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: 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 - 08/31/05
Item 1 - Report to Stockholders
Merrill Lynch
Fundamental Growth
Principal Protected Fund
Annual Report
August 31, 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 August 31, 2005
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
General Electric Co. 3.2%
Microsoft Corp. 3.1
Exxon Mobil Corp. 2.9
Alcon, Inc. 2.8
3M Co. 2.6
Johnson & Johnson 2.1
Procter & Gamble Co. 1.6
WellPoint, Inc. 1.6
Amgen, Inc. 1.5
The Dow Chemical Co. 1.4
Percent of
Total
Asset Mix Investments
Common Stock 60.4%
Fixed Income Securities 38.0
Other* 1.6
* Includes portfolio holdings in short-term investments.
Five Largest Industries Percent of
(Equity Investments) Net Assets
Energy Equipment & Services 6.1%
Industrial Conglomerates 5.8
Health Care Equipment & Supplies 5.4
Chemicals 4.9
Health Care Providers & Services 4.7
For Fund compliance purposes, the Fund's industry classifications
refer to any one or more of the industry sub-classifications used
by one or more widely recognized market indexes or ratings group
indexes, and/or as defined by Fund management. This definition
may not apply for purposes of this report, which may combine
industry sub-classifications for reporting ease.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
A Letter From the President
Dear Shareholder
Amid what we've coined a "muddle through" year for the financial markets, the
major market benchmarks managed to post positive results for the current
reporting period:
Total Returns as of August 31, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) +2.33% +12.56%
Small-cap U.S. equities (Russell 2000 Index) +5.75% +23.10%
International equities (MSCI Europe Australasia Far East Index) +1.98% +23.58%
Fixed income (Lehman Brothers Aggregate Bond Index) +2.85% + 4.15%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +2.85% + 5.31%
High yield bonds (Credit Suisse First Boston High Yield Index) +1.35% + 8.98%
Since June 2004, the Federal Reserve Board (the Fed) has tirelessly advanced
its interest rate-hiking program, bringing the federal funds rate to 3.5% by
August 31 (and to 3.75% on September 20). Economists and investors have
struggled to project the Fed's future moves, vacillating from expectations for
an impending end to monetary tightening to fears that the central bank may
increase interest rates more than is necessary to moderate economic growth and
keep inflation in check. Most recently, the devastation of Hurricane Katrina
added a new element of ambiguity in terms of its impact on the economy and Fed
sentiment. Many now believe the Fed will suspend its interest rate-hiking
campaign at some point this year.
Equity market returns over the past several months have reflected a degree of
investor uncertainty. After a strong finish to 2004, the S&P 500 Index posted
gains in four of the first eight months of 2005. Up to this point, strong
corporate earnings reports and low long-term bond yields have worked in favor
of equities. Factors that pose the greatest risks to stocks include record-
high oil prices, continued interest rate hikes and the possibility for
disappointing earnings for the remainder of the year.
Fixed income markets have fared relatively well in the face of monetary
tightening. As the short end of the yield curve moved in concert with Fed
interest rate hikes, long-term bond yields remained low, perpetuating the
yield curve flattening trend. Because bond prices move in the opposite
direction of yields, the result has been that longer-term bonds have
outperformed short-term bonds. At period end, the spread between two-year and
10-year Treasury yields was just 18 basis points (.18%).
Financial markets are likely to face continued crosscurrents for the remainder
of 2005, particularly as the economy digests the impact of Hurricane Katrina.
Nevertheless, opportunities do exist and we encourage you to work with your
financial advisor to diversify your portfolio among a variety of asset types.
This can help to diffuse risk while also tapping into the potential benefits
of a broader range of investment alternatives. As always, we thank you for
trusting Merrill Lynch Investment Managers with your investment assets.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Trustee
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
A Discussion With Your Fund's Portfolio Manager
The Fund met its primary objective of preserving investor principal while also
providing attractive total returns that exceeded the Lipper Balanced Target
Maturity Funds average.
How did the Fund perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended August 31, 2005, Merrill Lynch Fundamental
Growth Principal Protected Fund's Class A, Class B, Class C and Class I Shares
had total returns of +6.82%, +6.04%, +6.05% and +7.03%, 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 +12.56% and +10.29%, respectively.
Because the Fund incorporates a fixed income component, its returns may be
greater or less than those provided by the equity markets alone. The fixed
income market, as measured by the Lehman Brothers Aggregate Bond Index,
returned +4.15% for the 12 months ended August 31, 2005. Thus, the Fund's
fixed income allocation produced a drag versus the all-equity benchmarks.
Importantly, however, the Fund met its objective of protecting investor
principal while also significantly outpacing the +3.62% average return of the
Lipper Balanced Target Maturity Funds category 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.)
Performance in the actively managed equity portfolio benefited from favorable
stock selection and an overweight exposure to the health care sector. The top
performers in health care were Alcon, Inc., Gilead Sciences Inc., WellPoint,
Inc., Celgene Corp., Humana, Inc., Amgen, Inc. and Caremark Rx, Inc. Our
avoidance of major pharmaceutical companies, such as Pfizer Inc., Merck & Co.
Inc. and Eli Lilly & Co., also proved beneficial.
Also contributing to performance was our overweight exposure to the energy
sector, where we focused on energy services and equipment companies, which
provide for exploration and development operations around the world. Within
energy, positions that contributed most to performance were Transocean, Inc.,
Schlumberger Ltd., Halliburton Co., Baker Hughes, Inc., National Oilwell
Varco, Inc., Grant Prideco, Inc., Devon Energy Corp. and Apache Corp.
Stock selection and overweight positions in consumer discretionary and
industrials further benefited results. In these sectors, the Fund enjoyed
positive results from Coach, Inc., Marriott International Inc., eBay Inc.,
Starwood Hotels & Resorts Worldwide, Inc., Best Buy Co. Inc., KB Home, PACAAR
Inc., Monster Worldwide Inc., Rockwell Automation,Inc., Boeing Co., Wolseley
Plc (UK), Lockheed Martin Corp. and ITT Industries Inc. Finally, an
underweight position in information technology (IT) also aided relative
results.
Detracting most from equity performance for the year was the absence of a
position in the strong-performing Exxon Mobil Corp. We added Exxon Mobil to
the portfolio during the last week of the fiscal year as we grew more
confident in the company's prospects. Also hindering relative performance was
our position in Doral Financial Corp., which we sold from the portfolio in the
second half of the fiscal year. Doral's management had engaged in financial
futures hedging transactions, the details of which were not disclosed to
shareholders. In retrospect, it appeared the potential losses on these
transactions were not understood by the company's senior management. Other
investments in financials also detracted from performance for the year.
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 fiscal year, the Fund's equity
component ranged from 39.40% of net assets to 61.15%, and the fixed income
allocation ranged from 38.85% of net assets to 60.60%. 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 reduced exposure to the consumer discretionary,
energy, industrials and IT sectors in the first half of the fiscal year. At
the same time, we increased our weightings in the financials, health care and
materials sectors.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
During the second half of the year, we added to the Fund's already overweight
position in health care and increased our underweighting in IT. Within IT, we
sold Intel Corp. given concerns about a potential decline in the company's
profitability as communication products become a higher percentage of overall
semiconductor revenues, as well as concerns about a slowdown of revenue growth
in Asia as market penetration matures. We trimmed exposure to Microsoft Corp.
and liquidated our position in Paychex, Inc., one of the leading business
payroll and employee benefit information processors. Paychex's valuation was
relatively high, and we believe a slowdown in U.S. employment growth as the
Federal Reserve Board (the Fed) continues to tighten monetary policy creates
the potential for a disappointing earnings report. We also sold Accenture
Ltd. - Class A, given concerns about increasing competition in the IT
consulting arena from major firms based in India that offer lower costs for
skilled technology engineers.
In the health care sector, we initiated a position in Johnson & Johnson after
the company announced an agreement to acquire Guidant Corp. We liquidated, at
a significant capital gain, a meaningful position in Gilead Sciences, based on
its relatively high valuation, and reinvested the proceeds in Amgen, where
enhanced revenue growth from new products over the next three years appears
attractive. We also sold, at gains, Zimmer Holdings Inc. on concerns about the
potential for significant downward pricing pressure on implant products from
hospitals and governmental reimbursement agencies, and Celgene Corp., a
leading biopharmaceutical company, based on its relatively high valuation.
Conversely, we added to our positions in the HMO subsector with the purchase
of Humana and Sierra Health Services Inc. In addition to Amgen, we added
investments in Genzyme Corp. and MGI Pharma Inc. in the biotechnology
subsector.
In other sectors, we meaningfully reduced the Fund's overweight in financials
during the second half of the year after having increased our exposure in
January 2005. In addition to the previously mentioned Doral Financial, we
liquidated our position in consumer credit card company MBNA Corp. at a
capital loss as the company's business fundamentals appeared to be turning
negative while prospects for most competitors turned upward. We also sold
Washington Mutual Inc., one of the largest financial service companies, on
concerns about the possible increase in delinquent residential mortgage loans
as the Fed continues to increase interest rates.
We reduced exposure to the consumer discretionary sector with the liquidation
of Carnival Corp. at a capital gain. Our holding in Avon Products Inc. was
sold at a capital loss after a surprising deterioration in the company's
revenue growth rate. The Fund realized profits on the partial sale of
successful investments in Marriott International - Class A and Coach, and the
total liquidation of KB Home.
How would you characterize the Fund's position at the close of the period?
In seeking to meet its objective of principal protection and potential for
capital growth, the allocation between the Fund's fixed income and equity
components will continue to vary as market conditions change. As of August 31,
2005, the Fund was invested 59.8% in equities and 40.2% in fixed income
securities. This compared to an allocation of 52.6% equities and 47.4% fixed
income six months ago.
The equity portfolio was overweight in energy and materials at period-end.
Energy prices rose substantially during the second half of the fiscal year
while global economic growth rates began to slow, possibly indicating that
there is a gradually growing shortage of energy products. Consequently, we
increased the Fund's exposure to energy at the end of August by adding Exxon
Mobil and Sunoco, Inc. to the portfolio. In light of the prospect for economic
reacceleration, energy prices could remain at the recent elevated levels, a
positive for the profits of companies in the industry.
The Fund's overweight in the materials sector reflects investments in the
major U.S. chemical and industrial gas companies, which also are well
positioned for a recovery in global economic activity. In addition, these
companies should benefit from their investments in new ventures in China,
where the government continues to build its investments in the industrial and
technology manufacturing sectors. In industrials, the Fund's investments in
General Electric Co., Boeing Co., Caterpillar, Inc. and 3M Co. are based on
the expectation that these companies could enjoy growth in sales and
profitability as the Chinese government continues to invest in public
infrastructure and manufacturing capabilities.
Lawrence R. Fuller
Vice President and Portfolio Manager
September 14, 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 AUGUST 31, 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 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, 2005 Total Return Total Return Total Return
ML Fundamental Growth Principal Protected Fund Class A Shares* +2.52% + 6.82% +12.66%
ML Fundamental Growth Principal Protected Fund Class B Shares* +2.14 + 6.04 +10.31
ML Fundamental Growth Principal Protected Fund Class C Shares* +2.14 + 6.05 +10.29
ML Fundamental Growth Principal Protected Fund Class I Shares* +2.62 + 7.03 +13.41
S&P 500 (R) Index** +2.33 +12.56 +45.37
S&P 500/Barra Growth Index*** +1.51 +10.29 +32.28
Lehman Brothers Aggregate Bond Index**** +2.85 + 4.15 +13.29
* 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 AUGUST 31, 2005
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
August 2005 $10,674.00
ML Fundamental Growth Principal Protected Fund++
Class B Shares*
Date Value
11/13/2002** $10,000.00
August 2003 $10,320.00
August 2004 $10,403.00
August 2005 $10,731.00
S&P 500 Index++++
Date Value
11/13/2002** $10,000.00
August 2003 $11,587.00
August 2004 $12,915.00
August 2005 $14,537.00
S&P 500/Barra Growth Index++++++
Date Value
11/13/2002** $10,000.00
August 2003 $11,217.00
August 2004 $11,995.00
August 2005 $13,228.00
Lehman Brothers Aggregate Bond Index++++++++
Date Value
11/13/2002** $10,000.00
August 2003 $10,249.00
August 2004 $10,878.00
August 2005 $11,329.00
* 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 Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 8/31/05 +6.82% +1.21%
Inception (11/13/02)
through 8/31/05 +4.35 +2.36
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 8/31/05 +6.04% +2.04%
Inception (11/13/02)
through 8/31/05 +3.57 +2.56
* 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, 2005
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
August 2005 $11,029.00
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
August 2005 $10,746.00
S&P 500 Index++++
Date Value
11/13/2002** $10,000.00
August 2003 $11,587.00
August 2004 $12,915.00
August 2005 $14,537.00
S&P 500/Barra Growth Index++++++
Date Value
11/13/2002** $10,000.00
August 2003 $11,217.00
August 2004 $11,995.00
August 2005 $13,228.00
Lehman Brothers Aggregate Bond Index++++++++
Date Value
11/13/2002** $10,000.00
August 2003 $10,249.00
August 2004 $10,878.00
August 2005 $11,329.00
* 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 8/31/05 +6.05% +5.05%
Inception (11/13/02)
through 8/31/05 +3.56 +3.56
* 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 8/31/05 +7.03% +1.41%
Inception (11/13/02)
through 8/31/05 +4.60 +2.61
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 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 March 1, 2005 and
held through August 31, 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 March 1, 2005
March 1, August 31, to August 31,
2005 2005 2005
Actual
Class A $1,000 $1,025.20 $10.16
Class B $1,000 $1,021.40 $14.01
Class C $1,000 $1,021.40 $14.06
Class I $1,000 $1,026.20 $ 8.89
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,015.17 $10.11
Class B $1,000 $1,011.34 $13.94
Class C $1,000 $1,011.29 $13.99
Class I $1,000 $1,016.43 $ 8.84
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class (1.99% for
Class A, 2.75% 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 184/365 (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 AUGUST 31, 2005
Schedule of Investments
Shares
Industry Common Stocks Held Value
Aerospace & Defense--1.8%
Boeing Co. 20,400 $ 1,367,208
Lockheed Martin Corp. 19,100 1,188,784
--------------
2,555,992
Beverages--0.6%
PepsiCo, Inc. 16,400 899,540
Biotechnology--2.5%
Amgen, Inc. (d) 26,400 2,109,360
Genzyme Corp. (d) 21,100 1,501,687
--------------
3,611,047
Capital Markets--0.7%
Franklin Resources, Inc. 13,500 1,085,940
Chemicals--4.9%
Air Products & Chemicals, Inc. 28,200 1,562,280
The Dow Chemical Co. 47,300 2,043,360
E.I. du Pont de Nemours & Co. 28,500 1,127,745
Nalco Holding Co. (d) 30,700 561,810
Praxair, Inc. 36,800 1,777,440
--------------
7,072,635
Commercial Banks--1.4%
Bank of America Corp. 27,100 1,166,113
U.S. Bancorp 32,000 935,040
--------------
2,101,153
Communications Equipment--1.6%
Corning, Inc. (d) 54,500 1,087,820
Telefonaktiebolaget LM Ericsson (b) 36,200 1,263,380
--------------
2,351,200
Diversified Financial Services--0.6%
Citigroup, Inc. 21,700 949,809
Energy Equipment & Services--6.1%
Baker Hughes, Inc. 23,800 1,398,250
Grant Prideco, Inc. (d) 12,000 442,320
Halliburton Co. 31,500 1,952,055
National Oilwell Varco, Inc. (d) 19,200 1,232,832
Schlumberger Ltd. 21,400 1,845,322
Transocean, Inc. (d) 33,200 1,960,128
--------------
8,830,907
Food Products--1.5%
McCormick & Co., Inc. 36,200 1,227,542
Wm. Wrigley Jr. Co. 14,000 994,700
--------------
2,222,242
Health Care Equipment & Supplies--5.4%
Alcon, Inc. 34,600 4,084,530
Medtronic, Inc. 32,300 1,841,100
Varian Medical Systems, Inc. (d) 36,600 1,457,412
Waters Corp. (d) 9,700 441,059
--------------
7,824,101
Shares
Industry Common Stocks Held Value
Health Care Providers & Services--4.7%
Caremark Rx, Inc. (d) 21,900 $ 1,023,387
Covance, Inc. (d) 4,500 235,350
Humana, Inc. (d) 21,200 1,020,992
Sierra Health Services (d) 6,600 444,180
UnitedHealth Group, Inc. 34,300 1,766,450
WellPoint, Inc. (d) 30,900 2,294,325
--------------
6,784,684
Hotels, Restaurants & Leisure--3.5%
Starbucks Corp. (d) 25,000 1,226,000
Starwood Hotels & Resorts
Worldwide, Inc. 29,700 1,731,510
Station Casinos, Inc. 3,800 253,916
Wynn Resorts Ltd. (d) 18,600 887,592
Yum! Brands, Inc. 19,800 938,124
--------------
5,037,142
Household Products--1.6%
Procter & Gamble Co. 41,700 2,313,516
IT Services--1.1%
First Data Corp. 27,500 1,142,625
Hewitt Associates, Inc. Class A (d) 16,100 466,900
--------------
1,609,525
Industrial Conglomerates--5.8%
3M Co. 53,100 3,778,065
General Electric Co. 137,900 4,634,819
--------------
8,412,884
Internet Software & Services--1.8%
Google, Inc. (d) 3,600 1,029,600
Yahoo!, Inc. (d) 48,300 1,610,322
--------------
2,639,922
Machinery--2.1%
Caterpillar, Inc. 19,600 1,087,604
ITT Industries, Inc. 9,700 1,058,464
Pall Corp. 31,600 903,760
--------------
3,049,828
Media--0.6%
Walt Disney Co. 36,600 921,954
Oil, Gas & Consumable Fuels--3.6%
Exxon Mobil Corp. 71,000 4,252,900
Sunoco, Inc. 13,800 1,003,260
--------------
5,256,160
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
Schedule of Investments (concluded)
Shares
Industry Common Stocks Held Value
Pharmaceuticals--2.3%
Johnson & Johnson 48,900 $ 3,099,771
MGI Pharma, Inc. (d) 11,300 304,648
--------------
3,404,419
Software--3.0%
Microsoft Corp. 161,300 4,419,620
Specialty Retail--1.1%
Staples, Inc. 70,150 1,540,494
Textiles, Apparel & Luxury Goods--1.3%
Coach, Inc. (d) 31,900 1,058,761
Nike, Inc. Class B 11,000 868,010
--------------
1,926,771
Trading Companies & Distributors--0.2%
MSC Industrial Direct Co. Class A 7,300 255,500
Total Common Stocks
(Cost--$75,706,215)--59.8% 87,076,985
Face
Amount U.S. Government Obligations Value
U.S. Treasury STRIPS (a):
$ 34,998,000 3.153%* due 8/15/2009 $ 30,097,720
28,996,000 3.858%* due 11/15/2009 24,709,695
Total U.S. Government Obligations
(Cost--$55,640,541)--37.7% 54,807,415
Beneficial
Interest Short-Term Securities
$ 2,375,547 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (c) 2,375,547
Total Short-Term Securities
(Cost--$2,375,547)--1.6% 2,375,547
Total Investments (Cost--$133,722,303**)--99.1% 144,259,947
Other Assets Less Liabilities--0.9% 1,253,655
--------------
Net Assets--100.0% $ 145,513,602
==============
* Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
** The cost and unrealized appreciation (depreciation) of investments as of
August 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 134,427,354
==================
Gross unrealized appreciation $ 12,849,214
Gross unrealized depreciation (3,016,621)
------------------
Net unrealized appreciation $ 9,832,593
==================
(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, for
purposes of 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 $991,407 $42,472
Merrill Lynch Premier Institutional Fund -- $ 708
(d) Non-income producing security.
For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percentage of net assets. These industry
classifications are unaudited.
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
Statement of Assets and Liabilities
As of August, 31 2005
Assets
Investments in unaffiliated securities, at value (identified cost--$131,346,756) $ 141,884,400
Investments in affiliated securities, at value (identified cost--$2,375,547) 2,375,547
Foreign cash (cost--$6,933) 6,695
Receivables:
Securities sold $ 1,629,982
Dividends 99,130
Interest from affiliates 3,201 1,732,313
---------------
Prepaid expenses 2,048
---------------
Total assets 146,001,003
---------------
Liabilities
Payables:
Distributor 122,420
Financial warranty fee 100,874
Beneficial interest redeemed 99,750
Investment adviser 67,617
Other affiliates 46,370 437,031
---------------
Accrued expenses 50,370
---------------
Total liabilities 487,401
---------------
Net Assets
Net assets $ 145,513,602
===============
Net Assets Consist of
Paid-in capital, unlimited number of shares of beneficial interest authorized $ 130,903,801
Undistributed investment income--net $ 51,417
Undistributed realized capital gains--net 4,020,978
Unrealized appreciation--net 10,537,406
---------------
Total accumulated earnings--net 14,609,801
---------------
Net Assets $ 145,513,602
===============
Net Asset Value
Class A--Based on net assets of $4,955,336 and 468,794 shares of beneficial
interest outstanding $ 10.57
===============
Class B--Based on net assets of $79,793,468 and 7,602,649 shares of beneficial
interest outstanding $ 10.50
===============
Class C--Based on net assets of $53,458,916 and 5,083,279 shares of beneficial
interest outstanding $ 10.52
===============
Class I--Based on net assets of $7,305,882 and 690,982 shares of beneficial
interest outstanding $ 10.57
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
Statement of Operations
For the Year Ended August 31, 2005
Investment Income
Interest (including $42,472 from affiliates) $ 2,904,844
Dividends (net of $8,397 foreign withholding tax) 1,581,242
Securities lending--net 708
---------------
Total income 4,486,794
---------------
Expenses
Financial warranty fee $ 1,349,007
Investment advisory fees 1,081,054
Account maintenance and distribution fees--Class B 888,523
Account maintenance and distribution fees--Class C 616,300
Transfer agent fees--Class B 111,300
Accounting services 99,807
Transfer agent fees--Class C 79,496
Professional fees 70,403
Printing and shareholder reports 37,850
Custodian fees 21,587
Trustees' fees and expenses 18,034
Account maintenance fees--Class A 16,426
Transfer agent fees--Class I 9,976
Transfer agent fees--Class A 7,075
Pricing fees 3,513
Other 20,496
---------------
Total expenses 4,430,847
---------------
Investment income--net 55,947
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss)on:
Investments--net 7,380,172
Foreign currency transactions--net (6,778) 7,373,394
---------------
Change in unrealized appreciation/depreciation on:
Investments--net 2,801,638
Foreign currency transactions--net (227) 2,801,411
--------------- ---------------
Total realized and unrealized gain--net 10,174,805
---------------
Net Increase in Net Assets Resulting from Operations $ 10,230,752
===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
Statements of Changes in Net Assets
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income (loss)--net $ 55,947 $ (1,451,700)
Realized gain--net 7,373,394 11,082,945
Unrealized appreciation/depreciation--net 2,801,411 (5,423,993)
--------------- ---------------
Net increase in net assets resulting from operations 10,230,752 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 (44,278,072) (67,566,584)
--------------- ---------------
Net Assets
Total decrease in net assets (42,646,593) (63,548,249)
Beginning of year 188,160,195 251,708,444
--------------- ---------------
End of year* $ 145,513,602 $ 188,160,195
=============== ===============
* Undistributed investment income--net $ 51,417 --
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
Financial Highlights
Class A
For the Period
November 13,
For the Year Ended 2002++ to
The following per share data and ratios have been derived 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 .08*** --***+++++ .04
Realized and unrealized gain--net .63 .16 .35
------------ ------------ ------------
Total from investment operations .71 .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 $ 10.57 $ 10.49 $ 10.38
============ ============ ============
Total Investment Return**
Based on net asset value per share 6.82% 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 .75% .02% .41%*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 4,955 $ 8,309 $ 15,668
============ ============ ============
Portfolio turnover 58.17% 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, 2005
Financial Highlights (continued)
Class B
For the Period
November 13,
For the Year Ended 2002++ to
The following per share data and ratios have been derived 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 loss--net (.01)*** (.08)*** (.03)
Realized and unrealized gain--net .63 .16 .35
------------ ------------ ------------
Total from investment operations .62 .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 $ 10.50 $ 10.39 $ 10.31
============ ============ ============
Total Investment Return**
Based on net asset value per share 6.04% .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 loss--net (.06%) (.74%) (.36%)*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 79,793 $ 96,961 $ 117,426
============ ============ ============
Portfolio turnover 58.17% 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, 2005
Financial Highlights (continued)
Class C
For the Period
November 13,
For the Year Ended 2002++ to
The following per share data and ratios have been derived 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 loss--net (.01)*** (.08)*** (.03)
Realized and unrealized gain--net .63 .16 .35
------------ ------------ ------------
Total from investment operations .62 .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 $ 10.52 $ 10.39 $ 10.31
============ ============ ============
Total Investment Return**
Based on net asset value per share 6.05% .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 loss--net (.06%) (.75%) (.36%)*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 53,459 $ 71,216 $ 101,111
============ ============ ============
Portfolio turnover 58.17% 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, 2005
Financial Highlights (concluded)
Class I
For the Period
November 13,
For the Year Ended 2002++ to
The following per share data and ratios have been derived 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 .10*** .03*** .06
Realized and unrealized gain--net .63 .16 .35
------------ ------------ ------------
Total from investment operations .73 .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 $ 10.57 $ 10.52 $ 10.40
============ ============ ============
Total Investment Return**
Based on net asset value per share 7.03% 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 .99% .27% .67%*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 7,306 $ 11,675 $ 17,503
============ ============ ============
Portfolio turnover 58.17% 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, 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. 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
asked price for short positions. In cases where equity securities are traded
on more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the Board of
Trustees of the 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 asked price. Portfolio
securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of exchange-
traded options or, in the case of options traded in the OTC market, the last
asked price. Options purchased are valued at their last sale price in the case
of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued based upon quoted fair
valuations received daily by the Fund from a pricing service or counterparty.
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
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 AUGUST 31, 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.
(f) 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, 2005
Notes to Financial Statements (continued)
(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.
(h) Reclassifications--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, $6,778 has been reclassified between undistributed net
investment income and undistributed net realized capital gains and $2,248 has
been reclassified between paid-in capital and undistributed net investment
income as a result of permanent differences attributable to foreign currency
transactions and nondeductible expenses. These reclassifications have 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 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 automatically 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 year ended August 31, 2005, MLPF&S received contingent deferred sales
charges of $418,983 relating to transactions in Class B Shares. Furthermore,
MLPF&S received contingent deferred sales charges of $54 relating to
transactions subject to front-end sales charge waivers in Class A Shares.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 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 $16,734 in commissions on the execution of
portfolio security transactions for the Fund for the year ended August 31,
2005.
For the year ended August 31, 2005, the Fund reimbursed MLIM $3,767 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 directors of
MLIM, FDS, PSI, FAMD, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 2005 were $96,159,166 and $154,539,809, respectively.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$44,278,072 and $67,566,584 for the years ended August 31, 2005 and August 31,
2004, respectively.
Transactions in beneficial interest for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares issued to shareholders in
reinvestment of distributions 38,340 $ 398,731
Shares redeemed (361,735) (3,783,704)
--------------- ----------------
Net decrease (323,395) $ (3,384,973)
=============== ================
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 Year Dollar
Ended August 31, 2005 Shares Amount
Shares issued to shareholders in
reinvestment of distributions 407,336 $ 4,228,151
Shares redeemed (2,139,405) (22,253,217)
--------------- ----------------
Net decrease (1,732,069) $ (18,025,066)
=============== ================
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)
=============== ================
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
Notes to Financial Statements (concluded)
Class C Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares issued to shareholders in
reinvestment of distributions 280,613 $ 2,918,381
Shares redeemed (2,051,749) (21,374,920)
--------------- ----------------
Net decrease (1,771,136) $ (18,456,539)
=============== ================
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 Year Dollar
Ended August 31, 2005 Shares Amount
Shares issued to shareholders in
reinvestment of distributions 57,454 $ 596,380
Shares redeemed (476,633) (5,007,874)
--------------- ----------------
Net decrease (419,179) $ (4,411,494)
=============== ================
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, 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, which
expires November 2005. 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 year ended August 31, 2005.
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended August
31, 2005 and August 31, 2004 was as follows:
8/31/2005 8/31/2004
Distributions paid from:
Ordinary income $ 2,899,613 $ 188,917
Net long-term capital
gains 5,699,660 --
--------------- ----------------
Total taxable distributions $ 8,599,273 $ 188,917
=============== ================
As of August 31, 2005, the components of accumulated earnings on a tax basis
were as follows:
Undistributed ordinary income--net $ 259,410
Undistributed long-term capital gains--net 4,518,036
----------------
Total undistributed earnings--net 4,777,446
Capital loss carryforward --
Unrealized gains--net 9,832,355*
----------------
Total accumulated earnings--net $ 14,609,801
================
* 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, 2005
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
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, part of Merrill
Lynch Principal Protected Trust, including the schedule of investments, as of
August 31, 2005, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated therein. 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. We were not engaged to perform an audit of the Fund's internal
controls over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Fund's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of August 31, 2005 by
correspondence with the custodian. 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, 2005,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for the indicated periods then ended, in conformity with U.S.
generally accepted accounting principles.
(Ernst & Young LLP)
Philadelphia, Pennsylvania
October 14, 2005
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 13, 2004:
Qualified Dividend Income for Individuals* 36.65%
Dividends Qualifying for the Dividends Received Deduction for Corporations 34.26%
Federal Obligation Interest** 40.82%
* The Fund hereby designates the percentage indicated above or the maximum
amount allowable by law.
** 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.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
Officers and Trustees
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
Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds since 130 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 2001; 175 Portfolios
Princeton, Trustee Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 to 2001 and Senior Vice President from 1999
Age: 51 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since
2001; President of Princeton Administrators,
L.P. ("Princeton Administrators") since 2001;
Chief Investment Officer of Oppenheimer Funds,
Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
* Mr. Doll 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. Doll
is an "interested person," as defined in the Investment Company Act, of the Fund
based on his current positions with MLIM, FAM, Princeton Services and Princeton
Administrators. Trustees serve until their resignation, removal or death, or
until December 31 of the year in which they turn 72. As Fund President, Mr. Doll
serves at the pleasure of the Board of Trustees.
Independent Trustees*
David O. Beim** Trustee 2002 to Professor of Finance and Economics at the 19 Funds None
P.O. Box 9095 present Columbia University Graduate School of 25 Portfolios
Princeton, Business since 1991; Chairman of Outward
NJ 08543-9095 Bound USA from 1997 to 2001; Chairman of
Age: 65 Wave Hill, Inc. since 1990; Trustee of
Phillips Exeter Academy from 2002 to present.
James T. Flynn Trustee 2002 to Chief Financial Officer of JPMorgan & Co., 19 Funds None
P.O. Box 9095 present Inc. from 1990 to 1995 and an employee of 25 Portfolios
Princeton, JPMorgan in various capacities from 1967
NJ 08543-9095 to 1995.
Age: 65
W. Carl Kester Trustee 2002 to Mizuho Financial Group, Professor of Finance, 19 Funds None
P.O. Box 9095 present Harvard Business School, Unit Head, Finance 25 Portfolios
Princeton, since 2005; Senior Associate Dean and Chairman
NJ 08543-9095 of the MBA Program of Harvard Business School,
Age: 53 1999 to 2005; Member of the faculty of Harvard
Business School since 1981; Independent
consultant since 1978.
Karen P. Robards*** Trustee 2002 to President of Robards & Company, a financial 19 Funds AtriCure, Inc.
P.O. Box 9095 present advisory firm, since 1987; formerly an 25 Portfolios (medical
Princeton, investment banker with Morgan Stanley for devices)
NJ 08543-9095 more than ten years; Director of Enable
Age: 55 Medical Corp. from 1996 to 2005; Director of
AtriCure, Inc. since 2000; Director of the
Cooke Center for Learning and Development, a
not-for-profit organization, since 1987.
* Trustees serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
** Chairman of the Audit Committee.
*** Chair of the Board.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
Officers and Trustees (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 1999;
P.O. Box 9011 President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
Princeton, and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
NJ 08543-9011 Treasurer President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
Age: 45 1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
Lawrence R. Fuller Vice 2002 to Managing Director (Equities) of MLIM since 2000; Director of MLIM from 1997
P.O. Box 9011 President present to 2000.
Princeton,
NJ 08543-9011
Age: 64
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 54 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance
Officer at Prudential Financial from 1995 to 2000; Senior Counsel in the
Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 45
* 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
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2005
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 12 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, 2005 - $28,000
Fiscal Year Ending August 31, 2004 - $26,000
(b) Audit-Related Fees -Fiscal Year Ending August 31, 2005 - $0
Fiscal Year Ending August 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending August 31, 2005 - $5,700
Fiscal Year Ending August 31, 2004 - $5,200
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2005 - $0
Fiscal Year Ending August 31, 2004 - $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, 2005 - $5,700
Fiscal Year Ending August 31, 2004 - $5,200
(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) - $0, 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 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
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: October 19, 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: October 19, 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: October 19, 2005