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 Core Principal Protected Fund of Merrill Lynch
Principal Protected Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Core 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: 10/31/03
Date of reporting period: 11/01/02 - 10/31/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Core Principal
Protected Fund
Annual Report
October 31, 2003
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Core Principal Protected Fund
Portfolio Information* as of October 31, 2003
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Citigroup Inc. .................................................... 3.4%
General Electric Company .......................................... 1.9
J.P. Morgan Chase & Co. ........................................... 1.7
Cisco Systems, Inc. ............................................... 1.5
U.S. Bancorp ...................................................... 1.5
Exxon Mobil Corporation ........................................... 1.4
Pfizer Inc. ....................................................... 1.4
Microsoft Corporation ............................................. 1.4
Dell Inc. ......................................................... 1.3
Nextel Communications, Inc. (Class A) ............................. 1.3
- --------------------------------------------------------------------------------
Percent of
Five Largest Equity Industries+ Net Assets
- --------------------------------------------------------------------------------
Communications Equipment .......................................... 9.8%
Household Durables ................................................ 9.4
Health Care Providers & Services .................................. 5.3
Specialty Retail .................................................. 4.6
Computers & Peripherals ........................................... 4.6
- --------------------------------------------------------------------------------
+ For Portfolio 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 Portfolio
management. This definition may not apply for purposes of this report,
which may combine such industry sub-classifications for reporting ease.
These industry classifications are unaudited.
* Percentages shown are for equity holdings and do not reflect assets
attributable to fixed income securities.
2 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
A Letter From the President
Dear Shareholder
As 2003 draws to a close, it seems appropriate to reflect on what has been a
meaningful year in many respects. We saw the beginning and the end of all-out
war in Iraq, equity market uncertainty turned to strength, and sub par gross
domestic product (GDP) growth of 1.4% in the first quarter of 2003 grew to an
extraordinary 8.2% in the third quarter.
Equity markets rebounded from one of the most dismal three-year periods in
history to make a strong showing this year. The S&P 500 Index posted
year-to-date and 12-month returns of +21.21% and +20.80%, respectively, as of
October 31, 2003. Although continued market strength cannot be assured, the
positives have begun to eclipse the negatives. In addition to the impressive GDP
growth, the positive economic news includes waning risk of deflation and
surprisingly strong business spending and corporate earnings. In fact, business
spending in the third quarter was the strongest it has been in three years, up
14%, and many company earnings reports exceeded forecasts in the first three
quarters of the year. The good news did not go unnoticed, as investors appeared
to regain confidence by returning to the equity market.
Against this backdrop, our portfolio managers continued to work diligently to
deliver on our commitment to provide superior performance within reasonable
expectations for risk and return. This included striving to outperform our peers
and the market indexes. With that said, remember that the advice and guidance of
a skilled financial advisor often can mean the difference between successful and
unsuccessful investing. A financial professional can help you choose those
investments that will best serve you as you plan for your financial future.
Finally, I am proud to premiere a new look to our shareholder communications.
Our portfolio manager commentaries have been trimmed and organized in such a way
that you can get the information you need at a glance, in plain language.
Today's markets are confusing enough. We want to help you put it all in
perspective. The report's new size also allows us certain mailing efficiencies.
Any cost savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
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,
/s/ Terry K. Glenn
Terry K. Glenn
President and Trustee
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund achieved its objective of protecting investors' principal while
also providing significant capital appreciation.
How did the Fund perform during the period in light of the existing market
conditions?
Since inception (February 28, 2003) through October 31, 2003, Merrill Lynch Core
Principal Protected Fund's Class A, Class B, Class C and Class I Shares had
total returns of +13.20%, +12.60%, +12.60% and +13.40%, 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.) The Russell 1000 Index, a widely used, unmanaged
all-equity benchmark, had a total return of +27.50% for the same period. Because
the Portfolio incorporates a fixed income component, which is not reflected in
the Russell 1000 Index, it will at times outperform or underperform that
benchmark. For the same period, the Fund significantly outperformed its
comparable Lipper category of Balanced Target Maturity Funds, which had an
average return of +4.19%. (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.)
The Fund seeks long-term capital growth while protecting the principal value of
investor shares. This is accomplished through investments in a core equity
component (equity securities of large-capitalization companies) and a protection
component (fixed income investments that have financial characteristics
resembling a portfolio of zero-coupon bonds). A mathematical formula is used to
determine the allocation between these two components. During the period, the
Portfolio's equity allocation ranged from 29.5% of total assets to 74.3%, and
the fixed income allocation ranged from 25.7% to 70.5%.
Within the equity portion of the Portfolio, we invest primarily in a diversified
portfolio of large cap companies selected from securities found in the Russell
1000 Index. Since the Fund's introduction, its equity component benefited from
an exposure to stocks that we believed could perform well during an economic
recovery. On the positive side, Fund results were aided by stock selection in
the health care and consumer discretionary sectors. An overweight position in
information technology also contributed to returns. In contrast, stock selection
in utilities was a drag on performance.
At the individual stock level, the largest positive contributors to performance
were Invitrogen Inc., Humana Inc., Ryland Group, Inc., SanDisk Corporation,
National Semiconductor Corporation and Juniper Networks, Inc. The largest
detractors from performance included Calpine Corporation and Dynegy, Inc.
Underweights in Altria Group, Inc. and Intel Corporation also negatively
affected performance.
Because a portion of the Fund's assets are invested in large-capitalization
stocks that represent a significant part of the U.S. equity market, its
portfolio was influenced by the same economic and market events that affected
the broader stock market during the period. The first quarter of 2003, when the
Fund was launched, was marked by dramatic rises and falls in world markets, sub
par economic growth and frail consumer confidence. This was prompted by
geopolitical uncertainties, particularly war fears, and exacerbated by a weak
employment picture. The period following the Iraq war, however, saw a rise in
investor confidence that drove the major stock market indexes to levels not seen
since early in 2002. Despite alternating periods of rising and falling consumer
confidence, spending by consumers helped propel the slow and steady growth of
the economy throughout the entire period. Capital spending by businesses
remained sluggish until late in the period when signs of a pickup began to
emerge, along with improved corporate earnings and a third-quarter 2003 jump in
gross domestic product.
4 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
What changes were made to the Portfolio during the period?
In the equity portion of the Portfolio, we increased our positions relative to
the equity benchmark in the technology and consumer discretionary sectors, based
on our belief that continued economic improvement should result in earnings
acceleration for companies in these sectors. We reduced our positions relative
to the benchmark in financials and health care. Our underweight in financials
was grounded in the expectation for rising interest rates over the next 12
months, as the financial sector historically tends to lag in periods of rising
rates. Within health care, we were underweight in large-capitalization
pharmaceuticals. In our view, growth rates for stocks in this area are likely to
slow given increased competition, heightened government regulation and a
diminishing new-product pipeline. However, we were slightly overweight in health
care service providers and equipment suppliers because we see favorable
demographics and strong unit growth in this area. The largest equity purchases
during the period included The Bear Stearns Companies, Inc., Citigroup Inc.,
Lehman Brothers Inc., Sprint Corp. (PCS Group) and Calpine. The largest equity
sales included Bank of America Corporation, Fannie Mae, Lehman Brothers, Merck &
Co., Inc. and Oracle Corporation.
The fixed income component of the Portfolio was invested in U.S. Treasury
zero-coupon bonds set to mature close to the expiration of the Fund (February
28, 2010).
How would you characterize the Portfolio's position at the close of the period?
At the end of the period, Portfolio assets were invested 73.9% in equities and
26.1% in fixed income securities.
In the equity component, the largest overweights were in the information
technology and consumer discretionary sectors, which we believe should continue
to benefit from economic improvement. The largest underweights were in consumer
staples, which tend to be more defensive in nature, and financials.
Companies exhibiting good earnings momentum, earnings surprise and valuation
characteristics saw a pickup in performance late in the summer that accelerated
in the fall. We remain committed to these disciplines for stock selection,
although cognizant that the equity market could experience a temporary downturn
at any time.
Looking ahead, we believe the economic recovery will continue to gain traction.
Record monetary and fiscal policy stimulus, in the form of low interest rates
and tax cuts, along with solid consumer spending and increasing business
spending, all support this thesis. The job market was still disappointingly weak
as we ended the period, but there were signs of improvement.
As low interest rates continue to make for a positive liquidity environment, we
are reluctant to abandon our strategy of focusing on cyclical stocks that have
the potential to benefit from economic recovery. We are prepared to move to a
more cautious investment stance as the likelihood of monetary tightening by the
Federal Reserve Board approaches, although that still seems months away. From a
longer-term perspective, the U.S. current account imbalance and the potential
for a destabilizing decline in the dollar pose the greatest threats to our
outlook. We will continue to monitor these situations for developments that
could potentially impact the Fund.
Robert C. Doll, Jr.
Senior Vice President and Senior Portfolio Manager
November 26, 2003
- --------------------------------------------------------------------------------
If you would like a copy, free of charge, of the most recent annual or quarterly
report of Ambac Assurance Corporation, the Guarantor; please contact the Fund at
1-800-MER-FUND.
- --------------------------------------------------------------------------------
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. Investors are able to purchase
shares of the Fund through multiple pricing alternatives:
o Class A Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% declining to 0% after six years. In addition, Class B Shares are
subject to a distribution fee of 0.75% and an account maintenance fee of
0.25%. These shares automatically convert to Class A Shares after
approximately eight years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o 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. 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 gains distributions at net asset value on the ex-dividend
date. Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different levels
of account maintenance, distribution and transfer agency fees applicable to each
class, which are deducted from the income available to be paid to shareholders.
Recent Performance Results
6-Month Since Inception
As of October 31, 2003 Total Return Total Return
==============================================================================================
ML Core Principal Protected Fund Class A Shares* +10.98% +13.20%
- ----------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class B Shares* +10.50 +12.60
- ----------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class C Shares* +10.50 +12.60
- ----------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class I Shares* +11.18 +13.40
- ----------------------------------------------------------------------------------------------
Merrill Lynch U.S. Corporate Master Index** + 1.84 + 3.87
- ----------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index*** + 0.57 + 1.32
- ----------------------------------------------------------------------------------------------
Russell 1000 Index**** +16.77 +27.50
- ----------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Fund's inception date is 2/28/03.
** This unmanaged Index is comprised of all investment grade corporate bonds,
rated BBB or higher, of all maturities. Since inception total return is
from 2/28/03.
*** This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds with at least one year to
maturity. Since inception total return is from 2/28/03.
**** This unmanaged broad-based Index measures the performance of the 1,000
largest companies in the Russell 3000(R)Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index. Since inception total return is from 2/28/03.
6 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class A Shares and Class C Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class C Shares compared to growth of an investment in the Merrill Lynch U.S.
Corporate Master Index, Lehman Brothers Aggregate Bond Index and the Russell
1000(R) Index. Values are from February 28, 2003 to October 2003.
2/28/03** 10/03
ML Core Principal Protected Fund+--
Class A Shares* $ 9,475 $10,726
ML Core Principal Protected Fund+--
Class C Shares* $10,000 $11,160
Merrill Lynch U.S. Corporate Master Index++ $10,000 $10,387
Lehman Brothers Aggregate Bond Index+++ $10,000 $10,132
Russell 1000(R)Index++++ $10,000 $12,750
* Assuming maximum sales charge, transaction costs and other operating
expenses, including administration fees.
** Commencement of operations.
+ ML Core Principal Protected Fund invests all of its assets in Master Large
Cap Core Portfolio of Master Large Cap Series Trust. The Portfolio invests
primarily in a diversified portfolio of equity securities of large cap
companies located in the United States that the Investment Adviser
believes blends growth and value.
++ This unmanaged Index is comprised of all investment grade corporate bonds,
rated BBB or higher, of all maturities.
+++ This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds with at least one year to
maturity.
++++ This unmanaged broad-based Index measures the performance of the 1,000
largest companies in the Russell 3000(R)Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Past performance is not predictive of future results.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Inception (2/28/03)
through 10/31/03 +13.20% +7.26%
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Inception (2/28/03)
through 10/31/03 +12.60% +11.60%
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 7
[LOGO] Merrill Lynch Investment Managers
Performance Data (concluded)
Total Return Based on a $10,000 Investment--Class B Shares and Class I Shares
A line graph depicting the growth of an investment in the Fund's Class B Shares
and Class I Shares compared to growth of an investment in the Merrill Lynch U.S.
Corporate Master Index, Lehman Brothers Aggregate Bond Index and the Russell
1000(R) Index. Values are from February 28, 2003 to October 2003.
2/28/03** 10/03
ML Core Principal Protected Fund+--
Class B Shares* $10,000 $10,860
ML Core Principal Protected Fund+--
Class I Shares* $ 9,475 $10,745
Merrill Lynch U.S. Corporate Master Index++ $10,000 $10,387
Lehman Brothers Aggregate Bond Index+++ $10,000 $10,132
Russell 1000(R)Index++++ $10,000 $12,750
* Assuming maximum sales charge, transaction costs and other operating
expenses, including administration fees.
** Commencement of operations.
+ ML Core Principal Protected Fund invests all of its assets in Master Large
Cap Core Portfolio of Master Large Cap Series Trust. The Portfolio invests
primarily in a diversified portfolio of equity securities of large cap
companies located in the United States that the Investment Adviser
believes blends growth and value.
++ This unmanaged Index is comprised of all investment grade corporate bonds,
rated BBB or higher, of all maturities.
+++ This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds with at least one year to
maturity.
++++ This unmanaged broad-based Index measures the performance of the 1,000
largest companies in the Russell 3000(R)Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Past performance is not predictive of future results.
Average Annual Total Return
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Inception (2/28/03)
through 10/31/03 +12.60% +8.60%
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
Inception (2/28/03)
through 10/31/03 +13.40% +7.45
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
8 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Statement of Assets and Liabilities Merrill Lynch Core Principal Protected Fund
As of October 31, 2003
===========================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------
Investment in Master Large Cap Core Portfolio, at
value (identified cost--$182,029,883) .................. $212,336,102
Investment in U.S. Treasury STRIPS, 3.72% due 2/15/2010
(face amount--$95,402,000; identified cost--$75,657,600) 75,075,173
Prepaid registration fees and other assets ............... 474,422
------------
Total assets ............................................. 287,885,697
------------
===========================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------
Payables:
Distributor ........................................... $ 217,727
Financial warranty fee ................................ 151,024
Other affiliates ...................................... 38,772 407,523
-----------
Accrued expenses ......................................... 246,648
------------
Total liabilities ........................................ 654,171
------------
===========================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------
Net Assets ............................................... $287,231,526
============
===========================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value, unlimited
number of shares authorized ............................ $ 164,981
Class B Shares of Common Stock, $.10 par value, unlimited
number of shares authorized ............................ 1,292,704
Class C Shares of Common Stock, $.10 par value,
unlimited number of shares authorized .................. 965,310
Class I Shares of Common Stock, $.10 par value, unlimited
number of shares authorized ............................ 126,039
Paid-in capital in excess of par ......................... 250,108,252
Undistributed realized capital gains on investments and
from the Portfolio--net ................................ $ 4,850,448
Unrealized appreciation on investments and from the
Portfolio--net ......................................... 29,723,792
-----------
Total accumulated earnings--net .......................... 34,574,240
------------
Net Assets ............................................... $287,231,526
============
===========================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $18,673,369 and
1,649,813 shares outstanding ........................... $ 11.32
============
Class B--Based on net assets of $145,568,187 and
12,927,039 shares outstanding .......................... $ 11.26
============
Class C--Based on net assets of $108,699,885 and
9,653,102 shares outstanding ........................... $ 11.26
============
Class I--Based on net assets of $14,290,085 and
1,260,392 shares outstanding ........................... $ 11.34
============
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 9
[LOGO] Merrill Lynch Investment Managers
Statement of Operations Merrill Lynch Core Principal Protected Fund
For the Period February 28, 2003+ to October 31, 2003
===========================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------
Interest ................................................. $ 3,003,480
Net investment income allocated from the Portfolio:
Dividends (net of $615 foreign withholding tax) ....... 903,282
Interest .............................................. 7,060
Securities lending--net ............................... 20,928
Expenses .............................................. (549,152)
------------
Total investment income and net investment income
allocated from the Portfolio ........................... 3,385,598
------------
===========================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------
Investment advisory fees ................................. $ 1,415,417
Financial warranty fee ................................... 1,179,514
Account maintenance and distribution fees--Class B ....... 949,030
Account maintenance and distribution fees--Class C ....... 709,562
Offering costs ........................................... 338,141
Transfer agent fees--Class B ............................. 77,222
Accounting services ...................................... 63,640
Transfer agent fees--Class C ............................. 58,711
Professional fees ........................................ 46,084
Account maintenance fees--Class A ........................ 32,276
Registration fees ........................................ 20,523
Trustees' fees and expenses .............................. 20,059
Printing and shareholder reports ......................... 16,953
Transfer agent fees--Class A ............................. 9,002
Custodian fees ........................................... 7,893
Transfer agent fees--Class I ............................. 6,940
Pricing fees ............................................. 312
Other .................................................... 10,295
-----------
Total expenses before waiver ............................. 4,961,574
Waiver of expenses ....................................... (502,995)
-----------
Total expenses after waiver .............................. 4,458,579
------------
Investment loss--net ..................................... (1,072,981)
------------
===========================================================================================================
Realized & Unrealized Gain (Loss) on Investments and from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------
Realized gain (loss) from:
Investments--net ...................................... (2,998,852)
The Portfolio--net .................................... 7,990,479 4,991,627
-----------
Unrealized appreciation/depreciation:
Investments--net ...................................... (582,427)
The Portfolio--net .................................... 30,306,219 29,723,792
---------------------------
Total realized and unrealized gain on investments and
from the Portfolio--net ................................ 34,715,419
------------
Net Increase in Net Assets Resulting from Operations ..... $ 33,642,438
============
+ Commencement of operations.
See Notes to Financial Statements.
10 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Statements of Changes in Net Assets Merrill Lynch Core Principal Protected Fund
For the Period
February 28,
2003+
to October 31,
Increase (Decrease) in Net Assets: 2003
===================================================================================================================
Operations
- -------------------------------------------------------------------------------------------------------------------
Investment loss--net .......................................................... $ (1,072,981)
Realized gain on investments and from the Portfolio--net ...................... 4,991,627
Unrealized appreciation/depreciation on investments and from the Portfolio--net 29,723,792
-------------
Net increase in net assets resulting from operations .......................... 33,642,438
-------------
===================================================================================================================
Capital Share Transactions
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from capital share transactions ............ 253,589,048
-------------
===================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------
Total increase in net assets .................................................. 287,231,486
Beginning of period ........................................................... 40
-------------
End of period ................................................................. $ 287,231,526
=============
+ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 11
[LOGO] Merrill Lynch Investment Managers
Financial Highlights Merrill Lynch Core Principal Protected Fund
The following per share data and ratios have been derived For the Period February 28, 2003+ to
from information provided in the financial statements. October 31, 2003
-------------------------------------------------------------
Increase (Decrease) in Net Asset Value: Class A@@ Class B Class C Class I@@
===============================================================================================================================
Per Share Operating Performance
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ...... $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------------------------------------------------------------
Investment income (loss)--net ............. .01 (.05) (.05) .03
Realized and unrealized gain on investments
and from the Portfolio--net ............. 1.31 1.31 1.31 1.31
-------------------------------------------------------------
Total from investment operations .......... 1.32 1.26 1.26 1.34
-------------------------------------------------------------
Net asset value, end of period ............ $ 11.32 $ 11.26 $ 11.26 $ 11.34
=============================================================
===============================================================================================================================
Total Investment Return**
- -------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........ 13.20%@ 12.60%@ 12.60%@ 13.40%@
=============================================================
===============================================================================================================================
Ratios to Average Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ ................. 2.00%* 2.76%* 2.76%* 1.75%*
=============================================================
Expenses++ ................................ 2.26%* 3.03%* 3.03%* 2.01%*
=============================================================
Investment income (loss)--net ............. .10%* (.68%)* (. 68%)* .35%*
=============================================================
===============================================================================================================================
Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .. $ 18,674 $ 145,568 $ 108,700 $ 14,290
=============================================================
Portfolio turnover of the Fund ............ 175.43% 175.43% 175.43% 175.43%
=============================================================
Portfolio turnover of Master Large Cap
Core Portfolio .......................... 138.73% 138.73% 138.73% 138.73%
=============================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Effective April 14, 2003, Class A Shares were redesignated Class I Shares
and Class D Shares were redesignated Class A Shares.
See Notes to Financial Statements.
12 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Notes to Financial Statements Merrill Lynch Core Principal Protected Fund
1. Significant Accounting Policies:
Merrill Lynch Core Principal Protected Fund (the "Fund") is part of Merrill
Lynch Principal Protected Trust (the "Trust"). Under the Investment Company Act
of 1940, as amended, the Fund is diversified and the Trust is registered as an
open-end management investment company. The Fund invests a portion of its assets
in the Master Large Cap Core Portfolio (the "Portfolio") of Master Large Cap
Series Trust. The value of the Fund's investment in the Portfolio reflects the
Fund's proportionate interest in the net assets of the Portfolio. The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the Schedule of
Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. The percentage of the Portfolio owned by the
Fund at October 31, 2003 was 14.6%. 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 February 28, 2003 through February
28, 2010 (the "Guarantee Maturity Date"), except in connection with reinvestment
of dividends and distributions. The Fund will be offered on a continuous basis
after this date. Effective April 14, 2003, Class A Shares were redesignated
Class I Shares and Class D Shares were redesignated Class A Shares. The Fund's
financial statements and financial highlights contained within this report
reflect the new share class redesignation. Shares of Class A and Class I are
sold with a front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class A, Class B and Class C Shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses on investments 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 -- The Fund records its investments in the
Portfolio at fair value. Valuation of securities held by the Portfolio is
discussed in Note 1a of the Portfolio's Notes to Financial Statements, which are
included elsewhere in this report.
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.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 13
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
Merrill Lynch Core Principal Protected Fund
Repurchase agreements are valued at cost plus accrued interest. The Fund employs
pricing services to provide certain securities prices for the Fund. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees of the Fund, including valuations furnished by the pricing services
retained by the Fund, which may use a matrix system for valuations. The
procedures of a pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Fund's Board of Trustees. Such
valuations and procedures will be reviewed periodically by the Board of Trustees
of the Fund.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the New York Stock Exchange ("NYSE").
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Fund's
net asset value. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may be valued
at their fair value as determined in good faith by the Fund's Board of Trustees
or by the Investment Adviser using a pricing service and/or procedures approved
by the Fund's Board of Trustees.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment 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.
o 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.
o Options -- The Fund is authorized to 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 market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium
paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the 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.
14 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Notes to Financial Statements (continued)
Merrill Lynch Core Principal Protected Fund
(c) Security transactions, investment income and expenses -- Security
transactions are recorded on the dates the transactions are entered into (the
trade dates). Investment transactions in the Portfolio are accounted for on a
trade date basis. Realized gains and losses on security transactions are
determined on the identified cost basis. Dividend income is recorded on the
ex-dividend dates. Interest income is recognized on the accrual basis. The Fund
amortizes all premiums and discounts on debt securities. The Fund records daily
its proportionate share of the Portfolio's income, expenses and realized and
unrealized gains and losses. In addition, the Fund accrues its own expenses.
(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.
(e) Prepaid registration fees -- Prepaid registration fees will be amortized
over a 12-month period beginning with the commencement of operations of the
Fund.
(f) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $931,802 have been
reclassified between paid-in capital in excess of par and accumulated net
investment loss and $141,179 has been reclassified between undistributed
realized capital gains and accumulated net investment loss. These
reclassifications have no effect on net assets or net asset values per share.
2. Investment Advisory Agreements and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
FAM 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 .75% of the Fund's average daily net assets. FAM has
contractually agreed to waive its management fee by the amount of management
fees the Fund pays FAM indirectly through its investment in the Portfolio. For
the period February 28, 2003 to October 31, 2003, FAM earned fees of $1,415,417
and waived $502,995. In addition, FAM 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 Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ................................ .25% --
Class B ................................ .25% .75%
Class C ................................ .25% .75%
- --------------------------------------------------------------------------------
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 15
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
Merrill Lynch Core Principal Protected Fund
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
The Trust, on behalf of the Fund, and FAM have entered into a Financial Warranty
Agreement with Ambac Assurance Corporation ("Ambac"). 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 distributions received from the Fund have been
reinvested and no shares have been redeemed (the "Guaranteed Amount"). The Fund
will pay to Ambac, under Financial Warranty Agreement, an annual fee equal to
..625% 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, Ambac 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.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the period February 28, 2003 to October 31, 2003, FAMD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class I Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A ............................ $ 38,761 $691,440
Class I ............................ $ 2,442 $ 40,216
- --------------------------------------------------------------------------------
For the period February 28, 2003 to October 31, 2003, MLPF&S received contingent
deferred sales charges of $77,014 relating to transactions in Class B Shares.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, FAMD, FDS, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities and the
Portfolio, for the period February 28, 2003 to October 31, 2003 were
$303,266,310 and $227,595,459, respectively.
Net realized gains (losses) for the period February 28, 2003 to October 31, 2003
and unrealized gains (losses) as of October 31, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Investments in the Portfolio ......... $ 7,990,479 $ 30,306,219
Other long-term investments .......... (2,998,852) (582,427)
--------------------------------
Total ................................ $ 4,991,627 $ 29,723,792
================================
As of October 31, 2003, net unrealized appreciation for tax purposes aggregated
$27,035,204, of which $30,203,710 related to appreciated securities and
$3,168,506 related to depreciated securities. At October 31, 2003, the
aggregated cost of investments for Federal income tax purposes was $260,376,071.
16 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Notes to Financial Statements (concluded)
Merrill Lynch Core Principal Protected Fund
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$253,589,048 for the period February 28, 2003 to October 31, 2003.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the
Period February 28, 2003+ Dollar
to October 31, 2003++ Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................... 1,988,595 $ 19,884,101
Shares redeemed ................ (338,783) (3,607,637)
-----------------------------------
Net increase ................... 1,649,812 $ 16,276,464
===================================
+ Commencement of operations.
++ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- --------------------------------------------------------------------------------
Class B Shares for the
Period February 28, 2003+ Dollar
to October 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................... 13,955,061 $ 139,540,569
Shares redeemed ................ (1,028,023) (10,776,646)
-----------------------------------
Net increase ................... 12,927,038 $ 128,763,923
===================================
+ Commencement of operations.
- --------------------------------------------------------------------------------
Class C Shares for the
Period February 28, 2003+ Dollar
to October 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................... 10,405,746 $ 104,056,289
Shares redeemed ................ (752,645) (7,953,018)
-----------------------------------
Net increase ................... 9,653,101 $ 96,103,271
===================================
+ Commencement of operations.
- --------------------------------------------------------------------------------
Class I Shares for the
Period February 28, 2003+ Dollar
to October 31, 2003++ Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................... 1,541,170 $ 15,411,352
Shares redeemed ................ (280,779) (2,965,962)
-----------------------------------
Net increase ................... 1,260,391 $ 12,445,390
===================================
+ Commencement of operations.
++ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by MLIM and its affiliates, is
a party to a $500,000,000 credit agreement with Bank One, N.A. and certain other
lenders. The Fund may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The Fund may
borrow up to the maximum amount allowable under the Fund's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Fund pays a commitment fee of .09% per
annum based on the Fund's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50% or a base
rate as determined by Bank One, N.A. The Fund did not borrow under the credit
agreement during the period February 28, 2003 to October 31, 2003.
6. Distributions to Shareholders:
As of October 31, 2003, the components of accumulated earnings on a tax basis
were as follows:
- -------------------------------------------------------------------------------
Undistributed ordinary income--net ........................ $ 2,894,506
Undistributed long term capital gains--net ................ 4,644,530
-----------
Total undistributed earnings--net ......................... 7,539,036
Capital loss carryforward ................................. --
Unrealized gains--net ..................................... 27,035,204*
-----------
Total accumulated earnings--net ........................... $34,574,240
===========
* 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 CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 17
[LOGO] Merrill Lynch Investment Managers
Independent Auditors' Report Merrill Lynch Core Principal Protected Fund
To the Shareholders and Board of Trustees of
Merrill Lynch Core Principal Protected Fund of
Merrill Lynch Principal Protected Trust:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Core Principal Protected Fund as of October 31, 2003, and the related
statements of operations and changes in net assets, and the financial highlights
for the period February 28, 2003 (commencement of operations) through October
31, 2003. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2003, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Core Principal Protected Fund as of October 31, 2003, the results
of its operations, the changes in its net assets, and its financial highlights
for the period February 28, 2003 through October 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
December 19, 2003
18 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Officers and Trustees of the Protected Trust (unaudited)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 2003 to President and Chairman of the Merrill Lynch 124 Funds None
Glenn* Princeton, NJ and present Investment Managers, L.P. ("MLIM")/Fund Asset 163 Portfolios
08543-9011 Trustee Management, L.P. ("FAM")--Advised Funds since
Age: 63 1999; Chairman (Americas Region) of MLIM from
2000 to 2002; Executive Vice President of FAM and
MLIM (which terms as used herein include their
corporate predecessors) from 1983 to 2002; President
of FAM Distributors, Inc. ("FAMD") from 1986 to
2002 and Director thereof from 1991 to 2002;
Executive Vice President and Director of Princeton
Services, Inc. ("Princeton Services") from 1993 to
2002; President of Princeton Administrators, L.P.
from 1989 to 2002; Director of Financial Data Inc.
from 1985 to 2002.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or
MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his former positions with FAM, MLIM, FAMD, Princeton Services and Princeton Administrators, L.P. The
Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
David O. P.O. Box 9095 Trustee 2003 to Professor of Finance and Economics at the 10 Funds None
Beim Princeton, NJ present Columbia University Graduate School of Business 17 Portfolios
08543-9095 since 1991; Chairman of Wave Hill, Inc. since 1990;
Age: 63 Chairman of Outward Bound U.S.A. from 1997 to
2002; Trustee of Phillips Exeter Academy.
- ------------------------------------------------------------------------------------------------------------------------------------
James T. P.O. Box 9095 Trustee 2003 to Chief Financial Officer of J.P. Morgan & Co., Inc. 10 Funds None
Flynn Princeton, NJ present from 1990 to 1995. 17 Portfolios
08543-9095
Age: 64
- ------------------------------------------------------------------------------------------------------------------------------------
Todd P.O. Box 9095 Trustee 2003 to General Partner of Gibbons Goodwin, van 9 Funds None
Goodwin Princeton, NJ present Amerongen (investment banking firm) since 1984. 16 Portfolios
08543-9095
Age: 72
- ------------------------------------------------------------------------------------------------------------------------------------
George W. P.O. Box 9095 Trustee 2003 to Managing Partner of Bradley Resources Company 9 Funds Thoratec
Holbrook Princeton, NJ present (private investment company) and associated with 16 Portfolios Laboratories
08543-9095 that Firm and its predecessors since 1953; Director Corporation
Age: 72 of Thoratec Laboratories Corporation (medical
device manufacturers).
- ------------------------------------------------------------------------------------------------------------------------------------
W. Carl P.O. Box 9095 Trustee 2003 to Mizuho Financial Group Professor of Finance, 10 Funds None
Kester Princeton, NJ present Senior Associate Dean and Chairman of the MBA 17 Portfolios
08543-9095 Program of Harvard University Graduate School of
Age: 51 Business Administration since 1999; Serves on the
Board of Advisors of Security Leasing Partners.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen P. P.O. Box 9095 Trustee 2003 to President of Robards & Company, a financial 10 Funds None
Robards Princeton, NJ present advisory firm providing services to companies 17 Portfolios
08543-9095 in the health care industry; Director of Enable
Age: 53 Medical Corporation since 1996; Director of
Atricure, Inc. since 2000; Founder and President
of The Cooke Center for Learning and Development,
a non profit educational organization, since 1987.
------------------------------------------------------------------------------------------------------------------------
* The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 19
[LOGO] Merrill Lynch Investment Managers
Officers and Trustees of the Protected Trust (unaudited) (concluded)
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2003 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999; Vice
08543-9011 and President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 Senior Vice 2003 to President of MLIM and member of the Executive Management Committee of ML & Co.,
Doll, Jr. Princeton, NJ President present Inc. since 2001; Global Chief Investment Officer and Senior Portfolio Manager of
08543-9011 MLIM since 1999; Chief Investment Officer of Equities at Oppenheimer Funds, Inc.
Age: 49 from 1990 to 1999 and Chief Investment Officer thereof from 1998 to 1999; Executive
Vice President of Oppenheimer Funds, Inc. from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip S. P.O. Box 9011 Secretary 2003 to First Vice President of MLIM since 2001; Director of MLIM from 2000 to 2001; Vice
Gillespie Princeton, NJ present President (Legal Advisory) of MLIM from 1999 to 2000 and Attorney associated with
08543-9011 MLIM since 1998; Assistant General Counsel of Chancellor LGT Asset Management, Inc.
Age: 39 from 1997 to 1998.
------------------------------------------------------------------------------------------------------------------------
* 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
20 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Schedule of Investments Master Large Cap Core Portfolio
Value Percent of
Sector Industry++ Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
Consumer Auto Components 60,000 + Lear Corporation $ 3,485,400 0.2%
Discretionary --------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 140,000 Wal-Mart Stores, Inc. 8,253,000 0.6
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 390,000 Applebee's International, Inc. 14,628,900 1.0
330,000 GTECH Holdings Corporation 14,744,400 1.0
500,000 International Game Technology 16,375,000 1.1
140,000 Station Casinos, Inc. 4,165,000 0.3
--------------------------------------------------------------------------------------------------------------
Household Durables 160,000 Centex Corporation 15,600,000 1.1
380,000 D.R. Horton, Inc. 15,124,000 1.0
191,000 Fortune Brands, Inc. 12,443,650 0.9
170,000 + Hovnanian Enterprises, Inc. (Class A) 13,817,600 1.0
180,000 KB HOME 12,328,200 0.9
150,000 Lennar Corporation (Class A) 13,777,500 1.0
170,000 MDC Holdings, Inc. 11,444,400 0.8
20,000 + NVR, Inc. 9,788,000 0.7
170,000 Pulte Corporation 14,706,700 1.0
170,000 The Ryland Group, Inc. 15,113,000 1.0
--------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products 670,000 Hasbro, Inc. 14,606,000 1.0
--------------------------------------------------------------------------------------------------------------
Multiline Retail 690,000 Dollar General Corporation 15,504,300 1.1
470,000 Nordstrom, Inc. 14,330,300 1.0
--------------------------------------------------------------------------------------------------------------
Specialty Retail 800,000 + AutoNation, Inc. 14,960,000 1.0
260,000 + Barnes & Noble, Inc. 7,748,000 0.5
60,000 + Best Buy Co., Inc. 3,498,600 0.2
250,000 Blockbuster Inc. (Class A) 4,817,500 0.3
130,000 Claire's Stores, Inc. 5,031,000 0.3
750,000 Foot Locker, Inc. 13,425,000 0.9
820,000 The Gap, Inc. 15,645,600 1.1
180,000 + Staples, Inc. 4,827,600 0.3
--------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury 440,000 + Coach, Inc. 15,606,800 1.1
Goods 150,000 + Columbia Sportswear Company 8,736,000 0.6
--------------------------------------------------------------------------------------------------------------
Total Consumer Discretionary 334,531,450 23.0
====================================================================================================================================
Consumer Staples Beverages 50,000 + Constellation Brands, Inc. (Class A) 1,568,500 0.1
--------------------------------------------------------------------------------------------------------------
Food Products 910,000 Tyson Foods, Inc. (Class A) 12,985,700 0.9
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 1,680,000 + Rite Aid Corporation 9,626,400 0.6
--------------------------------------------------------------------------------------------------------------
Household Products 40,000 The Procter & Gamble Company 3,931,600 0.3
--------------------------------------------------------------------------------------------------------------
Total Consumer Staples 28,112,200 1.9
====================================================================================================================================
Energy Oil & Gas 580,000 Exxon Mobil Corporation 21,216,400 1.4
90,000 Pogo Producing Company 3,762,900 0.3
--------------------------------------------------------------------------------------------------------------
Total Energy 24,979,300 1.7
====================================================================================================================================
Financials Capital Markets 200,000 The Bear Stearns Companies Inc. 15,250,000 1.1
700,000 J.P. Morgan Chase & Co. 25,130,000 1.7
90,000 Legg Mason, Inc. 7,492,500 0.5
--------------------------------------------------------------------------------------------------------------
Commercial Banks 40,000 Bank of America Corporation 3,029,200 0.2
40,000 Popular, Inc. 1,800,000 0.1
800,000 U.S. Bancorp 21,776,000 1.5
--------------------------------------------------------------------------------------------------------------
Diversified Financial 1,040,000 Citigroup Inc. 49,296,000 3.4
Services
--------------------------------------------------------------------------------------------------------------
Insurance 100,000 American International Group, Inc. 6,083,000 0.4
360,000 Berkley (W.R.) Corporation 12,344,400 0.9
260,000 MBIA, Inc. 15,498,600 1.1
--------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 150,000 Countrywide Credit Industries, Inc. 15,768,000 1.1
87,000 Independence Community Bank Corp. 3,197,250 0.2
460,001 New York Community Bancorp, Inc. 16,652,036 1.1
--------------------------------------------------------------------------------------------------------------
Total Financials 193,316,986 13.3
==============================================================================================================
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 21
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) Master Large Cap Core Portfolio
Value Percent of
Sector Industry++ Shares Held Common Stocks (in U.S. dollars) Net Assets
===================================================================================================================================
Health Care Biotechnology 210,000 + Genentech, Inc. $ 17,213,700 1.2%
230,000 + Gilead Sciences, Inc. 12,553,400 0.9
250,000 + Invitrogen Corporation 15,897,500 1.1
-------------------------------------------------------------------------------------------------------------
Health Care Equipment & 250,000 Bausch & Lomb Incorporated 12,040,000 0.8
Supplies 320,000 Beckman Coulter Inc. 15,888,000 1.1
130,000 + Bio-Rad Laboratories, Inc. (Class A) 6,792,500 0.5
230,000 + Fisher Scientific International Inc. 9,257,500 0.6
-------------------------------------------------------------------------------------------------------------
Health Care Providers & 361,000 + DaVita, Inc. 12,671,100 0.9
Services 790,000 + Humana Inc. 16,029,100 1.1
380,000 Omnicare, Inc. 14,569,200 1.0
380,000 + Oxford Health Plans, Inc. 15,390,000 1.0
260,000 + PacifiCare Health Systems, Inc. 15,470,000 1.1
570,000 + Service Corporation International 2,764,500 0.2
-------------------------------------------------------------------------------------------------------------
Pharmaceuticals 140,000 Johnson & Johnson 7,046,200 0.5
650,000 + King Pharmaceuticals, Inc. 8,710,000 0.6
630,000 Mylan Laboratories, Inc. 15,214,500 1.0
670,000 Pfizer Inc. 21,172,000 1.4
220,000 + SICOR Inc. 5,896,000 0.4
140,000 + Watson Pharmaceuticals, Inc. 5,497,800 0.4
-------------------------------------------------------------------------------------------------------------
Total Health Care 230,073,000 15.8
===================================================================================================================================
Industrials Air Freight & Logistics 590,000 + J.B. Hunt Transport Services, Inc. 14,974,200 1.0
250,000 Ryder System, Inc. 7,500,000 0.5
-------------------------------------------------------------------------------------------------------------
Commercial Services & 193,000 + Apollo Group, Inc. (Class A) 12,261,290 0.9
Supplies 290,000 + Career Education Corporation 15,529,500 1.1
860,000 + Cendant Corporation 17,569,800 1.2
100,000 + ITT Educational Services, Inc. 4,980,000 0.3
-------------------------------------------------------------------------------------------------------------
Industrial Conglomerates 960,000 General Electric Company 27,849,600 1.9
230,000 Textron, Inc. 11,428,700 0.8
-------------------------------------------------------------------------------------------------------------
Machinery 300,000 Cummins Engine Company, Inc. 14,220,000 1.0
-------------------------------------------------------------------------------------------------------------
Total Industrials 126,313,090 8.7
===================================================================================================================================
Information Communications Equipment 190,000 Adtran, Inc. 12,925,700 0.9
Technology 1,050,000 + Cisco Systems, Inc. 22,029,000 1.5
1,500,000 + Corning Incorporated 16,470,000 1.1
450,000 + Emulex Corporation 12,744,000 0.9
630,000 + Foundry Networks, Inc. 14,653,800 1.0
790,000 + Juniper Networks, Inc. 14,212,100 1.0
1,160,000 Motorola, Inc. 15,694,800 1.1
170,000 + QLogic Corporation 9,528,500 0.7
310,000 Scientific-Atlanta, Inc. 9,176,000 0.6
460,000 + UTStarcom, Inc. 14,490,000 1.0
-------------------------------------------------------------------------------------------------------------
Computers & Peripherals 540,000 + Dell Inc. 19,504,800 1.3
70,000 International Business Machines
Corporation 6,263,600 0.4
200,000 + SanDisk Corporation 16,120,000 1.1
460,000 + Storage Technology Corporation 11,086,000 0.8
1,080,000 + Western Digital Corporation 14,526,000 1.0
-------------------------------------------------------------------------------------------------------------
Electrical Equipment 350,000 Rockwell International Corporation 10,867,500 0.7
-------------------------------------------------------------------------------------------------------------
Electronic Equipment & 450,000 + Avnet, Inc. 8,730,000 0.6
Instruments 340,000 PerkinElmer, Inc. 6,123,400 0.4
160,000 + Sanmina--SCI Corporation 1,688,000 0.1
330,000 + Waters Corporation 10,371,900 0.7
-------------------------------------------------------------------------------------------------------------
IT Services 70,000 + CheckFree Corp. 1,927,100 0.1
390,000 + Computer Sciences Corporation 15,451,800 1.1
530,000 + Unisys Corporation 8,140,800 0.6
-------------------------------------------------------------------------------------------------------------
Office Electronics 1,330,000 + Xerox Corporation 13,965,000 1.0
22 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Schedule of Investments (concluded) Master Large Cap Core Portfolio
Value Percent of
Sector Industry++ Shares Held Common Stocks (in U.S. dollars) Net Assets
===================================================================================================================================
Information Semiconductors & 760,000 + Amkor Technology, Inc. $ 14,326,000 1.0%
Technology Semiconductor Equipment 740,000 + Cypress Semiconductor Corporation 15,880,400 1.1
(concluded) 500,000 Intel Corporation 16,525,000 1.1
420,000 + National Semiconductor Corporation 17,064,600 1.2
-------------------------------------------------------------------------------------------------------------
Software 30,000 Fair, Isaac and Company,
Incorporated 1,913,400 0.1
510,000 + Macromedia, Inc. 9,746,100 0.7
780,000 Microsoft Corporation 20,397,000 1.4
400,000 + Synopsys, Inc. 12,688,000 0.9
450,000 + VERITAS Software Corporation 16,267,500 1.1
-------------------------------------------------------------------------------------------------------------
Total Information Technology 411,497,800 28.3
===================================================================================================================================
Materials Paper & Forest Products 590,000 Georgia-Pacific Group 15,505,200 1.1
-------------------------------------------------------------------------------------------------------------
Total Materials 15,505,200 1.1
===================================================================================================================================
Telecomm- Diversified Telecomm- 260,000 Sprint Corporation 4,160,000 0.3
unication unication Services
Services -------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 170,000 + American Tower Corporation 1,972,000 0.1
Services (Class A)
750,000 + Nextel Communications, Inc. 18,150,000 1.3
(Class A)
3,580,000 + Sprint Corp. (PCS Group) 15,573,000 1.1
-------------------------------------------------------------------------------------------------------------
Total Telecommunication Services 39,855,000 2.8
===================================================================================================================================
Utilities Electric Utilities 200,000 Alliant Energy Corporation 4,812,000 0.3
750,000 + Edison International 14,782,500 1.0
-------------------------------------------------------------------------------------------------------------
Multi-Utilities & 3,100,000 + Calpine Corporation 14,291,000 1.0
Unregulated Power 3,830,000 + Dynegy Inc. (Class A) 15,358,300 1.1
-------------------------------------------------------------------------------------------------------------
Total Utilities 49,243,800 3.4
=============================================================================================================
Total Common Stocks
(Cost-- $1,184,530,921) 1,453,427,826 100.0
===================================================================================================================================
Beneficial Interest/
Shares Held Short-Term Securities
===================================================================================================================================
$ 1,713,628 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (a) 1,713,628 0.1
$264,312,973 Merrill Lynch Liquidity Series,
LLC Money Market Series (a)(b) 264,312,973 18.2
88,104,324 Merrill Lynch Premier
Institutional Fund (a)(b) 88,104,324 6.0
-------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost-- $354,130,925) 354,130,925 24.3
===================================================================================================================================
Total Investments (Cost--$1,538,661,846) 1,807,558,751 124.3
Liabilities in Excess of Other Assets (353,449,875) (24.3)
-------------------------
Net Assets $1,454,108,876 100.0%
=========================
+ Non-income producing security.
++ For Portfolio 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 Portfolio
management. This definition may not apply for purposes of this report,
which may combine such industry sub-classifications for reporting ease.
These industry classifications are unaudited.
(a) Investments in companies considered to be an affiliate of the Portfolio
(such companies are defined as "Affiliated Companies" in Section 2(a)(3)
of the Investment Company Act of 1940) are as follows:
--------------------------------------------------------------------------
Dividend/
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 1,713,628 $ 62,299
Merrill Lynch Liquidity Series, LLC
Money Market Series $199,970,533 $131,062
Merrill Lynch Premier Institutional Fund 9,463,564 $ 87,827
--------------------------------------------------------------------------
(b) Security was purchased with the cash proceeds from securities loans.
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 23
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Master Large Cap Core Portfolio
As of October 31, 2003
==========================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of
$338,253,498) (identified cost--$1,538,661,846) ... $1,807,558,751
Cash ................................................ 461,686
Receivables:
Securities sold .................................. $ 29,534,549
Contributions .................................... 1,826,138
Dividends ........................................ 672,500
Securities lending--net .......................... 31,030
Interest ......................................... 6,388 32,070,605
------------
Prepaid expenses .................................... 14,213
--------------
Total assets ........................................ 1,840,105,255
--------------
==========================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ........... 352,417,297
Payables:
Securities purchased ............................. 30,874,332
Withdrawals ...................................... 1,541,824
Investment adviser ............................... 653,866
Other affiliates ................................. 9,292 33,079,314
------------
Accrued expenses and other liabilities .............. 499,768
--------------
Total liabilities ................................... 385,996,379
--------------
==========================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------
Net assets .......................................... $1,454,108,876
==============
==========================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------
Investors' capital .................................. $1,185,211,971
Unrealized appreciation on investments--net ......... 268,896,905
--------------
Net Assets .......................................... $1,454,108,876
==============
See Notes to Financial Statements.
24 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Statement of Operations Master Large Cap Core Portfolio
For the Year Ended October 31, 2003
==========================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------
Dividends (net of $5,530 foreign withholding tax) ... $ 10,991,966
Securities lending--net ............................. 218,889
Interest ............................................ 61,681
--------------
Total income ........................................ 11,272,536
--------------
==========================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------
Investment advisory fees ............................ $ 5,436,451
Accounting services ................................. 341,817
Custodian fees ...................................... 81,802
Professional fees ................................... 60,552
Trustees' fees and expenses ......................... 38,953
Printing and shareholder reports .................... 2,839
Pricing fees ........................................ 969
Other ............................................... 22,956
------------
Total expenses ...................................... 5,986,339
--------------
Investment income--net .............................. 5,286,197
--------------
==========================================================================================================
Realized & Unrealized Gain on Investments--Net
- ----------------------------------------------------------------------------------------------------------
Realized gain on investments--net ................... 7,803,027
Change in unrealized appreciation/depreciation on
investments--net .................................. 269,979,638
--------------
Total realized and unrealized gain on investments--net 277,782,665
--------------
Net Increase in Net Assets Resulting from Operations $ 283,068,862
==============
See Notes to Financial Statements
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 25
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Master Large Cap Core Portfolio
For the Year Ended
October 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2003 2002
============================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------------
Investment income--net ........................................... $ 5,286,197 $ 5,341,068
Realized gain (loss) on investments--net ......................... 7,803,027 (128,219,700)
Change in unrealized appreciation/depreciation on investments--net 269,979,638 56,457,791
-----------------------------------
Net increase (decrease) in net assets resulting from operations .. 283,068,862 (66,420,841)
-----------------------------------
============================================================================================================================
Capital Transactions
- ----------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ...................................... 689,136,997 272,000,014
Fair value of net asset contributions ............................ -- 269,997,441
Fair value of withdrawals ........................................ (391,800,931) (14,709,088)
-----------------------------------
Net increase in net assets derived from capital transactions ..... 297,336,066 527,288,367
-----------------------------------
============================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ..................................... 580,404,928 460,867,526
Beginning of year ................................................ 873,703,948 412,836,422
-----------------------------------
End of year ...................................................... $ 1,454,108,876 $ 873,703,948
===================================
See Notes to Financial Statements
26 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Financial Highlights Master Large Cap Core Portfolio
For the Year Ended For the Period
October 31, Dec. 22, 1999+
The following ratios have been derived from ------------------------------------------------ to October 31,
information provided in the financial statements. 2003 2002 2001 2000
================================================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 25.11% (8.13%) -- --
================================================================
================================================================================================================================
Ratios to Average Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ......... .54% .57% .67% 1.09%*
================================================================
Expenses ............................... .54% .57% .67% 1.17%*
================================================================
Investment income (loss)--net .......... .48% .83% .59% (.20%)*
================================================================
================================================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,454,109 $ 873,704 $ 412,836 $ 186,265
================================================================
Portfolio turnover ..................... 138.73% 150.18% 162.28% 79.18%
================================================================
* Annualized.
** Total investment return is required to be disclosed for fiscal years
beginning after December 15, 2000.
+ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 27
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements Master Large Cap Core Portfolio
1. Significant Accounting Policies:
Master Large Cap Core Portfolio (the "Portfolio") is part of Master Large Cap
Series Trust (the "Trust"). The Portfolio is registered under the Investment
Company Act of 1940, as amended, and is organized as a Delaware statutory trust.
The Declaration of Trust permits the Trustees to issue nontransferable interests
in the Portfolio, subject to certain limitations. The Portfolio's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. The following is a summary of significant
accounting policies followed by the Portfolio.
(a) Valuation of investments -- Equity securities that are held by the Portfolio
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
Portfolio. 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 Portfolio. 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 Portfolio
employs pricing services to provide certain securities prices for the Portfolio.
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 Portfolio, 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 Portfolio 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 Portfolio.
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
Portfolio'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
Portfolio'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 Portfolio's
Board of Trustees or by the Investment Adviser using a pricing service and/or
procedures approved by the Portfolio's Board of Trustees.
(b) Derivative financial instruments -- The Portfolio may engage in various
portfolio investment strategies both to increase the return of the Portfolio 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.
o Financial futures contracts -- The Portfolio 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 Portfolio deposits and maintains as collateral such
28 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Notes to Financial Statements (continued) Master Large Cap Core Portfolio
initial margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Portfolio 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 Portfolio as unrealized gains or losses.
When the contract is closed, the Portfolio 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.
o Options -- The Portfolio is authorized to purchase and write call and put
options. When the Portfolio writes an option, an amount equal to the
premium received by the Portfolio is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently marked
to market to reflect the current market value of the option written. When
a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the
basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Portfolio enters into
a closing transaction), the Portfolio realizes a gain or loss on the
option to the extent of the premiums received or paid (or a gain or loss
to the extent that the cost of the closing transaction exceeds the premium
paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts -- The Portfolio is authorized to enter
into forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. The contract is marked-to-market
daily and the change in market value is recorded by the Portfolio as an
unrealized gain or loss. When the contract is closed, the Portfolio
records a realized gain or loss equal to the difference between the value
at the time it was opened and the value at the time it was closed.
o Foreign currency options and futures -- The Portfolio may also purchase or
sell listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-U.S.
dollar-denominated securities owned by the Portfolio, sold by the
Portfolio but not yet delivered, or committed or anticipated to be
purchased by the Portfolio.
(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 -- The Portfolio is classified as a partnership for Federal
income tax purposes. As such, each investor in the Portfolio is treated as owner
of its proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. 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. It is
intended that the Portfolio's assets will be managed so an investor in the
Portfolio can satisfy the requirements of subchapter M of the Internal Revenue
Code.
(e) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (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 Portfolio has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Securities lending -- The Portfolio 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 Portfolio and any additional required collateral is delivered to the
Portfolio on the next business day. Where the Portfolio receives securities as
collateral for the loaned securities, it collects a fee from the borrower. The
Portfolio typically receives the income on the loaned securities but does not
receive the income on the collateral. Where the Portfolio receives cash
collateral, it may invest such collateral and retain the amount earned on such
investment,
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 29
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded) Master Large Cap Core Portfolio
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 Portfolio 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 Portfolio could
experience delays and costs in gaining access to the collateral. The Portfolio
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 Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Portfolio's investments and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Portfolio. For such services, the
Portfolio pays a monthly fee based upon the average daily value of the
Portfolio's net assets at an annual rate of .50% of the average daily net assets
not exceeding $1 billion and .45% of average daily net assets in excess of $1
billion.
The Portfolio has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its
affiliates. As of October 31, 2003, the Portfolio lent securities with a value
of $80,935,864 to MLPF&S or its affiliates. Pursuant to that order, the
Portfolio also has retained Merrill Lynch Investment Managers, LLC ("MLIM,
LLC"), an affiliate of FAM, 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 Portfolio, invest cash collateral received by the Portfolio for such
loans, among other things, in a private investment company managed by MLIM, LLC
or in registered money market funds advised by FAM or its affiliates. For the
year ended October 31, 2003, MLIM, LLC received $94,660 in securities lending
agent fees.
For the year ended October 31, 2003, the Portfolio reimbursed FAM $23,219 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 2003 were $1,817,565,808 and $1,514,900,598,
respectively.
Net realized gains for the year ended October 31, 2003 and net unrealized gains
as of October 31, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .............. $ 7,803,027 $268,896,905
----------------------------------
Total .............................. $ 7,803,027 $268,896,905
==================================
As of October 31, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $250,035,262, of which $273,449,914 related to appreciated
securities and $23,414,652 related to depreciated securities. At October 31,
2003, the aggregate cost of investments for Federal income tax purposes was
$1,557,523,489.
4. Short-Term Borrowings:
The Portfolio, along with certain other funds managed by FAM and its affiliates,
is a party to a $500,000,000 credit agreement with Bank One, N.A. and certain
other lenders. The Portfolio may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for leverage.
The Portfolio may borrow up to the maximum amount allowable under the
Portfolio's current prospectus and statement of additional information, subject
to various other legal, regulatory or contractual limits. The Portfolio pays a
commitment fee of .09% per annum based on the Portfolio's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the Federal
Funds rate plus .50% or a base rate as determined by Bank One, N.A. On November
28, 2002, the credit agreement was renewed for one year under the same terms,
except that the commitment was reduced from $1,000,000,000 to $500,000,000. The
Portfolio did not borrow under the credit agreement during the year ended
October 31, 2003.
30 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Independent Auditors' Report Master Large Cap Core Portfolio
To the Investors and Board of Trustees of
Master Large Cap Core Portfolio
(One of the Series constituting Master Large
Cap Series Trust):
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master Large Cap Core Portfolio as of October
31, 2003, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the respective periods then
ended. These financial statements and financial highlights are the
responsibility of the Portfolio'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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free from material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Master
Large Cap Core Portfolio as of October 31, 2003, 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 its financial highlights for the respective
periods then ended, in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
December 19, 2003
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 31
[LOGO] Merrill Lynch Investment Managers
Officers and Trustees of the Master Trust (unaudited)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President and Chairman of the Merrill Lynch 124 Funds None
Glenn* Princeton, NJ and present Investment Managers, L.P. ("MLIM")/Fund Asset 163 Portfolios
08543-9011 Trustee Management, L.P. ("FAM")--Advised Funds since
Age: 63 1999; Chairman (Americas Region) of MLIM from
2000 to 2002; Executive Vice President of FAM and
MLIM (which terms as used herein include their
corporate predecessors) from 1983 to 2002; President
of FAM Distributors, Inc. ("FAMD") from 1986 to 2002
and Director thereof from 1991 to 2002; Executive
Vice President and Director of Princeton Services,
Inc. ("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P. from
1989 to 2002; Director of Financial Data Services,
Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or
MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his former positions with FAM, MLIM, FAMD, Princeton Services and Princeton Administrators, L.P. The
Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72. As Trust President, Mr. Glenn serves at the pleasure of the Board of Trustees.
32 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Officers and Trustees of the Master Trust (unaudited) (continued)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Trustee 1999 to Director, The China Business Group, Inc. since 1996 40 Funds None
Bodurtha Princeton, NJ present and Executive Vice President thereof from 1996 to 59 Portfolios
08543-9095 2003; Chairman of the Board, Berkshire Holding
Age: 59 Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Joe Grills P.O. Box 9095 Trustee 2002 to Member of the Committee of Investment of 40 Funds Kimco Realty
Princeton, NJ present Employee Benefit Assets of the Association of 60 Portfolios Corporation
08543-9095 Financial Professionals ("CIEBA") since 1986 and
Age: 68 its Chairman from 1991 to 1992; Member of the
Investment Advisory Committees of the State of
New York Common Retirement Fund since 1989;
Member of the Investment Advisory Committee of
the Howard Hughes Medical Institute from 1997 to
2000; Director, Duke Management Company since
1992 and Vice Chairman thereof since 1998;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of
the Virginia Retirement System since 1998 and Vice
Chairman thereof since 2002; Director, Montpelier
Foundation since 1998 and Vice Chairman thereof
since 2000; Member of the Investment Committee
of the Woodberry Forest School since 2000; Member
of the Investment Committee of the National Trust
for Historic Preservation since 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Trustee 1999 to John M. Olin Professor of Humanities, New York 40 Funds None
London Princeton, NJ present University since 1993 and Professor thereof since 60 Portfolios
08543-9095 1980; President of Hudson Institute since 1997 and
Age: 64 Trustee thereof since 1980.
- ------------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 33
[LOGO] Merrill Lynch Investment Managers
Officers and Trustees of the Master Trust (unaudited) (concluded)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Andre F. P.O. Box 9095 Trustee 1999 to George Gund Professor of Finance and Banking, 40 Funds None
Perold Princeton, NJ present Harvard Business School since 2000 and a member 60 Portfolios
08543-9095 of the faculty since 1979; Director and Chairman
Age: 51 the Board, UNX, Inc. since 2003; Director, Sanlam
Limited and Sanlam Life since 2001; Director, Genbel
Securities and Gensec Bank since 1999; Director,
Stockback.com from 2002 to 2002; Director,
Bulldogresearch.com from 2000 to 2001; Director,
Sanlam Investment Management from 1999 to
2001; Director, Quantec Limited from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Trustee 1999 to Shareholder, Modrall, Sperling, Roehl, Harris & 40 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; Director of Cooper's, Inc. 60 Portfolios
Ramo 08543-9095 since 1999 and Chairman of the Board since 2000;
Age: 61 Director of ECMC, Inc. since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Trustee 2002 to Principal of STI Management since 1994; Trustee 40 Funds None
Salomon, Princeton, NJ present of Commonfund from 1980 to 2001; Director of 60 Portfolios
Jr. 08543-9095 Rye Country Day School since 2001.
Age: 66
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Trustee 2002 to Chairman, Fernwood Advisors (investment adviser) 41 Funds None
Swensrud Princeton, NJ present since 1996; Principal of Fernwood Associates 61 Portfolios
08543-9095 (financial consultant) since 1975; Chairman of RPP
Age: 70 Corporation since 1978; Director, International
Mobile Communications, Inc. since 1998.
------------------------------------------------------------------------------------------------------------------------
* The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Trust Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1999 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999; Vice
08543-9011 and President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 Senior Vice 1999 to President of MLIM and member of the Executive Management Committee of ML & Co.,
Doll, Jr. Princeton, NJ President present Inc. since 2001; Global Chief Investment Officer and Senior Portfolio Manager of
08543-9011 MLIM since 1999; Chief Investment Officer of Equities at Oppenheimer Funds, Inc.
Age: 49 from 1990 to 1999 and Chief Investment Officer thereof from 1998 to 1999; Executive
Vice President of Oppenheimer Funds, Inc. from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip S. P.O. Box 9011 Secretary 2003 to First Vice President of MLIM since 2001; Director of MLIM from 2000 to 2001; Vice
Gillespie Princeton, NJ present President (Legal Advisory) of MLIM from 1999 to 2000 and Attorney associated with
08543-9011 MLIM since 1998; Assistant General Counsel of Chancellor LGT Asset Management, Inc.
Age: 39 from 1997 to 1998.
------------------------------------------------------------------------------------------------------------------------
* Officers of the Trust serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Trust's Officers and Trustees is available in the Trust'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
34 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003
Electronic Delivery
The Fund is now offering electronic delivery of communications to its
shareholders. In order to receive this service, you must register your account
and provide us with e-mail information. To sign up for this service, simply
access this website http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification number
(PIN). You will need this PIN should you wish to update your e-mail address,
choose to discontinue this service and/or make any other changes to the service.
This service is not available for certain retirement accounts at this time.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2003 35
[LOGO] Merrill Lynch Investment Managers www.mlim.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)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Merrill Lynch Core Principal Protected Fund
Box 9011
Princeton, NJ
08543-9011
#CPP -- 10/03
Item 2 - Did registrant adopt 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, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request--
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 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -
The registrant's board of directors has determined that (i) the
registrant has the following audit committee financial experts serving
on its audit committee and (ii) each audit committee financial expert
is independent: (1) David O. Beim, (2) W. Carl Kester, (3) James T.
Flynn and (4) Karen P. Robards.
The registrant's board of directors has determined that David O. Beim,
W. Carl Kester and Karen P. Robards qualify as financial experts
pursuant to Item 3(c)(4) of Form N-CSR.
Mr. Beim has a thorough understanding of generally accepted accounting
principles, financial statements and internal control over financial
reporting as well as audit committee functions. For 25 years, Mr. Beim
was an investment banker actively engaged in financial analysis for
securities transactions and mergers. These transactions presented a
breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the Registrant's financial statements. Mr.
Beim has also been a professor of finance and economics at the Columbia
University Graduate School of Business for the past 11 years.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control over
financial reporting as well as audit committee functions. Prof. Kester
has been involved in providing valuation and other financial consulting
services to corporate clients since 1978. Prof. Kester's financial
consulting services present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the Registrant's financial statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control over
financial reporting as well as audit committee functions. Ms. Robards
has been President of Robards & Company, a financial advisory firm,
since 1987. Ms. Robards was formerly an investment banker for more than
10 years where she was responsible for evaluating and assessing the
performance of companies based on their financial results. Ms. Robards
has over 30 years of experience analyzing financial statements. She
also is the member of the Audit Committees of two privately held
companies and a non-profit organization.
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by
the principal accountant for the audit of the
registrant's annual financial statements or services
that are normally provided by the accountant in
connection with statutory and regulatory filings or
engagements for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and
related services by the principal accountant
that are reasonably related to the performance
of the audit of the registrant's financial
statements and are not reported under
paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising
the fees disclosed under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of
the services comprising the fees disclosed under this
category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services
provided by the principal accountant, other than
the services reported in paragraphs (a) through
(c) of this Item. Registrants shall describe the
nature of the services comprising the fees
disclosed under this category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of
Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by
the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for each
of the last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another 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. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A
Item 8 -- Reserved
Item 9(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.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
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 Core Principal Protected Fund of Merrill Lynch Principal
Protected Trust
By: /s/ Terry K. Glenn
----------------------------
Terry K. Glenn,
President of
Merrill Lynch Core Principal Protected Fund of Merrill Lynch
Principal Protected Trust
Date: December 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
----------------------------
Terry K. Glenn,
President of
Merrill Lynch Core Principal Protected Fund of Merrill Lynch
Principal Protected Trust
Date: December 22, 2003
By: /s/ Donald C. Burke
----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Core Principal Protected Fund of Merrill Lynch
Principal Protected Trust
Date: December 22, 2003
Attached hereto as a furnished exhibit are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act.