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
811-09739
Name of Fund: Merrill Lynch Core Principal Protected Fund of Merrill Lynch
Principal Protected Trust Master Large Cap Core Portfolio of
Master Large Cap Series Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Merrill Lynch 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: 10/31/05
Date of reporting period: 11/01/04 - 04/30/05
Item 1 - Report to Stockholders
Merrill Lynch
Core Principal
Protected Fund
Semi-Annual Report
April 30, 2005
Merrill Lynch Core Principal Protected Fund
Officers and Trustees of the Trust
Robert C. Doll, Jr., President, Trustee and Portfolio Manager
David O. Beim, Trustee
James T. Flynn, Trustee
W. Carl Kester, Trustee
Karen P. Robards, Trustee
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- --------------------------------------------------------------------------------
Effective January 1, 2005, Terry K. Glenn retired as President and Trustee of
Merrill Lynch Principal Protected Trust. The Trust's Board of Trustees wishes
Mr. Glenn well in his retirement.
Effective January 1, 2005, Robert C. Doll, Jr. became President and Trustee of
the Trust.
- --------------------------------------------------------------------------------
2 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
A Letter From the President
Dear Shareholder
Financial markets faced a number of crosscurrents over the past several months,
but most major benchmarks managed to post positive returns for the annual and
semi-annual reporting periods ended April 30, 2005:
Total Returns as of April 30, 2005 6-month 12-month
========================================================================================
U.S. equities (Standard & Poor's 500 Index) +3.28% + 6.34%
- ----------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) -0.15% + 4.71%
- ----------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +8.71% +14.95%
- ----------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +0.98% + 5.26%
- ----------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +1.93% + 6.81%
- ----------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) +0.65% + 6.92%
- ----------------------------------------------------------------------------------------
After expanding at an annualized rate of 4.4% in 2004, U.S. gross domestic
product growth for the first quarter of 2005 came in at an estimated 3.1%
(although that figure was later revised upward to 3.5%). Nevertheless, the
Federal Reserve Board continued increasing interest rates at a measured pace to
combat emergent inflation. The most recent hike came on May 3, and brought the
federal funds rate to 3%. Recently, signs of inflation have taken the form of
rising business costs and increasing consumer prices, particularly in the areas
of gasoline, healthcare, housing and education.
U.S. equities ended 2004 in a strong rally, but stumbled into negative territory
in 2005. The market weakness was largely fueled by the potential for slowing
economic and corporate earnings growth, renewed energy price concerns and a lack
of investor conviction. On the positive side, certain sectors of the market have
been performing well (particularly energy) and corporate transactions, such as
mergers and acquisitions, stock buy-backs and dividend payouts, have all
increased. International equities, especially in Asia, have benefited from
higher economic growth rates.
In the bond market, we witnessed a yield curve flattening trend over the past
several months as short-term yields increased and longer-term interest rates
remained more stable or fell. At the end of April 2005, the two-year Treasury
note yielded 3.66% and the 10-year Treasury note yielded 4.21%, a difference of
55 basis points (.55%). This compared to a spread of 149 basis points six months
earlier and 222 basis points 12 months ago.
Looking ahead, the environment is likely to be a challenging one for investors.
With this in mind, we encourage you to meet with your financial advisor to
review your goals and asset allocation and to rebalance your portfolio, as
necessary, to ensure it remains aligned with your objectives and risk tolerance.
As always, we thank you for trusting Merrill Lynch Investment Managers with your
investment assets, and we look forward to serving you in the months and years
ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Trustee
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 3
A Discussion With Your Fund's Portfolio Manager
The Fund met its objective of preserving investor principal while also
providing capital appreciation, and significantly outperformed the Lipper
Balanced Target Maturity Funds average for the period.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended April 30, 2005, Merrill Lynch Core Principal
Protected Fund's Class A, Class B, Class C and Class I Shares had total returns
of +3.07%, +2.72%, +2.75% and +3.15%, 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 referenced, unmanaged all-equity
benchmark, had a total return of +4.04% for the same period. Because the
Portfolio incorporates a fixed income component, which is not reflected in the
Russell 1000 Index, it will at times outperform or underperform that benchmark.
For some context, the fixed income market, as measured by the Lehman Brothers
Aggregate Bond Index, returned +.98% for the six-month period.
Notably, the Fund significantly outperformed its comparable Lipper category of
Balanced Target Maturity Funds, which had an average return of -.15% for the six
months ended April 30, 2005. (Funds in this Lipper category invest to provide a
guaranteed return of investment at maturity. Some of the assets are invested in
zero-coupon U.S. Treasury securities, while the remainder is in equity
securities for long-term growth of capital and income.)
Because the Fund 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. Over the past six months, the markets reacted to positive and
negative economic news, as well as national and international events, such as
the conclusion of the U.S. presidential election and the ongoing war and
elections in Iraq. The major indexes posted impressive returns in the fourth
quarter of 2004, although these gains were largely given back in the new year as
concerns grew over inflation, record-high oil prices, the weakening of the U.S.
dollar and the threat of continuing interest rate hikes. Under these conditions,
large-capitalization shares were favored by investors. An advanced estimate of
first quarter 2005 gross domestic product (GDP) growth came in unexpectedly low
at 3.1%, although that figure was later revised upward to 3.5%. Amid this
challenging environment, solid growth in corporate profits was recorded, and the
housing market continued at a strong pace.
What were the primary factors that influenced Fund performance?
Within the equity portion of the Portfolio, we invest primarily in a diversified
portfolio of large cap companies selected from securities found in the Russell
1000 Index. Stock selection contributed positively to returns in most sectors,
including health care (particularly health care providers and services),
financials (particularly insurance) and consumer discretionary (particularly
retailers). In the energy sector, the combination of a sector overweight and
effective stock selection enhanced returns, although this was somewhat offset by
the negative impact of an underweight position in Exxon Mobil Corp. In the
technology and consumer staples sectors, a combination of our relative weighting
and stock selection detracted from performance.
At the individual stock level, the largest positive contributors to performance
during the six-month period were Humana Inc., PacifiCare Health Systems, Inc.,
Valero Energy Corp., CIGNA Corp. and Aetna, Inc. For the most part, we retained
our positions in these strong performers, although we do typically take some
marginal profits in select stocks that appreciate significantly. This allows us
to maintain our desired relative weightings in any individual stock and/or
sector. Also benefiting performance were underweight positions in American
International Group, Inc., International Business Machines Corp. and eBay Inc.
Hindering relative performance somewhat was an underweight position in Altria
Group. The largest individual detractors included TIBCO Software, Symantec
Corp., Cree, Inc. and Dynegy, Inc. Each of these stocks disappointed during the
period as company fundamentals developed unfavorably and, in general, contrary
to our expectations. As part of our overall investment strategy, we eliminated
or reduced the detractors to make room in the Portfolio for stocks with more
promising investment cases.
4 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
What changes were made to the Portfolio during the period?
The Fund seeks long-term capital growth while protecting the principal value of
investor shares. This is accomplished through investments in a core equity
component (equity securities of large-capitalization companies) and a protection
component (fixed income investments that have financial characteristics
resembling a portfolio of zero-coupon bonds). A mathematical formula is used to
determine the allocation between these two components. During the period, the
Portfolio's equity allocation ranged from 69.6% of total assets to 100%, and the
fixed income allocation ranged from 30.4% to 0%.
In the equity portion of the portfolio, we maintained a procyclical bias
throughout the period. Through our bottom-up stock selection process, we
continued to identify stocks with favorable growth characteristics and earnings
developments, selling at attractive relative valuations. As a result of this
process, we increased our positions relative to the equity benchmark in
technology, health care and energy. We reduced our positions in consumer staples
and consumer discretionary, although the Fund remained overweight in the latter
sector.
The largest individual stock purchases during the period included Exxon Mobil,
Dell, Inc., Hewlett-Packard Co. and Oracle Corp. The largest sales included
Apple Computer, Inc., ChevronTexaco Corp., WellPoint, Inc., EMC Corp., and
Countrywide Financial Corp. These transactions reflected our ongoing refinement
of the portfolio, as we continue to look for stocks that best meet our
investment criteria while pruning those that have deteriorated versus our
original assessment.
Throughout the period, the fixed income component of the Portfolio was invested
in U.S. Treasury zero-coupon bonds set to mature close to the expiration of the
Fund (February 28, 2010).
How would you characterize the Portfolio's position at the close of the period?
At the end of the period, Portfolio assets were invested 80.3% in equities and
19.7% in fixed income securities, and we remained committed to our goal of
protecting investor principal.
In the equity component, the Portfolio's largest overweights were in information
technology, which we believe should benefit from strong earnings growth, as well
as energy, health care, materials and consumer discretionary. The largest
underweights were in financials, which tend to underperform in periods of rising
interest rates, consumer staples, industrials and telecommunication services.
Companies exhibiting good earnings momentum, earnings surprise and valuation
characteristics continue to deliver strong performance, and we remain committed
to these disciplines for stock selection. The equity portfolio remains
positioned in cyclical stocks, which should benefit amid favorable economic
conditions. Despite softer first quarter GDP growth and some recent rumblings of
an economic slowdown, we believe the current environment is still generally
supportive of equities. Having said that, we continue to believe that a highly
diversified portfolio and a focus on individual security selection (rather than
a more macro approach) is appropriate and should be rewarded on a relative
basis.
Robert C. Doll, Jr.
President, Trustee and Portfolio Manager
May 26, 2005
- --------------------------------------------------------------------------------
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, 2005 5
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 (front-end load) of
5.25% and an account maintenance fee of 0.25% per year (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% per year and an account maintenance
fee of 0.25% per year. These shares automatically convert to Class A
Shares after approximately eight years. (There is no initial sales charge
for automatic share conversions.) All returns for periods greater than
eight years reflect this conversion.
o Class C Shares are subject to a distribution fee of 0.75% per year and an
account maintenance fee of 0.25% per year. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase.
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 performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
ex-dividend date. 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, 2005 Total Return Total Return Total Return
====================================================================================================
ML Core Principal Protected Fund Class A Shares* +3.07% +7.20% +21.52%
- ----------------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class B Shares* +2.72 +6.38 +19.56
- ----------------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class C Shares* +2.75 +6.42 +19.59
- ----------------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class I Shares* +3.15 +7.46 +22.17
- ----------------------------------------------------------------------------------------------------
Merrill Lynch U.S. Corporate Master Index** +0.83 +5.80 +11.97
- ----------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index*** +0.98 +5.26 + 7.98
- ----------------------------------------------------------------------------------------------------
Russell 1000(R) Index**** +4.04 +7.20 +45.03
- ----------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Cumulative total investment
returns are based on changes in net asset values for the periods shown,
and assume reinvestment of all dividends and capital gains distributions
at net asset value on the ex-dividend date. The Fund's inception date is
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.
Russell 1000 and Russell 3000 are registered trademarks of the Frank
Russell Company.
6 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 4/30/05 +7.20% +1.57%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 4/30/05 +9.41 +6.72
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 4/30/05 +6.38% +2.48%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 4/30/05 +8.59 +7.33
- --------------------------------------------------------------------------------
* 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 4/30/05 +6.42% +5.44%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 4/30/05 +8.61 +8.61
- --------------------------------------------------------------------------------
* 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 4/30/05 +7.46% +1.82%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 4/30/05 +9.68 +6.98
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Fund Information as of April 30, 2005
Percent of
Asset Mix Total Investments
- --------------------------------------------------------------------------------
Equity Mutual Fund ................................................. 80.3%
U.S. Government Agency Obligations ................................. 19.7
- --------------------------------------------------------------------------------
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 7
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on November 1, 2004 and held
through April 30, 2005) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value Nov. 1, 2004 to
November 1, 2004 April 30, 2005 April 30, 2005
==================================================================================================================
Actual
==================================================================================================================
Class A $1,000 $1,030.70 $ 9.37
- ------------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,027.20 $13.19
- ------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,027.50 $13.19
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,031.50 $ 8.10
==================================================================================================================
Hypothetical (5% annual return before expenses)**
==================================================================================================================
Class A $1,000 $1,015.68 $ 9.30
- ------------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,011.89 $13.09
- ------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,011.89 $13.09
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,016.92 $ 8.05
- ------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.85% for Class A, 2.61% for Class B, 2.61% for Class
C and 1.60% for Class I), multiplied by the average account value over the
period, multiplied by 182/365 (to reflect the one-half year period shown).
Because the Fund invests significantly in a master fund, the expense table
example reflects the expenses of both the fund and the master fund in
which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half-year divided by 365.
8 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Statement of Assets and Liabilities
Merrill Lynch Core Principal Protected Fund
As of April 30, 2005
=====================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------
Investment in Master Large Cap Core Portfolio
(the "Portfolio"), at value
(identified cost--$148,490,147*) ......................... $ 167,248,929
Investment in U.S. Treasury STRIPS**, 3.81% due 2/15/2010
(face amount--$49,187,000; identified cost--$41,060,036*) 40,981,280
-------------
Total assets .............................................. 208,230,209
-------------
=====================================================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Payables:
Distributor ............................................ $ 158,986
Financial warranty fee ................................. 107,103
Investment adviser ..................................... 53,280
Other affiliates ....................................... 31,049 350,418
-------------
Accrued expenses .......................................... 36,676
-------------
Total liabilities ......................................... 387,094
-------------
=====================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Net Assets ................................................ $ 207,843,115
=============
=====================================================================================================================
Net Assets Consist of
- ---------------------------------------------------------------------------------------------------------------------
Paid-in capital, unlimited shares of no par value authorized $ 184,119,099
Accumulated investment loss--net .......................... $ (731,968)
Undistributed realized capital gains--net ................. 5,775,958
Unrealized appreciation--net .............................. 18,680,026
-------------
Total accumulated earnings--net ........................... 23,724,016
-------------
Net Assets ................................................ $ 207,843,115
=============
=====================================================================================================================
Net Asset Value
- ---------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $9,051,988 and 842,629
shares of beneficial interest outstanding ................ $ 10.74
=============
Class B--Based on net assets of $120,118,252 and
11,256,852 shares of beneficial interest outstanding ..... $ 10.67
=============
Class C--Based on net assets of $70,463,430 and 6,593,499
shares of beneficial interest outstanding ................ $ 10.69
=============
Class I--Based on net assets of $8,209,445 and 763,418
shares of beneficial interest outstanding ................ $ 10.75
=============
* The cost and unrealized appreciation (depreciation) of investments as of
April 30, 2005, as computed eral income tax purposes, were as follows:
Aggregate cost .......................................... $191,510,614
============
Gross unrealized appreciation ........................... $ 16,798,351
Gross unrealized depreciation ........................... (78,756)
------------
Net unrealized appreciation ............................. $ 16,719,595
============
** Separately Traded Registered Interest and Principal of Securities.
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 9
Statement of Operations Merrill Lynch Core Principal Protected Fund
For the Six Months Ended April 30, 2005
=====================================================================================================================
Investment Income
- ---------------------------------------------------------------------------------------------------------------------
Interest and amortization of premiums and discounts ....... $ 562,087
Net investment income allocated from the Portfolio:
Dividends .............................................. 1,594,923
Securities lending--net ................................ 7,042
Interest from affiliates ............................... 6,544
Expenses ............................................... (508,089)
-------------
Total income .............................................. 1,662,507
-------------
=====================================================================================================================
Expenses
- ---------------------------------------------------------------------------------------------------------------------
Investment advisory fees .................................. $ 859,719
Financial warranty fee .................................... 716,432
Account maintenance and distribution fees--Class B ........ 655,392
Account maintenance and distribution fees--Class C ........ 392,325
Transfer agent fees--Class B .............................. 52,142
Professional fees ......................................... 41,186
Accounting services ....................................... 37,260
Transfer agent fees--Class C .............................. 31,983
Printing and shareholder reports .......................... 29,908
Account maintenance fees--Class A ......................... 13,097
Trustees' fees and expenses ............................... 11,577
Custodian fees ............................................ 3,995
Transfer agent fees--Class A .............................. 3,585
Transfer agent fees--Class I .............................. 3,160
Pricing fees .............................................. 627
Other ..................................................... 17,666
-------------
Total expenses before waiver .............................. 2,870,054
Waiver of expenses ........................................ (475,579)
-------------
Total expenses after waiver ............................... 2,394,475
-------------
Investment loss--net ...................................... (731,968)
-------------
=====================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- ---------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments--net ....................................... 1,058,900
Allocations from the Portfolio--net .................... 6,679,885 7,738,785
-------------
Change in unrealized appreciation/depreciation on:
Investments--net ....................................... (2,209,160)
Allocations from the Portfolio--net .................... 2,576,381 367,221
-------------------------------
Total realized and unrealized gain--net ................... 8,106,006
-------------
Net Increase in Net Assets Resulting from Operations ...... $ 7,374,038
=============
See Notes to Financial Statements.
10 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Statements of Changes in Net Assets
Merrill Lynch Core Principal Protected Fund
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2005 2004
=====================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------
Investment loss--net ...................................... $ (731,968) $ (1,340,000)
Realized gain--net ........................................ 7,738,785 22,051,621
Change in unrealized appreciation/depreciation--net ....... 367,221 (11,410,987)
-------------------------------
Net increase in net assets resulting from operations ...... 7,374,038 9,300,634
-------------------------------
=====================================================================================================================
Distributions to Shareholders
- ---------------------------------------------------------------------------------------------------------------------
Realized gain:
Class A .................................................. (984,089) (534,083)
Class B .................................................. (11,314,489) (3,774,344)
Class C .................................................. (6,752,309) (2,827,877)
Class I .................................................. (940,591) (402,757)
-------------------------------
Net decrease from distributions to shareholders ........... (19,991,478) (7,539,061)
-------------------------------
=====================================================================================================================
Beneficial Interest Transactions
- ---------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from beneficial interest
transactions ............................................. (13,379,223) (55,153,321)
-------------------------------
=====================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Total decrease in net assets .............................. (25,996,663) (53,391,748)
Beginning of period ....................................... 233,839,778 287,231,526
-------------------------------
End of period* ............................................ $ 207,843,115 $ 233,839,778
===============================
* Accumulated investment loss--net ....................... $ (731,968) --
===============================
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 11
Financial Highlights Merrill Lynch Core Principal Protected Fund
Class A
----------------------------------------------
For the Period
For the Six For the February 28,
Months Ended Year Ended 2003+ to
The following per share data and ratios have been derived April 30, October 31, October 31,
from information provided in the financial statements. 2005 2004 2003
=================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.44 $ 11.32 $ 10.00
----------------------------------------------
Investment income--net*** .............. --@@ .01 .01
Realized and unrealized gain--net ...... .39 .44 1.31
----------------------------------------------
Total from investment operations ....... .39 .45 1.32
----------------------------------------------
Less distributions of realized gain--net (1.09) (.33) --
----------------------------------------------
Net asset value, end of period ......... $ 10.74 $ 11.44 $ 11.32
==============================================
=================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 3.07%@ 4.14% 13.20%@
==============================================
=================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ .............. 1.85%* 1.83% 2.00%*
==============================================
Expenses++ ............................. 2.26%* 2.16% 2.26%*
==============================================
Investment income--net ................. .07%* .13% .10%*
==============================================
=================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 9,052 $ 11,534 $ 18,674
==============================================
Portfolio turnover of the Fund ......... 123.96% 167.08% 175.43%
==============================================
Portfolio turnover of the Portfolio .... 49.98% 135.48% 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.
@@ Amount is less than $.01 per share.
See Notes to Financial Statements.
12 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Financial Highlights (continued) Merrill Lynch Core Principal Protected Fund
Class B
----------------------------------------------
For the Period
For the Six For the February 28,
Months Ended Year Ended 2003+ to
The following per share data and ratios have been derived April 30, October 31, October 31,
from information provided in the financial statements. 2005 2004 2003
=================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.33 $ 11.26 $ 10.00
----------------------------------------------
Investment loss--net*** ................ (.04) (.07) (.05)
Realized and unrealized gain--net ...... .38 .44 1.31
----------------------------------------------
Total from investment operations ....... .34 .37 1.26
----------------------------------------------
Less distributions of realized gain--net (1.00) (.30) --
----------------------------------------------
Net asset value, end of period ......... $ 10.67 $ 11.33 $ 11.26
==============================================
=================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 2.72%@ 3.36% 12.60%@
==============================================
=================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ .............. 2.61%* 2.58% 2.76%*
==============================================
Expenses++ ............................. 3.02%* 2.91% 3.03%*
==============================================
Investment loss--net ................... (.72%)* (.59%) (.68%)*
==============================================
=================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 120,118 $ 130,014 $ 145,568
==============================================
Portfolio turnover of the Fund ......... 123.96% 167.08% 175.43%
==============================================
Portfolio turnover of the Portfolio .... 49.98% 135.48% 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, 2005 13
Financial Highlights (continued) Merrill Lynch Core Principal Protected Fund
Class C
----------------------------------------------
For the Period
For the Six For the February 28,
Months Ended Year Ended 2003+ to
The following per share data and ratios have been derived April 30, October 31, October 31,
from information provided in the financial statements. 2005 2004 2003
=================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.33 $ 11.26 $ 10.00
----------------------------------------------
Investment loss--net*** ................ (.04) (.07) (.05)
Realized and unrealized gain--net ...... .38 .44 1.31
----------------------------------------------
Total from investment operations ....... .34 .37 1.26
----------------------------------------------
Less distributions of realized gain--net (.98) (.30) --
----------------------------------------------
Net asset value, end of period ......... $ 10.69 $ 11.33 $ 11.26
==============================================
=================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 2.75%@ 3.37% 12.60%@
==============================================
=================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ .............. 2.61%* 2.59% 2.76%*
==============================================
Expenses++ ............................. 3.02%* 2.91% 3.03%*
==============================================
Investment loss--net ................... (.70%)* (.61%) (.68%)*
==============================================
=================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 70,463 $ 82,398 $ 108,700
==============================================
Portfolio turnover of the Fund ......... 123.96% 167.08% 175.43%
==============================================
Portfolio turnover of the Portfolio .... 49.98% 135.48% 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.
14 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Financial Highlights (concluded) Merrill Lynch Core Principal Protected Fund
Class I
----------------------------------------------
For the Period
For the Six For the February 28,
Months Ended Year Ended 2003+ to
The following per share data and ratios have been derived April 30, October 31, October 31,
from information provided in the financial statements. 2005 2004 2003
=================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.48 $ 11.34 $ 10.00
----------------------------------------------
Investment income--net*** .............. .02 .04 .03
Realized and unrealized gain--net ...... .38 .45 1.31
----------------------------------------------
Total from investment operations ....... .40 .49 1.34
----------------------------------------------
Less distributions of realized gain--net (1.13) (.35) --
----------------------------------------------
Net asset value, end of period ......... $ 10.75 $ 11.48 $ 11.34
==============================================
=================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 3.15%@ 4.44% 13.40%@
==============================================
=================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ .............. 1.60%* 1.58% 1.75%*
==============================================
Expenses++ ............................. 2.01%* 1.91% 2.01%*
==============================================
Investment income--net ................. .32%* .39% .35%*
==============================================
=================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 8,209 $ 9,893 $ 14,290
==============================================
Portfolio turnover of the Fund ......... 123.96% 167.08% 175.43%
==============================================
Portfolio turnover of the Portfolio .... 49.98% 135.48% 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, 2005 15
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"), which is a 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 U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. The percentage of the
Portfolio owned by the Fund at April 30, 2005 was 7.5%. 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 the Guarantee Maturity 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 (except that
Class B shareholders may vote on material changes to the Class A distribution
plan). 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.
Debt securities are traded primarily in the over-the-counter ("OTC") markets and
are valued at the last available bid price in the OTC market or on the basis of
values obtained by a pricing service. Pricing services use valuation matrixes
that incorporate both dealer-supplied valuations and valuation models. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Fund under the general direction of the Board of Trustees of the
Trust. Such valuations and procedures will be reviewed periodically by the Board
of Trustees of the Trust.
Equity securities that are held by the Fund that are traded on stock exchanges
or the Nasdaq National Market are valued at the last sale price or official
close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available asked price for short
positions. In cases where equity securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Trustees of the Trust. Long
positions traded in the 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 Trust.
Short positions traded in the OTC market are valued at the last available asked
price. Portfolio securities that are traded both in the OTC market and on a
stock exchange are valued according to the broadest and most representative
market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last asked
price. Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued 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.
16 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
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 Trust, 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 Trust under the general supervision of the Trust's Board of Trustees.
Such valuations and procedures will be reviewed periodically by the Board of
Trustees of the Trust.
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 Trust's Board of Trustees
or by the Investment Adviser using a pricing service and/or procedures approved
by the Trust'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 income and
expenses.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 17
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) 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 Plan 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, 2005, FAM earned fees of $859,719 of which
$475,579 was waived. 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 Plan adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account 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"), an affiliate of FAM, 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, 2005, MLPF&S received contingent deferred
sales charges of $231,341 relating to transactions in Class B 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 and distributions received from the Fund have been
reinvested and no shares have been redeemed (the "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.
18 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Notes to Financial Statements (concluded)
Merrill Lynch Core Principal Protected Fund
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, 2005, the Fund reimbursed FAM $2,643 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 and
investments in the Portfolio, for the six months ended April 30, 2005 were $
41,013,104 and $70,475,566, respectively.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$13,379,223 and $55,153,321 for the six months ended April 30, 2005 and for the
year ended October 31, 2004, respectively.
Transactions in beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended April 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 80,388 $ 891,509
Shares redeemed .......................... (246,015) (2,812,012)
-------------------------------
Net decrease ............................. (165,627) $ (1,920,503)
===============================
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended October 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 46,708 $ 510,046
Shares redeemed .......................... (688,265) (7,863,927)
-------------------------------
Net decrease ............................. (641,557) $ (7,353,881)
===============================
- --------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended April 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 959,658 $ 10,604,221
Shares redeemed .......................... (1,176,181) (13,144,409)
-------------------------------
Net decrease ............................. (216,523) $ (2,540,188)
===============================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended October 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 332,947 $ 3,622,465
Shares redeemed .......................... (1,786,611) (20,011,967)
-------------------------------
Net decrease ............................. (1,453,664) $(16,389,502)
===============================
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended April 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 579,383 $ 6,407,980
Shares redeemed .......................... (1,257,584) (14,208,489)
-------------------------------
Net decrease ............................. (678,201) $ (7,800,509)
===============================
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended October 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 251,004 $ 2,730,931
Shares redeemed .......................... (2,632,406) (29,610,137)
-------------------------------
Net decrease ............................. (2,381,402) $(26,879,206)
===============================
- --------------------------------------------------------------------------------
Class I Shares for the Six Months Dollar
Ended April 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 21,706 $ 240,715
Shares redeemed .......................... (120,439) (1,358,738)
-------------------------------
Net decrease ............................. (98,733) $ (1,118,023)
===============================
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended October 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 7,138 $ 78,014
Shares redeemed .......................... (405,379) (4,608,746)
-------------------------------
Net decrease ............................. (398,241) $ (4,530,732)
===============================
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 19
Portfolio Information as of April 30, 2005 Master Large Cap Core Portfolio
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Exxon Mobil Corp. ............................................ 4.2%
Johnson & Johnson ............................................ 2.8
Pfizer, Inc. ................................................. 2.5
General Electric Co. ......................................... 2.4
Dell, Inc. ................................................... 1.8
ConocoPhillips ............................................... 1.7
UnitedHealth Group, Inc. ..................................... 1.6
Hewlett-Packard Co. .......................................... 1.5
Oracle Corp. ................................................. 1.4
Motorola, Inc. ............................................... 1.4
- --------------------------------------------------------------------------------
Percent of
Sector* Representation Total Investments
- --------------------------------------------------------------------------------
Information Technology ....................................... 21.1%
Health Care .................................................. 16.2
Energy ....................................................... 13.4
Consumer Discretionary ....................................... 12.4
Financials ................................................... 11.2
Industrials .................................................. 6.0
Materials .................................................... 5.6
Utilities .................................................... 2.7
Consumer Staples ............................................. 1.3
Other** ...................................................... 10.1
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries* Net Assets
- --------------------------------------------------------------------------------
Oil & Gas .................................................... 14.9%
Software ..................................................... 10.0
Health Care Providers & Services ............................. 9.8
Insurance .................................................... 6.8
Specialty Retail ............................................. 6.8
- --------------------------------------------------------------------------------
* For Portfolio compliance purposes, "Sector" and "Industries" mean any one
or more of the sector and 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 sector and industry sub-
classifications for reporting ease.
** Includes portfolio holdings in short-term investments.
20 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Schedule of Investments Master Large Cap Core Portfolio
Sector+ Industry+ Shares Held Common Stocks Value
===================================================================================================================================
Consumer Hotels, Restaurants & 350,000 Darden Restaurants, Inc. $ 10,500,000
Discretionary--13.8% Leisure--0.5%
-------------------------------------------------------------------------------------------------------------
Household Durables--2.0% 440,000 Lennar Corp. Class A 22,646,800
30,000 NVR, Inc. (c)(d) 21,550,500
--------------
44,197,300
-------------------------------------------------------------------------------------------------------------
Leisure Equipment & 800,000 Eastman Kodak Co. (d) 20,000,000
Products--1.2% 110,000 Polaris Industries, Inc. 6,331,600
--------------
26,331,600
-------------------------------------------------------------------------------------------------------------
Media--0.5% 160,000 Getty Images, Inc. (c)(d) 11,448,000
-------------------------------------------------------------------------------------------------------------
Multiline Retail--2.8% 670,000 Dillard's, Inc. Class A (d) 15,590,900
520,000 JC Penney Co., Inc. 24,653,200
440,000 Nordstrom, Inc. 22,365,200
--------------
62,609,300
-------------------------------------------------------------------------------------------------------------
Specialty Retail--6.8% 430,000 Abercrombie & Fitch Co. Class A 23,198,500
880,000 American Eagle Outfitters 23,073,600
210,000 Best Buy Co., Inc. 10,571,400
1,230,000 Circuit City Stores, Inc. 19,434,000
880,000 The Gap, Inc. 18,788,000
290,000 Limited Brands 6,290,100
520,000 Michaels Stores, Inc. 17,264,000
360,000 Pacific Sunwear of California, Inc. (c)(d) 8,139,600
1,200,000 Staples, Inc. 22,884,000
--------------
149,643,200
-------------------------------------------------------------------------------------------------------------
Total Consumer Discretionary 304,729,400
===================================================================================================================================
Consumer Food & Staples 30,000 Wal-Mart Stores, Inc. 1,414,200
Staples--1.5% Retailing--0.1%
-------------------------------------------------------------------------------------------------------------
Food Products--1.0% 1,220,000 Archer-Daniels-Midland Co. 21,947,800
-------------------------------------------------------------------------------------------------------------
Household Products--0.2% 100,000 Procter & Gamble Co. 5,415,000
-------------------------------------------------------------------------------------------------------------
Tobacco--0.2% 60,000 Altria Group, Inc. 3,899,400
-------------------------------------------------------------------------------------------------------------
Total Consumer Staples 32,676,400
===================================================================================================================================
Energy--14.9% Oil & Gas--14.9% 240,000 Amerada Hess Corp. 22,476,000
160,000 Anadarko Petroleum Corp. 11,686,400
550,000 Burlington Resources, Inc. 26,735,500
210,000 Chevron Corp. 10,920,000
360,000 ConocoPhillips 37,746,000
600,000 Devon Energy Corp. (d) 27,102,000
1,650,000 Exxon Mobil Corp. 94,099,500
380,000 Occidental Petroleum Corp. 26,220,000
250,000 Sunoco, Inc. 24,815,000
450,000 Unocal Corp. 24,547,500
350,000 Valero Energy Corp. 23,985,500
-------------------------------------------------------------------------------------------------------------
Total Energy 330,333,400
=============================================================================================================
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 21
Schedule of Investments (continued) Master Large Cap Core Portfolio
Sector+ Industry+ Shares Held Common Stocks Value
===================================================================================================================================
Financials--12.5% Capital Markets--1.6% 70,000 The Bear Stearns Cos., Inc. $ 6,626,200
310,000 Lehman Brothers Holdings, Inc. 28,433,200
--------------
35,059,400
-------------------------------------------------------------------------------------------------------------
Commercial Banks--0.6% 300,000 Bank of America Corp. 13,512,000
-------------------------------------------------------------------------------------------------------------
Consumer Finance--1.3% 210,000 Providian Financial Corp. (c) 3,500,700
530,000 SLM Corp. (d) 25,249,200
--------------
28,749,900
-------------------------------------------------------------------------------------------------------------
Diversified Financial 110,000 Chicago Mercantile Exchange Holdings, Inc. 21,507,200
Services--2.2% 530,000 Citigroup, Inc. 24,888,800
60,000 JPMorgan Chase & Co. 2,129,400
--------------
48,525,400
-------------------------------------------------------------------------------------------------------------
Insurance--6.8% 430,000 The Allstate Corp. 24,148,800
290,000 Chubb Corp. (d) 23,716,200
460,000 Lincoln National Corp. 20,686,200
150,000 MetLife, Inc. 5,835,000
510,000 Prudential Financial, Inc. 29,146,500
430,000 Safeco Corp. (d) 22,648,100
1,040,000 UnumProvident Corp. 17,388,800
225,000 WR Berkley Corp. 7,312,500
--------------
150,882,100
-------------------------------------------------------------------------------------------------------------
Total Financials 276,728,800
===================================================================================================================================
Health Care--18.0% Biotechnology--1.0% 310,000 Invitrogen Corp. (c) 22,713,700
-------------------------------------------------------------------------------------------------------------
Health Care Equipment & 430,000 Becton Dickinson & Co. 25,163,600
Supplies--1.1%
-------------------------------------------------------------------------------------------------------------
Health Care Providers & 380,000 Aetna, Inc. New Shares 27,880,600
Services--9.8% 280,000 Cigna Corp. 25,754,400
260,000 Express Scripts, Inc. (c)(d) 23,306,400
160,000 HCA, Inc. 8,934,400
730,000 Humana, Inc. (c) 25,294,500
420,000 Laboratory Corp. of America Holdings (c)(d) 20,790,000
380,000 PacifiCare Health Systems (c) 22,708,800
240,000 Quest Diagnostics (d) 25,392,000
380,000 UnitedHealth Group, Inc. 35,913,800
--------------
215,974,900
-------------------------------------------------------------------------------------------------------------
Pharmaceuticals--6.1% 340,000 Barr Pharmaceuticals, Inc. (c)(d) 17,632,400
910,000 Johnson & Johnson 62,453,300
2,030,000 Pfizer, Inc. 55,155,100
--------------
135,240,800
-------------------------------------------------------------------------------------------------------------
Total Health Care 399,093,000
===================================================================================================================================
Industrials--6.7% Aerospace & Defense--0.3% 140,000 Goodrich Corp. 5,642,000
-------------------------------------------------------------------------------------------------------------
Commercial Services & 280,000 ITT Educational Services, Inc. (c) 12,874,400
Supplies--0.6%
-------------------------------------------------------------------------------------------------------------
Electrical 470,000 Rockwell Automation, Inc. 21,728,100
Equipment--1.0%
-------------------------------------------------------------------------------------------------------------
Industrial 1,460,000 General Electric Co. 52,852,000
Conglomerates--2.4%
-------------------------------------------------------------------------------------------------------------
Machinery--0.5% 120,000 Cummins, Inc. 8,160,000
100,000 Graco, Inc. 3,377,000
--------------
11,537,000
-------------------------------------------------------------------------------------------------------------
Road & Rail--1.9% 650,000 Norfolk Southern Corp. 20,410,000
460,000 Yellow Roadway Corp. (c)(d) 22,540,000
--------------
42,950,000
-------------------------------------------------------------------------------------------------------------
Total Industrials 147,583,500
=============================================================================================================
22 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Schedule of Investments (continued) Master Large Cap Core Portfolio
Sector+ Industry+ Shares Held Common Stocks Value
===================================================================================================================================
Information Communications 170,000 Cisco Systems, Inc. (c) $ 2,937,600
Technology--23.4% Equipment--1.5% 1,990,000 Motorola, Inc. 30,526,600
--------------
33,464,200
-------------------------------------------------------------------------------------------------------------
Computers & 1,130,000 Dell, Inc. (c) 39,357,900
Peripherals--5.7% 1,660,000 Hewlett-Packard Co. (d) 33,980,200
40,000 International Business Machines Corp. 3,055,200
730,000 NCR Corp. (c) 24,090,000
650,000 QLogic Corp. (c)(d) 21,606,000
180,000 Storage Technology Corp. (c) 5,004,000
10,000 Western Digital Corp. (c) 126,900
--------------
127,220,200
-------------------------------------------------------------------------------------------------------------
Electronic Equipment & 430,000 Jabil Circuit, Inc. (c) 11,868,000
Instruments--0.5%
-------------------------------------------------------------------------------------------------------------
IT Services--2.7% 530,000 Checkfree Corp. (c) 19,440,400
140,000 Computer Sciences Corp. (c)(d) 6,087,200
1,160,000 Electronic Data Systems Corp. 22,446,000
640,000 Sabre Holdings Corp. Class A 12,518,400
--------------
60,492,000
-------------------------------------------------------------------------------------------------------------
Office Electronics--1.0% 1,630,000 Xerox Corp. (c)(d) 21,597,500
-------------------------------------------------------------------------------------------------------------
Semiconductors & 320,000 Intel Corp. 7,526,400
Semiconductor 910,000 Lam Research Corp. (c)(d) 23,341,500
Equipment--2.0% 560,000 Texas Instruments, Inc. 13,977,600
--------------
44,845,500
-------------------------------------------------------------------------------------------------------------
Software--10.0% 360,000 Adobe Systems, Inc. (d) 21,409,200
760,000 Autodesk, Inc. (d) 24,190,800
340,000 BEA Systems, Inc. (c) 2,346,000
770,000 BMC Software, Inc. (c) 12,474,000
630,000 Citrix Systems, Inc. (c) 14,175,000
870,000 Computer Associates International, Inc. (d) 23,403,000
590,000 Intuit, Inc. (c) 23,777,000
1,100,000 McAfee, Inc. (c) 23,001,000
540,000 Mercury Interactive Corp. (c) 22,318,200
900,000 Microsoft Corp. 22,770,000
2,650,000 Oracle Corp. (c) 30,634,000
--------------
220,498,200
-------------------------------------------------------------------------------------------------------------
Total Information Technology 519,985,600
===================================================================================================================================
Materials--6.1% Chemicals--2.1% 390,000 Eastman Chemical Co. 21,060,000
450,000 Monsanto Co. 26,379,000
--------------
47,439,000
-------------------------------------------------------------------------------------------------------------
Containers & 380,000 Ball Corp. 15,010,000
Packaging--0.7%
-------------------------------------------------------------------------------------------------------------
Metals & Mining--2.8% 490,000 Nucor Corp. 25,039,000
220,000 Phelps Dodge Corp. 18,887,000
450,000 United States Steel Corp. 19,242,000
--------------
63,168,000
-------------------------------------------------------------------------------------------------------------
Paper & Forest 360,000 MeadWestvaco Corp. 10,602,000
Products--0.5%
-------------------------------------------------------------------------------------------------------------
Total Materials 136,219,000
=============================================================================================================
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 23
Schedule of Investments (concluded) Master Large Cap Core Portfolio
Sector+ Industry+ Shares Held Common Stocks Value
===================================================================================================================================
Utilities--3.0% Electric Utilities--2.5% 640,000 Edison International $ 23,232,000
360,000 Northeast Utilities 6,591,600
300,000 TXU Corp. (d) 25,737,000
--------------
55,560,600
-------------------------------------------------------------------------------------------------------------
Multi-Utilities & 3,380,000 Dynegy, Inc. Class A (c)(d) 11,323,000
Unregulated Power--0.5%
-------------------------------------------------------------------------------------------------------------
Total Utilities 66,883,600
=============================================================================================================
Total Common Stocks
(Cost--$1,974,981,603)--99.9% 2,214,232,700
=============================================================================================================
Beneficial Interest Short-Term Securities
===================================================================================================================================
$ 6,069,404 Merrill Lynch Liquidity Series, LLC Cash
Sweep Series I (a) 6,069,404
241,963,000 Merrill Lynch Liquidity Series, LLC Money
Market Series (a)(b) 241,963,000
-------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$248,032,404)--11.2% 248,032,404
===================================================================================================================================
Total Investments (Cost--$2,223,014,007*)--111.1% 2,462,265,104
Liabilities in Excess of Other Assets--(11.1%) (246,290,461)
--------------
Net Assets--100.0% $2,215,974,643
==============
* The cost and unrealized appreciation (depreciation) of investments as of
April 30, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ......................................... $2,240,894,297
==============
Gross unrealized appreciation .......................... $ 305,970,591
Gross unrealized depreciation .......................... (84,599,784)
--------------
Net unrealized appreciation ............................ $ 221,370,807
==============
+ For Portfolio compliance purposes, "Sector" and "Industry" mean any one or
more of the sector and 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 sector and 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) were as follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 3,714,236 $67,854
Merrill Lynch Liquidity Series,
Money Market Series $106,385,700 $75,996
--------------------------------------------------------------------------
(b) Security was purchased with the cash proceeds from securities loans.
(c) Non-income producing security.
(d) Security, or a portion of security, is on loan.
See Notes to Financial Statements.
24 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Statement of Assets and Liabilities Master Large Cap Core Portfolio
As of April 30, 2005
=====================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including
securities loaned of $236,825,688)
(identified cost--$1,974,981,603) ........................ $2,214,232,700
Investments in affiliated securities, at value
(cost--$248,032,404) ..................................... 248,032,404
Receivables:
Securities sold ........................................ $ 10,447,173
Contributions .......................................... 5,703,089
Dividends .............................................. 1,127,350
Securities lending ..................................... 10,039
Interest from affiliates ............................... 5,884 17,293,535
--------------
Prepaid expenses .......................................... 21,121
--------------
Total assets .............................................. 2,479,579,760
--------------
=====================================================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ................. 241,963,000
Payables:
Securities purchased ................................... 17,475,885
Withdrawals ............................................ 3,259,732
Investment adviser ..................................... 822,263
Other affiliates ....................................... 22,756 21,580,636
--------------
Accrued expenses .......................................... 61,481
--------------
Total liabilities ......................................... 263,605,117
--------------
=====================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Net assets ................................................ $2,215,974,643
==============
=====================================================================================================================
Net Assets Consist of
- ---------------------------------------------------------------------------------------------------------------------
Investors' capital ........................................ $1,976,723,546
Unrealized appreciation--net .............................. 239,251,097
--------------
Net Assets ................................................ $2,215,974,643
==============
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 25
Statement of Operations Master Large Cap Core Portfolio
For the Six Months Ended April 30, 2005
=====================================================================================================================
Investment Income
- ---------------------------------------------------------------------------------------------------------------------
Dividends ................................................. $ 16,519,385
Securities lending--net ................................... 75,996
Interest from affiliates .................................. 67,854
-------------
Total income .............................................. 16,663,235
-------------
=====================================================================================================================
Expenses
- ---------------------------------------------------------------------------------------------------------------------
Investment advisory fees .................................. $ 5,054,184
Accounting services ....................................... 216,490
Custodian fees ............................................ 53,818
Professional fees ......................................... 29,369
Trustees' fees and expenses ............................... 27,149
Printing and shareholder reports .......................... 4,453
Pricing fees .............................................. 520
Other ..................................................... 14,189
-------------
Total expenses ............................................ 5,400,172
-------------
Investment income--net .................................... 11,263,063
-------------
=====================================================================================================================
Realized & Unrealized Gain--Net
- ---------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ......................... 68,671,571
Change in unrealized appreciation on investments--net ..... 38,982,177
-------------
Total realized and unrealized gain--net ................... 107,653,748
-------------
Net Increase in Net Assets Resulting from Operations ...... $ 118,916,811
=============
See Notes to Financial Statements.
26 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
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: 2005 2004
=====================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------
Investment income--net .................................... $ 11,263,063 $ 9,256,200
Realized gain--net ........................................ 68,671,571 199,493,500
Change in unrealized appreciation--net .................... 38,982,177 (68,627,985)
--------------------------------
Net increase in net assets resulting from operations ...... 118,916,811 140,121,715
--------------------------------
=====================================================================================================================
Capital Transactions
- ---------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ............................... 610,805,884 751,429,058
Fair value of withdrawals ................................. (345,048,349) (514,359,352)
--------------------------------
Net increase in net assets derived from capital
transactions ............................................. 265,757,535 237,069,706
--------------------------------
=====================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Total increase in net assets .............................. 384,674,346 377,191,421
Beginning of period ....................................... 1,831,300,297 1,454,108,876
--------------------------------
End of period ............................................. $2,215,974,643 $1,831,300,297
================================
See Notes to Financial Statements.
Financial Highlights Master Large Cap Core Portfolio
For the Six
Months Ended For the Year Ended October 31,
The following ratios have been derived from information April 30, ----------------------------------------------------
provided in the financial statements. 2005 2004 2003 2002 2001
=============================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 6.87%+ 9.61% 25.11% (8.13%) --
===================================================================
=============================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .51%* .52% .54% .57% .67%
===================================================================
Investment income--net ................. 1.05%* .57% .48% .83% .59%
===================================================================
=============================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,215,975 $1,831,300 $1,454,109 $ 873,704 $ 412,836
===================================================================
Portfolio turnover ..................... 49.98% 135.48% 138.73% 150.18% 162.28%
===================================================================
* Annualized.
** Total investment return is required to be disclosed for fiscal years
beginning after December 15, 2000.
+ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 27
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 Trust 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 U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. 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 asked
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Trustees of the Trust.
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 Trust. Short positions traded in the OTC market are valued at
the last available asked price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last asked
price. Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued 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 Trust, 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 Trust under the general supervision of the Board of
Trustees of the Trust. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust.
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
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 Board of Trustees of the Trust or by the
Investment Adviser using a pricing service and/or procedures approved by the
Board of Trustees of the Trust.
(b) Derivative financial instruments -- The Portfolio may engage in various
portfolio investment strategies both to increase the return of the Portfolio and
to hedge, or protect, its exposure to interest rate movements and movements in
the securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts -- The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts. Futures
contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Portfolio deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the
28 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Notes to Financial Statements (continued) Master Large Cap Core Portfolio
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 OTC foreign currency options, foreign currency futures and
related options on foreign currency futures as a short or long hedge
against possible variations in foreign exchange rates. Such transactions
may be effected with respect to hedges on non-U.S. dollar denominated
securities owned by the Portfolio, sold by the Portfolio but not yet
delivered, or committed or anticipated to be purchased by the Portfolio.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(d) Income taxes -- The Portfolio is classified as a partnership for federal
income tax purposes. As such, each investor in the Portfolio is treated as owner
of its proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. Therefore, no federal income tax
provision is required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends and capital gains at various rates. It is
intended that the Portfolio's assets will be managed so an investor in the
Portfolio can satisfy the requirements of subchapter M of the Internal Revenue
Code.
(e) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Portfolio has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Securities lending -- The Portfolio may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Portfolio and any additional required collateral is delivered to the
Portfolio on the next business day. Where the Portfolio receives securities as
collateral for the loaned securities, it collects a fee from the borrower. The
Portfolio typically receives the income on the loaned securities but does not
receive the income on the collateral. Where the Portfolio receives cash
collateral, it may invest such collateral and retain the amount earned on such
investment, net of any amount rebated to the borrower. Loans of securities
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 29
Notes to Financial Statements (concluded) Master Large Cap Core Portfolio
are terminable at any time and the borrower, after notice, is required to return
borrowed securities within five business days. The Portfolio may pay reasonable
finder's, lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Portfolio
could experience delays and costs in gaining access to the collateral. The
Portfolio also could suffer a loss where the value of the collateral falls below
the market value of the borrowed securities, in the event of borrower default or
in the event of losses on investments made with cash collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Portfolio's investments and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Portfolio. For such services, the
Portfolio pays a monthly fee at an annual rate of .50% of the average daily
value of the Portfolio's net assets not exceeding $1 billion and .45% of average
daily net assets in excess of $1 billion. FAM has entered into a Sub-Advisory
Agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an
affiliate of FAM, pursuant to which MLAM U.K. provides investment advisory
services to FAM with respect to the Portfolio. There is no increase in the
aggregate fees paid by the Portfolio for these services.
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, 2005, the Portfolio lent securities with a value of
$34,297,294 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, 2005, MLIM, LLC received $32,563 in securities lending
agent fees.
For the six months ended April 30, 2005, the Portfolio reimbursed FAM $20,391
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, 2005 were $1,337,583,918 and $1,060,872,184,
respectively.
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 a group of 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 .07% per annum
based on the Portfolio's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each Portfolio's election, the federal funds rate plus .50% or a
base rate as defined in the credit agreement. The Portfolio did not borrow under
the credit agreement during the six months ended April 30, 2005. On November 26,
2004, the credit agreement was renewed for one year under substantially the same
terms.
30 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005
Officers and Trustees of Master Large Cap Series Trust
Robert C. Doll, Jr., President and Trustee
James H. Bodurtha, Trustee
Joe Grills, Trustee
Herbert I. London, Trustee
Roberta Cooper Ramo, Trustee
Robert S. Salomon, Jr., Trustee
Stephen B. Swensrud, Trustee
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
- --------------------------------------------------------------------------------
Effective January 1, 2005, Terry K. Glenn retired as President and Trustee of
Master Large Cap Series Trust. The Trust's Board of Trustees wishes Mr. Glenn
well in his retirement.
Effective January 1, 2005, Robert C. Doll, Jr. became President and Trustee of
the Trust.
- --------------------------------------------------------------------------------
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification number
(PIN). You will need this PIN should you wish to update your e-mail address,
choose to discontinue this service and/or make any other changes to the service.
This service is not available for certain retirement accounts at this time.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND APRIL 30, 2005 31
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Core Principal Protected Fund
Box 9011
Princeton, NJ
08543-9011
#CPP -- 4/05
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Core Principal Protected Fund of Merrill Lynch Principal Protected
Trust and Master Large Cap Core Portfolio of Master Large Cap Series Trust
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive 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 20, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Core Principal Protected Fund of Merrill Lynch Principal
Protected Trust and Master Large Cap Core Portfolio of Master Large Cap
Series Trust
Date: June 20, 2005
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 20, 2005