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 811-07885
Name of Fund: Master Mid Cap 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, Master Mid Cap 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
Mid-Cap Index Series
Annual Report, December 31, 2004
For the year ended December 31, 2004, Mid-Cap Index Series had a total return of
+16.41% (net return, master level), compared to the +16.48% return of the
benchmark Standard & Poor's (S&P) MidCap 400 Index.
As the returns indicate, the portfolio met its objective of closely tracking the
performance of the S&P MidCap 400 Index, a market-weighted index composed of 400
common stocks chosen based on market capitalization, liquidity and industry
representation. As the value of the S&P MidCap 400 Index fluctuated during the
past 12 months, the portfolio's performance generally tracked that of the Index.
Throughout the period, as changes were made to the composition of the Index, the
portfolio purchased and sold securities to maintain its objective of replicating
the risks and return of the benchmark.
Market and Economic Environment
Despite some suspense along the way, 2004 proved to be a positive year for U.S.
equity markets. Economic news was mixed for much of the first three quarters of
the year before turning generally positive in the fourth quarter.
The first quarter was impacted positively by good productivity and gross
domestic product (GDP) numbers, but set back by the railroad bombing in Madrid,
Spain, which caused market volatility to increase substantially. Renewed fears
of terrorist attacks cast the long shadow of geopolitical unrest on equity
markets around the world heading into the second quarter. The aura of
1
uncertainty was exacerbated by such factors as persistent violence in Iraq,
record-high oil prices and mixed, though slowly improving, U.S. economic data.
As the second quarter drew to a close, the drumbeat of presidential election
drama gradually swelled in the United States.
In the third quarter, the course of economic news began to slowly point toward a
strengthening economy. But despite better-than-expected corporate earnings and
Federal Reserve Board (Fed) Chairman Alan Greenspan's congressional testimony
that his outlook on economic growth remained constructive, a number of
challenges hampered the U.S. equity market in the third quarter. Election
buildup, a shifting Fed policy and higher oil prices fanned the flames of fear
that the U.S. economy would slow.
The fourth quarter, however, proved to be the breakout that investors were
looking for in the U.S. equity markets. Negative October news segued into
positive November and December news. As a result of moderating oil prices,
unwinding of the election uncertainty, reasonably good economic and earnings
news, and the beginning of the seasonally strong year-end period, the market
experienced a positive post-election bounce. As expected, the Fed continued to
raise the federal funds rate throughout the year, more than doubling it from 1%
to 2.25% by December 31, 2004.
The S&P 500 Index closed the year at 1,211.92 on December 31 with a price return
of +8.99%. The Dow Jones Industrial Average closed at 10,783.01 with a price
return of +3.15%, while the Nasdaq Composite Index returned +8.59% with a
closing level of 2,175.44. European markets also posted positive returns, with
the Financial Times Stock Exchange 100 Index closing at 4,814.30, representing a
return of +7.54% in sterling. The Morgan Stanley Capital International World
Index was up 12.84% in U.S. dollar terms, with a closing level of 1,169.34 at
December 31, 2004.
2
Small-capitalization and mid-capitalization stocks outpaced large-capitalization
stocks for 2004, with total returns of +22.65% for the S&P SmallCap 600 Index,
+16.48% for the benchmark S&P MidCap 400 Index and +10.88% for the S&P 500 Index
of large cap stocks. In terms of investment styles, value outperformed growth
for the year, with the S&P 400 Barra Value Index returning +18.93% versus the
+14.00% return of the S&P 400 Barra Growth Index.
Turning to sector performance, nine of the ten S&P MidCap 400 sectors posted a
positive return for the year. The top performer was energy, up 31.82%, followed
by materials and consumer staples, which posted respective returns of +28.14%
and +20.74%. The worst performer for the year by far was information technology,
down 3.70%. Telecommunication services and utilities were the next-worst
performers, but were up 13.31% and 14.39%, respectively.
Market Outlook
As 2004 came to an end, the economy and earnings growth were beginning to slow,
the Fed appeared poised to continue moving interest rates higher, legislative
progress was anticipated on many fronts in Washington, and concerns remained
about the structural problems of debt and deficits as reflected by a significant
decline in the U.S. dollar.
The recent increase in equity prices to new cyclical highs has led to questions
about how much upside potential exists. Valuation levels, at least on an
absolute basis, are somewhat stretched, although the profit environment is still
strong enough to support the market. Equity prices could have fallen as a result
3
of the Fed's December rate hike, but clearly have been benefiting from recent
declines in bond yields as well as from the declining dollar. Our opinion is
that until monetary tightening and/or rising bond yields begin to take their
toll, equities should continue to perform relatively well. Having said that, we
expect the portfolio to continue to meet its objective of tracking the
performance of the S&P MidCap 400 Index in 2005.
4
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense - 0.6% 5,824 + Alliant Techsystems, Inc. $ 380,773
9,967 Precision Castparts Corp. 654,633
1,381 + Sequa Corp. Class A 84,448
-------------
1,119,854
- --------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 1.1% 13,248 CH Robinson Worldwide, Inc. 735,529
7,945 CNF, Inc. 398,045
16,507 Expeditors International Washington, Inc. 922,411
-------------
2,055,985
- --------------------------------------------------------------------------------------------------------------------------
Airlines - 0.4% 13,400 + Airtran Holdings, Inc. 143,380
4,424 + Alaska Air Group, Inc. 148,160
15,850 + JetBlue Airways Corp. (c) 368,037
-------------
659,577
- --------------------------------------------------------------------------------------------------------------------------
Auto Components - 1.5% 11,100 + Advance Auto Parts 484,848
10,145 ArvinMeritor, Inc. 226,944
2,740 Bandag, Inc. 136,479
8,705 BorgWarner, Inc. 471,550
12,101 Gentex Corp. 447,979
10,626 Lear Corp. 648,292
5,321 Modine Manufacturing Co. 179,690
-------------
2,595,782
- --------------------------------------------------------------------------------------------------------------------------
Automobiles - 0.2% 8,862 Thor Industries, Inc. 328,337
- --------------------------------------------------------------------------------------------------------------------------
Beverages - 0.7% 16,426 + Constellation Brands, Inc. Class A 763,973
21,407 PepsiAmericas, Inc. 454,685
-------------
1,218,658
- --------------------------------------------------------------------------------------------------------------------------
Biotechnology - 1.5% 8,705 + Cephalon, Inc. 442,910
10,024 + Charles River Laboratories International, Inc. 461,204
8,500 + Invitrogen Corp. 570,605
47,452 + Millennium Pharmaceuticals, Inc. 575,118
14,788 + Protein Design Labs, Inc. 305,520
6,300 + Techne Corp. 245,070
11,729 + Vertex Pharmaceuticals, Inc. 123,976
-------------
2,724,403
- --------------------------------------------------------------------------------------------------------------------------
Building Products - 0.1% 6,564 York International Corp. 226,721
- --------------------------------------------------------------------------------------------------------------------------
Capital Markets - 2.5% 12,067 AG Edwards, Inc. 521,415
10,205 Eaton Vance Corp. 532,191
10,326 Investors Financial Services Corp. 516,093
8,786 Jefferies Group, Inc. New Shares 353,900
9,688 + LaBranche & Co., Inc. 86,804
15,436 Legg Mason, Inc. 1,130,841
10,936 Raymond James Financial, Inc. 338,797
16,026 SEI Investments Co. 671,970
11,926 Waddell & Reed Financial, Inc. Class A 284,912
-------------
4,436,923
- --------------------------------------------------------------------------------------------------------------------------
Chemicals - 2.8% 10,986 Airgas, Inc. 291,239
6,281 Albemarle Corp. 243,138
9,586 Cabot Corp. 370,786
17,543 Crompton Corp. 207,007
6,164 Cytec Industries 316,953
5,762 + FMC Corp. 278,305
5
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004 (continued)
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Chemicals (concluded) 6,481 Ferro Corp. 150,294
8,324 Lubrizol Corp. 306,823
39,598 Lyondell Chemical Co. 1,145,174
3,362 Minerals Technologies, Inc. 224,245
11,148 Olin Corp. 245,479
18,124 RPM International, Inc. 356,318
5,083 + The Scotts Co. Class A 373,702
7,524 Sensient Technologies Corp. 180,501
7,943 Valspar Corp. 397,229
-------------
5,087,193
- --------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 4.3% 20,126 Associated Banc-Corp 668,384
8,181 Bank of Hawaii Corp. 415,104
27,331 Banknorth Group, Inc. 1,000,315
7,662 City National Corp. 541,320
18,850 The Colonial BancGroup, Inc. 400,185
11,967 Commerce Bancorp, Inc. 770,675
8,002 Cullen/Frost Bankers, Inc. 388,897
13,129 FirstMerit Corp. 374,045
8,183 Greater Bay Bancorp 228,142
24,169 Hibernia Corp. Class A 713,227
12,305 Mercantile Bankshares Corp. 642,321
5,500 + Silicon Valley Bancshares 246,510
21,690 TCF Financial Corp. 697,117
5,064 Westamerica Bancorporation 295,282
10,283 Wilmington Trust Corp. 371,730
-------------
7,753,254
- --------------------------------------------------------------------------------------------------------------------------
Commercial Services 15,300 Adesa, Inc. 324,666
& Supplies - 4.5% 4,021 Banta Corp. 179,980
8,886 The Brink's Co. 351,175
15,848 + Career Education Corp. 633,920
13,845 + ChoicePoint, Inc. 636,732
13,988 + Copart, Inc. 368,164
13,888 + Corinthian Colleges, Inc. 261,719
10,924 + DeVry, Inc. 189,641
8,614 Deluxe Corp. 321,561
10,964 + Dun & Bradstreet Corp. 654,003
11,366 + Education Management Corp. 375,192
8,843 HNI Corp. 380,691
11,067 Herman Miller, Inc. 305,781
7,124 + ITT Educational Services, Inc. 338,746
5,481 Kelly Services, Inc. Class A 165,417
6,064 + Korn/Ferry International 125,828
7,464 + Laureate Education, Inc. 329,088
13,848 Manpower, Inc. 668,858
23,769 Republic Services, Inc. Class A 797,212
7,071 Rollins, Inc. 186,109
9,275 + Sotheby's Holdings Class A 168,434
7,005 + Stericycle, Inc. 321,880
-------------
8,084,797
- --------------------------------------------------------------------------------------------------------------------------
6
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004 (continued)
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Communications Equipment - 1.5% 60,506 + 3Com Corp. 252,310
12,307 Adtran, Inc. 235,556
7,583 + Avocent Corp. 307,263
8,200 + CommScope, Inc. 154,980
10,307 Harris Corp. 636,870
7,343 Plantronics, Inc. 304,514
15,107 + Polycom, Inc. 352,295
14,643 + Powerwave Technologies, Inc. 124,173
17,488 + Utstarcom, Inc. (c) 387,359
-------------
2,755,320
- --------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 1.1% 11,024 Diebold, Inc. 614,367
5,624 Imation Corp. 179,012
16,263 + McData Corp. 96,927
25,072 + Sandisk Corp. 626,048
16,850 + Storage Technology Corp. 532,629
-------------
2,048,983
- --------------------------------------------------------------------------------------------------------------------------
Construction & Engineering 7,302 + Dycom Industries, Inc. 222,857
- - 0.5% 6,781 Granite Construction, Inc. 180,375
8,786 + Jacobs Engineering Group, Inc. 419,883
18,183 + Quanta Services, Inc. 145,464
-------------
968,579
- --------------------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 7,083 Martin Marietta Materials, Inc. 380,074
- --------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.5% 24,131 + AmeriCredit Corp. 590,003
13,900 MoneyGram International, Inc. 293,846
-------------
883,849
- --------------------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.5% 7,881 Longview Fibre Co. 142,961
16,488 Packaging Corp. of America 388,292
15,045 Sonoco Products Co. 446,084
-------------
977,337
- --------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 7,845 GATX Corp. 231,898
- - 0.5% 10,745 Leucadia National Corp. 746,563
-------------
978,461
- --------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 35,439 + Cincinnati Bell, Inc. 147,072
Services - 0.1%
- --------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 3.3% 16,988 Alliant Energy Corp. 485,857
5,024 Black Hills Corp. 154,136
19,624 DPL, Inc. 492,759
12,129 Duquesne Light Holdings, Inc. 228,632
11,686 Great Plains Energy, Inc. 353,852
12,626 Hawaiian Electric Industries 368,048
6,243 Idacorp, Inc. 190,849
8,302 NSTAR 450,633
19,891 Northeast Utilities 374,945
13,769 OGE Energy Corp. 365,016
9,774 PNM Resources, Inc. 247,184
28,858 Pepco Holdings, Inc. 615,253
15,105 Puget Energy, Inc. 373,094
5,843 WPS Resources Corp. 291,916
13,448 Westar Energy, Inc. 307,556
7
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004 (continued)
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Electric Utilities (concluded) 18,329 Wisconsin Energy Corp. 617,871
-------------
5,917,601
- --------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.6% 10,643 Ametek, Inc. 379,636
9,005 Hubbell, Inc. Class B 470,962
9,327 + Thomas & Betts Corp. 286,805
-------------
1,137,403
- --------------------------------------------------------------------------------------------------------------------------
Electronic Equipment 14,200 + Amphenol Corp. Class A 521,708
& Instruments - 2.0% 17,488 + Arrow Electronics, Inc. 424,958
18,488 + Avnet, Inc. 337,221
13,007 CDW Corp. 863,014
12,883 + Kemet Corp. 115,303
11,686 National Instruments Corp. 318,444
5,481 + Newport Corp. 77,282
6,021 + Plexus Corp. 78,333
9,045 + Tech Data Corp. 410,643
25,910 + Vishay Intertechnology, Inc. 389,168
-------------
3,536,074
- --------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services 8,424 + Cooper Cameron Corp. 453,295
- - 3.6% 23,372 ENSCO International, Inc. 741,827
10,488 + FMC Technologies, Inc. 337,714
18,010 + Grant Prideco, Inc. 361,101
10,883 + Hanover Compressor Co. 153,777
8,086 Helmerich & Payne, Inc. 275,247
13,410 + National-Oilwell, Inc. 473,239
25,812 Patterson-UTI Energy, Inc. 502,043
21,167 + Pride International, Inc. 434,770
16,248 + Smith International, Inc. 884,054
9,526 Tidewater, Inc. 339,221
15,245 + Varco International, Inc. 444,392
20,507 + Weatherford International Ltd. 1,052,009
-------------
6,452,689
- --------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.8% 10,945 + BJ's Wholesale Club, Inc. 318,828
6,740 Ruddick Corp. 146,191
9,464 Whole Foods Market, Inc. 902,392
-------------
1,367,411
- --------------------------------------------------------------------------------------------------------------------------
Food Products - 2.2% 23,323 + Dean Foods Co. 768,493
21,329 Hormel Foods Corp. 668,664
9,120 The JM Smucker Co. 429,278
5,686 Lancaster Colony Corp. 243,759
17,250 + Smithfield Foods, Inc. 510,428
8,033 Tootsie Roll Industries, Inc. 278,183
54,425 Tyson Foods, Inc. Class A 1,001,420
-------------
3,900,225
- --------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.4% 11,643 AGL Resources, Inc. 387,013
7,748 WGL Holdings, Inc. 238,948
-------------
625,961
- --------------------------------------------------------------------------------------------------------------------------
Health Care Equipment 9,583 Beckman Coulter, Inc. 641,965
& Supplies - 2.6% 17,269 + Cytyc Corp. 476,106
12,505 Dentsply International, Inc. 702,781
8
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004 (continued)
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Health Care Equipment 9,345 + Edwards Lifesciences Corp. 385,575
& Supplies (concluded) 9,405 Hillenbrand Industries, Inc. 522,354
5,600 + Inamed Corp. 354,200
10,669 + Steris Corp. 253,069
5,321 + Varian, Inc. 218,214
20,928 + Varian Medical Systems, Inc. 904,927
7,262 + Visx, Inc. 187,868
-------------
4,647,059
- --------------------------------------------------------------------------------------------------------------------------
Health Care Providers 7,967 + Apria Healthcare Group, Inc. 262,513
& Services - 4.2% 15,331 + Community Health Systems, Inc. 427,428
9,743 + Covance, Inc. 377,541
13,907 + Coventry Health Care, Inc. 738,184
13,626 + First Health Group Corp. 254,942
17,388 + Health Net, Inc. 501,992
6,864 + Henry Schein, Inc. 478,009
5,983 + LifePoint Hospitals, Inc. 208,328
15,588 + Lincare Holdings, Inc. 664,828
16,050 Omnicare, Inc. 555,651
12,986 + Pacificare Health Systems 733,969
21,172 + Patterson Cos., Inc. 918,653
10,412 + Renal Care Group, Inc. 374,728
11,945 + Triad Hospitals, Inc. 444,473
9,102 Universal Health Services, Inc. Class B 405,039
13,300 + VCA Antech, Inc. 260,680
-------------
7,606,958
- --------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants 12,976 Applebees International, Inc. 343,215
& Leisure - 3.2% 5,705 Bob Evans Farms, Inc. 149,129
12,645 Boyd Gaming Corp. 526,664
14,407 + Brinker International, Inc. 505,253
7,745 CBRL Group, Inc. 324,128
48,027 + Caesars Entertainment, Inc. 967,264
12,157 + The Cheesecake Factory 394,738
18,290 GTECH Holdings Corp. 474,626
7,864 International Speedway Corp. Class A 415,219
9,605 + Krispy Kreme Doughnuts, Inc. (c) 121,023
10,505 Mandalay Resort Group 739,867
11,424 Outback Steakhouse, Inc. 522,991
10,243 Ruby Tuesday, Inc. 267,137
-------------
5,751,254
- --------------------------------------------------------------------------------------------------------------------------
Household Durables - 4.3% 10,707 American Greetings Class A 271,422
6,524 Blyth, Inc. 192,849
35,783 DR Horton, Inc. 1,442,413
8,826 Furniture Brands International, Inc. 221,091
10,345 Harman International Industries, Inc. 1,313,815
9,283 + Hovnanian Enterprises, Inc. Class A 459,694
24,012 Lennar Corp. Class A 1,361,000
10,305 + Mohawk Industries, Inc. 940,331
7,642 Ryland Group, Inc. 439,721
11,626 + Toll Brothers, Inc. 797,660
9
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004 (continued)
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Household Durables (concluded) 9,520 Tupperware Corp. 197,254
-------------
7,637,250
- --------------------------------------------------------------------------------------------------------------------------
Household Products - 0.5% 9,643 Church & Dwight Co., Inc. 324,198
11,145 + Energizer Holdings, Inc. 553,795
-------------
877,993
- --------------------------------------------------------------------------------------------------------------------------
IT Services - 2.8% 13,224 Acxiom Corp. 347,791
12,481 + Alliance Data Systems Corp. 592,598
18,191 + The BISYS Group, Inc. 299,242
8,183 + CSG Systems International 153,022
22,750 + Ceridian Corp. 415,870
9,724 Certegy, Inc. 345,494
13,126 + Checkfree Corp. 499,838
20,491 + Cognizant Technology Solutions Corp. 867,384
13,107 + DST Systems, Inc. 683,137
5,227 + Gartner, Inc. Class A 65,128
11,500 + Gartner, Inc. Class B 141,335
9,562 + Keane, Inc. 140,561
15,088 + MPS Group, Inc. 184,979
13,125 + Titan Corp. 212,625
-------------
4,949,004
- --------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.4% 4,821 Carlisle Cos., Inc. 312,979
6,302 Teleflex, Inc. 327,326
-------------
640,305
- --------------------------------------------------------------------------------------------------------------------------
Insurance - 4.3% 8,305 + Allmerica Financial Corp. 272,653
6,243 AmerUs Group Co. 282,808
11,383 American Financial Group, Inc. 356,402
14,086 Arthur J Gallagher & Co. 457,795
10,205 Brown & Brown, Inc. 444,428
8,605 Everest Re Group Ltd. 770,664
27,002 Fidelity National Financial, Inc. 1,233,181
13,929 First American Corp. 489,465
10,083 HCC Insurance Holdings, Inc. 333,949
6,600 Horace Mann Educators Corp. 125,928
9,462 + Ohio Casualty Corp. 219,613
28,341 Old Republic International Corp. 717,027
10,645 Protective Life Corp. 454,435
4,381 Stancorp Financial Group, Inc. 361,433
10,364 Unitrin, Inc. 471,044
13,124 WR Berkley Corp. 619,059
-------------
7,609,884
- --------------------------------------------------------------------------------------------------------------------------
Internet Software & Services 8,600 + Retek, Inc. 52,890
- - 0.0%
- --------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products 11,910 Callaway Golf Co. 160,785
- - 0.1%
- --------------------------------------------------------------------------------------------------------------------------
Machinery - 2.3% 13,905 + AGCO Corp. 304,380
8,091 Crane Co. 233,344
13,005 Donaldson Co., Inc. 423,703
7,400 Federal Signal Corp. 130,684
8,164 + Flowserve Corp. 224,837
10,783 Graco, Inc. 402,745
6,362 Harsco Corp. 354,618
10
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004 (continued)
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Machinery (concluded) 5,600 Kennametal, Inc. 278,712
5,624 Nordson Corp. 225,354
15,629 Pentair, Inc. 680,799
11,805 SPX Corp. 472,908
2,902 Tecumseh Products Co. Class A 138,716
7,302 Trinity Industries, Inc. 248,852
-------------
4,119,652
- --------------------------------------------------------------------------------------------------------------------------
Marine - 0.2% 6,721 Alexander & Baldwin, Inc. 285,105
- --------------------------------------------------------------------------------------------------------------------------
Media - 2.6% 17,526 Belo Corp. Class A 459,882
7,443 Catalina Marketing Corp. 220,536
8,826 + Emmis Communications Corp. Class A 169,371
8,045 + Entercom Communications Corp. 288,735
12,717 Harte-Hanks, Inc. 330,388
6,962 Lee Enterprises, Inc. 320,809
3,781 Media General, Inc. Class A 245,047
14,555 The Reader's Digest Association, Inc. Class A 202,460
6,305 + Scholastic Corp. 233,033
8,267 + Valassis Communications, Inc. 289,428
1,432 Washington Post Class B 1,407,685
15,107 + Westwood One, Inc. 406,832
-------------
4,574,206
- --------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.9% 9,505 Arch Coal, Inc. 337,808
9,986 Peabody Energy Corp. 807,967
7,000 Steel Dynamics, Inc. 265,160
12,627 Worthington Industries 247,237
-------------
1,658,172
- --------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 27,635 + Aquila, Inc. 101,973
Power - 2.5% 22,631 Energy East Corp. 603,795
9,645 Equitable Resources, Inc. 585,066
17,669 MDU Resources Group, Inc. 471,409
12,283 National Fuel Gas Co. 348,100
16,107 Oneok, Inc. 457,761
13,105 Questar Corp. 667,831
17,191 SCANA Corp. 677,325
18,488 + Sierra Pacific Resources 194,124
11,026 Vectren Corp. 295,497
-------------
4,402,881
- --------------------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.9% 11,276 + 99 Cents Only Stores 182,220
17,538 + Dollar Tree Stores, Inc. 502,990
7,424 Neiman-Marcus Group, Inc. Class A 531,113
22,196 + Saks, Inc. 322,064
-------------
1,538,387
- --------------------------------------------------------------------------------------------------------------------------
Office Electronics - 0.3% 11,046 + Zebra Technologies Corp. Class A 621,669
- --------------------------------------------------------------------------------------------------------------------------
Oil & Gas - 2.7% 9,207 + Forest Oil Corp. 292,046
14,326 Murphy Oil Corp. 1,152,527
9,745 + Newfield Exploration Co. 575,442
9,145 Noble Energy, Inc. 563,881
6,124 Overseas Shipholding Group 338,045
22,629 Pioneer Natural Resources Co. 794,278
11
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004 (continued)
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Oil & Gas (concluded) 11,954 + Plains Exploration & Production Co. 310,804
9,864 Pogo Producing Co. 478,305
11,467 Western Gas Resources, Inc. 335,410
-------------
4,840,738
- --------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.4% 8,705 Bowater, Inc. 382,759
6,300 Glatfelter 96,264
4,702 Potlatch Corp. 237,827
-------------
716,850
- --------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.7% 16,023 + Barr Pharmaceuticals, Inc. 729,687
38,948 + IVAX Corp. 616,157
5,383 + Par Pharmaceutical Cos., Inc. 222,749
10,883 Perrigo Co. 187,949
16,345 + Sepracor, Inc. 970,403
13,048 Valeant Pharmaceuticals International 343,815
-------------
3,070,760
- --------------------------------------------------------------------------------------------------------------------------
Real Estate - 2.7% 12,886 AMB Property Corp. 520,466
17,100 Developers Diversified Realty Corp. 758,727
8,664 Highwoods Properties, Inc. 239,993
10,105 Hospitality Properties Trust 464,830
13,148 Liberty Property Trust 567,994
9,505 Mack-Cali Realty Corp. 437,515
15,905 New Plan Excel Realty Trust 430,707
7,719 Rayonier, Inc. 377,536
20,650 United Dominion Realty Trust, Inc. 512,120
14,200 Weingarten Realty Investors 569,420
-------------
4,879,308
- --------------------------------------------------------------------------------------------------------------------------
Road & Rail - 0.6% 12,448 JB Hunt Transport Services, Inc. 558,293
11,348 + Swift Transportation Co., Inc. 243,755
12,058 Werner Enterprises, Inc. 272,993
-------------
1,075,041
- --------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 73,670 + Atmel Corp. 288,786
Equipment - 3.0% 3,983 + Cabot Microelectronics Corp. 159,519
15,069 + Credence Systems Corp. 137,881
11,568 + Cree, Inc. (c) 463,645
19,512 + Cypress Semiconductor Corp. 228,876
18,107 + Fairchild Semiconductor International, Inc. 294,420
11,124 + Integrated Circuit Systems, Inc. 232,714
16,529 + Integrated Device Technology, Inc. 191,075
10,324 + International Rectifier Corp. 460,141
23,229 Intersil Corp. Class A 388,853
8,443 + LTX Corp. 64,927
20,829 + Lam Research Corp. 602,166
15,823 + Lattice Semiconductor Corp. 90,191
14,567 + Micrel, Inc. 160,528
32,396 Microchip Technology, Inc. 863,677
29,096 + RF Micro Devices, Inc. (c) 199,017
11,807 + Semtech Corp. 258,219
8,064 + Silicon Laboratories, Inc. 284,740
12
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004 (continued)
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 19,045 + Triquint Semiconductor, Inc. 84,750
Equipment (concluded) -------------
5,454,125
- --------------------------------------------------------------------------------------------------------------------------
Software - 2.7% 21,537 + Activision, Inc. 434,617
5,400 + Advent Software, Inc. 110,592
9,365 + Ascential Software Corp. 152,743
41,879 + Cadence Design Systems, Inc. 578,349
10,936 Fair Isaac Corp. 401,132
13,567 Jack Henry & Associates, Inc. 270,119
10,745 + Macromedia, Inc. 334,384
7,202 + Macrovision Corp. 185,235
25,012 + McAfee, Inc. 723,597
10,343 + Mentor Graphics Corp. 158,144
10,626 + RSA Security, Inc. 213,158
10,248 The Reynolds & Reynolds Co. Class A 271,674
14,964 + Sybase, Inc. 298,532
24,019 + Synopsys, Inc. 471,253
5,821 + Transaction Systems Architects, Inc. Class A 115,547
12,683 + Wind River Systems, Inc. 171,855
-------------
4,890,931
- --------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 5.3% 13,348 Abercrombie & Fitch Co. Class A 626,689
8,900 + Aeropostale, Inc. 261,927
11,095 American Eagle Outfitters 522,575
11,095 + AnnTaylor Stores Corp. 238,875
10,726 + Barnes & Noble, Inc. 346,128
11,983 Borders Group, Inc. 304,368
16,186 + Carmax, Inc. 502,575
13,667 + Chico's FAS, Inc. 622,258
15,226 Claire's Stores, Inc. 323,552
25,900 Foot Locker, Inc. 697,487
21,228 Michaels Stores, Inc. 636,203
8,024 + O'Reilly Automotive, Inc. 361,481
11,948 + Pacific Sunwear of California 265,962
10,545 + Payless Shoesource, Inc. 129,704
22,591 PETsMART, Inc. 802,658
13,767 Pier 1 Imports, Inc. 271,210
6,862 Regis Corp. 316,681
12,357 + Rent-A-Center, Inc. 327,461
23,031 Ross Stores, Inc. 664,905
12,800 + Urban Outfitters, Inc. 568,320
18,069 + Williams-Sonoma, Inc. 633,138
-------------
9,424,157
- --------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury 5,543 + Timberland Co. Class A 347,380
Goods - 0.2%
- --------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 12,086 Astoria Financial Corp. 483,077
- - 2.4% 13,045 Independence Community Bank Corp. 555,456
9,626 IndyMac Bancorp, Inc. 331,616
41,263 New York Community Bancorp, Inc. 848,780
14,729 The PMI Group, Inc. 614,936
14,086 Radian Group, Inc. 749,939
12,103 Washington Federal, Inc. 321,214
13
SCHEDULE OF INVESTMENTS Master Mid-Cap Index Series
As of December 31, 2004 (continued)
- --------------------------------------------------------------------------------------------------------------------------
Shares
Industry* Held Common Stocks Value
- --------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 7,864 Webster Financial Corp. 398,233
(concluded) -------------
4,303,251
- --------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 4,102 Universal Corp. 196,240
- --------------------------------------------------------------------------------------------------------------------------
Trading Companies & 11,826 Fastenal Co. 728,009
Distributors - 0.5% 11,924 + United Rentals, Inc. 225,364
-------------
953,373
- --------------------------------------------------------------------------------------------------------------------------
Water Utilities - 0.2% 13,901 Aqua America, Inc. 341,826
- --------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 8,883 Telephone & Data Systems, Inc. 683,547
Services - 0.4%
- --------------------------------------------------------------------------------------------------------------------------
Total Investments in Common Stocks
(Cost - $133,921,717) -- 93.0% 166,679,504
- --------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Short-Term Securities
- --------------------------------------------------------------------------------------------------------------------------
$ 11,893,394 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (a) 11,893,394
1,424,750 Merrill Lynch Liquidity Series,
LLC Money Market Series (a)(b) 1,424,750
- --------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost - $13,318,144) -- 7.4% 13,318,144
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost - $147,239,861**) - 100.4% 179,997,648
Liabilities in Excess of Other Assets - (0.4%) (708,769)
-------------
Net Assets - 100.0% 179,288,879
=============
* 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.
** The cost and unrealized appreciation/depreciation on investments as of
December 31, 2004, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 148,388,460
=============
Gross unrealized appreciation $ 34,981,906
Gross unrealized depreciation (3,372,718)
-------------
Net unrealized appreciation $ 31,609,188
=============
+ Non-income producing security.
(a) 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/Dividend
Affiliate Net Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 5,280,906 $ 137,537
Merrill Lynch Liquidity Series, LLC
Money Market Series $ 1,394,750 $ 3,603
Merrill Lynch Premier Institutional Fund $ (10,000) 177
--------------------------------------------------------------------------
(b) Security was purchased with the cash proceeds from securities loans.
(c) Security, or portion of security, is on loan.
Financial futures contracts purchased as of December 31, 2004 were as
follows:
--------------------------------------------------------------------------
Number of Expiration Unrealized
Contracts Issue Date Face Value Appreciation
--------------------------------------------------------------------------
38 S&P 400 MidCap Index March 2005 $ 12,278,652 $ 362,827
--------------------------------------------------------------------------
See Notes to Financial Statements.
14
Master Mid-Cap Index Series
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2004
================================================================================================================================
Assets: Investments in unaffiliated securities, at value (including
securities loaned of $1,375,380) (identified cost - $133,921,717) . $ 166,679,504
Investments in affiliated securities, at value (identified
cost - $13,318,144) ............................................... 13,318,144
Cash on deposit for financial futures contracts ................... 532,000
Cash .............................................................. 3,101
Receivables:
Dividends ................................................ $ 113,976
Securities sold .......................................... 100,737
Contributions ............................................ 88,055
Variation margin ......................................... 35,150
Interest from affiliates ................................. 18,279
Securities lending ....................................... 532 356,729
-------------
Prepaid expenses and other assets ................................. 99,748
-------------
Total assets ...................................................... 180,989,226
-------------
================================================================================================================================
Liabilities: Collateral on securities loaned, at value ......................... 1,424,750
Payables:
Withdrawals ................................................. 260,873
Investment adviser .......................................... 1,674
Other affiliates ............................................ 843 263,390
-------------
Accrued expenses .................................................. 12,207
-------------
Total liabilities ................................................. 1,700,347
-------------
================================================================================================================================
Net Assets: Net assets ........................................................ $ 179,288,879
=============
================================================================================================================================
Net Assets Investors' capital ................................................ $ 146,168,265
Consist of: Unrealized appreciation-net ....................................... 33,120,614
-------------
Net assets ........................................................ $ 179,288,879
=============
================================================================================================================================
See Notes to Financial Statements.
15
Master Mid-Cap Index Series
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
================================================================================================================================
Investment Dividends ......................................................... $ 1,551,297
Income: Interest from affiliates .......................................... 137,537
Securities lending-net ............................................ 3,780
-------------
Total income ...................................................... 1,692,614
-------------
================================================================================================================================
Expenses: Professional fees ................................................. $ 40,571
Custodian fees .................................................... 27,035
Accounting services ............................................... 20,706
Investment advisory fees .......................................... 13,995
Printing and shareholder reports .................................. 2,837
Trustees' fees and expenses ....................................... 1,495
Other ............................................................. 16,772
-------------
Total expenses .................................................... 123,411
-------------
Investment income-net ............................................. 1,569,203
-------------
================================================================================================================================
Realized & Unrealized Realized gain on:
Gain - Net: Investments-net .............................................. 4,368,471
Futures contracts-net ........................................ 835,145 5,203,616
-------------
Change in unrealized appreciation on:
Investments-net .............................................. 15,020,959
Futures contracts-net ........................................ 161,210 15,182,169
------------- -------------
Total realized and unrealized gain-net ............................ 20,385,785
-------------
Net Increase in Net Assets Resulting from Operations .............. $ 21,954,988
=============
================================================================================================================================
See Notes to Financial Statements.
16
Master Mid-Cap Index Series
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
December 31,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
================================================================================================================================
Operations: Investment income-net ............................................. $ 1,569,203 $ 679,956
Realized gain-net ................................................. 5,203,616 391,850
Change in unrealized appreciation-net ............................. 15,182,169 20,373,081
------------- -------------
Net increase in net assets resulting from operations .............. 21,954,988 21,444,887
------------- -------------
================================================================================================================================
Capital Proceeds from contributions ....................................... 103,778,165 27,919,458
Transactions: Fair value of withdrawals ......................................... (30,302,152) (1,487,438)
------------- -------------
Net increase in net assets derived from capital transactions ...... 73,476,013 26,432,020
------------- -------------
================================================================================================================================
Net Assets: Total increase in net assets ...................................... 95,431,001 47,876,907
Beginning of year ................................................. 83,857,878 35,980,971
------------- -------------
End of year ....................................................... $ 179,288,879 $ 83,857,878
============= =============
================================================================================================================================
See Notes to Financial Statements.
17
Master Mid-Cap Index Series
FINANCIAL HIGHLIGHTS
The following ratios have For the Year Ended December 31,
been derived from information provided ----------------------------------------------------------
in the financial statements. 2004 2003 2002 2001 2000
==============================================================================================================================
Total Investment
Return*: 16.41% 35.53% (14.80%) (.71%) --
======== ======== ======== ======== ========
==============================================================================================================================
Ratios to Expenses, net of reimbursement ....... .09% .17% .08% .08% .08%
Average Net ======== ======== ======== ======== ========
Assets: Expenses ............................. .09% .17% .38% .56% 1.37%
======== ======== ======== ======== ========
Investment income-net ................ 1.12% 1.06% 1.06% 1.23% 1.71%
======== ======== ======== ======== ========
==============================================================================================================================
Supplemental Net assets, end of year (in thousands) $179,289 $ 83,858 $ 35,981 $ 5,602 $ 13,167
Data: ======== ======== ======== ======== ========
Portfolio turnover ................... 17.25% 8.25% 42.18% 99.59% 50.32%
======== ======== ======== ======== ========
==============================================================================================================================
* Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
See Notes to Financial Statements.
18
Master Mid-Cap Index Series
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Master Mid-Cap 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 - Equity securities that are held by the Series
that are traded on stock exchanges or the Nasdaq National Market are
valued at the last sale price or official close price on the exchange, as
of the close of business on the day the securities are being valued or,
lacking any sales, at the last available bid price for long positions, and
at the last available ask price for short positions. In cases where equity
securities are traded on more than one exchange, the securities are valued
on the exchange designated as the primary market by or under the authority
of the Board of Trustees of the Trust. Long positions traded in the
over-the-counter ("OTC") market, Nasdaq Small Cap or Bulletin Board are
valued at the last available bid price or yield equivalent obtained from
one or more dealers or pricing services approved by the Board of Trustees
of the Trust. Short positions traded in the OTC market are valued at the
last available ask price. Series securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest
and most representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC
market, the last ask price. Options purchased are valued at their last
sale price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last bid price. Swap agreements are
valued daily based upon quotations from market makers. Financial futures
contracts and options thereon, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges. Obligations
with remaining maturities of 60 days or less are valued at amortized cost
unless the Investment Adviser believes that this method no longer produces
fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the
Series. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under
the direction of the Board of Trustees of the Trust, including valuations
furnished by the pricing services retained by the Trust, which may use a
matrix system for valuations. The procedures of a pricing service and its
valuations are reviewed by the officers of the Trust under the general
supervision of the Board of Trustees. Such valuations and procedures will
be reviewed periodically by the Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed each
day at various times prior to the close of business on the New York Stock
Exchange ("NYSE"). The values of such securities used in computing the net
assets of the Series are determined as of such times. Foreign currency
exchange rates also are generally determined prior to the close of
business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which
they are determined and the close of business on the NYSE that may not be
reflected in the computation of the Series' net assets. If events (for
example, a company announcement, market volatility or a natural disaster)
occur during such periods that are expected to materially affect the value
of such securities, those securities may be valued at their fair value as
determined in good faith by the Board of Trustees or by the Investment
Adviser using a pricing service and/or procedures approved by the Board of
Trustees.
19
Master Mid-Cap Index Series
NOTES TO FINANCIAL STATEMENTS (continued)
(b) Derivative financial instruments - The Series may engage in various
portfolio investment strategies both to increase the return of the Series and to
hedge, or protect, its exposure to interest rate movements and movements in the
securities markets. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
o Financial futures contracts - The Series may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the
Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to
the contract, the Series agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the contract.
Such receipts or payments are known as variation margin and are recorded
by the Series as unrealized gains or losses. When the contract is closed,
the Series records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed.
o 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.
(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. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(e) 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 investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Series may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Series could experience
delays and costs in gaining access to the collateral.
20
Master Mid-Cap Index Series
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
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 of FAM.
FAM is responsible for the management of the Series' portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Series. For such services, the Series pays a monthly
fee at an annual rate of .01% of the Series' average daily net assets.
The Series has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its
affiliates. Pursuant to that order, the 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 Series
advised by FAM or its affiliates. For the year ended December 31, 2004, MLIM,
LLC received $1,642 in securities lending agent fees.
For the year ended December 31, 2004, the Series reimbursed FAM $2,973 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, ML & Co. and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 2004 were $92,389,740 and $22,049,455, 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 Series
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.
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Investors and Board of Trustees of
Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master Mid-Cap 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 Trust's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
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. 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
Mid-Cap 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
22
Officers and Trustees
Number of
Portfolios Other
in Fund Public
Position(s) Length Complex Directorship
Held with of Time Principal Occupation(s) During Past Overseen by Held by
Name Address & Age Trust Served 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
====================================================================================================================================
Terry K. P.O. Box 9011 President 2000 to President and Chairman of the 124 Funds None
Glenn* Princeton, NJ and Trustee present Merrill Lynch Investment Managers, 163 Portfolios
08543-9011 L.P. ("MLIM")/Fund Asset
Age: 64 Management, L.P. ("FAM")-advised
funds since 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 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 Trust
based on his present and former positions with MLIM, FAM, FAMD, Princeton Services and Princeton Administrators, L.P.
The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72. As Trust President, Mr. Glenn serves at the pleasure of the Board of Trustees.
====================================================================================================================================
Independent Trustees*
====================================================================================================================================
Donald W. P.O. Box 9095 Trustee 2002 to General Partner of The Burton 23 Funds ITC Delta-
Burton Princeton, NJ present Partnership, Limited partnership 42 Portfolios Com, Inc.,
08543-9095 (an Investment Partnership) since Knology,
Age: 60 1979; Managing General Partner of Inc.,
The South Atlantic Venture Funds, Symbion,
since 1983; Member of the Inc.
Investment Advisory Committee of
the Florida State Board of
Administration since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
M. Colyer P.O. Box 9095 Trustee 2000 to James R. Williston Professor of 24 Funds Cambridge
Crum Princeton, NJ present Investment Management Emeritus, 43 Portfolios Bancorp
08543-9095 Harvard Business School since
Age: 72 1996; James R. Williston Professor of
Investment Management, Harvard
Business School from 1971 to 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie P.O. Box 9095 Trustee 2000 to Professor of Finance and 23 Funds None
Simon Princeton, NJ present Economics, Graduate School of 42 Portfolios
Hodrick 08543-9095 Business, Columbia University
Age: 42 since 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
David H. P.O Box 9095 Trustee 2003 to Consultant with Putnam Investments 23 Funds None
Walsh Princeton, NJ present from 1993 to 2003 and employed in 42 Portfolios
08543-9095 various capacities therewith from
Age: 63 1973 to 1992; Director, The
National Audubon Society since
1998; Director, The American
Museum of Fly Fishing since 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
23
Officers and Trustees (concluded)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held with of Time Principal Occupation(s) Overseen by Held
Name Address & Age Trust Served During Past 5 Years Trustee by Trustee
=================================================================================================================================
Independent Trustees* (concluded)
=================================================================================================================================
Fred G. P.O. Box 9095 Trustee 2000 to Managing Director of FGW 23 Funds Watson
Weiss Princeton, NJ present Associates since 1997; 42 Portfolios Pharmaceuticals,
08543-9095 Vice President, Planning, Inc.
Age: 63 Investment and Development
of Warner Lambert Co. from
1979 to 1997; Director of
Michael J. Fox Foundation for
Parkinson's Research since
2000; Director of BTG
International, PLC (a global
technology commercialization
company) since 2001.
* The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72.
=================================================================================================================================
Trust Officers
=================================================================================================================================
Donald C. P.O. Box 9011 Vice 1997 to First Vice President of FAM and MLIM since 1997 and
Burke Princeton, NJ President present Treasurer thereof since 1999; Senior Vice President and
08543-9011 and and Treasurer of Princeton Services since 1999 and Director
Age: 44 Treasurer 1999 to since 2004; Vice President of FAMD since 1999; Vice
present President of MLIM and FAM from 1990 to 1997; Director of
Taxation of MLIM from 1990 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 Senior 1999 to President of MLIM/FAM-advised funds since 2005; President of
Doll, Jr. Princeton, NJ Vice present MLIM and FAM since 2001; Co-Head (Americas Region) thereof
08543-9011 President from 2000 to 2001 and Senior Vice President from 1999 to
Age: 50 2001; President and Director of Princeton Services, Inc.
since 2001; President of Princeton Administrators, L.P.
since 2001; Chief Investment Officer of Oppenheimer Funds,
Inc. from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. P.O. Box 9011 Vice 1999 to Managing Director and Head of Global Index and Enhanced
Vella Princeton, NJ President present Index products for Merrill Lynch Quantitative Advisors since
08543-9011 1999; Managing Director and Head of the Global Index and
Age: 48 Enhanced Index business at Bankers Trust from 1984 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O Box 9011 Chief 2004 to Chief Compliance officer of the MLIM/FAM-advised funds and
Hiller Princeton, NJ Compliance present First Vice President and Chief Compliance Officer of MLIM
08534 Officer since 2004; Global Director of Compliance at Morgan Stanley
Age: 53 Investment Management from 2002 to 2004; Managing Director
and Global Director of Compliance at Citigroup Asset
Management from 2000 to 2002; Chief Compliance Officer at
Soros Fund Management in 2000; Chief Compliance Officer at
Prudential Financial from 1995 to 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Secretary of MLIM, FAM, FAMD and Princeton Services since
Pellegrino Princeton, NJ present 2004; Director (Legal Advisory) of MLIM since 2002; Vice
08543-9011 President of MLIM from 1999 to 2002; Attorney associated
Age: 44 with MLIM since 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
* Officers of the Trust serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Trust's Officers and Trustees is available in the Trust's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
JPMorgan Chase Bank
4 Chase Metro Tech Center, 18th floor
Brooklyn, NY 11245
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 Trustee and M. Coyler
Crum, Trustee of Quantitative Master Series Trust retired. The Trust's Board of
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 Investment Officer of the Trust.
24
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
(a) Audit Fees - Fiscal Year Ending December 31, 2004 - $25,500
Fiscal Year Ending December 31, 2003 - $25,200
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2004 - $0
Fiscal Year Ending December 31, 2003 - $0
(c) Tax Fees - Fiscal Year Ending December 31, 2004 - $8,000
Fiscal Year Ending December 31, 2003 - $8,500
The nature of the services include tax compliance, tax advice and tax
planning.
(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 - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Master Mid Cap Index Series of Quantitative Master Series Trust
By: /s/ Robert C. Doll, Jr.
-------------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Master Mid Cap 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
Master Mid Cap Index Series of Quantitative Master Series Trust
Date: February 24, 2005
By: /s/ Donald C. Burke
-------------------------------------
Donald C. Burke,
Chief Financial Officer of
Master Mid Cap Index Series of Quantitative Master Series Trust
Date: February 24, 2005