike, Inc. (Class B) 1,927,936
-------------
2,779,366
Total Common Stocks
(Cost--$67,712,111)--39.7% 74,666,035
Face
Amount U.S. Government Obligations
U.S. Treasury STRIPS (a):
$34,998,000 3.153%** due 8/15/2009 29,555,496
99,125,000 3.738%** due 11/15/2009 82,999,345
Total U.S. Government Obligations
(Cost--$111,772,759)--59.8% 112,554,841
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Schedule of Investments (concluded)
Beneficial
Interest Short-Term Securities Value
$1,384,140 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (b) $ 1,384,140
Total Short-Term Securities
(Cost--$1,384,140)--0.7% 1,384,140
Total Investments (Cost--$180,869,010***)--100.2% 188,605,016
Liabilities in Excess of Other Assets--(0.2%) (444,821)
-------------
Net Assets--100.0% $ 188,160,195
=============
++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.These industry classifications
are unaudited.
**Represents a zero coupon bond; the interest rate shown reflects
the effective rate paid at the time of purchase by the Fund.
***The cost and unrealized appreciation/depreciation of investments
as of August 31, 2004, as computed for federal income tax purposes
were as follows:
Aggregate cost $ 182,976,240
=============
Gross unrealized appreciation $ 10,390,909
Gross unrealized depreciation (4,762,133)
-------------
Net unrealized appreciation $ 5,628,776
=============
(a)Separately Traded Registered Interest and Principal of
Securities (STRIPS).
(b)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) were as
follows:
Interest/
Net Dividend
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $(1,025,736) $35,246
Merrill Lynch Liquidity Series,
LLC Money Market Series -- $ 135
Merrill Lynch Premier
Institutional Fund -- $ 2,304
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Statement of Assets and Liabilities
As of August 31, 2004
Assets
Investments in unaffiliated securities, at value (identified cost--$179,484,870) $ 187,220,876
Investments in affiliated securities, at value (identified cost--$1,384,140) 1,384,140
Foreign cash (cost--$6,790) 6,779
Receivables:
Securities sold $ 189,060
Dividends 74,749
Interest from affiliates 1,256 265,065
---------------
Prepaid registration fees 4,046
---------------
Total assets 188,880,906
---------------
Liabilities
Payables:
Beneficial interest redeemed 360,888
Distributor 150,208
Financial warranty fee 130,786
Other affiliates 41,281
Investment adviser 13,385 696,548
---------------
Accrued expenses and other liabilities 24,163
---------------
Total liabilities 720,711
---------------
Net Assets
Net assets $ 188,160,195
===============
Net Assets Consist of
Paid-in capital, unlimited number of shares of beneficial interest authorized $ 175,184,121
Undistributed realized capital gains--net $ 5,240,079
Unrealized appreciation--net 7,735,995
---------------
Total accumulated earnings--net 12,976,074
---------------
Net Assets $ 188,160,195
===============
Net Asset Value
Class A--Based on net assets of $8,309,124 and 792,189 shares of beneficial
interest outstanding $ 10.49
===============
Class B--Based on net assets of $96,960,940 and 9,334,718 shares of beneficial
interest outstanding $ 10.39
===============
Class C--Based on net assets of $71,215,618 and 6,854,415 shares of beneficial
interest outstanding $ 10.39
===============
Class I--Based on net assets of $11,674,513 and 1,110,161 shares of beneficial
interest outstanding $ 10.52
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Statement of Operations
For the Year Ended August 31, 2004
Investment Income
Interest (including $35,246 from affiliates) $ 3,667,171
Dividends (net of $9,732 foreign withholding tax) 900,039
Securities lending--net 2,439
---------------
Total income 4,569,649
---------------
Expenses
Financial warranty fee $ 1,840,060
Investment advisory fees 1,470,539
Account maintenance and distribution fees--Class B 1,110,586
Account maintenance and distribution fees--Class C 889,451
Transfer agent fees--Class B 136,915
Accounting services 112,458
Transfer agent fees--Class C 112,444
Offering costs 102,704
Professional fees 71,635
Printing and shareholder reports 38,347
Account maintenance fees--Class A 28,773
Custodian fees 26,950
Trustees' fees and expenses 23,650
Transfer agent fees--Class I 15,658
Transfer agent fees--Class A 12,249
Registration fees 6,044
Pricing fees 4,254
Other 20,909
---------------
Total expenses before waiver 6,023,626
Waiver of expenses (2,277)
---------------
Total expenses after waiver 6,021,349
---------------
Investment loss--net (1,451,700)
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss)on:
Investments--net 11,090,780
Foreign currency transactions--net (7,835) 11,082,945
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (5,429,308)
Foreign currency transactions--net 5,315 (5,423,993)
--------------- ---------------
Total realized and unrealized gain--net 5,658,952
---------------
Net Increase in Net Assets Resulting from Operations $ 4,207,252
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Statements of Changes in Net Assets
For the Period
For the November 13,
Year Ended 2002++ to
August 31, August 31,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment loss--net $ (1,451,700) $ (460,588)
Realized gain (loss)--net 11,082,945 (4,391,154)
Unrealized appreciation/depreciation--net (5,423,993) 13,159,988
--------------- ---------------
Net increase in net assets resulting from operations 4,207,252 8,308,246
--------------- ---------------
Dividends to Shareholders
Investment income--net:
Class A (54,637) (16,518)
Class B (36,407) (112,921)
Class C -- (99,164)
Class I (97,873) (21,410)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (188,917) (250,013)
--------------- ---------------
Beneficial Interest Transactions
Net increase (decrease) in net assets derived from beneficial interest
transactions (67,566,584) 243,550,211
--------------- ---------------
Net Assets
Total increase (decrease) in net assets (63,548,249) 251,608,444
Beginning of period 251,708,444 100,000
--------------- ---------------
End of period* $ 188,160,195 $ 251,708,444
=============== ===============
* Undistributed investment income--net -- $ 188,905
=============== ===============
++ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Financial Highlights
Class A
For the For the Period
The following per share data and ratios have been derived Year November 13,
from information provided in the financial statements. Ended 2002++ to
August 31, 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--net .16 .35
------------- -------------
Total from investment operations .16 .39
------------- -------------
Less dividends from investment income--net (.05) (.01)
------------- -------------
Net asset value, end of period $ 10.49 $ 10.38
============= =============
Total Investment Return**
Based on net asset value per share 1.50% 3.90%+++
============= =============
Ratios to Average Net Assets
Expenses, net of waiver 1.99% 2.11%*
============= =============
Expenses 2.00% 2.11%*
============= =============
Investment income--net .02% .41%*
============= =============
Supplemental Data
Net assets, end of period (in thousands) $ 8,309 $ 15,668
============= =============
Portfolio turnover 71.29% 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
AUGUST 31, 2004
Financial Highlights (continued)
Class B
For the For the Period
The following per share data and ratios have been derived Year November 13,
from information provided in the financial statements. Ended 2002++ to
August 31, 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 (.08)*** (.03)
Realized and unrealized gain--net .16 .35
------------- -------------
Total from investment operations .08 .32
------------- -------------
Less dividends from investment income--net --+++++ (.01)
------------- -------------
Net asset value, end of period $ 10.39 $ 10.31
============= =============
Total Investment Return**
Based on net asset value per share .81% 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) $ 96,961 $ 117,426
============= =============
Portfolio turnover 71.29% 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
AUGUST 31, 2004
Financial Highlights (continued)
Class C
For the For the Period
The following per share data and ratios have been derived Year November 13,
from information provided in the financial statements. Ended 2002++ to
August 31, 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 (.08)*** (.03)
Realized and unrealized gain--net .16 .35
------------- -------------
Total from investment operations .08 .32
------------- -------------
Less dividends from investment income--net -- (.01)
------------- -------------
Net asset value, end of period $ 10.39 $ 10.31
============= =============
Total Investment Return**
Based on net asset value per share .78% 3.20%+++
============= =============
Ratios to Average Net Assets
Expenses, net of waiver 2.76% 2.88%*
============= =============
Expenses 2.76% 2.88%*
============= =============
Investment loss--net (.75%) (.36%)*
============= =============
Supplemental Data
Net assets, end of period (in thousands) $ 71,216 $ 101,111
============= =============
Portfolio turnover 71.29% 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
AUGUST 31, 2004
Financial Highlights (concluded)
Class I
For the For the Period
The following per share data and ratios have been derived Year November 13,
from information provided in the financial statements. Ended 2002++ to
August 31, 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 .03*** .06
Realized and unrealized gain--net .16 .35
------------- -------------
Total from investment operations .19 .41
------------- -------------
Less dividends from investment income--net (.07) (.01)
------------- -------------
Net asset value, end of period $ 10.52 $ 10.40
============= =============
Total Investment Return**
Based on net asset value per share 1.79% 4.10%+++
============= =============
Ratios to Average Net Assets
Expenses, net of waiver 1.74% 1.86%*
============= =============
Expenses 1.75% 1.86%*
============= =============
Investment income--net .27% .67%*
============= =============
Supplemental Data
Net assets, end of period (in thousands) $ 11,675 $ 17,503
============= =============
Portfolio turnover 71.29% 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
AUGUST 31, 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"). The Fund is a separate diversified series of the Trust,
which is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's
financial statements are prepared in conformity with U.S. generally
accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from
these estimates. The Fund offers multiple classes of shares. 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. 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
AUGUST 31, 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
AUGUST 31, 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.
(j) Reclassification--U.S. generally accepted accounting principles
require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting.
Accordingly, during the current year, $1,451,712 has been
reclassified between undistributed net realized capital gains
and accumulated net investment loss as a result of permanent
differences attributable to net operating losses and foreign
currency transaction gains/losses. This reclassification has no
effect on net assets or net asset values per share.
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 year
ended August 31, 2004, MLIM earned fees of $1,470,539, of which
$2,277 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 year ended August 31, 2004, MLPF&S received contingent
deferred sales charges of $528,420 and $20,177 relating to
transactions in Class B and Class C Shares, respectively.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Notes to Financial Statements (continued)
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.
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. For the year ended August 31,
2004, MLIM LLC received $1,369 in securities lending agent fees.
In addition, MLPF&S received $45,730 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
August 31, 2004.
For the year ended August 31, 2004 the Fund reimbursed MLIM $4,631
for certain accounting services.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
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 year ended August 31, 2004 were $158,982,186 and
$230,272,914, respectively.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was ($67,566,584) and $243,550,211 for the
year ended August 31, 2004 and the period November 13, 2002 to
August 31, 2003, respectively.
Transactions in beneficial interest for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
Shares issued to shareholders
in reinvestment of dividends 4,983 $ 53,125
Shares redeemed (722,948) (7,808,864)
------------- --------------
Net decrease (717,965) $ (7,755,739)
============= ==============
Class A Shares for the Period
November 13, 2002++ to Dollar
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.
Class B Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
Shares issued to shareholders
in reinvestment of dividends 3,327 $ 35,303
Shares redeemed (2,055,472) (22,036,707)
------------- --------------
Net decrease (2,052,145) $ (22,001,404)
============= ==============
Class B Shares for the Period
November 13, 2002++ to Dollar
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 Year Dollar
Ended August 31, 2004 Shares Amount
Shares redeemed (2,950,521) $ (31,608,625)
------------- --------------
Net decrease (2,950,521) $ (31,608,625)
============= ==============
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Notes to Financial Statements (concluded)
Class C Shares for the Period
November 13, 2002++ to Dollar
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 Year Dollar
Ended August 31, 2004 Shares Amount
Shares issued to shareholders
in reinvestment of dividends 8,784 $ 93,726
Shares redeemed (582,313) (6,294,542)
------------- --------------
Net decrease (573,529) $ (6,200,816)
============= ==============
Class I Shares for the Period
November 13, 2002++ to Dollar
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 year ended August 31, 2004.
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years
ended August 31, 2004 and August 31, 2003 was as follows:
8/31/2004 8/31/2003
Distributions paid from:
Ordinary income $ 188,917 $ 250,013
------------- --------------
Total taxable distributions $ 188,917 $ 250,013
============= ==============
As of August 31, 2004, the components of accumulated earnings on a
tax basis were as follows:
Undistributed ordinary income--net $ 2,729,598
Undistributed long-term capital gains--net 4,617,712
--------------
Total undistributed earnings--net 7,347,310
Capital loss carryforward --
Unrealized gains--net 5,628,764*
--------------
Total accumulated earnings--net $ 12,976,074
==============
*The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
wash sales.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees,
Merrill Lynch Fundamental Growth Principal Protected Fund
We have audited the accompanying statement of assets and liabilities
of Merrill Lynch Fundamental Growth Principal Protected Fund,
including the schedule of investments, as of August 31, 2004,
and the related statement of operations for the year then ended,
the statement of changes in net assets and the financial highlights
for the year then ended and for the period November 13, 2002
(commencement of operations) through August 31, 2003. These
financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements and financial
highlights. Our procedures included confirmation of securities owned
as of August 31, 2004 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Fundamental Growth Principal
Protected Fund at August 31, 2004, the results of its operations for
the year then ended, the changes in its net assets and the financial
highlights for the year then ended and for the period November 13,
2002 through August 31, 2003 in conformity with U.S. generally
accepted accounting principles.
(Ernst & Young, LLP)
Philadelphia, Pennsylvania
October 15, 2004
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary
income distribution paid by Merrill Lynch Fundamental Growth
Principal Protected Fund of Merrill Lynch Principal Protected Trust
to shareholders of record on December 12, 2003:
Qualified Dividend Income for Individuals 100%
Dividends Qualifying for the Dividends
Received Deduction for Corporations 100%
Federal Obligation Interest 84.77%
The law varies in each state as to whether and what percentage of
dividend income attributable to federal obligations is exempt from
state income tax. We recommend that you consult your tax adviser to
determine if any portion of the dividends you received is exempt
from state income taxes.
Please retain this information for your records.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Officers and Trustees (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Interested Trustee
Terry K. Glenn* President 2002 to President of the Merrill Lynch Investment 124 Funds None
P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 157 Portfolios
Princeton, Trustee Management, L.P. ("FAM")--Advised Funds
NJ 08543-9011 since 1999; Chairman (Americas Region)
Age: 63 of MLIM from 2000 to 2002; Executive Vice
President of MLIM and FAM (which terms as
used herein include their corporate
predecessors) from 1983 to 2002; President
of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991
to 2002; Executive Vice President and
Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P.
from 1989 to 2002; Director of Financial
Data Services, Inc. since 1985.
* Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
present and former positions with MLIM, FAM, FAMD, Princeton
Services and Princeton Administrators, L.P. The Trustee's term is
unlimited. Trustees serve until their resignation, removal or death,
or until December 31 of the year in which they turn 72. As Fund
President, Mr. Glenn serves at the pleasure of the Board of
Trustees.
Independent Trustees*
David O. Beim Trustee 2002 to Professor of Finance and Economics at the 14 Funds None
P.O. Box 9095 present Columbia University Graduate School of 17 Portfolios
Princeton, Business since 1991; Chairman of Outward
NJ 08543-9095 Bound U.S.A. from 1997 to 2002; Chairman
Age: 64 of Wave Hill, Inc. since 1990.
James T. Flynn Trustee 2002 to Chief Financial Officer of J.P. Morgan & 14 Funds None
P.O. Box 9095 present Co., Inc. from 1990 to 1995 and an 17 Portfolios
Princeton, employee of J.P. Morgan in various
NJ 08543-9095 capacities from 1967 to 1995.
Age: 64
W. Carl Kester Trustee 2002 to Mizuho Financial Group Professor of 14 Funds None
P.O. Box 9095 present Finance; Senior Associate Dean and 17 Portfolios
Princeton, Chairman of the MBA Program of Harvard
NJ 08543-9095 University Graduate School of Business
Age: 52 Administration since 1999; James R.
Williston Professor of Business
Administration of Harvard University
Graduate School of Business from 1997 to
1999; MBA Class of 1977, Professor of
Business Administration of Harvard
University Graduate School of Business
Administration from 1981 to 1997;
Independent Consultant since 1978.
Karen P. Robards Trustee 2002 to President of Robards & Company, a financial 14 Funds None
P.O. Box 9095 present advisory since 1987; formerly an investment 17 Portfolios
Princeton, banker with Morgan Stanley for more than
NJ 08543-9095 ten years; Director of Enable Medical Corp.
Age: 54 since 1996; Director of Atricure, Inc.
since 2000; Director of CineMuse Inc.
from 1996 to 2000; Director of the Cooke
Center for Learning and Development, a
not-for-profit organization, since 1987.
* The Trustee's term is unlimited. Trustees serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 31, 2004
Officers and Trustees (unaudited)(concluded)
Position(s) Length of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 2002 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since
P.O. Box 9011 President present 1999; Senior Vice President, Director and Treasurer of Princeton Services
Princeton, and since 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
NJ 08543-9011 Treasurer since 1990.
Age: 44
Robert C. Doll, Jr. Senior 2002 to President of MLIM and member of the Executive Management Committee of
P.O. Box 9011 Vice present ML & Co., Inc. since 2001; Global Chief Investment Officer and Senior
Princeton, President Portfolio Manager of MLIM since 1999; Chief Investment Officer of Equities
NJ 08543-9011 at Oppenheimer Funds, Inc. from 1990 to 1999 and Chief Investment Officer
Age: 50 thereof from 1998 to 1999; Executive Vice President of Oppenheimer Funds, Inc.
from 1991 to 1999.
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice
P.O. Box 9011 Compliance present President and Chief Compliance Officer of MLIM since 2004; Global Director
Princeton, Officer of Compliance at Morgan Stanley Investment Management from 2002 to 2004;
NJ 08543-9011 Managing Director and Global Director of Compliance at Citigroup Asset
Age: 53 Management from 2000 to 2002; Chief Compliance Officer at Soros Fund
Management in 2000; Chief Compliance Officer at Prudential Financial from
1995 to 2000.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from
P.O. Box 9011 present 1999 to 2002; Attorney associated with MLIM since 1997.
Princeton,
NJ 08543-9011
Age: 44
* Officers of the Fund serve at the pleasure of the Board of
Trustees.
Further information about the Fund's Officers and Trustees is
available in the Fund's Statement of Additional Information, which
can be obtained without charge by calling 1-800-MER-FUND.
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
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
AUGUST 3, 2004
Item 2 - Code of Ethics - The registrant has adopted a code of
ethics, as of the end of the period covered by this report, that
applies to the registrant's principal executive officer, principal
financial officer and principal accounting officer, or persons
performing similar functions. A copy of the code of ethics
is available without charge upon request by calling toll-free
1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board
of directors has determined that (i) the registrant has the
following audit committee financial experts serving on its audit
committee and (ii) each audit committee financial expert is
independent: (1) David O. Beim, (2) W. Carl Kester, (3) James T.
Flynn and (4) Karen P. Robards.
The registrant's board of directors has determined that David O.
Beim, W. Carl Kester and Karen P. Robards qualify as financial
experts pursuant to Item 3(c)(4) of Form N-CSR.
Mr. Beim has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. For
25 years, Mr. Beim was an investment banker actively engaged in
financial analysis for securities transactions and mergers. These
transactions presented a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the Registrant's financial statements. Mr. Beim has also been a
professor of finance and economics at the Columbia University
Graduate School of Business for the past 11 years.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions.
Prof. Kester has been involved in providing valuation and other
financial consulting services to corporate clients since 1978.
Prof. Kester's financial consulting services present a breadth and
level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the Registrant's financial
statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. Ms.
Robards has been President of Robards & Company, a financial
advisory firm, since 1987. Ms. Robards was formerly an investment
banker for more than 10 years where she was responsible for
evaluating and assessing the performance of companies based on their
financial results. Ms. Robards has over 30 years of experience
analyzing financial statements. She also is the member of the Audit
Committees of two privately held companies and a non-profit
organization.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees -
Fiscal Year Ending August 31, 2004 - $26,000
Fiscal Year Ending August 31, 2003 - $31,500
(b) Audit-Related Fees -
Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
(c) Tax Fees -
Fiscal Year Ending August 31, 2004 - $5,200
Fiscal Year Ending August 31, 2003 - $5,000
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending August 31, 2004 - $5,200
Fiscal Year Ending August 31, 2003 - $5,000
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation
S-X is compatible with maintaining the principal accountant's
independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies - Not Applicable
Item 8 - 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 second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
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: October 18, 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: October 18, 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: October 18, 2004