UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21162
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 - 10/31/05
Item 1 - Report to Stockholders
Merrill Lynch
Core Principal
Protected Fund
Annual Report
October 31, 2005
Merrill Lynch Core Principal Protected Fund
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.
2 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
A Letter From the President
Dear Shareholder
As the financial markets continued to muddle their way through 2005, the Federal
Reserve Board (the Fed) advanced its monetary tightening campaign full steam
ahead. The 12th consecutive interest rate hike since June 2004 came on November
1, bringing the target federal funds rate to 4%. The central bank is clearly
more focused on inflationary figures than on economic growth, which has shown
some signs of moderating. Despite rising short-term interest rates and
record-high energy prices, the major market indexes managed to post positive
results for the current reporting period:
Total Returns as of October 31, 2005 6-month 12-month
======================================================================================
U.S. equities (Standard & Poor's 500 Index) + 5.27% + 8.72%
- --------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) +12.25 +12.08
- --------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) + 8.63 +18.09
- --------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 0.15 + 1.13
- --------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.59 + 2.54
- --------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) + 2.87 + 3.54
- --------------------------------------------------------------------------------------
The headlines in recent months focused on Hurricanes Katrina and Rita and, more
recently, the nomination of Ben Bernanke to succeed Alan Greenspan as Chairman
of the Fed. While the hurricanes prompted a spike in energy prices and
short-term disruptions to production and spending, the longer-term economic
impact is likely to be tempered. In fact, the fiscal stimulus associated with
reconstruction efforts in the Gulf Coast region could add to gross domestic
product growth in 2006. Notably, the uncontroversial nomination of Dr. Bernanke
was well received by the markets.
The U.S. equity markets remained largely range bound in 2005. Up to this point,
strong corporate earnings reports and relatively low long-term bond yields have
worked in favor of equities. Looking ahead, high energy prices, continued
interest rate hikes, a potential consumer slowdown and/or disappointing earnings
pose the greatest risks to U.S. stocks. Internationally, many markets have
benefited from strong economic statistics, trade surpluses and solid finances.
The bond market continued to be characterized by a flattening yield curve,
although long-term yields finally began to inch higher toward period end. The
10-year Treasury yield hit 4.57% on October 31, 2005, its highest level in more
than six months. Still, the difference between the two-year and 10-year Treasury
yield was just 17 basis points (.17%) at period end, compared to 149 basis
points a year earlier.
Financial markets are likely to face continued crosscurrents in the months
ahead. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. As always, we thank you
for trusting Merrill Lynch Investment Managers with your investment assets.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Trustee
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 3
A Discussion With Your Fund's Portfolio Manager
The Fund met its objective of preserving investor principal while also
outperforming its all-equity benchmark and the Lipper Balanced Target Maturity
Funds average for the fiscal year.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended October 31, 2005, Merrill Lynch Core Principal
Protected Fund's Class A, Class B, Class C and Class I Shares had total returns
of +11.62%, +10.81%, +10.83% and +11.88%, respectively. (Fund results shown do
not reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 - 8 of this report to
shareholders.) The Fund outperformed its all-equity benchmark, the Russell
1000(R) Index, which posted a total return of +10.47% for the same period. The
Fund also incorporates a fixed income component. During this 12-month period,
the fixed income market, as measured by the Lehman Brothers Aggregate Bond
Index, returned +1.13%.
Notably, the Fund's results far exceeded the +1.20% return of the Lipper
Balanced Target Maturity Funds category for the 12-month period. (Funds in this
Lipper category invest to provide a guaranteed return of investment at maturity.
Some of the assets are invested in zero-coupon U.S. Treasury securities, while
the remainder is in equity securities for long-term growth of capital and
income.)
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 past 12 months. Impressive gains in the fourth quarter of 2004 were given
back in the early months of 2005 as major equity indexes struggled to find their
footing. The rally that followed the conclusion of the presidential election in
November 2004 was hampered by concerns over inflation, a weak U.S. dollar and
continuing interest rate hikes by the Federal Reserve Board (the Fed). As of
November 1, 2005, the Fed had increased the federal funds rate 12 consecutive
times since June 2004, bringing the short-term interest rate target to 4%. Oil
prices continued to fluctuate and achieved record highs on more than one
occasion during the reporting period, leading to inflationary concerns, but also
contributing to strong performance from the energy sector.
January, March and April were particularly weak months for the market. May
through July brought a stock market upturn, as a significant number of
acquisition announcements, along with a resilient economy, solid consumer
spending, a robust housing sector and solid growth in corporate profits, served
to boost equities. The summer rally was short-lived, however, as the markets
reacted to the uncertainty created in the aftermath of Hurricanes Katrina and
Rita. Specifically, equities stalled in response to spiking energy prices, still
rising interest rates, waning consumer confidence, the potential for slowing
corporate profit growth and impending new leadership at the Fed as Chairman Alan
Greenspan approaches the end of his 18-year tenure. Notably, the October 24
nomination of Dr. Ben Bernanke as Greenspan's replacement was well received by
the markets. Still, October ended as one of the weaker months of the fiscal
year.
What factors most 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). Additionally, in the energy sector, the combination of a sector
overweight and effective stock selection enhanced returns, particularly in oil,
gas and consumable fuels. While stock selection and sector weightings detracted
from the Fund's return in technology and consumer staples, this was more than
offset by the overall positive returns in other sectors.
At the individual stock level, the largest positive contributors to performance
during the 12-month period were Valero Energy Corp., Humana, Inc., PacifiCare
Health Systems, Sunoco, Inc. and Express Scripts, Inc. Our underweight position
in Fannie Mae also had a positive impact on the Fund's performance, as this was
the largest negative contributor in the Russell 1000 Index. Detracting most from
the Fund's performance relative to the all-equity benchmark was Altria Group,
Inc., TIBCO Software, Dell, Inc., QLogic Corp. and Cree, Inc.
4 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
What changes were made to the Fund 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 fiscal year,
the Fund's equity allocation ranged from 69.8% of total assets to 100%, and the
fixed income allocation ranged from 30.4% to 0%.
Within the equity portfolio, we continued to identify companies with favorable
growth characteristics and earnings developments, selling at attractive relative
valuations. As a result of our bottom-up stock-selection process, we increased
the Portfolio's positions in technology, energy and health care while reducing
exposure to the consumer discretionary, materials and consumer staples sectors.
The largest purchases during the period included Exxon Mobil Corp., Intel Corp.,
Dell, Hewlett-Packard Co. and Texas Instruments, Inc. The largest sales included
Johnson & Johnson, Chevron Corp., PacifiCare Health Systems, Monsanto Co. and
Apple Computer, Inc. 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.
How would you characterize the Fund's position at the close of the period?
As of October 31, 2005, the Fund's assets were invested 100% in equities and 0%
in fixed income securities. This compared to 80.3% equities and 19.7% fixed
income securities at April 30, 2005, and 69.7% equities and 30.3% fixed income
at October 31, 2004.
The Fund's largest overweights at period end were in the energy, information
technology and health care sectors. The largest underweights were in financials,
which tend to underperform in periods of rising interest rates, consumer
staples, industrials and telecommunications services.
Our view is that a somewhat conservative investment posture makes sense, at
least until there is more evidence that the Fed is prepared to cease increasing
short-term interest rates. Recently reported third-quarter gross domestic
product (GDP) data showed that, contrary to investors' concerns, core inflation
(which excludes food and energy prices) actually declined from the second
quarter. By early 2006, we believe it will become more evident that consumers
are retrenching, and that real GDP has decelerated to a more non-inflationary
pace, specifically 3% or less. 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
November 4, 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 OCTOBER 31, 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 waived 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 October 31, 2005 Total Return Total Return Total Return
================================================================================================
ML Core Principal Protected Fund Class A Shares* +8.29% +11.62% +31.58%
- ------------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class B Shares* +7.87 +10.81 +28.97
- ------------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class C Shares* +7.86 +10.83 +28.99
- ------------------------------------------------------------------------------------------------
ML Core Principal Protected Fund Class I Shares* +8.47 +11.88 +32.51
- ------------------------------------------------------------------------------------------------
Merrill Lynch U.S. Corporate Master Index** -0.03 + 0.80 +11.94
- ------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index*** +0.15 + 1.13 + 8.14
- ------------------------------------------------------------------------------------------------
Russell 1000(R) Index**** +6.18 +10.47 +53.99
- ------------------------------------------------------------------------------------------------
* 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 OCTOBER 31, 2005
Performance Data (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A and
Class B Shares compared to growth of an investment in the Merrill Lynch U.S.
Corporate Master Index, Lehman Brothers Aggregate Bond Index and the Russell
1000 Index. Values are from February 28, 2003 to October 2005:
ML Core Principal ML Core Principal Merrill Lynch Lehman Brothers Russell
Protected Fund+-- Protected Fund+-- U.S. Corporate Aggregate 1000
Class A Shares* Class B Shares* Master Index++ Bond Index+++ Index++++
2/28/03** $ 9,475 $10,000 $10,000 $10,000 $10,000
10/03 $10,726 $11,260 $10,387 $10,132 $12,750
10/04 $11,170 $11,639 $11,105 $10,692 $13,940
10/05 $12,468 $12,597 $11,194 $10,814 $15,399
* Assuming maximum sales charge, transaction costs and other operating
expenses, including administration fees.
** Commencement of operations.
+ ML Core Principal Protected Fund invests all of its assets in Master Large
Cap Core Portfolio of Master Large Cap Series Trust. The Portfolio invests
primarily in a diversified portfolio of equity securities of large cap
companies located in the United States that the Investment Adviser
believes blends growth and value.
++ This unmanaged Index is comprised of all investment grade corporate bonds,
rated BBB or higher, of all maturities.
+++ This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds with at least one year to
maturity.
++++ This unmanaged broad-based Index measures the performance of the 1,000
largest companies in the Russell 3000(R) Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 10/31/05 +11.62% +5.76%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 10/31/05 +10.82 +8.61
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 10/31/05 +10.81% +6.81%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 10/31/05 + 9.99 +9.03
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 7
Performance Data (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class C and
Class I Shares compared to growth of an investment in the Merrill Lynch U.S.
Corporate Master Index, Lehman Brothers Aggregate Bond Index and the Russell
1000 Index. Values are from February 28, 2003 to October 2005:
ML Core Principal ML Core Principal Merrill Lynch Lehman Brothers Russell
Protected Fund+-- Protected Fund+-- U.S. Corporate Aggregate 1000
Class C Shares* Class I Shares* Master Index++ Bond Index+++ Index++++
2/28/03** $10,000 $ 9,475 $10,000 $10,000 $10,000
10/03 $11,260 $10,745 $10,387 $10,132 $12,750
10/04 $11,639 $11,222 $11,105 $10,692 $13,940
10/05 $12,899 $12,555 $11,194 $10,814 $15,399
* Assuming maximum sales charge, transaction costs and other operating
expenses, including administration fees.
** Commencement of operations.
+ ML Core Principal Protected Fund invests all of its assets in Master Large
Cap Core Portfolio of Master Large Cap Series Trust. The Portfolio invests
primarily in a diversified portfolio of equity securities of large cap
companies located in the United States that the Investment Adviser
believes blends growth and value.
++ This unmanaged Index is comprised of all investment grade corporate bonds,
rated BBB or higher, of all maturities.
+++ This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds with at least one year to
maturity.
++++ This unmanaged broad-based Index measures the performance of the 1,000
largest companies in the Russell 3000(R) Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Past performance is not predictive of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 10/31/05 +10.83% + 9.83%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 10/31/05 +10.00 +10.00
- --------------------------------------------------------------------------------
* 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 10/31/05 +11.88% +6.01%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 10/31/05 +11.11 +8.89
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
8 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on May 1, 2005 and held through
October 31, 2005) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value May 1, 2005 to
May 1, 2005 October 31, 2005 October 31, 2005
=========================================================================================================
Actual
=========================================================================================================
Class A $1,000 $1,082.90 $ 9.50
- ---------------------------------------------------------------------------------------------------------
Class B $1,000 $1,078.70 $13.49
- ---------------------------------------------------------------------------------------------------------
Class C $1,000 $1,078.60 $13.54
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,084.70 $ 8.19
=========================================================================================================
Hypothetical (5% annual return before expenses)**
=========================================================================================================
Class A $1,000 $1,016.18 $ 9.20
- ---------------------------------------------------------------------------------------------------------
Class B $1,000 $1,012.32 $13.06
- ---------------------------------------------------------------------------------------------------------
Class C $1,000 $1,012.27 $13.11
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,017.44 $ 7.92
- ---------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.80% for Class A, 2.56% for Class B, 2.57% for Class
C and 1.55% for Class I), multiplied by the average account value over the
period, multiplied by 185/365 (to reflect the one-half year period shown).
Because the Fund invests significantly in a master portfolio, the expense
table example reflects the expenses of both the fund and the master
portfolio 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.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 9
Statement of Assets and Liabilities
Merrill Lynch Core Principal Protected Fund
As of October 31, 2005
==============================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Investment in Master Large Cap Core Portfolio (the "Portfolio"), at
value (identified cost--$176,131,514*) ............................. $ 203,484,252
Prepaid registration fees ........................................... 16,242
---------------
Total assets ........................................................ 203,500,494
---------------
==============================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Payables:
Distributor ..................................................... $ 160,823
Financial warranty fee .......................................... 107,473
Advisory fee .................................................... 48,187
Other affiliates ................................................ 42,585 359,068
---------------
Accrued expenses .................................................... 56,222
---------------
Total liabilities ................................................... 415,290
---------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets .......................................................... $ 203,085,204
===============
==============================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------
Paid-in capital, unlimited shares of no par value authorized ........ $ 163,763,240
Undistributed realized capital gains--net ........................... $ 11,969,226
Unrealized appreciation--net ........................................ 27,352,738
---------------
Total accumulated earnings--net ..................................... 39,321,964
---------------
Net Assets .......................................................... $ 203,085,204
===============
==============================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $7,932,146 and 681,948 shares of
beneficial interest outstanding .................................... $ 11.63
===============
Class B--Based on net assets of $118,857,826 and 10,326,771 shares of
beneficial interest outstanding .................................... $ 11.51
===============
Class C--Based on net assets of $69,261,197 and 6,008,658 shares of
beneficial interest outstanding .................................... $ 11.53
===============
Class I--Based on net assets of $7,034,035 and 603,337 shares of
beneficial interest outstanding .................................... $ 11.66
===============
* The cost and unrealized appreciation of investments as of October 31, 2005
as computed for federal income tax purposes, were as follows:
Aggregate cost ........................................ $176,131,514
============
Gross unrealized appreciation ......................... $ 27,352,738
Gross unrealized depreciation ......................... --
------------
Net unrealized appreciation ........................... $ 27,352,738
============
See Notes to Financial Statements.
10 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Statement of Operations Merrill Lynch Core Principal Protected Fund
For the Year Ended October 31, 2005
==============================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Interest and amortization of premium and discount earned ............ $ 823,802
Net investment income allocated from the Portfolio:
Dividends ....................................................... 2,530,983
Securities lending--net ......................................... 15,013
Interest from affiliates ........................................ 11,159
Expenses ........................................................ (1,016,806)
---------------
Total income ........................................................ 2,364,151
---------------
==============================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................ $ 1,662,277
Financial warranty fees ............................................. 1,385,231
Account maintenance and distribution fees--Class B .................. 1,279,861
Account maintenance and distribution fees--Class C .................. 755,794
Transfer agent fees--Class B ........................................ 99,009
Accounting services ................................................. 66,837
Professional fees ................................................... 61,485
Transfer agent fees--Class C ........................................ 59,966
Printing and shareholder reports .................................... 51,503
Account maintenance fees--Class A ................................... 23,849
Trustees' fees and expenses ......................................... 22,683
Registration fees ................................................... 11,670
Custodian fees ...................................................... 7,539
Transfer agent fees--Class A ........................................ 6,348
Transfer agent fees--Class I ........................................ 5,678
Pricing fees ........................................................ 1,159
Other ............................................................... 3,402
---------------
Total expenses before waiver ........................................ 5,504,291
Waiver of expenses .................................................. (947,146))
---------------
Total expenses after waiver ......................................... 4,557,145
---------------
Investment loss--net ................................................ (2,192,994)
---------------
==============================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- ------------------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments--net ................................................ 878,125
Allocations from the Portfolio--net ............................. 15,756,727 16,634,852
---------------
Change in unrealized appreciation on:
Investments--net ................................................ (2,130,404)
Allocations from the Portfolio--net ............................. 11,170,337 9,039,933
-----------------------------------
Total realized and unrealized gain--net ............................. 25,674,785
---------------
Net Increase in Net Assets Resulting from Operations ................ $ 23,481,791
===============
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 11
Statements of Changes in Net Assets
Merrill Lynch Core Principal Protected Fund
For the Year Ended
October 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2005 2004
==============================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------
Investment loss--net ................................................ $ (2,192,994) $ (1,340,000)
Realized gain--net .................................................. 16,634,852 22,051,621
Change in unrealized appreciation--net .............................. 9,039,933 (11,410,987)
-----------------------------------
Net increase in net assets resulting from operations ................ 23,481,791 9,300,634
-----------------------------------
==============================================================================================================================
Distributions to Shareholders
- ------------------------------------------------------------------------------------------------------------------------------
Realized gain:
Class A ........................................................... (984,088) (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 ..................... (19,991,477) (7,539,061)
-----------------------------------
==============================================================================================================================
Beneficial Interest Transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from beneficial interest
transactions ....................................................... (34,244,888) (55,153,321)
-----------------------------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ........................................ (30,754,574) (53,391,748)
Beginning of year ................................................... 233,839,778 287,231,526
-----------------------------------
End of year ......................................................... $ 203,085,204 $ 233,839,778
===================================
See Notes to Financial Statements.
12 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Financial Highlights Merrill Lynch Core Principal Protected Fund
Class A
---------------------------------------------
For the Period
For the Year Ended February 28,
October 31, 2003+ to
The following per share data and ratios have been derived --------------------------- 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 (loss)--net .......... (.03)@@ .01 .01
Realized and unrealized gain--net ...... 1.31 .44 1.31
---------------------------------------------
Total from investment operations ....... 1.28 .45 1.32
---------------------------------------------
Less distributions of realized gain--net (1.09) (.33) --
---------------------------------------------
Net asset value, end of period ......... $ 11.63 $ 11.44 $ 11.32
=============================================
=============================================================================================================
Total Investment Return**
- -------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 11.62% 4.14% 13.20%@
=============================================
=============================================================================================================
Ratios to Average Net Assets
- -------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ .............. 1.83% 1.83% 2.00%*
=============================================
Expenses++ ............................. 2.25% 2.16% 2.26%*
=============================================
Investment income (loss)--net .......... (.26%) .13% .10%*
=============================================
=============================================================================================================
Supplemental Data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 7,932 $ 11,534 $ 18,674
=============================================
Portfolio turnover of the Fund ......... 186.21% 167.08% 175.43%
=============================================
Portfolio turnover of the Portfolio .... 93.95% 135.48% 138.73%
=============================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 13
Financial Highlights (continued) Merrill Lynch Core Principal Protected Fund
Class B
---------------------------------------------
For the Period
For the Year Ended February 28,
October 31, 2003+ to
The following per share data and ratios have been derived --------------------------- 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 ................... (.12)@@ (.07) (.05)
Realized and unrealized gain--net ...... 1.30 .44 1.31
---------------------------------------------
Total from investment operations ....... 1.18 .37 1.26
---------------------------------------------
Less distributions of realized gain--net (1.00) (.30) --
---------------------------------------------
Net asset value, end of period ......... $ 11.51 $ 11.33 $ 11.26
=============================================
=============================================================================================================
Total Investment Return**
- -------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 10.81% 3.36% 12.60%@
=============================================
=============================================================================================================
Ratios to Average Net Assets
- -------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ .............. 2.59% 2.58% 2.76%*
=============================================
Expenses++ ............................. 3.01% 2.91% 3.03%*
=============================================
Investment loss--net ................... (1.07%) (.59%) (.68%)*
=============================================
=============================================================================================================
Supplemental Data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 118,858 $ 130,014 $ 145,568
=============================================
Portfolio turnover of the Fund ......... 186.21% 167.08% 175.43%
=============================================
Portfolio turnover of the Portfolio .... 93.95% 135.48% 138.73%
=============================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
14 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Financial Highlights (continued) Merrill Lynch Core Principal Protected Fund
Class C
---------------------------------------------
For the Period
For the Year Ended February 28,
October 31, 2003+ to
The following per share data and ratios have been derived --------------------------- 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 ................... (.12)@@ (.07) (.05)
Realized and unrealized gain--net ...... 1.30 .44 1.31
---------------------------------------------
Total from investment operations ....... 1.18 .37 1.26
---------------------------------------------
Less distributions of realized gain--net (.98) (.30) --
---------------------------------------------
Net asset value, end of period ......... $ 11.53 $ 11.33 $ 11.26
=============================================
=============================================================================================================
Total Investment Return**
- -------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 10.83% 3.37% 12.60%@
=============================================
=============================================================================================================
Ratios to Average Net Assets
- -------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ .............. 2.59% 2.59% 2.76%*
=============================================
Expenses++ ............................. 3.01% 2.91% 3.03%*
=============================================
Investment loss--net ................... (1.05%) (.61%) (.68%)*
=============================================
=============================================================================================================
Supplemental Data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 69,261 $ 82,398 $ 108,700
=============================================
Portfolio turnover of the Fund ......... 186.21% 167.08% 175.43%
=============================================
Portfolio turnover of the Portfolio .... 93.95% 135.48% 138.73%
=============================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 15
Financial Highlights (concluded) Merrill Lynch Core Principal Protected Fund
Class I
---------------------------------------------
For the Period
For the Year Ended February 28,
October 31, 2003+ to
The following per share data and ratios have been derived --------------------------- 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 (loss)--net .......... --***@@ .04 .03
Realized and unrealized gain--net ...... 1.31 .45 1.31
---------------------------------------------
Total from investment operations ....... 1.31 .49 1.34
---------------------------------------------
Less distributions of realized gain--net (1.13) (.35) --
---------------------------------------------
Net asset value, end of period ......... $ 11.66 $ 11.48 $ 11.34
=============================================
=============================================================================================================
Total Investment Return**
- -------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 11.88% 4.44% 13.40%@
=============================================
=============================================================================================================
Ratios to Average Net Assets
- -------------------------------------------------------------------------------------------------------------
Expenses, net of waiver++ .............. 1.58% 1.58% 1.75%*
=============================================
Expenses++ ............................. 2.00% 1.91% 2.01%*
=============================================
Investment income (loss)--net .......... (.01%) .39% .35%*
=============================================
=============================================================================================================
Supplemental Data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 7,034 $ 9,893 $ 14,290
=============================================
Portfolio turnover of the Fund ......... 186.21% 167.08% 175.43%
=============================================
Portfolio turnover of the Portfolio .... 93.95% 135.48% 138.73%
=============================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Amount is less than $(.01) per share.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
16 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Notes to Financial Statements Merrill Lynch Core Principal Protected Fund
1. Significant Accounting Policies:
Merrill Lynch Core Principal Protected Fund (the "Fund") is a series 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 all or a portion of its
assets in the Master Large Cap Core Portfolio (the "Portfolio"), which is a
series 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. The percentage of the
Portfolio owned by the Fund at October 31, 2005 was 7.6%. The Fund offers
multiple classes of shares. Shares of the Fund were offered during the initial
offering period but will not be offered during the Guarantee Period from
February 28, 2003 through February 28, 2010 (the "Guarantee Maturity Date"),
except in connection with reinvestment of dividends and distributions. The Fund
will be offered on a continuous basis after 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 1(a) 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 based upon quoted fair valuations
received daily by the Fund from a pricing service or counterparty. Financial
futures contracts and options thereon, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges. Obligations with
remaining maturities of 60 days or less are valued at amortized cost unless the
Investment Adviser believes that this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Fund employs
pricing services to provide certain securities prices for the Fund. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 17
Notes to Financial Statements (continued)
Merrill Lynch Core Principal Protected Fund
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, and
protect its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed.
o Options -- The Fund may write and purchase call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
(c) Security transactions, investment income and expenses -- Security
transactions are recorded on the dates the transactions are entered into (the
trade dates). Investment transactions in the Portfolio are accounted for on a
trade date basis. Realized gains and losses on security transactions are
determined on the identified cost basis. Dividend income is recorded on the
ex-dividend dates. Interest income is recognized on the accrual basis. The Fund
amortizes all premiums and discounts on debt securities. The Fund records daily
its proportionate share of the Portfolio's income, expenses and realized and
unrealized gains and losses. In addition, the Fund accrues its own expenses.
(d) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(e) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial
18 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Notes to Financial Statements (continued)
Merrill Lynch Core Principal Protected Fund
and tax reporting. Accordingly, during the current year, $2,210,546 has been
reclassified between undistributed net realized capital gains and accumulated
net investment loss, $17,552 has been reclassified between accumulated net
investment loss and paid-in-capital, and $492,254 has been reclassified between
undistributed net realized capital gains and paid-in-capital as a result of
permanent differences attributable to net operating losses, nondeductible
expenses, and other permanent differences. These reclassifications have no
effect on net assets or net asset values per share.
2. Investment Advisory Agreements and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
the annual rate of .75% of the Fund's average daily net assets. FAM has
contractually agreed to waive its management fee by the amount of management
fees the Fund pays FAM indirectly through its investment in the Portfolio. For
the year ended October 31, 2005, FAM earned fees of $1,662,277, of which
$947,146 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 Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ....................................... .25% --
Class B ....................................... .25% .75%
Class C ....................................... .25% .75%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), 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 year ended October 31, 2005, MLPF&S received contingent deferred sales
charges of $427,572 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.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the year ended October 31, 2005, the Fund reimbursed FAM $5,480 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 year ended October 31, 2005 were
$41,013,104 and $111,616,546, respectively.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 19
Notes to Financial Statements (concluded)
Merrill Lynch Core Principal Protected Fund
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$34,244,888 and $55,153,321 for the years ended October 31, 2005 and October 31,
2004, respectively.
Transactions in beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions ......... 80,389 $ 891,509
Shares redeemed .......................... (406,697) (4,620,834)
-------------------------------
Net decrease ............................. (326,308) $ (3,729,325)
===============================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended October 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions ......... 959,658 $ 10,604,221
Shares redeemed .......................... (2,106,262) (23,728,752)
-------------------------------
Net decrease ............................. (1,146,604) $(13,124,531)
===============================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended October 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions ......... 579,383 $ 6,407,980
Shares redeemed .......................... (1,842,425) (20,850,978)
-------------------------------
Net decrease ............................. (1,263,042) $(14,442,998)
===============================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended October 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions ......... 21,706 $ 240,715
Shares redeemed .......................... (280,520) (3,188,749)
-------------------------------
Net decrease ............................. (258,814) $ (2,948,034)
===============================
- -------------------------------------------------------------------------------
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)
===============================
5. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended October
31, 2005 and October 31, 2004 was as follows:
- --------------------------------------------------------------------------------
10/31/2005 10/31/2004
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $ 3,734,969 $ 2,894,514
Net long-term capital gains ............ 16,256,508 4,644,547
==============================
Total taxable distributions .............. $19,991,477 $ 7,539,061
==============================
As of October 31, 2005, the components of accumulated earnings on a tax basis
were as follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income--net ....... $ 3,285,391
Undistributed long-term capital gains--net 8,683,835
-----------
Total undistributed earnings--net ........ 11,969,226
Capital loss carryforward ................ --
Unrealized gains--net .................... 27,352,738
-----------
Total accumulated earnings--net .......... $39,321,964
===========
20 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Report of Independent Registered Public Accounting Firm
Merrill Lynch Core Principal Protected Fund
To the Shareholders and Board of Trustees of
Merrill Lynch Principal Protected Trust:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Core Principal Protected Fund, one of the series constituting Merrill
Lynch Principal Protected Trust (the "Trust"), as of October 31, 2005, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the respective periods then ended. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Core Principal Protected Fund of Merrill Lynch Principal Protected
Trust as of October 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for each of the respective periods then
ended, in conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 19, 2005
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distribution paid by Merrill Lynch Core Principal Protected Fund of Merrill
Lynch Principal Protected Trust to shareholders of record on December 13, 2004:
- --------------------------------------------------------------------------------
Qualified Dividend Income for Individuals .............................. 48.22%
Dividends Qualifying for the Dividends Received
Deduction for Corporations ........................................... 47.00%
Federal Obligation Interest ............................................ 31.85%
- --------------------------------------------------------------------------------
The law varies in each state as to whether and what percentage of dividend
income attributable to federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income tax.
Additionally, the Fund distributed long-term capital gains of $.817782 per share
to shareholders of record on December 13, 2004.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 21
Officers and Trustees of the Trust
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 131 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 177 Portfolios
08543-9011 Trustee (Americas Region) thereof from 2000 to 2001 and
Age: 51 Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
since 2001; Chief Investment Officer of Oppenheimer-
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Doll is an "interested person," as described in the Investment Company Act, of
the Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators. Trustees
serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund
President, Mr. Doll serves at the pleasure of the Board of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
David O. P.O. Box 9095 Trustee 2002 to Professor of Finance and Economics at the Columbia 20 Funds None
Beim** Princeton, NJ present University Graduate School of Business since 1991; 26 Portfolios
08543-9095 Chairman of Outward Bound U.S.A. from 1997 to
Age: 65 2001; Chairman of Wave Hill, Inc. since 1990; Trustee
of Phillips Exeter Academy from 2002 to present.
- ------------------------------------------------------------------------------------------------------------------------------------
James T. P.O. Box 9095 Trustee 2002 to Chief Financial Officer of JPMorgan & Co., Inc. from 20 Funds None
Flynn Princeton, NJ present 1990 to 1995 and an employee of JPMorgan in 26 Portfolios
08543-9095 various capacities from 1967 to 1995.
Age: 66
- ------------------------------------------------------------------------------------------------------------------------------------
W. Carl P.O. Box 9095 Trustee 2002 to Mizuho Financial Group, Professor of Finance, 21 Funds None
Kester Princeton, NJ present Harvard Business School, Unit Head, Finance since 27 Portfolios
08543-9095 2005; Senior Associate Dean and Chairman of the
Age: 53 Program of Harvard Business School, 1999 to 2005;
Member of the faculty of Harvard Business School
since 1981; Independent Consultant since 1978.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen P. P.O. Box 9095 Trustee 2002 to President of Robards & Company, a financial advisory 20 Funds AtriCure,
Robards*** Princeton, NJ present firm since 1987; formerly an investment banker with 26 Portfolios Inc. (medical
08543-9095 Morgan Stanley for more than ten years; Director devices)
Age: 55 of Enable Medical Corp. from 1996 to 2005;
Director of AtriCure, Inc. since 2000; Director of
the Cooke Center for Learning and Development,
a not-for-profit organization, since 1987.
------------------------------------------------------------------------------------------------------------------------
* Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Chairman of the Audit Committee.
*** Chair of the Board.
22 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Officers and Trustees of the Trust (concluded)
Position(s) Length of
Held Time
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2002 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
Age: 45 Treasurer President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 54 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 23
Portfolio Information as of October 31, 2005 Master Large Cap Core Portfolio
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Exxon Mobil Corp. .................................................... 3.8%
General Electric Co. ................................................. 2.0
ConocoPhillips ....................................................... 1.8
Hewlett-Packard Co. .................................................. 1.7
Pfizer, Inc. ......................................................... 1.7
UnitedHealth Group, Inc. ............................................. 1.6
Intel Corp. .......................................................... 1.6
Motorola, Inc. ....................................................... 1.4
Texas Instruments, Inc. .............................................. 1.4
Dell, Inc. ........................................................... 1.3
- --------------------------------------------------------------------------------
Percent of
Sector Representation Total Investments
- --------------------------------------------------------------------------------
Information Technology ............................................... 24.2%
Energy ............................................................... 18.2
Health Care .......................................................... 17.8
Financials ........................................................... 10.8
Consumer Discretionary ............................................... 10.6
Industrials .......................................................... 5.7
Materials ............................................................ 2.9
Consumer Staples ..................................................... 2.8
Utilities ............................................................ 2.0
Other* ............................................................... 5.0
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
Percent of
Five Largest Industries Net Assets
- --------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels .......................................... 18.6%
Health Care Providers & Services ..................................... 10.9
Software ............................................................. 9.0
Insurance ............................................................ 8.4
Semiconductors & Semiconductor Equipment ............................. 6.4
- --------------------------------------------------------------------------------
For Portfolio compliance purposes, the Portfolio's sector and industry
classifications refer to 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
sector and industry sub-classifications for reporting ease.
24 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Schedule of Investments Master Large Cap Core Portfolio
Shares
Sector Industry Common Stocks Held Value
===============================================================================
Consumer Discretionary -- 11.2%
Auto Components -- 1.0%
The Goodyear Tire & Rubber Co. (c)(d) 1,610,000 $ 25,180,400
----------------------------------------------------------------------
Hotels, Restaurants &
Leisure -- 1.1%
Darden Restaurants, Inc. 880,000 28,529,600
----------------------------------------------------------------------
Household Durables -- 1.7%
NVR, Inc. (c) 30,000 20,565,000
Ryland Group, Inc. 380,000 25,574,000
--------------
46,139,000
----------------------------------------------------------------------
Multiline Retail -- 2.2%
JC Penney Co., Inc. 580,000 29,696,000
Nordstrom, Inc. 870,000 30,145,500
--------------
59,841,500
----------------------------------------------------------------------
Specialty Retail -- 5.2%
Advance Auto Parts (c) 450,000 16,875,000
American Eagle Outfitters 1,090,000 25,669,500
AutoNation, Inc. (c) 420,000 8,349,600
Best Buy Co., Inc. 370,000 16,376,200
Circuit City Stores, Inc. 1,230,000 21,881,700
Office Depot, Inc. (c) 780,000 21,473,400
Staples, Inc. 1,190,000 27,048,700
--------------
137,674,100
----------------------------------------------------------------------
Total Consumer Discretionary 297,364,600
===============================================================================
Consumer Staples -- 2.9%
Food & Staples Retailing -- 1.0%
The Kroger Co. (c) 1,380,000 27,462,000
----------------------------------------------------------------------
Food Products -- 0.8%
Archer-Daniels-Midland Co. 690,000 16,815,300
Pilgrim's Pride Corp. 190,000 5,981,200
--------------
22,796,500
----------------------------------------------------------------------
Household Products -- 0.8%
Energizer Holdings, Inc. (c) 90,000 4,544,100
Procter & Gamble Co. 280,000 15,677,200
--------------
20,221,300
----------------------------------------------------------------------
Tobacco -- 0.3%
Altria Group, Inc. 100,000 7,505,000
----------------------------------------------------------------------
Total Consumer Staples 77,984,800
===============================================================================
Energy -- 19.1%
Energy Equipment &
Services -- 0.5%
Cooper Cameron Corp. (c) 180,000 13,271,400
----------------------------------------------------------------------
Oil, Gas & Consumable
Fuels -- 18.6%
Amerada Hess Corp. (d) 220,000 27,522,000
Anadarko Petroleum Corp. 350,000 31,748,500
Apache Corp. 260,000 16,595,800
Burlington Resources, Inc. 480,000 34,665,600
Chevron Corp. 80,000 4,565,600
ConocoPhillips 740,000 48,381,200
Devon Energy Corp. 550,000 33,209,000
Exxon Mobil Corp. 1,820,000 102,174,800
Forest Oil Corp. (c) 540,000 23,587,200
Kerr-McGee Corp. 340,000 28,913,600
Marathon Oil Corp. 530,000 31,884,800
Newfield Exploration Co. (c) 100,000 4,533,000
Occidental Petroleum Corp. (d) 450,000 35,496,000
Sunoco, Inc. 400,000 29,800,000
Tesoro Corp. 150,000 9,172,500
Valero Energy Corp. 320,000 33,676,800
--------------
495,926,400
----------------------------------------------------------------------
Total Energy 509,197,800
===============================================================================
Financials -- 11.3%
Capital Markets -- 1.5%
Goldman Sachs Group, Inc. 50,000 6,318,500
Lehman Brothers Holdings, Inc. 280,000 33,507,600
--------------
39,826,100
----------------------------------------------------------------------
Commercial Banks -- 0.4%
Bank of America Corp. 270,000 11,809,800
----------------------------------------------------------------------
Diversified Financial
Services -- 1.0%
Citigroup, Inc. 560,000 25,636,800
----------------------------------------------------------------------
Insurance -- 8.4%
AON Corp. 760,000 25,726,000
The Allstate Corp. 490,000 25,867,100
American International Group, Inc. 90,000 5,832,000
Metlife, Inc. 650,000 32,116,500
The Progressive Corp. (d) 90,000 10,422,900
Prudential Financial, Inc. 470,000 34,211,300
Safeco Corp. 410,000 22,837,000
The St. Paul Travelers Cos., Inc. (d) 740,000 33,322,200
UnumProvident Corp. 1,240,000 25,159,600
W.R. Berkley Corp. 225,000 9,832,500
--------------
225,327,100
----------------------------------------------------------------------
Total Financials 302,599,800
===============================================================================
Health Care -- 18.7%
Biotechnology -- 2.2%
Amgen, Inc. (c) 330,000 25,000,800
Invitrogen Corp. (c) 310,000 19,712,900
Techne Corp. (c) 260,000 14,097,200
--------------
58,810,900
----------------------------------------------------------------------
Health Care Equipment &
Supplies -- 0.8%
Becton Dickinson & Co. 430,000 21,822,500
----------------------------------------------------------------------
Health Care Providers &
Services -- 10.9%
Aetna, Inc. New Shares 380,000 33,652,800
AmerisourceBergen Corp. 390,000 29,745,300
Caremark Rx, Inc. (c) 650,000 34,060,000
Cigna Corp. 260,000 30,126,200
Express Scripts, Inc. (c)(d) 380,000 28,655,800
HCA, Inc. 600,000 28,914,000
Humana, Inc. (c) 600,000 26,634,000
McKesson Corp. 660,000 29,983,800
Quest Diagnostics, Inc. 150,000 7,006,500
UnitedHealth Group, Inc. 750,000 43,417,500
--------------
292,195,900
----------------------------------------------------------------------
Pharmaceuticals -- 4.8%
Allergan, Inc. (d) 330,000 29,469,000
Barr Pharmaceuticals, Inc. (c) 470,000 27,001,500
Johnson & Johnson 240,000 15,028,800
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 25
Schedule of Investments (continued) Master Large Cap Core Portfolio
Shares
Sector Industry Common Stocks Held Value
===============================================================================
Health Care (concluded)
Pharmaceuticals (concluded)
King Pharmaceuticals, Inc. (c) 740,000 $ 11,418,200
Pfizer, Inc. 2,030,000 44,132,200
--------------
127,049,700
----------------------------------------------------------------------
Total Health Care 499,879,000
===============================================================================
Industrials -- 6.0%
Aerospace & Defense -- 0.7%
Precision Castparts Corp. 90,000 4,262,400
Raytheon Co. 390,000 14,410,500
--------------
18,672,900
----------------------------------------------------------------------
Airlines -- 0.2%
AMR Corp. (c)(d) 430,000 5,809,300
----------------------------------------------------------------------
Commercial Services &
Supplies -- 0.2%
Corporate Executive Board Co. 70,000 5,784,800
----------------------------------------------------------------------
Electrical Equipment -- 0.8%
Rockwell Automation, Inc. 410,000 21,791,500
----------------------------------------------------------------------
Industrial Conglomerates -- 2.0%
General Electric Co. 1,530,000 51,882,300
----------------------------------------------------------------------
Machinery -- 1.0%
Cummins, Inc. 210,000 17,927,700
Joy Global, Inc. 180,000 8,256,600
--------------
26,184,300
----------------------------------------------------------------------
Road & Rail -- 1.1%
CSX Corp. 640,000 29,318,400
----------------------------------------------------------------------
Total Industrials 159,443,500
===============================================================================
Information Technology -- 25.5%
Communications
Equipment -- 1.4%
Motorola, Inc. 1,730,000 38,336,800
----------------------------------------------------------------------
Computers & Peripherals -- 5.7%
Dell, Inc. (c) 1,150,000 36,662,000
Hewlett-Packard Co. 1,590,000 44,583,600
International Business Machines Corp. 40,000 3,275,200
NCR Corp. (c) 650,000 19,643,000
QLogic Corp. (c) 680,000 20,508,800
Western Digital Corp. (c)(d) 2,190,000 26,499,000
--------------
151,171,600
----------------------------------------------------------------------
Electronic Equipment &
Instruments -- 0.5%
Jabil Circuit, Inc. (c)(d) 430,000 12,835,500
----------------------------------------------------------------------
IT Services -- 2.5%
CheckFree Corp. (c) 530,000 22,525,000
Computer Sciences Corp. (c) 140,000 7,175,000
Fiserv, Inc. (c)(d) 590,000 25,771,200
Sabre Holdings Corp. Class A 640,000 12,499,200
67,970,400
----------------------------------------------------------------------
Semiconductors & Semiconductor
Equipment -- 6.4%
Broadcom Corp. Class A (c) 260,000 11,039,600
Intel Corp. 1,840,000 43,240,000
LSI Logic Corp. (c)(d) 3,100,000 25,141,000
Lam Research Corp. (c) 780,000 26,317,200
Nvidia Corp. (c) 810,000 27,175,500
Texas Instruments, Inc. 1,300,000 37,115,000
--------------
170,028,300
----------------------------------------------------------------------
Software -- 9.0%
Autodesk, Inc. 620,000 27,980,600
BEA Systems, Inc. (c) 2,960,000 26,107,200
BMC Software, Inc. (c) 1,100,000 21,549,000
Citrix Systems, Inc. (c) 1,010,000 27,845,700
Compuware Corp. (c) 1,110,000 8,979,900
Intuit, Inc. (c) 590,000 27,098,700
McAfee, Inc. (c) 910,000 27,327,300
Mercury Interactive Corp. (c) 650,000 22,613,500
Microsoft Corp. 1,010,000 25,957,000
Red Hat, Inc. (c) 1,060,000 24,613,200
--------------
240,072,100
----------------------------------------------------------------------
Total Information Technology 680,414,700
===============================================================================
Materials -- 3.1%
Chemicals -- 0.6%
Eastman Chemical Co. (d) 270,000 14,245,200
----------------------------------------------------------------------
Containers & Packaging -- 0.6%
Crown Holdings, Inc. (c) 930,000 15,084,600
----------------------------------------------------------------------
Metals & Mining -- 1.5%
Freeport-McMoRan Copper & Gold,
Inc. Class B (d) 240,000 11,860,800
Nucor Corp. (d) 480,000 28,728,000
--------------
40,588,800
----------------------------------------------------------------------
Paper & Forest Products -- 0.4%
MeadWestvaco Corp. 440,000 11,536,800
----------------------------------------------------------------------
Total Materials 81,455,400
===============================================================================
Utilities -- 2.1%
Electric Utilities -- 1.4%
American Electric Power Co., Inc. 110,000 4,175,600
Edison International 630,000 27,568,800
Northeast Utilities 360,000 6,548,400
--------------
38,292,800
----------------------------------------------------------------------
Multi-Utilities -- 0.7%
CMS Energy Corp. (c)(d) 1,190,000 17,742,900
----------------------------------------------------------------------
Total Utilities 56,035,700
----------------------------------------------------------------------
Total Common Stocks
(Cost -- $2,304,822,230) -- 99.9% 2,664,375,300
===============================================================================
Short-Term Beneficial
Securities Interest
===============================================================================
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (a) $ 4,121,341 4,121,341
Merrill Lynch Liquidity Series, LLC
Money Market Series (a)(b) 136,792,200 136,792,200
----------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $140,913,541) -- 5.3% 140,913,541
===============================================================================
Total Investments
(Cost -- $2,445,735,771*) -- 105.2% 2,805,288,841
Liabilities in Excess of Other Assets -- (5.2%) (138,590,095)
--------------
Net Assets -- 100.0% $2,666,698,746
==============
26 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Schedule of Investments (concluded) Master Large Cap Core Portfolio
For Portfolio compliance purposes, the Portfolio's sector and industry
classifications refer to 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
sector and industry sub-classifications for reporting ease. Sectors and
industries are shown as a percent of net assets. These sector and industry
classifications are unaudited.
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost .......................................... $2,459,099,961
==============
Gross unrealized appreciation ........................... $ 440,422,571
Gross unrealized depreciation ........................... (94,233,691)
--------------
Net unrealized appreciation ............................. $ 346,188,880
==============
(a) Investments in companies considered to be an affiliate of the Portfolio,
for purposes of 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 $1,766,173 $125,703
Merrill Lynch Liquidity Series, LLC
Money Market Series $1,214,900 $176,578
--------------------------------------------------------------------------
(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.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 27
Statement of Assets and Liabilities Master Large Cap Core Portfolio
As of October 31, 2005
==============================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value*+ .................. $ 2,664,375,300
Investments in affiliated securities, at value** .................... 140,913,541
Receivables:
Securities sold .................................................. $ 40,078,661
Contributions .................................................... 7,000,055
Dividends ........................................................ 1,092,450
Securities lending ............................................... 36,194 48,207,360
---------------
Prepaid expenses .................................................... 42,281
---------------
Total assets ........................................................ 2,853,538,482
---------------
==============================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ........................... 136,792,200
Payables:
Securities purchased ............................................. 41,896,996
Withdrawals ...................................................... 3,536,420
Custodian bank ................................................... 3,401,802
Investment adviser ............................................... 1,040,392
Other affiliates ................................................. 30,062 49,905,672
---------------
Accrued expenses .................................................... 141,864
---------------
Total liabilities ................................................... 186,839,736
---------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets .......................................................... $ 2,666,698,746
===============
==============================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------
Investors' capital .................................................. $ 2,307,145,676
Unrealized appreciation -- net ...................................... 359,553,070
---------------
Net Assets .......................................................... $ 2,666,698,746
===============
* Identified cost for unaffiliated securities ...................... $ 2,304,822,230
===============
** Identified cost for affiliated securities ........................ $ 140,913,541
===============
+ Securities loaned for unaffiliated securities .................... $ 133,121,337
===============
See Notes to Financial Statements.
28 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Statement of Operations Master Large Cap Core Portfolio
For the Year Ended October 31, 2005
==============================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Dividends ........................................................... $ 28,489,172
Securities lending -- net ........................................... 176,578
Interest from affiliates ............................................ 125,703
---------------
Total income ........................................................ 28,791,453
---------------
==============================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................ $ 11,047,046
Accounting services ................................................. 501,657
Custodian fees ...................................................... 128,210
Professional fees ................................................... 68,428
Trustees' fees and expenses ......................................... 65,144
Printing and shareholder reports .................................... 6,773
Pricing fees ........................................................ 1,193
Other ............................................................... 46,948
---------------
Total expenses ...................................................... 11,865,399
---------------
Investment income -- net ............................................ 16,926,054
---------------
==============================================================================================================================
Realized & Unrealized Gain -- Net
- ------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments -- net ................................. 185,237,400
Change in unrealized appreciation on investments -- net ............. 159,284,150
---------------
Total realized and unrealized gain -- net ........................... 344,521,550
---------------
Net Increase in Net Assets Resulting from Operations ................ $ 361,447,604
===============
See Notes to Financial Statements.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 29
Statements of Changes in Net Assets Master Large Cap Core Portfolio
For the Year Ended
October 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2005 2004
==============================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ............................................ $ 16,926,054 $ 9,256,200
Realized gain -- net ................................................ 185,237,400 199,493,500
Change in unrealized appreciation -- net ............................ 159,284,150 (68,627,985)
-----------------------------------
Net increase in net assets resulting from operations ................ 361,447,604 140,121,715
-----------------------------------
==============================================================================================================================
Capital Transactions
- ------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ......................................... 1,040,896,976 751,429,058
Fair value of withdrawals ........................................... (566,946,131) (514,359,352)
-----------------------------------
Net increase in net assets derived from capital transactions ........ 473,950,845 237,069,706
-----------------------------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ........................................ 835,398,449 377,191,421
Beginning of period ................................................. 1,831,300,297 1,454,108,876
-----------------------------------
End of period ....................................................... $ 2,666,698,746 $ 1,831,300,297
===================================
See Notes to Financial Statements.
Financial Highlights Master Large Cap Core Portfolio
For the Year Ended
October 31,
The following ratios have been derived from information ------------------------------------------------------------------
provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 18.35 9.61 25.11 (8.13%) --
==================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .51 .52 .54 .57% .67%
==================================================================
Investment income -- net ............... .72 .57 .48 .83% .59%
==================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,666,699 $1,831,300 $1,454,109 $873,704 $412,836
==================================================================
Portfolio turnover ..................... 93.95 135.48 138.73 150.18% 162.28%
==================================================================
* Total investment return is required to be disclosed for fiscal years
beginning after December 15, 2000.
See Notes to Financial Statements.
30 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Notes to Financial Statements Master Large Cap Core Portfolio
1. Significant Accounting Policies:
Master Large Cap Core Portfolio (the "Portfolio") is a series 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. 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 based upon quoted fair valuations
received daily by the Portfolio from a pricing service or counterparty.
Financial futures contracts and options thereon, which are traded on exchanges,
are valued at their last sale price as of the close of such exchanges.
Obligations with remaining maturities of 60 days or less are valued at amortized
cost unless the Investment Adviser believes that this method no longer produces
fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The 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 Portfolio agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value of
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 31
Notes to Financial Statements (continued) Master Large Cap Core Portfolio
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.
(c) 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.
(d) 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.
(e) 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 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.
(f) Custodian bank -- The Portfolio recorded an amount payable to the custodian
bank reflecting an overnight overdraft, which resulted from a failed trade that
settled the next day.
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
32 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Notes to Financial Statements (concluded) Master Large Cap Core Portfolio
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"), an affiliate of FAM, or its affiliates.
As of October 31, 2005, the Portfolio lent securities with a value of
$11,244,452 to MLPF&S or its affiliates. Pursuant to that order, the Portfolio
also has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an
affiliate of FAM, as the securities lending agent for a fee based on a share of
the returns on investment of cash collateral. MLIM, LLC may, on behalf of the
Portfolio, invest cash collateral received by the Portfolio for such loans,
among other things, in a private investment company managed by MLIM, LLC or in
registered money market funds advised by FAM or its affiliates. For the year
ended October 31, 2005, MLIM, LLC received $77,387 in securities lending agent
fees.
For the year ended October 31, 2005, the Portfolio reimbursed FAM $53,670 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, MLAM U.K., ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 2005 were $2,674,748,983 and $2,184,746,762,
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, which
expires November 2005 and was subsequently renewed for one year under
substantially the same terms. 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 year ended October 31, 2005.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 33
Report of Independent Registered Public Accounting Firm
Master Large Cap Core Portfolio
To the Investors and Board of Trustees of
Master Large Cap Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of Master Large Cap Core Portfolio, one of the
portfolios constituting Master Large Cap Series Trust (the "Trust"), as of
October 31, 2005, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Master
Large Cap Core Portfolio of Master Large Cap Series Trust as of October 31,
2005, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 19, 2005
34 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Officers and Trustees of Master Large Cap Series Trust
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of MLIM/FAM-advised funds since 2005; 131 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 174 Portfolios
08543-9011 Trustee (Americas Region) thereof from 2000 to 2001 and
Age: 51 Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
since 2001; Chief Investment Officer of Oppenheimer-
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or
FAM acts as investment adviser. Mr. Doll is an "interested person," as described in the Investment Company Act, of the
Trust based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators. Trustees serve
until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President,
Mr. Doll serves at the pleasure of the Board of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Trustee 1999 to Director, The China Business Group, Inc. since 1996 39 Funds None
Bodurtha** Princeton, NJ present and Executive Vice President thereof from 1996 to 59 Portfolios
08543-9095 2003; Chairman of the Board, Berkshire Holding
Age: 61 Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Trustee 2005 to Professor, Harvard University since 1992; 39 Funds None
Froot Princeton, NJ present Professor, Massachusetts Institute of Technology 59 Portfolios
08543-9095 from 1986 to 1992.
Age: 48
- ------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Trustee 2002 to Member of the Committee of Investment of Employee 39 Funds Kimco Realty
Grills** Princeton, NJ present Benefit Assets of the Association of Financial 59 Portfolios Corporation
08543-9095 Professionals ("CIEBA") since 1986; Member of
Age: 70 CIEBA's Executive Committee since 1988 and its
Chairman from 1991 to 1992; Assistant Treasurer
of International Business Machines Corporation
("IBM") and Chief Investment Officer of IBM
Retirement Funds from 1986 to 1993; Member of
Investment Advisory Committee of the State of
New York Common Retirement Fund since 1989;
Member of the Investment Advisory Committee of
the Howard Hughes Medical Institute from 1997 to
2000; Director, Duke University Management Company
from 1992 to 2004, Vice Chairman thereof from 1998
to 2004 and Director Emeritus thereof since 2004;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of
the Virginia Retirement System since 1998, Vice
Chairman thereof from 2002 to 2005, and Chairman
thereof since 2005; Director, Montpelier Foundation
since 1998 and its Vice Chairman since 2000;
Member of the Investment Committee of the
Woodberry Forest School since 2000; Member of
the Investment Committee of the National Trust
for Historic Preservation since 2000.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 35
Officers and Trustees of Master Large Cap Series Trust (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Trustee 1999 to John M. Olin Professor of Humanities, New York 39 Funds None
London Princeton, NJ present University since 1993 and Professor thereof since 59 Portfolios
08543-9095 1980; President, Hudson Institute since 1997 and
Age: 66 Trustee thereof since 1980; Dean, Gallatin Division
of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Trustee 1999 to Shareholder, Modrall, Sperling, Roehl, Harris & Sisk, 39 Funds None
Cooper Princeton, NJ present P.A. since 1993; President, American Bar Association 59 Portfolios
Ramo 08543-9095 from 1995 to 1996 and Member of the Board of
Age: 63 Governors thereof from 1994 to 1997; Shareholder,
Poole, Kelly & Ramo, Attorneys at Law, P.C. from
1977 to 1993; Director of ECMC Group (service
provider to students, schools and lenders) since 2001;
Director, United New Mexico Bank (now Wells Fargo)
from 1983 to 1988; Director, First National Bank of
New Mexico (now Wells Fargo) from 1975 to 1976;
Vice President, American Law Institute since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Trustee 2002 to Principal ofSTI Management (investment adviser) 39 Funds None
Salomon, Princeton, NJ present since 1994; Chairman andCEO of Salomon Brothers 59 Portfolios
Jr. 08543-9095 Asset Management from 1992 to 1995; Chairman
Age: 68 of Salomon Brothers Equity Mutual Funds from 1992
to 1995; regular columnist with Forbes Magazine
from 1992 to 2002; Director of Stock Research and
U.S. Equity Strategist at Salomon Brothers from 1975
to 1991; Trustee, Commonfund from 1980 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Trustee 2002 to Chairman of Fernwood Advisors, Inc. (investment 40 Funds None
Swensrud Princeton, NJ present adviser) since 1996; Principal, Fernwood Associates 60 Portfolios
08543-9095 (financial consultants) since 1975; Chairman of
Age: 72 R.P.P. Corporation (manufacturing company) since
1978; Director of International Mobile
Communications, Inc. (telecommunications) since 1998.
------------------------------------------------------------------------------------------------------------------------
* Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Co-Chairman of the Board and the Audit Committee.
36 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Officers and Trustees of Master Large Cap Series Trust (concluded)
Position(s) Length of
Held with Time
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Trust Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1999 First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President to Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and present since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
Age: 45 Treasurer President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 54 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* Officers of the Trust serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Trust's Officers and Trustees is available in the Trust's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Disclosure of Investment Advisory Agreement
Activities of and Composition of the Board of Trustees
All but one member of the Board of Trustees of Merrill Lynch Core Principal
Protected Fund (the "Fund") is an independent Trustee whose only affiliation
with Fund Asset Management, L.P. (the "Investment Adviser") or other Merrill
Lynch affiliates is as a Trustee of the Fund and certain other funds advised by
the Investment Adviser or its affiliates. The Chair of the Board is also an
independent Trustee. All but one member of the Board of Trustees of Master Large
Cap Core Portfolio (the "Portfolio"), the master fund into which the Fund
invests a portion of its assets, the members of which are different from the
Fund's Board of Trustees, is a non- interested Trustee as that term is defined
in the Investment Company Act of 1940, whose only association with the
Investment Adviser or other Merrill Lynch affiliates is as a Trustee of the
Portfolio and of certain other funds advised by the Investment Adviser or its
affiliates. The Co-chairmen of the Portfolio's Board are independent Trustees.
New Trustee nominees for each Board are chosen as nominees by a Nominating
Committee comprised of independent Trustees. All independent Trustees also are
members of the appropriate Board's Audit Committee and the independent Trustees
meet in executive session at each in-person Board meeting. Each Board and each
Audit Committee meet in person for at least two days each quarter and conduct
other in person and telephone meetings throughout the year, some of which are
formal board meetings, and some of which are informational meetings. The
independent counsel to each group of independent Trustees attends all in-person
Board and Audit Committee meetings and other meetings at the independent
Trustees' request.
Investment Advisory Agreement -- Matters Considered by the Boards
Every year the Portfolio Board considers approval of the Portfolio's investment
advisory agreement. The Portfolio Board also annually reviews and considers
approval of the sub-advisory agreement on behalf of the Portfolio between the
Investment Adviser and an affiliate. Every year the Fund
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 37
Disclosure of Investment Advisory Agreement (continued)
Board considers approval of the Fund's investment advisory agreement, taking
into consideration the Portfolio's investment advisory and sub-advisory
agreement (together, the "Investment Advisory Agreements"). Each Board assesses
the nature, scope and quality of the services provided to the Portfolio and the
Fund by the personnel of the Investment Adviser, the sub-adviser and their
affiliates, including administrative services, shareholder services, oversight
of fund accounting, marketing services and assistance in meeting legal and
regulatory requirements. Each Board also receives and assesses information
regarding the services provided to the Portfolio and the Fund by certain
unaffiliated service providers.
At various times throughout the year, each Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates, including the sub-adviser. Among the
matters considered are: (a) fees (in addition to management fees) paid to the
Investment Adviser and its affiliates by the Portfolio and/or the Fund, such as
transfer agency fees and fees for marketing and distribution; (b) Portfolio or
Fund operating expenses paid to third parties; (c) the resources devoted to and
compliance reports relating to the Portfolio's and the Fund's investment
objective, policies and restrictions, and its compliance with its Code of Ethics
and the Investment Adviser's compliance policies and procedures; and (d) the
nature, cost and character of non-investment management services provided by the
Investment Adviser and its affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by the
Investment Adviser to be of high quality. The Board also believes that the
Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated with one of America's largest financial firms.
The Board works closely with the Investment Adviser in overseeing the Investment
Adviser's efforts to achieve good performance. As part of this effort, the Board
discusses portfolio manager effectiveness and, when performance is not
satisfactory, discusses with the Investment Adviser taking steps such as
changing investment personnel.
Annual Consideration of Approval by the Board of Trustees
In the period prior to the Board meetings to consider renewal of the Investment
Advisory Agreement, each Board requests and receives materials specifically
relating to the Investment Advisory Agreements. These materials include (a)
information compiled by Lipper Inc. ("Lipper") on the fees and expenses and the
investment performance of the Fund as compared to a comparable group of funds as
classified by Lipper; (b) sales and redemption data for the Fund; (c) a
discussion by the Portfolio's/Fund's portfolio management team of investment
strategies used by the Portfolio/Fund during its most recent fiscal year; (d)
information on the profitability to the Investment Adviser and its affiliates of
the Investment Advisory Agreements and other relationships with the Fund; and
(e) information provided by the Investment Adviser concerning investment
advisory fees charged to other clients, such as offshore funds under similar
investment mandates and generally to institutional clients. Since the
sub-advisory services are provided by Merrill Lynch Asset Management U.K.
Limited, an affiliate of the Investment Adviser, and no additional fee is paid
for these services, the Boards considered the sub-advisory agreement as part of
the Investment Advisory Agreements. Each Board also considers other matters it
deems important to the approval process such as payments made to the Investment
Adviser or its affiliates relating to the distribution of Fund shares, services
related to the valuation and pricing of Portfolio or Fund portfolio holdings,
allocation of Portfolio or Fund brokerage fees, the Fund's portfolio turnover
statistics, and direct and indirect benefits to the Investment Adviser and the
sub-adviser and their affiliates from their relationship with the Portfolio and
the Fund.
Certain Specific Renewal Data
In connection with the most recent renewal of the Investment Advisory Agreements
in May 2005, the independent Trustees' and Board's review included the
following:
Services Provided by the Investment Adviser -- Each Board reviewed the nature,
extent and quality of services provided by the Investment Adviser, including the
investment advisory services and the resulting performance of the Portfolio and
the Fund. Each Board focused primarily on the Investment Adviser's investment
advisory services and the Portfolio's/ Fund's investment performance. Each Board
compared Fund performance -- both including and excluding the effects of the
Fund's fees and expenses -- to the performance of a comparable group of funds,
and the performance of a relevant index or combination of indexes. While each
Board reviews performance data at least quarterly, consistent with the
Investment Adviser's investment goals, the Board attaches more importance to
performance over relatively long periods of time, typically three to five years
or, in the case of a fund that has been in existence for less than three years,
performance since inception. The Fund's performance
38 MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005
Disclosure of Investment Advisory Agreement (concluded)
after fees and expenses ranked in the first quintile for the one-year period
ended March 31, 2005 and the first quintile for the period since inception
through March 31, 2005. Considering these factors, each Board concluded that the
Fund's performance supported the continuation of the Investment Advisory
Agreements.
The Investment Adviser's Personnel and Investment Process -- Each Board reviews
at least annually the Portfolio's/Fund's investment objectives and strategies.
Each Board discusses with senior management of the Investment Adviser
responsible for investment operations and the senior management of the
Investment Adviser's equity investing group the strategies being used to achieve
the stated objectives. Among other things, each Board considers the size,
education and experience of the Investment Adviser's investment staff, its use
of technology, and the Investment Adviser's approach to training and retaining
portfolio managers and other research, advisory and management personnel. Each
Board also reviews the Investment Adviser's compensation policies and practices
with respect to the Portfolio's and the Fund's portfolio managers. Each Board
also considered the experience of the Portfolio's and the Fund's portfolio
manager and noted that Mr. Doll has more than 20 years experience in portfolio
management. The Investment Adviser and its investment staff have extensive
experience in analyzing and managing the types of investments used by the
Portfolio and the Fund. Each Board concluded that each of the Portfolio and the
Fund benefits from that expertise.
Management Fees and Other Expenses -- Each Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. Each Board considered the services
provided to and the fees charged by the Investment Adviser to other types of
clients such as off-shore funds, with similar investment mandates and noted that
the fees charged by the Investment Adviser in those cases typically exceeded
those being charged to the Fund. Each Board also noted that, as a general
matter, fees charged to institutional clients were lower than the fees charged
to the Fund, but believed that less extensive services were being provided to
such clients. The Fund's contractual management fees and total expenses were
equal to the median of fees and expenses charged by comparable funds as
determined by Lipper. The Fund's actual management fees were higher than the
median fees of such comparable funds. Each Board has concluded that the
Portfolio's and the Fund's management fees and fee rates and overall expense
ratios were reasonable compared to those of other comparable funds.
Profitability -- Each Board considers the cost of the services provided to the
Portfolio and the Fund by the Investment Adviser, and the Investment Adviser's
and its affiliates' profits relating to the management and distribution of the
Fund and the MLIM/FAM-advised funds. As part of its analysis, the Board reviewed
the Investment Adviser's methodology in allocating its costs to the management
of the Fund and concluded that there was a reasonable basis for the allocation.
Each Board believes the Investment Adviser's profits are reasonable in relation
to the nature and quality of services provided. Each Board also considered the
federal court decisions discussing an investment adviser's profitability and
profitability levels considered to be reasonable in those decisions.
Economies of Scale -- Each Board considered the extent to which economies of
scale might be realized as the assets of the Portfolio/Fund increase and whether
there should be changes in the management fee rate or structure in order to
enable the Portfolio/Fund to participate in these economies of scale. Each Board
noted that the Portfolio's management fee schedule includes breakpoints that
reduce the management fee rate as the Portfolio's assets increase above certain
levels. The Boards also noted that such breakpoints should allow the Fund to
share in such economies of scale as its assets increase. The Fund Board also
considered the Investment Adviser's agreement to waive the Fund's advisory fee
by the amount it pays to the Portfolio's investment adviser. The Fund Board also
noted that if all the Fund's assets are irreversibly allocated to the Fund's
Protection Component under the terms of the Warranty Agreement, the management
fee will be reduced to 0.25%. While there was no evidence to date that the
Portfolio's or the Fund's assets have reached a level where such economies are
effectively available, each Board will continue to seek information relating to
economies of scale.
Conclusion
After the independent Trustees deliberated in executive session, the entire
Board of each of the Portfolio and the Fund, including all of the independent
Trustees, approved the renewal of the existing Investment Advisory Agreements,
including the sub-advisory agreement, concluding that the advisory fee was
reasonable in relation to the services provided and that a contract renewal was
in the best interests of the applicable shareholders.
MERRILL LYNCH CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 39
[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
Of Merrill Lynch Principal Protected Trust
Box 9011
Princeton, NJ
08543-9011
#CPP -- 10/05
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of
the end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) David O.
Beim, (2) W. Carl Kester, (3) James T. Flynn and (4) Karen P. Robards.
The registrant's board of directors has determined that David O. Beim,
W. Carl Kester and Karen P. Robards qualify as financial experts
pursuant to Item 3(c)(4) of Form N-CSR.
Mr. Beim has a thorough understanding of generally accepted accounting
principles, financial statements and internal control over financial
reporting as well as audit committee functions. For 25 years, Mr. Beim
was an investment banker actively engaged in financial analysis for
securities transactions and mergers. These transactions presented a
breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the Registrant's financial statements. Mr.
Beim has also been a professor of finance and economics at the Columbia
University Graduate School of Business for the past 12 years.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control over
financial reporting as well as audit committee functions. Prof. Kester
has been involved in providing valuation and other financial consulting
services to corporate clients since 1978. Prof. Kester's financial
consulting services present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the Registrant's financial statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control over
financial reporting as well as audit committee functions. Ms. Robards
has been President of Robards & Company, a financial advisory firm,
since 1987. Ms. Robards was formerly an investment banker for more than
10 years where she was responsible for evaluating and assessing the
performance of companies based on their financial results. Ms. Robards
has over 30 years of experience analyzing financial statements. She
also is the member of the Audit Committees of two privately held
companies and a non-profit organization.
Item 4 - Principal Accountant Fees and Services
Merrill Lynch Core Principal Protected Fund of Merrill Lynch Principal
Protected Trust
(a) Audit Fees - Fiscal Year Ending October 31, 2005 - $26,500
Fiscal Year Ending October 31, 2004 - $25,000
(b) Audit-Related Fees - Fiscal Year Ending October 31, 2005 - $0
Fiscal Year Ending October 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending October 31, 2005 - $5,700
Fiscal Year Ending October 31, 2004 - $5,800
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2005 - $0
Fiscal Year Ending October 31, 2004 - $0
Master Large Cap Core Portfolio of Master Large Cap Series Trust
(a) Audit Fees - Fiscal Year Ending October 31, 2005 - $35,000
Fiscal Year Ending October 31, 2004 - $33,000
(b) Audit-Related Fees - Fiscal Year Ending October 31, 2005 - $0
Fiscal Year Ending October 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending October 31, 2005 - $8,700
Fiscal Year Ending October 31, 2004 - $8,000
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2005 - $0
Fiscal Year Ending October 31, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending October 31, 2005 - $6,277,749
Fiscal Year Ending October 31, 2004 - $13,270,096
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,227,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our
evaluation of these controls and procedures as of a date within 90 days
prior to the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch 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: December 16, 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: December 16, 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: December 16, 2005