UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-06196
811-21298
Name of Fund: CMA Treasury Fund
Master Treasury 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, CMA Treasury Fund and Master Treasury 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: 03/31/07
Date of reporting period: 04/01/06 - 09/30/06
Item 1 - Report to Stockholders
Semi-Annual Report
September 30, 2006
CMA Treasury Fund
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. An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
the Fund. Past performance results shown in this report should not be
considered a representation of future performance, which will fluctuate.
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 1-800-441-7762; (2) at
www.blackrock.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.blackrock.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
CMA Treasury Fund
Box 9011
Princeton, NJ 08543-9011
(GO PAPERLESS...logo)
It's Fast, Convenient, & Timely!
CMA Treasury Fund
Proxy Results
During the six-month period ended September 30, 2006, CMA Treasury Fund's
shareholders voted on the following proposals. On July 31, 2006, the meeting
was adjourned with respect to Proposals 1 and 3 until August 31, 2006, at
which time they passed. A description of the proposals and number of shares
voted were as follows:
Shares Voted Shares Voted Shares Voted
For Against Abstain
1. To approve a new investment advisory agreement
with BlackRock Advisors, Inc. 224,356,258 11,367,976 6,570,849
3. To approve a contingent subadvisory agreement
with BlackRock Advisors, Inc. 224,580,794 11,124,467 3,589,822
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
CMA TREASURY FUND SEPTEMBER 30, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale
to serve you.
The new BlackRock unites some of the finest money managers in the industry.
Our ranks include more than 500 investment professionals globally - portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well
equipped to research, uncover and capitalize on the opportunities the world's
markets have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using disciplined
investment processes and sophisticated analytical tools can consistently add
value to client portfolios.
As you probably are aware, most former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements, as of the October month-end reporting
period, also reflect the BlackRock name. Unless otherwise communicated to you,
your funds maintain the same investment objectives that they did prior to the
combination of MLIM and BlackRock. Importantly, this union does not affect
your brokerage account or your relationship with your financial advisor.
Clients of Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are
even better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an
unwavering commitment to service, enabling us to assist clients, in cooperation
with their financial professionals, in working toward their investment goals.
We thank you for allowing us the opportunity, and we look forward to serving
your investment needs in the months and years ahead as the new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
CMA TREASURY FUND SEPTEMBER 30, 2006
A Discussion With Your Fund's Portfolio Manager
We maintained a relatively conservative approach and ample liquidity as the
Federal Reserve Board advanced its interest rate-hiking program, before
pausing on August 8, 2006.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended September 30, 2006, CMA Treasury Fund paid
shareholders a net annualized dividend of 4.21%. The Fund's seven-day yield as
of September 30, 2006 was 4.23%.
The Fund's weighted average maturity at September 30, 2006 was 48 days,
compared to 35 days at March 31, 2006.
Throughout the period, we endeavored to remain competitive while maintaining
the Fund's average life within a relatively conservative range. Our overall
appetite for longer-dated securities waned as it became apparent that the
Federal Reserve Board (the Fed) was not through with its interest rate-hiking
campaign.
The Fed advanced its monetary tightening campaign with quarter-point interest
rate hikes at two of its four meetings during the six-month period. After 17
consecutive interest rate hikes since June 2004, the central bank opted not to
increase the federal funds rate at its August 8 meeting. The slowdown in growth
is attributed largely to a downturn in the U.S. housing market and its
ancillary effects on the economy. Inflation also was a key variable during the
period as it continued to trend above the Fed's target levels until recent
months. Energy costs, which were higher during early spring, came down recently
amid a less frenetic hurricane season. This was evidenced by a late-summer
decline in gas prices. Another telling indicator of economic activity has been
lackluster job growth. Although independent surveys have suggested higher
employment numbers, that has failed to materialize. Taken together, all of
these developments gave the Fed reason to believe it could pause, leaving
the federal funds rate at 5.25% on August 8 and again on September 20.
How did you manage the portfolio during the period?
The Fund's average portfolio maturity reached a high of 57 days and a low of
28 days during the six-month period. As the Fed advanced its monetary
tightening policy, we were reluctant to pursue longer-dated money market
issues and focused primarily on capturing the greatest relative value at the
short end of the Treasury curve. This meant evaluating yields available in the
one-, three- and six-month sectors in an effort to enhance income and total
return potential within a fairly conservative framework. We also remained
cognizant of supply issues that intermittently caused prices on one-month
bills to become expensive.
By keeping the average life relatively short, we were able to roll more
quickly into current yields as interest rates rose. Bouts of inversion meant
the one-month sector of the yield curve was unusually inexpensive. We placed a
significant amount of our maturities in this sector. However, once the Fed did
pause on August 8, and the yield curve steepened again, we began adding some
longer-dated securities to the portfolio for yield enhancement.
How would you characterize the portfolio's position at the close of the
period?
The Fed left the target short-term interest rate unchanged August 8 and
September 20. We believe the central bank will maintain its pause until at
least the first quarter of 2007. In fact, while the Fed has not completely
removed the specter of higher interest rates, the federal funds futures market
is now anticipating an interest rate cut in the first quarter of 2007. We have
not seen enough economic data that would support an easing, but will continue
to monitor the economic releases in the coming months.
CMA TREASURY FUND SEPTEMBER 30, 2006
Looking ahead, net new issuance of Treasury securities is expected to increase
substantially in the fourth quarter, and we anticipate that the Treasury will
emphasize bills over longer-dated maturities. With the amount of new money
raised, we expect that the additional issuance will keep financing levels
close to federal funds levels before we see a resteepening of the front end of
the yield curve. Therefore, we will continue to maintain our high liquidity
base and will look to extend the portfolio's maturity as opportunities present
themselves along the curve.
The Trust's portfolio composition, as a percent of net assets, at the end of
September and as of our last report to shareholders is detailed below:
9/30/06 3/31/06
U.S. Government Obligations 99.7% 99.0%
Other Assets Less Liabilities 0.3 1.0
------ ------
Total 100.0% 100.0%
====== ======
Cindy V. Macaulay
Vice President and Portfolio Manager
October 2, 2006
Effective October 2, 2006, we are pleased to announce that Portfolio Manager
John Ng assumed responsibility for the day-to-day management of the Fund's
portfolio. Mr. Ng has been a Director of BlackRock, Inc. since 2006.
Previously, he was a Director of Merrill Lynch Investment Managers (MLIM) from
2000 to 2006 and a Vice President of MLIM from 1984 to 2000.
CMA TREASURY FUND SEPTEMBER 30, 2006
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 12b-1 fees, and other Fund expenses. The following example (which is
based on a hypothetical investment of $1,000 invested on April 1, 2006 and
held through September 30, 2006) 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 April 1, 2006
April 1, September 30, to September 30,
2006 2006 2006
Actual
CMA Treasury Fund $1,000 $1,020.90 $3.43
Hypothetical (5% annual return before expenses)**
CMA Treasury Fund $1,000 $1,021.51 $3.43
* Expenses are equal to the annualized expense ratio .68%, multiplied by the average account value over
the period, multiplied by 182/365 (to reflect the one-half year period shown). Because the Fund is a
feeder fund, the expense table reflects the expenses of both the feeder fund 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.
CMA TREASURY FUND SEPTEMBER 30, 2006
Statement of Assets and Liabilities CMA Treasury Fund
As of September 30, 2006
Assets
Investment in Master Treasury Trust (the "Trust"), at value
(identified cost--$439,963,375) $ 440,205,136
Prepaid expenses and other assets 31,190
---------------
Total assets 440,236,326
---------------
Liabilities
Payables:
Administrator $ 84,917
Distributor 64,867
Other affiliates 9,960 159,744
---------------
Other liabilities 2,092
---------------
Total liabilities 161,836
---------------
Net Assets
Net assets $ 440,074,490
===============
Net Assets Consist of
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 43,983,206
Paid-in capital in excess of par 395,848,853
Undistributed realized capital gains allocated from the Trust--net $ 670
Unrealized appreciation allocated from the Trust--net 241,761
---------------
Total accumulated earnings--net 242,431
---------------
Net Assets--Equivalent to $1.00 per share based on 439,832,061 shares of beneficial
interest outstanding $ 440,074,490
===============
See Notes to Financial Statements.
Statement of Operations CMA Treasury Fund
For the Six Months Ended September 30, 2006
Investment Income
Interest from affiliates $ 32,097
Net investment income allocated from the Trust:
Interest and amortization of premium and discount earned 10,861,521
Expenses (598,210)
---------------
Total income 10,295,408
---------------
Expenses
Administration fees $ 568,512
Distribution fees 282,936
Transfer agent fees 30,653
Registration fees 25,381
Printing and shareholder reports 16,688
Professional fees 12,001
Other 4,086
---------------
Total expenses 940,257
---------------
Investment income--net 9,355,151
---------------
Realized & Unrealized Gain Allocated from the Trust--Net
Realized gain on investments--net 5,460
Change in unrealized appreciation on investments--net 160,283
---------------
Total realized and unrealized gain--net 165,743
---------------
Net Increase in Net Assets Resulting from Operations $ 9,520,894
===============
See Notes to Financial Statements.
CMA TREASURY FUND SEPTEMBER 30, 2006
Statements of Changes in Net Assets CMA Treasury Fund
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 2006 2006
Operations
Investment income--net $ 9,355,151 $ 13,485,403
Realized gain--net 5,460 28,578
Change in unrealized appreciation--net 160,283 30,523
--------------- ---------------
Net increase in net assets resulting from operations 9,520,894 13,544,504
--------------- ---------------
Dividends & Distributions to Shareholders
Investment income--net (9,355,151) (13,485,403)
Realized gain--net (4,790) (28,578)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions to shareholders (9,359,941) (13,513,981)
--------------- ---------------
Beneficial Interest Transactions
Net proceeds from sale of shares 644,039,099 1,488,532,295
Value of shares issued to shareholders in reinvestment of dividends and distributions 9,360,034 13,513,981
--------------- ---------------
Total shares issued 653,399,133 1,502,046,276
Cost of shares redeemed (695,115,320) (1,622,654,458)
--------------- ---------------
Net decrease in net assets derived from beneficial interest transactions (41,716,187) (120,608,182)
--------------- ---------------
Net Assets
Total decrease in net assets (41,555,234) (120,577,659)
Beginning of period 481,629,724 602,207,383
--------------- ---------------
End of period $ 440,074,490 $ 481,629,724
=============== ===============
See Notes to Financial Statements.
CMA TREASURY FUND SEPTEMBER 30, 2006
Financial Highlights CMA Treasury Fund
For the Six
The following per share data and ratios Months Ended
have been derived from information September 30, For the Year Ended March 31,
provided in the financial statements. 2006 2006 2005 2004 2003++ 2002
Per Share Operating Performance
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ------------ ------------ ------------ ------------ ------------
Investment income--net .0205 .0277 .0094 .0040 .0111 .0248
Realized and unrealized gain (loss)--net .0004 .0001 (.0004) (.0001) (.0004) .0004
----------- ------------ ------------ ------------ ------------ ------------
Total from investment operations .0209 .0278 .0090 .0039 .0107 .0252
----------- ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Investment income--net (.0205) (.0277) (.0094) (.0040) (.0111) (.0248)
Realized gain--net --** (.0001) --** (.0001) (.0001) (.0003)
----------- ------------ ------------ ------------ ------------ ------------
Total dividends and distributions (.0205) (.0278) (.0094) (.0041) (.0112) (.0251)
----------- ------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ============ ============ ============ ============ ============
Total investment return 2.09%+++ 2.81% .95% .41% 1.11% 2.48%
=========== ============ ============ ============ ============ ============
Ratios to Average Net Assets
Expenses .68%*++++ .67%++++ .66%++++ .63%++++ .61%++++ .61%
=========== ============ ============ ============ ============ ============
Investment income and realized gain--net 4.12%*++++ 2.76%++++ .94%++++ .43%++++ 1.10%++++ 2.43%
=========== ============ ============ ============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 440,074 $ 481,630 $ 602,207 $ 673,375 $ 1,297,550 $ 1,474,004
============ ============ ============ ============ ============ ============
* Annualized.
** Amount is less than $(.0001) per share.
++ On February 13, 2003, the Fund converted from a stand-alone investment company to a "feeder"
fund that seeks to achieve its investment objective by investing all of its assets in the Trust,
which has the same investment objective as the Fund. All investments will be made at the Trust level.
This structure is sometimes called a "master/feeder" structure.
++++ Includes the Fund's share of the Trust's allocated expenses and/or investment income and realized gain--net.
+++ Aggregate total investment return.
See Notes to Financial Statements.
CMA TREASURY FUND SEPTEMBER 30, 2006
Notes to Financial Statements CMA Treasury Fund
1. Significant Accounting Policies:
CMA Treasury Fund (the "Fund") is registered under the Investment Company Act
of 1940, as amended, as a no load, diversified, open-end management investment
company. The Fund seeks to achieve its investment objective by investing all
of its assets in Master Treasury Trust (the "Trust"), which has the same
investment objective and strategies as the Fund. The value of the Fund's
investment in the Trust reflects the Fund's proportionate interest in the net
assets of the Trust. The performance of the Fund is directly affected by the
performance of the Trust. The financial statements of the Trust, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period.
All such adjustments are of a normal, recurring nature. The percentage of the
Trust owned by the Fund at September 30, 2006 was 53.8%. 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 income and 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 its shareholders.
Therefore, no federal income tax provision is required.
(d) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006. The impact on the Fund's financial statements, if any, is currently
being assessed.
(e) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions to shareholders--The Fund declares dividends
daily and reinvests daily such dividends (net of non-resident alien tax and
backup withholding tax withheld) in additional fund shares at net asset value.
Dividends are declared from the total of net investment income. Distributions
of net realized gain, if any, on investments are paid at least annually.
(g) Investment transactions--Investment transactions in the Trust are
accounted for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), a wholly owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner. The Fund pays a monthly fee at an annual
rate of .25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
Pursuant to the Distribution and Shareholder Servicing Plan in compliance with
Rule 12b-1 under the Investment Company Act of 1940, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, receives a
distribution fee from the Fund. The fee is accrued daily and paid monthly
at the annual rate of .125% of average daily net assets of the Fund for
shareholders whose Fund accounts are serviced by MLPF&S financial advisors,
whether maintained through MLPF&S or directly with the Fund's transfer agent.
The distribution fee is to compensate MLPF&S for providing, or arranging for
the provision of, account maintenance and sales and promotional activities and
services with respect to shares of the Fund. For the six months ended September
30, 2006, MLPF&S earned $282,936 under the Shareholder Servicing Plan.
CMA TREASURY FUND SEPTEMBER 30, 2006
Notes to Financial Statements (concluded) CMA Treasury Fund
Financial Data Services, Inc. ("FDS"), a wholly owned subsidiary of ML & Co.,
is the Fund's transfer agent. Interest is earned by the Fund from FDS based on
the difference, if any, between estimated and actual daily beneficial share
activity, which results in uninvested net proceeds from sales of Fund shares.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction closed on
September 29, 2006.
On August 31, 2006, shareholders of the Fund approved a new Investment
Advisory Agreement for the Trust, with BlackRock Advisors, Inc. (the
"Manager"), a wholly owned subsidiary of BlackRock, Inc. BlackRock Advisors,
Inc. was reorganized into BlackRock Advisors, LLC. The new advisory agreement
became effective on September 29, 2006 and the investment advisory fee is
unchanged. In addition, the Manager will provide administrative services and
the administrative fee is unchanged.
Prior to the closing, certain officers and/or trustees of the Fund are
officers and/or directors of FAM, PSI, FDS, and/or ML & Co.
Commencing September 29, 2006, certain officers and/or trustees of the Fund
are officers and/or directors of BlackRock, Inc. or its affiliates.
3. Beneficial Interest Transactions:
The number of shares sold, reinvested and redeemed during the periods
corresponds to the amounts included in the Statements of Changes in Net Assets
for net proceeds from sale of shares, value of shares reinvested and cost of
shares redeemed, respectively, since shares are recorded at $1.00 per share.
Officers and Trustees
Robert C. Doll, Jr., President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Jean Margo Reid, Trustee
Roscoe S. Suddarth, Trustee
Richard R. West, Trustee
Edward D. Zinbarg, Trustee
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-221-7210*
* For inquiries regarding your CMA account,
call 800-CMA-INFO (800-262-4636).
CMA TREASURY FUND SEPTEMBER 30, 2006
Schedule of Investments Master Treasury Trust (In Thousands)
Face Interest Maturity
Issue Amount Rate(s) Date Value
U.S. Government Obligations*--99.7%
U.S. Treasury Bills $ 32,738 4.84 - 4.915% 10/05/2006 $ 32,712
133,602 4.655 - 4.713 10/12/2006 133,376
125,000 4.655 - 4.662 10/19/2006 124,677
55,948 4.365 - 4.575 10/26/2006 55,757
32,000 4.81 - 4.987 11/02/2006 31,862
20,000 4.83 - 5.001 11/09/2006 19,899
73,100 4.76 - 4.985 11/24/2006 72,588
3,000 4.995 11/30/2006 2,977
100,618 4.78 - 4.815 12/07/2006 99,747
25,685 4.727 - 4.799 12/21/2006 25,413
50,000 4.756 12/28/2006 49,424
U.S. Treasury Notes 4,700 2.50 10/31/2006 4,689
28,776 2.625 11/15/2006 28,691
74,702 2.875 11/30/2006 74,451
46,430 3.125 1/31/2007 46,143
13,000 3.375 2/28/2007 12,913
Total Investments (Cost--$815,111**)--99.7% 815,319
Other Assets Less Liabilities--0.3% 2,632
----------
Net Assets--100.0% $ 817,951
==========
* U.S. Treasury Bills are traded on a discount basis; the interest rates
shown are the range of discount rates paid at the time of purchase.
U.S. Treasury Notes bear interest at the rates shown, payable at fixed
dates until maturity.
** The cost and unrealized appreciation (depreciation) of investments
as of September 30, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 815,111
===============
Gross unrealized appreciation $ 211
Gross unrealized depreciation (3)
---------------
Net unrealized appreciation $ 208
===============
See Notes to Financial Statements.
CMA TREASURY FUND SEPTEMBER 30, 2006
Statement of Assets and Liabilities Master Treasury Trust
As of September 30, 2006
Assets
Investments in unaffiliated securities, at value (identified cost--$815,110,750) $ 815,319,130
Cash 20,440
Receivables:
Contributions $ 1,491,251
Interest 1,311,484 2,802,735
---------------
Prepaid expenses 5,506
---------------
Total assets 818,147,811
---------------
Liabilities
Payables:
Investment adviser 139,067
Other affiliates 8,472 147,539
---------------
Accrued expenses 48,801
---------------
Total liabilities 196,340
---------------
Net Assets
Net assets $ 817,951,471
===============
Net Assets Consist of
Investors' capital $ 817,743,091
Unrealized appreciation--net 208,380
---------------
Net Assets $ 817,951,471
===============
See Notes to Financial Statements.
Statement of Operations Master Treasury Trust
For the Six Months Ended September 30, 2006
Investment Income
Interest and amortization of premium and discount earned $ 20,010,705
Expenses
Investment advisory fees $ 919,954
Accounting services 110,267
Professional fees 24,027
Trustees' fees and expenses 19,487
Custodian fees 14,826
Pricing fees 1,960
Printing and shareholder reports 144
Other 10,737
---------------
Total expenses 1,101,402
---------------
Investment income--net 18,909,303
---------------
Realized & Unrealized Gain--Net
Realized gain on investments--net 10,170
Change in unrealized appreciation/depreciation on investments--net 289,662
---------------
Total realized and unrealized gain--net 299,832
---------------
Net Increase in Net Assets Resulting from Operations $ 19,209,135
===============
See Notes to Financial Statements.
CMA TREASURY FUND SEPTEMBER 30, 2006
Statements of Changes in Net Assets Master Treasury Trust
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 2006 2006
Operations
Investment income--net $ 18,909,303 $ 27,635,472
Realized gain--net 10,170 49,565
Change in unrealized appreciation/depreciation--net 289,662 55,776
--------------- ---------------
Net increase in net assets resulting from operations 19,209,135 27,740,813
--------------- ---------------
Capital Transactions
Proceeds from contributions 2,247,606,706 4,793,985,856
Fair value of withdrawals (2,322,401,168) (4,917,573,291)
--------------- ---------------
Net decrease in net assets derived from capital transactions (74,794,462) (123,587,435)
--------------- ---------------
Net Assets
Total decrease in net assets (55,585,327) (95,846,622)
Beginning of period 873,536,798 969,383,420
--------------- ---------------
End of period $ 817,951,471 $ 873,536,798
=============== ===============
See Notes to Financial Statements.
Financial Highlights Master Treasury Trust
For the Six For the Period
Months Ended February 13, 2003++
The following per share data and ratios have been derived September 30, For the Year Ended March 31, to March 31,
from information provided in the financial statements. 2006 2006 2005 2004 2003
Total Investment Return
Total investment return 2.30%++++ 3.22% 1.35% .81% .60%*
============ ============ ============ ============ ============
Ratios to Average Net Assets
Expenses .26%* .26% .25% .23% .25%*
============ ============ ============ ============ ============
Investment income and realized
gain--net 4.52%* 3.14% 1.34% .82% .98%*
============ ============ ============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 817,951 $ 873,537 $ 969,383 $ 1,115,732 $ 1,298,116
============ ============ ============ ============ ============
* Annualized.
++ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
CMA TREASURY FUND SEPTEMBER 30, 2006
Notes to Financial Statements Master Treasury Trust
1. Significant Accounting Policies:
Master Treasury Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, and is organized as a Delaware statutory trust. The
Declaration of Trust permits the Trustees to issue nontransferable interests
in the Trust, subject to certain limitations. The Trust's financial statements
are prepared in conformity with U.S. generally accepted accounting principles,
which may require the use of management accruals and estimates. Actual results
may differ from these estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary to present
a fair statement of the results for the interim period. All such adjustments
are of a normal, recurring nature. The following is a summary of significant
accounting policies followed by the Trust.
(a) Valuation of investments--Portfolio securities with remaining maturities
of greater than sixty days, for which market quotations are readily available,
are valued at market value. As securities transition from sixty-one to sixty
days to maturity, the difference between the valuation existing on the sixty-
first day before maturity and maturity value is amortized on a straight-line
basis to maturity. Securities maturing sixty days or less from their date of
acquisition are valued at amortized cost, which approximates market value. For
purposes of valuation, the maturity of a variable rate security is deemed to
be the next coupon date on which the interest rate is to be adjusted. Other
investments and assets for which market quotations are not available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees.
(b) 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.
(c) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006. The impact on the Trust's financial statements, if any, is currently
being assessed.
(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. Interest income (including amortization of premium and
discount) is recognized on the accrual basis.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Trust's portfolio 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 following annual rates: .25% of the Trust's average daily net assets not
exceeding $500 million; .175% of the average daily net assets in excess of
$500 million, but not exceeding $1 billion; and .125% of the average daily
net assets in excess of $1 billion.
For the six months ended September 30, 2006, the Trust reimbursed FAM $9,942
for certain accounting services.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction closed on
September 29, 2006.
CMA TREASURY FUND SEPTEMBER 30, 2006
Notes to Financial Statements (concluded) Master Treasury Trust
The shareholders of each of the investors of the Trust approved on August 31,
2006 and September 15, 2006, respectively, a new Investment Advisory Agreement
for the Trust, with BlackRock Advisors, Inc. (the "Manager"), a wholly owned
subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was reorganized into
BlackRock Advisors, LLC. The new advisory agreement became effective on
September 29, 2006, and the investment advisory fee is unchanged. In addition,
the Manager has entered into a sub-advisory agreement with BlackRock
Institutional Management Corporation, an affiliate, under which the Manager
pays the Sub-Adviser for services it provides a fee equal to 59% of the
management fee paid to the Manager.
Prior to the closing, certain officers and/or trustees of the Trust are
officers and/or directors of FAM, PSI, and/or ML & Co.
Commencing September 29, 2006, certain officers and/or trustees of the Trust
are officers and/or directors of BlackRock, Inc. or its affiliates.
Disclosure of Investment Advisory Agreement
Disclosure of FAM Management Agreement
The Board of Trustees of Master Treasury Trust (the "Trust") and the Board of
Trustees of CMA Treasury Fund (the "Fund") met in August 2006 to consider
approval of the management agreement between the Trust, on behalf of the Fund,
and Fund Asset Management, L.P. ("FAM"), the Trust's manager at that time.
Activities and Composition of the Board of Trustees
All but one member of each Board of Trustees is an independent trustee whose
only association with FAM or other Merrill Lynch affiliates was as a trustee
of the Fund and the Trust and as a trustee or director of certain other funds
advised by FAM or its affiliates. The Chairman of each Board is also an
independent trustee. New trustee nominees are chosen by a Nominating Committee
comprised of independent trustees. All independent trustees also are members
of the respective Board's Audit Committee, and the independent trustees meet
in executive session at each in-person Board meeting. The Boards and the Audit
Committees meet in person for at least two days each quarter and conduct other
in-person and telephone meetings throughout the year, some of which are formal
Board meetings and some of which are informational meetings. The independent
counsel to the independent trustees attends all in-person Board and Audit
Committee meetings and other meetings at the independent trustees' request.
FAM Management Agreement--Matters Considered by the Boards
Every year, each Board reviews and considers approval of the Trust's
management agreement on behalf of the Fund. Each Board assesses the nature,
scope and quality of the services provided to the Fund and the Trust by the
personnel of the manager and its affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing
services and assistance in meeting legal and regulatory requirements. Each
Board also receives and assesses information regarding the services provided
to the Fund and the Trust by certain unaffiliated service providers.
At various times throughout the year, each Board also considers a range of
information in connection with its oversight of the services provided by the
manager and its affiliates. Among the matters considered are: (a) fees (in
addition to management fees) paid to the manager and its affiliates by the
Fund and/or the Trust, such as transfer agency fees and fees for marketing and
distribution; (b) Trust/Fund operating expenses paid to third parties; (c) the
resources devoted to and compliance reports relating to the Trust's/Fund's
investment objective, policies and restrictions, and the Trust's/Fund's
compliance with its Code of Ethics and compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services
provided by the manager and its affiliates.
The Boards noted their view of FAM as one of the most experienced global asset
management firms and considered the overall services provided by FAM to be of
high quality. The Boards also noted their view of FAM as financially sound and
well managed and noted FAM's affiliation with one of America's largest
financial firms. The Boards work closely with the manager in overseeing the
manager's efforts to achieve good performance. As part of this effort, each
Board discusses portfolio manager effectiveness and, when performance is not
satisfactory, discusses with the manager taking steps such as changing
investment personnel.
CMA TREASURY FUND SEPTEMBER 30, 2006
Annual Consideration of Approval by the Boards
In the period prior to the Board meeting to consider renewal of the management
agreement, each Board requests and receives materials specifically relating to
the management agreement. These materials include (a) information compiled by
Lipper Inc. ("Lipper") on the fees and expenses and the investment performance
of the Trust/Fund or its predecessor (which had the same investment objectives
and strategies as the Trust/Fund) as compared to a comparable group of funds
as classified by Lipper; (b) a discussion by the Trust's/Fund's portfolio
management team regarding investment strategies used by the Trust/Fund during
its most recent fiscal year; (c) information on the profitability to the
manager and its affiliates of the management agreement and certain other
relationships with the Trust and/or the Fund; and (d) information provided by
the manager concerning management fees charged to other clients, such as
institutional clients, under similar investment mandates. Each Board also
considers other matters it deems important to the approval process, such as
payments made to the manager or its affiliates relating to the distribution of
Fund shares, services related to the valuation and pricing of Trust/Fund
portfolio holdings, allocation of Trust/Fund brokerage fees, and direct and
indirect benefits to the manager and its affiliates from their relationship
with the Fund and the Trust. Neither Board identified any particular
information as controlling, and each member of the Board may have attributed
different weights to the various items considered.
Certain Specific Renewal Data
In connection with the most recent renewal of the management agreement between
the Trust, on behalf of the Fund, and FAM (the "FAM Management Agreement") in
August 2006, the independent trustees' and Boards' review included the
following:
Services Provided by the Manager--Each Board reviewed the nature, extent and
quality of services provided by FAM, including the management services and the
resulting performance of the Trust/Fund. The Boards use data provided by
Lipper and by management in their review of advisory services. The Boards
compared Trust/Fund performance - both including and excluding the effects of
the Trust's/Fund's fees and expenses - to the performance of a comparable
group of mutual funds and the performance of a relevant index or combination
of indexes. While each Board reviews performance data at least quarterly, the
Board attaches more importance to performance over relatively long periods of
time, typically three to five years. The Boards concluded that the comparative
data indicated that the Fund's performance was competitive. Considering all
these factors, each Board concluded that the Trust's/ Fund's performance and
the nature and quality of the services provided supported the continuation of
the FAM Management Agreement.
FAM's Personnel and Investment Process--Each Board reviewed the Trust's/Fund's
investment objectives and strategies. The Boards discussed with FAM's senior
management responsible for investment operations and the senior management of
FAM's taxable fixed income investing group the strategies being used to
achieve the stated objectives. Among other things, the Boards considered the
size, education and experience of FAM's investment staff, its use of
technology, and FAM's approach to training and retaining portfolio managers
and other research, advisory and management personnel. The Boards also
reviewed FAM's compensation policies and practices with respect to the
Trust's/Fund's portfolio manager. The Boards also considered the experience of
Ms. Macaulay, the Trust's/Fund's portfolio manager at the time. Each Board
considered the extensive experience of FAM and its investment staff in
analyzing and managing the types of investments used by the Trust and the Fund
and concluded that the Trust and the Fund benefit from that experience.
Management Fees and Other Expenses--Each Board reviews the Trust's/Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared to
the other funds in its Lipper category. It also compares the Trust's/Fund's
total expenses to those of other comparable funds. Each Board determined that
the Fund's contractual and actual management fee rates, as well as total
expenses, were competitive with those of comparable funds. Each Board concluded
that the Fund's management fee rate and overall expense ratio were reasonable.
CMA TREASURY FUND SEPTEMBER 30, 2006
Disclosure of Investment Advisory Agreement (concluded)
Profitability--Each Board considers the cost of the services provided to the
Trust and the Fund by the manager and the manager's and its affiliates' profits
relating to the management and distribution of the Trust and the Fund and the
funds advised by the manager and its affiliates. As part of its analysis, each
Board reviewed FAM's methodology in allocating its costs to the management of
the Trust and the Fund and concluded that there was a reasonable basis for the
allocation. Each Board also considered federal court decisions discussing an
investment adviser's profitability and profitability levels considered to be
reasonable in those decisions. The Boards concluded that the profits of FAM
and its affiliates were acceptable in relation to the nature and quality of
services provided and given the level of fees and expenses overall.
Economies of Scale--Each Board considered the extent to which economies of
scale might be realized as the assets of the Trust and the Fund increase and
whether there should be changes in the management fee rate or structure in
order to enable the Trust and the Fund to participate in these economies of
scale. Each Board concluded that the Trust's/Fund's management fee rate
schedule, which includes breakpoints, appropriately allows shareholders to
participate in the benefits of economies of scale. The Boards determined that
no changes were currently necessary.
Conclusion
After the independent trustees of the Fund and the independent trustees of the
Trust deliberated in executive session, each entire Board, including all of
the independent trustees, approved the renewal of the existing FAM Management
Agreement, concluding that the advisory fee was reasonable in relation to the
services provided and that a contract renewal was in the best interests of the
shareholders.
Disclosure of New Investment Advisory Agreement
New BlackRock Management Agreement--Matters Considered by the Boards
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Manager"), with
that of BlackRock, Inc. ("BlackRock") to create a new independent company
("New BlackRock") (the "Transaction"), the Board of Trustees of the Trust, on
behalf of the Fund, considered and approved a new management agreement (the
"BlackRock Management Agreement") between the Trust and BlackRock Advisors,
LLC ("BlackRock Advisors"). Because the Fund is a feeder fund that invests all
of its assets in the Trust, the Board of Trustees of the Fund also considered
the BlackRock Management Agreement. Share-holders subsequently approved the
BlackRock Management Agreement, and it became effective on September 29, 2006,
replacing the management agreement with the Previous Manager (the "Previous
Management Agreement").
Each Board discussed the BlackRock Management Agree-ment at telephonic and in-
person meetings held during April and May 2006. Each Board, including the
independent trustees, approved the BlackRock Management Agreement at an in-
person meeting held on May 12, 2006.
To assist each Board in its consideration of the BlackRock Management
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent trustees, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the BlackRock
Management Agreement. The additional information was provided in advance of
the May 12, 2006 meetings. In addition, the independent trustees consulted
with their counsel and counsel for the Fund and the Trust on numerous
occasions, discussing, among other things, the legal standards and certain
other considerations relevant to each Board's deliberations.
CMA TREASURY FUND SEPTEMBER 30, 2006
At each Board meeting, the trustees discussed with Merrill Lynch management
and certain BlackRock representatives the Transaction, its strategic rationale
and BlackRock's general plans and intentions regarding the Fund and the Trust.
At these Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from each Board. Each Board also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Previous Manager, and of its affiliates,
to be transferred to BlackRock in connection with the Transaction. The
independent trustees also conferred separately and with their counsel about
the Transaction and other matters related to the Transaction on a number of
occasions, including in connection with the April and May 2006 meetings. After
the presentations and after reviewing the written materials provided, the
independent trustees met in executive sessions with their counsel to consider
the BlackRock Management Agreement.
In connection with each Board's review of the BlackRock Management Agreement,
Merrill Lynch and/or BlackRock advised the Boards about a variety of matters.
The advice included the following, among other matters:
* that there was not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and the Trust and their shareholders
by BlackRock Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented professionals;
* that the Fund and the Trust were expected to benefit from having access to
BlackRock's state of the art technology and risk management analytic tools,
including investment tools, provided under the BlackRock Solutions (R) brand
name;
* that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek the approval of
each Board before making any changes;
* that BlackRock and Merrill Lynch would enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill Lynch-
affiliated broker-dealers would continue to offer the Fund as an investment
product;
* that BlackRock Advisors would have substantially the same access to the
Merrill Lynch sales force when distributing shares of the Fund as was
currently being provided to the Previous Manager and that other arrangements
between the Previous Manager and Merrill Lynch sales channels would be
preserved;
* that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their respective
affiliates to conduct, their respective businesses in compliance with the
conditions of Section 15(f) of the Investment Company Act of 1940 (the "1940
Act") in relation to any public funds advised by BlackRock or the Previous
Manager (or affiliates), respectively; and
* that Merrill Lynch and BlackRock would derive benefits from the Transaction
and that, as a result, they had a financial interest in the matters being
considered that was different from that of Fund or Trust shareholders.
Each Board considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
* the potential benefits to Fund and Trust shareholders from being part of a
combined fund family with BlackRock-sponsored funds, including possible
economies of scale and access to investment opportunities;
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength and
resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of the BlackRock Management Agreement, including
the fact that the schedule of the Fund's/Trust's total advisory and
administrative fees would not increase under the BlackRock Management
Agreement, but would remain the same;
* that in August 2005, each Board had performed a full annual review of each
respective Previous Management Agreement, as required by the 1940 Act, and
had determined that the Previous Manager had the capabilities, resources
and personnel necessary to provide the advisory and administrative services
that were then being provided to the Fund/Trust; and that the advisory
and/or management fees paid by the Fund/Trust, taking into account any
applicable agreed-upon fee waivers and breakpoints, had represented
reasonable compensation to the Previous Manager in light of the services
provided, the costs to the Previous Manager of providing those services,
economies of scale, the fees and other expenses paid by similar funds
(including information provided by Lipper), and such other matters as the
trustees had considered relevant in the exercise of their reasonable
judgment; and
CMA TREASURY FUND SEPTEMBER 30, 2006
Disclosure of New Investment Advisory Agreement (continued)
* that Merrill Lynch had agreed to pay all expenses of the Fund and Trust in
connection with the Board's consideration of the BlackRock Management
Agreement and related agreements and all costs of shareholder approval of
the BlackRock Management Agreement and as a result the Fund and the Trust
would bear no costs in obtaining shareholder approval of the BlackRock
Management Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Management Agreement, each Board assessed the
nature, quality and scope of the services to be provided to the Fund and the
Trust by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory requirements.
In its review of the BlackRock Management Agreement, each Board also considered
a range of information in connection with its oversight of the services to be
provided by BlackRock Advisors and its affiliates. Among the matters considered
were: (a) fees (in addition to management fees) to be paid to BlackRock
Advisors and its affiliates by the Fund and the Trust; (b) Fund and Trust
operating expenses paid to third parties; (c) the resources devoted to and
compliance reports relating to the Fund's and the Trust's investment objective,
policies and restrictions, and their compliance with their Code of Ethics and
BlackRock Advisors' compliance policies and procedures; and (d) the nature,
cost and character of non-investment management services to be provided by
BlackRock Advisors and its affiliates.
In the period prior to the Board meetings to consider renewal of the Previous
Management Agreement, each Board had requested and received materials
specifically relating to the Previous Management Agreement. These materials
included (a) information compiled by Lipper on the fees and expenses and the
investment performance of the Fund as compared to a comparable group of funds
as classified by Lipper; (b) a discussion by the Trust's portfolio management
team on investment strategies used by the Trust during its most recent fiscal
year; (c) information on the profitability to the Previous Manager of the
Previous Management Agreement and other payments received by the Previous
Manager and its affiliates from the Fund and the Trust; and (d) information
provided by the Previous Manager concerning services related to the valuation
and pricing of the Trust's portfolio holdings, allocation of Trust brokerage
fees, the Trust's portfolio turnover statistics, and direct and indirect
benefits to the Previous Manager and its affiliates from their relationship
with the Fund and the Trust.
In its deliberations, each Board considered information received in connection
with its most recent approval of the continuance of the Previous Management
Agreement, in addition to information provided by BlackRock and BlackRock
Advisors in connection with their evaluation of the terms and conditions of
the BlackRock Management Agreement. The trustees did not identify any
particular information that was all-important or controlling, and each trustee
attributed different weights to the various factors. Each Board, including a
majority of the Board's independent trustees, concluded that the terms of the
BlackRock Management Agreement are appropriate, that the fees to be paid are
reasonable in light of the services to be provided to the Fund/Trust, and that
the BlackRock Management Agreement should be approved and recommended to
Fund/Trust shareholders.
Nature, Quality and Extent of Services Provided--Each Board reviewed the
nature, quality and extent of services provided by the Previous Manager,
including the investment advisory services and the resulting performance of
the Fund and the Trust, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. Each Board focused primarily on
the Previous Manager's investment advisory services and the investment
performance of the Fund and the Trust, but also considered certain areas in
which both the Previous Manager and the Fund/Trust received services as part
of the Merrill Lynch complex. Each Board compared the Fund's performance - both
including and excluding the effects of fees and expenses - to the performance
of a comparable group of mutual funds, and the performance of a relevant index
or combination of indexes. While each Board reviews performance data at least
quarterly, consistent with the Previous Manager's investment goals, the Board
attaches more importance to performance over relatively long periods of time,
typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Management Agreement, each Board
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund and the Trust; the ability of BlackRock Advisors to
perform its duties after the Transaction; and any anticipated changes to the
investment and other practices of the Fund or the Trust.
CMA TREASURY FUND SEPTEMBER 30, 2006
Each Board was given information with respect to the potential benefits to the
Fund and the Trust and their shareholders from having access to BlackRock's
state of the art technology and risk management analytic tools, including the
investment tools provided under the BlackRock Solutions brand name.
Each Board was advised that, as a result of Merrill Lynch's equity interest in
BlackRock after the Transaction, the Fund and the Trust would continue to be
subject to restrictions concerning certain transactions involving Merrill
Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer
acting as principal) absent revised or new regulatory relief. Each Board was
advised that a revision of existing regulatory relief with respect to these
restrictions was being sought from the Securities and Exchange Commission and
was advised of the possibility of receipt of such revised regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the trustees
determined that the nature and quality of services to be provided to the
Fund/Trust under the BlackRock Management Agreement were expected to be as
good as or better than that provided under the Previous Management Agreement.
It was noted, however, that changes in personnel were expected to follow the
Transaction and the combination of the operations of the Previous Manager and
its affiliates with those of BlackRock. The trustees noted that if portfolio
managers or other personnel were to cease to be available prior to the closing
of the Transaction, each Board would consider all available options, including
seeking the investment advisory or other services of BlackRock affiliates.
Accordingly, each Board concluded that, overall, the Board was satisfied at
the present time with assurances from BlackRock and BlackRock Advisors as to
the expected nature, quality and extent of the services to be provided to the
Fund/Trust under the BlackRock Management Agreement.
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the most recent review of the Previous Management Agreement,
each Board had received, among other things, a report from Lipper comparing
the Fund's fees and expenses to those of a peer group selected by Lipper and
information as to the fees charged by the Previous Manager or its affiliates
to other registered investment company clients for investment management
services. Each Board reviewed the Fund's/Trust's contractual management fee
rate and actual management fee rate as a percentage of total assets at common
asset levels - the actual rate includes advisory and administrative service
fees and the effects of any fee waivers - compared to the other funds in the
Fund's Lipper category. Each Board also compared the Fund's total expenses to
those of other comparable funds. Each Board concluded that the Fund's/Trust's
management fee and fee rate and overall expense ratio are reasonable compared
to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Management Agreement, each Board considered, among other
things, whether advisory and administrative fees or other expenses would
change as a result of the Transaction.
The Fund's Board noted that in addition to the BlackRock Management Agreement,
it was considering a new administration agreement with BlackRock Advisors as
administrator to replace the Fund's administration agreement under which the
Previous Manager was serving as administrator. Based on its review of the
materials provided, and the fact that the BlackRock Management Agreement and
the new administration agreement are substantially similar to the corresponding
previous agreement in all material respects, including the rate of
compensation, each Board determined that the Transaction should not increase
the total fees payable, including any fee waivers and expense reimbursements,
for advisory and administrative services. Each Board noted that it was not
possible to predict how the Transaction would affect BlackRock Advisor's
profitability from its relationship with the Fund and the Trust.
Each Board discussed with BlackRock Advisors its general methodology to be
used in determining New BlackRock's profitability with respect to its
relationship with the Fund and the Trust. The trustees noted that they expect
to receive profitability information from BlackRock Advisors on at least an
annual basis and thus be in a position to evaluate whether any adjustments in
fees and/or fee breakpoints would be appropriate.
Fees and Economies of Scale--Each Board considered the extent to which
economies of scale might be realized as the assets of the Fund and the Trust
increase and whether there should be changes in the management fee rate or
structure in order to enable the Fund and the Trust to participate in these
economies of scale. Each Board determined that changes were not currently
necessary.
CMA TREASURY FUND SEPTEMBER 30, 2006
Disclosure of New Investment Advisory Agreement (concluded)
In reviewing the Transaction, each Board considered, among other things,
whether advisory and administrative fees or other expenses would change as a
result of the Transaction. Based on the fact that the BlackRock Management
Agreement was substantially similar to the Previous Management Agreement in
all material respects, including the rate of compensation, and the fact that
the proposed new administration agreement with BlackRock Advisors was also
substantially similar to the administration agreement then in effect, each
Board determined that as a result of the Transaction, the Fund's/Trust's total
advisory and administrative fees would be no higher than the fees under the
corresponding Previous Management Agreement and administration agreement. Each
Board noted that in conjunction with the most recent deliberations concerning
the Previous Management Agreement, the trustees had determined that the total
fees for advisory and administrative services for the Fund and the Trust were
reasonable in light of the services provided. It was noted that in conjunction
with the most recent review of the Previous Management Agreement, the Boards
had received, among other things, a report from Lipper comparing the fees,
expenses and performance of the Fund/Trust to those of a peer group selected
by Lipper and information as to the fees charged by the Previous Manager to
other registered investment company clients for investment management services.
Each Board concluded that because the rates for advisory and administrative
fees for the Fund/Trust would be no higher than the fee rates in effect at the
time, the proposed management fee structure, including any fee waivers, was
reasonable and that no additional changes were currently necessary.
Fall-Out Benefits--In evaluating the fall-out benefits to be received by
BlackRock Advisors under the BlackRock Management Agreement, each Board
considered whether BlackRock Advisors would experience such benefits to the
same extent that the Previous Manager was experiencing such benefits under
the Previous Management Agreement. Based on their review of the materials
provided, including materials received in connection with their most recent
approval of the continuance of the Previous Management Agreement, and their
discussions with management of the Previous Manager and BlackRock, the
trustees determined that BlackRock Advisors' fall-out benefits could include
increased ability for BlackRock to distribute shares of its funds and other
investment products. Each Board noted that fall-out benefits were difficult to
quantify with certainty at this time, and indicated that the Board would
continue to evaluate them going forward.
Investment Performance--Each Board considered investment performance for the
Fund and the Trust. Each Board compared the performance of the Fund and the
Trust - both including and excluding the effects of fees and expenses - to the
performance of a comparable group of mutual funds, and the performance of a
relevant index or combination of indexes. The comparative information showed
Fund performance at various levels within the range of performance of
comparable funds over different time periods. While each Board reviews
performance data at least quarterly, consistent with the Previous Manager's
investment goals, the Board attaches more importance over relatively long
periods of time, typically three to five years. Each Board believed the Fund's
performance was satisfactory. Also, each Board took into account the investment
performance of funds advised by BlackRock Advisors. Each Board considered
comparative information from Lipper which showed that the performance of the
funds advised by BlackRock Advisors was within the range of performance of
comparable funds over different time periods. Each Board noted BlackRock's
considerable investment management experience and capabilities, but was unable
to predict what effect, if any, consummation of the Transaction would have on
the future performance of the Fund.
Conclusion--After the independent trustees of the Fund and the independent
trustees of the Trust deliberated in executive session, each entire Board,
including the independent trustees, approved the BlackRock Management
Agreement, concluding that the advisory fee rate was reasonable in relation to
the services provided and that the BlackRock Management Agreement was in the
best interests of the shareholders. In approving the BlackRock Management
Agreement, each Board noted that it anticipated reviewing the continuance of
the agreement in advance of the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreement--Matters Considered by the Boards
At an in-person meeting held on August 14-16, 2006, each Board, including the
independent trustees, discussed and approved the sub-advisory agreement with
respect to the Trust (the "BlackRock Sub-Advisory Agreement") between
BlackRock Advisors and BlackRock Institutional Management Corporation, an
affiliate of BlackRock Advisors (the "Sub-Adviser"). The BlackRock Sub-
Advisory Agreement became effective on September 29, 2006, at the same time
the BlackRock Management Agreement became effective.
CMA TREASURY FUND SEPTEMBER 30, 2006
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 59% of the advisory fee received
by BlackRock Advisors from the Trust. BlackRock Advisors pays the Sub-Adviser
out of its own resources, and there is no increase in Fund or Trust expenses
as a result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, each Board reviewed its considerations in connection with its
approval of the BlackRock Management Agreement in May 2006. The Boards relied
on the same information and considered the same factors as those discussed
above in connection with the approval of the BlackRock Management Agreement
and came to the same conclusion. In reviewing the sub-advisory fee rate
provided in the BlackRock Sub-Advisory Agreement, each Board noted the fact
that BlackRock Advisors and the Sub-Adviser each have significant
responsibilities under their respective advisory agreements. BlackRock
Advisors remains responsible for oversight of the Fund's and the Trust's
operations and administration, and the Sub-Adviser provides advisory services
to the Fund/Trust and is responsible for the day-to-day management of the
Fund's/Trust's portfolio under the BlackRock Sub-Advisory Agreement. The
Boards also took into account the fact that there is no increase in total
advisory fees paid by the Fund or the Trust as a result of the BlackRock Sub-
Advisory Agreement. Under all of the circumstances, each Board concluded that
it was a reasonable allocation of fees for the Sub-Adviser to receive 59% of
the advisory fee paid by the Trust to BlackRock Advisors.
After the independent trustees of the Fund and the independent trustees of the
Trust deliberated in executive session, each entire Board, including the
independent trustees, approved each BlackRock Sub-Advisory Agreement,
concluding that the sub-advisory fee was reasonable in relation to the
services provided and that the BlackRock Sub-Advisory Agreement was in the
best interests of Fund/Trust shareholders.
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former
fund investors and individual clients (collectively, "Clients") and to
safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock
collects, how we protect that information and why in certain cases we share
such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about
you from different sources, including the following: (i) information we
receive from you or, if applicable, your financial intermediary, on
applications, forms or other documents; (ii) information about your
transactions with us, our affiliates, or others; (iii) information we receive
from a consumer reporting agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any
nonpublic personal information about its Clients, except as permitted by law
or as is necessary to service Client accounts. These nonaffiliated third
parties are required to protect the confidentiality and security of this
information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that
may be of interest to you. In addition, BlackRock restricts access to
nonpublic personal information about its Clients to those BlackRock employees
with a legitimate business need for the information. BlackRock maintains
physical, electronic and procedural safeguards that are designed to protect
the nonpublic personal information of its Clients, including procedures
relating to the proper storage and disposal of such information.
CMA TREASURY FUND SEPTEMBER 30, 2006
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-
annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send
nominations which include biographical information and sets forth
the qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these
procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined
that the registrant's disclosure controls and procedures are
effective based on our evaluation of these controls and procedures
as of a date within 90 days prior to the filing date of this
report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
CMA Treasury Fund and Master Treasury Trust
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
CMA Treasury Fund and Master Treasury Trust
Date: November 17, 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
CMA Treasury Fund and Master Treasury Trust
Date: November 17, 2006
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
CMA Treasury Fund and Master Treasury Trust
Date: November 17, 2006