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 811-7885
Name of Fund: Master Enhanced S&P 500 Series
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Master
Enhanced S&P 500 Series, 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: 12/31/03
Date of reporting period: 01/01/03 - 12/31/03
Item 1 - Report to Shareholders
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense - 1.9% 5,200 The B.F. Goodrich Company $ 154,388
39,200 The Boeing Company 1,651,888
20,600 Honeywell International Inc. 688,658
15,200 Lockheed Martin Corporation 781,280
3,500 Northrop Grumman Corporation 334,600
10,500 Raytheon Company 315,420
4,100 Rockwell Collins, Inc. 123,123
11,200 United Technologies Corporation 1,061,424
------------
5,110,781
- ------------------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 0.8% 7,500 FedEx Corp. 506,250
11,400 Ryder System, Inc. 389,310
18,700 United Parcel Service, Inc. (Class B) 1,394,085
------------
2,289,645
- ------------------------------------------------------------------------------------------------------------------------------------
Airlines - 0.3% 3,200 Delta Air Lines, Inc. 37,792
53,100 Southwest Airlines Co. 857,034
------------
894,826
- ------------------------------------------------------------------------------------------------------------------------------------
Auto Components - 0.2% 1,600 Cooper Tire & Rubber Company 34,208
3,300 Dana Corporation 60,555
14,300 Delphi Automotive Systems Corporation 146,003
4,500 + The Goodyear Tire & Rubber Company 35,370
2,200 Johnson Controls, Inc. 255,464
2,700 Visteon Corporation 28,107
------------
559,707
- ------------------------------------------------------------------------------------------------------------------------------------
Automobiles - 1.3% 97,200 Ford Motor Company 1,555,200
16,000 General Motors Corporation 854,400
22,200 Harley-Davidson, Inc. 1,055,166
------------
3,464,766
- ------------------------------------------------------------------------------------------------------------------------------------
Beverages - 2.3% 900 Adolph Coors Company (Class B) 50,490
13,700 Anheuser-Busch Companies, Inc. 721,716
400 Brown-Forman Corporation (Class B) 37,380
60,000 The Coca-Cola Company 3,045,000
10,700 Coca-Cola Enterprises Inc. 234,009
3,500 The Pepsi Bottling Group, Inc. 84,630
41,410 PepsiCo, Inc. 1,930,534
------------
6,103,759
- ------------------------------------------------------------------------------------------------------------------------------------
Biotechnology - 1.0% 25,780 + Amgen Inc. 1,593,204
8,510 + Biogen Idec Inc. 312,998
3,500 + Chiron Corporation 199,465
7,400 + Genzyme Corporation 365,116
4,500 + MedImmune, Inc. 114,300
------------
2,585,083
- ------------------------------------------------------------------------------------------------------------------------------------
Building Products - 0.2% 1,700 + American Standard Companies, Inc. 171,190
11,800 Masco Corporation 323,438
------------
494,628
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 3.2% 16,500 The Bank of New York Company, Inc. 546,480
2,400 The Bear Stearns Companies Inc. 191,880
83,200 The Charles Schwab Corporation 985,088
1-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Markets (concluded) 2,600 Federated Investors, Inc. (Class B) $ 76,336
6,400 Franklin Resources, Inc. 333,184
11,400 The Goldman Sachs Group, Inc. 1,125,522
51,190 J.P. Morgan Chase & Co. 1,880,209
9,800 Janus Capital Group Inc. 160,818
8,049 Lehman Brothers Holdings, Inc. 621,544
7,300 Mellon Financial Corporation 234,403
2,600 Merrill Lynch & Co., Inc.(a) 152,490
27,400 Morgan Stanley 1,585,638
3,300 Northern Trust Corporation 153,186
8,400 State Street Corporation 437,472
5,300 T. Rowe Price Group Inc. 251,273
3 UBS AG (Registered) 204
------------
8,735,727
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals - 1.6% 3,900 Air Products and Chemicals, Inc. 206,037
23,194 The Dow Chemical Company 964,175
25,800 E.I. du Pont de Nemours and Company 1,183,962
1,700 Eastman Chemical Company 67,201
4,000 Ecolab Inc. 109,480
2,600 Engelhard Corporation 77,870
1,300 Great Lakes Chemical Corporation 35,347
2,900 + Hercules Incorporated 35,380
400 International Flavors & Fragrances Inc. 13,968
31,600 Monsanto Company 909,448
4,700 PPG Industries, Inc. 300,894
4,000 Praxair, Inc. 152,800
2,900 Rohm and Haas Company 123,859
------------
4,180,421
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 6.0% 8,500 AmSouth Bancorporation 208,250
11,225 BB&T Corporation 433,734
33,683 Bank of America Corporation 2,709,124
26,000 Bank One Corporation 1,185,340
5,397 Charter One Financial, Inc. 186,466
2,800 Comerica Incorporated 156,968
13,734 Fifth Third Bancorp 811,679
3,200 First Tennessee National Corporation 141,120
28,717 FleetBoston Financial Corporation 1,253,497
1,700 Huntington Bancshares Incorporated 38,250
7,100 KeyCorp 208,172
5,200 Marshall & Ilsley Corporation 198,900
38,900 National City Corporation 1,320,266
3,900 North Fork Bancorporation 157,833
8,400 PNC Bank Corp. 459,732
5,300 Regions Financial Corporation 197,160
6,868 SouthTrust Corporation 224,790
7,100 SunTrust Banks, Inc. 507,650
4,000 Synovus Financial Corp. 115,680
48,454 U.S. Bancorp 1,442,960
2,000 Union Planters Corporation 62,980
33,600 Wachovia Corporation 1,565,424
42,255 Wells Fargo & Company 2,488,397
2,200 Zions Bancorporation 134,926
------------
16,209,298
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Commercial Services & Supplies - 0.8% 5,400 + Allied Waste Industries, Inc. 74,952
4,400 + Apollo Group, Inc. (Class A) 299,200
1,200 Avery Dennison Corporation 67,224
100 + Cendant Corporation 2,227
2-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies (concluded) 5,500 Cintas Corporation $ 275,715
3,300 Deluxe Corporation 136,389
3,400 Equifax Inc. 83,300
5,700 H&R Block, Inc. 315,609
1,800 + Monster Worldwide Inc. 39,528
7,700 Pitney Bowes Inc. 312,774
2,200 R.R. Donnelley & Sons Company 66,330
3,500 + Robert Half International Inc. 81,690
12,000 Waste Management, Inc. 355,200
------------
2,110,138
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Communications Equipment - 2.9% 17,300 + ADC Telecommunications, Inc. 51,381
3,900 + Andrew Corporation 44,889
9,000 + Avaya Inc. 116,460
12,200 + CIENA Corporation 81,008
156,600 + Cisco Systems, Inc. 3,803,814
7,600 + Comverse Technology, Inc. 133,684
27,700 + Corning Incorporated 288,911
202,700 + JDS Uniphase Corporation 739,855
84,000 + Lucent Technologies Inc. 238,560
101,403 Motorola, Inc. 1,426,740
9,200 QUALCOMM Incorporated 496,156
2,400 + QLogic Corporation 123,840
3,500 Scientific-Atlanta, Inc. 95,550
10,600 + Tellabs, Inc. 89,358
------------
7,730,206
- ------------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 3.6% 11,200 + Apple Computer, Inc. 239,344
46,100 + Dell Inc. 1,565,556
61,008 + EMC Corporation 788,223
7,100 + Gateway Inc. 32,660
73,810 Hewlett-Packard Company 1,695,416
42,400 International Business Machines Corporation 3,929,632
10,600 + Lexmark International Group, Inc. (Class A) 833,584
2,400 + NCR Corporation 93,120
8,900 + Network Appliance, Inc. 182,717
81,700 + Sun Microsystems, Inc. 366,833
------------
9,727,085
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Construction & Engineering - 0.0% 1,600 Fluor Corporation 63,424
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Construction Materials - 0.0% 2,500 Vulcan Materials Company 118,925
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 1.1% 30,600 American Express Company 1,475,838
32,900 MBNA Corporation 817,565
12,100 + Providian Financial Corporation 140,844
10,900 SLM Corporation 410,712
------------
2,844,959
- ------------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.1% 1,700 Ball Corporation 101,269
1,400 Bemis Company, Inc. 70,000
2,400 + Pactiv Corporation 57,360
2,200 + Sealed Air Corporation 119,108
------------
347,737
- ------------------------------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 1,700 Genuine Parts Company 56,440
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 2.5% 127,913 Citigroup Inc. 6,208,897
3-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services (concluded) 3,700 Moody's Corporation $ 224,035
10,400 The Principal Financial Group, Inc. 343,928
------------
6,776,860
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 3.0% 9,200 ALLTEL Corporation 428,536
16,400 AT&T Corporation 332,920
46,600 BellSouth Corporation 1,318,780
4,700 CenturyTel, Inc. 153,314
197,900 + Qwest Communications International Inc. 854,928
51,900 SBC Communications Inc. 1,353,033
17,500 Sprint Corporation 287,350
92,600 Verizon Communications 3,248,408
------------
7,977,269
- ------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.8% 1,000 + Allegheny Energy, Inc. 12,760
2,100 Ameren Corporation 96,600
11,000 American Electric Power Company, Inc. 335,610
2,000 + CMS Energy Corporation 17,040
6,100 CenterPoint Energy, Inc. 59,109
4,100 Cinergy Corp. 159,121
3,500 Consolidated Edison, Inc. 150,535
4,300 DTE Energy Company 169,420
7,300 Dominion Resources, Inc. 465,959
12,300 Edison International 269,739
5,600 Entergy Corporation 319,928
7,662 Exelon Corporation 508,450
5,900 FPL Group, Inc. 385,978
8,564 FirstEnergy Corp. 301,453
11,400 + PG&E Corporation 316,578
3,900 PPL Corporation 170,625
4,200 Progress Energy, Inc. 190,092
20,200 The Southern Company 611,050
4,800 TECO Energy, Inc. 69,168
4,200 TXU Corporation 99,624
4,800 Xcel Energy, Inc. 81,504
------------
4,790,343
- ------------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.4% 4,500 American Power Conversion Corporation 110,025
2,300 Cooper Industries, Ltd. (Class A) 133,239
9,100 Emerson Electric Co. 589,225
2,100 + Power-One, Inc. 22,743
4,200 Rockwell International Corporation 149,520
1,300 Thomas & Betts Corporation 29,757
------------
1,034,509
- ------------------------------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 0.3% 3,100 PerkinElmer, Inc. 52,917
19,100 + Sanmina - SCI Corporation 240,851
9,300 + Solectron Corporation 54,963
5,400 Symbol Technologies, Inc. 91,206
2,200 Tektronix, Inc. 69,520
7,200 + Thermo Electron Corporation 181,440
2,900 + Waters Corporation 96,164
------------
787,061
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Service - 0.9% 3,800 + BJ Services Company 136,420
6,100 Baker Hughes Incorporated 196,176
10,700 Halliburton Company 278,200
3,000 + Nabors Industries, Ltd. 124,500
4-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Service (concluded) 3,100 + Noble Corporation $ 110,918
12,800 Schlumberger Limited 700,416
32,000 + Transocean Inc. 768,320
------------
2,314,950
- ------------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 3.6% 9,300 Albertson's, Inc. 210,645
9,400 CVS Corporation 339,528
9,500 + Costco Wholesale Corporation 353,210
19,300 + The Kroger Co. 357,243
21,200 SUPERVALU Inc. 606,108
16,400 SYSCO Corporation 610,572
28,100 + Safeway Inc. 615,671
107,400 Wal-Mart Stores, Inc. 5,697,570
23,900 Walgreen Co. 869,482
3,600 Winn-Dixie Stores, Inc. 35,820
------------
9,695,849
- ------------------------------------------------------------------------------------------------------------------------------------
Food Products - 1.3% 66,100 Archer-Daniels-Midland Company 1,006,042
10,100 Campbell Soup Company 270,680
13,800 ConAgra, Inc. 364,182
8,900 General Mills, Inc. 403,170
7,700 H.J. Heinz Company 280,511
2,400 Hershey Foods Corporation 184,776
9,800 Kellogg Company 373,184
19,700 Sara Lee Corporation 427,687
5,400 Wm. Wrigley Jr. Company 303,534
-----------
3,613,766
- ------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.5% 3,800 KeySpan Corporation 139,840
2,900 Kinder Morgan, Inc. 171,390
1,100 NICOR, Inc. 37,444
2,015 NiSource Inc. 44,209
900 Peoples Energy Corporation 37,836
32,500 Sempra Energy 976,950
------------
1,407,669
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 1.8% 2,200 Applera Corporation-Applied Biosystems Group 45,562
1,200 Bausch & Lomb Incorporated 62,280
39,400 Baxter International Inc. 1,202,488
8,200 Becton, Dickinson and Company 337,348
6,300 Biomet, Inc. 229,383
13,800 + Boston Scientific Corporation 507,288
1,300 C.R. Bard, Inc. 105,625
25,500 Medtronic, Inc. 1,239,555
1,200 + Millipore Corporation 51,660
4,400 + St. Jude Medical, Inc. 269,940
5,000 Stryker Corporation 425,050
5,050 + Zimmer Holdings, Inc. 355,520
------------
4,831,699
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 2.4% 5,000 Aetna Inc. (New Shares) 337,900
11,500 AmerisourceBergen Corporation 645,725
14,200 CIGNA Corporation 816,500
9,655 Cardinal Health, Inc. 590,500
2,400 Health Management Associates, Inc. (Class A) 57,600
7,000 + Humana Inc. 159,950
5,893 IMS Health Incorporated 146,500
25,400 McKesson HBOC, Inc. 816,864
5-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services (concluded) 6,114 + Medco Health Solutions, Inc. $ 207,815
2,600 Quest Diagnostics Incorporated 190,086
35,000 + Tenet Healthcare Corporation 561,750
29,400 UnitedHealth Group Incorporated 1,710,492
3,700 + WellPoint Health Networks Inc. 358,863
------------
6,600,545
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 1.0% 13,135 Carnival Corporation 521,853
3,492 Carnival PLC (ADR)(c) 140,239
4,400 Harrah's Entertainment, Inc. 218,988
8,600 Hilton Hotels Corporation 147,318
5,000 International Game Technology 178,500
4,000 Marriott International, Inc. (Class A) 184,800
12,900 McDonald's Corporation 320,307
9,100 + Starbucks Corporation 300,846
4,300 Starwood Hotels & Resorts Worldwide, Inc. 154,671
2,600 Wendy's International, Inc. 102,024
9,900 + YUM! Brands, Inc. 340,560
------------
2,610,106
- ------------------------------------------------------------------------------------------------------------------------------------
Household Durables - 0.5% 1,700 + American Greetings Corporation (Class A) 37,179
10,000 The Black & Decker Corporation 493,200
170 + Cavco Industries, Inc. 4,080
3,500 Fortune Brands, Inc. 250,215
4,900 Leggett & Platt, Incorporated 105,987
2,000 Maytag Corporation 55,700
6,900 Newell Rubbermaid Inc. 157,113
1,400 Pulte Corporation 131,068
1,500 Snap-On Incorporated 48,360
2,200 The Stanley Works 83,314
400 Whirlpool Corporation 29,060
------------
1,395,276
- ------------------------------------------------------------------------------------------------------------------------------------
Household Products - 1.8% 6,800 The Clorox Company 330,208
13,800 Colgate-Palmolive Company 690,690
2,420 The Dial Corporation 68,897
11,100 Kimberly-Clark Corporation 655,899
31,800 The Procter & Gamble Company 3,176,184
------------
4,921,878
- ------------------------------------------------------------------------------------------------------------------------------------
IT Services - 1.2% 15,100 Automatic Data Processing, Inc. 598,111
3 + Cognizant Technology Solutions Corporation 137
6,300 + Computer Sciences Corporation 278,649
37,960 + Concord EFS, Inc. 563,326
3,500 + Convergys Corporation 61,110
12,200 Electronic Data Systems Corporation 299,388
11,400 First Data Corporation 468,426
5,650 + Fiserv, Inc. 223,232
9,000 Paychex, Inc. 334,800
2,900 Sabre Holdings Corporation 62,611
6,900 + Sungard Data Systems Inc. 191,199
8,400 + Unisys Corporation 124,740
------------
3,205,729
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 3.8% 18,600 3M Co. 1,581,558
249,200 General Electric Company 7,720,216
3,400 Textron, Inc. 194,004
6-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates (concluded) 26,042 Tyco International Ltd. $ 690,113
------------
10,185,891
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance - 4.8% 4,300 ACE Limited 178,106
13,300 AFLAC Incorporated 481,194
36,700 The Allstate Corporation 1,578,834
2,550 Ambac Financial Group, Inc. 176,944
56,775 American International Group, Inc. 3,763,047
7,900 Aon Corporation 189,126
4,700 The Chubb Corporation 320,070
4,100 Cincinnati Financial Corporation 171,708
6,700 The Hartford Financial Services Group, Inc. 395,501
3,400 Jefferson - Pilot Corporation 172,210
7,500 John Hancock Financial Services, Inc. 281,250
4,500 Lincoln National Corporation 181,665
4,400 Loews Corporation 217,580
3,500 MBIA, Inc. 207,305
31,100 Marsh & McLennan Companies, Inc. 1,489,379
16,800 MetLife, Inc. 565,656
5,500 The Progressive Corporation 459,745
13,200 Prudential Financial, Inc. 551,364
3,300 SAFECO Corporation 128,469
3,500 The St. Paul Companies, Inc. 138,775
2,900 Torchmark Corporation 132,066
24,525 Travelers Property Casualty Corp. (Class B) 416,189
7,600 UnumProvident Corporation 119,852
8,100 XL Capital Ltd. (Class A) 628,155
------------
12,944,190
- ------------------------------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.4% 15,300 + eBay Inc. 988,227
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.3% 17,816 + Yahoo! Inc. 804,749
- ------------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.2% 1,800 Brunswick Corporation 57,294
8,500 Eastman Kodak Company 218,195
3,800 Hasbro, Inc. 80,864
11,100 Mattel, Inc. 213,897
------------
570,250
- ------------------------------------------------------------------------------------------------------------------------------------
Machinery - 1.1% 8,700 Caterpillar Inc. 722,274
1,300 Crane Co. 39,962
1,000 Cummins Engine Company, Inc. 48,940
4,900 Danaher Corporation 449,575
6,100 Deere & Company 396,805
7,300 Dover Corporation 290,175
1,700 Eaton Corporation 183,566
2,200 ITT Industries, Inc. 163,262
4,100 Ingersoll-Rand Company (Class A) 278,308
3,000 Pall Corporation 80,490
3,000 Parker-Hannifin Corporation 178,500
------------
2,831,857
- ------------------------------------------------------------------------------------------------------------------------------------
Media - 3.6% 300 Clear Channel Communications, Inc. 14,049
49,857 + Comcast Corporation (Class A) 1,638,799
19,900 + Comcast Corporation (Special Class A) 622,472
6,400 Gannett Co., Inc. 570,624
2,000 Knight Ridder, Inc. 154,740
4,800 The McGraw-Hill Companies, Inc. 335,616
1,200 Meredith Corporation 58,572
7-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Media (concluded) 3,800 The New York Times Company (Class A) $ 181,602
1,300 Omnicom Group Inc. 113,529
111,425 + Time Warner Inc. 2,004,536
6,100 Tribune Company 314,760
6,800 + Univision Communications Inc. (Class A) 269,892
400 Viacom, Inc. (Class A) 17,708
62,606 Viacom, Inc. (Class B) 2,778,454
30,800 The Walt Disney Company 718,564
------------
9,793,917
- ------------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.5% 18,800 Alcoa Inc. 714,400
700 Allegheny Technologies Incorporated 9,254
9,000 Newmont Mining Corporation 437,490
2,600 United States Steel Corporation 91,052
2,200 Worthington Industries, Inc. 39,666
------------
1,291,862
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power - 0.4% 8,300 + The AES Corporation 78,352
9,400 + Calpine Corporation 45,214
4,000 Constellation Energy Group 156,640
18,200 Duke Energy Corporation 372,190
9,700 + Dynegy Inc. (Class A) 41,516
15,500 El Paso Corporation 126,945
1 National Grid Group PLC (ADR)(c) 36
5,400 Public Service Enterprise Group Incorporated 236,520
6,500 The Williams Companies, Inc. 63,830
------------
1,121,243
- ------------------------------------------------------------------------------------------------------------------------------------
Multiline Retail - 1.3% 2,500 + Big Lots, Inc. 35,525
2,200 Dillard's, Inc. (Class A) 36,212
8,000 Dollar General Corporation 167,920
5,600 Family Dollar Stores, Inc. 200,928
6,500 Federated Department Stores, Inc. 306,345
29,400 J.C. Penney Company, Inc. 772,632
15,500 + Kohl's Corporation 696,570
3,800 The May Department Stores Company 110,466
2,700 Nordstrom, Inc. 92,610
6,400 Sears, Roebuck & Co. 291,136
20,800 Target Corporation 798,720
------------
3,509,064
- ------------------------------------------------------------------------------------------------------------------------------------
Office Electronics - 0.1% 20,000 + Xerox Corporation 276,000
- ------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas - 4.9% 2,000 Amerada Hess Corporation 106,340
4,700 Anadarko Petroleum Corporation 239,747
1,500 Apache Corporation 121,650
20,200 Ashland Inc. 890,012
6,700 Burlington Resources Inc. 371,046
25,712 ChevronTexaco Corporation 2,221,260
17,151 ConocoPhillips 1,124,591
4,245 Devon Energy Corporation 243,069
1,200 EOG Resources, Inc. 55,404
164,800 Exxon Mobil Corporation 6,756,800
10,800 Marathon Oil Corporation 357,372
12,000 Occidental Petroleum Corporation 506,880
2,200 Sunoco, Inc. 112,530
6,100 Unocal Corporation 224,663
------------
13,331,364
8-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.5% 6,500 Georgia-Pacific Group $ 199,355
10,000 International Paper Company 431,100
2,700 + Louisiana-Pacific Corporation 48,276
5,079 MeadWestvaco Corporation 151,100
6,800 Weyerhaeuser Company 435,200
------------
1,265,031
- ------------------------------------------------------------------------------------------------------------------------------------
Personal Products - 0.5% 1,400 Alberto-Culver Company (Class B) 88,312
5,600 Avon Products, Inc. 377,944
25,700 The Gillette Company 943,961
------------
1,410,217
- ------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.9% 37,700 Abbott Laboratories 1,756,820
1,800 Allergan Inc. 138,258
31,100 Bristol-Myers Squibb Company 889,460
10,072 + CIMA Labs Inc. 328,549
18,900 Eli Lilly and Company 1,329,237
6,675 + Esperion Therapeutics, Inc. 231,022
7,500 + Forest Laboratories, Inc. 463,500
76,386 Johnson & Johnson 3,946,101
6,100 + King Pharmaceuticals, Inc. 93,086
72,902 Merck & Co., Inc. 3,368,072
169,240 Pfizer, Inc. 5,979,249
37,000 Schering-Plough Corporation 643,430
4,300 + Watson Pharmaceuticals, Inc. 197,800
48,600 Wyeth 2,063,070
------------
21,427,654
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate - 0.5% 1,200 Apartment Investment & Management Company (Class A) 41,400
16,100 Equity Office Properties Trust 461,265
9,400 Equity Residential Properties Trust 277,394
1,300 Plum Creek Timber Company Inc. 39,585
6,900 ProLogis Trust 221,421
4,400 Simon Property Group, Inc. 203,896
------------
1,244,961
- ------------------------------------------------------------------------------------------------------------------------------------
Road & Rail - 0.7% 11,500 Burlington Northern Santa Fe Corporation 372,025
5,400 CSX Corporation 194,076
9,900 Norfolk Southern Corporation 234,135
13,800 Union Pacific Corporation 958,824
------------
1,759,060
- ------------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 100 + Altera Corporation 2,270
Equipment - 3.8% 8,800 Analog Devices, Inc. 401,720
44,900 + Applied Materials, Inc. 1,008,005
7,900 + Applied Micro Circuits Corporation 47,242
163,700 Intel Corporation 5,271,140
4,900 + KLA-Tencor Corporation 287,483
16,600 + LSI Logic Corporation 147,242
7,200 Linear Technology Corporation 302,904
7,997 Maxim Integrated Products, Inc. 398,251
61,300 + Micron Technology, Inc. 825,711
6,300 + National Semiconductor Corporation 248,283
4,400 + PMC - Sierra, Inc. 88,660
2,000 + Teradyne, Inc. 50,900
26,800 Texas Instruments Incorporated 787,384
9-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 6,800 + Xilinx, Inc. $ 263,432
Equipment (concluded)
------------
10,130,627
- ------------------------------------------------------------------------------------------------------------------------------------
Software - 4.7% 4,400 Adobe Systems Incorporated 172,920
2,900 Autodesk, Inc. 71,282
5,600 + BMC Software, Inc. 104,440
1,400 + Citrix Systems, Inc. 29,694
17,400 Computer Associates International, Inc. 475,716
9,900 + Compuware Corporation 59,796
6,200 + Electronic Arts Inc. 296,236
15,500 + Intuit Inc. 820,105
2,100 + Mercury Interactive Corporation 102,144
275,400 Microsoft Corporation 7,584,516
41,700 + Novell, Inc. 438,684
137,000 + Oracle Corporation 1,808,400
5,800 + PeopleSoft, Inc. 132,240
6,100 + Siebel Systems, Inc. 84,607
6,608 + Systems & Computer Technology Corporation 108,041
12,401 + VERITAS Software Corporation 460,821
------------
12,749,642
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 2.6% 6,800 + AutoNation, Inc. 124,916
6,200 + Bed, Bath & Beyond Inc. 268,770
8,100 Best Buy Co., Inc. 423,144
4,400 Circuit City Stores - Circuit City Group 44,572
25,800 The Gap, Inc. 598,818
56,400 The Home Depot, Inc. 2,001,636
17,100 The Limited, Inc. 308,313
18,500 Lowe's Companies, Inc. 1,024,715
10,500 + Office Depot, Inc. 175,455
24,100 RadioShack Corporation 739,388
9,600 The Sherwin-Williams Company 333,504
14,800 + Staples, Inc. 404,040
12,400 The TJX Companies, Inc. 273,420
3,500 Tiffany & Co. 158,200
4,300 + Toys 'R' Us, Inc. 54,352
------------
6,933,243
- ------------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.3% 3,000 Jones Apparel Group, Inc. 105,690
2,600 Liz Claiborne, Inc. 92,196
6,700 Nike, Inc. (Class B) 458,682
1,400 Reebok International Ltd. 55,048
2,400 V. F. Corporation 103,776
------------
815,392
- ------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.7% 13,700 Fannie Mae 1,028,322
30,020 Freddie Mac 1,750,766
1,200 Golden West Financial Corporation 123,828
1,200 MGIC Investment Corporation 68,328
43,291 Washington Mutual, Inc. 1,736,835
------------
4,708,079
- ------------------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.9% 40,600 Altria Group, Inc. 2,209,452
1,000 R.J. Reynolds Tobacco Holdings, Inc. 58,150
2,300 UST Inc. 82,087
------------
2,349,689
10-M
Master Enhanced S&P 500 Series, December 31, 2003
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry# Shares Common Stocks Value
Held
- ------------------------------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 2,300 W. W. Grainger, Inc. $ 108,997
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 0.6% 106,700 + AT&T Wireless Services Inc. 852,533
24,227 + Nextel Communications, Inc. (Class A) 679,810
26,400 + Sprint Corp. (PCS Group) 148,368
------------
1,680,711
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment in Common Stock (Cost - $215,122,440) - 96.4% 259,822,981
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Beneficial Short-Term Securities Value
Interest
------------------------------------------------------------------------------------------------------------------------
$ 8,863,491 Merrill Lynch Liquidity Series,
LLC-Cash Sweep Series I (b) 8,863,491
$ 1,273,948 Merrill Lynch Liquidity Series,
LLC-Money Market Series (b)(d) 1,273,948
424,652 Merrill Lynch Premier Institutional
Fund (b)(d) 424,652
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment in Short-Term Securities (Cost - $10,562,091) - 3.9% 10,562,091
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost - $225,684,531) - 100.3% 270,385,072
Short Sales (Proceeds - $20,247)** - 0.0% (20,120)
Variation Margin on Financial Futures Contracts* - 0.0% 27,600
Liabilities in Excess of Other Assets - (0.3%) (918,024)
------------
Net Assets - 100.0% $269,474,528
============
+ Non-income producing security.
(a) An affiliate of the Series.
(b) Investments in companies considered to be an affiliate of the Series (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Common Stock 600 $ 1,472
Merrill Lynch Liquidity Series,
LLC-Cash Sweep Series I $ 5,977,822 $ 79,674
Merrill Lynch Liquidity Series,
LLC-Money Market Series $ 826,097 $ 724
Merrill Lynch Premier Institutional Fund 27,500 $ 445
--------------------------------------------------------------------------
(c) American Depositary Receipts (ADR).
(d) Security was purchased with the cash proceeds from securities loans.
* Financial futures contracts purchased as of December 31, 2003 were as
follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Gains
--------------------------------------------------------------------------
38 S&P 500 Index March 2004 $10,148,152 $ 402,548
--------------------------------------------------------------------------
Total Unrealized Gains $ 402,548
=========
--------------------------------------------------------------------------
** Covered short sales entered into as of December 31, 2003 were as follows:
--------------------------------------------------------------------------
Shares Issue Value
--------------------------------------------------------------------------
484 Piper Jaffray Cos. $ (20,120)
--------------------------------------------------------------------------
Total (Proceeds - $20,247) $ (20,120)
=========
--------------------------------------------------------------------------
# For Series compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Series management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease. These
industry classifications are unaudited. See Notes to Financial Statements.
11-M
Master Enhanced S&P 500 Series, December 31, 2003
STATEMENT OF ASSETS AND LIABILITIES
MASTER ENHANCED
S&P 500
SERIES As of December 31, 2003
- -----------------------------------------------------------------------------------------------------------------
Assets: Investments, at value (including securities loaned of $1,608,306)
(identified cost - $225,684,531) .................................. $270,385,072
Cash on deposit for financial futures contracts ................... 592,000
Receivables:
Dividends ................................................... $325,608
Contributions ............................................... 181,047
Variation margin ............................................ 27,600
Securities sold ............................................. 20,247
Interest .................................................... 7,893
Loaned securities income .................................... 5,587 567,982
--------
Prepaid expenses and other assets ................................. 826
------------
Total assets ...................................................... 271,545,880
------------
- -----------------------------------------------------------------------------------------------------------------
Liabilities: Common Stock sold short, at market value (proceeds $20,247) ....... 20,120
Collateral on securities loaned, at value ......................... 1,698,600
Payables:
Securities purchased ........................................ 185,581
Custodian bank .............................................. 154,747
Other affiliates ............................................ 2,231
Investment adviser .......................................... 365 342,924
--------
Accrued expenses .................................................. 9,708
------------
Total liabilities ................................................. 2,071,352
------------
- -----------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ........................................................ $269,474,528
============
- -----------------------------------------------------------------------------------------------------------------
Net Assets Investors' capital ................................................ $224,371,312
Consist of: Unrealized appreciation on investments-net ........................ 45,103,216
------------
Net assets ........................................................ $269,474,528
============
- -----------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
12-M
Master Enhanced S&P 500 Series, December 31, 2003
STATEMENT OF OPERATIONS
MASTER ENHANCED
S&P 500
SERIES For the Year Ended December 31, 2003
- -------------------------------------------------------------------------------------------------------------------
Investment Dividends (net of $1 foreign withholding tax) ................... $ 3,473,949
Income: Dividends from affiliates ....................................... 1,472
Interest ........................................................ 79,674
Securities lending-net .......................................... 1,169
-----------
Total income .................................................... 3,556,264
-----------
- -------------------------------------------------------------------------------------------------------------------
Expenses: Professional fees ............................................... $84,074
Accounting services ............................................. 33,218
Custodian fees .................................................. 30,214
Investment advisory fees ........................................ 19,923
Other ........................................................... 4,915
Printing and shareholder reports ................................ 3,189
Trustees' fees and expenses ..................................... 2,541
-------
Total expenses .................................................. 178,074
-----------
Investment income-net ........................................... 3,378,190
-----------
- -------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments-net ................................ 547,156
Unrealized Gain Change in unrealized appreciation/depreciation on investments-net 47,047,366
on Investments-Net: -----------
Total realized and unrealized gain on investments-net ........... 47,594,522
-----------
Net Increase in Net Assets Resulting from Operations ............ $50,972,712
===========
- -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
13-M
Master Enhanced S&P 500 Series, December 31, 2003
STATEMENTS OF CHANGES IN NET ASSETS
MASTER ENHANCED For the Year Ended December 31,
S&P 500 -------------------------------
SERIES Increase (Decrease) in Net Assets: 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Operations: Investment income-net ........................................... $ 3,378,190 $ 1,311,443
Realized gain (loss) on investments-net ......................... 547,156 (11,240,153)
Change in unrealized appreciation/depreciation on investments-net 47,047,366 (655,776)
------------- -------------
Net increase (decrease) in net assets resulting from operations . 50,972,712 (10,584,486)
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------
Capital Proceeds from contributions ..................................... 73,722,376 106,524,147
Transactions: Fair value of withdrawals ....................................... (14,812,247) (10,421,067)
------------- -------------
Net increase in net assets derived from capital transactions .... 58,910,129 96,103,080
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets .................................... 109,882,841 85,518,594
Beginning of year ............................................... 159,591,687 74,073,093
------------- -------------
End of year ..................................................... $ 269,474,528 $ 159,591,687
============= =============
- ------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
14-M
Master Enhanced S&P 500 Series, December 31, 2003
FINANCIAL HIGHLIGHTS
MASTER ENHANCED
S&P 500
SERIES
- ----------------------------------------------------------------------------------------------------------------------------
For the Period
The following ratios have For the Year Ended December 31, September 1, 2000+
been derived from information provided --------------------------------------------- to December 31,
in the financial statements. 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment 27.63% (21.61%) (11.67%) --
Return:** =========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement ........ .09% .08% .08% .08% *
Average Net =========== =========== =========== ===========
Assets: Expenses .............................. .09% .18% .20% .44% *
=========== =========== =========== ===========
Investment income-net ................. 1.70% 1.59% 1.36% 1.42% *
=========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $ 269,475 $ 159,592 $ 74,073 $ 41,184
Data: =========== =========== =========== ===========
Portfolio turnover .................... 78.62% 101.85% 136.32% 49.36%
=========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Annualized.
** Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
See Notes to Financial Statements.
15-M
Master Enhanced S&P 500 Series
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Master Enhanced S&P 500 Series (the "Series") is part of Quantitative Master
Series Trust (the "Trust"). The Trust is registered under the Investment Company
Act of 1940, as amended, and is organized as a Delaware statutory trust. The
Declaration of Trust permits the Trustees to issue nontransferable interest in
the Series, subject to certain limitations. The Series' financial statements are
prepared in conformity with accounting principles generally accepted in the
United States of America, which may require the use of management accruals and
estimates. The following is a summary of significant accounting policies
followed by the Series.
(a) Valuation of investments - Equity securities that are held by the Series
that are traded on stock exchanges or the Nasdaq National Market are valued at
the last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available ask
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Trustees of the Trust.
Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Trustees of the Trust. Short positions traded in the OTC market are valued at
the last available ask price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last ask price.
Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued daily based upon quotations from
market makers. Financial futures contracts and options thereon, which are traded
on exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the Series.
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 Series, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Trust's Board
of Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the New York Stock Exchange ("NYSE").
The values of such securities used in computing the net assets of the Portfolio
are determined as of such times. Foreign currency exchange rates also are
generally determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Series' 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.
16-M
(b) Derivative financial instruments - The Series may engage in various
portfolio investment strategies to provide liquidity or as a proxy for a direct
investment in securities underlying the Series' index. Losses may arise due to
changes in the value of the contract or if the counterparty does not perform
under the contract.
o Financial futures contracts - The Series may purchase or sell financial
futures contracts and options on such futures contracts as a proxy for a
direct investment in securities underlying the Series' index. 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 Series deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Series 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 Series as unrealized gains or losses. When the contract is
closed, the Series records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value
at the time it was closed.
o Swaps - The Series may enter into swap agreements, which are
over-the-counter contracts in which the Series and a counterparty agree to
make periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by a
pre-determined credit event. The net periodic payments may be based on a
fixed or variable interest rate; the change in market value of a specified
security, basket of securities, or index; or the return generated by a
security.
o Options - The Series may purchase and write covered call and put options.
When the Series writes an option, an amount equal to the premium received
by the Series 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 Series enters into a closing transaction),
the Series realizes a gain or loss on the option to the extent of the
premiums received or paid (or a gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts - The Series may enter into forward
foreign exchange contracts as a hedge against either specific transactions
or portfolio positions. The contract is marked-to-market daily and the
change in market value is recorded by the Series as an unrealized gain or
loss. When the contract is closed, the Series records a realized gain or
loss equal to the difference between the value at the time it was opened
and the value at the time it was closed.
o Foreign currency options and futures - The Series may also purchase or
sell listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-US dollar
denominated securities owned by the Series, sold by the Series but not yet
delivered, or committed or anticipated to be purchased by the Series.
(c) Foreign currency transactions - Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets and liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
17-M
(d) Income taxes - The Series is classified as a partnership for Federal income
tax purposes. As such, each investor in the Series is treated as owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Series. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends, and capital gains at various rates. It is
intended that the Series' assets will be managed so an investor in the Series
can satisfy the requirements of subchapter M of the Internal Revenue Code.
(e) 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.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Series has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Securities lending - The Series 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 Fund and any additional required collateral is delivered to the Fund on the
next business day Where the Series receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Series typically
receives the income on the loaned securities but does not receive the income on
the collateral. Where the Series 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 Series 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 Series could experience
delays and costs in gaining access to the collateral. The Series 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.
(g) Custodian bank - The Fund recorded an amount payable to the custodian bank
reflecting an overnight overdraft, which resulted from management estimates of
available cash.
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 Series' portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Series. For such services, the Series pays a monthly
fee at an annual rate of .01% of the Series' average daily net assets.
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"), a subsidiary of ML & Co., or its
affiliates. Pursuant to that order, the Trust also has retained Merrill Lynch
Investment Managers, LLC ("MLIM"), an affiliate of FAM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM may, on behalf of the Trust and the Series, invest cash
collateral received by the Series for such loans, among other things, in a
private investment company managed by MLIM or in registered money market funds
advised by FAM or its affiliates. For the year ended December 31, 2003, MLIM
received $480 in securities lending agent fees from the Series.
18-M
In addition, MLPF&S received $ 1,811 in commissions on the execution of
portfolio security transactions for the Series for the year ended December 31,
2003.
For the year ended December 31, 2003, the Series reimbursed FAM $3,917 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 2003 were $208,707,475 and $149,540,942, respectively.
Net realized gains (losses) for the year ended December 31, 2003 and net
unrealized gains as of December 31, 2003 were as follows:
================================================================================
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments .................. $(1,624,340) $44,700,541
Short sales ............................ -- 127
Financial futures contracts ............ 2,171,496 402,548
----------- -----------
Total .................................. $ 547,156 $45,103,216
=========== ===========
================================================================================
As of December 31, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $38,730,036, of which $39,545,392 related to appreciated
securities and $815,356 related to depreciated securities. At December 31, 2003,
the aggregate cost of investments for Federal income tax purposes was
$231,655,036.
4. Short-Term Borrowings:
The Series, along with certain other funds managed by FAM and its affiliates, is
a party to a $500,000,000 credit agreement with Bank One, N.A. and certain other
lenders. The Series may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The Series
may borrow up to the maximum amount allowable under the Series' current
prospectus and statement of additional information, subject to various other
legal, regulatory or contractual limits. The Series pays a commitment fee of
..09% per annum based on the Series' pro rata share of the unused portion of the
credit agreement. Amounts borrowed under the credit agreement bear interest at a
rate equal to, at each fund's election, the Federal Funds rate plus .50% or a
base rate as determined by Bank One, N.A. On November 28, 2003, the credit
agreement was renewed for one year under the same terms. The Series did not
borrow under the credit agreement during the year ended December 31, 2003.
19-M
INDEPENDENT AUDITORS' REPORT
To the Investors and Board of Trustees of
Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master Enhanced S&P 500 Series, one of the
portfolios constituting Quantitative Master Series Trust (the "Trust"), as of
December 31, 2003, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the respective
periods then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at December 31, 2003 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our 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
Enhanced S&P 500 Series of Quantitative Master Series Trust as of December 31,
2003, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the respective periods then ended, in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 20, 2004
20-M
Officers and Directors/Trustees (unaudited)
Number of
Portfolios Other
in Fund Public
Complex Directorships
Position(s) Length Overseen by Held by
Held with of Time Principal Occupation(s) During Past Director/ Director/
Name Address & Age Fund/Trust Served 5 Years Trustee Trustee
====================================================================================================================================
Interested Director/Trustee
====================================================================================================================================
Terry K. Glenn* P.O. Box 9011 President 2000 to President and Chairman of the 123 Funds None
Princeton, NJ and present Merrill Lynch Investment Managers, 160 Portfolios
08543-9011 Director/ and 1997 L.P. ("MLIM")/Fund Asset
Age: 63 Trustee to Management, L.P. ("FAM")--Advised
present Funds since 1999; Chairman
(Americas Region) of MLIM from
2000 to 2002; Executive Vice
President of FAM and MLIM (which
terms as used herein include their
corporate predecessors) from 1983
to 2002; President of FAM
Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof
from 1991 to 2002; Executive Vice
President and Director of
Princeton Services, Inc.
("Princeton Services") from 1993
to 2002; President of Princeton
Administrators, L.P. from 1989 to
2002; Director of Financial Data
Services, Inc. since 1985.
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which
FAM or MLIM acts as investment adviser. Mr. Glenn is an "interested person" as described in the Investment
Company Act, of the Fund based on his former positions with FAM, MLIM, FAMD, Princeton Services and Princeton
Administrators, L.P. The Director's/Trustee's term is unlimited. Directors/Trustees serve until their
resignation, removal, or death, or until December 31 of the year in which they turn 72. As Fund President, Mr.
Glenn serves at the pleasure of the Board of Directors/Trustees.
====================================================================================================================================
Independent Directors/Trustees*
====================================================================================================================================
Donald W. Burton P.O. Box 9095 Director/ 2002 to Manager of The Burton Partnership, 23 Funds ITC Delta-
Princeton, NJ Trustee present Limited Partnership since 1979; 36 Portfolios Com, Inc.,
08543-9095 Managing General Partner of the ITC
Age: 59 South Atlantic Venture Funds, Financial
Limited Partnerships and Chairman Services,
of South Atlantic Private Equity Knology,
Fund IV, Limited Partnership since Inc.,
1983; Member of the Investment PriCare,
Advisory Council of the Florida Inc.,
State Board of Administration Symbion,
since 2001. Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
M. Colyer Crum P.O. Box 9095 Director/ 2000 to James R. Williston Professor of 24 Funds Cambridge
Princeton, NJ Trustee present Investment Management Emeritus, 37 Portfolios Bancorp
08543-9095 Harvard Business School since
Age: 71 1996; Chairman and Director of
Phaeton International, Ltd. From
1985 to present; Director of
Cambridge Bancorp since 1969.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie Simon P.O. Box 9095 Director/ 2000 to Professor of Finance and 23 Funds None
Hodrick Princeton, NJ Trustee present Economics, Graduate 36 Portfolios
08543-9095 School of Business, Columbia
Age: 41 University since 1998; Associate
Professor of Finance and
Economics, Graduate School of
Business, Columbia University
from 1996 to 1998.
21-M
Officers and Directors/Trustees (unaudited) (concluded)
Number of
Portfolios
in Fund
Complex Other Public
Position(s) Length of Overseen by Directorships Held
Held with Time Principal Occupation(s) Director/ by Director/
Name Address & Age Fund/Trust Served During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees* (concluded)
====================================================================================================================================
David H. Walsh P.O. Box 9095 Director/ 2003 to Consultant with Putnam 23 Funds None
Princeton, NJ Trustee present Investments since 1993 36 Portfolios
08543-9095 and employed in various
Age: 62 capacities therewith
from 1971 to 1992;
Director of the
National Audubon
Society since 2000;
Director of the
American Museum of Fly
Fishing since 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. Weiss P.O. Box 9095 Director/ 2000 to Managing Director of 23 Funds Watson
Princeton, NJ Trustee present FGW Associates since 36 Portfolios Pharmaceuticals,Inc.
08543-9095 1997; Vice President,
Age: 62 Planning, Investment
and Development of
Warner Lambert Co. from
1979 to 1997; Director
of BTG International,
PLC since 2001; Inc.
Director of KIMC
Investment, Inc. since
2003; Director of
Osmotica Holdings Corp.
AVV since 2003
* The Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation, removal or death,
or until December 31 of the year in which they turn 72.
Position(s) Length of
Held with Time
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund/Trust Officers
====================================================================================================================================
Donald C. Burke P.O. Box 9011 Vice 1997 to First Vice President of FAM and MLIM since 1997 and
Princeton, NJ President present Treasurer thereof since 1999; Senior Vice President and
08543-9011 and and 1999 Treasurer of Princeton Services since 1999; Vice President
Age: 43 Treasurer to present of FAMD since 1999; Director of MLIM Taxation since 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. Doll, P.O. Box 9011 Senior Vice 1999 to President of MLIM and member of the Executive Management
Jr. Princeton, NJ President present Committee of ML & Co., Inc. since 2001; Global Chief
08543-9011 Investment Officer and Senior Portfolio Manager of MLIM
Age: 49 since 1999; Chief Investment Officer of Equities at
Oppenheimer Funds, Inc. from 1990 to 1999 and Chief
Investment Officer thereof from 1998 to 1999; Executive
Vice President of Oppenheimer Funds, Inc. from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Vella P.O. Box 9011 Vice 1999 to Managing Director and Head of Global Index and Enhanced
Princeton, NJ President present Index products for Merrill Lynch Quantitative Advisors
08543-9011 since 1999; Managing Director and Head of the Global Index
Age: 46 and Enhanced Index business at Bankers Trust from 1984 to
1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Brian D. Stewart P.O. Box 9011 Secretary 2003 to Vice President (Legal Advisory) of MLIM since 2002;
Princeton, NJ present Attorney with Reed Smith from 2001 to 2002; Attorney with
08543-9011 Saul Ewing from 1999 to 2001.
Age: 34
- ------------------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund/Trust serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
J.P. Morgan Chase Bank
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
22-M
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) Donald W.
Burton, (2) M. Colyer Crum, (3) Laurie Simon Hodrick, (4) David H.
Walsh and (5) Fred G. Weiss.
The registrant's board of directors has determined that Laurie Simon
Hodrick and M. Colyer Crum qualify as financial experts pursuant to
Item 3(c)(4) of Form N-CSR.
Ms. Hodrick has a thorough understanding of generally accepted
accounting principals, financial statements, and internal controls and
procedures for financial reporting. Ms. Hodrick earned a Ph.D. in
economics and has taught courses in finance for over 15 years. Her
M.B.A.-level course centers around the evaluation and analysis of
firms' corporate financial statements. She has also taught in financial
analysts' training programs. Ms. Hodrick has also worked with several
prominent corporations in connection with the analysis of financial
forecasts and projections and analysis of the financial statements of
those companies, serving on the Financial Advisory Council of one of
these major corporations. She has also served as the Treasurer and
Finance Chair of a 501(c)(3) organization. Ms. Hodrick has published a
number of articles in leading economic and financial journals and is
the associate editor of two leading finance journals.
M. Colyer Crum also possesses a thorough understanding of generally
accepted accounting principals, financial statements, and internal
controls and procedures for financial reporting through a combination
of education and experience. Professor Crum was a professor of
investment management at the Harvard Business School for 25 years. The
courses taught by Professor Crum place a heavy emphasis on the analysis
of underlying company financial statements with respect to stock
selection and the analysis of credit risk in making loans. Professor
Crum has also served on a number of boards of directors and has served
on the audit committees, and in some cases chaired the audit committee,
for several major corporations and financial institutions. For two such
organizations, Professor Crum has performed extensive investment
analysis of financial statements in connection with investment
management decisions. From these experiences, he has gained significant
experience with the establishment of reserves and accounting policies,
differences between U.S. GAAP and Canadian GAAP and executive
compensation issues.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - 2003 -- $30,900 2002 -- $31,400
(b) Audit-Related Fees - 2003 -- $0 2002 -- $0
(c) Tax Fees - 2003 -- $8,800 2002 -- $10,500
The nature of the services include tax compliance, tax
advice and tax planning.
(d) All Other Fees - 2003 -- $0 2002 -- $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 the
project as a whole. 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) N/A
(g) 2003 -- $18,690,437 2002 -- $17,012,158
(h) The registrant's audit committee has considered 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.
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Reserved
Item 9 - Controls and Procedures
9(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.
9(b) - There were no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Item 10 - Exhibits attached hereto
10(a) - Not Applicable
10(b) - 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.
Master Enhanced S&P 500 Series
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
Master Enhanced S&P 500 Series
Date: February 23, 2004
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/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
Master Enhanced S&P 500 Series
Date: February 23, 2004
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Master Enhanced S&P 500 Series
Date: February 23, 2004