MERRILL LYNCH
LARGE CAP
VALUE FUND
Merrill Lynch
Large Cap Series Funds, Inc.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
October 31, 2000
<PAGE>
MERRILL LYNCH LARGE CAP VALUE FUND
Officers and Directors/Trustees
Terry K. Glenn, President and Director/Trustee
James H. Bodurtha, Director/Trustee
Herbert I. London, Director/Trustee
Joseph L. May, Director/Trustee
Andre F. Perold, Director/Trustee
Roberta Cooper Ramo, Director/Trustee
Arthur Zeikel, Director/Trustee
Robert C. Doll, Jr., Senior Vice President and
Portfolio Manager
Linda J. Gardner, Vice President
Philip E. Laverson, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Portfolio Information As of 10/31/00
Percent of
Ten Largest Equity Holdings Net Assets
Exxon Mobil Corporation .............................................. 2.5%
Merck & Co., Inc. .................................................... 2.2
Philip Morris Companies Inc. ......................................... 2.0
Chevron Corporation .................................................. 1.7
The Boeing Company ................................................... 1.6
Citigroup Inc. ....................................................... 1.5
Bank of America Corporation .......................................... 1.4
FleetBoston Financial Corporation .................................... 1.4
Texaco Inc. .......................................................... 1.2
CIGNA Corporation .................................................... 1.2
Percent of
Ten Largest Industries Net Assets
Financial Services ................................................... 6.3%
Oil--Integrated ...................................................... 6.0
Petroleum ............................................................ 5.0
Insurance ............................................................ 4.9
Electronics .......................................................... 4.2
Banking .............................................................. 3.9
Pharmaceuticals ...................................................... 3.1
Oil Services ......................................................... 3.1
Aerospace ............................................................ 2.6
Oil--International Integrated ........................................ 2.5
<PAGE>
Merrill Lynch Large Cap Value Fund, October 31, 2000
DEAR SHAREHOLDER
During the last 10 years, we have witnessed excellent management from the
executive branch of government and from the Federal Reserve Board. Some believe
that the higher-than-normal price/earnings multiples we are enjoying are a
reflection of the confidence gained through skillful management executed by the
financial regulators of our country. After six interest rate increases in 12
months, the Federal Reserve Board has opted to put monetary policy on hold.
It now appears that interest rates will not be raised unless further increases
in inflation are evident and/or the stock market and economy appear to
re-energize, which would force the Federal Reserve Board to make a preemptive
strike. There is no doubt that the interest rate increases have had an impact on
the growth rate of the economy, which had been reaching boom status. In
particular, interest rate-sensitive consumer areas have all retreated somewhat.
Most important, the NASDAQ went through a major decline in March, falling by
40%, shaking confidence in technology stocks and damaging the psyche for all
investors. With stock options so prevalent in technology stocks, the impact of
that fall was negative for retail consumption.
The rate change in retail sales has been more coincident with the NASDAQ's
volatility in this cycle than in any other cycle since the post World War II
period. The prevalence of stock options and aggressive trading by many has made
the retail sales cycle, and, therefore, the economy, subject to the volatility
that is being witnessed in these markets. However, history shows that retail
sales weakness reflecting stock market declines does not last very long if stock
prices recover.
The Federal Reserve Board faces the same pressures that it was confronted with
at the beginning of the year. If the economy and the markets continue to move
forward in the second half of this year, further interest rate increases will be
necessary. While there has been some slowdown, employment numbers continue to be
healthy, total retail sales trends are still good and many retailers are now
planning an increase in promotions to stimulate sales even further. Underlying
this is that consumer confidence is still near an all-time high. Personal income
is now growing ahead of consumption, indicating that consumers have the ability
to be more aggressive on the retail sales front if the outlook brightens.
So far this year, the major market averages have been mixed. The market has been
a battleground for old economy stocks relative to new economy stocks, as
witnessed by the shifts between the two groups. Old economy stocks are purchased
gingerly when the market outlook is unfavorable, and new economy stocks are
gobbled up aggressively during periods of optimism and recovery. The tremendous
flow of funds in the early part of the year could not lift stock prices, and now
the flow of funds into equities is starting to recede. The public's enormous
asset allocation shift during the 1990s, which doubled exposure to equities and
reduced exposure to fixed-income and liquid assets, may actually be slowing.
Therefore, the flow of funds going into the market is not likely to be as
powerful as it was during the past decade. This makes the upside potential of
the market somewhat questionable and the potential downside greater if things go
wrong in the Federal Reserve Board's management of the financial arena.
Fiscal Year in Review
The Fund invests primarily in a diversified portfolio of equity securities of
large cap companies that Fund management selects from among those included in
the unmanaged Russell 1000(R) Value Index. Our investment process attempts to
add value through both security selection and portfolio construction. Security
selection involves the use of quantitative selection criteria including earnings
momentum, earnings surprise and valuation. These criteria are input into a
proprietary quantitative model and are subject to selective fundamental
overrides. Portfolio construction consists of an optimization process with risk
management controlling style, capitalization, sector and individual security
selection.
Since inception (December 22, 1999) through October 31, 2000, the Fund's Class
A, Class B, Class C and Class D Shares had total returns of +16.40%, +15.40%,
+15.40% and +16.10%, respectively. (Fund results shown reflect the effect of fee
waiver and expense reimbursement, but do not reflect sales charges, and would be
lower if sales charges were included. Complete performance information can be
found on pages 3-5 of this report to shareholders.) This compares favorably to
the +8.09% total return of the benchmark unmanaged Russell 1000 Value Index for
the same period. Our investment outperformance was largely attributable to
contributions from superior stock selection and sector weightings in technology
and healthcare as well as a significant underweighting in communication
services. Specific securities contributing positively to performance included
Scientific-Atlanta, Inc. and Advanced Micro Devices, Inc.
We are positioned for some reduction in market uncertainties after the
presidential election, hoping for a year-end rally with some renewed confidence
in the longevity of the business cycle and achievement of a soft landing.
Accordingly, we are overweighted in energy and technology, while retaining
underweights in financials and communication services. We remain tilted toward
the lower end of the permissible capitalization range, as we anticipate
continued outperformance of mid cap and large cap securities relative to mega
cap securities.
In Conclusion
We thank you for your investment in Merrill Lynch Large Cap Value Fund, and we
look forward to reviewing our outlook and strategy with you in our next report
to shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director/Trustee
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
Senior Vice President and
Portfolio Manager
December 4, 2000
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select Pricing(SM) System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
A Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.75% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 8 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Recent Performance Results" and
"Aggregate Total Return" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the ex-dividend date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different
levels of account maintenance, distribution and transfer agency fees
applicable to each class, which are deducted from the income available to
be paid to shareholders. The Fund's Investment Adviser voluntarily waived
a portion of its management fee. Without such waiver, the Fund's
performance would have been lower.
2 & 3
<PAGE>
Merrill Lynch Large Cap Value Fund, October 31, 2000
PERFORMANCE DATA (concluded)
Recent Performance Results*
6 Month Since Inception
As of October 31, 2000 Total Return Total Return
================================================================================
ML Large Cap Value Fund Class A Shares +7.28% +16.40%
--------------------------------------------------------------------------------
ML Large Cap Value Fund Class B Shares +6.65 +15.40
--------------------------------------------------------------------------------
ML Large Cap Value Fund Class C Shares +6.65 +15.40
--------------------------------------------------------------------------------
ML Large Cap Value Fund Class D Shares +7.10 +16.10
================================================================================
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. Performance results are for a limited asset
pool. The Fund's inception date is 12/22/99.
Total Return Based on a $10,000 Investment--Class A Shares and Class B Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class B Shares compared to growth of an investment in the Russell 1000 Value
Index. Beginning and ending values are:
12/22/99** 10/00
Merrill Lynch Large Cap Value Fund+--Class A Shares* $ 9,475 $11,029
Merrill Lynch Large Cap Value Fund+--Class B Shares* $10,000 $11,140
Russell 1000 Value Index++ $10,000 $10,809
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Large Cap Value Fund invests all of its assets in Master Large Cap
Value 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 are undervalued.
++ This unmanaged broad-based Index is a subset of the Russell 1000 Index
consisting of those Russell 1000 securities with lower price/book ratios
and lower forecasted growth values.
Past performance is not predictive of future performance.
Aggregate Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Inception (12/22/99) through 9/30/00 +13.10% +7.16%
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Inception (12/22/99) through 9/30/00 +12.30% +8.30%
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the Russell 1000 Value
Index. Beginning and ending values are:
12/22/99** 10/00
Merrill Lynch Large Cap Value Fund+--Class C Shares* $10,000 $11,440
Merrill Lynch Large Cap Value Fund+--Class D Shares* $ 9,475 $11,000
Russell 1000 Value Index++ $10,000 $10,809
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Large Cap Value Fund invests all of its assets in Master Large Cap
Value 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 are undervalued.
++ This unmanaged broad-based Index is a subset of the Russell 1000 Index
consisting of those Russell 1000 securities with lower price/book ratios
and lower forecasted growth values.
Past performance is not predictive of future performance.
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Inception (12/22/99) through 9/30/00 +12.30% +11.30%
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Inception (12/22/99) through 9/30/00 +12.90% +6.97%
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge. Merrill Lynch Large Cap Value Fund, October
31, 2000
4 & 5
<PAGE>
Merrill Lynch Large Cap Value Fund, October 31, 2000
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
LARGE CAP
VALUE FUND As of October 31, 2000
===============================================================================
Assets: Investment in Master Large Cap Value Portfolio,
at value (identified cost--$73,373,542) ........ $ 76,553,096
Prepaid registration fees and other assets ....... 44,167
------------
Total assets ..................................... 76,597,263
------------
===============================================================================
Liabilities: Payable to distributor ........................... 23,545
Other liabilities ................................ 63,625
------------
Total liabilities ................................ 87,170
------------
===============================================================================
Net Assets: Net assets ....................................... $ 76,510,093
============
===============================================================================
Net Assets Class A Shares of Common Stock, $.10 par value,
Consist of: 100,000,000 shares authorized .................. $ 139,297
Class B Shares of Common Stock, $.10 par value,
200,000,000 shares authorized .................. 312,310
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized .................. 137,683
Class D Shares of Common Stock, $.10 par value,
100,000,000 shares authorized .................. 72,143
Paid-in capital in excess of par ................. 72,920,945
Accumulated realized capital losses on investments
from the Portfolio--net ........................ (251,839)
Unrealized appreciation on investments from the
Portfolio--net ................................. 3,179,554
------------
Net assets ....................................... $ 76,510,093
============
===============================================================================
Net Asset Class A--Based on net assets of $16,211,291 and
Value: 1,392,967 shares outstanding ................... $ 11.64
============
Class B--Based on net assets of $36,037,226 and
3,123,097 shares outstanding ................... $ 11.54
============
Class C--Based on net assets of $15,884,921 and
1,376,833 shares outstanding ................... $ 11.54
============
Class D--Based on net assets of $8,376,655 and
721,425 shares outstanding ..................... $ 11.61
============
===============================================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
LARGE CAP
VALUE FUND For the Period December 22, 1999+ to October 31, 2000
============================================================================================================
<C> <S> <C> <C>
Investment Investment income allocated from the Portfolio ............... $ 86,072
Income (Loss): Expenses allocated from the Portfolio ........................ (74,855)
----------
Net investment income from the Portfolio ..................... 11,217
----------
============================================================================================================
Expenses: Registration fees ............................................ $ 94,675
Offering costs ............................................... 35,833
Account maintenance and distribution fees--Class B ........... 22,373
Account maintenance and distribution fees--Class C ........... 8,751
Printing and shareholder reports ............................. 6,800
Professional fees ............................................ 3,500
Accounting services .......................................... 2,120
Account maintenance fees--Class D ............................ 1,442
Transfer agent fees--Class A ................................. 1,042
Transfer agent fees--Class B ................................. 487
Transfer agent fees--Class C ................................. 221
Transfer agent fees--Class D ................................. 129
Other ........................................................ 944
----------
Total expenses before reimbursement .......................... 178,317
Reimbursement of expenses .................................... (131,257)
----------
Total expenses after reimbursement ........................... 47,060
----------
Investment loss--net ......................................... (35,843)
----------
============================================================================================================
Realized & Realized loss on investments from the Portfolio--net ......... (251,839)
Unrealized Gain Unrealized appreciation on investments from the Portfolio--net 3,179,554
(Loss) From the ----------
Portfolio--Net: Net Increase in Net Assets Resulting from Operations $2,891,872
==========
============================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
LARGE CAP Dec. 22, 1999+ to
VALUE FUND Increase (Decrease) in Net Assets: October 31, 2000
==================================================================================================
<C> <S> <C>
Operations: Investment loss--net ............................................. $ (35,843)
Realized loss on investments from the Portfolio--net ............. (251,839)
Unrealized appreciation on investments from the Portfolio--net ... 3,179,554
------------
Net increase in net assets resulting from operations ............. 2,891,872
------------
==================================================================================================
Capital Share Net increase in net assets derived from capital share transactions 73,118,221
Transactions: ------------
==================================================================================================
Net Assets: Total increase in net assets ..................................... 76,010,093
Beginning of period .............................................. 500,000
------------
End of period .................................................... $ 76,510,093
============
==================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
6 & 7
<PAGE>
Merrill Lynch Large Cap Value Fund, October 31, 2000
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios
MERRILL have been derived from information provided
LYNCH in the financial statements. For the Period Dec. 22, 1999+ to Oct. 31, 2000
LARGE CAP -------------------------------------------------------------
VALUE FUND Increase (Decrease) in Net Asset Value: Class A Class B Class C Class D
===============================================================================================================================
<C> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ...... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Operating ---------- ---------- ---------- ----------
Performance: Investment loss--net ...................... --++++ (.01) (.01) --++++
Realized and unrealized gain on investments
from the Portfolio--net ................. 1.64 1.55 1.55 1.61
---------- ---------- ---------- ----------
Total from investment operations .......... 1.64 1.54 1.54 1.61
---------- ---------- ---------- ----------
Net asset value, end of period ............ $ 11.64 $ 11.54 $ 11.54 $ 11.61
========== ========== ========== ==========
===============================================================================================================================
Total Investment Based on net asset value per share ........ 16.40%+++ 15.40%+++ 15.40%+++ 16.10%+++
Return:** ========== ========== ========== ==========
===============================================================================================================================
Ratios to Average Expenses, net of reimbursement++ .......... 1.32%* 2.55%* 2.54%* 1.74%*
Net Assets: ========== ========== ========== ==========
Expenses++ ................................ 5.32%* 3.91%* 4.05%* 3.78%*
========== ========== ========== ==========
Investment loss--net ...................... (.07%)* (1.05%)* (1.04%)* (.25%)*
========== ========== ========== ==========
===============================================================================================================================
Supplemental Net assets, end of period (in thousands) .. $ 16,211 $ 36,037 $ 15,885 $ 8,377
Data: ========== ========== ========== ==========
===============================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
+++ Aggregate total investment return.
++++ Amount is less than $.01 per share.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH LARGE CAP VALUE FUND
1. Significant Accounting Policies:
Merrill Lynch Large Cap Value Fund of Merrill Lynch Large Cap Series Funds, Inc.
(the "Fund") is registered under the Investment Company Act of 1940 as a
diversified mutual fund. The Fund seeks to achieve its investment objective by
investing all of its assets in the Master Large Cap Value Portfolio (the
"Portfolio"), which is a portfolio of Master Large Cap Series Trust that has the
same investment objective as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of the
Portfolio. The performance of the Fund is directly affected by the performance
of the Portfolio. The financial statements of the Portfolio, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. Prior to commencement of operations on
December 22, 1999, the Fund had no operations other than those relating to
organizational matters and the issuance of 50,000 capital shares of the Fund on
October 20, 1999 to Fund Asset Management, L.P. ("FAM") for $500,000. The Fund
offers four classes of shares under the Merrill Lynch Select Pricing(SM) System.
Shares of Class A and Class D 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 B, Class C and Class D
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.
The following is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments--Valuation of securities is discussed in Note 1a of
the Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
(b) Income--The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in conformity with accounting principles
generally accepted in the United States of America.
(c) 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 shareholders. Therefore,
no Federal income tax provision is required. Under the applicable foreign tax
law, a withholding tax may be imposed on interest, dividends and capital gains
at various rates.
(d) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(e) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted for on a
trade date basis.
(g) Reclassification--Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $35,843 have been
reclassified between paid-in capital in excess of par and accumulated net
investment loss. These reclassifications have no effect on net assets or net
asset values per share.
2. Transactions with Affiliates:
The Fund has 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.
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 B .......................................... .25% .75%
Class C .......................................... .25% .75%
Class D .......................................... .25% --
--------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D 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 period December 22, 1999 to October 31, 2000, FAM reimbursed the Fund
for expenses of $131,257.
For the period December 22, 1999 to October 31, 2000, FAMD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's Class D
Shares as follows:
--------------------------------------------------------------------------------
FAMD MLPF&S
--------------------------------------------------------------------------------
Class D ................................................. $812 $139,128
--------------------------------------------------------------------------------
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned subsidiary of ML
& Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, FAMD, FDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Portfolio for the period
December 22, 1999 to October 31, 2000 were $73,831,816 and $217,653,
respectively.
8 & 9
<PAGE>
Merrill Lynch Large Cap Value Fund, October 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH LARGE CAP VALUE FUND
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$73,118,221 for the period December 22, 1999 to October 31, 2000.
Transactions in capital shares for each class were as follows:
-------------------------------------------------------------------------------
Class A Shares for the Period Dollar
December 22, 1999+ to October 31, 2000 Shares Amount
-------------------------------------------------------------------------------
Shares sold ............................ 1,392,726 $15,468,318
Shares redeemed ........................ (12,259) (136,927)
--------- -----------
Net increase ........................... 1,380,467 $15,331,391
========= ===========
-------------------------------------------------------------------------------
+ Prior to December 22, 1999 (commencement of operations), the Fund issued
12,500 shares to FAM for $125,000.
-------------------------------------------------------------------------------
Class B Shares for the Period Dollar
December 22, 1999+ to October 31, 2000 Shares Amount
-------------------------------------------------------------------------------
Shares sold ............................ 3,143,539 $35,034,547
Shares redeemed ........................ (32,942) (363,249)
--------- -----------
Net increase ........................... 3,110,597 $34,671,298
========= ===========
-------------------------------------------------------------------------------
+ Prior to December 22, 1999 (commencement of operations), the Fund issued
12,500 shares to FAM for $125,000.
-------------------------------------------------------------------------------
Class C Shares for the Period Dollar
December 22, 1999+ to October 31, 2000 Shares Amount
-------------------------------------------------------------------------------
Shares sold ............................ 1,374,022 $15,301,352
Shares redeemed ........................ (9,689) (107,437)
--------- -----------
Net increase ........................... 1,364,333 $15,193,915
========= ===========
-------------------------------------------------------------------------------
+ Prior to December 22, 1999 (commencement of operations), the Fund issued
12,500 shares to FAM for $125,000.
-------------------------------------------------------------------------------
Class D Shares for the Period Dollar
December 22, 1999+ to October 31, 2000 Shares Amount
-------------------------------------------------------------------------------
Shares sold ............................ 722,851 $ 8,073,304
Shares redeemed ........................ (13,926) (151,687)
------- -----------
Net increase ........................... 708,925 $ 7,921,617
======= ===========
-------------------------------------------------------------------------------
+ Prior to December 22, 1999 (commencement of operations), the Fund issued
12,500 shares to FAM for $125,000.
5. Capital Loss Carryforward:
At October 31, 2000, the Fund had a net capital loss carryforward of
approximately $149,000, all of which expires in 2008. This amount will be
available to offset like amounts of any future taxable gains.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Large Cap Value Fund
(One of the Series constituting Merrill Lynch
Large Cap Series Funds, Inc.):
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Large Cap Value Fund as of October 31, 2000, the related statements of
operations and changes in net assets, and the financial highlights for the
period December 22, 1999 (commencement of operations) to October 31, 2000. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Large
Cap Value Fund as of October 31, 2000, the results of its operations, the
changes in its net assets, and the financial highlights for the period December
22, 1999 (commencement of operations) to October 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
December 11, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Master Large Cap Value Portfolio
-----------------------------------------------------------------------------------------------------------
Shares Percent of
Industry Held Common Stocks Value Net Assets
===========================================================================================================
<S> <C> <C> <C> <C>
Aerospace 18,400 The Boeing Company $ 1,247,750 1.6%
21,600 Lockheed Martin Corporation 774,360 1.0
----------- -----
2,022,110 2.6
-----------------------------------------------------------------------------------------------------------
Aerospace & 6,100 Northrop Grumman Corporation 512,400 0.7
Defense
-----------------------------------------------------------------------------------------------------------
Banking 22,900 Bank of America Corporation 1,100,631 1.4
11,700 Capital One Financial Corporation 738,562 1.0
26,800 Golden State Bancorp Inc. 700,150 0.9
5,800 Northern Trust Corporation 495,175 0.6
----------- -----
3,034,518 3.9
-----------------------------------------------------------------------------------------------------------
Building Products 22,400 Valero Energy Corporation 740,600 1.0
-----------------------------------------------------------------------------------------------------------
Commercial Services 14,200 +Quanta Services, Inc. 441,088 0.6
-----------------------------------------------------------------------------------------------------------
Communications 12,200 SBC Communications Inc. 703,788 0.9
-----------------------------------------------------------------------------------------------------------
Computer Services 2,400 Electronic Data Systems Corporation 112,650 0.1
Electronics
-----------------------------------------------------------------------------------------------------------
Computer Services/ 1,000 International Business Machines Corporation 98,500 0.1
Software 8,100 +NCR Corporation 349,312 0.5
14,700 Steelcase Inc. (Class A) 259,088 0.3
18,300 +Tech Data Corporation 761,738 1.0
----------- -----
1,468,638 1.9
-----------------------------------------------------------------------------------------------------------
Computer Software 10,200 +Intuit Inc. 626,662 0.8
-----------------------------------------------------------------------------------------------------------
Computer Technology 15,200 +Solectron Corporation 668,800 0.9
-----------------------------------------------------------------------------------------------------------
</TABLE>
10 & 11
<PAGE>
Merrill Lynch Large Cap Value Fund, October 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Master Large Cap Value Portfolio (continued)
-----------------------------------------------------------------------------------------------------------
Shares Percent of
Industry Held Common Stocks Value Net Assets
===========================================================================================================
<S> <C> <C> <C> <C>
Computers & 10,700 +Apple Computer, Inc. $ 209,319 0.3%
Peripherals 14,500 +SanDisk Corporation 779,148 1.0
----------- -----
988,467 1.3
-----------------------------------------------------------------------------------------------------------
Drugs & Hospital 3,100 Hillenbrand Industries, Inc. 143,375 0.2
Supplies
-----------------------------------------------------------------------------------------------------------
Electric & Gas 28,400 PG&E Corporation 765,025 1.0
-----------------------------------------------------------------------------------------------------------
Electrical Equipment 27,400 AVX Corporation 784,325 1.0
-----------------------------------------------------------------------------------------------------------
Electronic Components 13,400 Avnet, Inc. 360,125 0.5
-----------------------------------------------------------------------------------------------------------
Electronics 23,300 +Arrow Electronics, Inc. 745,600 1.0
27,800 +Lattice Semiconductor Corporation 811,412 1.0
12,200 +SCI Systems, Inc. 524,600 0.7
5,400 +Tektronix, Inc. 384,750 0.5
26,200 +Vishay Intertechnology, Inc. 786,000 1.0
----------- -----
3,252,362 4.2
-----------------------------------------------------------------------------------------------------------
Electronics/Electrical 27,800 +Kemet Corp. 774,925 1.0
Components
-----------------------------------------------------------------------------------------------------------
Energy 20,100 Noble Affiliates, Inc. 737,419 1.0
-----------------------------------------------------------------------------------------------------------
Financial Services 21,600 Citigroup Inc. 1,136,700 1.5
27,500 FleetBoston Financial Corporation 1,045,000 1.4
18,200 +GreenPoint Financial Corp. 541,450 0.7
13,600 Lehman Brothers Holdings, Inc. 877,200 1.1
11,200 MBNA Corporation 420,700 0.5
18,900 Washington Mutual, Inc. 831,600 1.1
----------- -----
4,852,650 6.3
-----------------------------------------------------------------------------------------------------------
Financial Services-- 12,800 Household International, Inc. 644,000 0.8
Consumer
-----------------------------------------------------------------------------------------------------------
Food Services 36,900 +The Kroger Co. 832,556 1.1
-----------------------------------------------------------------------------------------------------------
Foods 30,200 ConAgra, Inc. 645,525 0.8
-----------------------------------------------------------------------------------------------------------
Health Care 9,900 +Trigon Healthcare, Inc. 709,706 0.9
7,700 UnitedHealth Group Incorporated 842,188 1.1
----------- -----
1,551,894 2.0
-----------------------------------------------------------------------------------------------------------
Health Maintenance 6,500 +Wellpoint Health Networks Inc. 760,094 1.0
Organizations
-----------------------------------------------------------------------------------------------------------
Health Services 8,100 +Express Scripts, Inc. (Class A) 544,219 0.7
-----------------------------------------------------------------------------------------------------------
Healthcare-- 22,900 HCA--The Healthcare Corporation 914,569 1.2
Products & Services
-----------------------------------------------------------------------------------------------------------
Home--Builders 16,300 +International Rectifier Corp. 727,387 0.9
-----------------------------------------------------------------------------------------------------------
Hospital Management 21,400 +Tenet Healthcare Corporation 841,288 1.1
-----------------------------------------------------------------------------------------------------------
Hospital Supplies 14,000 Abbott Laboratories 739,375 0.9
10,900 Baxter International Inc. 895,844 1.2
----------- -----
1,635,219 2.1
-----------------------------------------------------------------------------------------------------------
Hotels & Casinos 9,200 MGM Grand, Inc. 317,975 0.4
35,500 +Mandalay Resort Group 738,844 1.0
----------- -----
1,056,819 1.4
-----------------------------------------------------------------------------------------------------------
Information 14,900 First Data Corporation 746,862 1.0
Processing
-----------------------------------------------------------------------------------------------------------
Insurance 9,600 AFLAC Incorporated 701,400 0.9
7,200 American International Group, Inc. 705,600 0.9
7,700 CIGNA Corporation 939,015 1.2
33,300 KeyCorp 822,094 1.1
8,500 The PMI Group, Inc. 627,938 0.8
----------- -----
3,796,047 4.9
-----------------------------------------------------------------------------------------------------------
Insurance-- 26,900 Old Republic International Corporation 699,400 0.9
Multiline 5,800 The St. Paul Companies, Inc. 297,250 0.4
----------- -----
996,650 1.3
-----------------------------------------------------------------------------------------------------------
Internet Software 7,500 +Network Associates, Inc. 144,375 0.2
-----------------------------------------------------------------------------------------------------------
Internetworking 20,700 +CNET Networks, Inc. 652,050 0.8
-----------------------------------------------------------------------------------------------------------
Leisure 33,300 Brunswick Corporation 647,269 0.8
-----------------------------------------------------------------------------------------------------------
Medical 4,200 Beckman Coulter Inc. 294,262 0.4
1,600 +Lincare Holdings Inc. 67,300 0.1
----------- -----
361,562 0.5
-----------------------------------------------------------------------------------------------------------
Medical Services 6,000 +HEALTHSOUTH Corporation 72,000 0.1
8,100 +Quest Diagnostics Incorporated 779,625 1.0
8,700 +Universal Health Services, Inc. (Class B) 729,713 0.9
----------- -----
1,581,338 2.0
-----------------------------------------------------------------------------------------------------------
Medical Supplies 17,900 DENTSPLY International Inc. 620,906 0.8
-----------------------------------------------------------------------------------------------------------
Medical Technology 6,500 Johnson & Johnson 598,812 0.8
-----------------------------------------------------------------------------------------------------------
Oil 20,500 Ashland Inc. 671,375 0.9
5,100 Conoco Inc. (Class B) 138,656 0.2
----------- -----
810,031 1.1
-----------------------------------------------------------------------------------------------------------
Oil & Gas Producers 52,300 +Ocean Energy Inc. 725,663 0.9
27,300 Questar Corporation 738,806 1.0
----------- -----
1,464,469 1.9
-----------------------------------------------------------------------------------------------------------
Oil--Integrated 12,400 Amerada Hess Corporation 768,800 1.0
15,700 Chevron Corporation 1,289,362 1.7
13,800 Phillips Petroleum Company 852,150 1.1
25,200 Sunoco, Inc. 754,425 1.0
16,300 Texaco Inc. 962,719 1.2
----------- -----
4,627,456 6.0
-----------------------------------------------------------------------------------------------------------
Oil--International 21,700 Exxon Mobil Corporation 1,935,369 2.5
Integrated
-----------------------------------------------------------------------------------------------------------
</TABLE>
12 & 13
<PAGE>
Merrill Lynch Large Cap Value Fund, October 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Master Large Cap Value Portfolio (concluded)
-----------------------------------------------------------------------------------------------------------
Shares Percent of
Industry Held Common Stocks Value Net Assets
===========================================================================================================
<S> <C> <C> <C> <C>
Oil Services 23,100 Baker Hughes Incorporated $ 794,062 1.0%
12,100 Kerr-McGee Corporation 790,281 1.0
29,500 USX-Marathon Group 802,031 1.1
----------- -----
2,386,374 3.1
-----------------------------------------------------------------------------------------------------------
Petroleum 13,100 Anadarko Petroleum Corporation 839,055 1.1
12,000 Helmerich & Payne, Inc. 377,250 0.5
12,700 Murphy Oil Corporation 735,806 1.0
39,300 Occidental Petroleum Corporation 781,087 1.0
28,300 Ultramar Diamond Shamrock Corporation 742,875 1.0
10,100 Unocal Corporation 344,663 0.4
----------- -----
3,820,736 5.0
-----------------------------------------------------------------------------------------------------------
Pharmaceuticals 7,700 Cardinal Health, Inc. 729,575 0.9
18,700 Merck & Co., Inc. 1,681,831 2.2
----------- -----
2,411,406 3.1
-----------------------------------------------------------------------------------------------------------
Retail 5,000 +Safeway Inc. 273,438 0.3
25,100 Sears, Roebuck & Co. 746,223 1.0
----------- -----
1,019,661 1.3
-----------------------------------------------------------------------------------------------------------
Semiconductor 21,700 +KLA-Tencor Corporation 733,731 0.9
Production Equipment
-----------------------------------------------------------------------------------------------------------
Semiconductors 21,100 +Cypress Semiconductor Corporation 789,931 1.0
10,600 Dallas Semiconductor Corporation 420,025 0.6
----------- -----
1,209,956 1.6
-----------------------------------------------------------------------------------------------------------
Services 8,400 Loews Corporation 763,875 1.0
-----------------------------------------------------------------------------------------------------------
Software 5,300 +Advanced Micro Devices, Inc. 119,912 0.2
13,000 +PeopleSoft, Inc. 567,328 0.7
----------- -----
687,240 0.9
-----------------------------------------------------------------------------------------------------------
Strategic Growth 14,200 +Toys 'R' Us, Inc. 244,063 0.3
Opportunities
-----------------------------------------------------------------------------------------------------------
Technology 30,100 +Sybase, Inc. 630,219 0.8
-----------------------------------------------------------------------------------------------------------
Telecommunications 20,700 +Advanced Fibre Communications, Inc. 674,044 0.9
30,200 +Andrew Corporation 794,637 1.0
3,700 Verizon Communications 213,906 0.3
----------- -----
1,682,587 2.2
-----------------------------------------------------------------------------------------------------------
Telecommunications 10,600 +Adtran, Inc. 402,800 0.5
& Equipment
-----------------------------------------------------------------------------------------------------------
Tobacco 43,000 Philip Morris Companies Inc. 1,574,875 2.0
-----------------------------------------------------------------------------------------------------------
Transportation 28,700 Southwest Airlines Co. 817,950 1.1
-----------------------------------------------------------------------------------------------------------
Utilities--Electric 28,500 The Southern Company 837,188 1.1
-----------------------------------------------------------------------------------------------------------
Waste Disposal 10,300 Equitable Resources, Inc. 597,400 0.8
Services
-----------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost--$68,699,600) 71,946,754 93.3
===========================================================================================================
<CAPTION>
Face
Amount Short-Term Securities
===========================================================================================================
<S> <C> <C> <C> <C>
US Government $1,100,000 Fannie Mae, 6.40% due 11/03/2000 1,099,609 1.4
Agency Obligations* 3,812,000 Student Loan Marketing Association,
6.45% due 11/01/2000 3,812,000 4.9
-----------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$4,911,609) 4,911,609 6.3
===========================================================================================================
Total Investments (Cost--$73,611,209) 76,858,363 99.6
Other Assets Less Liabilities 279,978 0.4
----------- -----
Net Assets $77,138,341 100.0%
=========== =====
===========================================================================================================
</TABLE>
* US Government Agency Obligations are traded on a discount basis; the
interest rates shown reflect the discount rates paid at the time of
purchase by the Portfolio.
+ Non-income producing security.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MASTER LARGE CAP
VALUE PORTFOLIO As of October 31, 2000
==================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$73,611,209) $76,858,363
Receivables:
Contributions .................................... $10,765,284
Securities sold .................................. 564,669
Dividends ........................................ 23,717 11,353,670
-----------
Prepaid expenses and other assets .................. 17,081
-----------
Total assets ....................................... 88,229,114
-----------
==================================================================================================
Liabilities: Payables:
Securities purchased ............................. 10,774,636
Withdrawals ...................................... 36,218
Investment adviser ............................... 15,640 10,826,494
-----------
Accrued expenses and other liabilities ............. 264,279
-----------
Total liabilities .................................. 11,090,773
-----------
==================================================================================================
Net Assets: Net assets ......................................... $77,138,341
===========
==================================================================================================
Net Assets Partners' capital .................................. $73,891,187
Consist of: Unrealized appreciation on investments--net ........ 3,247,154
-----------
Net assets ......................................... $77,138,341
===========
==================================================================================================
</TABLE>
See Notes to Financial Statements.
14 & 15
<PAGE>
Merrill Lynch Large Cap Value Fund, October 31, 2000
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MASTER LARGE CAP
VALUE PORTFOLIO For the Period December 22, 1999+ to October 31, 2000
==========================================================================================================
<S> <C> <C> <C>
Investment Dividends (net of $51 foreign withholding tax) ..... $ 66,745
Income: Interest and discount earned ....................... 26,009
-----------
Total income ....................................... 92,754
-----------
==========================================================================================================
Expenses: Investment advisory fees ........................... $ 49,466
Accounting services ................................ 21,369
Custodian fees ..................................... 13,637
Trustees' fees and expenses ........................ 9,223
Professional fees .................................. 8,000
Offering costs ..................................... 5,556
Pricing fees ....................................... 307
Other .............................................. 350
-----------
Total expenses before reimbursement ................ 107,908
Reimbursement of expenses .......................... (26,072)
-----------
Total expenses after reimbursement ................. 81,836
-----------
Investment income--net ............................. 10,918
-----------
==========================================================================================================
Realized & Realized loss on investments--net .................. (231,704)
Unrealized Gain (Loss) Unrealized appreciation on investments--net ........ 3,247,154
On Investments-- Net: -----------
Net Increase in Net Assets Resulting from Operations $ 3,026,368
===========
==========================================================================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
MASTER LARGE CAP Dec. 22, 1999+ to
VALUE PORTFOLIO Increase (Decrease) in Net Assets: Oct. 31, 2000
===============================================================================================
<S> <C> <C>
Operations: Investment income--net ...................................... $ 10,918
Realized loss on investments--net ........................... (231,704)
Unrealized appreciation on investments--net ................. 3,247,154
------------
Net increase in net assets resulting from operations ........ 3,026,368
------------
===============================================================================================
Net Capital Increase in net assets derived from net capital contributions 73,111,973
Contributions: ------------
===============================================================================================
Net Assets: Total increase in net assets ................................ 76,138,341
Beginning of period ......................................... 1,000,000
------------
End of period ............................................... $ 77,138,341
============
===============================================================================================
</TABLE>
FINANCIAL HIGHLIGHTS
MASTER LARGE The following ratios have been derived For the Period
CAP VALUE from information provided in the Dec. 22, 1999+ to
PORTFOLIO financial statements. Oct. 31, 2000
===============================================================================
Ratios to Average Expenses, net of reimbursement ............... 1.24%*
Net Assets: ===========
Expenses ..................................... 1.63%*
Net Assets: ===========
Investment income--net ....................... .17%*
Net Assets: ===========
===============================================================================
Supplemental Net assets, end of period (in thousands) ..... $ 77,138
Data: ===========
Portfolio turnover ........................... 81.99%
Net Assets: ===========
===============================================================================
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MASTER LARGE CAP VALUE PORTFOLIO
1. Significant Accounting Policies:
Master Large Cap Value Portfolio (the "Portfolio") is part of Master Large Cap
Series Trust (the "Trust"). The Trust is registered under the Investment Company
Act of 1940 and is organized as a Delaware business trust. The Portfolio's
financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America, which may require the use of
management accruals and estimates. The following is a summary of significant
accounting policies followed by the Portfolio.
(a) Valuation of investments--Portfolio securities that are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
available bid price to the time of valuation. Portfolio securities that are
traded both in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market. Options written or
purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair market value, as
determined in good faith by or under the direction of the Trust's Board of
Trustees.
(b) Derivative financial instruments--The Portfolio may engage in various
portfolio investment techniques to increase or decrease the level of risk to
which the Portfolio is exposed more quickly and efficiently than transactions in
other types of investments. 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 for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. 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
16 & 17
<PAGE>
Merrill Lynch Large Cap Value Fund, October 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
MASTER LARGE CAP VALUE PORTFOLIO
value of the contract. Such receipts or payments are known as variation margin
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
o Options--The Portfolio is authorized to purchase and write call and put
options. When the Portfolio writes an option, an amount equal to the premium
received by the Portfolio is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked to market to reflect the
current market value of the option written. When a security is purchased or sold
through an exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires (or the
Portfolio enters into a closing transaction), the Portfolio realizes a gain or
loss on the option to the extent of the premiums received or paid (or a gain or
loss to the extent that the cost of the closing transaction exceeds the premium
paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Portfolio is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Portfolio's records. However, the effect on operations is recorded from the date
the Portfolio enters into such contracts.
o Foreign currency options and futures--The Portfolio may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Portfolio, sold by the Portfolio but not yet delivered, or committed or
anticipated to be purchased by the Portfolio.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes--The Portfolio is classified as a partnership for Federal
income tax purposes. As a partnership for Federal income tax purposes, the
Portfolio will not incur Federal income tax liability. Items of partnership
income, gain, loss and deduction will pass through to investors as partners in
the Portfolio. Therefore, no Federal income tax provision is required. Under the
applicable foreign tax law, withholding taxes may be imposed on interest,
dividends and capital gains at various rates.
(e) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). 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
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
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 .75% of the average daily
value of the Portfolio's net assets. For the period December 22, 1999 to October
31, 2000, FAM earned fees of $49,466, of which $26,072 was waived.
Accounting services are provided to the Portfolio by FAM.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period December 22, 1999 to October 31, 2000 were $77,151,067 and $8,219,759,
respectively.
Net realized gains (losses) for the period December 22, 1999 to October 31, 2000
and net unrealized gains as of October 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
--------------------------------------------------------------------------------
Long-term investments ............................... $ (231,708) $ 3,247,154
Short-term investments .............................. 4 --
---------- -----------
Total ............................................... $ (231,704) $ 3,247,154
========== ===========
--------------------------------------------------------------------------------
As of October 31, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $3,140,178, of which $4,504,475 related to appreciated
securities and $1,364,297 related to depreciated securities. At October 31,
2000, the aggregate cost of investments for Federal income tax purposes was
$73,718,185.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors,
Master Large Cap Value Portfolio
(One of the Series constituting Master Large
Cap Series Trust):
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master Large Cap Value Portfolio as of October
31, 2000, the related statements of operations and changes in net assets, and
the financial highlights for the period December 22, 1999 (commencement of
operations) to October 31, 2000. These financial statements and the financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free from material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Master Large Cap
Value Portfolio as of October 31, 2000, the results of its operations, the
changes in its net assets, and the financial highlights for the period December
22, 1999 (commencement of operations) to October 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
December 11, 2000
18 & 19
<PAGE>
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.
Merrill Lynch
Large Cap Value Fund of
Merrill Lynch
Large Cap Series Funds, Inc.
Box 9011
Princeton, NJ
08543-9011 CAPVAL--10/00
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