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: Robert C. Doll, Jr., Chief
Executive Officer, 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: 08/31/05
Date of reporting period: 09/01/04 - 02/28/05
Item 1 - Report to Stockholders
Merrill Lynch
Fundamental Growth
Principal Protected Fund
Semi-Annual Report
February 28, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered
a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are
subject to change.
A description of the policies and procedures that the Fund uses
to determine how to vote proxies relating to portfolio securities
is available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) at www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's Web site at
http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the
most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com and (2) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Merrill Lynch Fundamental Growth
Principal Protected Fund of
Merrill Lynch Principal Protected Trust
Box 9011
Princeton, NJ
08543-9011
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Merrill Lynch Fundamental Growth Principal Protected Fund
Portfolio Information as of February 28, 2005
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
General Electric Co. 3.1%
3M Co. 3.1
Microsoft Corp. 2.6
Alcon, Inc. 2.0
The Dow Chemical Co. 1.5
Intel Corp. 1.4
Marriott International, Inc. Class A 1.4
Procter & Gamble Co. 1.4
Gilead Sciences, Inc. 1.3
UnitedHealth Group, Inc. 1.3
Five Largest Industries* Percent of
(Equity Investments) Net Assets
Health Care Equipment & Supplies 7.0%
Industrial Conglomerates 6.2
Hotels, Restaurants & Leisure 4.6
Chemicals 4.5
Energy Equipment & Services 3.9
* 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
Common Stock 52.1%
Fixed Income Securities 47.1
Other* 0.8
* Includes portfolio holdings in short-term investments.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its
shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this Web site
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 28, 2005
A Letter From the President
Dear Shareholder
Financial markets broadly posted positive returns over the most
recent reporting period, with international equities providing some
of the most impressive results.
Total Returns as of February 28, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) + 9.99% + 6.98%
International equities (MSCI Europe Australasia Far East Index) +21.18 +18.68
Fixed income (Lehman Brothers Aggregate Bond Index) + 1.26 + 2.43
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 2.40 + 2.96
High yield bonds (Credit Suisse First Boston High Yield Index) + 7.53 +11.21
The U.S. economy has continued to show resilience in the face of the
Federal Reserve Board's (the Fed) continued interest rate hikes and,
more recently, higher oil prices. The Fed's measured tightening
program recently brought the federal funds rate to 2.75% en route to
a more "neutral" short-term interest rate target (relative to
inflation). Since the U.S. presidential election, progress has been
monitored on many fronts in Washington, although concerns remain
about the structural problems of debt and deficits, as reflected by
a significant decline in the U.S. dollar.
U.S. equities ended 2004 in a strong rally, but remained in a fairly
narrow trading range for the first two months of 2005. Divergences
were notable among sectors, with energy emerging as a clear leader.
On the positive side, corporations have accelerated their hiring
plans, capital spending remains reasonably robust and merger-and-
acquisition activity has increased. Offsetting the positives are
slowing corporate earnings growth, renewed energy price concerns
and the potential for an economic slowdown. International equities,
particularly in Asia, have benefited from higher economic growth
rates (China recorded growth of 9.3% in 2004), stronger currencies
and relatively reasonable valuations.
The major action in the bond market has been a flattening of the
yield curve. As short-term interest rates continued to rise, yields
on the long end of the curve remained relatively stable - even
declining at certain points since the Fed's monetary tightening
program began in June 2004. This phenomenon has been largely
attributed to continued foreign interest in U.S. bonds, which has
served to absorb much of the excess supply. By period-end, many
believed long-term yields were long overdue for a rise.
Looking ahead, the environment is likely to be a challenging one for
investors, with diversification and selectivity becoming
increasingly important themes. With this in mind, we encourage you
to meet with your financial advisor to review your goals and asset
allocation and to rebalance your portfolio, as necessary, to ensure
it remains aligned with your objectives and risk tolerance. As
always, we thank you for trusting Merrill Lynch Investment Managers
with your investment assets, and we look forward to serving you in
the months and years ahead.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Trustee
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
A Discussion With Your Fund's Portfolio Manager
In a volatile period for both stock and bond markets, the Fund met
its primary objective of preserving investor principal 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 28, 2005, Merrill Lynch
Fundamental Growth Principal Protected Fund's Class A, Class B,
Class C and Class I Shares had total returns of +4.19%, +3.82%,
+3.83% and +4.30%, respectively. (Fund results shown do not reflect
sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 and 7
of this report to shareholders.) 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 +9.99% and +8.65%,
respectively.
Because the Fund incorporates a fixed income component, it will, at
times, outperform or underperform its all-equity benchmarks. For
some context, the fixed income market, as measured by the Lehman
Brothers Aggregate Bond Index, provided a six-month return of +1.26%
as of February 28, 2005. Given the U.S. stock market's relatively
strong returns during the period, the Fund's fixed income position
served to hamper returns relative to the all-equity benchmarks.
Nevertheless, Fund returns exceeded the +2.38% average return of
the Lipper Balanced Target Maturity Funds category for the six-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.)
Performance in the equity portfolio benefited from our overweighting
of the consumer discretionary, industrials, information technology
and materials sectors, and above-market exposure to selected
stocks within these sectors. The top performers were Marriott
International, Inc., Starwood Hotels & Resorts Worldwide Inc.,
Best Buy Co., Inc. and eBay Inc. in consumer discretionary; Monster
Worldwide, Inc. and PACCAR, Inc. in industrials; Oracle Corp. and
Adobe Systems, Inc. in information technology; and Air Products &
Chemicals, Inc. in materials.
Stock selection and underweight positions in health care and
consumer staples also contributed positively to performance. In
health care, relative results benefited from our negligible exposure
to the major pharmaceutical companies, an area we have avoided for
fundamental business reasons. In consumer staples, our avoidance of
several of the largest and best-known companies in the sector was
the most meaningful contributor to performance.
The leading detractor from equity performance was the absence of any
investment in ExxonMobil Corp., which became part of the S&P 500
Barra Growth Index in December 2004 and represented a meaningful
weighting (6.6%) in the benchmark by period-end. The stock price
appreciated more than 23% in February 2005.
What changes were made to the portfolio during the period?
A mathematical formula is used to determine the allocation between
the Fund's equity and fixed income components. During the period,
the Fund's equity component ranged from 39.4% of net assets to
54.6%, and the fixed income allocation ranged from 45.4% of net
assets to 60.6%. 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 the equity portfolio, we made several adjustments in response to
changes in the relative valuations and business fundamentals of the
companies we own. In the consumer discretionary sector, valuations
rose while growth of U.S. consumer spending gradually slowed. In
response, we liquidated our positions at profits in Best Buy, eBay,
Nike, Inc. and Lowe's Companies, Inc. We also substantially reduced
our weighting in Coach, Inc. due to its relatively high valuation,
although the longer-term business prospects look very good. We sold
Rent-A-Center, Inc. and IAC/Interactive Corp. based on deteriorating
business fundamentals.
In the health care sector, we initiated positions in companies that
we believe could benefit as federal and state governments endeavor
to change the U.S. healthcare delivery system. We established
positions in Zimmer Holdings, Inc., St. Jude Medical, Inc. and
Caremark Rx, Inc., and added to our positions in WellPoint, Inc. and
UnitedHealth Group, Inc. We sold Forest Laboratories, Inc. at a
capital loss given our growing concerns about the collapse of the
company's anti-depressant drug franchise, which might not be offset
by its growing franchise in the Alzheimer's drug market.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
In the industrials sector, we liquidated our positions at profits
in Monster, Paccar, Rockwell Automation, Inc., Cummins, Inc.,
Eaton Corp., Robert Half International, Inc. and Emerson Electric
Co. - all based on relatively high valuations. We added positions in
Boeing Co., Lockheed Martin Corp., Deere & Co. and Caterpillar, Inc.
In our opinion, the dramatic decline in the value of the U.S. dollar
over the past two years puts U.S. manufacturers of aerospace and
agricultural and industrial construction equipment in a position to
grow by taking market share from manufacturers in Europe and Asia.
We meaningfully reduced the Fund's exposure to the information
technology sector, selling out positions as the stocks rose about
twice as much as our benchmark in the fourth quarter of 2004 and
into January on the basis of very good earnings reports. We
liquidated our positions in Oracle, Adobe, Cisco Systems, Inc.,
Hewlett-Packard Co., Lucent Technologies Inc., Texas Instruments
Inc., Motorola, Inc., Tektronix, Inc., Canon, Inc., Avaya Inc.,
Agilent Technologies, Inc., Analog Devices, Inc. and SanDisk Corp.
The Fund ended the period with an underweight exposure in
information technology.
In materials, we shifted our focus from metals and mining to
chemicals by selling Phelps Dodge Corp. and Freeport-McMoRan Copper
& Gold, Inc. and adding Air Products, The Dow Chemical Co., Praxair,
Inc. and E.I. DuPont de Nemours & Co. We are concerned about the
pricing and profitability of metals companies in 2005 as new mining
capacity is developed around the globe. On the other hand, the
decline in the U.S. dollar enhances the competitive position and
profit growth of U.S. companies in the industrial chemicals and
gases businesses.
We increased the Fund's exposure to the financials sector, adding
positions in Franklin Resources, Inc., Bank of America Corp.,
Washington Mutual, Inc., Citigroup, Inc., U.S. Bancorp, Doral
Financial Corp. and MBNA Corp. The majority of these financial
services companies have relatively high dividend yields to cushion
the downside of stock prices as the Federal Reserve Board continues
to raise short-term interest rates.
In the energy sector, we took profits on many of the Fund's holdings
in exploration and development companies, selling Devon Energy
Corp., Apache Corp., Pioneer Natural Resources Inc. and Occidental
Petroleum Corp. The Fund still has a meaningful exposure to the
major companies that provide the logistical intelligence, equipment
and services for private companies and governments to explore and
develop new energy reserves, which are obviously scarce. Given the
recent upturn in the stock prices of almost all energy companies, it
appears investors have recognized the tremendous earnings growth of
the S&P energy companies over the past year. However, the increase
in interest rates over the past nine months, as well as higher
energy costs, are more likely to slow economic growth and cause
lower energy prices and lower earnings. Consequently, we have taken
a cautionary view toward energy companies dependent on energy prices
over the intermediate term.
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. As of February 28, 2005, the Fund's net assets
were allocated 52.6% in equities and 47.4% in fixed income
securities.
In the equity portion of the portfolio, we ended the period
overweight in the industrials sector, assuming a continuation
of capital investment programs in the United States and Asia,
particularly China. U.S. manufacturers of industrial goods as
well as chemicals and gases should benefit from their increased
competitive position in the global markets. Our focus in the
consumer discretionary sector is on companies in the services and
entertainment segments, which we believe could do well as consumers
spend more on these services. In the energy sector, we expect a
continued ramp-up of corporate and government spending on
exploration and development of new energy reserves.
Lawrence R. Fuller
Equity Portfolio Manager
March 24, 2005
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 28, 2005
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple
pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and an account maintenance fee of 0.25% per year (but
no distribution fee).
* Class B Shares are subject to a maximum contingent deferred
sales charge of 4% declining to 0% after six years. In addition,
Class B Shares are subject to a distribution fee of 0.75% per year
and an account maintenance fee of 0.25% per year. These shares
automatically convert to Class A Shares after approximately eight
years. (There is no initial sales charge for automatic share
conversions.) All returns for periods greater than eight years
reflect this conversion.
* Class C Shares are subject to a distribution fee of 0.75% 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
performance data current to the most recent month-end. Performance
results do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
Figures shown in each of the following tables assume reinvestment of
all dividends and capital gain distributions, if any, at net asset
value on the exdividend 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 28, 2005 Total Return Total Return Total Return
ML Fundamental Growth Principal Protected Fund Class A Shares* +4.19% -1.80% + 9.89%
ML Fundamental Growth Principal Protected Fund Class B Shares* +3.82 -2.47 + 8.00
ML Fundamental Growth Principal Protected Fund Class C Shares* +3.83 -2.55 + 7.98
ML Fundamental Growth Principal Protected Fund Class I Shares* +4.30 -1.51 +10.52
S&P 500 R Index** +9.99 +6.98 +42.05
S&P 500/Barra Growth Index*** +8.65 +3.51 +30.33
Lehman Brothers Aggregate Bond Index**** +1.26 +2.43 +10.15
* Investment results shown do not reflect sales charges; results shown would be lower if a sales
charge was included. Cumulative total investment returns are based on changes in net asset values
for the periods shown, and assume reinvestment of all dividends and capital gains distributions at
net asset value on the ex-dividend date. The Fund'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
FEBRUARY 28, 2005
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 2/28/05 -1.80% -6.95%
Inception (11/13/02)
through 2/28/05 +4.20 +1.78
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Without Return With
CDSC CDSC**
Class B Shares*
One Year Ended 2/28/05 -2.47% -6.19%
Inception (11/13/02)
through 2/28/05 +3.41 +2.15
* 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
CDSC CDSC**
Class C Shares*
One Year Ended 2/28/05 -2.55% -3.48%
Inception (11/13/02)
through 2/28/05 +3.41 +3.41
* 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 2/28/05 -1.51% -6.68%
Inception (11/13/02)
through 2/28/05 +4.46 +2.03
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Disclosure of Expenses
Shareholders of this Fund may incur the following charges:
(a) expenses related to transactions, including sales charges,
redemption fees and exchange fees; and (b) operating expenses
including advisory fees, distribution fees including 12(b)-1 fees,
and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on September 1, 2004 and
held through February 28, 2005) is intended to assist shareholders
both in calculating expenses based on an investment in the Fund and
in comparing these expenses with similar costs of investing in other
mutual funds.
The first table below provides information about actual account
values and actual expenses. In order to estimate the expenses a
shareholder paid during the period covered by this report,
shareholders can divide their account value by $1,000 and then
multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
expenses. In order to assist shareholders in comparing the ongoing
expenses of investing in this Fund and other funds, compare the 5%
hypothetical example with the 5% hypothetical examples that appear
in other funds' shareholder reports.
The expenses shown in the table are intended to highlight
shareholders ongoing costs only and do not reflect any transactional
expenses, such as sales charges, redemption fees or exchange fees.
Therefore, the second table is useful in comparing ongoing expenses
only, and will not help shareholders determine the relative total
expenses of owning different funds. If these transactional expenses
were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value September 1, 2004
September 1, February 28, to February 28,
2004 2005 2005
Actual
Class A $1,000 $1,041.90 $10.02
Class B $1,000 $1,038.20 $13.90
Class C $1,000 $1,038.30 $13.90
Class I $1,000 $1,043.00 $ 8.76
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,014.98 $ 9.89
Class B $1,000 $1,011.16 $13.71
Class C $1,000 $1,011.16 $13.71
Class I $1,000 $1,016.22 $ 8.65
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.98% for Class A, 2.75% for Class B, 2.75% for Class C and 1.73% for Class I), multiplied by
the average account value over the period, multiplied by 181/365 (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 365.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Schedule of Investments
Industry* Shares Held Common Stocks Value
Aerospace & 19,300 Boeing Co. $ 1,060,921
Defense--1.3% 18,200 Lockheed Martin Corp. 1,077,804
---------------
2,138,725
Beverages--0.8% 25,600 PepsiCo, Inc. 1,378,816
Biotechnology--1.9% 30,700 Celgene Corp. (d) 840,412
63,400 Gilead Sciences, Inc. (d) 2,190,470
---------------
3,030,882
Capital Markets--0.6% 14,300 Franklin Resources, Inc. 1,003,717
Chemicals--4.5% 26,700 Air Products & Chemicals, Inc. 1,671,954
44,100 The Dow Chemical Co. 2,432,115
27,000 E.I. Du Pont de Nemours & Co. 1,439,100
34,900 Praxair, Inc. 1,564,567
4,900 Sigma-Aldrich Corp. 301,889
---------------
7,409,625
Commercial Banks--1.3% 26,700 Bank of America Corp. 1,245,555
30,300 U.S. Bancorp 901,425
---------------
2,146,980
Communications 108,000 Corning, Inc. (d) 1,238,760
Equipment--1.4% 34,400 Telefonaktiebolaget LM Ericsson (b) 1,008,264
---------------
2,247,024
Consumer Finance--0.5% 33,100 MBNA Corp. 839,747
Diversified Financial 20,000 Citigroup, Inc. 954,400
Services--0.6%
Energy Equipment & 4,300 BJ Services Co. 214,828
Services--3.9% 22,000 Baker Hughes, Inc. 1,040,160
11,300 Grant Prideco, Inc. (d) 273,008
29,900 Halliburton Co. 1,315,002
27,600 Schlumberger Ltd. 2,082,420
31,500 Transocean, Inc. (d) 1,527,120
---------------
6,452,538
Food Products--1.3% 34,400 McCormick & Co., Inc. 1,306,856
13,300 Wm. Wrigley Jr. Co. 885,248
---------------
2,192,104
Health Care Equipment & 38,500 Alcon, Inc. 3,324,475
Supplies--7.0% 50,900 Boston Scientific Corp. (d) 1,662,394
9,000 Dentsply International, Inc. 494,730
10,900 Fisher Scientific International (d) 661,085
33,200 Medtronic, Inc. 1,730,384
23,500 St. Jude Medical, Inc. (d) 918,850
34,700 Varian Medical Systems, Inc. (d) 1,246,771
9,200 Waters Corp. (d) 449,420
12,000 Zimmer Holdings, Inc. (d) 1,030,800
---------------
11,518,909
Health Care Providers & 23,500 Caremark Rx, Inc. (d) 899,580
Services--2.9% 23,100 UnitedHealth Group, Inc. 2,105,796
14,600 WellPoint, Inc. (d) 1,782,076
---------------
4,787,452
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Schedule of Investments (continued)
Industry* Shares Held Common Stocks Value
Hotels, Restaurants & 18,900 Carnival Corp. $ 1,027,782
Leisure--4.6% 34,800 Marriott International, Inc. Class A 2,230,680
28,700 Starbucks Corp. (d) 1,486,947
28,100 Starwood Hotels & Resorts Worldwide, Inc. 1,608,444
17,500 Wynn Resorts Ltd. (d) 1,252,475
---------------
7,606,328
Household 9,000 KB HOME 1,123,200
Durables--0.7%
Household 41,900 Procter & Gamble Co. 2,224,471
Products--1.4%
IT Services--1.2% 26,100 First Data Corp. 1,070,622
15,300 Hewitt Associates, Inc. Class A (d) 470,322
13,000 Paychex, Inc. 415,090
---------------
1,956,034
Industrial 60,100 3M Co. 5,044,794
Conglomerates--6.2% 146,100 General Electric Co. 5,142,720
---------------
10,187,514
Internet Software & 50,200 Yahoo!, Inc. (d) 1,619,954
Services--1.0%
Machinery--1.1% 9,700 Caterpillar, Inc. 921,985
13,400 Deere & Co. 952,874
---------------
1,874,859
Media--0.6% 34,700 Walt Disney Co. 969,518
Personal Products--0.6% 24,300 Avon Products, Inc. 1,039,311
Semiconductors & 98,800 Intel Corp. 2,369,224
Semiconductor
Equipment--1.4%
Software--2.6% 170,000 Microsoft Corp. 4,280,600
Specialty Retail--0.9% 44,300 Staples, Inc. 1,396,336
Textiles, Apparel & Luxury 19,800 Coach, Inc. (d) 1,099,494
Goods--0.7%
Thrifts & Mortgage 18,400 Doral Financial Corp. 729,744
Finance--1.0% 22,000 Washington Mutual, Inc. 923,120
---------------
1,652,864
Trading Companies & 6,900 MSC Industrial Direct Co. Class A 223,215
Distributors--0.7% 44,100 Wolseley Plc 941,800
---------------
1,165,015
Total Common Stocks (Cost--$76,247,313)--52.7% 86,665,641
Face
Amount U.S. Government Obligations
U.S. Treasury STRIPS (a):
$34,998,000 3.153%** due 8/15/2009 29,400,490
58,726,000 3.844%** due 11/15/2009 48,876,005
Total U.S. Government Obligations
(Cost--$79,567,493)--47.6% 78,276,495
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Schedule of Investments (concluded)
Beneficial
Interest Short-Term Securities Value
$1,369,398 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (c) $ 1,369,398
Total Short-Term Securities
(Cost--$1,369,398)--0.9% 1,369,398
Total Investments (Cost--$157,184,204***)--101.2% 166,311,534
Liabilities in Excess of Other Assets--(1.2%) (1,947,018)
---------------
Net Assets--100.0% $ 164,364,516
===============
* 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
effective rate paid at the time of purchase by the Fund.
*** The cost and unrealized appreciation (depreciation) of investments as
of February 28, 2005, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 159,291,434
=============
Gross unrealized appreciation $ 10,123,809
Gross unrealized depreciation (3,103,709)
-------------
Net unrealized appreciation $ 7,020,100
=============
(a) Separately Traded Registered Interest and Principal of Securities
(STRIPS).
(b) Depositary Receipts.
(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) were as follows:
Interest/
Net Dividend
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $(14,742) $17,767
Merrill Lynch Premier
Institutional Fund -- $ 708
(d) Non-income producing security.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Statement of Assets and Liabilities
As of February 28, 2005
Assets
Investments in unaffiliated securities, at value (identified cost--$155,814,806) $ 164,942,136
Investments in affiliated securities, at value (identified cost--$1,369,398) 1,369,398
Cash 6,642
Receivables:
Dividends $ 121,347
Interest from affiliates 2,157 123,504
---------------
Prepaid expenses 4,046
---------------
Total assets 166,445,726
---------------
Liabilities
Payables:
Securities purchased 1,033,670
Beneficial interest redeemed 672,633
Distributor 117,808
Financial warranty fee 104,443
Investment adviser 71,600
Other affiliates 55,945 2,056,099
---------------
Accrued expenses 25,111
---------------
Total liabilities 2,081,210
---------------
Net Assets
Net assets $ 164,364,516
===============
Net Assets Consist of
Paid-in capital, unlimited number of shares of beneficial interest authorized $ 152,840,175
Undistributed investment income--net $ 304,939
Undistributed realized capital gains--net 2,092,148
Unrealized appreciation--net 9,127,254
---------------
Total accumulated earnings--net 11,524,341
---------------
Net Assets $ 164,364,516
===============
Net Asset Value
Class A--Based on net assets of $6,357,643 and 616,406 shares of beneficial
interest outstanding $ 10.31
===============
Class B--Based on net assets of $88,203,530 and 8,579,690 shares of beneficial
interest outstanding $ 10.28
===============
Class C--Based on net assets of $60,608,886 and 5,883,585 shares of beneficial
interest outstanding $ 10.30
===============
Class I--Based on net assets of $9,194,457 and 892,350 shares of beneficial
interest outstanding $ 10.30
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Statement of Operations
For the Six Months Ended February 28, 2005
Investment Income
Interest (including $17,767 from affiliates) $ 1,630,979
Dividends (net of $543 foreign withholding tax) 1,038,325
Securities lending--net 708
---------------
Total income 2,670,012
---------------
Expenses
Financial warranty fee $ 722,277
Investment advisory fees 578,811
Account maintenance and distribution fees--Class B 468,570
Account maintenance and distribution fees--Class C 331,624
Transfer agent fees--Class B 60,333
Accounting services 53,281
Transfer agent fees--Class C 43,920
Professional fees 34,462
Printing and shareholder reports 21,328
Custodian fees 11,212
Account maintenance fees--Class A 9,458
Trustees' fees and expenses 9,084
Transfer agent fees--Class I 5,835
Transfer agent fees--Class A 4,208
Pricing fees 2,102
Other 8,568
---------------
Total expenses 2,365,073
---------------
Investment income--net 304,939
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss)on:
Investments--net 5,456,749
Foreign currency transactions--net (5,407) 5,451,342
---------------
Change in unrealized appreciation (depreciation) on:
Investments--net 1,391,324
Foreign currency transactions--net (65) 1,391,259
--------------- ---------------
Total realized and unrealized gain--net 6,842,601
---------------
Net Increase in Net Assets Resulting from Operations $ 7,147,540
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Statements of Changes in Net Assets
For the For the
Six Months Year
Ended Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income (loss)--net $ 304,939 $ (1,451,700)
Realized gain--net 5,451,342 11,082,945
Unrealized appreciation (depreciation)--net 1,391,259 (5,423,993)
--------------- ---------------
Net increase in net assets resulting from operations 7,147,540 4,207,252
--------------- ---------------
Dividends & Distributions to Shareholders
Investment income--net:
Class A -- (54,637)
Class B -- (36,407)
Class C -- --
Class I -- (97,873)
Realized gain--net:
Class A (427,659) --
Class B (4,486,776) --
Class C (3,048,456) --
Class I (636,382) --
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (8,599,273) (188,917)
--------------- ---------------
Beneficial Interest Transactions
Net decrease in net assets derived from beneficial interest transactions (22,343,946) (67,566,584)
--------------- ---------------
Net Assets
Total decrease in net assets (23,795,679) (63,548,249)
Beginning of period 188,160,195 251,708,444
--------------- ---------------
End of period* $ 164,364,516 $ 188,160,195
=============== ===============
* Undistributed investment income--net $ 304,939 --
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Financial Highlights
Class A
For the For the For the Period
Six Months Year November 13,
Ended Ended 2002++ to
The following per share data and ratios have been derived February 28, August 31, August 31,
from information provided in the financial statements. 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 10.49 $ 10.38 $ 10.00
------------ ------------ ------------
Investment income--net .05*** --***+++++ .04
Realized and unrealized gain--net .40 .16 .35
------------ ------------ ------------
Total from investment operations .45 .16 .39
------------ ------------ ------------
Less dividends and distributions from:
Investment income--net -- (.05) (.01)
Realized gain--net (.63) -- --
------------ ------------ ------------
Total dividends and distributions (.63) (.05) (.01)
------------ ------------ ------------
Net asset value, end of period $ 10.31 $ 10.49 $ 10.38
============ ============ ============
Total Investment Return**
Based on net asset value per share 4.19%+++ 1.50% 3.90%+++
============ ============ ============
Ratios to Average Net Assets
Expenses, net of waiver 1.98%* 1.99% 2.11%*
============ ============ ============
Expenses 1.98%* 2.00% 2.11%*
============ ============ ============
Investment income--net 1.04%* .02% .41%*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 6,358 $ 8,309 $ 15,668
============ ============ ============
Portfolio turnover 37.31% 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
FEBRUARY 28, 2005
Financial Highlights (continued)
Class B
For the For the For the Period
Six Months Year November 13,
Ended Ended 2002++ to
The following per share data and ratios have been derived February 28, August 31, August 31,
from information provided in the financial statements. 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 10.39 $ 10.31 $ 10.00
------------ ------------ ------------
Investment income (loss)--net .01*** (.08)*** (.03)
Realized and unrealized gain--net .39 .16 .35
------------ ------------ ------------
Total from investment operations .40 .08 .32
------------ ------------ ------------
Less dividends and distributions from:
Investment income--net -- --+++++ (.01)
Realized gain--net (.51) -- --
------------ ------------ ------------
Total dividends and distributions (.51) --+++++ (.01)
------------ ------------ ------------
Net asset value, end of period $ 10.28 $ 10.39 $ 10.31
============ ============ ============
Total Investment Return**
Based on net asset value per share 3.82%+++ .81% 3.20%+++
============ ============ ============
Ratios to Average Net Assets
Expenses, net of waiver 2.75%* 2.76% 2.88%*
============ ============ ============
Expenses 2.75%* 2.76% 2.88%*
============ ============ ============
Investment income (loss)--net .25%* (.74%) (.36%)*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 88,204 $ 96,961 $ 117,426
============ ============ ============
Portfolio turnover 37.31% 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
FEBRUARY 28, 2005
Financial Highlights (continued)
Class C
For the For the For the Period
Six Months Year November 13,
Ended Ended 2002++ to
The following per share data and ratios have been derived February 28, August 31, August 31,
from information provided in the financial statements. 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 10.39 $ 10.31 $ 10.00
------------ ------------ ------------
Investment income (loss)--net .01*** (.08)*** (.03)
Realized and unrealized gain--net .39 .16 .35
------------ ------------ ------------
Total from investment operations .40 .08 .32
------------ ------------ ------------
Less dividends and distributions from:
Investment income--net -- -- (.01)
Realized gain--net (.49) -- --
------------ ------------ ------------
Total dividends and distributions (.49) -- (.01)
------------ ------------ ------------
Net asset value, end of period $ 10.30 $ 10.39 $ 10.31
============ ============ ============
Total Investment Return**
Based on net asset value per share 3.83%+++ .78% 3.20%+++
============ ============ ============
Ratios to Average Net Assets
Expenses, net of waiver 2.75%* 2.76% 2.88%*
============ ============ ============
Expenses 2.75%* 2.76% 2.88%*
============ ============ ============
Investment income (loss)--net .24%* (.75%) (.36%)*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 60,609 $ 71,216 $ 101,111
============ ============ ============
Portfolio turnover 37.31% 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
FEBRUARY 28, 2005
Financial Highlights (concluded)
Class I
For the For the For the Period
Six Months Year November 13,
Ended Ended 2002++ to
The following per share data and ratios have been derived February 28, August 31, August 31,
from information provided in the financial statements. 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 10.52 $ 10.40 $ 10.00
------------ ------------ ------------
Investment income--net .07*** .03*** .06
Realized and unrealized gain--net .39 .16 .35
------------ ------------ ------------
Total from investment operations .46 .19 .41
------------ ------------ ------------
Less dividends and distributions from:
Investment income--net -- (.07) (.01)
Realized gain--net (.68) -- --
------------ ------------ ------------
Total dividends and distributions (.68) (.07) (.01)
------------ ------------ ------------
Net asset value, end of period $ 10.30 $ 10.52 $ 10.40
============ ============ ============
Total Investment Return**
Based on net asset value per share 4.30%+++ 1.79% 4.10%+++
============ ============ ============
Ratios to Average Net Assets
Expenses, net of waiver 1.73%* 1.74% 1.86%*
============ ============ ============
Expenses 1.73%* 1.75% 1.86%*
============ ============ ============
Investment income--net 1.28%* .27% .67%*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 9,194 $ 11,675 $ 17,503
============ ============ ============
Portfolio turnover 37.31% 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
FEBRUARY 28, 2005
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. These unaudited financial statements reflect all
adjustments, which are, in the opinion of management, necessary to
present a fair statement of the results for the interim period.
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 (except that Class B shareholders may vote on certain
changes to the Class A distribution plan). Income, expenses (other
than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based
on its relative net assets. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--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.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Notes to Financial Statements (continued)
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.
(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.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Notes to Financial Statements (continued)
(f) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(g) 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.
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 Plan 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.
Pursuant to the Distribution Plan adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of
MLIM, 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 28, 2005, MLPF&S received
contingent deferred sales charges of $234,407 relating to
transactions in Class B Shares.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
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.
In addition, MLPF&S received $12,593 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended February 28, 2005.
For the six months ended February 28, 2005, the Fund reimbursed MLIM
$2,024 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 six months ended February 28, 2005 were $66,573,822 and
$97,313,832, respectively.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $22,343,946 and $67,566,584 for the six months
ended February 28, 2005 and the year ended August 31, 2004,
respectively.
Transactions in beneficial interest for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
February 28, 2005 Shares Amount
Shares issued to shareholders
in reinvestment of distributions 38,340 $ 398,731
Shares redeemed (214,123) (2,258,565)
-------------- ---------------
Net decrease (175,783) $ (1,859,834)
============== ===============
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 B Shares for the
Six Months Ended Dollar
February 28, 2005 Shares Amount
Shares issued to shareholders
in reinvestment of distributions 407,336 $ 4,228,151
Shares redeemed (1,162,364) (12,179,882)
-------------- ---------------
Net decrease (755,028) $ (7,951,731)
============== ===============
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 C Shares for the
Six Months Ended Dollar
February 28, 2005 Shares Amount
Shares issued to shareholders
in reinvestment of distributions 280,614 $ 2,918,381
Shares redeemed (1,251,444) (13,118,049)
-------------- ---------------
Net decrease (970,830) $ (10,199,668)
============== ===============
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Notes to Financial Statements (concluded)
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)
============== ===============
Class I Shares for the
Six Months Ended Dollar
February 28, 2005 Shares Amount
Shares issued to shareholders
in reinvestment of distributions 57,455 $ 596,380
Shares redeemed (275,266) (2,929,093)
-------------- ---------------
Net decrease (217,811) $ (2,332,713)
============== ===============
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)
============== ===============
5. Short-Term Borrowings:
The Trust, on behalf of the Fund, along with certain other funds
managed by MLIM and its affiliates, is a party to a $500,000,000
credit agreement with a group of 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
..07% 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 defined in the
credit agreement. The Fund did not borrow under the credit agreement
during the six months ended February 28, 2004. On November 26, 2004,
the credit agreement was renewed for one year under substantially
the same terms.
Officers and Trustees
Robert C. Doll, Jr., President and Trustee
David O. Beim, Trustee
James T. Flynn, Trustee
W. Carl Kester, Trustee
Karen P. Robards, Trustee
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
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
Effective January 1, 2005, Terry K. Glenn retired as President and
Trustee of Merrill Lynch Fundamental Growth Principal Protected Fund
of Merrill Lynch Principal Protected Trust. The Fund's Board of
Trustees wishes Mr. Glenn well in his retirement.
Effective January 1, 2005, Robert C. Doll, Jr. became President and
Trustee of the Fund.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND
FEBRUARY 28, 2005
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to
this semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment
Companies - Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
11(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the 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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual
report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Merrill Lynch Fundamental Growth Principal Protected Fund of
Merrill Lynch Principal Protected Trust
By: _/s/ Robert C. Doll, Jr._______
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Fundamental Growth Principal Protected Fund of
Merrill Lynch Principal Protected Trust
Date: April 22, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Robert C. Doll, Jr.________
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Fundamental Growth Principal Protected Fund of
Merrill Lynch Principal Protected Trust
Date: April 22, 2005
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 22, 2005