UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21162
811-9739
Name of Fund: Merrill Lynch Core Principal Protected Fund of Merrill Lynch
Principal Protected Trust
Master Large Cap Core Portfolio of Master Large Cap 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
and Master Large Cap Core Portfolio of Master Large Cap Series 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: 10/31/04
Date of reporting period: 11/01/03 - 04/30/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Core Principal
Protected Fund
Semi-Annual Report
April 30, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Core Principal Protected Fund
Portfolio Information* as of April 30, 2004
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Citigroup Inc. ....................................................... 2.3%
Cisco Systems, Inc. .................................................. 2.2
General Electric Company ............................................. 1.9
Pfizer, Inc. ......................................................... 1.7
Exxon Mobil Corporation .............................................. 1.7
J.P. Morgan Chase & Co. .............................................. 1.6
Motorola, Inc. ....................................................... 1.4
Genentech, Inc. ...................................................... 1.2
Microsoft Corporation ................................................ 1.2
Cendant Corporation .................................................. 1.2
- --------------------------------------------------------------------------------
* Percentages shown are for equity holdings and do not reflect assets
attributable to fixed income securities.
Percent of
Five Largest Equity Industries* Net Assets
- --------------------------------------------------------------------------------
Communications Equipment ............................................. 9.1%
Household Durables ................................................... 8.8
Health Care Providers & Services ..................................... 6.4
Semiconductors & Semiconductor Equipment ............................. 4.8
Capital Markets ...................................................... 4.3
- --------------------------------------------------------------------------------
* 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.
2 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
A Letter From the President
Dear Shareholder
Equity markets produced positive results for the most recent six-month and
12-month reporting periods. The U.S. stock market, as measured by the Standard &
Poor's 500 Index, returned +6.27% for the six-month period and +22.88% for the
12-month period ended April 30, 2004.
Though equity markets enjoyed favorable returns overall, we did experience an
overdue market correction late in the period. This was largely in response to
disappointing employment news (which has improved markedly since then),
terrorist attacks in Madrid and instability in Iraq -- all of which weighed
heavily on the markets. However, despite the more recent skittishness, we still
observe substantial economic strength in the United States.
In fact, the U.S. economy has continued to benefit from 2003's significant
fiscal and monetary stimulus in the form of low interest rates and tax cuts.
This has opened the door to consumer spending, capital spending, increases in
exports and long-awaited job growth. A major shift on the employment front came
on April 2 when the Department of Labor reported the biggest monthly jobs
increase in four years. These developments have supported continued improvements
in corporate earnings -- a positive for stock markets. For its part, the Federal
Reserve Board maintained its accommodative policy stance, and is expected to
raise interest rates at a gradual pace in order to ensure the sustainability of
the current economic recovery.
The events and efforts of the past year leave us with a much stronger economy
today. Of course, markets will always fluctuate, and there are many
uncertainties -- not the least of which are geopolitical in nature -- which can
translate into negative market movements. Keeping this in mind, however, we
encourage you to revisit your portfolio and your asset allocation strategy to
ensure you are well positioned to take advantage of the opportunities that lie
ahead. Importantly, your financial advisor can help you develop a strategy most
suitable for your circumstances through all types of market and economic cycles.
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 APRIL 30, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
Despite a favorable backdrop of improving corporate earnings and economic
revitalization, an equity market correction late in the period produced a drag
on Fund performance.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended April 30, 2004, Merrill Lynch Core Principal
Protected Fund's Class A, Class B, Class C and Class I Shares had total returns
of +.14%, -.19%, -.19% and +.25%, respectively. (Fund results shown do not
reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 and 7 of this report to
shareholders.) The Russell 1000 Index -- a widely recognized, unmanaged,
all-equity benchmark -- provided a total return of +6.11% for the same period.
Because the Fund incorporates a fixed income component, which is not reflected
in the Russell 1000 Index, it will at times outperform or underperform that
benchmark. Fund results for the period also lagged that of its comparable Lipper
category of Balanced Target Maturity Funds, which had an average return of +.93%
for the six months ended April 30, 2004. (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.)
Importantly, over the long-term, the Fund has continued to meet its primary
objective of protecting investor principal while also providing attractive
capital appreciation. Since inception (February 28, 2003) through April 30,
2004, the Fund's Class A, Class B, Class C and Class I Shares provided total
returns of +13.36%, +12.38%, +12.38% and +13.69%, respectively.
Because the Fund invests in large-capitalization stocks that represent a
significant part of the U.S. stock market, its portfolio was influenced by the
same economic and market events that affected the broader stock market during
the period. The last quarter of 2003 and the first quarter of 2004 were marked
by dramatic rises and falls in world markets, with the equity markets undergoing
a correction in the spring of 2004, despite strong economic growth and robust
corporate earnings.
What is the Fund's investment objective?
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
Fund's equity allocation ranged from 59.2% of total assets to 74.7%, and the
fixed income allocation ranged from 25.3% to 40.8%.
What factors influenced Fund performance during the period?
Within the equity portfolio, we invest primarily in a diversified portfolio of
large cap companies selected from securities found in the Russell 1000 Index.
During the six-month period, the Portfolio was positioned in economically
sensitive cyclical stocks. Despite improving corporate earnings and economic
revitalization, a combination of interest rate fears, rising energy prices,
risks to growth in China and a destabilized U.S. dollar pushed equity prices
lower late in the period. Given the Portfolio's heightened exposure to stocks
leveraged to economic recovery and a market upturn, the correction had a greater
impact on our portfolio and ultimately resulted in the underperformance of the
Fund's equity investments relative to both its benchmark and its Lipper peers.
Stock selection in the health care and telecommunication services sectors
benefited performance during the period. The Portfolio's overweight position in
consumer discretionary and industrials also contributed to performance. On the
negative side, stock selection in information technology hindered results.
At the individual stock level, the largest positive contributors to performance
were Sprint Corp. (PCS), Genentech, Inc., DaVita, Inc., Motorola, Inc. and Intel
Corporation. The largest detractors from performance included Amkor Technology,
Inc., SanDisk Corporation, Foundry Networks, Inc. and ITT Educational Services,
Inc. Underweights in Exxon Mobil Corporation and Pfizer, Inc. also negatively
affected performance.
4 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
What changes were made to the Portfolio during the period?
In the equity portfolio, we increased our positions relative to the equity
benchmark in materials, utilities, consumer staples and energy based on our
belief that stocks in these sectors would benefit as we transition from an
economic recovery to an environment of rising interest rates. We reduced our
position relative to the benchmark in information technology and
telecommunication services in light of improved valuations and decelerating
growth in these sectors.
The largest purchases during the period included Lehman Brothers Holdings Inc.,
Bank of America Corporation, University of Phoenix Online and Lucent
Technologies Inc.. The largest sales included Sprint Corp. (PCS), J.B. Hunt
Transport Services, Inc., National Semiconductor Corporation and Beckman Coulter
Inc.
The fixed income component of the Fund 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 Fund's position at the close of the period?
As of April 30, 2004, Fund assets were invested 72.9% in equities and 27.1% in
fixed income securities. In the equity component, the largest overweights at
period end were in the consumer discretionary and information technology
sectors, which we believe should benefit from strong earnings growth. The
largest underweights were in financials, which tend to underperform in periods
of rising interest rates, and consumer staples.
Companies exhibiting good earnings momentum, earnings surprise and valuation
characteristics provided strong performance through the end of 2003. However,
relative performance for these companies deteriorated as the broad markets
turned downward in spring 2004. We remain committed to these disciplines for
stock selection, and the Fund ended the period positioned in cyclical stocks
that we believe should benefit as investor focus returns to the robust corporate
earnings environment. Nonetheless, given the recent equity market correction and
interest rate pressures, we are moderating our exposure to economic sensitivity
as well as reducing our exposure to lower-capitalization securities. Our
intention is to continue to reduce the interest rate sensitivity of the
portfolio as rates continue to increase.
The Federal Funds futures market now projects a near certain hike in the Federal
Funds target rate in June with another potential increase in August. We believe
the economy is stronger than many expected at this point. Strong payroll reports
for March and April, as well as recent data from the Institute for Supply
Management survey, indicate that a sustainable economic recovery is underway,
which should continue to support consumption and other business activity. We
believe a modest increase in inflation also is underway, and our projection at
the beginning of the year that the Federal Reserve Board would double its rate
from 1% to 2% by year end currently seems more realistic.
The equity market correction, while not a surprise, has been more significant
than expected, particularly given the boom in corporate earnings. Our view is
that there is at least one more up-leg in the equity market before the cyclical
backdrop becomes a problem. The timing of this rally will hinge on when the
Treasury market calms, the dollar stabilizes or resumes its slow decline, and
oil prices ease. Some combination of these factors should set the stage for more
focus on earnings and a better equity market. In the meantime, sluggishness in
stock prices is likely to persist. We will continue to monitor economic and
market developments in order to make the most informed decisions regarding the
Portfolio's investments.
Robert C. Doll, Jr.
Senior Vice President and Senior Portfolio Manager
May 24, 2004
- --------------------------------------------------------------------------------
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 APRIL 30, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
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. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain more current performance
information. Performance results do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
ex-dividend date. The Fund's Investment Adviser reimbursed a portion of the
Fund's expenses. Without such waiver, the Fund's performance would have been
lower. Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different levels
of account maintenance, distribution and transfer agency fees applicable to each
class, which are deducted from the income available to be paid to shareholders.
Recent Performance Results
6-Month 12-Month Since Inception
As of April 30, 2004 Total Return Total Return Total Return
==================================================================================================
ML Core Principal Protected Fund Class A Shares* + .14% +11.13% +13.36%
- --------------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class B Shares* - .19 +10.29 +12.38
- --------------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class C Shares* - .19 +10.29 +12.38
- --------------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class I Shares* + .25 +11.46 +13.69
- --------------------------------------------------------------------------------------------------
Merrill Lynch U.S. Corporate Master Index** +1.89 + 3.76 + 5.83
- --------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index*** +1.25 + 1.82 + 2.58
- --------------------------------------------------------------------------------------------------
Russell 1000 Index**** +6.11 +23.90 +35.29
- --------------------------------------------------------------------------------------------------
* 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 APRIL 30, 2004
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 4/30/04 +11.13% + 5.30%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 4/30/04 +11.34 + 6.31
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 4/30/04 +10.29% + 6.29%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 4/30/04 +10.52 + 7.14
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 4/30/04 +10.29% + 9.29%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 4/30/04 +10.52 +10.52
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 4/30/04 +11.46% + 5.61%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 4/30/04 +11.62 + 6.58
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 7
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities
Merrill Lynch Core Principal Protected Fund
As of April 30, 2004
==========================================================================================================================
Assets
- --------------------------------------------------------------------------------------------------------------------------
Investment in Master Large Cap Core Portfolio, at value
(identified cost--$165,355,940) ............................... $ 184,087,890
Investment in U.S. Treasury STRIPS, 3.885% due 2/15/2010
(face amount--$85,497,000; identified cost--$68,419,356) ...... 67,994,738
Prepaid expenses and other assets .............................. 968,310
-------------
Total assets ................................................... 253,050,938
-------------
==========================================================================================================================
Liabilities
- --------------------------------------------------------------------------------------------------------------------------
Payables:
Distributor ................................................. $ 200,941
Financial warranty fee ...................................... 137,172
Other affiliates ............................................ 36,529 374,642
-------------
Accrued expenses ............................................... 265,098
-------------
Total liabilities .............................................. 639,740
-------------
==========================================================================================================================
Net Assets
- --------------------------------------------------------------------------------------------------------------------------
Net Assets ..................................................... $ 252,411,198
=============
==========================================================================================================================
Net Assets Consist of
- --------------------------------------------------------------------------------------------------------------------------
Paid-in capital, unlimited shares of no par value authorized ... $ 224,368,442
Accumulated investment loss--net ............................... $ (1,013,703)
Undistributed realized capital gains on investments and
allocated from the Portfolio--net ............................. 10,749,127
Unrealized appreciation on investments and allocated from
the Portfolio--net ............................................ 18,307,332
-------------
Total accumulated earnings--net ................................ 28,042,756
-------------
Net Assets ..................................................... $ 252,411,198
=============
==========================================================================================================================
Net Asset Value
- --------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $13,432,986 and 1,220,750
shares outstanding ............................................ $ 11.00
=============
Class B--Based on net assets of $135,041,147 and 12,342,234
shares outstanding ............................................ $ 10.94
=============
Class C--Based on net assets of $92,889,128 and 8,489,973
shares outstanding ............................................ $ 10.94
=============
Class I--Based on net assets of $11,047,937 and 1,002,146
shares outstanding ............................................ $ 11.02
=============
See Notes to Financial Statements.
8 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
Statement of Operations Merrill Lynch Core Principal Protected Fund
For the Six Months Ended April 30, 2004
==========================================================================================================================
Investment Income
- --------------------------------------------------------------------------------------------------------------------------
Interest and amortization of premiums and discounts ............ $ 1,503,186
Net investment income allocated from the Portfolio:
Dividends ................................................... 1,040,467
Interest from affiliates .................................... 3,934
Securities lending--net ..................................... 16,840
Expenses .................................................... (526,195)
-------------
Total investment income and net investment income allocated
from the Portfolio ............................................ 2,038,232
-------------
==========================================================================================================================
Expenses
- --------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ....................................... $ 1,051,824
Financial warranty fee ......................................... 876,520
Account maintenance and distribution fees--Class B ............. 724,289
Account maintenance and distribution fees--Class C ............. 528,139
Offering costs ................................................. 67,146
Transfer agent fees--Class B ................................... 59,477
Transfer agent fees--Class C ................................... 44,144
Accounting services ............................................ 42,249
Professional fees .............................................. 28,956
Printing and shareholder reports ............................... 28,936
Account maintenance fees--Class A .............................. 21,453
Registration fees .............................................. 17,234
Trustees' fees and expenses .................................... 13,770
Transfer agent fees--Class A ................................... 6,091
Custodian fees ................................................. 4,836
Transfer agent fees--Class I ................................... 4,556
Pricing fees ................................................... 624
Other .......................................................... 14,099
-------------
Total expenses before waiver ................................... 3,534,343
Waiver of expenses ............................................. (482,408)
-------------
Total expenses after waiver .................................... 3,051,935
-------------
Investment loss--net ........................................... (1,013,703)
-------------
==========================================================================================================================
Realized & Unrealized Gain (Loss) on Investments & Allocated from the Portfolio--Net
- --------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) from:
Investments--net ............................................ (1,214,444)
The Portfolio--net .......................................... 14,652,183 13,437,739
-------------
Change in unrealized appreciation/depreciation from:
Investments--net ............................................ 157,808
The Portfolio--net .......................................... (11,574,268) (11,416,460)
-------------------------------
Total realized and unrealized gain on investments and
allocated from the Portfolio--net ............................. 2,021,279
-------------
Net Increase in Net Assets Resulting from Operations ........... $ 1,007,576
=============
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 9
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets
Merrill Lynch Core Principal Protected Fund
For the Period
For the Six February 28,
Months Ended 2003+
April 30, to October 31,
Increase (Decrease) in Net Assets: 2004 2003
==========================================================================================================================
Operations
- --------------------------------------------------------------------------------------------------------------------------
Investment loss--net ........................................... $ (1,013,703) $ (1,072,981)
Realized gain on investments and allocated from the
Portfolio--net ................................................ 13,437,739 4,991,627
Change in unrealized appreciation/depreciation on
investments and allocated from the Portfolio--net ............. (11,416,460) 29,723,792
-------------------------------
Net increase in net assets resulting from operations ........... 1,007,576 33,642,438
-------------------------------
==========================================================================================================================
Distributions to Shareholders
- --------------------------------------------------------------------------------------------------------------------------
Realized gain on investments allocated from the Portfolio:
Class A ..................................................... (534,083) --
Class B ..................................................... (3,774,343) --
Class C ..................................................... (2,827,877) --
Class I ..................................................... (402,757) --
-------------------------------
Net decrease from distributions to shareholders ................ (7,539,060) --
-------------------------------
==========================================================================================================================
Capital Share Transactions
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from capital
share transactions ............................................ (28,288,844) 253,589,048
-------------------------------
==========================================================================================================================
Net Assets
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ........................ (34,820,328) 287,231,486
Beginning of period ............................................ 287,231,526 40
-------------------------------
End of period* ................................................. $ 252,411,198 $ 287,231,526
===============================
* Accumulated investment loss ............................... $ (1,013,703) --
===============================
+ Commencement of operations.
See Notes to Financial Statements.
10 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
Financial Highlights Merrill Lynch Core Principal Protected Fund
Class A@@
-----------------------------------
For the Period
The following per share data and ratios have been derived For the Six February 28,
from information provided in the financial statements. Months Ended 2003+ to
April 30, October 31,
Increase (Decrease) in Net Asset Value: 2004 2003
===========================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................... $ 11.32 $ 10.00
--------------------------------
Investment income (loss)--net ........................... --***++ .01
Realized and unrealized gain on investments and allocated
from the Portfolio--net ................................ .01 1.31
--------------------------------
Total from investment operations ........................ .01 1.32
--------------------------------
Less distributions of realized gain on investments and
allocated from the Portfolio--net ...................... (.33) --
--------------------------------
Net asset value, end of period .......................... $ 11.00 $ 11.32
================================
===========================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...................... .14%@ 13.20%@
================================
===========================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver+++ .............................. 1.88%* 2.00%*
================================
Expenses+++ ............................................. 2.22%* 2.26%*
================================
Investment income (loss)--net ........................... (.07%)* .10%*
================================
===========================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................ $ 13,433 $ 18,674
================================
Portfolio turnover of the Fund .......................... 42.66% 175.43%
================================
Portfolio turnover of Master Large Cap Core Portfolio ... 57.27% 138.73%
================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Amount is less than $(.01) per share.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 11
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued) Merrill Lynch Core Principal Protected Fund
Class B
------------------------------------
For the Period
The following per share data and ratios have been derived For the Six February 28,
from information provided in the financial statements. Months Ended 2003+ to
April 30, October 31,
Increase (Decrease) in Net Asset Value: 2004 2003
============================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................... $ 11.26 $ 10.00
-------------------------------
Investment loss--net .................................... (.05)++ (.05)
Realized and unrealized gain on investments and allocated
from the Portfolio--net ................................ .03 1.31
-------------------------------
Total from investment operations ........................ (.02) 1.26
-------------------------------
Less distributions of realized gain on investments and
allocated from the Portfolio--net ...................... (.30) --
-------------------------------
Net asset value, end of period .......................... $ 10.94 $ 11.26
================================
============================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...................... (.19%)@ 12.60%@
================================
============================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver+++ .............................. 2.64%* 2.76%*
================================
Expenses+++ ............................................. 2.98%* 3.03%*
================================
Investment loss--net .................................... (.81%)* (.68%)*
================================
============================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................ $ 135,041 $ 145,568
================================
Portfolio turnover of the Fund .......................... 42.66% 175.43%
================================
Portfolio turnover of Master Large Cap Core Portfolio ... 57.27% 138.73%
================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
12 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
Financial Highlights (continued) Merrill Lynch Core Principal Protected Fund
Class C
------------------------------------
For the Period
The following per share data and ratios have been derived For the Six February 28,
from information provided in the financial statements. Months Ended 2003+ to
April 30, October 31,
Increase (Decrease) in Net Asset Value: 2004 2003
============================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................... $ 11.26 $ 10.00
--------------------------------
Investment loss--net .................................... (.05)*** (.05)
Realized and unrealized gain on investments and allocated
from the Portfolio--net ................................ .03 1.31
--------------------------------
Total from investment operations ........................ (.02) 1.26
--------------------------------
Less distributions of realized gain on investments and
allocated from the Portfolio--net ...................... (.30) --
--------------------------------
Net asset value, end of period .......................... $ 10.94 $ 11.26
================================
============================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...................... (.19%)@ 12.60%@
================================
============================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ ............................... 2.64%* 2.76%*
================================
Expenses++ .............................................. 2.98%* 3.03%*
================================
Investment loss--net .................................... (.82%)* (.68%)*
================================
============================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................ $ 92,889 $ 108,700
================================
Portfolio turnover of the Fund .......................... 42.66% 175.43%
================================
Portfolio turnover of Master Large Cap Core Portfolio ... 57.27% 138.73%
================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (concluded) Merrill Lynch Core Principal Protected Fund
Class I@@
-----------------------------------
For the Period
The following per share data and ratios have been derived For the Six February 28,
from information provided in the financial statements. Months Ended 2003+ to
April 30, October 31,
Increase (Decrease) in Net Asset Value: 2004 2003
===========================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................... $ 11.34 $ 10.00
--------------------------------
Investment income--net .................................. .01*** .03
Realized and unrealized gain on investments and allocated
from the Portfolio--net ................................ .02 1.31
--------------------------------
Total from investment operations ........................ .03 1.34
--------------------------------
Less distributions of realized gain on investments and
allocated from the Portfolio--net ...................... (.35) --
--------------------------------
Net asset value, end of period .......................... $ 11.02 $ 11.34
================================
===========================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...................... .25%@ 13.40%@
================================
===========================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ ............................... 1.63%* 1.75%*
================================
Expenses++ .............................................. 1.97%* 2.01%*
================================
Investment income--net .................................. .19%* .35%*
================================
==========================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................ $ 11,048 $ 14,290
================================
Portfolio turnover of the Fund .......................... 42.66% 175.43%
================================
Portfolio turnover of Master Large Cap Core Portfolio ... 57.27% 138.73%
================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
+ 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.
See Notes to Financial Statements.
14 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
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. Actual results may differ from these
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a normal,
recurring nature. The percentage of the Portfolio owned by the Fund at April 30,
2004 was 11.5%. 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. 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 APRIL 30, 2004 15
[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 may write and purchase call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current 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.
(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.
16 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
Notes to Financial Statements (continued)
Merrill Lynch Core Principal Protected Fund
(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.
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 six months ended April 30, 2004, FAM earned fees of $1,051,824 and waived
$482,408. 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%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended April 30, 2004, MLPF&S received contingent deferred
sales charges of $260,533 relating to transactions in Class B Shares.
Furthermore, MLPF&S received contingent deferred sales charges of $71,809
relating to transactions subject to front-end sales charge waivers in Class A
Shares.
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
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 17
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
Merrill Lynch Core Principal Protected Fund
"Guaranteed Amount"). The Fund will pay to Ambac, under the 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 six months ended April 30, 2004, the Fund reimbursed FAM $3,057 for
certain accounting services.
Certain officers and/or trustees 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, for the six
months ended April 30, 2004 were $119,482,905 and $127,009,908, respectively.
Net realized gains (losses) for the six months ended April 30, 2004 and
unrealized appreciation (depreciation) as of April 30, 2004 were as follows:
- --------------------------------------------------------------------------------
Unrealized
Realized Appreciation
Gains (Losses) (Depreciation)
- --------------------------------------------------------------------------------
Investments in the Portfolio ......... $ 14,652,183 $ 18,731,950
Other long-term investments .......... (1,214,444) (424,618)
---------------------------------
Total ................................ $ 13,437,739 $ 18,307,332
=================================
As of April 30, 2004, net unrealized appreciation for Federal income tax
purposes aggregated $15,721,253, of which $16,728,299 related to appreciated
securities and $1,007,046 related to depreciated securities. At April 30, 2004,
the aggregated cost of investments for Federal income tax purposes was
$236,361,375.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $(28,288,844) and $253,589,048 for the six months ended April 30, 2004 and
for the period February 28, 2003 to October 31, 2003, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Six Dollar
Months Ended April 30, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 46,707 $ 510,046
Shares redeemed ................ (475,770) (5,520,092)
-----------------------------------
Net decrease ................... (429,063) $ (5,010,046)
===================================
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
Class B Shares for the Six Dollar
Months Ended April 30, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 332,947 $ 3,622,465
Shares redeemed ................ (917,752) (10,448,654)
-----------------------------------
Net decrease ................... (584,805) $ (6,826,189)
===================================
- -------------------------------------------------------------------------------
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 Six Dollar
Months Ended April 30, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 251,004 $ 2,730,931
Shares redeemed ................ (1,414,133) (16,203,062)
-----------------------------------
Net decrease ................... (1,163,129) $ (13,472,131)
===================================
18 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
Notes to Financial Statements (concluded)
Merrill Lynch Core Principal Protected Fund
- -------------------------------------------------------------------------------
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 Six Dollar
Months Ended April 30, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 7,138 $ 78,014
Shares redeemed ................ (265,384) (3,058,492)
-----------------------------------
Net decrease ................... (258,246) $ (2,980,478)
===================================
- -------------------------------------------------------------------------------
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.
5. Short-Term Borrowings:
The Fund, 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 Fund may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The Fund may
borrow up to the maximum amount allowable under the Fund's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Fund pays a commitment fee of .09% per
annum based on the Fund's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50% or a base
rate as determined by Bank One, N.A. On November 28, 2003, the credit agreement
was renewed for one year under the same terms. The Fund did not borrow under the
credit agreement during the six months ended April 30, 2004.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 19
[LOGO] Merrill Lynch Investment Managers
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 710,000 Dana Corporation $ 14,313,600 0.9%
Discretionary 220,000 Lear Corporation 13,336,400 0.8
---------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 380,000 Applebee's International, Inc. 14,736,400 0.9
400,000 International Game Technology 15,096,000 1.0
280,000 Mandalay Resort Group 16,086,000 1.0
---------------------------------------------------------------------------------------------------------------------
Household Durables 280,000 Centex Corporation 13,426,000 0.8
590,000 D.R. Horton, Inc. 16,992,000 1.1
191,000 Fortune Brands, Inc. 14,563,750 0.9
340,000 +Hovnanian Enterprises, Inc. (Class A) 12,229,800 0.8
240,000 KB HOME 16,543,200 1.0
300,000 Lennar Corporation (Class A) 14,055,000 0.9
231,000 MDC Holdings, Inc. 14,273,490 0.9
300,000 Pulte Corporation 14,751,000 0.9
180,000 The Ryland Group, Inc. 14,211,000 0.9
230,000 The Stanley Works 9,777,300 0.6
---------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products 380,000 Hasbro, Inc. 7,178,200 0.5
---------------------------------------------------------------------------------------------------------------------
Multiline Retail 60,000 Federated Department Stores, Inc. 2,940,000 0.2
530,000 J.C. Penney Company, Inc. 17,945,800 1.1
580,000 The May Department Stores Company 17,864,000 1.1
50,000 The Neiman Marcus Group, Inc. (Class A) 2,432,000 0.2
460,000 Nordstrom, Inc. 16,389,800 1.0
600,000 Saks Incorporated 8,640,000 0.5
---------------------------------------------------------------------------------------------------------------------
Specialty Retail 260,000 +Barnes & Noble, Inc. 7,766,200 0.5
440,000 Claire's Stores, Inc. 8,967,200 0.6
690,000 Foot Locker, Inc. 16,560,000 1.0
860,000 The Gap, Inc. 18,928,600 1.2
---------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods 400,000 +Coach, Inc. 17,040,000 1.1
---------------------------------------------------------------------------------------------------------------------
Total Consumer Discretionary 357,042,740 22.4
====================================================================================================================================
Consumer Food Products 1,070,000 Archer-Daniels-Midland Company 18,789,200 1.2
Staples 990,000 Tyson Foods, Inc. (Class A) 18,552,600 1.2
---------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 1,740,000 +Rite Aid Corporation 8,526,000 0.5
120,000 Wal-Mart Stores, Inc. 6,840,000 0.4
---------------------------------------------------------------------------------------------------------------------
Household Products 40,000 The Procter & Gamble Company 4,230,000 0.3
---------------------------------------------------------------------------------------------------------------------
Total Consumer Staples 56,937,800 3.6
====================================================================================================================================
Energy Oil & Gas 290,000 Ashland Inc. 13,891,000 0.9
630,000 Exxon Mobil Corporation 26,806,500 1.7
30,000 Valero Energy Corporation 1,912,800 0.1
---------------------------------------------------------------------------------------------------------------------
Total Energy 42,610,300 2.7
====================================================================================================================================
Financials Capital Markets 90,000 The Bear Stearns Companies Inc. 7,212,600 0.5
1,250,000 +E* TRADE Group, Inc. 14,200,000 0.9
680,000 J.P. Morgan Chase & Co. 25,568,000 1.6
40,000 Legg Mason, Inc. 3,682,400 0.2
230,000 Lehman Brothers Holdings, Inc. 16,882,000 1.1
---------------------------------------------------------------------------------------------------------------------
Commercial Banks 110,000 Bank of America Corporation 8,853,900 0.6
150,000 Commerce Bancorp, Inc. 8,551,500 0.5
---------------------------------------------------------------------------------------------------------------------
Consumer Finance 740,000 MBNA Corporation 18,041,200 1.1
---------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 770,000 Citigroup Inc. 37,029,300 2.3
---------------------------------------------------------------------------------------------------------------------
Insurance 220,000 The Allstate Corporation 10,098,000 0.6
130,000 American International Group, Inc. 9,314,500 0.6
370,000 Lincoln National Corporation 16,605,600 1.0
270,000 MBIA, Inc. 15,900,300 1.0
---------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 100,000 Independence Community Bank Corp. 3,643,000 0.2
620,000 New York Community Bancorp, Inc. 15,543,400 1.0
---------------------------------------------------------------------------------------------------------------------
Total Financials 211,125,700 13.2
=====================================================================================================================
20 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
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 160,000 +Genentech, Inc. $ 19,648,000 1.2%
170,000 +IDEXX Laboratories, Inc. 10,414,200 0.7
240,000 +Invitrogen Corporation 17,335,200 1.1
---------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies 250,000 Bausch & Lomb Incorporated 15,707,500 1.0
40,000 Beckman Coulter Inc. 2,233,600 0.1
370,000 Becton, Dickinson and Company 18,703,500 1.2
180,000 +Respironics, Inc. 9,433,800 0.6
---------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services 280,000 CIGNA Corporation 18,062,800 1.1
350,000 +DaVita, Inc. 17,885,000 1.1
910,000 +Humana Inc. 14,823,900 0.9
370,000 Omnicare, Inc. 15,347,600 1.0
320,000 Oxford Health Plans, Inc. 17,420,800 1.1
450,000 +PacifiCare Health Systems, Inc. 16,092,000 1.0
490,000 +Service Corporation International 3,621,100 0.2
---------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 150,000 Johnson & Johnson 8,104,500 0.5
750,000 Pfizer, Inc. 26,820,000 1.7
---------------------------------------------------------------------------------------------------------------------
Total Health Care 231,653,500 14.5
====================================================================================================================================
Industrials Air Freight & Logistics 100,000 Ryder System, Inc. 3,679,000 0.2
---------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies 250,000 +Career Education Corporation 16,000,000 1.0
820,000 Cendant Corporation 19,417,600 1.2
330,000 H&R Block, Inc. 14,886,300 0.9
200,000 +University of Phoenix Online 17,412,000 1.1
---------------------------------------------------------------------------------------------------------------------
Electrical Equipment 520,000 Rockwell Automation, Inc. 16,998,800 1.1
---------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates 1,000,000 General Electric Company 29,950,000 1.9
150,000 Textron, Inc. 8,277,000 0.5
---------------------------------------------------------------------------------------------------------------------
Machinery 270,000 Cummins Engine Company, Inc. 16,148,700 1.0
---------------------------------------------------------------------------------------------------------------------
Road & Rail 760,000 Norfolk Southern Corporation 18,103,200 1.2
---------------------------------------------------------------------------------------------------------------------
Total Industrials 160,872,600 10.1
====================================================================================================================================
Information Communications Equipment 1,130,000 +Avaya Inc. 15,458,400 1.0
Technology 1,720,000 +Cisco Systems, Inc. 35,896,400 2.2
1,430,000 +Corning Incorporated 15,772,900 1.0
670,000 +Foundry Networks, Inc. 7,571,000 0.5
580,000 +Juniper Networks, Inc. 12,690,400 0.8
5,380,000 +Lucent Technologies Inc. 18,130,600 1.1
1,220,000 Motorola, Inc. 22,265,000 1.4
280,000 QUALCOMM Incorporated 17,488,800 1.1
---------------------------------------------------------------------------------------------------------------------
Computers & Peripherals 70,000 International Business Machines
Corporation 6,171,900 0.4
370,000 +NCR Corporation 16,535,300 1.0
530,000 +SanDisk Corporation 12,248,300 0.8
---------------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments 470,000 +Arrow Electronics, Inc. 11,881,600 0.7
530,000 +Avnet, Inc. 11,469,200 0.7
390,000 +Ingram Micro Inc. (Class A) 4,660,500 0.3
340,000 PerkinElmer, Inc. 6,545,000 0.4
170,000 +Waters Corporation 7,335,500 0.5
---------------------------------------------------------------------------------------------------------------------
Information Technology Services 240,000 +Cognizant Technology Solutions
Corporation 10,382,400 0.7
360,000 +Computer Sciences Corporation 14,727,600 0.9
---------------------------------------------------------------------------------------------------------------------
Office Electronics 1,350,000 +Xerox Corporation 18,130,500 1.1
---------------------------------------------------------------------------------------------------------------------
Semiconductors & 1,160,000 +Advanced Micro Devices, Inc. 16,495,200 1.0
Semiconductor Equipment 970,000 +Amkor Technology, Inc. 7,837,600 0.5
2,710,000 +Atmel Corporation 15,826,400 1.0
770,000 +Cypress Semiconductor Corporation 10,756,900 0.7
810,000 +Fairchild Semiconductor Corporation 15,770,700 1.0
400,000 Intel Corporation 10,292,000 0.6
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 21
[LOGO] Merrill Lynch Investment Managers
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 Software 510,000 Autodesk, Inc. $ 17,085,000 1.1%
Technology 750,000 Microsoft Corporation 19,477,500 1.2
(concluded) 1,210,000 +Novell, Inc. 11,664,400 0.7
100,000 +Symantec Corporation 4,505,000 0.3
---------------------------------------------------------------------------------------------------------------------
Total Information Technology 395,072,000 24.7
====================================================================================================================================
Materials Chemicals 180,000 E.I. du Pont de Nemours and Company 7,731,000 0.5
400,000 Eastman Chemical Company 17,028,000 1.1
---------------------------------------------------------------------------------------------------------------------
Containers & Packaging 60,000 Ball Corporation 3,960,000 0.2
---------------------------------------------------------------------------------------------------------------------
Metals & Mining 30,000 +Phelps Dodge Corporation 1,974,900 0.1
---------------------------------------------------------------------------------------------------------------------
Paper & Forest Products 500,000 Georgia-Pacific Corporation 17,550,000 1.1
---------------------------------------------------------------------------------------------------------------------
Total Materials 48,243,900 3.0
====================================================================================================================================
Telecom- Wireless Telecommunication 670,000 +Nextel Communications, Inc. (Class A) 15,986,200 1.0
munication Services
Services ---------------------------------------------------------------------------------------------------------------------
Total Telecommunication Services 15,986,200 1.0
====================================================================================================================================
Utilities Electric Utilities 220,000 Alliant Energy Corporation 5,469,200 0.4
780,000 Edison International 18,252,000 1.2
360,000 Northeast Utilities 6,606,000 0.4
520,000 TXU Corporation 17,752,800 1.1
---------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 3,380,000 +Dynegy Inc. (Class A) 13,384,800 0.8
Power 1,260,000 The Williams Companies, Inc. 12,978,000 0.8
---------------------------------------------------------------------------------------------------------------------
Total Utilities 74,442,800 4.7
=====================================================================================================================
Total Common Stocks
(Cost--$1,388,915,567) 1,593,987,540 99.9
=====================================================================================================================
Beneficial Interest/
Shares Held Short-Term Securities
====================================================================================================================================
$ 4,334,191 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (a) 4,334,191 0.2
$162,608,925 Merrill Lynch Liquidity Series, LLC
Money Market Series (a)(b) 162,608,925 10.2
54,202,975 Merrill Lynch Premier Institutional
Fund (a)(b) 54,202,975 3.4
---------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$221,146,091) 221,146,091 13.8
====================================================================================================================================
Total Investments (Cost--$1,610,061,658) 1,815,133,631 113.7
Liabilities in Excess of Other Assets (218,916,304) (13.7)
----------------------------
Net Assets $1,596,217,327 100.0%
============================
+ 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.
(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:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 2,620,563 $ 28,829
Merrill Lynch Liquidity Series, LLC
Money Market Series $(101,704,048) $ 115,789
Merrill Lynch Premier
Institutional Fund (33,901,349) $ 19,601
--------------------------------------------------------------------------
(b) Security was purchased with the cash proceeds from securities loans.
See Notes to Financial Statements.
22 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
Statement of Assets and Liabilities Master Large Cap Core Portfolio
As of April 30, 2004
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including
securities loaned of $206,105,622) (identified cost--$1,388,915,567) $1,593,987,540
Investments in affiliated securities, at value (identified
cost--$221,146,091) ................................................ 221,146,091
Receivables:
Securities sold .................................................. $ 19,161,431
Contributions .................................................... 4,226,174
Dividends ........................................................ 2,025,650
Securities lending--net .......................................... 31,509
Interest from affiliates ......................................... 8,005 25,452,769
---------------
Prepaid expenses .................................................... 14,213
---------------
Total assets ........................................................ 1,840,600,613
---------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ........................... 216,811,900
Payables:
Securities purchased ............................................. 23,779,167
Withdrawals ...................................................... 2,246,730
Investment adviser ............................................... 765,461
Custodian bank ................................................... 741,893
Other affiliates ................................................. 10,829 27,544,080
---------------
Accrued expenses .................................................... 27,306
---------------
Total liabilities ................................................... 244,383,286
---------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets .......................................................... $ 1,596,217,327
===============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Investors' capital .................................................. $ 1,391,145,354
Unrealized appreciation on investments--net ......................... 205,071,973
---------------
Net Assets .......................................................... $ 1,596,217,327
===============
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 23
[LOGO] Merrill Lynch Investment Managers
Statement of Operations Master Large Cap Core Portfolio
For the Six Months Ended April 30, 2004
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends ........................................................... $ 8,177,429
Securities lending--net ............................................. 135,390
Interest from affiliates ............................................ 28,829
---------------
Total income ........................................................ 8,341,648
---------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................ $ 3,786,382
Accounting services ................................................. 193,551
Custodian fees ...................................................... 86,080
Professional fees ................................................... 28,263
Trustees' fees and expenses ......................................... 23,130
Printing and shareholder reports .................................... 1,255
Pricing fees ........................................................ 482
Other ............................................................... 12,466
---------------
Total expenses ...................................................... 4,131,609
---------------
Investment income--net .............................................. 4,210,039
---------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) on Investments--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ................................... 114,314,626
Change in unrealized appreciation on investments--net ............... (63,824,932)
---------------
Total realized and unrealized gain on investments--net .............. 50,489,694
---------------
Net Increase in Net Assets Resulting from Operations ................ $ 54,699,733
===============
See Notes to Financial Statements.
24 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
Statements of Changes in Net Assets Master Large Cap Core Portfolio
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2004 2003
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. $ 4,210,039 $ 5,286,197
Realized gain on investments--net ................................... 114,314,626 7,803,027
Change in unrealized appreciation/depreciation on investments--net (63,824,932) 269,979,638
-----------------------------------
Net increase in net assets resulting from operations ................ 54,699,733 283,068,862
-----------------------------------
===================================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ......................................... 258,054,571 689,136,997
Fair value of withdrawals ........................................... (170,645,853) (391,800,931)
-----------------------------------
Net increase in net assets derived from capital transactions ........ 87,408,718 297,336,066
-----------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ........................................ 142,108,451 580,404,928
Beginning of period ................................................. 1,454,108,876 873,703,948
-----------------------------------
End of period ....................................................... $ 1,596,217,327 $ 1,454,108,876
===================================
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 25
[LOGO] Merrill Lynch Investment Managers
Financial Highlights Master Large Cap Core Portfolio
For the
Period
For the Six For the Year Ended Dec. 22,
Months Ended October 31, 1999+ to
The following ratios have been derived from information April 30, -------------------------------------- Oct. 31,
provided in the financial statements. 2004 2003 2002 2001 2000
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 4.36%++ 25.11% (8.13%) -- --
================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ......... .52%* .54% .57% .67% 1.09%*
================================================================
Expenses ............................... .52%* .54% .57% .67% 1.17%*
================================================================
Investment income (loss)--net .......... .53%* .48% .83% .59% (.20%)*
================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,596,217 $ 1,454,109 $ 873,704 $ 412,836 $ 186,265
================================================================
Portfolio turnover ..................... 57.27% 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.
++ Aggregate total investment return.
See Notes to Financial Statements.
26 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
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. Actual results may differ from these
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a normal,
recurring nature. 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 Portfolio, 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
Portfolio'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 assets 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 assets. 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
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 27
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued) Master Large Cap Core Portfolio
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 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 may 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 may 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
28 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
Notes to Financial Statements (continued) Master Large Cap Core Portfolio
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The 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.
(g) Custodian bank -- The Portfolio recorded an amount payable to the custodian
bank reflecting an overnight overdraft that resulted from a failed trade.
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 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 April 30, 2004, the Portfolio lent securities with a value of
$4,099,344 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 six
months ended April 30, 2004, MLIM, LLC received $58,470 in securities lending
agent fees.
In addition, MLPF&S received $5,400 in commissions on the execution of portfolio
security transactions for the Portfolio for the six months ended April 30, 2004.
For the six months ended April 30, 2004, the Portfolio reimbursed FAM $15,036
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 six
months ended April 30, 2004 were $986,479,714 and $896,409,695, respectively.
Net realized gains for the six months ended April 30, 2004 and net unrealized
appreciation as of April 30, 2004 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Appreciation
- --------------------------------------------------------------------------------
Long-term investments .............. $114,314,626 $205,071,973
----------------------------------
Total .............................. $114,314,626 $205,071,973
==================================
As of April 30, 2004, net unrealized appreciation for Federal income tax
purposes aggregated $186,210,330, of which $242,966,618 related to appreciated
securities and $56,756,288 related to depreciated securities. At April 30, 2004,
the aggregate cost of investments for Federal income tax purposes was
$1,628,923,301.
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
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 29
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded) Master Large Cap Core Portfolio
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 portfolio's election, the Federal Funds rate plus .50% or a base rate as
determined by Bank One, N.A. On November 28, 2003, the credit agreement was
renewed for one year under the same terms. The Portfolio did not borrow under
the credit agreement during the six months ended April 30, 2004.
30 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004
Officers and Trustees of the Protected Trust
Terry K. Glenn, President and Trustee
David O. Beim, Trustee
James T. Flynn, Trustee
W. Carl Kester, Trustee
Karen P. Robards, Trustee
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
- --------------------------------------------------------------------------------
Todd Goodwin and George W. Holbrook, Trustees of Merrill Lynch Principal
Protected Trust, have recently retired. The Trust's Board of Trustees wishes
Messrs. Goodwin and Holbrook well in their retirements.
- --------------------------------------------------------------------------------
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions. When you visit this
site, you will obtain a personal identification number (PIN). You will need this
PIN should you wish to update your e-mail address, choose to discontinue this
service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2004 31
[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 -- 4/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Merrill Lynch Core Principal Protected Fund of Merrill Lynch Principal
Protected Trust and Master Large Cap Core Portfolio of Master Large Cap
Series Trust
By: /s/ Terry K. Glenn
----------------------
Terry K. Glenn,
President of
Merrill Lynch Core Principal Protected Fund of Merrill Lynch Principal
Protected Trust and Master Large Cap Core Portfolio of Master Large
Cap Series Trust
Date: June 18, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
----------------------
Terry K. Glenn,
President of
Merrill Lynch Core Principal Protected Fund of Merrill Lynch Principal
Protected Trust and Master Large Cap Core Portfolio of Master Large
Cap Series Trust
Date: June 18, 2004
By: /s/ Donald C. Burke
----------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Core Principal Protected Fund of Merrill Lynch Principal
Protected Trust and Master Large Cap Core Portfolio of Master Large
Cap Series Trust
Date: June 18, 2004