UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21486
811-21538
Name of Fund: Merrill Lynch Real Investment Fund
Master Real Investment 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 Real Investment Fund and Master Real Investment
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: 11/30/05
Date of reporting period: 12/01/04 - 05/31/05
Item 1 - Report to Stockholders
Merrill Lynch
Real Investment Fund
Semi-Annual Report
May 31, 2005
(BULL 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 Real Investment Fund
Box 9011
Princeton, NJ
08543-9011
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Merrill Lynch Real Investment Fund
Officers and Trustees
Robert C. Doll, Jr., President and Trustee
David O. Beim, Trustee
James T. Flynn, Trustee
W. Carl Kester, Trustee
Karen P. Robards, Trustee
Thomas Musmanno, Vice President
Frank Viola, Vice President
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
A Letter From the President
Dear Shareholder
After expanding at an annualized rate of 4.4% in 2004, U.S. gross domestic
product grew at an estimated 3.5% in the first quarter of 2005. The slowdown
was not entirely unexpected given last year's healthy growth and the evolution
of the economic cycle. The Federal Reserve Board - with one eye firmly affixed
on the economic indicators and the other on inflationary measures - has
increased the federal funds rate by 25 basis points (.25%) at each of its eight
meetings since June 2004. At period-end, the target short-term interest rate
stood at 3%.
U.S. equity markets ended 2004 in a strong rally, but have struggled to record
meaningful gains in 2005. The potential for slowing economic and corporate
earnings growth, as well as volatile energy prices, have intermittently
hampered equity market progress. On the positive side, corporate transactions,
such as mergers and acquisitions, stock buy-backs and dividend payouts, have
all increased. In Asia, equities have continued to benefit from higher economic
growth prospects and valuations that appear inexpensive relative to other parts
of the world.
In the bond market, the yield curve flattening "conundrum" continued as short-
term and long-term yields moved still closer together. Over the past year, the
two-year Treasury yield increased 106 basis points while the 10-year Treasury
yield declined 66 basis points. At May 31, 2005, the two-year Treasury note
yielded 3.60% and the 10-year Treasury note yielded 4%. The falling long-term
rates may be partly attributed to foreign interest in U.S. assets and increased
issuance of short-term Treasury bonds to finance the federal deficit. Notably,
the government is considering the reissuance of the 30-year Treasury, which was
suspended in August 2001. This would allow the U.S. Treasury to adopt a more
flexible approach to borrowing, while providing investors with another long-
term fixed income option.
Amid these conditions, the major benchmarks posted six-month and 12-month
returns as follows:
Total Returns as of May 31, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) +2.42% + 8.24%
Small-cap U.S. equities (Russell 2000 Index) -2.10% + 9.82%
International equities (MSCI Europe Australasia Far East Index) +1.81% +14.62%
Fixed income (Lehman Brothers Aggregate Bond Index) +2.90% + 6.82%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +3.51% + 7.96%
High yield bonds (Credit Suisse First Boston High Yield Index) +0.60% + 9.97%
While the environment is likely to remain somewhat challenging, we believe
opportunities exist for investors. With this in mind, we encourage you to meet
with your financial advisor to review your goals and asset allocation and to
rebalance your portfolio, as necessary, to ensure it remains aligned with your
objectives and risk tolerance. As always, we thank you for trusting Merrill
Lynch Investment Managers with your investment assets, and we look forward to
serving you in the months and years ahead.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Trustee
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
A Discussion With Your Fund's Portfolio Managers
Although commodities markets softened during the period, we believe that long-
term economic growth prospects are positive in developing nations, which should
be supportive of stronger commodity prices ahead.
What is the Fund's investment objective?
The Fund seeks positive long-term total return, primarily through investment in
commodity-linked derivative instruments and short-term debt obligations. The
commodity-linked derivative instruments in which the Fund may invest include
hybrid instruments, such as structured notes or commodity-linked notes, whose
principal and/or interest payments are tied to the value of a real asset or
commodity index, such as the Goldman Sachs Commodity Total Return Index. The
debt obligations in which the Fund invests are primarily investment grade,
floating rate debt securities of any maturity.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended May 31, 2005, the Fund's Class A, Class B,
Class C and Class I Shares had total returns of -1.80%, -2.13%, -2.17% and
- -1.66%, respectively. For the same period, the Fund's unmanaged benchmark, the
Goldman Sachs Commodity Total Return Index, returned -.89%. (Fund results shown
do not reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 and 7 of this report
to shareholders.)
Overall energy prices moved higher during the past six months. However, other
commodities, particularly industrial metals, weakened as the demand for
infrastructure materials declined in concert with slowing growth in developing
economies. Oil prices rose about $3 per barrel during the period. But after
reaching an all-time high of approximately $58 per barrel in April, oil prices
backed off materially to about $52 per barrel by the end of May.
Fund returns are closely linked to commodity prices and, to a lesser degree,
also are influenced by the performance of the overall credit markets. This is
because we use credit-sensitive debt securities to provide yield enhancement
for the portfolio. While commodities made a strong showing in the previous
reporting period (ended November 30, 2004), the commodity price pause during
this particular six-month period is largely attributed to softer supply/demand
dynamics prompted by more muted global growth expectations. In addition, credit
spreads remained fairly constant throughout the period, particularly in the
portfolio's highly rated low duration securities. This meant these securities
were slightly accretive to yield, as spreads (versus Treasury securities of
comparable maturities) remained unchanged at their current tight levels.
Because the Fund invests in credit product, which is not a component of the
benchmark commodity index, Fund results for a given period may differ somewhat
from the benchmark return.
What changes were made to the portfolio during the period?
We did not make any significant changes to the portfolio's structure or our
strategy over the past six months. The Fund was able to maintain 100% exposure
to its benchmark commodity index during the period. We use commodity-linked
notes to gain exposure to that index. These notes are issued to the Fund by
high-quality banks and insurance companies, including AIG, JPMorgan Chase Bank
and Barclays Bank Plc. Unlike other fixed income securities, which pay a fixed
or floating rate coupon, the commodity-linked notes held by the portfolio pay a
periodic return that is linked to and dependent on the performance of the
commodity index.
We continued to fund the cost of acquiring the commodity-linked exposure with
income generated from low duration fixed income investments, such as agency
debt, structured finance securities and other corporate and mortgage products.
These securities have low interest rate risk and consist primarily of high-
quality, structured asset-backed products, including home equity floaters and
other corporate and mortgage-backed floating rate product. In addition to
improving yield, these investments represent our efforts to increase the
diversification of the portfolio.
Of final note, we increased our allocation to yield-enhancing securities
(i.e., our low-duration fixed income investments) while simultaneously
improving the overall quality of these assets. Essentially, the portfolio's
already high credit quality increased from AA- at the beginning of the period
to AA at period-end.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
How would you characterize the portfolio's position at the close of the period?
At period-end, we continued to capture dollar-for-dollar exposure to our
benchmark commodity index enhanced through the use of low duration, high-
quality fixed income securities to offset some of the costs associated with
creating that exposure.
While expectations for global economic growth have moderated somewhat, we still
believe in the long-term growth story and expect that commodities will continue
to be a benefactor of that long-term trend. Growth in developing economies,
although slower than last year, continues to be almost twice that of developed
countries. Commodities will continue to be necessary to support these nations'
infrastructure and development needs, which we believe will continue to
encourage strong demand for commodities.
Fund performance during the period demonstrated both the potential volatility
of investing in commodities and the diversification benefits that can be
achieved by adding commodities to an investment portfolio. While the Fund
outperformed both stocks and bonds during the previous reporting period, it
underperformed the S&P 500 Index's return of +2.42% and the Lehman Brothers
Aggregate Bond Index's return of +2.90% for the six-month period ended May 31,
2005. This once again points to the idea that commodities are negatively
correlated to traditional assets and can generally be expected to perform well
when stock and bond markets are weak, and vice versa. For that reason, we
believe the Fund offers an opportunity to diversify a traditional portfolio,
thereby helping investors to prepare for a wider range of market and economic
conditions. The Fund also offers its shareholders access to securities that are
not available to individual investors on the open market.
Frank Viola
Vice President and Co-Portfolio Manager
Thomas F. Musmanno
Vice President and Co-Portfolio Manager
June 8, 2005
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
* 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).
* 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.)
* 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.
* 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. 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 has voluntarily waived a
portion of its fee. Without such waiver, the Fund's returns would have been
lower.
Recent Performance Results
6-Month 12-Month Since Inception
As of May 31, 2005 Total Return Total Return Total Return
ML Real Investment Fund Class A Shares* -1.80% +6.99% +13.62%
ML Real Investment Fund Class B Shares* -2.13 +6.44 +13.04
ML Real Investment Fund Class C Shares* -2.17 +6.40 +12.99
ML Real Investment Fund Class I Shares* -1.66 +7.23 +13.88
Goldman Sachs Commodity Index** -0.89 +9.18 +19.11
* 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 3/26/04.
** This unmanaged Index is calculated primarily on a world production-weighted basis and comprises
the principal physical commodities that are the subject of active, liquid futures markets. Since
inception total returns are from 3/26/04.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 5/31/05 + 6.99% + 1.37%
Inception (3/26/04)
through 5/31/05 +11.42 + 6.45
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 5/31/05 + 6.44% + 2.44%
Inception (3/26/04)
through 5/31/05 +10.94 + 7.61
* Maximum contingent deferred sales charge is 4% and is reduced to
0% after six years.
** Assuming payment of applicable contingent deferred sales charge.
Return Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 5/31/05 + 6.40% + 5.40%
Inception (3/26/04)
through 5/31/05 +10.90 +10.90
* 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 5/31/05 + 7.23% + 1.60%
Inception (3/26/04)
through 5/31/05 +11.63 + 6.65
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
MERRILL LYNCH REAL INVESTMENT FUND MAY 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 December 1, 2004 and held
through May 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 December 1, 2004
December 1, May 31, to May 31,
2004 2005 2005
Actual
Class A $1,000 $982.00 $ 7.81
Class B $1,000 $978.70 $11.54
Class C $1,000 $978.30 $11.54
Class I $1,000 $983.40 $ 6.58
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,017.05 $ 7.95
Class B $1,000 $1,013.26 $11.75
Class C $1,000 $1,013.26 $11.75
Class I $1,000 $1,018.30 $ 6.69
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.58% for Class A, 2.34% for Class B, 2.34% for Class C and 1.33% for Class I), multiplied by
the average account value over the period, multiplied by 182/365 (to reflect the one-half year
period shown). Because the Fund is a feeder fund, the expense table example reflects the expenses
of both the feeder fund and the master fund in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in
the most recent fiscal half-year divided by 365.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Statement of Assets and Liabilities Merrill Lynch Real Investment Fund
As of May 31, 2005
Assets
Investment in Master Real Investment Trust (the "Trust"), at value
(identified cost--$80,618,338) $ 78,432,958
Prepaid expenses and other assets 74,293
---------------
Total assets 78,507,251
---------------
Liabilities
Payables:
Distributor $ 42,941
Other affiliates 22,575
Administrator 7,735 73,251
---------------
Accrued expenses 22,163
---------------
Total liabilities 95,414
---------------
Net Assets
Net assets $ 78,411,837
===============
Net Assets Consist of
Class A Shares of beneficial interest, $.01 par value, unlimited number
of shares authorized $ 10,286
Class B Shares of beneficial interest, $.01 par value, unlimited number
of shares authorized 9,664
Class C Shares of beneficial interest, $.01 par value, unlimited number
of shares authorized 34,476
Class I Shares of beneficial interest, $.01 par value, unlimited number
of shares authorized 15,065
Paid-in capital in excess of par 72,211,172
Undistributed investment income--net $ 215,199
Undistributed realized capital gains allocated from the Trust--net 8,101,355
Unrealized depreciation allocated from the Trust--net (2,185,380)
---------------
Total accumulated earnings--net 6,131,174
---------------
Net Assets $ 78,411,837
===============
Net Asset Value
Class A--Based on net assets of $11,615,555 and 1,028,629 shares of beneficial
interest outstanding $ 11.29
===============
Class B--Based on net assets of $10,899,918 and 966,377 shares of beneficial
interest outstanding $ 11.28
===============
Class C--Based on net assets of $38,868,701 and 3,447,622 shares of beneficial
interest outstanding $ 11.27
===============
Class I--Based on net assets of $17,027,663 and 1,506,503 shares of beneficial
interest outstanding $ 11.30
===============
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Statement of Operations Merrill Lynch Real Investment Fund
For the Six Months Ended May 31, 2005
Investment Income
Net investment income allocated from the Trust:
Interest (including $111,356 from affiliates) $ 1,013,665
Expenses (274,534)
---------------
Total income 739,131
---------------
Expenses
Investment advisory fees $ 372,325
Account maintenance and distribution fees--Class C 185,796
Account maintenance and distribution fees--Class B 53,869
Registration fees 32,691
Offering costs 29,058
Printing and shareholder reports 25,687
Transfer agent fees--Class C 22,702
Professional fees 15,653
Account maintenance fees--Class A 14,213
Transfer agent fees--Class I 7,900
Transfer agent fees--Class B 6,620
Transfer agent fees--Class A 5,933
Other 5,708
---------------
Total expenses before waiver 778,155
Waiver of expenses (300,996)
---------------
Total expenses after waiver 477,159
---------------
Investment income--net 261,972
---------------
Realized & Unrealized Gain (Loss) Allocated from the Trust--Net
Realized gain on investments, swaps and options--net 8,097,494
Unrealized appreciation/depreciation on investments and swaps--net (9,722,261)
---------------
Total realized and unrealized loss--net (1,624,767)
---------------
Net Decrease in Net Assets Resulting from Operations $ (1,362,795)
===============
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Statements of Changes in Net Assets Merrill Lynch Real Investment Fund
For the Six For the Period
Months Ended March 26, 2004++
May 31, to November 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 261,972 $ 31,597
Realized gain--net 8,097,494 37,437
Unrealized appreciation/depreciation--net (9,722,261) 7,536,881
--------------- ---------------
Net increase (decrease) in net assets resulting from operations (1,362,795) 7,605,915
--------------- ---------------
Dividends to Shareholders
Investment income--net:
Class A (62,433) --
Class B (21,074) --
Class C (81,999) --
Class I (96,002) --
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (261,508) --
--------------- ---------------
Beneficial Interest Transactions
Net increase in net assets derived from beneficial interest transactions 10,459,855 61,870,370
--------------- ---------------
Net Assets
Total increase in net assets 8,835,552 69,476,285
Beginning of period 69,576,285 100,000
--------------- ---------------
End of period* $ 78,411,837 $ 69,576,285
=============== ===============
* Undistributed investment income--net $ 215,199 $ 214,735
=============== ===============
++ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Financial Highlights Merrill Lynch Real Investment Fund
Class A
For the Six For the Period
Months Ended March 26, 2004++
The following per share data and ratios have been derived May 31, to November 30,
from information provided in the financial statements. 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 11.57 $ 10.00
--------------- ---------------
Investment income--net .07 .01
Realized and unrealized gain (loss)--net (.28) 1.56
--------------- ---------------
Total from investment operations (.21) 1.57
--------------- ---------------
Less dividends from investment income--net (.07) --
--------------- ---------------
Net asset value, end of period $ 11.29 $ 11.57
=============== ===============
Total Investment Return**
Based on net asset value per share (1.80%)+++ 15.70%+++
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver and reimbursement*** 1.58%* 1.42%*
=============== ===============
Expenses*** 2.38%* 2.61%*
=============== ===============
Investment income--net 1.15%* .19%*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 11,616 $ 10,867
=============== ===============
Portfolio turnover of the Trust 36.01% 19.40%
=============== ===============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Includes the Fund's share of the Trust's allocated expenses.
++ Commencement of operations.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Financial Highlights (continued) Merrill Lynch Real Investment Fund
Class B
For the Six For the Period
Months Ended March 26, 2004++
The following per share data and ratios have been derived May 31, to November 30,
from information provided in the financial statements. 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 11.55 $ 10.00
--------------- ---------------
Investment income (loss)--net .02 --++++
Realized and unrealized gain (loss)--net (.27) 1.55
--------------- ---------------
Total from investment operations (.25) 1.55
--------------- ---------------
Less dividends from investment income--net (.02) --
--------------- ---------------
Net asset value, end of period $ 11.28 $ 11.55
=============== ===============
Total Investment Return**
Based on net asset value per share (2.13%)+++ 15.50%+++
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver and reimbursement*** 2.34%* 1.65%*
=============== ===============
Expenses*** 3.15%* 3.37%*
=============== ===============
Investment income (loss)--net .38%* (.03%)*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 10,900 $ 10,663
=============== ===============
Portfolio turnover of the Trust 36.01% 19.40%
=============== ===============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Includes the Fund's share of the Trust's allocated expenses.
++ Commencement of operations.
++++ Amount is less than $(.01) per share.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Financial Highlights (continued) Merrill Lynch Real Investment Fund
Class C
For the Six For the Period
Months Ended March 26, 2004++
The following per share data and ratios have been derived May 31, to November 30,
from information provided in the financial statements. 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 11.55 $ 10.00
--------------- ---------------
Investment income (loss)--net .02 --++++
Realized and unrealized gain (loss)--net (.27) 1.55
--------------- ---------------
Total from investment operations (.25) 1.55
--------------- ---------------
Less dividends from investment income--net (.03) --
--------------- ---------------
Net asset value, end of period $ 11.27 $ 11.55
=============== ===============
Total Investment Return**
Based on net asset value per share (2.17%)+++ 15.50%+++
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver and reimbursement*** 2.34%* 1.67%*
=============== ===============
Expenses*** 3.15%* 3.37%*
=============== ===============
Investment income (loss)--net .38%* (.03%)*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 38,869 $ 34,403
=============== ===============
Portfolio turnover of the Trust 36.01% 19.40%
=============== ===============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Includes the Fund's share of the Trust's allocated expenses.
++ Commencement of operations.
++++ Amount is less than $(.01) per share.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Financial Highlights (concluded) Merrill Lynch Real Investment Fund
Class I
For the Six For the Period
Months Ended March 26, 2004++
The following per share data and ratios have been derived May 31, to November 30,
from information provided in the financial statements. 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 11.58 $ 10.00
--------------- ---------------
Investment income--net .08 .02
Realized and unrealized gain (loss)--net (.28) 1.56
--------------- ---------------
Total from investment operations (.20) 1.58
--------------- ---------------
Less dividends from investment income--net (.08) --
--------------- ---------------
Net asset value, end of period $ 11.30 $ 11.58
=============== ===============
Total Investment Return**
Based on net asset value per share (1.66%)+++ 15.80%+++
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver and reimbursement*** 1.33%* 1.27%*
=============== ===============
Expenses*** 2.13%* 2.36%*
=============== ===============
Investment income--net 1.40%* .35%*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 17,028 $ 13,643
=============== ===============
Portfolio turnover of the Trust 36.01% 19.40%
=============== ===============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Includes the Fund's share of the Trust's allocated expenses.
++ Commencement of operations.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Notes to Financial Statements Merrill Lynch Real Investment Fund
1. Significant Accounting Policies:
Merrill Lynch Real Investment Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
investment company. The Fund seeks to achieve its investment objective by
investing all of its assets in Master Real Investment Trust (the "Trust"),
which has the same investment objective and strategies as the Fund. The value
of the Fund's investment in the Trust reflects the Fund's proportionate
interest in the net assets of the Trust. The performance of the Fund is
directly affected by the performance of the Trust. The financial statements of
the Trust, including the Schedule of Investments, are included elsewhere in
this report and should be read in conjunction with the Fund's financial
statements. The Fund's financial statements are prepared in conformity with
U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to present a fair statement of the
results for the interim period. All such adjustments are of a normal, recurring
nature. The percentage of the Trust owned by the Fund at May 31, 2005 was
89.2%. The Fund offers multiple classes of shares. 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 certain changes to the Class A distribution plan).
Income, expenses (other than expenses attributable to a specific class) and
realized and unrealized gains and losses 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 investment in the Trust at
fair value. Valuation of securities held by the Trust is discussed in Note 1(a)
of the Trust's Notes to Financial Statements, which are included elsewhere in
this report.
(b) Investment income and expenses--The Fund records daily its proportionate
share of the Trust's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(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.
(d) Offering costs--Offering costs were amortized over a 12-month period
beginning with the commencement of operations of the Fund.
(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) Investment transactions--Investment transactions in the Trust are accounted
for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. MLIM 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 of 1.00%, on an
annual basis, of the average daily value of the Fund's net assets. MLIM has
contractually agreed to waive the Fund's investment advisory fee in the amount
of the Fund's share of the investment advisory fee paid by the Trust. In
addition to the contractual waiver, MLIM has agreed to voluntarily waive the
management fees and/or reimburse expenses in order to cap total expenses
(excluding distribution fee and/or account maintenance fees) at 1.33%. For the
six months ended May 31, 2005, MLIM earned fees of $372,325, of which $300,996
was waived. MLIM has entered into a Sub-Advisory Agreement with Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of MLIM, pursuant to which
MLIM, LLC provides investment advisory services to MLIM with respect to the
Fund. There is no increase in the aggregate fees paid by the Fund for these
services.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Notes to Financial Statements (continued) Merrill Lynch Real Investment Fund
The Fund has also entered into a Distribution Agreement and Distribution Plans
with FAM Distributors, Inc. ("FAMD" or the "Distributor"), 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
Maintenance Distribution
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 MLIM, also provides
account maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended May 31, 2005, FAMD earned underwriting discounts and
direct commissions and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class I Shares as follows:
FAMD MLPF&S
Class A $ 4,388 $ 60,192
Class I $ 22 $ 526
For the six months ended May 31, 2005, MLPF&S received contingent deferred
sales charges of $9,517 and $15,107 relating to transactions in Class B and
Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co.,
is the Fund's transfer agent.
Certain officers and/or directors of the Fund are officers and/or directors of
MLIM, PSI, ML & Co., FAMD, FDS, and/or MLIM, LLC.
3. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest transactions were
$10,459,855 and $61,870,370 for the six months ended May 31, 2005 and for the
period March 26, 2004 to November 30, 2004, respectively.
Transactions in beneficial interest for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
May 31, 2005 Shares Amount
Shares sold 269,647 $ 3,103,219
Automatic conversion of shares 11,957 139,196
Shares issued to shareholders
in reinvestment of dividends 5,089 55,421
-------------- --------------
Total issued 286,693 3,297,836
Shares redeemed (197,314) (2,265,122)
-------------- --------------
Net increase 89,379 $ 1,032,714
============== ==============
Class A Shares for the
Period March 26, 2004++ Dollar
to November 30, 2004 Shares Amount
Shares sold 1,268,517 $ 13,208,986
Automatic conversion of shares 13,919 163,571
-------------- --------------
Total issued 1,282,436 13,372,557
Shares redeemed (345,686) (3,775,939)
-------------- --------------
Net increase 936,750 $ 9,596,618
============== ==============
++ Prior to commencement of operations, the Fund issued 2,500
shares to MLIM for $25,000.
Class B Shares for the
Six Months Ended Dollar
May 31, 2005 Shares Amount
Shares sold 135,815 $ 1,549,132
Shares issued to shareholders
in reinvestment of dividends 1,630 17,783
-------------- --------------
Total issued 137,445 1,566,915
-------------- --------------
Shares redeemed (81,919) (946,595)
Automatic conversion of shares (11,959) (139,196)
-------------- --------------
Total redeemed (93,878) (1,085,791)
-------------- --------------
Net increase 43,567 $ 481,124
============== ==============
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Notes to Financial Statements (concluded) Merrill Lynch Real Investment Fund
Class B Shares for the
Period March 26, 2004++ Dollar
to November 30, 2004 Shares Amount
Shares sold 1,036,613 $ 10,714,246
-------------- --------------
Shares redeemed (102,372) (1,148,566)
Automatic conversion of shares (13,931) (163,571)
-------------- --------------
Total redeemed (116,303) (1,312,137)
-------------- --------------
Net increase 920,310 $ 9,402,109
============== ==============
++ Prior to commencement of operations, the Fund issued 2,500
shares to MLIM for $25,000.
Class C Shares for the
Six Months Ended Dollar
May 31, 2005 Shares Amount
Shares sold 929,920 $ 10,534,388
Shares issued to shareholders
in reinvestment of dividends 6,648 72,532
-------------- --------------
Total issued 936,568 10,606,920
Shares redeemed (466,405) (5,400,818)
-------------- --------------
Net increase 470,163 $ 5,206,102
============== ==============
Class C Shares for the
Period March 26, 2004++ Dollar
to November 30, 2004 Shares Amount
Shares sold 3,174,366 $ 33,037,378
Shares redeemed (199,407) (2,243,680)
-------------- --------------
Net increase 2,974,959 $ 30,793,698
============== ==============
++ Prior to commencement of operations, the Fund issued 2,500
shares to MLIM for $25,000.
Class I Shares for the
Six Months Ended Dollar
May 31, 2005 Shares Amount
Shares sold 602,287 $ 6,864,068
Shares issued to shareholders
in reinvestment of dividends 8,062 87,793
-------------- --------------
Total issued 610,349 6,951,861
Shares redeemed (281,770) (3,211,946)
-------------- --------------
Net increase 328,579 $ 3,739,915
============== ==============
Class I Shares for the
Period March 26, 2004++ Dollar
to November 30, 2004 Shares Amount
Shares sold 1,440,324 $ 15,025,559
Shares redeemed (264,900) (2,947,614)
-------------- --------------
Net increase 1,175,424 $ 12,077,945
============== ==============
++ Prior to commencement of operations, the Fund issued 2,500
shares to MLIM for $25,000.
4. Capital Loss Carryforward:
On November 30, 2004, the Fund had a net capital loss carryforward of $3,197,
all of which expires in 2012. This amount will be available to offset like
amounts of any future taxable gains.
Portfolio Information Master Real Investment Trust
As of May 31, 2005
Percent of
Total
Asset Mix Investments
Corporate Bonds & Structured Notes 34.9%
Non-Government Agency
Mortgage-Backed Securities 29.9
Asset-Backed Securities 17.2
Government Agency Mortgage-Backed
Securities 3.0
Other* 15.0
* Includes portfolio holdings in short-term investments
and options.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Schedule of Investments Master Real Investment Trust (in U.S. dollars)
Face
Amount Asset-Backed Securities++ Value
$ 3,000,000 Accredited Mortgage Loan Trust Series 2004-3 Class 2A6, 3.67%
due 10/25/2034 (a) $ 3,031,866
200,000 American Express Credit Account Master Trust Series 2002-1 Class A,
3.20% due 9/15/2009 (a) 200,368
200,000 BA Master Credit Card Trust Series 2001-A Class A, 3.21% due 6/15/2008 (a) 200,225
200,000 Bank One Issuance Trust Series 2002-A5 Class A5, 3.21% due 6/15/2010 (a) 200,506
Capital Auto Receivables Asset Trust Series 2003-2 (a):
100,871 Class A3B, 3.13% due 2/15/2007 100,890
200,000 Class A4B, 3.15% due 1/15/2009 200,135
Capital One Auto Finance Trust (a):
102,567 Series 2003-A Class A3B, 3.25% due 10/15/2007 102,620
445,394 Series 2003-B Class A3, 3.20% due 1/15/2008 445,728
200,000 Capital One Master Trust Series 1999-3 Class A, 3.24% due 9/15/2009 (a) 200,558
1,500,000 Capital One Multi-Asset Execution Trust Series 2002-C1 Class C1, 5.84%
due 7/15/2010 (a) 1,570,817
200,000 Chase Credit Card Master Trust Series 2002-8 Class A, 3.15% due
3/17/2008 (a) 200,070
200,000 Citibank Credit Card Issuance Trust Series 2002-A5 Class A5, 3.05%
due 9/17/2007 (a) 200,003
Countrywide Asset-Backed Certificates (a):
1,000,000 Series 2003-2 Class M1, 3.79% due 6/26/2033 1,005,037
1,000,000 Series 2004-5 Class M2, 3.76% due 7/25/2034 1,005,149
2,000,000 Series 2004-8 Class M1, 3.79% due 2/25/2035 2,015,068
200,000 Household Automotive Trust Series 2002-3 Class A4B, 3.43% due 5/18/2009 (a) 200,540
40,774 Long Beach Mortgage Loan Trust Series 2003-4 Class AV3, 3.43% due
8/25/2033 (a) 40,823
365,000 MBNA Credit Card Master Note Trust Series 2001-C1 Class C1, 4.14% due
10/15/2008 (a) 367,356
502,712 MSDWCC Heloc Trust Series 2003-2 Class A, 3.35% due 4/25/2016 (a) 503,435
Morgan Stanley ABS Capital (a):
1,000,000 Series 2003-NC5 Class M2, 5.09% due 4/25/2033 1,013,294
962,836 Series 2004-NC1 Class A2, 3.49% due 12/27/2033 965,877
Residential Asset Securities Corp. (a):
149,648 Series 2000-KS4 Class AII, 3.32% due 9/25/2031 149,709
1,000,000 Series 2004-KS8 Class MII2, 4.17% due 9/25/2034 999,979
59,310 Saxon Asset Securities Trust Series 2003-2 Class AV2, 3.39% due
6/25/2033 (a) 59,367
136,269 Wachovia Asset Securitization, Inc. Series 2003-HE1 Class A1, 3.38% due
3/25/2033 (a) 136,412
Total Asset-Backed Securities (Cost--$15,080,757)--17.2% 15,115,832
Government Agency Mortgage-Backed Securities++
Collateralized Mortgage 2,647,003 Fannie Mae Trust Series 2004-36 Class FJ, 3.39% due 3/25/2018 (a) 2,652,185
Obligations--3.0%
Total Government Agency Mortgage-Backed Securities
(Cost--$2,643,280)--3.0% 2,652,185
Non-Government Agency Mortgage-Backed Securities++
Collateralized Mortgage 1,000,000 ACE Securities Corp. Series 2004-OP1 Class M3, 4.34% due 4/25/2034 (a) 1,001,875
Obligations--29.8% Ameriquest Mortgage Securities, Inc. (a):
1,000,000 Series 2004-IA1 Class M4, 4.59% due 9/25/2034 1,017,295
1,500,000 Series 2004-R1 Class M2, 3.67% due 2/25/2034 1,503,327
200,000 Asset-Backed Securities Corp. Home Equity Series 2004-HE9 Class M2,
4.29% due 12/25/2034 (a) 203,067
1,000,000 Bear Stearns Asset-Backed Securities, Inc. Series 2004-FR3 Class M2,
4.26% due 10/25/2034 (a) 1,013,840
2,000,000 Centex Home Equity Series 2004-D Class MV1, 3.71% due 9/25/2034 (a) 2,014,447
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Schedule of Investments (continued) Master Real Investment Trust (in U.S. dollars)
Face
Amount Non-Government Agency Mortgage-Backed Securities++ Value
Collateralized Mortgage $ 1,180,203 Countrywide Alternative Loan Trust Series 2004-2CB Class 1A4, 3.49%
Obligations (concluded) due 3/25/2034 (a) $ 1,178,510
1,874,596 Countrywide Home Loans Series 2004-J7 Class 1A1, 3.54% due 8/25/2034 (a) 1,875,265
2,000,000 Fremont Home Loan Trust Series 2004-3 Class M2, 3.79% due 11/25/2034 (a) 2,002,283
2,459,878 GMAC Mortgage Corp Loan Trust Series 2004-J2 Class A2, 3.59% due
6/25/2034 (a) 2,460,656
Granite Mortgages Plc, Class 1C (a):
275,000 Series 2002-1, 4.445% due 4/20/2042 278,852
500,000 Series 2003-1, 4.595% due 1/20/2043 514,785
Greenwich Capital Commercial Funding Corp. Series 2003-FL1 (a):
124,262 Class A, 3.47% due 7/05/2018 124,290
1,650,000 Class B, 3.50% due 7/05/2018 1,654,206
1,900,000 Holmes Financing Series 8 Class 2C, 3.861% due 7/15/2040 (a) 1,905,937
3,000,000 Impac Secured Assets CMN Owner Trust Series 2004-3 Class M1, 3.69% due
11/25/2034 (a) 3,013,997
1,000,000 Master Asset-Backed Securities Trust Series 2004-HE1 Class M5, 4.44% due
9/25/2034 (a) 1,027,116
2,000,000 Master Asset Securitization Trust Series 2003-7 Class 4A37, 3.49% due
9/25/2033 (a) 1,969,320
500,000 Residential Asset Mortgage Products, Inc. Series 2004-RZ4 Class M3, 3.99%
due 12/25/2034 (a) 501,432
499,883 Washington Mutual Series 2005-AR2 Class B5, 4.09% due 1/25/2045 (a) 499,883
459,000 Wells Fargo Home Equity Trust Series 2004-2 Class M5, 4.34% due
11/25/2033 (a) 471,220
Total Non-Government Agency Mortgage-Backed Securities
(Cost--$26,145,894)--29.8% 26,231,603
Industry+++ Corporate Bonds & Structured Notes
Commercial Banks-- Barclays Bank Plc (Goldman Sachs Commodity Index Total Return
17.2% Linked Notes) (c):
7,250,000 2.97% due 9/13/2007 (b) 9,081,530
5,000,000 Cayman Branch, 2.53% due 9/08/2005 6,002,419
-------------
15,083,949
Diversified Financial AIG-FP Structured Finance (Cayman) Limited (Goldman Sachs Commodity
Services--17.3% Index Total Return Linked Notes) (c):
9,000,000 3.02% due 4/07/2006 6,830,007
3,000,000 1.50% due 5/14/2007 3,619,455
4,500,000 JPMorgan Chase Bank (Goldman Sachs Commodity Index Total Return
Linked Notes), 3.63% due 4/20/2006 (c) 4,289,224
500,000 Sigma Finance Corp., 5.77% due 3/31/2014 (a)(e) 504,566
-------------
15,243,252
Oil, Gas & Consumable 250,000 Pemex Project Funding Master Trust, 4.31% due 6/15/2010 (a)(b) 257,750
Fuels--0.3%
Total Corporate Bonds & Structured Notes
(Cost--$33,000,302)--34.8% 30,584,951
Beneficial
Interest Short-Term Securities
$ 13,123,760 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (d) 13,123,760
Total Short-Term Securities
(Cost--$13,123,760)--14.9% 13,123,760
Total Investments (Cost--$89,993,993)--99.7% 87,708,331
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Schedule of Investments (concluded) Master Real Investment Trust (in U.S. dollars)
Number of
Contracts Call Options Written Value
2* Consumer Price Index (CPI) Linked Floor, expiring April 2009
at USD 1, Broker, Morgan Stanley Capital Services, Inc. $ (3,200)
Total Options Written (Premiums Received--$3,200)--0.0% (3,200)
Total Investments, Net of Options Written (Cost--$89,990,793**)--99.7% 87,705,131
Other Assets Less Liabilities--0.3% 268,861
-------------
Net Assets--100.0% $ 87,973,992
=============
++ Asset-Backed and Mortgage-Backed Obligations are subject to principal
paydowns as a result of prepayments or refinancings of the underlying
instruments. As a result, the average life may be substantially less than
the original maturity.
+++ For Trust compliance purposes, "Industry" means any one or more of
the industry sub-classifications used by one or more widely recognized
market indexes or ratings group indexes, and/or as defined by Trust
management. This definition may not apply for purposes of this report,
which may combine such industry sub-classifications for reporting ease.
* One contract represents a notional amount of $1,000,000.
** The cost and unrealized appreciation (depreciation) of investments, net
of options written, as of May 31, 2005, as computed for federal income
tax purposes, were as follows:
Aggregate cost $ 89,990,132
===============
Gross unrealized appreciation $ 1,685,048
Gross unrealized depreciation (3,970,049)
---------------
Net unrealized depreciation $ (2,285,001)
===============
(a) Floating rate note.
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Represents a structured note; the interest rate shown reflects the
effective yield at the time of purchase by the Trust.
(d) Investments in companies considered to be an affiliate of the Trust
(such companies are defined as "Affiliated Companies" in Section
2(a)(3) of the Investment Company Act of 1940) were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $9,860,135 $124,806
(e) Restricted security as to resale, representing 0.6% of net assets, were
as follows:
Acquisition
Issue Date Cost Value
Sigma Finance Corp.,
5.77% due 3/31/2014 3/26/2004 $500,000 $504,566
Swaps outstanding as of May 31, 2005 were as follows:
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive (pay) a variable return based
on the change in the Lehman Brothers
CMBS AAA 8.5+ Index spread return
and receive a floating rate based on
the nominal spread plus .60%
Broker, Citibank N.A.
Expires December 2005 $4,000,000 --
Sold credit default protection on
Credit Default Exchange
and receive .60%
Broker, JPMorgan Chase Bank
Expires September 2009 $2,000,000 $ 6,384
Sold credit default protection on
Fannie Mae and receive .18%
Broker, Lehman Brothers
Special Finance
Expires March 2010 $1,000,000 83
Sold credit default protection on
Fannie Mae and receive .48%
Broker, Deutsche Bank AG, London
Expires June 2010 $2,000,000 3,704
Sold credit default protection on
FHLMC and receive .15%
Broker, Lehman Brothers
Special Finance
Expires June 2010 $4,000,000 (3,644)
Sold credit default protection
on Holmes Financing Plc and
receive .55%
Broker, Deutsche Bank AG, London
Expires July 2040 $2,000,000 (624)
Sold credit default protection on
Permanent Financing Plc and
receive .55%
Broker, Deutsche Bank AG, London
Expires June 2042 $2,000,000 (1,754)
Sold credit default protection on
Granite Mortgages Plc and
receive .45%
Broker, Deutsche Bank AG, London
Expires June 2044 $2,000,000 (1,800)
---------
Total $ 2,349
=========
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Statement of Assets and Liabilities Master Real Investment Trust
As of May 31, 2005
Assets
Investments in unaffiliated securities, at value (identified cost--$76,870,233) $ 74,584,571
Investments in affiliated securities, at value (identified cost--$13,123,760) 13,123,760
Unrealized appreciation on swaps 6,384
Receivables:
Interest (including $33,631 from affiliates) $ 353,600
Contributions 204,822
Swaps 11,421 569,843
---------------
Prepaid expenses and other assets 3,116
---------------
Total assets 88,287,674
---------------
Liabilities
Unrealized depreciation on swaps 4,035
Options written, at value (premiums received--$3,200) 3,200
Swap premiums received 1,354
Payables:
Withdrawals 259,656
Investment adviser 27,313
Other affiliates 403 287,372
---------------
Accrued expenses 17,721
---------------
Total liabilities 313,682
---------------
Net Assets
Net assets $ 87,973,992
===============
Net Assets Consist of
Investors' capital $ 90,257,305
Unrealized depreciation--net (2,283,313)
---------------
Net Assets $ 87,973,992
===============
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Statement of Operations Master Real Investment Trust
For the Six Months Ended May 31, 2005
Investment Income
Interest (including $124,806 from affiliates) $ 1,135,464
---------------
Total income 1,135,464
---------------
Expenses
Investment advisory fees $ 208,484
Accounting services 52,994
Professional fees 19,657
Custodian fees 10,297
Trustees' fees and expenses 6,580
Pricing fees 3,094
Printing and shareholder reports 1,487
Other 4,904
---------------
Total expenses 307,497
---------------
Investment income--net 827,967
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 8,998,958
Swaps--net 32,597
Options written--net (1,800) 9,029,755
---------------
Unrealized appreciation/depreciation on:
Investments--net (10,632,329)
Swaps--net 9,851 (10,622,478)
--------------- ---------------
Total realized and unrealized loss--net (1,592,723)
---------------
Net Decrease in Net Assets Resulting from Operations $ (764,756)
===============
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Statements of Changes in Net Assets Master Real Investment Trust
For the Six For the Period
Months Ended March 26, 2004++
May 31, to November 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 827,967 $ 396,819
Realized gain--net 9,029,755 41,345
Unrealized appreciation/depreciation--net (10,622,478) 8,339,165
--------------- ---------------
Net increase (decrease) in net assets resulting from operations (764,756) 8,777,329
--------------- ---------------
Capital Transactions
Proceeds from contributions 31,482,641 82,947,925
Fair value of withdrawals (18,725,655) (15,843,492)
--------------- ---------------
Net increase in net assets derived from capital transactions 12,756,986 67,104,433
--------------- ---------------
Net Assets
Total increase in net assets 11,992,230 75,881,762
Beginning of period 75,981,762 100,000
--------------- ---------------
End of period $ 87,973,992 $ 75,981,762
=============== ===============
++ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Financial Highlights Master Real Investment Trust
For the Six For the Period
Months Ended March 26, 2004++
The following ratios have been derived from May 31, to November 30,
information provided in the financial statements. 2005 2004
Total Investment Return
Total investment return (1.38%)* 16.20%*
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver .74%** .68%**
=============== ===============
Expenses .74%** .73%**
=============== ===============
Investment income--net 1.99%** .95%**
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 87,974 $ 75,982
=============== ===============
Portfolio turnover 36.01% 19.40%
=============== ===============
* Aggregate total investment return.
** Annualized.
++ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Notes to Financial Statements Master Real Investment Trust
1. Significant Accounting Policies:
Master Real Investment 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 Trust, subject to certain limitations. The Trust's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period.
All such adjustments are of a normal, recurring nature. The following is a
summary of significant accounting policies followed by the Trust.
(a) Valuation of investments--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 yield equivalents as obtained by the Trust's
pricing service from one or more dealers that make markets in the securities.
Financial futures contracts and options thereon, which are traded on exchanges,
are valued at their closing prices as of the close of such exchanges. Options
written or purchased are valued at the last sales price in the case of exchange-
traded options. In the case of options traded in the OTC market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Swap agreements are valued by quoted fair valuations received daily
by the Trust from the counterparty. Short-term investments with a remaining
maturity of 60 days or less are valued at amortized cost, which approximates
market value. Repurchase agreements are valued at cost plus accrued interest.
The Trust employs pricing services to provide certain securities prices for
the Trust. 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 Trust, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general direction of the
Board of Trustees. Such valuations and procedures will be reviewed periodically
by the Board of Trustees of the Trust.
Equity securities that are held by the Trust, which 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.
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 Trust 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 Trust'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 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 Trust may engage in various portfolio
investment strategies both to increase the return of the Trust and to hedge,
or protect, its exposure to interest rate movements and movements in the
securities and commodities markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Notes to Financial Statements (continued) Master Real Investment Trust
* Hybrid instruments--The Trust may invest in hybrid instruments, including
structured notes and commodity-linked notes. The principal and/or interest
payments on these hybrid instruments are linked to the value of commodities,
commodity futures contracts, or the performance of one or more indexes or other
readily measurable economic variables. The principal value of the hybrid
instruments, and/or the value of the interest that they pay, will rise or fall
in response to changes in the values of the underlying commodities, commodity
futures contracts, or commodity indexes. Although these hybrid instruments are
primarily debt obligations, they indirectly provide exposure to changes in the
value of the underlying commodities.
* Options--The Trust may purchase and write covered call and put options. When
the Trust writes an option, an amount equal to the premium received by the
Trust 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 Trust enters into
a closing transaction), the Trust 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.
* Financial futures contracts--The Trust 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 Trust deposits and
maintains as collateral such initial margin as required by the exchange on
which the transaction is effected. Pursuant to the contract, the Trust 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 Trust as unrealized gains or losses.
When the contract is closed, the Trust 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.
* Swaps--The Trust may enter into swap agreements, which are over-the-counter
contracts in which the Trust and a counterparty agree to make periodic net
payments on a specified notional amount. The net payments can be made for a set
period of time or may be triggered by a pre-determined credit event. The net
periodic payments may be based on a fixed or variable interest rate; the change
in market value of a specified security, basket of securities, or index; or the
return generated by a security. These periodic payments received or made by the
Trust are recorded in the accompanying Statement of Operations as realized
gains or losses, respectively. Gains or losses are also realized upon
termination of the swap agreements. Swaps are marked-to-market daily based on
dealer-supplied valuations and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the swap
agreements.
(c) Income taxes--The Trust is classified as a partnership for federal income
tax purposes. As such, each investor in the Trust is treated as owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Trust. Therefore, no federal income tax
provision is required. It is intended that the Trust's assets will be managed
so an investor in the Trust can satisfy the requirements of subchapter M of
the Internal Revenue Code.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (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.
Interest income is recognized on the accrual basis.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Notes to Financial Statements (concluded) Master Real Investment Trust
(e) Securities lending--The Trust 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
Trust and any additional required collateral is delivered to the Trust on the
next business day. Where the Trust receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Trust typically
receives the income on the loaned securities but does not receive the income on
the collateral. Where the Trust 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 Trust 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 Trust could experience
delays and costs in gaining access to the collateral. The Trust also could
suffer a loss where the value of the collateral falls below the market value
of the borrowed securities, in the event of borrower default or in the event
of losses on investments made with cash collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Merrill Lynch
Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner.
MLIM is responsible for the management of the Trust's investments and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Trust. For such services, the Trust pays a
monthly fee based upon the average daily value of the Trust's net assets at the
annual rate of 0.50%. MLIM has entered into a Sub-Advisory Agreement with
Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of MLIM,
pursuant to which MLIM, LLC provides investment advisory services to MLIM with
respect to the Trust. There is no increase in the aggregate fees paid by the
Trust for these services.
The Trust 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 MLIM, or its
affiliates. Pursuant to that order, the Trust also has retained MLIM, LLC 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 Trust, invest
cash collateral received by the Trust for such loans, among other things, in a
private investment company managed by MLIM, LLC or in registered money market
funds advised by MLIM or its affiliates.
For the six months ended May 31, 2005, the Trust reimbursed MLIM $1,113 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
MLIM, PSI, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the six months ended May 31, 2005 were $31,279,475 and
$27,306,227, respectively.
Transactions in call options written for the six months ended May 31, 2005 were
as follows:
Number of Premiums
Contracts Received
Outstanding call options written,
beginning of period 2++ $ 3,200
Options written -- --
Options expired -- --
------------- -------------
Outstanding call options written,
end of period 2++ $ 3,200
============= =============
++ One contract represents a notional amount of $1,000,000.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Disclosure of Investment Advisory Agreement
Activities of and Composition of the Board of Trustees
All but one member of the Board of Trustees is an independent trustee whose
only affiliation with Merrill Lynch Investment Managers, 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
Chairman of the Board is also an independent trustee. New trustee nominees are
chosen as nominees by a Nominating Committee comprised of independent trustees.
All independent trustees also are members of the Board's Audit Committee and
the independent trustees meet in executive session at each in person Board
meeting. The Board and the 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 the 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 Board
Every year, the Board considers approval of the investment advisory agreement
with respect to each of the Master Real Investment Trust (the "Trust") and
the Fund (together, the "Investment Advisory Agreement") and throughout each
year, reviews and evaluates the performance of and services provided by the
Investment Adviser. The Board also annually reviews and considers approval of
the sub-advisory agreement on behalf of the Trust and the Fund between the
Investment Adviser and an affiliate. The Board assesses the nature, scope and
quality of the services provided to the Trust and/or 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.
The Board also receives and assesses information regarding the services
provided to the Trust and the Fund by certain unaffiliated service providers.
At various times throughout the year, the 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 Trust and/or the Fund, such as
transfer agency fees and fees for marketing and distribution; (b) Trust or Fund
operating expenses paid to third parties; (c) the resources devoted to and
compliance reports relating to the Trust'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 quality of services
provided by the Investment Adviser to be generally 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 believes that, for many of the Fund's
shareholders, the investment involves the selection of the Investment Adviser
as the investment adviser to the Fund. 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 meeting to consider renewal of the Investment
Advisory Agreement and the sub-advisory agreement, the Board requests and
receives materials specifically relating to the Trust's and the Fund's
Investment Advisory Agreement and/or the sub-advisory agreement. 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 Trust's/Fund's portfolio management
team regarding investment strategies used by the Trust/Fund during its most
recent fiscal year; (d) information on the profitability to the Investment
Adviser and its affiliates of the Investment Advisory Agreement, the
sub-advisory agreement and other relationships with the Trust/Fund; and
(e) information provided by the Investment Adviser concerning investment
advisory fees charged to other clients, such as other mutual funds and
offshore funds under similar investment mandates and generally to institutional
clients. The 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 Trust/Fund portfolio holdings, allocation of
Trust/Fund brokerage fees, the Trust's/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 Trust/Fund.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Disclosure of Investment Advisory Agreement (continued)
Certain Specific Renewal Data
In connection with the most recent renewal of the Trust's and the Fund's
Investment Advisory Agreement and the sub-advisory agreement, the independent
trustees' and Board's review included the following:
The Investment Adviser's Services and Fund Performance--The Board reviewed the
nature, extent and quality of services provided by the Investment Adviser and
the sub-adviser, including the investment advisory services and the resulting
performance of the Fund. The Board focused primarily on the Investment
Adviser's investment advisory services and the Fund's investment performance.
The Board compared Fund performance - both including and excluding the effects
of the Trust's/Fund's fees and expenses - to the performance of a comparable
group of mutual funds, and to the performance of a relevant index or
combination of indexes. While the 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, for a fund in operation for less than three
years, the life of the fund. The Board noted that the Fund's performance within
the group compared for the one year period was above the median of the group,
in the first quintile. The Fund commenced operation on March 26, 2004 and does
not have longer term performance yet. The Board concluded that the Fund's
performance was consistent with the Trust's/Fund's investment objective and
the renewal of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process--The Board reviews
at least annually the investment objectives and strategies of the Trust and
the Fund. The Board discusses with senior management of the Investment Adviser
responsible for investment operations and the senior management of the
Investment Adviser's taxable fixed-income investing group the strategies
being used to achieve the stated objectives. The Investment Adviser manages
a portfolio of fixed-income securities and commodity-linked derivative
instruments designed to provide investors with exposure to the investment
returns of real assets that trade in the commodity markets without direct
investment in physical commodities or commodities futures contracts. These
services include the selection and structuring of the commodity linked
derivative instruments used to provide commodity market exposure. Among other
things, the 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. The Board also reviews
the Investment Adviser's compensation policies and practices with respect
to the Trust's/Fund's portfolio managers. The Board also considered the
experience of the Trust's/Fund's portfolio management team and noted that
each of Messrs. Viola and Musmanno, the Trust's/Fund's portfolio managers,
have over ten years' experience investing in fixed-income securities and in
selecting and managing derivative investments. The Board concluded that the
Investment Adviser and its investment staff and the Trust's/Fund's portfolio
managers have extensive experience in analyzing and managing the types of
investments used by the Trust and the Fund and that the Trust and the Fund
benefit from that expertise.
Management Fees and Other Expenses--The Board reviews the Trust's/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 Trust's/Fund's
total expenses to those of other comparable funds. The Board considered the
services provided to and the fees charged by the Investment Adviser to other
types of clients such as other mutual funds and offshore 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 Trust/Fund. The
Board also noted that, as a general matter, fees charged to institutional
clients were lower than the fees charged to the Trust/Fund, but determined that
the Investment Adviser provided less extensive services to such clients. The
Board noted that the Trust/Fund ranked slightly above the median of its
comparable funds classified by Lipper with respect to its contractual
management fee rate, but ranked lowest among a group of nine comparable funds
classified by Lipper with respect to its overall operating expenses and with
respect to its actual management fee rate. The Board has concluded that the
Trust's/Fund's management fee and fee rate and overall expense ratio are
reasonable compared to those of other comparable funds.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Disclosure of Investment Advisory Agreement (concluded)
Profitability--The Board considers the cost of the services provided to the
Trust and/or 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 Trust and the Fund and concluded that there was a reasonable
basis for the allocation. The Board believes the Investment Adviser's profits
are reasonable in relation to the nature and quality of the services provided.
Economies of Scale--The Board considered the extent to which economies of scale
might be realized as the assets of the Trust/Fund increase and whether there
should be changes in the management fee rate or structure in order to enable
the Trust and the Fund to participate in these economies of scale. While there
was no evidence to date that the Trust's or the Fund's assets have reached a
level where such economies are effectively available, the Board will continue
to seek information relating to economies of scale. The Board also considered
the Investment Adviser's agreement to waive the Fund's advisory fee in the
amount of the Fund's share of the investment advisory fee paid by the Trust.
The Board determined that the current management fee structure was reasonable
and that no changes were currently necessary.
Conclusion
After the independent trustees deliberated in executive session, the entire
Board including all of the independent trustees, approved the renewal of the
existing Investment Advisory Agreement and 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
shareholders.
MERRILL LYNCH REAL INVESTMENT FUND MAY 31, 2005
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this semi-
annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the
registrant's disclosure controls and procedures are effective based
on our evaluation of these controls and procedures as of a date
within 90 days prior to the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year
of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Real Investment Fund and Master Real Investment Trust
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Real Investment Fund and Master Real Investment Trust
Date: July 15, 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 Real Investment Fund and Master Real Investment Trust
Date: July 15, 2005
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Real Investment Fund and Master Real Investment Trust
Date: July 15, 2005