UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21486
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 - 11/30/05
Item 1 - Report to Stockholders
Merrill Lynch
Real Investment Fund
Annual Report
November 30, 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
(GO PAPERLESS LOGO)
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Merrill Lynch Real Investment Fund
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distribution paid by Merrill Lynch Real Investment Fund to shareholders of
record on December 20, 2004:
Federal Obligation Interest 10.20%
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income tax.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
A Letter From the President
Dear Shareholder
As the financial markets continued to muddle their way through 2005, the
Federal Reserve Board (the Fed) advanced its monetary tightening campaign full
steam ahead. The 13th consecutive interest rate hike since June 2004 came on
December 13, bringing the target federal funds rate to 4.25%. Oil prices,
after reaching record highs on more than one occasion over the past several
months, moderated somewhat by period-end, as did inflation expectations.
Against this backdrop, most major market indexes managed to post positive
results for the current reporting period:
Total Returns as of November 30, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) + 5.88% + 8.44%
Small-cap U.S. equities (Russell 2000 Index) +10.47 + 8.14
International equities (MSCI Europe Australasia Far East Index) +11.23 +13.25
Fixed income (Lehman Brothers Aggregate Bond Index) - 0.48 + 2.40
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.36 + 3.88
High yield bonds (Credit Suisse First Boston High Yield Index) + 2.33 + 2.94
With the kick-off of the holiday shopping season, attention turned to the
consumer, who has remained resilient even amid high energy prices and rising
interest rates. Some observers surmise that a slowdown in residential real
estate may ultimately contribute to a weakening in consumer spending. At this
juncture, the outlook remains unclear.
Equity markets moved sideways for much of 2005, notwithstanding a strong rally
in the middle of the fourth quarter. Corporate earnings have continued to
surprise on the upside and company profit margins remain high, as does
productivity. On the other hand, high energy prices, more Fed interest rate
hikes, a consumer slowdown and/or the potential for slower earnings growth
pose the greatest risks to U.S. stocks. Internationally, many markets have
benefited from strong economic statistics, trade surpluses and solid finances.
Emerging markets have had a particularly strong year, partly reflecting high
economic growth rates and positive financial reforms.
The bond market continued to be characterized by a flattening yield curve. The
difference between the two-year and 10-year Treasury yield was just seven
basis points (.07%) at period-end, compared to 40 basis points six months ago
and 134 basis points 12 months ago.
Navigating the financial markets can be a challenge, particularly during
uncertain times. With that in mind, we invite you to visit our online magazine
at www.mlim.ml.com/shareholdermagazine. Shareholder is a publication designed
to provide insights on investing and timely "food for thought" for investors.
We are pleased to make the magazine available online, where we are able to
expand our reach in terms of content and readership.
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 NOVEMBER 30, 2005
A Discussion With Your Fund's Portfolio Managers
The Fund provided a positive total return for the fiscal year as commodity
prices rose, along with interest rates, and our exposure to high-quality,
short-duration fixed income assets provided some yield enhancement.
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 investment grade
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 fiscal year in light of the existing
market conditions?
For the 12-month period ended November 30, 2005, the Fund's Class A, Class B,
Class C and Class I Shares had total net returns of +7.39%, +6.63%, +6.67% and
+7.70%, respectively. (Fund results shown do not reflect sales charges and
would be lower if sales charges were included. Complete performance
information can be found on pages 6 and 7 of this report to shareholders.) For
the same period, the Goldman Sachs Commodity Total Return Index returned
+9.85%. Importantly, the Index is used to illustrate the performance of the
overall commodities markets, but is not necessarily a comparable measure of
the Fund's results. The Fund is designed to tap into the performance of the
commodities markets and will generally track the markets' trends. However, it
is a fixed income investment and must fund the cost of gaining that commodity
exposure through the creation of commodity-linked notes. This inherent cost
will necessarily impact the Fund's results relative to the Index.
During the fiscal year, the Fund's net assets increased from $69.6 million to
$90.5 million. Having to invest the new cash as commodity prices rose
detracted somewhat from the Fund's total returns. Nevertheless, the rising
energy prices contributed to the positive absolute performance of the
portfolio. Not surprisingly, oil captured most of the headlines, with the
price per barrel reaching record highs on more than one occasion during the
12-month period. Overall, the price of crude oil increased from approximately
$49 per barrel a year ago to roughly $57 per barrel at November 30, 2005. A
particularly sharp spike in the price of oil and gasoline came in the
immediate aftermath of Hurricane Katrina in September. Since then, prices have
moderated somewhat but remain higher on a year-over-year basis.
Oil was not the only commodity to move sharply higher over the past year.
Natural gas prices increased approximately 70% while industrial metals also
appreciated. Copper, in particular, was up 65% year-over-year. The rise in
energy and industrial metal prices is primarily attributable to increased
demand on the part of developing economies, such as China and India, where
commodities are required to meet growing infrastructure development needs. In
addition, the price of gold (a precious metal) increased roughly 7% during the
year, largely a reflection of investor concerns about inflation.
Because we use credit-sensitive debt securities to provide yield enhancement
for the portfolio, Fund returns also are influenced by the performance of the
overall credit markets. As investors grew more cautious during the course of
the year, the spread-narrowing trend that had long benefited lower-quality
credits began to subside. As such, our strategy of investing in high-quality,
low-duration assets proved to be slightly accretive to performance.
What changes were made to the portfolio during the period?
As new money came into the Fund, we sought to quickly invest those proceeds in
an effort to maintain a nearly 100% exposure to the Goldman Sachs Commodity
Total Return Index. We use commodity-linked notes issued to the Fund by high-
quality banks, insurance companies and other financial services issues to gain
exposure to the Index. During the period, we added Morgan Stanley to our group
of issuers, bringing the total number to four. The addition of Morgan Stanley
reflects our continued efforts to diversify our issuer exposure, so as to
spread out and effectively reduce the risk of overexposing the Fund's assets
to a particular counterparty. In addition, the maturities on these commodity-
linked notes tend to be in the area of 13 months, further reducing risk simply
due to the fairly short-term nature of the agreements. We continue to work
with other commodity-linked note issuers to potentially add to our current
portfolio of four over the course of the next year.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
We continued to fund the cost of acquiring the commodity-linked exposure with
income generated from low-duration fixed income investments, such as U.S.
government 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
products.
In the latter six months of the period, we initiated a position in Fannie Mae
multi-family commercial properties, an asset class that we believe could
provide incremental yield and total return potential over time. We continued
to look for inexpensive floating rate assets, and established a position in
certain collateralized debt obligations (CDOs). These two additions are
consistent with our goal of enhancing yield in the portfolio through high-
quality, short-duration assets. This was accomplished while improving the
overall credit quality of the portfolio from AA- at the beginning of the
fiscal year to AA at November 30, 2005.
How would you characterize the portfolio's position at the close of the
period?
In the fixed income basket, our focus continues to be on high-quality
structured products. Our commitment to these sectors at period-end was broken
down as follows: 15% in floating rate collateralized mortgage obligations; 12%
in asset-backed securities, including floating rate home equity loans; 10% in
the aforementioned Fannie Mae commercial mortgage product; 9% in floating rate
residential B&C (non-prime) loans; and 8% in U.K. mortgages denominated in
U.S. dollars. Most of these assets are floating rate securities or are
structured to be of a relatively short duration. We favor these types of
securities in the current environment, as they will track the movement of
short-term interest rates without the same volatility as fixed rate
securities. Therefore, in a rising rate environment, these securities will not
decline in price. This is consistent with the objective of the Fund, as our
investors are seeking exposure to the commodity markets, but without the
downward price pressure associated with rising interest rates.
At period-end, the portfolio had a 97% exposure to the Goldman Sachs Commodity
Total Return Index. At that time, we were actively gathering cash to be used
to put a new commodity-linked note in place and increase our exposure to the
Index to 100%.
We continue to believe that commodities will be a benefactor of global
economic expansion. 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 lends support to investment in this asset class. As
we have said in prior reports to shareholders, commodities tend to perform
opposite of traditional asset classes. Thus, the Fund offers an opportunity to
diversify a traditional portfolio of stocks and bonds, thereby helping
investors to prepare for a wider range of market and economic conditions.
Given its unique structure, the Fund also offers 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
December 14, 2005
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 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 10 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 November 30, 2005 Total Return Total Return Total Return
ML Real Investment Fund Class A Shares* + 9.39% +7.39% +24.25%
ML Real Investment Fund Class B Shares* + 8.95 +6.63 +23.15
ML Real Investment Fund Class C Shares* + 9.05 +6.67 +23.20
ML Real Investment Fund Class I Shares* + 9.56 +7.70 +24.72
Goldman Sachs Commodity Total Return Index** +10.82 +9.85 +32.02
* 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 commenced operations on 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 NOVEMBER 30, 2005
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph illustrating the growth of a $10,000 investment in ML Real
Investment Fund++ Class A, Class B, Class C and Class I Shares* compared to a
similar investment in Goldman Sachs Commodity Total Return Index++++. Values
illustrated are as follows:
ML Real Investment Fund++
Class A Shares*
Date Value
3/26/2004** $ 9,475.00
November 2004 $10,963.00
November 2005 $11,773.00
ML Real Investment Fund++
Class B Shares*
Date Value
3/26/2004** $10,000.00
November 2004 $11,550.00
November 2005 $11,915.00
ML Real Investment Fund++
Class C Shares*
Date Value
3/26/2004** $10,000.00
November 2004 $11,550.00
November 2005 $12,320.00
ML Real Investment Fund++
Class I Shares*
Date Value
3/26/2004** $ 9,475.00
November 2004 $10,972.00
November 2005 $11,817.00
Goldman Sachs Commodity Total Return Index++++
Date Value
3/26/2004** $10,000.00
November 2004 $12,017.00
November 2005 $13,202.00
* Assuming maximum sales charge, transaction costs and other operating
expenses, including administration fees.
** Commencement of operations.
++ ML Real Investment Fund invests all of its assets in Master Real
Investment Trust. The Portfolio invests primarily in commodity-linked
derivative instruments, and U.S. Government securities and other debt
obligations.
++++ 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.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 11/30/05 + 7.39% + 1.75%
Inception (3/26/04)
through 11/30/05 +13.78 +10.19
Return Return
Without CDSC With CDSC++++++
Class B Shares++
One Year Ended 11/30/05 + 6.63% + 2.63%
Inception (3/26/04)
through 11/30/05 +13.18 +10.98
Return Return
Without CDSC With CDSC++++++
Class C Shares++++
One Year Ended 11/30/05 + 6.67% + 5.67%
Inception (3/26/04)
through 11/30/05 +13.21 +13.21
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 11/30/05 + 7.70% + 2.05%
Inception (3/26/04)
through 11/30/05 +14.03 +10.43
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
++ Maximum contingent deferred sales charge is 4% and is reduced
to 0% after six years.
++++ Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year.
++++++ Assuming payment of applicable contingent deferred sales
charge.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 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 June 1, 2005 and
held through November 30, 2005) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in comparing these
expenses with similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during
the period covered by this report, shareholders can divide their account value
by $1,000 and then multiply the result by the number in the first line under
the heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is
useful in comparing ongoing expenses only, and will not help shareholders
determine the relative total expenses of owning different funds. If these
transactional expenses were included, shareholder expenses would have been
higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value June 1, 2005 to
June 1, November 30, November 30,
2005 2005 2005
Actual
Class A $1,000 $1,093.90 $ 8.24
Class B $1,000 $1,089.50 $12.26
Class C $1,000 $1,090.50 $12.26
Class I $1,000 $1,095.60 $ 6.93
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,017.23 $ 7.94
Class B $1,000 $1,013.37 $11.81
Class C $1,000 $1,013.37 $11.81
Class I $1,000 $1,018.48 $ 6.68
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.57% for Class A, 2.34% for Class B, 2.34% for Class C and 1.32% for Class I), multiplied
by 183/365 (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 and the master trust 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 NOVEMBER 30, 2005
Statement of Assets and Liabilities Merrill Lynch Real Investment Fund
As of November 30, 2005
Assets
Investment in Master Real Investment Trust (the "Trust"), at value
(identified cost--$90,693,914) $ 90,572,206
Prepaid expenses 12,213
---------------
Total assets 90,584,419
---------------
Liabilities
Payables:
Distributor $ 48,936
Other affiliates 17,684
Administrator 3,176 69,796
---------------
Accrued expenses 20,446
---------------
Total liabilities 90,242
---------------
Net Assets
Net assets $ 90,494,177
===============
Net Assets Consist of
Class A Shares of beneficial interest, $.01 par value, unlimited number of shares
authorized $ 10,410
Class B Shares of beneficial interest, $.01 par value, unlimited number of shares
authorized 9,383
Class C Shares of beneficial interest, $.01 par value, unlimited number of shares
authorized 36,048
Class I Shares of beneficial interest, $.01 par value, unlimited number of shares
authorized 17,614
Paid-in capital in excess of par 77,594,143
Undistributed investment income--net $ 13,486,577
Accumulated capital losses allocated from the Trust--net (538,290)
Unrealized depreciation allocated from the Trust--net (121,708)
---------------
Total accumulated earnings--net 12,826,579
---------------
Net Assets $ 90,494,177
===============
Net Asset Value
Class A--Based on net assets of $12,860,222 and 1,040,959 shares of beneficial interest
outstanding $ 12.35
===============
Class B--Based on net assets of $11,534,206 and 938,309 shares of beneficial interest
outstanding $ 12.29
===============
Class C--Based on net assets of $44,291,688 and 3,604,803 shares of beneficial interest
outstanding $ 12.29
===============
Class I--Based on net assets of $21,808,061 and 1,761,393 shares of beneficial interest
outstanding $ 12.38
===============
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Statement of Operations Merrill Lynch Real Investment Fund
For the Year Ended November 30, 2005
Investment Income
Net investment income allocated from the Trust:
Interest $ 2,557,784
Expenses (602,329)
---------------
Total income 1,955,455
---------------
Expenses
Investment advisory fees $ 826,987
Account maintenance and distribution fees--Class C 410,187
Account maintenance and distribution fees--Class B 113,587
Offering costs 83,804
Registration fees 61,658
Transfer agent fees--Class C 51,498
Printing and shareholder reports 51,085
Account maintenance fees--Class A 30,795
Professional fees 26,966
Transfer agent fees--Class I 19,341
Transfer agent fees--Class B 14,332
Transfer agent fees--Class A 13,254
Other 11,642
---------------
Total expenses before waiver 1,715,136
Waiver of expenses (658,827)
---------------
Total expenses after waiver 1,056,309
---------------
Investment income--net 899,146
---------------
Realized & Unrealized Gain (Loss) Allocated from the Trust--Net
Realized gain on investments, futures contracts and swaps--net 12,008,250
Change in unrealized appreciation/depreciation on investments, futures contracts,
swaps and options--net (7,658,589)
---------------
Total realized and unrealized gain--net 4,349,661
---------------
Net Increase in Net Assets Resulting from Operations $ 5,248,807
===============
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Statements of Changes in Net Assets Merrill Lynch Real Investment Fund
For the For the Period
Year Ended March 26, 2004++
November 30, to November 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 899,146 $ 31,597
Realized gain--net 12,008,250 37,437
Change in unrealized appreciation/depreciation--net (7,658,589) 7,536,881
--------------- ---------------
Net increase in net assets resulting from operations 5,248,807 7,605,915
--------------- ---------------
Dividends to Shareholders
Investment income--net:
Class A (62,433) --
Class B (21,074) --
Class C (82,000) --
Class I (96,002) --
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (261,509) --
--------------- ---------------
Beneficial Interest Transactions
Net increase in net assets derived from beneficial interest transactions 15,930,594 61,870,370
--------------- ---------------
Net Assets
Total increase in net assets 20,917,892 69,476,285
Beginning of period 69,576,285 100,000
--------------- ---------------
End of period* $ 90,494,177 $ 69,576,285
=============== ===============
* Undistributed investment income--net $ 13,486,577 $ 214,735
=============== ===============
++ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Financial Highlights Merrill Lynch Real Investment Fund
Class A
For the For the Period
Year Ended March 26, 2004++
The following per share data and ratios have been derived November 30, 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 .18 .01
Realized and unrealized gain--net .67 1.56
--------------- ---------------
Total from investment operations .85 1.57
--------------- ---------------
Less dividends from investment income--net (.07) --
--------------- ---------------
Net asset value, end of period $ 12.35 $ 11.57
=============== ===============
Total Investment Return**
Based on net asset value per share 7.39% 15.70%+++
=============== ===============
Ratios to Average Net Assets***
Expenses, net of waiver and reimbursement 1.57% 1.42%*
=============== ===============
Expenses 2.37% 2.61%*
=============== ===============
Investment income--net 1.51% .19%*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 12,860 $ 10,867
=============== ===============
Portfolio turnover of the Trust 50.00% 19.40%
=============== ===============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Includes the Fund's share of the Trust's allocated expenses and/or investment income--net.
++ Commencement of operations.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Financial Highlights (continued) Merrill Lynch Real Investment Fund
Class B
For the For the Period
Year Ended March 26, 2004++
The following per share data and ratios have been derived November 30, 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 .09 --++++
Realized and unrealized gain--net .67 1.55
--------------- ---------------
Total from investment operations .76 1.55
--------------- ---------------
Less dividends from investment income--net (.02) --
--------------- ---------------
Net asset value, end of period $ 12.29 $ 11.55
=============== ===============
Total Investment Return**
Based on net asset value per share 6.63% 15.50%+++
=============== ===============
Ratios to Average Net Assets***
Expenses, net of waiver and reimbursement 2.34% 1.65%*
=============== ===============
Expenses 3.14% 3.37%*
=============== ===============
Investment income (loss)--net .73% (.03%)*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 11,534 $ 10,663
=============== ===============
Portfolio turnover of the Trust 50.00% 19.40%
=============== ===============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Includes the Fund's share of the Trust's allocated expenses and/or investment income (loss)--net.
++ Commencement of operations.
++++ Amount is less than $(.01) per share.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Financial Highlights (continued) Merrill Lynch Real Investment Fund
Class C
For the For the Period
Year Ended March 26, 2004++
The following per share data and ratios have been derived November 30, 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 .09 --++++
Realized and unrealized gain--net .68 1.55
--------------- ---------------
Total from investment operations .77 1.55
--------------- ---------------
Less dividends from investment income--net (.03) --
--------------- ---------------
Net asset value, end of period $ 12.29 $ 11.55
=============== ===============
Total Investment Return**
Based on net asset value per share 6.67% 15.50%+++
=============== ===============
Ratios to Average Net Assets***
Expenses, net of waiver and reimbursement 2.34% 1.67%*
=============== ===============
Expenses 3.14% 3.37%*
=============== ===============
Investment income (loss)--net .75% (.03%)*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 44,292 $ 34,403
=============== ===============
Portfolio turnover of the Trust 50.00% 19.40%
=============== ===============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Includes the Fund's share of the Trust's allocated expenses and/or investment income (loss)--net.
++ Commencement of operations.
++++ Amount is less than $(.01) per share.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Financial Highlights (concluded) Merrill Lynch Real Investment Fund
Class I
For the For the Period
Year Ended March 26, 2004++
The following per share data and ratios have been derived November 30, 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 .22 .02
Realized and unrealized gain--net .66 1.56
--------------- ---------------
Total from investment operations .88 1.58
--------------- ---------------
Less dividends from investment income--net (.08) --
--------------- ---------------
Net asset value, end of period $ 12.38 $ 11.58
=============== ===============
Total Investment Return**
Based on net asset value per share 7.70% 15.80%+++
=============== ===============
Ratios to Average Net Assets***
Expenses, net of waiver and reimbursement 1.32% 1.27%*
=============== ===============
Expenses 2.12% 2.36%*
=============== ===============
Investment income--net 1.79% .35%*
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 21,808 $ 13,643
=============== ===============
Portfolio turnover of the Trust 50.00% 19.40%
=============== ===============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Includes the Fund's share of the Trust's allocated expenses and/or investment income--net.
++ Commencement of operations.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 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. The percentage of the Trust owned by the Fund at November 30, 2005
was 85.3%. 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.
(h) Reclassifications--U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the
current year, $12,550,401 has been reclassified between undistributed net
realized capital gains allocated from the Trust and undistributed net
investment income and $83,804 has been reclassified between paid-in capital in
excess of par and undistributed net investment income as a result of permanent
differences attributable to the characterization of realized gains on certain
debt instruments, swap agreements and non-deductible expenses. These
reclassifications have no effect on net assets or net asset values per share.
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 year ended November 30, 2005, MLIM earned fees of
$826,987, of which $658,827 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 NOVEMBER 30, 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 12(b)-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 year ended November 30, 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 $ 8,665 $ 123,663
Class I $ 23 $ 531
For the year ended November 30, 2005, MLPF&S received contingent deferred
sales charges of $41,383 and $25,307 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred
sales charges of $6 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
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
$15,930,594 and $61,870,370 for the year ended November 30, 2005 and for the
period March 26, 2004 to November 30, 2004, respectively.
Class A Shares for the Year Dollar
Ended November 30, 2005 Shares Amount
Shares sold 487,075 $ 5,946,383
Automatic conversion of shares 19,621 237,061
Shares issued to shareholders in
reinvestment of dividends 5,089 55,421
--------------- ---------------
Total issued 511,785 6,238,865
Shares redeemed (410,076) (4,981,361)
--------------- ---------------
Net increase 101,709 $ 1,257,504
=============== ===============
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 FAM for $25,000.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Notes to Financial Statements (concluded) Merrill Lynch Real Investment Fund
Class B Shares for the Year Dollar
Ended November 30, 2005 Shares Amount
Shares sold 318,856 $ 3,929,559
Shares issued to shareholders in
reinvestment of dividends 1,630 17,783
--------------- ---------------
Total issued 320,486 3,947,342
--------------- ---------------
Shares redeemed (285,334) (3,572,607)
Automatic conversion of shares (19,653) (237,061)
--------------- ---------------
Total redeemed (304,987) (3,809,668)
--------------- ---------------
Net increase 15,499 $ 137,674
=============== ===============
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 Year Dollar
Ended November 30, 2005 Shares Amount
Shares sold 1,673,853 $ 20,280,854
Shares issued to shareholders in
reinvestment of dividends 6,648 72,532
--------------- ---------------
Total issued 1,680,501 20,353,386
Shares redeemed (1,053,157) (13,015,861)
--------------- ---------------
Net increase 627,344 $ 7,337,525
=============== ===============
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 Year Dollar
Ended November 30, 2005 Shares Amount
Shares sold 1,159,874 $ 14,285,155
Shares issued to shareholders in
reinvestment of dividends 8,062 87,793
--------------- ---------------
Total issued 1,167,936 14,372,948
Shares redeemed (584,467) (7,175,057)
--------------- ---------------
Net increase 583,469 $ 7,197,891
=============== ===============
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. Distributions to Shareholders:
The Fund paid an ordinary dividend in the amount of $1.861903 per Class A
Share, $1.776199 per Class B Share, $1.782314 per Class C Share and $1.889350
per Class I Share on December 30, 2005 to shareholders of record on December
22, 2005.
In addition, the Fund paid a long-term capital gain distribution in the amount
of $.007995 per Class A Share, $.007995 per Class B Share, $.007995 per Class
C Share and $.007995 per Class I Share on December 30, 2005 to shareholders of
record on December 22, 2005.
The tax character of distributions paid during the fiscal year ended November
30, 2005 and the period March 26, 2004 to November 30, 2004 was as follows:
3/26/2004++ to
11/30/2005 11/30/2004
Distributions paid from:
Ordinary income $ 261,509 $ --
--------------- ---------------
Total taxable distributions $ 261,509 $ --
=============== ===============
++ Commencement of operations.
As of November 30, 2005, the components of accumulated earnings on a
tax basis were as follows:
Undistributed ordinary income--net $ 13,499,330
Undistributed long-term capital gains--net 59,342
---------------
Total undistributed earnings--net 13,558,672
Capital loss carryforward --
Unrealized losses--net (732,093)*
---------------
Total accumulated earnings--net $ 12,826,579
===============
* The difference between book-basis and tax-basis net unrealized
losses is attributable primarily to the tax deferral of losses on
wash sales, the realization for tax purposes of unrealized losses of
certain futures contracts, the deferral of post-October capital losses
for tax purposes and other book/tax temporary differences.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Report of Independent Registered Public Accounting Firm
Merrill Lynch Real Investment Fund
To the Shareholders and Board of Trustees
of Merrill Lynch Real Investment Fund:
We have audited the accompanying statement of assets and liabilities of
Merrill Lynch Real Investment Fund as of November 30, 2005, and the related
statement of operations for the year then ended, the statement of changes in
net assets and the financial highlights for the year then ended and for the
period March 26, 2004 (commencement of operations) to November 30, 2004. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Real Investment Fund at November 30, 2005, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the year then ended and for the period March 26, 2004
through November 30, 2004, in conformity with U.S. generally accepted
accounting principles.
(Ernst & Young, LLP)
Philadelphia, Pennsylvania
January 18, 2006
Portfolio Information Master Real Investment Trust
As of November 30, 2005
Percent of
Total
Asset Mix Investments
Corporate Bonds & Structured Notes 34.0%
Asset-Backed Securities 24.9
Non-Government Agency
Mortgage-Backed Securities 17.2
Government Agency Mortgage-Backed
Securities 10.1
Government Agency Mortgage-Backed
Securities--Collateralized Mortgage
Obligations 3.8
Other* 10.0
* Includes portfolio holdings in short-term investments and options.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Schedule of Investments Master Real Investment Trust
Face
Amount Asset-Backed Securities++ Value
$ 1,000,000 ACE Securities Corp. Series 2004-OP1 Class M3, 5.441% due 4/25/2034 (a) $ 1,001,723
3,000,000 Accredited Mortgage Loan Trust Series 2004-3 Class 2A6, 4.771% due
10/25/2034 (a) 3,023,500
500,000 Altius Funding Ltd. Series 2005-2A Class D, 6.712% due 12/05/2040 (a)(b) 500,000
200,000 American Express Credit Account Master Trust Series 2002-1 Class A, 4.23%
due 9/15/2009 (a) 200,240
Ameriquest Mortgage Securities, Inc. (a):
1,000,000 Series 2004-IA1 Class M4, 5.691% due 9/25/2034 1,011,468
1,500,000 Series 2004-R1 Class M2, 4.77% due 2/25/2034 1,502,874
697,430 Amortizing Residential Collateral Trust Series 2002-BC3 Class M2, 5.291% due
6/25/2032 (a) 705,290
200,000 Asset Backed Securities Corp. Home Equity Series 2004-HE9 Class M2, 5.391% due
12/25/2034 (a) 202,874
200,000 BA Master Credit Card Trust Series 2001-A Class A, 4.24% due 6/15/2008 (a) 200,110
200,000 Bank One Issuance Trust Series 2002-A5 Class A5, 4.24% due 6/15/2010 (a) 200,411
1,000,000 Bear Stearns Asset Backed Securities, Inc. Series 2004-FR3 Class M2, 5.361% due
10/25/2034 (a) 1,012,954
500,000 Buckingham CDO Ltd. Series 2005-2A Class E, 7.14% due 4/05/2041 (a)(b) 500,000
Capital Auto Receivables Asset Trust Series 2003-2 (a):
25,949 Class A3B, 4.16% due 2/15/2007 25,949
200,000 Class A4B, 4.18% due 1/15/2009 200,073
Capital One Auto Finance Trust (a):
28,754 Series 2003-A Class A3B, 4.28% due 10/15/2007 28,757
228,723 Series 2003-B Class A3, 4.23% due 1/15/2008 228,775
200,000 Capital One Master Trust Series 1999-3 Class A, 4.37% due 9/15/2009 (a) 200,320
1,500,000 Capital One Multi-Asset Execution Trust Series 2002-C1 Class C1, 6.87%
due 7/15/2010 (a) 1,565,263
2,000,000 Centex Home Equity Series 2004-D Class MV1, 4.811% due 9/25/2034 (a) 2,011,804
Countrywide Asset-Backed Certificates (a):
1,000,000 Series 2003-2 Class M1, 4.90% due 6/26/2033 1,003,720
1,000,000 Series 2004-5 Class M2, 4.86% due 7/25/2034 1,005,094
2,000,000 Series 2004-8 Class M1, 4.891% due 2/25/2035 2,018,035
1,000,000 Series 2005-BC3 Class 2A3, 4.601% due 6/25/2035 1,002,656
2,000,000 Fremont Home Loan Trust Series 2004-3 Class M2, 4.738% due 11/25/2034 (a) 2,001,128
167,588 Household Automotive Trust Series 2002-3 Class A4B, 4.48% due 5/18/2009 (a) 167,805
4,870 Long Beach Mortgage Loan Trust Series 2003-4 Class AV3, 4.531% due 8/25/2033 (a) 4,871
1,000,000 MASTR Asset Backed Securities Trust Series 2004-HE1 Class M5, 5.541% due
9/25/2034 (a) 1,009,033
365,000 MBNA Credit Card Master Note Trust Series 2001-C1 Class C1, 5.17% due
10/15/2008 (a) 366,181
377,794 MSDWCC Heloc Trust Series 2003-2 Class A, 4.451% due 4/25/2016 (a) 378,178
Morgan Stanley ABS Capital (a):
1,000,000 Series 2003-NC5 Class M2, 6.19% due 4/25/2033 1,008,029
516,584 Series 2004-NC1 Class A2, 4.56% due 12/27/2033 518,378
500,000 Residential Asset Mortgage Products, Inc. Series 2004-RZ4 Class M3, 5.091% due
12/25/2034 (a) 502,109
Residential Asset Securities Corp. (a):
110,613 Series 2000-KS4 Class AII, 4.651% due 9/25/2031 110,635
1,000,000 Series 2004-KS8 Class MII2, 5.271% due 9/25/2034 999,919
518 Saxon Asset Securities Trust Series 2003-2 Class AV2, 4.491% due 6/25/2033 (a) 518
109,737 Wachovia Asset Securitization, Inc. Series 2003-HE1 Class A1, 4.481% due
3/25/2033 (a) 109,841
459,000 Wells Fargo Home Equity Trust Series 2004-2 Class M5, 5.441% due 11/25/2033 (a) 470,409
Total Asset-Backed Securities (Cost--$26,903,189)--25.4% 26,998,924
Industry Corporate Bonds & Structured Notes
Capital 5,000,000 Morgan Stanley & Co., 2.53% due 10/06/2006 3,083,465
Markets--2.9%
Commercial 8,700,000 Barclays Bank Plc (Goldman Sachs Commodity Index Total Return Linked Notes),
Banks--12.6% 3.834% due 9/13/2007 (b)(c) 13,408,664
Diversified Financial AIG-FP Structured Finance (Cayman) Limited (Goldman Sachs Commodity Index Total
Services--18.9% Return Linked Notes) (c):
9,000,000 3.02% due 4/07/2006 9,018,954
3,000,000 1.50% due 5/14/2007 4,549,228
4,500,000 JPMorgan Chase Bank (Goldman Sachs Commodity Index Total Return Linked Notes),
3.63% due 4/20/2006 (c) 5,024,137
1,000,000 Links Finance Corp. Series 55, 4.04% due 9/15/2010 (a) 997,629
500,000 Sigma Finance Corp., 6.643% due 3/31/2014 (a)(e) 505,325
---------------
20,095,273
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Schedule of Investments (continued) Master Real Investment Trust
Face
Industry Amount Corporate Bonds & Structured Notes Value
Oil, Gas & $ 250,000 Pemex Project Funding Master Trust, 5.17% due 6/15/2010 (a)(b) $ 258,625
Consumable
Fuels--0.3%
Total Corporate Bonds & Structured Notes (Cost--$37,018,753)--34.7% 36,846,027
Government Agency Mortgage-Backed Securities++
Fannie Mae Guaranteed Pass-Through Certificates:
3,500,000 5.23% due 5/01/2009 3,505,565
249,796 7.367% due 10/01/2009 264,536
94,576 7.17% due 11/01/2009 100,408
477,441 6.83% due 1/01/2011 505,887
231,831 5.95% due 11/01/2011 236,605
1,023,039 4.70% due 12/01/2012 997,923
1,494,093 4.79% due 7/01/2013 1,462,000
722,352 5.60% due 11/01/2013 737,252
639,904 4.825% due 12/01/2013 630,909
2,343,921 6.33% due 1/01/2029 - 2/01/2029 2,489,968
Total Government Agency Mortgage-Backed Securities
(Cost--$11,037,990)--10.3% 10,931,053
Collateralized 2,398,694 Fannie Mae Trust Series 2004-36 Class FJ, 4.494% due 3/25/2018 (a) 2,372,557
Mortgage 225,643 Freddie Mac Multiclass Certificates Series 1625 Class FG, 3.872% due 12/15/2008 (a) 223,759
Obligations Ginnie Mae Trust:
8,000,000 0.911% due 12/01/2038 477,920
9,915,771 Series 2005-9 Class IO, 0.778% due 1/16/2045 (a) 542,073
7,992,521 Series 2005-76 Class IO, 0.882% due 9/16/2045 (a) 472,178
Total Government Agency Mortgage-Backed Securities--Collateralized
Mortgage Obligations (Cost--$4,144,768)--3.9% 4,088,487
Non-Government Agency Mortgage-Backed Securities++
Collateralized 1,210,661 ABN AMRO Mortgage Corp. Series 2003-2 Class 2A1, 4.691% due 3/25/2018 (a) 1,210,586
Mortgage 1,033,026 Countrywide Alternative Loan Trust Series 2004-2CB Class 1A4, 4.591% due
Obligations 3/25/2034 (a) 1,034,867
Countrywide Home Loan Mortgage Pass-Through Trust (a):
767,552 Series 2004-J2 Class A2, 4.691% due 3/25/2034 767,468
1,748,477 Series 2004-J7 Class 1A1, 4.641% due 8/25/2034 1,748,312
647,672 First Horizon Mortgage Pass-Through Trust Series 2003-4 Class 2A2, 4.641% due
6/25/2018 (a) 650,336
2,135,962 GMAC Mortgage Corp. Loan Trust Series 2004-J2 Class A2, 4.691% due 6/25/2034 (a) 2,135,863
Granite Mortgages Plc, Class 1C (a):
275,000 Series 2002-1, 5.474% due 4/20/2042 277,870
500,000 Series 2003-1, 5.624% due 1/20/2043 510,615
1,900,000 Holmes Financing Series 8 Class 2C, 4.87% due 7/15/2040 (a) 1,905,344
3,000,000 Impac Secured Assets CMN Owner Trust Series 2004-3 Class M1, 4.791% due
11/25/2034 (a) 3,013,088
2,000,000 MASTR Asset Securitization Trust Series 2003-7 Class 4A37, 4.591% due
9/25/2033 (a) 1,986,455
Residential Accredit Loans, Inc. (a):
611,948 Series 2004-QS8 Class A4, 4.591% due 6/25/2034 613,525
967,364 Series 2005-QS12 Class A8, 4.541% due 8/25/2035 965,999
1,360,657 Residential Funding Mortgage Securities Series 2003-S14 Class A6, 7.591% due
7/25/2018 (a) 1,361,969
499,807 Washington Mutual Series 2005-AR2 Class B5, 4.83% due 1/25/2045 (a) 473,568
Total Non-Government Agency Mortgage-Backed Securities--Collateralized
Mortgage Obligations (Cost--$18,693,002)--17.6% 18,655,865
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Schedule of Investments (continued) Master Real Investment Trust
Beneficial
Interest Short-Term Securities Value
$ 10,918,738 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (d) $ 10,918,738
Total Short-Term Securities (Cost--$10,918,738)--10.3% 10,918,738
Number of
Contracts++++ Options Purchased
Put Options 10 Swaption, expiring April 2007 at 5.95%, Broker JPMorgan Chase Bank (f) 121,610
Purchased
Total Options Purchased (Premiums Paid--$95,050)--0.1% 121,610
Total Investments (Cost--$108,811,490)--102.3% 108,560,704
Options Written
Call Options 2 Consumer Price Index (CPI) Linked Floor, expiring April 2009 at USD 1,
Written Broker Morgan Stanley Capital Services, Inc. (3,200)
5 Swaption, expiring December 2005 at 4.21%, Broker Credit Suisse First Boston (f) (50)
5 Swaption, expiring January 2006 at 4.25%, Broker UBS Warburg (f) (1,000)
---------------
(4,250)
Put Options 5 Swaption, expiring December 2005 at 5.11%, Broker Credit Suisse First Boston (f) (22,505)
Written 5 Swaption, expiring January 2006 at 4.25%, Broker UBS Warburg (f) (32,000)
8 Swaption, expiring April 2007 at 6.07%, Broker JPMorgan Chase Bank (f) (148,382)
---------------
(202,887)
Total Options Written (Premiums Received--$145,375)--(0.2%) (207,137)
Total Investments, Net of Options Written (Cost--$108,666,115*)--102.1% 108,353,567
Liabilities in Excess of Other Assets--(2.1%) (2,196,489)
---------------
Net Assets--100.0% $ 106,157,078
===============
* The cost and unrealized appreciation (depreciation) of investments,
net of options written, as of November 30, 2005, as computed for
federal income tax purposes, were as follows:
Aggregate cost $ 108,648,318
=================
Gross unrealized appreciation $ 2,318,749
Gross unrealized depreciation (2,613,500)
-----------------
Net unrealized depreciation $ (294,751)
=================
++ Asset-Backed and Mortgage-Backed Securities 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.
++++ One contract represents a notional amount of $1,000,000.
(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.
(d) Investments in companies considered to be an affiliate of the Trust,
for purposes of Section 2(a)(3) of the Investment Company Act of
1940, were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $7,655,113 $288,557
(e) Restricted security as to resale, representing 0.5% of net assets, were
as follows:
Acquisition
Issue Date Cost Value
Sigma Finance Corp.,
6.643% due 3/31/2014 3/26/2004 $500,000 $505,325
(f) This European style swaption, which can be exercised only on the
expiration date, represents a standby commitment whereby the writer
of the option is obligated to enter into a predetermined interest rate
swap contract upon exercise of the swaption.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Schedule of Investments (concluded) Master Real Investment Trust
* For Trust compliance purposes, the Trust's industry classifications refer
to 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. Industries are shown as a percentage
of net assets. These industry classifications are unaudited.
* Financial futures contracts sold as of November 30, 2005 were
as follows:
Unrealized
Number of Expiration Face Appreciation
Contracts Issue Date Value (Depreciation)
32 Five-Year
U.S. Treasury March
Bond 2006 $3,405,630 $ 15,630
33 Five-Year
U.S. Treasury December
Bond 2005 $3,488,528 (13,081)
16 Ten-Year
U.S. Treasury March
Bond 2006 $1,736,330 (170)
24 Ten-Year
U.S. Treasury December
Bond 2005 $2,611,873 2,248
----------
Total Unrealized Appreciation--Net $ 4,627
==========
* Swaps outstanding as of November 30, 2005 were as follows:
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive (pay) a variable return based
on the change in the spread return of
the Lehman Brothers CMBS Aaa 8.5+
Index and receive a floating rate
based on the spread less .60%
Broker, Citibank N.A.
Expires December 2005 $4,000,000 --
Sold credit default protection on
Dow Jones CDX North America
Investment Grade Index Series 2
and receive .60%
Broker, JPMorgan Chase Bank
Expires September 2009 $1,984,000 $13,838
Sold credit default protection on
Fannie Mae and receive .18%
Broker, Lehman Brothers
Special Finance
Expires March 2010 $1,000,000 2,700
Sold credit default protection on
Freddie Mac and receive .15%
Broker, Lehman Brothers
Special Finance
Expires June 2010 $4,000,000 9,712
Unrealized
Notional Appreciation
Amount (Depreciation)
Sold credit default protection on
Fannie Mae and receive .48%
Broker, Deutsche Bank AG
Expires June 2010 $2,000,000 $ 22,016
Sold credit default protection on
Dow Jones CDX North America
Investment Grade High Volatility
Index Series 4 and receive .90%
Broker, Lehman Brothers
Special Finance
Expires June 2010 $ 500,000 (1,574)
Receive a floating rate based on
1-month LIBOR plus .47%, which is
capped at a fixed coupon of 6.0%
from 12/16/05 through expiration
and pay a floating rate based on
1-month LIBOR
Broker, Credit Suisse First Boston
Expires June 2011 $4,500,000 (11,024)
Receive a fixed rate of 4.95%
and pay a floating rate based on
3-month LIBOR
Broker, JPMorgan Chase Bank
Expires April 2017 $2,000,000 (25,740)
Receive a fixed rate of 5.258%
and pay a floating rate based on
3-month LIBOR
Broker, JPMorgan Chase Bank
Expires April 2017 $1,120,000 10,711
Pay a fixed rate of 5.41% and
receive a floating rate based on
3-month LIBOR
Broker, JPMorgan Chase Bank
Expires April 2037 $ 690,000 (12,753)
Pay a fixed rate of 5.11% and
receive a floating rate based on
3-month LIBOR
Broker, JPMorgan Chase Bank
Expires April 2037 $1,000,000 23,776
Sold credit default protection on
Holmes Financing Plc Series 8
Class 2C and receive .55%
Broker, Deutsche Bank AG
Expires July 2040 $2,000,000 782
Sold credit default protection on
Permanent Financing Plc Series 4
Class 2C and receive .55%
Broker, Deutsche Bank AG
Expires June 2042 $2,000,000 1,754
Sold credit default protection on
Granite Mortgages Plc Series 2004-2
Class 1C and receive .45%
Broker, Deutsche Bank AG, London
Expires June 2044 $2,000,000 (1,800)
---------
Total $ 32,398
=========
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Statement of Assets and Liabilities Master Real Investment Trust
As of November 30, 2005
Assets
Investments in unaffiliated securities, at value (identified cost--$97,797,702) $ 97,520,356
Investments in affiliated securities, at value (identified cost--$10,918,738) 10,918,738
Options purchased, at value (premiums paid--$95,050) 121,610
Cash on deposit for financial futures contracts 62,403
Unrealized appreciation on swaps 85,289
Receivables:
Contributions $ 996,239
Securities sold 978,181
Interest 573,126
Options 95,050
Paydowns 12,848
Variation margin 11,684
Swaps 7,337 2,674,465
---------------
Prepaid expenses and other assets 3,799
---------------
Total assets 111,386,660
---------------
Liabilities
Unrealized depreciation on swaps 52,891
Options written, at value (premiums received--$145,375) 207,137
Swap premiums received 6,907
Payables:
Securities purchased 4,503,927
Withdrawals 363,731
Investment adviser 34,861
Other affiliates 843 4,903,362
---------------
Accrued expenses and other liabilities 59,285
---------------
Total liabilities 5,229,582
---------------
Net Assets
Net assets $ 106,157,078
===============
Net Assets Consist of
Investors' capital $ 106,432,601
Unrealized depreciation--net (275,523)
---------------
Net Assets $ 106,157,078
===============
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Statement of Operations Master Real Investment Trust
For the Year Ended November 30, 2005
Investment Income
Interest (including $288,557 from affiliates) $ 2,913,296
---------------
Total income 2,913,296
---------------
Expenses
Investment advisory fees $ 470,195
Accounting services 115,036
Professional fees 40,900
Custodian fees 21,984
Trustees' fees and expenses 14,666
Pricing fees 8,535
Printing and shareholder reports 2,967
Other 10,280
---------------
Total expenses 684,563
---------------
Investment income--net 2,228,733
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain on:
Investments--net 13,308,885
Futures contracts and swaps--net 168,304 13,477,189
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (8,597,453)
Futures contracts and swaps--net 44,527
Options written--net (61,762) (8,614,688)
--------------- ---------------
Total realized and unrealized gain--net 4,862,501
---------------
Net Increase in Net Assets Resulting from Operations $ 7,091,234
===============
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Statements of Changes in Net Assets Master Real Investment Trust
For the For the Period
Year Ended March 26, 2004++
November 30, to November 30,
2005 2004
Operations
Investment income--net $ 2,228,733 $ 396,819
Realized gain--net 13,477,189 41,345
Change in unrealized appreciation/depreciation--net (8,614,688) 8,339,165
--------------- ---------------
Net increase in net assets resulting from operations 7,091,234 8,777,329
--------------- ---------------
Capital Transactions
Proceeds from contributions 64,720,931 82,947,925
Fair value of withdrawals (41,636,849) (15,843,492)
--------------- ---------------
Net increase in net assets derived from capital transactions 23,084,082 67,104,433
--------------- ---------------
Net Assets
Total increase in net assets 30,175,316 75,881,762
Beginning of period 75,981,762 100,000
--------------- ---------------
End of period $ 106,157,078 $ 75,981,762
=============== ===============
++ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Financial Highlights Master Real Investment Trust
For the For the Period
Year Ended March 26, 2004++
The following ratios have been derived from November 30, to November 30,
information provided in the financial statements. 2005 2004
Total Investment Return
Total investment return 8.26% 16.20%*
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver .73% .68%**
=============== ===============
Expenses .73% .73%**
=============== ===============
Investment income--net 2.37% .95%**
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 106,157 $ 75,982
=============== ===============
Portfolio turnover 50.00% 19.40%
=============== ===============
* Aggregate total investment return.
** Annualized.
++ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 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. 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 sale 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 based upon quoted fair
valuations received daily by the Trust from a pricing service or 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, money market instruments and certain fixed income securities 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.
* 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.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Notes to Financial Statements (continued) Master Real Investment Trust
* 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 predetermined 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 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.
(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.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Notes to Financial Statements (concluded) Master Real Investment Trust
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 year ended November 30, 2005, the Trust reimbursed MLIM $2,729 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 year ended November 30, 2005 were $63,628,409 and
$43,023,047, respectively.
Transactions in call options written for the year ended November 30, 2005 were
as follows:
Number of Premiums
Contracts* Received
Outstanding call options written,
beginning of period 2 $ 3,200
Options written 10 15,500
Options expired -- --
-------------- ---------------
Outstanding call options written,
end of period 12 $ 18,700
============== ===============
* One contract represents a notional amount of $1,000,000.
Transactions in put options written for the year ended November 30, 2005
were as follows:
Number of Premiums
Contracts* Received
Outstanding put options written,
beginning of period -- --
Options written 18 $ 126,675
Options expired -- --
-------------- ---------------
Outstanding put options written,
end of period 18 $ 126,675
============== ===============
* One contract represents a notional amount of $1,000,000.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Report of Independent Registered Public Accounting Firm
Master Real Investment Trust
To the Investors and Board of Trustees of
Master Real Investment Trust:
We have audited the accompanying statement of net assets, including the
schedule of investments, of Master Real Investment Trust as of November 30,
2005, and the related statement of operations for the year then ended, the
statement of changes in net assets and the financial highlights for the year
then ended and for the period March 26, 2004 (commencement of operations) to
November 30, 2004. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of November 30, 2005, by correspondence with the custodian
and others. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Master Real Investment Trust at November 30, 2005, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the year then ended and for the period March 26, 2004
through November 30, 2004, in conformity with U.S. generally accepted
accounting principles.
(Ernst & Young, LLP)
Philadelphia, Pennsylvania
January 18, 2006
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Officers and Trustees
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Interested Trustee
Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds since 131 Funds None
P.O. Box 9011 and Trustee present 2005; President of MLIM and FAM since 2001; 177 Portfolios
Princeton, Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 to 2001 and Senior Vice President from 1999 to
Age: 51 2001; President and Director of Princeton Services,
Inc. ("Princeton Services") since 2001; President
of Princeton Administrators, L.P. ("Princeton
Administrators") since 2001; Chief Investment
Officer of OppenheimerFunds, Inc. in 1999 and
Executive Vice President thereof from 1991
to 1999.
* Mr. Doll is a director, trustee or member of an advisory board of certain other
investment companies for which MLIM or FAM acts as investment adviser. Mr. Doll
is an "interested person," as described in the Investment Company Act, of the
Fund based on his current positions with MLIM, FAM, Princeton Services and
Princeton Administrators. Trustees serve until their resignation, removal or
death, or until December 31 of the year in which they turn 72. As Fund/Trust
President, Mr. Doll serves at the pleasure of the Board of Trustees.
Independent Trustees*
David O. Beim** Trustee 2004 to Professor of Finance and Economics at the 20 Funds None
P.O. Box 9095 present Columbia University Graduate School of 26 Portfolios
Princeton, Business since 1991; Chairman of Outward
NJ 08543-9095 Bound U.S.A. from 1997 to 2001; Chairman
Age: 65 of Wave Hill, Inc. since 1990; Trustee of
Phillips Exeter Academy from 2002 to present.
James T. Flynn Trustee 2004 to Chief Financial Officer of JPMorgan & Co., 20 Funds None
P.O. Box 9095 present Inc. from 1990 to 1995 and an employee of 26 Portfolios
Princeton, JPMorgan in various capacities from 1967
NJ 08543-9095 to 1995.
Age: 66
W. Carl Kester Trustee 2004 to Mizuho Financial Group, Professor of Finance, 21 Funds None
P.O. Box 9095 present Harvard Business School, Unit Head, Finance 27 Portfolios
Princeton, since 2005; Senior Associate Dean and Chairman
NJ 08543-9095 of the MBA Program of Harvard Business School,
Age: 53 1999 to 2005; Member of the faculty of Harvard
Business School since 1981; Independent
Consultant since 1978.
Karen P. Robards*** Trustee 2004 to President of Robards & Company, a financial 20 Funds AtriCure, Inc.
P.O. Box 9095 present advisory firm since 1987; formerly an 26 Portfolios (medical
Princeton, investment banker with Morgan Stanley for more devices)
NJ 08543-9095 than ten years; Director of Enable Medical Corp.
Age: 55 from 1996 to 2005; Director of AtriCure, Inc.
since 2000; Director of the Cooke Center for
Learning and Development, a not-for-profit
organization, since 1987.
* Trustees serve until their resignation, removal or death, or until
December 31 of the year in which they turn 72.
** Chairman of the Audit Committee.
*** Chair of the Board.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Officers and Trustees (concluded)
Position(s) Length of
Held with Time
Name, Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 2004 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
P.O. Box 9011 President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
Princeton, and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999 and
NJ 08543-9011 Treasurer Director since 2004; Vice President of MLIM and FAM from 1990 to 1997; Director
Age: 45 of Taxation of MLIM from 1990 to 2001; Vice President, Treasurer and Secretary
of the IQ Funds since 2004.
Frank Viola Vice 2004 to Managing Director of MLIM since 2002; Head of the Global Fixed Income
P.O. Box 9011 President present Structured Asset Team since 2002; Director (Global Fixed Income) of MLIM from
Princeton, 2000 to 2001 and Vice President from 1997 to 2000.
NJ 08543-9011
Age: 41
Thomas Musmanno Vice 2004 to Director (Global Fixed Income) of MLIM since 2004; Vice President of MLIM from
P.O. Box 9011 President present 1996 to 2004; Derivatives and Structured Products Specialist with MLIM from
Princeton, 2000 to 2002; Portfolio Manager with MLIM from 1996.
NJ 08543-9011
Age: 36
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director
Age: 54 and Global Director of Compliance at Citigroup Asset Management from 2000
to 2002; Chief Compliance Officer at Soros Fund Management in 2000; Chief
Compliance Officer at Prudential Financial from 1995 to 2000; Senior Counsel in
the Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 45
* Officers of the Fund/Trust serve at the pleasure of the Board of Trustees.
Further information about the Fund's Officers and Trustees is available in
the Fund's Statement of Additional Information, which can be obtained without
charge by calling 1-800-MER-FUND.
Custodian
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
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
Availablity 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.
MERRILL LYNCH REAL INVESTMENT FUND NOVEMBER 30, 2005
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 NOVEMBER 30, 2005
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as
of the end of the period covered by this report, that applies to
the registrant's principal executive officer, principal financial
officer and principal accounting officer, or persons performing
similar functions. A copy of the code of ethics is available
without charge upon request by calling toll-free 1-800-MER-FUND
(1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors has determined that (i) the registrant has the following
audit committee financial experts serving on its audit committee
and (ii) each audit committee financial expert is independent:
(1) David O. Beim, (2) W. Carl Kester, (3) James T. Flynn and (4)
Karen P. Robards.
The registrant's board of directors has determined that David O.
Beim, W. Carl Kester and Karen P. Robards qualify as financial
experts pursuant to Item 3(c)(4) of Form N-CSR.
Mr. Beim has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. For
25 years, Mr. Beim was an investment banker actively engaged in
financial analysis for securities transactions and mergers. These
transactions presented a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised
by the Registrant's financial statements. Mr. Beim has also been a
professor of finance and economics at the Columbia University
Graduate School of Business for the past 13 years.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions.
Prof. Kester has been involved in providing valuation and other
financial consulting services to corporate clients since 1978.
Prof. Kester's financial consulting services present a breadth and
level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the Registrant's financial
statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions.
Ms. Robards has been President of Robards & Company, a financial
advisory firm, since 1987. Ms. Robards was formerly an investment
banker for more than 10 years where she was responsible for
evaluating and assessing the performance of companies based on
their financial results. Ms. Robards has over 30 years of
experience analyzing financial statements. She also is the member
of the Audit Committees of two privately held companies and a non-
profit organization.
Item 4 - Principal Accountant Fees and Services
Merrill Lynch Real Investment Fund
(a) Audit Fees - Fiscal Year Ending November 30, 2005 - $6,500
Fiscal Year Ending November 30, 2004 - $5,000
(b) Audit-Related Fees -
Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $0
(c) Tax Fees - Fiscal Year Ending November 30, 2005 - $5,700
Fiscal Year Ending November 30, 2004 - $5,000
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $0
Master Real Investment Trust
(a) Audit Fees - Fiscal Year Ending November 30, 2005 - $31,000
Fiscal Year Ending November 30, 2004 - $37,500
(b) Audit-Related Fees -
Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $0
(c) Tax Fees - Fiscal Year Ending November 30, 2005 - $5,700
Fiscal Year Ending November 30, 2004 - $5,000
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services
provided to the registrant on an annual basis require specific pre-
approval by the Committee. The Committee also must approve other
non-audit services provided to the registrant and those non-audit
services provided to the registrant's affiliated service providers
that relate directly to the operations and the financial reporting
of the registrant. Certain of these non-audit services that the
Committee believes are a) consistent with the SEC's auditor
independence rules and b) routine and recurring services that will
not impair the independence of the independent accountants may be
approved by the Committee without consideration on a specific case-
by-case basis ("general pre-approval"). However, such services
will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any
proposed services exceeding the pre-approved cost levels will
require specific pre-approval by the Committee, as will any other
services not subject to general pre-approval (e.g., unanticipated
but permissible services). The Committee is informed of each
service approved subject to general pre-approval at the next
regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending November 30, 2005 - $5,700
Fiscal Year Ending November 30, 2004 - $5,000
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal
accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $0, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined
that the registrant's disclosure controls and procedures are
effective based on our evaluation of these controls and procedures
as of a date within 90 days prior to the filing date of this
report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch 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: January 25, 2006
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: January 25, 2006
By: /s/ Donald C. Burke
----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Real Investment Fund and Master Real Investment Trust
Date: January 25, 2006