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 811-07899
811-07885
Name of Fund: Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc.
Master Aggregate Bond Index Series of Quantitative Master Series
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, Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc. and
Master Aggregate Bond Index Series of Quantitative Master Series 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: 12/31/04
Date of reporting period: 01/01/04 - 12/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Aggregate Bond Index Fund
Of Merrill Lynch Index Funds, Inc.
Annual Report
December 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Aggregate Bond Index Fund
Important Tax Information
Of the ordinary income distributions paid monthly by Merrill Lynch Aggregate
Bond Index Fund, during the taxable year ended December 31, 2004, 8.07% was
attributable to federal obligations.
The law varies in each state as to whether and what percentage of dividend
income attributable to federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income taxes.
Additionally, the Fund distributed long-term capital gains of $.041670 per share
to shareholders of record on December 20, 2004.
Please retain this information for your records.
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.
2 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
A Letter From the President and Chief Investment Officer
Dear Shareholder
The U.S. equity market ended 2004 in positive territory, although not without
some suspense along the way. Fixed income markets also performed well, with high
yield bond investors enjoying some of the greatest returns.
Over the past year, the equity market generally found support from a healthy
economic environment, above-average corporate earnings, increased capital
spending and still-low interest rates. Stalling the momentum somewhat throughout
the year was a contentious election, negligible inflation amid a rising federal
funds interest rate, record-high oil prices and the seemingly ever-present
worries over terrorism and the war in Iraq.
Still, the Standard & Poor's 500 Index posted a 12-month return of +10.88% and a
six-month return of +7.19% as of December 31, 2004. The fourth quarter of the
year proved to be the most telling, as the S&P 500 Index was up only 1.51%
year-to-date as of September 30, 2004. As the price of oil relaxed and election
uncertainties subsided, the market headed more convincingly upward in the last
quarter of the year.
Given the relatively positive environment for equities, the favorable
performance of the bond market came as somewhat of a surprise. The Lehman
Brothers Aggregate Bond Index posted a 12-month return of +4.34% and a six-month
return of +4.18% as of December 31, 2004. The tax-exempt market performed just
as well, with a 12-month return of +4.48% and a six-month return of +5.19%, as
measured by the Lehman Brothers Municipal Bond Index. Those comfortable with a
higher degree of risk benefited this past year, as the Credit Suisse First
Boston High Yield Index posted a 12-month return of +11.95% and a six-month
return of +9.26%. Interestingly, as the Federal Reserve Board began raising its
target short-term interest rate, long-term bond yields were little changed. In
fact, the yield on the 10-year Treasury was 4.24% at year-end compared to 4.27%
at December 31, 2003. The yield on the two-year Treasury climbed to 3.08% at
year-end 2004 from 1.84% a year earlier.
As always, our investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-informed decisions
for the portfolios they manage. For the individual investor, the key to
investment success -- particularly during uncertain times -- is to maintain a
long-term perspective and adhere to the disciplines of asset allocation,
diversification and rebalancing. We encourage you to work with your financial
advisor to ensure these time-tested techniques are incorporated into your
investment plan.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the new year and beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Managers
We continued to invest in a statistically selected sample of bonds
correlated to the Lehman Brothers Aggregate Bond Index in an effort to offer
investors returns consistent with the broader investment grade bond market.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended December 31, 2004, Merrill Lynch Aggregate Bond
Index Fund's Class A and Class I Shares had total returns of +4.05% and +4.31%,
respectively. This compared to a return of +4.34% for the Fund's benchmark, the
Lehman Brothers Aggregate Bond Index, for the same period. (Complete performance
information can be found on pages 6 and 7 of this report to shareholders.)
Although the Fund uses a stratified sampling approach to mimic the composition
and performance of the Index, minimal total return tracking error is expected in
seeking to replicate the return of the benchmark. This often will account for
the variance in returns versus the Index.
The Lehman Brothers Aggregate Bond Index is comprised of three major investment
sectors: government and agency issues, agency-guaranteed mortgage-backed
securities (MBS) and investment grade corporate bonds. Sector weighting and
security selection in the Index are determined by the market representation that
each sector has in the overall market. For calendar year 2004, the corporate
bond sector of the Index was the best performer, with a return of +5.24%. As
interest rates began to rise, along with prospects of an improving economy,
corporate spreads tightened to their Treasury counterparts, lending support to
the credit sector. For the same period, the MBS sector returned +4.70%, as
spreads in this low duration sector tightened in sympathy with corporate bonds.
The government and agency sector returned +3.48% for the year.
These returns were realized in a range-bound trading environment, as economists
and investors monitored the economic data and Federal Reserve Board (the Fed)
language for signs of interest rate direction. Early in the period, the Fed
appeared poised to keep interest rates at historic lows, pledging patience in
its approach to rate increases in order to ensure the economy's strength. The
tenor changed somewhat as inflation seemed imminent and the labor environment --
the primary economic weak point -- improved. On June 30, the Fed made its first
move away from its accommodative policy stance, raising the target federal funds
rate from 1% to 1.25%. Four additional rate increases totaling 100 basis points
(1%) followed, bringing the federal funds rate to 2.25% at year-end. Over the
past 12 months, yields on the 10-year Treasury note ranged from a low of 3.68%
on March 16 to a high of 4.87% on June 14. Interestingly, the 10-year Treasury
note closed the year at 4.24%, only three basis points lower than where it
began.
How was the portfolio managed during the year?
The Fund seeks to replicate the total return, before expenses, of the unmanaged
Lehman Brothers Aggregate Bond Index, a widely accepted investment performance
benchmark comprised of dollar-denominated investment grade bonds of different
types. Because it is not practical or logistically possible to create a
portfolio with all of the Index positions, we construct a proxy portfolio
(Master Aggregate Bond Index Series) of far fewer securities that seeks to
duplicate the return of the benchmark.
4 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
The investments in the Series are determined by implementing stratified sampling
techniques. Through this approach, we select securities that collectively mimic
the investment characteristics of the Index at the sector and subsector levels.
At December 31, 2004, the Lehman Brothers Aggregate Bond Index was comprised of
5,836 securities. The Series was comprised of 490 individual investments
designed to match the market exposure and investment characteristics of the
Index.
What changes occurred in the Index, and the portfolio, during the year?
In seeking to provide returns that are representative of the bond market as a
whole, we track the sector and subsector weightings of our benchmark index
rather than maintaining a bias to any specific area of the market.
At December 31, 2004, the government and agency sector of the Lehman Brothers
Aggregate Bond Index was comprised of 695 securities, accounting for 35.69% of
the Index. This compared to 802 issues representing 33.73% of the benchmark at
December 31, 2003. The portfolio's position in this sector is designed to match
the duration, yield and convexity of its Index counterpart. As such, any change
in interest rates or the shape of the yield curve should have an identical
effect on the return of this sector.
The MBS sector included 2,272 securities and accounted for 39.51% of the Index
at December 31, 2004 versus 2,482 securities representing 39.91% of the Index at
December 31, 2003. The MBS sector of the portfolio has the same exposure to
30-year, 15-year and balloon MBS as the Index. Within these subsectors, exposure
to coupon and issuer also are matched to that of the Index in an effort to
duplicate the return of the Index's MBS sector with minimal deviation.
In the corporate sector, there were 2,869 securities representing 24.80% of the
Index at December 31, 2004, compared to 3,482 securities representing 26.36% of
the Index as of December 31, 2003. As with the government sector, we seek to
match investment characteristics in the portfolio's corporate sector with those
of the Index. However, in the corporate sector, we also seek to mirror the
credit rating and industry exposure of the benchmark.
How was the portfolio positioned at the close of the period?
We continued to use our stratified sampling techniques to create a proxy
portfolio of our benchmark and offer comparable returns. With that in mind, we
expect the portfolio to continue to meet its objective of providing fixed income
returns consistent with the broader market.
Jeffrey B. Hewson
Vice President and Portfolio Manager
January 12, 2005
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through two pricing
alternatives:
o Class A Shares do not incur an initial sales charge (front-end load) or
deferred sales charge and bear no ongoing distribution fee. In addition,
Class A Shares are subject to an ongoing account maintenance fee of 0.25%
(per year).
o Class I Shares do not incur an initial sales charge (front-end load) or
deferred sales charge and bear no ongoing distribution or account
maintenance fees. Class I Shares are available only to eligible investors.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
payable date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different levels
of account maintenance, distribution and transfer agency fees applicable to each
class, which are deducted from the income available to be paid to shareholders.
The Fund's adminis- trator voluntarily waived a portion of its administrative
fee. Without such waiver, the Fund's performance would have been lower.
Recent Performance Results
6-Month 12-Month Since Inception Standardized
As of December 31, 2004 Total Return Total Return Total Return 30-Day Yield
==================================================================================================================
ML Aggregate Bond Index Fund Class A Shares* +4.09% +4.05% +64.38% 3.64%
- ------------------------------------------------------------------------------------------------------------------
ML Aggregate Bond Index Fund Class I Shares* +4.22 +4.31 +67.57 3.90
- ------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index** +4.18 +4.34 +71.71 --
- ------------------------------------------------------------------------------------------------------------------
* Cumulative total investment returns are based on changes in net asset
values for the periods shown, and assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date. The
Fund's inception date is 4/03/97.
** This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds. Since inception total return
is from 4/03/97.
6 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Performance Data (concluded)
Total Return Based on a $10,000 Investment--Class A & Class I Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class I Shares compared to growth of an investment in the Lehman Brothers
Aggregate Bond Index. Values are from April 3, 1997 to December 2004.
4/03/97** 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04
ML Aggregate Bond Index
Fund+--Class A Shares* $10,000 $10,929 $11,832 $11,656 $12,961 $13,946 $15,286 $15,798 $16,438
ML Aggregate Bond Index
Fund+--Class I Shares* $10,000 $10,949 $11,883 $11,724 $13,082 $14,112 $15,492 $16,063 $16,757
4/30/97** 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04
Lehman Brothers Aggregate
Bond Index++ $10,000 $10,988 $11,943 $11,845 $13,222 $14,338 $15,808 $16,457 $17,171
* Assuming transaction costs and other operating expenses, including
advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Master Aggregate Bond Index Series
of Quantitative Master Series Trust. The Trust may invest in a
statistically selected sample of fixed income securities and other types
of financial instruments.
++ This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgaged-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and
investment-grade (rated BBB or better) corporate bonds. Past performance
is not predictive of future performance.
Average Annual Total Return
Class A Shares Return
================================================================================
One Year Ended 12/31/04 +4.05%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/04 +7.11
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/04 +6.63
- --------------------------------------------------------------------------------
Class I Shares Return
================================================================================
One Year Ended 12/31/04 +4.31%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/04 +7.40
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/04 +6.89
- --------------------------------------------------------------------------------
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on July 1, 2004 and held through
December 31, 2004) 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 July 1, 2004 to
July 1, 2004 December 31, 2004 December 31, 2004
==========================================================================================================
Actual
==========================================================================================================
Class A $1,000 $1,040.90 $3.11
- ----------------------------------------------------------------------------------------------------------
Class I $1,000 $1,042.20 $1.82
==========================================================================================================
Hypothetical (5% annual return before expenses)**
==========================================================================================================
Class A $1,000 $1,022.36 $3.08
- ----------------------------------------------------------------------------------------------------------
Class I $1,000 $1,023.63 $1.80
- ----------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.60% for Class A and .35% for Class I), multiplied by
the average account value over the period, multiplied by 186/366 (to
reflect the one-half year period shown). Because the Fund is a feeder
fund, the expense table example reflects the expenses of both the feeder
fund and the master series 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 366.
8 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Statement of Assets and Liabilities Merrill Lynch Aggregate Bond Index Fund
As of December 31, 2004
==============================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Investment in Master Aggregate Bond Index Series (the
"Series"), at value (identified cost--$390,650,655) ............... $ 400,090,999
Prepaid expenses ................................................... 21,404
-------------
Total assets ....................................................... 400,112,403
-------------
==============================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Payables:
Dividends and distributions to shareholders ..................... $ 2,468,326
Administrator ................................................... 71,651
Distributor ..................................................... 10,674 2,550,651
-------------
Accrued expenses and other liabilities ............................. 69,999
-------------
Total liabilities .................................................. 2,620,650
-------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets ......................................................... $ 397,491,753
=============
==============================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized ..................................... $ 440
Class I Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized ..................................... 3,248
Paid-in capital in excess of par ................................... 387,367,755
Accumulated distributions in excess of investment income--net ...... $ (37,041)
Undistributed realized capital gains allocated from the
Series--net ....................................................... 717,007
Unrealized appreciation allocated from the Series--net ............. 9,440,344
-------------
Total accumulated earnings--net .................................... 10,120,310
-------------
Net Assets ......................................................... $ 397,491,753
=============
==============================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $47,465,627 and 4,403,418
shares outstanding ................................................ $ 10.78
=============
Class I--Based on net assets of $350,026,126 and 32,475,441
shares outstanding ................................................ $ 10.78
=============
See Notes to Financial Statements.
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Statement of Operations Merrill Lynch Aggregate Bond Index Fund
For the Year Ended December 31, 2004
==============================================================================================================================
Investment Income Allocated from the Series--Net
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Series:
Interest ........................................................ $ 17,171,208
Securities lending--net ......................................... 66,795
Expenses ........................................................ (231,778)
-------------
Net investment income allocated from the Series .................... 17,006,225
-------------
==============================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------
Administration fees ................................................ $ 777,935
Transfer agent fees ................................................ 250,770
Account maintenance fees--Class A .................................. 147,038
Printing and shareholder reports ................................... 138,776
Registration fees .................................................. 35,591
Professional fees .................................................. 13,500
Directors' fees and expenses ....................................... 5,907
Other .............................................................. 16,221
-------------
Total expenses before waiver ....................................... 1,385,738
Waiver of expenses ................................................. (43,515)
-------------
Total expenses after waiver ........................................ 1,342,223
-------------
Investment income--net ............................................. 15,664,002
-------------
==============================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Series--Net
- ------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments, futures contracts and swaps
allocated from the Series--net .................................... 7,809,845
Change in unrealized appreciation on investments allocated
from the Series--net .............................................. (5,807,322)
-------------
Total realized and unrealized gain allocated from the
Series--net ....................................................... 2,002,523
-------------
Net Increase in Net Assets Resulting from Operations ............... $ 17,666,525
=============
See Notes to Financial Statements.
10 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Statements of Changes in Net Assets Merrill Lynch Aggregate Bond Index Fund
For the Year Ended
December 31,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
==============================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................. $ 15,664,002 $ 17,317,576
Realized gain allocated from the Series--net ....................... 7,809,845 3,656,667
Change in unrealized appreciation allocated from the
Series--net ....................................................... (5,807,322) (5,518,907)
-------------------------------
Net increase in net assets resulting from operations ............... 17,666,525 15,455,336
-------------------------------
==============================================================================================================================
Dividends & Distributions to Shareholders
- ------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ......................................................... (2,164,103) (2,458,643)
Class I ......................................................... (13,823,831) (15,084,612)
Realized gain--net:
Class A ......................................................... (698,074) --
Class I ......................................................... (5,123,432) --
-------------------------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ..................................... (21,809,440) (17,543,255)
-------------------------------
==============================================================================================================================
Capital Share Transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from capital
share transactions ................................................ (28,134,770) 9,837,669
-------------------------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................ (32,277,685) 7,749,750
Beginning of year .................................................. 429,769,438 422,019,688
-------------------------------
End of year* ....................................................... $ 397,491,753 $ 429,769,438
===============================
* Accumulated distributions in excess of investment income--net . $ (37,041) $ (106,150)
===============================
See Notes to Financial Statements.
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Financial Highlights Merrill Lynch Aggregate Bond Index Fund
Class A
-------------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. December 31,
-------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 10.91 $ 10.96 $ 10.50 $ 10.31 $ 9.86
-------------------------------------------------------------------
Investment income--net ............... .39** .41** .52** .58 .61
Realized and unrealized gain (loss)
allocated from the Series--net ...... .04 (.05) .46 .19 .45
-------------------------------------------------------------------
Total from investment operations ..... .43 .36 .98 .77 1.06
-------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.40) (.41) (.52) (.58) (.61)
Realized gain allocated from the
Series--net ...................... (.16) -- -- -- --
-------------------------------------------------------------------
Total dividends and distributions .... (.56) (.41) (.52) (.58) (.61)
-------------------------------------------------------------------
Net asset value, end of year ......... $ 10.78 $ 10.91 $ 10.96 $ 10.50 $ 10.31
===================================================================
===================================================================================================================================
Total Investment Return+
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 4.05% 3.35% 9.61% 7.60% 11.18%
===================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver* ............. .60% .60% .59% .60% .63%
===================================================================
Expenses* ............................ .61% .62% .61% .71% .70%
===================================================================
Investment income--net ............... 3.60% 3.70% 4.91% 5.50% 6.17%
===================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 47,466 $ 63,872 $ 61,029 $ 60,438 $ 65,339
===================================================================
Portfolio turnover of the Series ..... 159.44% 136.76% 112.18% 144.23% 43.24%
===================================================================
+ The Fund's administrator has agreed to waive a portion of its fees.
Without such waiver, the Fund's performance would have been lower.
* Includes the Fund's share of the Series' allocated expenses.
** Based on average shares outstanding.
See Notes to Financial Statements.
12 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Financial Highlights (concluded) Merrill Lynch Aggregate Bond Index Fund
Class I
-------------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. December 31,
-------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 10.91 $ 10.95 $ 10.50 $ 10.31 $ 9.85
-------------------------------------------------------------------
Investment income--net ............... .42** .43** .55** .61 .64
Realized and unrealized gain (loss)
allocated from the Series--net ...... .04 (.03) .45 .19 .46
-------------------------------------------------------------------
Total from investment operations ..... .46 .40 1.00 .80 1.10
-------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.43) (.44) (.55) (.61) (.64)
Realized gain allocated from the
Series--net ...................... (.16) -- -- -- --
-------------------------------------------------------------------
Total dividends and distributions .... (.59) (.44) (.55) (.61) (.64)
-------------------------------------------------------------------
Net asset value, end of year ......... $ 10.78 $ 10.91 $ 10.95 $ 10.50 $ 10.31
===================================================================
===================================================================================================================================
Total Investment Return+
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 4.31% 3.70% 9.78% 7.87% 11.57%
===================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver* ............. .35% .35% .34% .35% .38%
===================================================================
Expenses* ............................ .36% .37% .36% .46% .45%
===================================================================
Investment income--net ............... 3.85% 3.95% 5.16% 5.72% 6.41%
===================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $350,026 $365,898 $360,991 $324,390 $214,056
===================================================================
Portfolio turnover of the Series ..... 159.44% 136.76% 112.18% 144.23% 43.24%
===================================================================
+ The Fund's administrator has agreed to waive a portion of its fees.
Without such waiver, the Fund's performance would have been lower.
* Includes the Fund's share of the Series' allocated expenses.
** Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements Merrill Lynch Aggregate Bond Index Fund
1. Significant Accounting Policies:
Merrill Lynch Aggregate Bond Index Fund (the "Fund") is part of Merrill Lynch
Index Funds, Inc. (the "Corporation"). The Fund is registered under the
Investment Company Act of 1940, as amended, as a non-diversified mutual fund.
The Fund seeks to achieve its investment objective by investing all of its
assets in Master Aggregate Bond Index Series (the "Series") of the Quantitative
Master Series Trust, which has the same investment objective and strategy as the
Fund. The value of the Fund's investment in the Series reflects the Fund's
proportionate interest in the net assets of the Series. The performance of the
Fund is directly affected by the performance of the Series. The financial
statements of the Series, including the Schedule of Investments, are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements. The Fund's financial statements are prepared in conformity
with U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The percentage of the Series owned by the Fund at December 31, 2004
was 47.6%. The Fund offers two classes of shares. Shares of Class A and Class I
are sold without the imposition of a front-end or deferred sales charge. Both
classes of shares have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except that Class A Shares bear certain
expenses related to the account maintenance of such shares and have exclusive
voting rights with respect to matters relating to its account maintenance
expenditures. Income, expenses (other than expenses attributable to a specific
class) and realized and unrealized gains and losses are allocated daily to each
class based on its relative net assets. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investment in the Series at
fair value. Valuation of securities held by the Series is discussed in Note 1a
of the Series' 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 Series' income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Series are
accounted for on a trade date basis.
(g) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $393,041 has been reclassified between undistributed net realized capital
gains and accumulated distributions in excess of net investment income as a
result of permanent differences attributable to swap agreements and amortization
methods on fixed income securities. This reclassification has no effect on net
assets or net asset values per share.
2. Transactions with Affiliates:
The Corporation has entered into an Administration 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. The Fund pays a monthly fee at an annual
rate of .19% 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. FAM has entered into a
voluntary arrangement with the Fund under which expenses incurred by the Fund
(excluding account maintenance fees) will not exceed .35%. This arrangement has
a one-year term and is renewable. For the year ended December 31, 2004, FAM
earned fees of $777,935, of which $43,515 was waived.
The Corporation has also entered into a Distribution Agreement and Distribution
Plan with FAM Distributors, Inc. ("FAMD" or the "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc. Pursuant to the Distribution Plan
adopted by the Corporation in accordance with Rule 12b-1 under the Investment
Company Act of 1940, the Fund pays the Distributor an ongoing account
maintenance fee. The fee
14 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Notes to Financial Statements (concluded)
Merrill Lynch Aggregate Bond Index Fund
is accrued daily and paid monthly at the annual rate of .25% based upon the
average daily net assets of Class A Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance services to the Fund. The ongoing account maintenance fee
compensates the Distributor and MLPF&S for providing account maintenance
services to Class A shareholders.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was ($28,134,770) and $9,837,669 for the years ended December 31, 2004 and
December 31, 2003, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 1,470,677 $ 16,082,715
Shares issued to shareholders
in reinvestment of dividends
and distributions ................... 221,172 2,402,740
-------------------------------
Total issued ........................... 1,691,849 18,485,455
Shares redeemed ........................ (3,141,603) (34,369,324)
-------------------------------
Net decrease ........................... (1,449,754) $ (15,883,869)
===============================
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 2,487,650 $ 27,213,151
Shares issued to shareholders
in reinvestment of dividends ........ 184,332 2,017,562
-------------------------------
Total issued ........................... 2,671,982 29,230,713
Shares redeemed ........................ (2,389,100) (26,075,348)
-------------------------------
Net increase ........................... 282,882 $ 3,155,365
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended December 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 13,214,147 $ 144,088,117
Shares issued to shareholders
in reinvestment of dividends
and distributions ................... 1,185,213 12,870,982
-------------------------------
Total issued ........................... 14,399,360 156,959,099
Shares redeemed ........................ (15,459,780) (169,210,000)
-------------------------------
Net decrease ........................... (1,060,420) $ (12,250,901)
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended December 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 10,665,367 $ 116,847,001
Shares issued to shareholders
in reinvestment of dividends ........ 1,030,875 11,278,131
-------------------------------
Total issued ........................... 11,696,242 128,125,132
Shares redeemed ........................ (11,115,541) (121,442,828)
-------------------------------
Net increase ........................... 580,701 $ 6,682,304
===============================
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended December
31, 2004 and December 31, 2003 was as follows:
- --------------------------------------------------------------------------------
12/31/2004 12/31/2003
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ..................... $20,301,079 $17,543,255
Net long-term capital gains ......... 1,508,361 --
------------------------------
Total taxable distributions .............. $21,809,440 $17,543,255
==============================
As of December 31, 2004, the components of accumulated earnings on a tax basis
were as follows:
- -------------------------------------------------------------------------------
Undistributed ordinary income--net ........................ $ 726,780
Undistributed long-term capital gains--net ................ 554,224
-----------
Total undistributed earnings--net ......................... 1,281,004
Capital loss carryforward ................................. --
Unrealized gains--net ..................................... 8,839,306*
-----------
Total accumulated earnings--net ........................... $10,120,310
===========
* The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
tax deferral of losses on straddles and the difference between book and
tax amortization methods for premium and discounts on fixed income
securities.
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Report of Independent Registered Public Accounting Firm
Merrill Lynch Aggregate Bond Index Fund
To the Shareholders and Board of Directors of
Merrill Lynch Index Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Aggregate Bond Index Fund, one of the series constituting Merrill Lynch
Index Funds, Inc. (the "Fund"), as of December 31, 2004, 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 five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, 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
Merrill Lynch Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc. as of
December 31, 2004, 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 five years in the period then
ended, in conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 23, 2005
16 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Summary Schedule of Investments Master Aggregate Bond Index Series
This summary schedule of investments is presented to help investors focus on the
Series' principal holdings. It includes the Series' 50 largest holdings and each
investment of any issuer that exceeds 1% of the Series' net assets. "Other
Securities" represent all issues not required to be disclosed under the rules
adopted by the Securities and Exchange Commission. A complete schedule of
investments is available without charge, upon request, by calling 800-637-3863
or on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Interest Maturity Value Percent of
Issue Face Amount Rate Date(s) (in U.S. dollars) Net Assets
==================================================================================================================================
Government & Fannie Mae $ 8,625,000 3.875% 3/15/2005 $ 8,648,124 1.0%
Agency 15,790,000 5.25 6/15/2006 16,255,694 1.9
Obligations 31,785,000 2.625 11/15/2006 31,439,497 3.7
30,155,000 5.75 2/15/2008 32,120,865 3.8
11,260,000 2.50 6/15/2008 (c) 10,861,970 1.3
14,880,000 6.625 9/15/2009 16,614,621 2.0
29,055,000 6.625 11/15/2010 32,835,404 3.9
3,970,000 4.376 3/15/2013 3,959,138 0.5
2,340,000 4.625 - 7.25 10/15/2014 - 5/15/2030 2,713,974 0.3
-------------------------------------------------------------------------------------------------------------
Freddie Mac 7,640,000 4.875 3/15/2007 7,888,361 0.9
2,000,000 5.75 4/15/2008 2,135,698 0.3
8,750,000 4.875 11/15/2013 (c) 8,997,817 1.1
8,655,000 6.75 9/15/2029 10,466,673 1.3
4,330,000 5.75 - 7.18 6/27/2006 - 7/15/2032 4,821,862 0.7
-------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds 6,390,000 4.00 11/15/2012 6,379,265 0.8
14,665,000 8.75 5/15/2017 20,548,759 2.5
8,370,000 8.50 2/15/2020 11,812,815 1.4
6,080,000 8.125 8/15/2021 8,418,423 1.0
7,340,000 6.25 8/15/2023 8,593,246 1.0
3,075,000 6.375 8/15/2027 3,692,402 0.4
405,000 5.375 - 5.75 8/15/2010 - 2/15/2031 441,573 0.0
-------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes 27,135,000 5.75 11/15/2005 27,830,334 3.3
2,790,000 5.875 11/15/2005 2,864,220 0.3
7,645,000 3.00 11/15/2007 7,597,815 0.9
2,865,000 3.625 5/15/2013 2,776,251 0.3
-------------------------------------------------------------------------------------------------------------
Other Securities 1,567,261 0.2
-------------------------------------------------------------------------------------------------------------
Total Government & Agency Obligations (Cost--$286,607,376) 292,282,062 34.8
==================================================================================================================================
Government Agency Freddie Mac Mortgage 8,208,310 4.00 5/01/2019 - 1/01/2020 (f) 8,029,893 1.0
Mortgage-Backed Participation Certificates 31,173,272 4.50 2/01/2011 - 7/01/2019 (f) 31,153,431 3.7
Obligations* 26,954,308 5.00 11/01/2017 - 2/15/2020 (f) 27,392,429 3.3
47,631,658 5.00 4/01/2034 - 6/01/2034 47,332,518 5.6
8,821,027 5.50 8/01/2017 - 1/15/2020 (f) 9,121,146 1.1
68,601,000 5.50 2/15/2035 (f) 69,501,388 8.3
4,268,193 6.00 4/01/2016 - 10/01/2017 4,470,819 0.5
38,367,128 6.00 6/01/2033 - 9/01/2034 39,651,831 4.7
16,322,441 6.50 1/01/2026 - 9/01/2032 17,141,085 2.0
5,456,996 7.00 1/01/2020 - 11/01/2032 5,787,258 0.7
6,112,871 4.50 - 12.50 5/01/2007 - 6/01/2034 6,326,135 0.7
-------------------------------------------------------------------------------------------------------------
Ginnie Mae MBS Certificates 4,520,000 4.50 2/15/2035 (f) 4,397,110 0.5
5,600,000 5.00 1/15/2035 (f) 5,598,253 0.7
12,237,890 5.50 8/15/2033 - 1/15/2035 (f) 12,508,277 1.5
3,771,114 6.00 4/20/2026 - 4/15/2033 3,911,765 0.5
3,646,415 6.50 4/15/2026 - 5/15/2032 3,842,551 0.5
3,575,719 6.50 - 9.50 4/15/2013 - 3/15/2032 3,836,740 0.4
-------------------------------------------------------------------------------------------------------------
Other Securities 5,565,793 0.7
-------------------------------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed Obligations (Cost--$303,424,913) 305,568,422 36.4
=============================================================================================================
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Summary Schedule of Investments (continued) Master Aggregate Bond Index Series
Face Value Percent of
Amount Non-Government Agency Mortgage-Backed Securities* (in U.S. dollars) Net Assets
==========================================================================================================================
Commercial $19,190,206 CS First Boston Mortgage Securities Corp. Series
Mortgage-Backed 2004-FL1A Class A, 2.70% due 5/15/2014 (a)(b) $ 19,206,126 2.3%
Securities 20,000,000 Greenwich Capital Commercial Funding Corp. Series
2004-FL2A Class A2, 2.58% due 11/05/2019 (b) 20,006,250 2.4
20,000,000 JPMorgan Chase Commercial Mortgage Securities
Corp. Series 2004-FL1A Class A2, 2.587% due 4/16/2019 (b) 20,032,280 2.4
20,000,000 Lehman Brothers Floating Rate Commercial Mortgage
Trust Series 2004-LLFA Class A2, 2.65% due
10/15/2017 (a)(b) 20,044,622 2.3
15,000,000 Wachovia Bank Commercial Mortgage Trust Series 2004-WL4A
Class A2, 2.65% due 10/15/2015 (a)(b) 15,021,051 1.8
- --------------------------------------------------------------------------------------------------------------------------
Total Non-Government Agency Mortgage-Backed Securities
(Cost--$94,190,206) 94,310,329 11.2
==========================================================================================================================
==========================================================================================================================
Industry+ Fixed Income Securities
==========================================================================================================================
Banking 2,200,000 Bank of America Corp., 5.875% due 2/15/2009 2,361,841 0.3
Other Securities 19,876,353 2.4
---------------------------
22,238,194 2.7
- --------------------------------------------------------------------------------------------------------------------------
Financial Services Other Securities 32,960,811 3.9
- --------------------------------------------------------------------------------------------------------------------------
Financial Services-- 2,015,000 HSBC Finance Corp., 5.875% due 2/01/2009 2,153,203 0.3
Consumer Other Securities 1,764,960 0.2
---------------------------
3,918,163 0.5
- --------------------------------------------------------------------------------------------------------------------------
Foreign Government 2,240,000 Canada Government International Bond, 5.25% due 11/05/2008 2,368,081 0.3
Obligations Mexico Government International Bond:
1,920,000 9.875% due 2/01/2010 2,359,680 0.3
2,625,000 6.375% due 1/16/2013 2,795,625 0.3
3,000,000 Province of Ontario, 6% due 2/21/2006 3,094,041 0.4
Other Securities 8,882,602 1.0
---------------------------
19,500,029 2.3
- --------------------------------------------------------------------------------------------------------------------------
Industrial-- Other Securities 10,805,458 1.3
Consumer Goods
- --------------------------------------------------------------------------------------------------------------------------
Industrial--Energy Other Securities 9,622,464 1.1
- --------------------------------------------------------------------------------------------------------------------------
Industrial-- 2,205,000 General Electric Capital Corp., 6.75% due 3/15/2032 2,580,842 0.3
Manufacturing Other Securities 22,504,392 2.7
---------------------------
25,085,234 3.0
- --------------------------------------------------------------------------------------------------------------------------
Industrial--Other Other Securities 15,993,338 1.9
- --------------------------------------------------------------------------------------------------------------------------
Industrial--Services Other Securities 23,177,083 2.8
- --------------------------------------------------------------------------------------------------------------------------
Utilities--Communications Other Securities 15,109,263 1.8
- --------------------------------------------------------------------------------------------------------------------------
Utilities--Electric & Gas Other Securities 10,795,687 1.3
- --------------------------------------------------------------------------------------------------------------------------
Yankee Corporates Other Securities 13,896,381 1.6
- --------------------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities (Cost--$194,965,000) 203,102,105 24.2
==========================================================================================================================
Capital Trusts
==========================================================================================================================
Banking Other Securities 256,326 0.0
- --------------------------------------------------------------------------------------------------------------------------
Yankee Corporates Other Securities 83,362 0.0
- --------------------------------------------------------------------------------------------------------------------------
Total Capital Trusts (Cost--$327,290) 339,688 0.0
==========================================================================================================================
18 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Summary Schedule of Investments (concluded) Master Aggregate Bond Index Series
Value Percent of
State Municipal Bonds (in U.S. dollars) Net Assets
==========================================================================================================================
Illinois Other Securities $ 672,399 0.1%
- --------------------------------------------------------------------------------------------------------------------------
Texas Other Securities 253,147 0.0
- --------------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$886,251) 925,546 0.1
==========================================================================================================================
Face
Amount Short-Term Securities
==========================================================================================================================
U.S. Government $16,800,000 Federal Home Loan Banks, 1% due 1/03/2005 16,800,000 2.0
Agency Obligations**
- --------------------------------------------------------------------------------------------------------------------------
Shares
Held
==========================================================================================================================
12,139,250 Merrill Lynch Premier Institutional Fund (d)(e) 12,139,250 1.4
- --------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost--$28,939,250) 28,939,250 3.4
==========================================================================================================================
Total Investments (Cost--$909,340,286***) 925,467,402 110.1
Liabilities in Excess of Other Assets (85,246,216) (10.1)
---------------------------
Net Assets $840,221,186 100.0%
===========================
"Other Securities" represent issues that are not identified as the largest
50 holdings of the Series and issues not exceeding 1% of net assets.
+ 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.
* Mortgage-Backed Securities are subject to principal paydowns as a result
of prepayments or refinancing of the underlying mortgage instruments. As a
result, the average life may be substantially less than the original
maturity.
** Certain U.S. Government Agency Obligations are traded on a discount basis;
the interest rate shown reflects the discount rate paid at the time of
purchase by the Series.
*** The cost and unrealized appreciation/depreciation of investments as of
December 31, 2004, as computed for federal income tax purposes, were as
follows:
Aggregate cost ....................................... $909,781,793
============
Gross unrealized appreciation ........................ $ 17,285,769
Gross unrealized depreciation ........................ (1,600,160)
----------
Net unrealized appreciation .......................... $ 15,685,609
============
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Floating rate note.
(c) Security, or a portion of security, is on loan.
(d) 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) were as follows:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Money Market Series -- $ 4,150
Merrill Lynch Premier
Institutional Fund (113,997,750) $139,299
--------------------------------------------------------------------------
(e) Security was purchased with the cash proceeds from securities loans.
(f) Represents or includes a "to-be-announced" (TBA) transaction. The Series
has committed to purchase securities for which all specific information is
not available at this time.
Swaps outstanding as of December 31, 2004 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Receive (pay) a variable return based
on the change in the Lehman Brothers
CMBS Investment Grade Index Total
Return and pay a floating rate based on
1-month USD LIBOR, minus .20%
Broker, JPMorgan Chase Bank
Expires March 2005 $26,000,000 --
--------------------------------------------------------------------------
See Notes to Financial Statements.
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Master Aggregate Bond Index Series
As of December 31, 2004
==============================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including
securities loaned of $11,896,070) (identified
cost--$897,201,036) ............................................... $ 913,328,152
Investments in affiliated securities, at value (identified
cost--$12,139,250) ................................................ 12,139,250
Cash ............................................................... 16,778,531
Receivables:
Securities sold ................................................. $ 75,088,157
Interest ........................................................ 7,958,644
Contributions ................................................... 1,482,484
Swaps ........................................................... 150,367
Securities lending .............................................. 6,466
Paydowns ........................................................ 3,486 84,689,604
-------------
Prepaid expenses ................................................... 2,707
-------------
Total assets ....................................................... 1,026,938,244
-------------
==============================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value .......................... 12,139,250
Payables:
Securities purchased ............................................ 174,101,760
Withdrawals ..................................................... 379,786
Other affiliates ................................................ 17,375
Investment adviser .............................................. 8,098 174,507,019
-------------
Accrued expenses and other liabilities ............................. 70,789
-------------
Total liabilities .................................................. 186,717,058
-------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets ......................................................... $ 840,221,186
-------------
==============================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------
Investors' capital ................................................. $ 824,094,070
Unrealized appreciation--net ....................................... 16,127,116
-------------
Net Assets ......................................................... $ 840,221,186
=============
See Notes to Financial Statements.
20 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Statement of Operations Master Aggregate Bond Index Series
For the Year Ended December 31, 2004
==============================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Interest ........................................................... $ 36,826,917
Securities lending--net ............................................ 143,449
-------------
Total income ....................................................... 36,970,366
-------------
==============================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------
Professional fees .................................................. $ 140,975
Accounting services ................................................ 130,865
Investment advisory fees ........................................... 88,065
Custodian fees ..................................................... 81,640
Pricing fees ....................................................... 21,054
Trustees' fees and expenses ........................................ 8,985
Printing and shareholder reports ................................... 2,901
Other .............................................................. 22,463
-------------
Total expenses ..................................................... 496,948
-------------
Investment income--net ............................................. 36,473,418
-------------
==============================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- ------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ................................................ 7,999,257
Futures contracts and swaps--net ................................ 732,533 8,731,790
-------------
Change in unrealized appreciation on investments--net .............. (5,490,473)
-------------
Total realized and unrealized gain--net ............................ 3,241,317
-------------
Net Increase in Net Assets Resulting from Operations ............... $ 39,714,735
=============
See Notes to Financial Statements.
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Master Aggregate Bond Index Series
For the Year Ended
December 31,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
==============================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................. $ 36,473,418 $ 33,979,325
Realized gain--net ................................................. 8,731,790 2,279,499
Change in unrealized appreciation--net ............................. (5,490,473) (5,378,419)
-------------------------------
Net increase in net assets resulting from operations ............... 39,714,735 30,880,405
-------------------------------
==============================================================================================================================
Capital Transactions
- ------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ........................................ 160,170,832 357,719,192
Fair value of withdrawals .......................................... (242,691,266) (222,140,755)
-------------------------------
Net increase (decrease) in net assets derived from
capital transactions .............................................. (82,520,434) 135,578,437
-------------------------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................ (42,805,699) 166,458,842
Beginning of year .................................................. 883,026,885 716,568,043
-------------------------------
End of year ........................................................ $ 840,221,186 $ 883,026,885
===============================
See Notes to Financial Statements.
22 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Financial Highlights Master Aggregate Bond Index Series
For the Year Ended December 31,
The following ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. 2004 2003 2002 2001 2000
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return .............. 4.58% 3.92% 10.13% 8.07% --
===================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. .06% .06% .08% .13% .14%
===================================================================
Investment income--net ............... 4.13% 4.22% 5.37% 5.93% 6.62%
===================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $840,221 $883,027 $716,568 $466,151 $308,345
===================================================================
Portfolio turnover ................... 159.44% 136.76% 112.18% 144.23% 43.24%
===================================================================
* Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
See Notes to Financial Statements.
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 23
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements Master Aggregate Bond Index Series
1. Significant Accounting Policies:
Master Aggregate Bond Index 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 interests in
the Series, subject to certain limitations. The Series' financial statements are
prepared in conformity with U.S. generally accepted accounting principles, which
may require the use of management accruals and estimates. Actual results may
differ from these estimates. The following is a summary of significant
accounting policies followed by the Series.
(a) Valuation of investments -- Debt securities are traded primarily in the
over-the-counter markets and are valued at the last available bid price in the
over-the-counter market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Trust under the general direction
of the Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust. Financial futures contracts
and options thereon, which are traded on exchanges, are valued at their closing
prices as of the close of such exchanges. Options written or purchased are
valued at the last sales price in the case of exchange-traded options. In the
case of options traded in the over-the-counter ("OTC") market, valuation is the
last asked price (options written) or the last bid price (options purchased).
Swap agreements are valued by quoted fair valuations received daily by the
Series from the counterparty. Short-term investments with a remaining maturity
of 60 days or less are valued at amortized cost, which approximates market
value, under which method the investment is valued at cost and any premium or
discount is amortized on a straight line basis to maturity. Repurchase
agreements are valued at cost plus accrued interest. Investments in open-end
investment companies are valued at their net asset value each business day.
Securities and other 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.
Equity securities that are held by the Series, which are traded on stock
exchanges or the Nasdaq National Market, are valued at the last sale price or
official close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available 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 OTC market, Nasdaq Small Cap or Bulletin Board are
valued at the last available bid price obtained from one or more dealers or
pricing services approved by the Board of Trustees of the Trust. Short positions
traded in the OTC market are valued at the last available asked price. Portfolio
securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The value of such securities used in computing the net asset value of
the Series' shares 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 asset value. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may be valued
at their fair value as determined in good faith by the Trust's Board of Trustees
or by the Investment Adviser using a pricing service and/or procedures approved
by the Trust's Board of Trustees.
(b) Derivative financial instruments -- The Series may engage in various
portfolio investment techniques 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.
24 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Notes to Financial Statements (continued) Master Aggregate Bond Index Series
o Financial futures contracts -- The Series may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the
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 the 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 Options -- The Series may purchase and write 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 that the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Swaps -- The Series may enter into swap agreements, which are
over-the-counter contracts in which the Fund and a counterparty agree to
make periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by a
predetermined credit event. The net periodic payments may be based on a
fixed or variable interest rate; the change in market value of a specified
security, basket of securities, or index; or the return generated by a
security.
(c) 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. 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.
(d) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Series amortizes all premiums and discounts on debt securities.
(e) Dollar rolls -- The Series may sell securities for delivery in the current
month and simultaneously contract to repurchase substantially similar (same
type, coupon and maturity) securities on a specific future date.
(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 Series and any additional required collateral is delivered to the Series 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 investments, 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.
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 25
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded) Master Aggregate Bond Index Series
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 average daily value of the Series' 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. As of December 31, 2004, the Series lent securities with a value of
$9,839,430 to MLPF&S or its affiliates. Pursuant to that order, the Series also
has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), 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, LLC may, on behalf of the
Series, invest cash collateral received by the Series for such loans, among
other things, in a private investment company managed by MLIM, LLC or in
registered money market funds advised by FAM or its affiliates. For the year
ended December 31, 2004, MLIM, LLC received $60,677 in securities lending agent
fees.
For the year ended December 31, 2004, the Series reimbursed FAM $18,523 for
certain accounting services.
Merrill Lynch Trust Company ("MLTC"), a wholly-owned subsidiary of ML & Co., is
the Series' custodian.
Certain officers and/or trustees of the Series are officers and/or directors of
FAM, PSI, MLTC, and/or ML & Co.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the year ended December 31, 2004 were $1,438,310,520 and
$1,403,573,816, respectively.
4. Short-Term Borrowings:
The Trust, on behalf of the Series, along with certain other funds managed by
FAM and its affiliates, is a party to a $500,000,000 credit agreement with a
group of 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 .07% 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 Series' election, the federal funds rate plus .50%
or a base rate as defined in the credit agreement. The Series did not borrow
under the credit agreement during the year ended December 31, 2004. On November
26, 2004, the credit agreement was renewed for one year under substantially the
same terms.
26 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Report of Independent Registered Public Accounting Firm
Master Aggregate Bond Index Series
To the Investors and Board of Trustees of
Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the summary schedule of investments, of Master Aggregate Bond Index Series, one
of the portfolios constituting the Quantitative Master Series Trust (the
"Trust"), as of December 31, 2004, 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
five years in the period 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2004, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. 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
Aggregate Bond Index Series of the Quantitative Master Series Trust as of
December 31, 2004, 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 five years in the period then
ended, in conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 23, 2005
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 27
[LOGO] Merrill Lynch Investment Managers
Officers and Directors/Trustees
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Director/Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President and Chairman of the Merrill Lynch Invest- 124 Funds None
Glenn* Princeton, NJ and present ment Managers, L.P. ("MLIM")/Fund Asset 163 Portfolios
08543-9011 Director/ Management, L.P. ("FAM")-advised funds since
Age: 64 Trustee 1999; Chairman (Americas Region) of MLIM from
2000 to 2002; Executive Vice President of MLIM
and FAM (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 MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person" as described in the Investment Company Act, of
the Fund based on his present and former positions with MLIM, FAM, 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. P.O. Box 9095 Director/ 2002 to General Partner of The Burton Partnership, Limited 23 Funds ITC Delta-
Burton Princeton, NJ Trustee present Partnership (an investment Partnership) since 1979; 42 Portfolios Com, Inc.,
08543-9095 Managing General Partner of the South Atlantic Knology,
Age: 60 Venture Funds since 1983; Member of the Investment Inc.,
Advisory Committee of the Florida State Board of Symbion, Inc.
Administration since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
M. Colyer P.O. Box 9095 Director/ 2000 to James R. Williston Professor of Investment 24 Funds Cambridge
Crum Princeton, NJ Trustee present Management Emeritus, Harvard Business 43 Portfolios Bancorp
08543-9095 School since 1996; James R. Williston Professor
Age: 72 of Investment Management, Harvard Business
School from 1971 to 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie P.O. Box 9095 Director/ 2000 to Professor of Finance and Economics, Graduate 23 Funds None
Simon Princeton, NJ Trustee present School of Business, Columbia University since 1998. 42 Portfolios
Hodrick 08543-9095
Age: 42
- ------------------------------------------------------------------------------------------------------------------------------------
David H. P.O. Box 9095 Director/ 2003 to Consultant with Putnam Investments from 1993 23 Funds None
Walsh Princeton, NJ Trustee present to 2003 and employed in various capacities 42 Portfolios
08543-9095 therewith from 1973 to 1992; Director, The National
Age: 63 Audubon Society since 1998; Director, The American
Museum of Fly Fishing since 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. P.O. Box 9095 Director/ 2000 to Managing Director of FGW Advisors, Inc. since 1997; 23 Funds Watson
Weiss Princeton, NJ Trustee present Vice President, Planning, Investment and Devel- 42 Portfolios Pharma
08543-9095 opment of Warner Lambert Co. from 1979 to 1997; ceuticals,
Age: 63 Director of the Michael J. Fox Foundation for Inc.
Parkinson's Research since 2000; Director of
BTG International Plc (a global technology
commercialization company) since 2001.
------------------------------------------------------------------------------------------------------------------------
* 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.
28 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Officers and Directors/Trustees (concluded)
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. P.O. Box 9011 Vice 1997 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and and since 2004; Vice President of FAMD since 1999; Vice President of MLIM and FAM from
Age: 44 Treasurer 1999 to 1990 to 1997; Director of Taxation of MLIM from 1990 to 2001.
present
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 Senior Vice 1999 to President of MLIM/FAM-advised funds since 2005; President of MLIM and FAM since
Doll, Jr. Princeton, NJ President present 2001; Co-Head (Americas Region) thereof from 2000 to 2001 and Senior Vice President
08543-9011 from 1999 to 2001; President and Director of Princeton Services, Inc. since 2001;
Age: 50 President of Princeton Administrators, L.P. since 2001; Chief Investment Officer of
Oppenheimer Funds, Inc. from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey B. P.O. Box 9011 Vice 1999 to Director (Global Fixed Income) of MLIM since 2000; Vice President of MLIM from
Hewson Princeton, NJ President present 1994 to 2000.
08543-9011
Age: 53
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM since 2004; Global Director of Compliance at
08543-9011 Officer Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 53 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer
at Prudential Financial from 1995 to 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Secretary of MLIM, FAM, FAMD and Princeton Services since 2004; Director (Legal
Pellegrino Princeton, NJ present Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to 2002; Attorney
08543-9011 associated with MLIM since 1997.
Age: 44
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund/Trust serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
Merrill Lynch Trust Company, FSB
1300 Merrill Lynch Drive
3rd Floor -- MSC 0303
Pennington, NJ 08534
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- --------------------------------------------------------------------------------
Effective January 1, 2005, Terry K. Glenn, President and Director/Trustee and M.
Colyer Crum, Director/ Trustee of Merrill Lynch Index Funds, Inc. and
Quantitative Master Series Trust retired. The Fund's/Trust's Board of
Directors/Trustees wishes Mr. Glenn and Professor Crum well in their
retirements.
Effective January 1, 2005, Robert C. Doll, Jr. became Executive Vice President
and Chief Executive Officer of the Fund and the Trust.
- --------------------------------------------------------------------------------
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 29
[LOGO] Merrill Lynch Investment Managers
Portfolio Information
The quality ratings of securities in the Series as of December 31, 2004 were as
follows:
================================================================================
Percent of
S&P Rating/Moody's Rating Total Investments
- --------------------------------------------------------------------------------
AAA/Aaa ............................................... 76.2%
AA/Aa ................................................. 4.6
A/A ................................................... 8.2
BBB/Baa ............................................... 7.8
Other* ................................................ 3.2
- --------------------------------------------------------------------------------
* Includes investments in short-term securities.
30 MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must regis-ter your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH AGGREGATE BOND INDEX FUND DECEMBER 31, 2004 31
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Index Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
#Index 1 -- 12/04
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) John F.
O'Brien (as of November 22, 2004), (5) David H. Walsh and (6) 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
Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc.
(a) Audit Fees - Fiscal Year Ending December 31, 2004 - $6,200
Fiscal Year Ending December 31, 2003 - $6,000
Master Aggregate Bond Index Series of Quantitative Master Series Trust
(a) Audit Fees - Fiscal Year Ending December 31, 2004 - $40,500
Fiscal Year Ending December 31, 2003 - $40,000
Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc.
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2004 - $0
Fiscal Year Ending December 31, 2003 - $0
Master Aggregate Bond Index Series of Quantitative Master Series Trust
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2004 - $0
Fiscal Year Ending December 31, 2003 - $12,000
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc.
(c) Tax Fees - Fiscal Year Ending December 31, 2004 - $5,200
Fiscal Year Ending December 31, 2003 - $8,900
The nature of the services include tax compliance, tax advice and tax
planning.
Master Aggregate Bond Index Series of Quantitative Master Series Trust
(c) Tax Fees - Fiscal Year Ending December 31, 2004 - $20,000
Fiscal Year Ending December 31, 2003 - $15,000
The nature of the services include tax compliance, tax advice and tax
planning.
Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc.
(d) All Other Fees - Fiscal Year Ending December 31, 2004 - $0
Fiscal Year Ending December 31, 2003 - $0
Master Aggregate Bond Index Series of Quantitative Master Series Trust
(d) All Other Fees - Fiscal Year Ending December 31, 2004 - $0
Fiscal Year Ending December 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending December 31, 2004 - $11,926,355
Fiscal Year Ending December 31, 2003 - $18,621,495
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON DETAILED SCHEDULE OF
INVESTMENTS
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements of Master
Aggregate Bond Index Series (the "Series"), one of the portfolios constituting
the Quantitative Master Series Trust (the "Trust") as of December 31, 2004, and
for the year then ended and have issued our report thereon dated February ,
2005, which report and financial statements are included in Item 1 of this
Certified Shareholder Report on Form N-CSR. Our audit also included the Series'
schedule of investments (the "Schedule") as of December 31, 2004 appearing in
Item 6 of this Form N-CSR. This Schedule is the responsibility of the Trust's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, the Schedule referred to above, when considered in relation to the
basic financial statements taken as a whole of the Series referred to above,
presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
February 23, 2005
Master Aggregate Bond Index Series
Schedule of Investments as of December 31, 2004 (in U.S. dollars)
Face Interest Maturity
Issue Amount Rate Date(s) Value
- ------------------------------------------------------------------------------------------------------------------------------------
Government & Fannie Mae $ 8,625,000 3.875 % 3/15/2005 $ 8,648,124
Agency Obligations - 15,790,000 5.25 6/15/2006 16,255,694
34.8% 31,785,000 2.625 11/15/2006 31,439,497
30,155,000 5.75 2/15/2008 32,120,865
11,260,000 2.50 6/15/2008 (d) 10,861,970
14,880,000 6.625 9/15/2009 16,614,621
29,055,000 6.625 11/15/2010 32,835,404
3,970,000 4.376 3/15/2013 3,959,138
1,000,000 4.625 10/15/2014 1,000,751
1,340,000 7.25 5/15/2030 1,713,223
--------------------------------------------------------------------------------------------------------------
Freddie Mac 1,245,000 7.18 6/27/2006 1,318,565
7,640,000 4.875 3/15/2007 7,888,361
2,000,000 5.75 4/15/2008 2,135,698
1,240,000 6.625 9/15/2009 1,386,743
8,750,000 4.875 11/15/2013 (d) 8,997,817
8,655,000 6.75 9/15/2029 10,466,673
1,845,000 6.25 7/15/2032 2,116,554
--------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority 1,390,000 6.25 12/15/2017 1,567,261
--------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds 185,000 5.75 8/15/2010 203,681
6,390,000 4.00 11/15/2012 6,379,265
14,665,000 8.75 5/15/2017 20,548,759
8,370,000 8.50 2/15/2020 11,812,815
6,080,000 8.125 8/15/2021 8,418,423
7,340,000 6.25 8/15/2023 8,593,246
3,075,000 6.375 8/15/2027 3,692,402
220,000 5.375 2/15/2031 237,892
--------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes 27,135,000 5.75 11/15/2005 27,830,334
2,790,000 5.875 11/15/2005 2,864,220
7,645,000 3.00 11/15/2007 7,597,815
2,865,000 3.625 5/15/2013 2,776,251
--------------------------------------------------------------------------------------------------------------
Total Government & Agency Obligations
(Cost - $286,607,376) - 34.8% 292,282,062
- ------------------------------------------------------------------------------------------------------------------------------------
Government Agency Fannie Mae Guaranteed 750,278 5.50 6/01/2011 - 2/01/2019 776,346
Mortgage-Backed Pass-Through Certificates 972,361 6.00 2/01/2013 - 6/01/2015 1,020,898
Obligations* - 36.4% 687,187 6.50 1/01/2013 - 5/01/2016 729,289
1,418,268 6.50 12/01/2025 - 1/01/2030 1,490,333
473,590 7.00 4/01/2027 - 3/01/2031 502,865
412,687 7.50 10/01/2027 - 5/01/2032 442,453
16,334 8.00 9/01/2015 17,372
376,526 8.00 11/01/2029 - 9/01/2031 408,527
33,446 8.50 5/01/2030 - 1/01/2031 36,423
74,350 9.50 7/01/2017 83,772
36,232 10.00 10/01/2018 - 5/01/2022 40,205
15,755 10.50 12/01/2016 17,310
--------------------------------------------------------------------------------------------------------------
Freddie Mac Mortgage 8,208,310 4.00 5/01/2019 - 1/01/2020 (g) 8,029,893
Participation Certificates 31,173,272 4.50 2/01/2011 - 7/01/2019 (g) 31,153,431
2,180,274 4.50 4/01/2034 - 6/01/2034 2,107,086
26,954,308 5.00 11/01/2017 - 2/15/2020 (g) 27,392,429
47,631,658 5.00 4/01/2034 - 6/01/2034 47,332,518
8,821,027 5.50 8/01/2017 - 1/15/2020 (g) 9,121,146
68,601,000 5.50 2/15/2035 (g) 69,501,388
4,268,193 6.00 4/01/2016 - 10/01/2017 4,470,819
38,367,128 6.00 6/01/2033 - 9/01/2034 39,651,831
901,258 6.50 4/01/2015 - 5/01/2017 954,407
16,322,441 6.50 1/01/2026 - 9/01/2032 17,141,085
637,281 7.00 1/01/2011 - 7/01/2017 675,557
5,456,996 7.00 1/01/2020 - 11/01/2032 5,787,258
216,940 7.50 5/01/2007 - 4/01/2016 229,836
1,181,218 7.50 1/01/2023 - 9/01/2032 1,267,173
518,054 8.00 11/01/2024 - 3/01/2032 562,529
70,273 8.50 5/01/2028 - 8/01/2030 76,971
16,149 9.00 9/01/2014 17,730
219,899 9.50 2/01/2019 246,301
65,615 10.00 3/01/2010 - 9/01/2017 71,230
52,060 10.50 4/01/2016 56,784
15,049 11.00 9/01/2016 - 3/01/2018 16,716
7,044 11.50 8/01/2015 7,836
31,757 12.50 2/01/2014 35,979
--------------------------------------------------------------------------------------------------------------
Ginnie Mae MBS Certificates 4,520,000 4.50 2/15/2035 (g) 4,397,110
5,600,000 5.00 1/15/2035 (g) 5,598,253
12,237,890 5.50 8/15/2033 - 1/15/2035 (g) 12,508,277
3,771,114 6.00 4/20/2026 - 4/15/2033 3,911,765
69,354 6.50 2/15/2014 - 5/15/2014 73,983
3,646,415 6.50 4/15/2026 - 5/15/2032 3,842,551
31,303 7.00 4/15/2013 33,355
1,925,610 7.00 7/15/2027 - 10/15/2031 2,048,296
858,483 7.50 3/15/2024 - 3/15/2032 923,067
413,989 8.00 12/15/2022 - 6/15/2031 450,549
120,104 8.50 11/15/2017 - 3/15/2031 131,440
143,986 9.00 4/15/2018 - 11/15/2024 161,491
12,893 9.50 9/15/2021 14,559
--------------------------------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed Obligations
(Cost - $303,424,913) - 36.4% 305,568,422
--------------------------------------------------------------------------------------------------------------
Master Aggregate Bond Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Face
Amount Non-Government Agency Mortgage-Backed Securities* Value
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial $ 19,190,206 CS First Boston Mortgage Securities Corp. Series 2004-FL1A Class A,
Mortgage-Backed 2.70% due 5/15/2014 (a)(c) $ 19,206,126
Securities - 11.2% 20,000,000 Greenwich Capital Commercial Funding Corp. Series 2004-FL2A Class A2,
2.58% due 11/05/2019 (c) 20,006,250
20,000,000 JPMorgan Chase Commercial Mortgage Securities Corp. Series 2004-FL1A
Class A2, 2.587% due 4/16/2019 (c) 20,032,280
20,000,000 Lehman Brothers Floating Rate Commercial Mortgage Trust Series 2004-LLFA
Class A2, 2.65% due 10/15/2017 (a)(c) 20,044,622
15,000,000 Wachovia Bank Commercial Mortgage Trust Series 2004-WL4A Class A2,
2.65% due 10/15/2015 (a)(c) 15,021,051
- -----------------------------------------------------------------------------------------------------------------------------------
Total Non-Government Agency Mortgage-Backed Securities 94,310,329
(Cost - $94,190,206) - 11.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Industry+ Fixed Income Securities
- -----------------------------------------------------------------------------------------------------------------------------------
Banking - 2.7% 525,000 BB&T Corp., 6.50% due 8/01/2011 585,595
Bank One Corp.:
830,000 6.875% due 8/01/2006 875,848
378,000 8% due 4/29/2027 480,735
Bank of America Corp.:
2,200,000 5.875% due 2/15/2009 2,361,841
113,000 6.60% due 5/15/2010 125,498
410,000 4.875% due 9/15/2012 418,715
350,000 4.875% due 1/15/2013 356,081
365,000 The Bank of New York Co., Inc., 5.20% due 7/01/2007 379,475
90,000 Citicorp, 6.375% due 11/15/2008 97,981
665,000 Comerica, Inc., 4.80% due 5/01/2015 650,675
460,000 Deutsche Bank Financial, Inc., 7.50% due 4/25/2009 522,397
300,000 FirstBank Puerto Rico, 7.625% due 12/20/2005 306,457
700,000 FleetBoston Financial Corp., 4.20% due 11/30/2007 712,186
230,000 Golden West Financial Corp., 4.75% due 10/01/2012 231,094
765,000 HSBC Holdings Plc, 7.50% due 7/15/2009 872,394
600,000 KfW - Kreditanstalt fuer Wiederaufbau, 4.125% due 10/15/2014 586,029
395,000 M&I Marshall & Ilsley Bank, 4.125% due 9/04/2007 402,556
500,000 M&T Bank Corp., 3.85% due 4/01/2013 (c) 494,771
MBNA America Bank NA:
25,000 7.75% due 9/15/2005 25,763
110,000 6.50% due 6/20/2006 114,794
675,000 7.125% due 11/15/2012 767,815
500,000 Mellon Funding Corp., 5% due 12/01/2014 505,558
295,000 National City Bank of Indiana, 4% due 9/28/2007 298,328
350,000 Old Regions Financial Corp., 6.375% due 5/15/2012 385,861
200,000 Popular North America, Inc., 4.70% due 6/30/2009 203,927
1,065,000 Royal Bank of Scotland Group Plc, 5.05% due 1/08/2015 1,076,434
450,000 Sovereign Bank, 5.125% due 3/15/2013 450,502
400,000 Synovus Financial Corp., 4.875% due 2/15/2013 399,251
485,000 US Bancorp, 5.10% due 7/15/2007 501,627
500,000 US Bank NA, 6.30% due 2/04/2014 554,458
400,000 UnionBanCal Corp., 5.25% due 12/16/2013 405,401
525,000 Wachovia Bank NA, 4.85% due 7/30/2007 544,384
Wachovia Corp.:
195,000 5.625% due 12/15/2008 207,493
1,770,000 3.625% due 2/17/2009 1,749,622
275,000 Washington Mutual Bank FA, 5.125% due 1/15/2015 273,132
145,000 Washington Mutual Financial Corp., 6.875% due 5/15/2011 164,413
Washington Mutual, Inc.:
600,000 7.50% due 8/15/2006 637,409
90,000 8.25% due 4/01/2010 105,294
Wells Fargo & Co.:
400,000 5.125% due 2/15/2007 413,788
1,200,000 3.125% due 4/01/2009 1,163,062
450,000 Wells Fargo Bank NA, 6.45% due 2/01/2011 500,429
350,000 Westpac Banking Corp., 4.625% due 6/01/2018 329,121
-------------
22,238,194
- -----------------------------------------------------------------------------------------------------------------------------------
Financial 400,000 AXA Financial, Inc., 7.75% due 8/01/2010 466,330
Services - 3.9% 330,000 Ace INA Holdings, Inc., 8.30% due 8/15/2006 352,784
The Allstate Corp.:
250,000 5.375% due 12/01/2006 258,252
350,000 5% due 8/15/2014 352,289
295,000 American Express Co., 6.875% due 11/01/2005 303,824
325,000 American General Corp., 7.50% due 7/15/2025 399,067
235,000 American General Finance Corp., 5.875% due 7/14/2006 243,654
215,000 AvalonBay Communities, Inc., 6.625% due 9/15/2011 237,946
The Bear Stearns Cos., Inc.:
125,000 7.625% due 2/01/2005 125,445
250,000 6.875% due 10/01/2005 256,985
1,100,000 3.25% due 3/25/2009 1,068,094
CIT Group, Inc.:
450,000 6.50% due 2/07/2006 465,817
300,000 5% due 2/13/2014 299,508
Capital One Bank:
570,000 6.875% due 2/01/2006 591,307
600,000 4.875% due 5/15/2008 616,211
Master Aggregate Bond Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Industry+ Face
Amount Fixed Income Securities Value
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services CitiFinancial:
(concluded) $ 500,000 6.75% due 7/01/2007 $ 538,246
450,000 10% due 5/15/2009 553,677
Citigroup, Inc.:
1,000,000 5.75% due 5/10/2006 1,032,656
125,000 6.50% due 1/18/2011 139,582
666,000 5% due 9/15/2014 (a) 669,213
740,000 6.625% due 6/15/2032 828,807
740,000 Countrywide Home Loans, Inc., 5.625% due 7/15/2009 783,898
Credit Suisse First Boston USA, Inc.:
1,000,000 5.875% due 8/01/2006 1,039,311
775,000 5.75% due 4/15/2007 812,319
250,000 4.625% due 1/15/2008 256,175
800,000 6.50% due 1/15/2012 890,386
530,000 Developers Diversified Realty Corp., 6.625% due 1/15/2008 564,769
EOP Operating LP:
200,000 6.75% due 2/15/2012 222,639
145,000 7.25% due 6/15/2028 164,265
25,000 7.50% due 4/19/2029 28,979
Goldman Sachs Group, Inc.:
70,000 4.125% due 1/15/2008 70,880
1,000,000 3.875% due 1/15/2009 997,735
1,625,000 6.60% due 1/15/2012 1,813,563
800,000 5.25% due 4/01/2013 820,363
405,000 6.125% due 2/15/2033 420,743
300,000 Hartford Life, Inc., 7.375% due 3/01/2031 358,119
200,000 Infinity Property & Casualty Corp. Series B, 5.50% due 2/18/2014 197,592
International Lease Finance Corp.:
650,000 4.375% due 12/15/2005 656,214
386,000 5.625% due 6/01/2007 403,321
JPMorgan Chase & Co.:
200,000 5.625% due 8/15/2006 207,198
400,000 3.50% due 3/15/2009 391,908
1,445,000 6.625% due 3/15/2012 1,617,413
400,000 5.125% due 9/15/2014 402,624
275,000 John Hancock Financial Services, Inc., 5.625% due 12/01/2008 292,074
Lehman Brothers Holdings, Inc.:
450,000 6.25% due 5/15/2006 468,331
600,000 7% due 2/01/2008 655,553
245,000 7.875% due 8/15/2010 287,567
725,000 6.625% due 1/18/2012 810,686
275,000 Liberty Property-LP, 7.25% due 3/15/2011 311,189
175,000 Marsh & McLennan Cos., Inc., 6.25% due 3/15/2012 183,124
150,000 Metlife, Inc., 6.125% due 12/01/2011 163,017
Morgan Stanley:
1,060,000 5.80% due 4/01/2007 1,111,275
845,000 6.60% due 4/01/2012 942,443
1,250,000 4.75% due 4/01/2014 1,218,010
145,000 New York Life Insurance Co., 5.875% due 5/15/2033 (a) 150,023
750,000 Old Duke Realty LP, 5.25% due 1/15/2010 774,436
265,000 Principal Life Global Funding I, 6.25% due 2/15/2012 (a) 289,675
425,000 The Progressive Corp., 6.25% due 12/01/2032 455,617
1,000,000 SLM Corp., 5.375% due 5/15/2014 1,032,731
150,000 SunAmerica, Inc., 5.60% due 7/31/2097 142,545
500,000 Travelers Property Casualty Corp., 6.375% due 3/15/2033 513,560
240,000 Westfield Capital Corp. Ltd., 5.125% due 11/15/2014 (a) 238,847
-------------
32,960,811
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services - HSBC Finance Corp.:
Consumer - 0.5% 2,015,000 5.875% due 2/01/2009 2,153,203
750,000 7% due 5/15/2012 856,483
350,000 4.75% due 7/15/2013 347,287
500,000 Monumental Global Funding II, 4.375% due 7/30/2009 (a) 502,101
60,000 Western & Southern Financial Group, Inc., 5.75% due 7/15/2033(a) 59,089
-------------
3,918,163
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Government 2,240,000 Canada Government International Bond, 5.25% due 11/05/2008 2,368,081
Obligations - 2.3% 500,000 China Government International Bond, 7.30% due 12/15/2008 562,223
1,120,000 Finland Government International Bond, 5.875% due 2/27/2006 1,156,873
Italy Government International Bond:
900,000 5.25% due 4/05/2006 924,954
1,050,000 4.375% due 10/25/2006 1,068,216
450,000 6% due 2/22/2011 492,668
900,000 6.875% due 9/27/2023 1,072,445
Mexico Government International Bond:
1,920,000 9.875% due 2/01/2010 2,359,680
2,625,000 6.375% due 1/16/2013 2,795,625
1,025,000 Petroleos Mexicanos, 8.85% due 9/15/2007 1,151,587
445,000 Province of British Columbia, 4.625% due 10/03/2006 455,549
1,120,000 Province of Manitoba, 5.50% due 10/01/2008 1,185,430
3,000,000 Province of Ontario, 6% due 2/21/2006 3,094,041
625,000 Province of Quebec, 7.50% due 9/15/2029 812,657
-------------
19,500,029
- -----------------------------------------------------------------------------------------------------------------------------------
Master Aggregate Bond Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Industry+ Face
Amount Fixed Income Securities Value
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial - Consumer $ 60,000 Albertson's, Inc., 7.50% due 2/15/2011 $ 69,491
Goods - 1.3% Anheuser-Busch Cos., Inc.:
160,000 5.95% due 1/15/2033 172,633
140,000 6% due 11/01/2041 148,450
600,000 Campbell Soup Co., 4.875% due 10/01/2013 608,699
200,000 Cia Brasileira de Bebidas, 8.75% due 9/15/2013 233,000
490,000 Clorox Co., 4.20% due 1/15/2010 (a) 492,486
470,000 Coca-Cola Enterprises, Inc., 6.75% due 9/15/2028 543,108
ConAgra Foods, Inc.:
200,000 7% due 10/01/2028 232,707
370,000 8.25% due 9/15/2030 492,099
140,000 Diageo Capital Plc, 3.50% due 11/19/2007 139,534
500,000 The Dial Corp., 6.50% due 9/15/2008 540,654
500,000 Fortune Brands, Inc., 2.875% due 12/01/2006 495,315
1,432,000 Kellogg Co. Series B, 6% due 4/01/2006 1,476,422
294,000 Kimberly-Clark Corp., 7.10% due 8/01/2007 320,513
Kraft Foods, Inc.:
225,000 4.625% due 11/01/2006 229,639
260,000 5.625% due 11/01/2011 275,325
The Kroger Co.:
160,000 7.625% due 9/15/2006 170,662
250,000 7.50% due 4/01/2031 298,837
85,000 Series B, 7.70% due 6/01/2029 102,513
500,000 Miller Brewing Co., 5.50% due 8/15/2013 (a) 522,623
155,000 Pepsi Bottling Group, Inc. Series B, 7% due 3/01/2029 186,801
92,000 Pepsi Bottling Holdings, Inc., 5.625% due 2/17/2009 (a) 98,082
180,000 Procter & Gamble Co., 4.95% due 8/15/2014 184,050
300,000 Safeway, Inc., 6.15% due 3/01/2006 309,439
290,000 Sappi Papier Holding AG, 6.75% due 6/15/2012 (a) 322,222
520,000 Sara Lee Corp., 6.25% due 9/15/2011 576,178
Sealed Air Corp.:
200,000 5.375% due 4/15/2008 207,802
135,000 6.95% due 5/15/2009 (a) 147,613
700,000 Staples, Inc., 7.125% due 8/15/2007 753,366
390,000 Supervalu, Inc., 7.50% due 5/15/2012 455,195
-------------
10,805,458
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial - Anadarko Finance Co. Series B:
Energy - 1.1% 390,000 6.75% due 5/01/2011 439,225
60,000 7.50% due 5/01/2031 74,337
190,000 Apache Corp., 7.625% due 7/01/2019 235,378
390,000 Atlantic Richfield Co., 5.90% due 4/15/2009 420,573
150,000 Atmos Energy Corp., 5.125% due 1/15/2013 152,844
330,000 Chevron Phillips Chemical Co. LLC, 5.375% due 6/15/2007 342,068
165,000 ChevronTexaco Capital Co., 3.375% due 2/15/2008 164,240
125,000 Colonial Pipeline Co., 7.63% due 4/15/2032 (a) 161,011
420,000 ConocoPhillips, 4.75% due 10/15/2012 428,224
505,000 ConocoPhillips Holding Co., 6.95% due 4/15/2029 596,332
75,000 Consolidated Natural Gas Co. Series C, 6.25% due 11/01/2011 82,322
Duke Energy Corp.:
400,000 3.75% due 3/05/2008 399,546
1,150,000 6.25% due 1/15/2012 1,253,679
300,000 Halliburton Co., 3.45% due 1/26/2007 (a)(c) 300,108
600,000 Kinder Morgan Energy Partners LP, 6.75% due 3/15/2011 669,858
475,000 Kinder Morgan, Inc., 6.50% due 9/01/2012 522,108
350,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (a) 360,442
100,000 Murphy Oil Corp., 6.375% due 5/01/2012 109,662
225,000 Nabors Industries, Inc., 5.375% due 8/15/2012 235,172
480,000 Nisource Finance Corp., 7.625% due 11/15/2005 497,485
745,000 Ocean Energy, Inc., 7.25% due 10/01/2011 849,095
500,000 Panhandle Eastern Pipe Line Series B, 2.75% due 3/15/2007 489,587
300,000 Valero Energy Corp., 6.875% due 4/15/2012 340,273
500,000 XTO Energy, Inc., 4.90% due 2/01/2014 498,895
-------------
9,622,464
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial - 340,000 Alcan, Inc., 6.45% due 3/15/2011 378,011
Manufacturing - 3.0% 150,000 Alcoa, Inc., 6% due 1/15/2012 163,862
320,000 Baxter International, Inc., 4.625% due 3/15/2015 308,259
360,000 Black & Decker Corp., 4.75% due 11/01/2014 (a) 354,420
Caterpillar Financial Services Corp.:
265,000 4.875% due 6/15/2007 273,173
300,000 4.60% due 1/15/2014 296,429
390,000 Centex Corp., 7.875% due 2/01/2011 455,559
250,000 Cooper Industries, Inc., 5.50% due 11/01/2009 264,478
DaimlerChrysler NA Holding Corp.:
930,000 6.40% due 5/15/2006 967,472
280,000 7.30% due 1/15/2012 317,871
600,000 8.50% due 1/18/2031 749,671
720,000 Deere & Co., 7.85% due 5/15/2010 843,065
270,000 Domtar, Inc., 7.875% due 10/15/2011 311,597
335,000 Emerson Electric Co., 7.875% due 6/01/2005 342,018
2,105,000 Ford Motor Co., 7.45% due 7/16/2031 2,117,078
Master Aggregate Bond Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Industry+ Face
Amount Fixed Income Securities Value
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial - Manufacturing Ford Motor Credit Co.:
(concluded) $ 400,000 7.375% due 10/28/2009 $ 431,467
500,000 7% due 10/01/2013 530,066
2,205,000 General Electric Capital Corp., 6.75% due 3/15/2032 2,580,842
325,000 General Electric Co., 5% due 2/01/2013 333,439
General Motors Acceptance Corp.:
500,000 6.125% due 9/15/2006 512,591
500,000 5.125% due 5/09/2008 499,214
472,000 7.75% due 1/19/2010 506,605
885,000 7% due 2/01/2012 911,853
1,653,000 8% due 11/01/2031 1,699,094
355,000 Hanson Australia Funding Ltd., 5.25% due 3/15/2013 361,669
150,000 Harley-Davidson, Inc., 3.625% due 12/15/2008 (a) 148,848
515,000 Honeywell International, Inc., 6.125% due 11/01/2011 567,234
International Business Machines Corp.:
395,000 6.45% due 8/01/2007 422,447
200,000 4.75% due 11/29/2012 204,215
450,000 5.875% due 11/29/2032 475,895
400,000 Johnson Controls, Inc., 4.875% due 9/15/2013 405,206
116,000 Kern River Funding Corp., 4.893% due 4/30/2018 (a) 118,094
125,000 Lear Corp., 5.75% due 8/01/2014 (a) 126,184
200,000 Lennar Corp., 5.95% due 3/01/2013 211,800
450,000 Lockheed Martin Corp., 8.50% due 12/01/2029 615,724
100,000 MDC Holdings, Inc., 5.50% due 5/15/2013 101,532
325,000 Martin Marietta Corp., 7.375% due 4/15/2013 381,217
45,000 Masco Corp., 6.50% due 8/15/2032 49,439
Newell Rubbermaid, Inc.:
250,000 4.625% due 12/15/2009 252,357
300,000 4% due 5/01/2010 291,121
385,000 Pitney Bowes, Inc., 4.75% due 5/15/2018 373,490
110,000 Pulte Homes, Inc., 7.875% due 8/01/2011 127,609
Raytheon Co.:
21,000 6.15% due 11/01/2008 22,578
200,000 8.30% due 3/01/2010 236,999
350,000 6.75% due 3/15/2018 396,334
150,000 Rockwell Collins, Inc., 4.75% due 12/01/2013 150,101
75,000 The Stanley Works, 4.90% due 11/01/2012 76,291
870,000 Textron Financial Corp., 2.75% due 6/01/2006 859,550
325,000 Toll Brothers Finance Corp., 6.875% due 11/15/2012 362,225
Tyco International Group SA:
300,000 6.125% due 1/15/2009 323,712
600,000 6% due 11/15/2013 653,677
Weyerhaeuser Co.:
442,000 5.95% due 11/01/2008 473,321
125,000 7.375% due 3/15/2032 148,231
-------------
25,085,234
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial - Other - 1.9% 441,000 Abbott Laboratories, 5.625% due 7/01/2006 455,938
275,000 Amgen, Inc., 4% due 11/18/2009 (a) 274,147
285,000 Archer-Daniels-Midland Co., 5.935% due 10/01/2032 301,666
560,000 AstraZeneca Plc, 5.40% due 6/01/2014 588,759
200,000 BRE Properties, 5.95% due 3/15/2007 208,407
360,000 Barrick Gold Finance, Inc., 4.875% due 11/15/2014 358,692
125,000 Boston Scientific Corp., 5.45% due 6/15/2014 129,856
830,000 Burlington Northern Santa Fe Corp., 6.75% due 7/15/2011 938,327
490,000 CSX Corp., 6.75% due 3/15/2011 548,451
400,000 Centerpoint Properties Trust, 4.75% due 8/01/2010 403,154
Continental Airlines, Inc.:
540,000 Series 2002-1, 6.563% due 8/15/2013 574,102
249,877 Series 2003-RJ, 7.875% due 7/02/2018 241,166
480,000 The Dow Chemical Co., 5.75% due 11/15/2009 513,450
290,000 Eli Lilly & Co., 7.125% due 6/01/2025 350,499
540,000 General Dynamics Corp., 3% due 5/15/2008 527,885
400,000 HRPT Properties Trust, 5.75% due 2/15/2014 410,811
500,000 Harris Corp., 6.35% due 2/01/2028 529,273
700,000 ICI North America, 8.875% due 11/15/2006 764,102
550,000 Inversiones CMPC SA, 4.875% due 6/18/2013 (a) 537,260
1,800,000 J Paul Getty Trust Series 2003, 5.875% due 10/01/2033 1,878,718
235,000 New Plan Excel Realty Trust, 5.875% due 6/15/2007 244,655
Norfolk Southern Corp.:
675,000 6.75% due 2/15/2011 760,708
220,000 7.25% due 2/15/2031 263,927
587,000 Northrop Grumman Corp., 7.125% due 2/15/2011 673,649
Pfizer, Inc.:
420,000 5.625% due 2/01/2006 431,290
500,000 4.50% due 2/15/2014 494,460
Praxair, Inc.:
235,000 6.50% due 3/01/2008 254,179
135,000 6.375% due 4/01/2012 150,718
70,000 3.95% due 6/01/2013 66,516
240,000 Rohm & Haas Co., 7.40% due 7/15/2009 272,616
200,000 Rock-Tenn Co., 5.625% due 3/15/2013 202,666
Master Aggregate Bond Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Industry+ Face
Amount Fixed Income Securities Value
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial - Other $ 1,080,000 Union Pacific Corp., 5.75% due 10/15/2007 $ 1,136,395
(concluded) 455,000 United Technologies Corp., 6.35% due 3/01/2011 506,896
-------------
15,993,338
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial - 600,000 Aramark Services, Inc., 6.375% due 2/15/2008 641,918
Services - 2.8% 255,000 British Sky Broadcasting Plc, 8.20% due 7/15/2009 294,758
350,000 COX Communications, Inc., 7.125% due 10/01/2012 392,302
200,000 CVS Corp., 4% due 9/15/2009 199,060
Carnival Corp.:
380,000 3.75% due 11/15/2007 380,448
225,000 6.15% due 4/15/2008 240,994
300,000 Celulosa Arauco y Constitucion SA, 5.125% due 7/09/2013 297,106
Cendant Corp.:
815,000 6.875% due 8/15/2006 857,433
300,000 7.375% due 1/15/2013 347,050
100,000 Clear Channel Communications, Inc., 7.25% due 10/15/2027 110,438
450,000 Comcast Cable Communications, 8.875% due 5/01/2017 590,441
Comcast Corp.:
550,000 5.85% due 1/15/2010 589,582
570,000 7.05% due 3/15/2033 652,210
Federated Department Stores:
25,000 6.625% due 9/01/2008 27,216
135,000 6.30% due 4/01/2009 146,104
270,000 6.625% due 4/01/2011 301,889
435,000 First Data Corp., 6.375% due 12/15/2007 468,466
470,000 Fiserv, Inc., 4% due 4/15/2008 471,582
375,000 Gannett Co., Inc., 5.50% due 4/01/2007 390,937
400,000 Harrah's Operating Co., Inc., 5.50% due 7/01/2010 414,050
335,000 Hewlett-Packard Co., 3.625% due 3/15/2008 333,348
352,000 Historic TW, Inc., 6.875% due 6/15/2018 398,020
200,000 IAC/InterActiveCorp, 7% due 1/15/2013 220,614
235,000 Kohl's Corp., 6.30% due 3/01/2011 257,460
Liberty Media Corp.:
285,000 7.875% due 7/15/2009 317,621
330,000 5.70% due 5/15/2013 327,445
450,000 Limited Brands, Inc., 6.125% due 12/01/2012 480,510
Lowe's Cos., Inc.:
250,000 6.875% due 2/15/2028 294,871
65,000 6.50% due 3/15/2029 73,631
News America, Inc.:
365,000 7.25% due 5/18/2018 420,820
340,000 7.28% due 6/30/2028 388,559
300,000 Norske Skogindustrier ASA, 6.125% due 10/15/2015 (a) 310,938
100,000 RLI Corp., 5.95% due 1/15/2014 99,973
1,700,000 Reed Elsevier Capital, Inc., 6.125% due 8/01/2006 1,762,587
80,000 Science Applications International Corp., 5.50% due 7/01/2033 76,889
Target Corp.:
888,000 10% due 1/01/2011 1,132,145
100,000 6.75% due 1/01/2028 115,620
200,000 Tele-Communications-TCI Group, 9.80% due 2/01/2012 257,799
The Thomson Corp.:
345,000 5.75% due 2/01/2008 363,341
325,000 4.25% due 8/15/2009 325,568
Time Warner, Inc.:
1,510,000 6.875% due 5/01/2012 1,719,673
400,000 7.70% due 5/01/2032 489,247
90,000 United Parcel Service, Inc., 8.375% due 4/01/2020 120,721
200,000 Univision Communications, Inc., 7.85% due 7/15/2011 235,971
1,000,000 Viacom, Inc., 5.625% due 5/01/2007 1,045,501
350,000 WR Berkley Corp., 5.125% due 9/30/2010 353,888
1,235,000 Wal-Mart Stores, Inc., 6.875% due 8/10/2009 1,386,770
1,250,000 Waste Management, Inc., 7.375% due 8/01/2010 1,432,816
600,000 Wyeth, 5.50% due 2/01/2014 620,753
-------------
24,820,374
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 825,000 AT&T Wireless Services, Inc., 8.75% due 3/01/2031 1,112,358
Communications - 1.8% 315,000 Alltel Corp., 7% due 7/01/2012 362,716
900,000 Ameritech Capital Funding, 6.45% due 1/15/2018 978,402
BellSouth Corp.:
800,000 5% due 10/15/2006 822,530
964,000 6% due 10/15/2011 1,050,703
500,000 5.20% due 9/15/2014 509,611
170,000 6.55% due 6/15/2034 185,240
1,295,000 British Telecommunications Plc, 8.375% due 12/15/2010 1,555,112
400,000 CenturyTel, Inc. Series L, 7.875% due 8/15/2012 470,726
Deutsche Telekom International Finance BV:
800,000 3.875% due 7/22/2008 798,622
384,000 5.25% due 7/22/2013 394,985
450,000 8.75% due 6/15/2030 594,206
400,000 France Telecom SA, 9.25% due 3/01/2031 542,237
GTE Corp.:
1,100,000 6.84% due 4/15/2018 1,216,967
255,000 6.94% due 4/15/2028 284,003
790,000 Royal KPN NV, 8% due 10/01/2010 932,468
Master Aggregate Bond Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Industry+ Face
Amount Fixed Income Securities Value
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - Communications Sprint Capital Corp.:
(concluded) $ 1,091,000 8.375% due 3/15/2012 $ 1,328,993
400,000 8.75% due 3/15/2032 532,924
750,000 Telecom Italia Capital SA, 5.25% due 11/15/2013 758,051
425,000 Verizon Global Funding Corp., 7.375% due 9/01/2012 500,134
85,000 Verizon New York, Inc. Series A, 6.875% due 4/01/2012 95,411
80,000 Verizon Wireless Capital LLC, 5.375% due 12/15/2006 82,864
-------------
15,109,263
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - Electric & 200,000 AGL Capital Corp., 4.45% due 4/15/2013 193,942
Gas - 1.3% 270,000 AmerenEnergy Generating Co. Series F, 7.95% due 6/01/2032 337,188
300,000 Australian Gas Light Co. Ltd., 5.30% due 9/25/2015 (a) 303,721
180,000 Baltimore Gas & Electric, 5.20% due 6/15/2033 167,301
115,000 Cincinnati Gas & Electric, 5.70% due 9/15/2012 121,835
500,000 Commonwealth Edison Co., 6.95% due 7/15/2018 575,425
135,000 Conectiv Series B, 5.30% due 6/01/2005 136,096
375,000 Consolidated Edison Co. of New York Series 03-C, 5.10% due 6/15/2033 352,824
Dominion Resources, Inc.:
185,000 6.30% due 3/15/2033 192,379
541,000 Series A, 8.125% due 6/15/2010 636,774
125,000 Entergy Mississippi, Inc., 5.15% due 2/01/2013 125,371
120,000 Exelon Corp., 6.75% due 5/01/2011 134,235
170,000 FPL Group Capital, Inc., 7.625% due 9/15/2006 181,589
170,000 Florida Power & Light Co., 6.875% due 12/01/2005 175,739
160,000 Georgia Power Co. Series K, 5.125% due 11/15/2012 165,085
510,000 Midamerican Energy Holdings Co., 5.875% due 10/01/2012 540,417
200,000 New York State Electric & Gas Corp., 5.75% due 5/01/2023 204,453
200,000 Ohio Power Co. Series G, 6.60% due 2/15/2033 223,723
200,000 Pepco Holdings, Inc., 4% due 5/15/2010 196,442
210,000 Plains All American Pipeline LP, 5.625% due 12/15/2013 216,008
635,000 Progress Energy, Inc., 7.10% due 3/01/2011 713,894
350,000 Public Service Co. of New Mexico, 4.40% due 9/15/2008 352,926
745,000 Public Service Electric & Gas, 5.125% due 9/01/2012 770,585
170,000 South Carolina Electric & Gas, 6.70% due 2/01/2011 190,467
1,150,000 Southern California Edison Co., 8% due 2/15/2007 1,252,328
385,000 Southern California Gas Co., 4.80% due 10/01/2012 391,018
590,000 Southern Power Co. Series B, 6.25% due 7/15/2012 644,791
150,000 TGT Pipeline LLC, 5.20% due 6/01/2018 143,435
530,000 TXU Electric Delivery Co., 6.375% due 5/01/2012 584,522
300,000 Texas Gas Transmission Corp., 4.60% due 6/01/2015 286,360
280,000 Wisconsin Electric Power, 5.625% due 5/15/2033 284,814
-------------
10,795,687
- -----------------------------------------------------------------------------------------------------------------------------------
Yankee Corporates - 1.6% 105,000 BHP Billiton Finance USA Ltd., 4.80% due 4/15/2013 106,380
365,000 BHP Finance USA Ltd., 6.42% due 3/01/2026 400,646
730,000 Brascan Corp., 5.75% due 3/01/2010 772,382
730,000 Burlington Resources Finance Co., 6.50% due 12/01/2011 817,228
500,000 Canadian National Railway Co., 6.375% due 10/15/2011 555,342
525,000 Canadian Natural Resources Ltd., 4.90% due 12/01/2014 522,250
535,000 Corp Andina de Fomento, 6.875% due 3/15/2012 601,227
120,000 Corp Nacional del Cobre de Chile - CODELCO, 6.375% due 11/30/2012 (a) 132,410
600,000 EnCana Corp., 4.75% due 10/15/2013 595,414
160,000 Hydro Quebec Series GF, 8.875% due 3/01/2026 232,908
300,000 Inco Ltd., 7.75% due 5/15/2012 355,195
1,000,000 Inter-American Development Bank, 6.80% due 10/15/2025 1,194,556
530,000 KFW International Finance, 4.75% due 1/24/2007 546,510
Korea Development Bank:
610,000 4.25% due 11/13/2007 615,461
1,000,000 4.75% due 7/20/2009 1,018,905
570,000 National Australia Bank Ltd. Series A, 8.60% due 5/19/2010 676,992
400,000 Nexen, Inc., 5.05% due 11/20/2013 397,240
165,000 Noranda, Inc., 7% due 7/15/2005 168,294
950,000 Norsk Hydro ASA, 6.36% due 1/15/2009 1,032,372
Pemex Project Funding Master Trust:
805,000 9.125% due 10/13/2010 965,195
40,000 8.625% due 2/01/2022 46,540
345,000 Potash Corp. of Saskatchewan, 7.75% due 5/31/2011 406,397
200,000 Santander Central Hispano Issuances Ltd., 7.625% due 9/14/2010 233,079
565,000 Unilever Capital Corp., 7.125% due 11/01/2010 649,875
Vodafone Group Plc:
530,000 7.75% due 2/15/2010 615,042
185,000 7.875% due 2/15/2030 238,541
-------------
13,896,381
- -----------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities (Cost - $194,965,000) - 24.2% 204,745,396
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Trusts
- -----------------------------------------------------------------------------------------------------------------------------------
Banking - 0.0% 250,000 HBOS Plc, 5.375% (a)(b)(c) 256,326
- -----------------------------------------------------------------------------------------------------------------------------------
Yankee Corporates - 0.0% 75,000 Pemex Project Funding Master Trust, 7.375% due 12/15/2014 83,362
- -----------------------------------------------------------------------------------------------------------------------------------
Total Capital Trusts (Cost - $327,290) - 0.0% 339,688
===================================================================================================================================
Master Aggregate Bond Index Series
Schedule of Investments as of December 31, 2004 (concluded) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Face
Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
State Municipal Bonds
- -----------------------------------------------------------------------------------------------------------------------------------
Illinois - 0.1% $ 700,000 Illinois State, GO, 5.10% due 6/01/2033 $ 672,399
- -----------------------------------------------------------------------------------------------------------------------------------
Texas - 0.0% 250,000 Harris County, Texas, Industrial Development Corporation,
Solid Waste Disposal Revenue Bonds (Deer Park Refining LP),
5.683% due 3/01/2023 253,147
- -----------------------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost - $886,251) - 0.1% 925,546
===================================================================================================================================
Short-Term Securities
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Obligations** 16,800,000 Federal Home Loan Banks, 1% due 1/03/2005 16,800,000
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Held
--------------------------------------------------------------------------------------------
12,139,250 Merrill Lynch Premier Institutional Fund (e)(f) 12,139,250
--------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost - $28,939,250) - 3.4% 28,939,250
--------------------------------------------------------------------------------------------
Total Investments (Cost - $909,340,286***) - 110.1% 925,467,402
Liabilities in Excess of Other Assets - (10.1%) (85,246,216)
-------------
Net Assets - 100.0% $ 840,221,186
=============
+ 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.
* Mortgage-Backed Securities are subject to principal paydowns as a result
of prepayments or refinancing of the underlying mortgage instruments. As a
result, the average life may be substantially less than the original
maturity.
** Certain U.S. Government Agency Obligations are traded on a discount basis;
the interest rate shown reflects the discount rate paid at the time of
purchase by the Series.
*** The cost and unrealized appreciation/depreciation of investments as of
December 31, 2004, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 909,781,793
=============
Gross unrealized appreciation $ 17,285,769
Gross unrealized depreciation (1,600,160)
-------------
Net unrealized appreciation $ 15,685,609
=============
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) The security is a perpetual bond and has no definite maturity date.
(c) Floating rate note.
(d) Security, or a portion of security, is on loan.
(e) 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) were as follows:
--------------------------------------------------------------------------------------------------------------
Affiliate Net Activity Interest/Dividend Income
--------------------------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Money Market Series - $ 4,150
Merrill Lynch Premier Institutional Fund (113,997,750) $ 139,299
--------------------------------------------------------------------------------------------------------------
(f) Security was purchased with the cash proceeds from securities loans.
(g) Represents or includes a "to-be-announced" (TBA) transaction. The Series
has committed to purchase securities for which all specific information is
not availble at this time.
Swaps outstanding as of December 31, 2004 were as follows:
----------------------------------------------------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
----------------------------------------------------------------------------------------------------------------------
Receive (pay) a variable return based on the change in the Lehman Brothers CMBS
Investment Grade Index Total Return and pay a floating rate based on 1-month USD LIBOR,
minus .20%
Broker, JPMorgan Chase Bank
Expires March 2005 $26,000,000 -
----------------------------------------------------------------------------------------------------------------------
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc. and Master
Aggregate Bond Index Series of Quantitative Master Series Trust
By: /s/ Robert C. Doll, Jr.
---------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc. and
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Date: February 24, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
---------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc. and
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Date: February 24, 2005
By: /s/ Donald C. Burke
---------------------------------
Donald C. Burke,
Chief Financial Officer of
Aggregate Bond Index Fund of Merrill Lynch Index Funds, Inc. and
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Date: February 24, 2005