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: S&P 500 Index Fund of Merrill Lynch Index Funds, Inc.
Master S&P 500 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, S&P 500 Index Fund of Merrill Lynch Index Funds, Inc. and Master
S&P 500 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: 12/31/05
Date of reporting period: 01/01/05 - 12/31/05
Item 1 - Report to Stockholders
Merrill Lynch
S&P 500 Index Fund
Of Merrill Lynch Index Funds, Inc.
Annual Report
December 31, 2005
Merrill Lynch S&P 500 Index Fund
Important Tax Information
The following information is provided with respect to the ordinary income
distributions paid by Merrill Lynch S&P 500 Index Fund during the fiscal year
ended December 31, 2005:
================================================================================
Record Date July 21, 2005 December 15, 2005
Payable Date July 27, 2005 December 21, 2005
================================================================================
Qualified Dividend
Income for Individuals 100% 100%
- --------------------------------------------------------------------------------
Dividends Qualifying for the
Dividends Received Deduction
for Corporations 100% 100%
- --------------------------------------------------------------------------------
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.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
2 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
A Letter From the President
Dear Shareholder
On balance, 2005 was a year of "muddling through" for the U.S. financial
markets, as oil prices reached new record highs, the Federal Reserve Board (the
Fed) increased the target federal funds rate from 2.25% to 4.25%, the housing
market and the consumer finally showed some signs of slowing, and Hurricanes
Katrina and Rita ravaged the Gulf Coast, causing yet untold economic damage.
Although they struggled, stocks managed to post their third straight year of
positive performance. The year was equally uncertain for fixed income markets,
which were bemused by a flattening yield curve and a number of significant
credit events that brought a slowdown in high yield market returns. Notably, the
one-year results for the major asset classes -- stocks, bonds and cash -- were
the closest they have been in more than 100 years. For the 12- and six-month
periods ended December 31, 2005, most of the major market indexes managed to
land in positive territory:
Total Returns as of December 31, 2005 6-month 12-month
===========================================================================================
U.S. equities (Standard & Poor's 500 Index) + 5.77% + 4.91%
- -------------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) + 5.88 + 4.55
- -------------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +14.88 +13.54
- -------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) - 0.08 + 2.43
- -------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.60 + 3.51
- -------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) + 1.48 + 2.26
- -------------------------------------------------------------------------------------------
In hindsight, these numbers are reasonably good given the headwinds facing the
markets in 2005. U.S. equities found support in strong corporate earnings, low
core inflation and healthy company balance sheets. Strength in the global
economy and non-U.S. equity markets helped, as did robust dividend-distribution,
share-buyback and merger-and-acquisition activity. International stocks had an
excellent year, with many markets benefiting from strong economic statistics,
trade surpluses and solid finances. In the U.S. bond market, long-term yields
remained low and, at year-end, the Treasury curve appeared ready to invert.
As 2006 begins, the largest question marks center on the Fed's future moves, the
U.S. consumer's ability (or inability) to continue spending, the direction of
the U.S. dollar following a year of appreciation and the potential for continued
strong economic and corporate earnings growth. As you turn the calendar and
consider how these factors might impact your investments, remember that the new
year is a good time to meet with your financial advisor to review your financial
goals, and to make portfolio changes where necessary. For investing insights and
timely "food for thought" for investors, we also invite you to visit Shareholder
magazine at www.mlim.ml.com/shareholdermagazine.
As always, 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 Director/Trustee
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 3
A Discussion With Your Fund's Portfolio Managers
Amid a volatile investing environment, the Fund was able to meet its
objective of closely replicating the returns of the S&P 500 Index during the
year.
How did the portfolio perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended December 31, 2005, Merrill Lynch S&P 500 Index
Fund's Class A and Class I Shares had total returns of +4.38% and +4.63%,
respectively. For the same period, the benchmark Standard & Poor's 500 (S&P 500)
Index returned +4.91%.
As the returns indicate, the Fund met its objective of closely tracking the
performance of the S&P 500, a market-weighted index composed of 500 common
stocks issued by large-capitalization companies in a wide range of businesses.
The stocks included in the Index collectively represent a substantial portion of
all common stocks publicly traded in the United States. As the value of the S&P
500 Index fluctuated during the past 12 months, the Fund's performance generally
tracked that of the Index.
The U.S. equity markets exhibited substantial volatility over the 12-month
period, moving sideways for much of the year. The period got off to a rough
start after a very strong fourth quarter of 2004. Economically sensitive and
small-capitalization stocks fared the worst out of the gate. January 2005 was
characterized by mixed economic data, higher interest rates, disappointing
corporate earnings reports and climbing oil prices. In February, the market
reversed course and performed well, even as productivity growth slowed and oil
prices continued to climb. By March, however, stock prices resumed their
downward slide, hurt by a combination of a worse-than-expected trade deficit,
mixed economic news, continued-high oil prices and rising interest rates.
In April, retail sales, payroll data, and consumer and business sentiment
weakened. For most of the month, equity markets were dogged by continuing
inflation concerns, particularly as the price of oil climbed above $57 per
barrel. The month closed with the release of March data indicating a
particularly large jump in the Consumer Price Index, which worried investors
concerned about the prospect of higher interest rates. May brought the
announcement of slower-than-expected economic growth (with 3.1% gross domestic
product growth in the first quarter). But despite concerns about slower economic
activity, decelerating corporate profit growth and high oil prices,
first-quarter earnings reports remained strong, leading to a stock market rally.
June, however, brought a slowdown in the equity market as further worries about
a slower economy dampened markets.
July was an impressive month for equity performance. The market was able to
overcome the drag provided by a strong dollar, higher energy prices and a major
terrorist attack in London. That attack caused an immediate 4% drop in the S&P
500 Index. However, investors quickly rebounded, and the market losses were
recovered only one day later. August brought another reversal, as higher oil
prices continued to engender fears of economic weakness. In the aftermath of
Hurricane Katrina, the price of oil reached $70 per barrel. The market turned
slightly positive in September as improved profits in the energy sector offset
weakness in the retail, transportation, tourism and insurance sectors.
Stock prices slid again in October amid continued signs of a slower economy and
renewed concerns about inflation. Despite economic growth of 4.1% for the third
quarter of 2005, short-term interest rates rose, oil prices remained
historically high and consumer confidence declined. In November, equities were
resilient in the face of further interest rate hikes, high energy prices and the
strength of the U.S. dollar, which cut into the profits of domestic companies
that do business internationally. Stock values rebounded as companies' strong
productivity and high profit margins led to solid earnings growth, and as oil
prices fell to the mid-$50-per-barrel range. After nearly six weeks of stock
market gains, equity performance was uninspiring in December, with thin trading
volumes causing volatile movements in stock prices. Compounding the mixed
results and leaving investors uncertain about the direction of the economy in
2006 was the fact that the yield curve inverted between the two-year and 10-year
sectors at the end of December. That is, 10-year bond yields fell below two-year
yields. Such inversions are historically a harbinger of an economic downturn.
For the full year, the S&P 500 Index's +4.91% return lagged the +12.56% return
of the S&P MidCap 400 Index and the +7.68% return of the S&P SmallCap 600 Index.
4 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
As expected, interest rates moved considerably during the period as the yield
curve flattened. The Federal Reserve Board continued its "measured" pace of
monetary tightening by raising the federal funds rate in 25 basis point
increments eight times in 2005. This brought the target short-term interest rate
to 4.25% by year-end.
What changes were made to the portfolio during the period?
Throughout the year, as changes were made to the composition of the S&P 500
Index, the Fund purchased and sold securities to maintain its objective of
replicating the risks and return of the benchmark.
The S&P 500 Index made the transition to a "free-float" or "float-adjusted"
methodology for calculating market capitalization. The transition occurred in
two phases taking place in March and then September. With the change, only the
shares of company stock that are readily available in the public market are used
to calculate a company's market capitalization. Float adjustment excludes shares
that are closely held by other publicly traded companies, control groups
(majority shareholders retaining their majority) or government agencies.
Accordingly, the number of shares used to make index calculations reflect only
those shares that actually are available to investors, not all of a company's
outstanding shares. The value of a float-adjusted index more accurately reflects
the combined market value of companies available for public trading. To maintain
a tight tracking to the benchmark, we adjusted the portfolio to be in line with
the revised composition of the Index.
How would you characterize the Fund's position at the close of the period?
After several years of above-average growth, the economy and corporate earnings
are likely to slow in 2006. Against this backdrop, the portfolio remains
positioned to match the risk characteristics of its benchmark, whatever
direction the market takes.
Vincent J. Costa, CFA
Vice President and Co-Portfolio Manager
Debra L. Jelilian
Vice President and Co-Portfolio Manager
Jeffrey L. Russo, CFA
Vice President and Co-Portfolio Manager
January 9, 2006
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 5
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund, which offers 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 .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
ex-dividend date. Investment return and principal value of shares will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the different
levels of account maintenance, distribution and transfer agency fees applicable
to each class, which are deducted from the income available to be paid to
shareholders.
Recent Performance Results
6-Month 12-Month Since Inception
As of December 31, 2005 Total Return Total Return Total Return
==========================================================================================
ML S&P 500 Index Fund Class A Shares* +5.45% +4.38% +80.89%
- ------------------------------------------------------------------------------------------
ML S&P 500 Index Fund Class I Shares* +5.55 +4.63 +84.84
- ------------------------------------------------------------------------------------------
S&P 500(R) Index ** +5.77 +4.91 +90.47
- ------------------------------------------------------------------------------------------
* Cumulative total investment returns are based on changes in net asset
value for the periods shown, and assume reinvestment of all dividends and
capital gains distributions at net asset value on the ex-dividend date.
The Fund's inception date is 4/03/97.
** This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues. Since
inception total return is from 4/03/97.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
6 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
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 Standard & Poor's
500 Index. Values are from April 3, 1997 to December 2005.
S&P 500 S&P 500
Index Fund+-- Index Fund+-- Standard & Poor's
Class A Shares* Class I Shares* 500 Index++
4/03/97** $10,000 $10,000 $10,000
12/97 $13,053 $13,080 $13,103
12/98 $16,702 $16,774 $16,848
12/99 $20,069 $20,204 $20,393
12/00 $18,138 $18,299 $18,537
12/01 $15,873 $16,069 $16,333
12/02 $12,282 $12,451 $12,724
12/03 $15,723 $15,981 $16,373
12/04 $17,329 $17,666 $18,155
12/05 $18,089 $18,484 $19,047
* Assuming transaction costs and other operating expenses, including
advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Master S&P 500 Index Series of
Quantitative Master Series Trust. The Trust's investments are allocated
among common stocks in approximately the same weightings as the S&P 500
Index.
++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
Average Annual Total Return
Class A Shares Return
================================================================================
One Year Ended 12/31/05 +4.38%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/05 -0.05
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/05 +7.01
- --------------------------------------------------------------------------------
Class I Shares Return
================================================================================
One Year Ended 12/31/05 +4.63%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/05 +0.20
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/05 +7.28
- --------------------------------------------------------------------------------
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 7
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on July 1, 2005 and held through
December 31, 2005) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders' ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value July 1, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
=========================================================================================================
Actual
=========================================================================================================
Class A $1,000 $1,054.50 $3.19
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,055.50 $1.91
=========================================================================================================
Hypothetical (5% annual return before expenses)**
=========================================================================================================
Class A $1,000 $1,021.99 $3.14
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,023.24 $1.88
- ---------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.62% for Class A and .37% for Class I), multiplied by
the average account value over the period, multiplied by 183/365 (to
reflect the one-half year period shown). Because the Fund is a feeder
fund, the expense table example reflects the expenses of both the feeder
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 365.
8 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Statement of Assets and Liabilities Merrill Lynch S&P 500 Index Fund
As of December 31, 2005
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investment in Master S&P 500 Index Series (the "Series"), at value
(identified cost--$1,941,908,907) ............................................ $ 2,441,915,313
Prepaid expenses ............................................................... 36,471
---------------
Total assets ................................................................... 2,441,951,784
---------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Payables:
Administrative fees ........................................................ $ 475,729
Distributor ................................................................ 192,801 668,530
---------------
Accrued expenses and other liabilities ......................................... 464,878
---------------
Total liabilities .............................................................. 1,133,408
---------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ..................................................................... $ 2,440,818,376
===============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.0001 par value, 250,000,000 shares authorized $ 5,876
Class I Shares of Common Stock, $.0001 par value, 250,000,000 shares authorized 10,096
Paid-in capital in excess of par ............................................... 2,204,638,266
Undistributed investment income--net ........................................... $ 622,175
Accumulated realized capital losses allocated from the Series--net ............. (264,464,443)
Unrealized appreciation allocated from the Series--net ......................... 500,006,406
---------------
Total accumulated earnings--net ................................................ 236,164,138
---------------
Net Assets ..................................................................... $ 2,440,818,376
===============
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $896,795,549 and 58,762,750 shares outstanding . $ 15.26
===============
Class I--Based on net assets of $1,544,022,827 and 100,955,076 shares outstanding $ 15.29
===============
See Notes to Financial Statements.
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 9
Statement of Operations Merrill Lynch S&P 500 Index Fund
For the Year Ended December 31, 2005
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Series:
Dividends .................................................................. $ 47,009,869
Interest from affiliates ................................................... 406,790
Securities lending ......................................................... 287,481
Expenses ................................................................... (830,733)
---------------
Total income .................................................................. 46,873,407
---------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Administration fees ........................................................... $ 6,242,399
Account maintenance fees--Class A ............................................. 2,294,067
Transfer agent fees ........................................................... 1,560,689
Printing and shareholder reports .............................................. 125,183
Professional fees ............................................................. 66,200
Registration fees ............................................................. 39,673
Directors' fees and expenses .................................................. 28,479
Other ......................................................................... 144,337
---------------
Total expenses ................................................................ 10,501,027
---------------
Investment income--net ........................................................ 36,372,380
---------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Series--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ........................................................... (21,393,989)
Futures contracts--net ..................................................... 644,383 (20,749,606)
---------------
Change in unrealized appreciation/depreciation on investments and futures
contracts--net .............................................................. 98,239,241
---------------
Total realized and unrealized gain--net ....................................... 77,489,635
---------------
Net Increase in Net Assets Resulting from Operations .......................... $ 113,862,015
===============
See Notes to Financial Statements.
10 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Statements of Changes in Net Assets Merrill Lynch S&P 500 Index Fund
For the Year Ended
December 31,
----------------------------------
Increase (Decrease) in Net Assets: 2005 2004
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ........................................................ $ 36,372,380 $ 38,728,843
Realized loss--net ............................................................ (20,749,606) (22,528,106)
Change in unrealized appreciation/depreciation--net ........................... 98,239,241 228,800,431
----------------------------------
Net increase in net assets resulting from operations .......................... 113,862,015 245,001,168
----------------------------------
===================================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A .................................................................... (12,092,872) (12,456,120)
Class I .................................................................... (24,385,969) (25,908,960)
----------------------------------
Net decrease in net assets resulting from dividends to shareholders ........... (36,478,841) (38,365,080)
----------------------------------
===================================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from capital share transactions . (229,596,389) 77,228,211
----------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ....................................... (152,213,215) 283,864,299
Beginning of year ............................................................. 2,593,031,591 2,309,167,292
----------------------------------
End of year* .................................................................. $ 2,440,818,376 $ 2,593,031,591
==================================
* Undistributed investment income--net ..................................... $ 622,175 $ 728,636
==================================
See Notes to Financial Statements.
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 11
Financial Highlights Merrill Lynch S&P 500 Index Fund
Class A
--------------------------------------------------------------------
For the Year Ended December 31,
The following per share data and ratios have been derived --------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ....... $ 14.81 $ 13.62 $ 10.75 $ 14.05 $ 16.16
--------------------------------------------------------------------
Investment income--net ................... .19+ .20+ .14+ .13+ .10
Realized and unrealized gain (loss)--net . .46 1.19 2.87 (3.31) (2.12)
--------------------------------------------------------------------
Total from investment operations ......... .65 1.39 3.01 (3.18) (2.02)
--------------------------------------------------------------------
Less dividends from investment income--net (.20) (.20) (.14) (.12) (.09)
--------------------------------------------------------------------
Net asset value, end of year ............. $ 15.26 $ 14.81 $ 13.62 $ 10.75 $ 14.05
====================================================================
==================================================================================================================================
Total Investment Return
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....... 4.38% 10.22% 28.02% (22.62%) (12.49%)
====================================================================
==================================================================================================================================
Ratios to Average Net Assets*
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........... .60% .59% .61% .61% .62%
====================================================================
Expenses ................................. .60% .59% .61% .61% .63%
====================================================================
Investment income--net ................... 1.27% 1.42% 1.19% 1.03% .71%
====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ... $ 896,796 $ 939,608 $ 880,875 $ 648,569 $ 772,750
====================================================================
Portfolio turnover from the Series ....... 10.80% 5.84% 3.60% 4.59% 3.21%
====================================================================
* Includes the Fund's share of the Series' allocated expenses and investment
income--net.
+ Based on average shares outstanding.
See Notes to Financial Statements.
12 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Financial Highlights (concluded) Merrill Lynch S&P 500 Index Fund
Class I
--------------------------------------------------------------------
For the Year Ended December 31,
The following per share data and ratios have been derived --------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ....... $ 14.84 $ 13.64 $ 10.76 $ 14.08 $ 16.18
--------------------------------------------------------------------
Investment income--net ................... .23+ .24+ .17+ .16+ .13
Realized and unrealized gain (loss)--net . .46 1.19 2.88 (3.33) (2.10)
--------------------------------------------------------------------
Total from investment operations ......... .69 1.43 3.05 (3.17) (1.97)
--------------------------------------------------------------------
Less dividends from investment income--net (.24) (.23) (.17) (.15) (.13)
--------------------------------------------------------------------
Net asset value, end of year ............. $ 15.29 $ 14.84 $ 13.64 $ 10.76 $ 14.08
====================================================================
==================================================================================================================================
Total Investment Return
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....... 4.63% 10.55% 28.35% (22.51%) (12.19%)
====================================================================
==================================================================================================================================
Ratios to Average Net Assets*
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........... .35% .34% .36% .36% .37%
====================================================================
Expenses ................................. .35% .34% .36% .36% .38%
====================================================================
Investment income--net ................... 1.52% 1.68% 1.44% 1.27% .97%
====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ... $1,544,023 $1,653,423 $1,428,292 $ 931,917 $1,108,832
====================================================================
Portfolio turnover from the Series ....... 10.80% 5.84% 3.60% 4.59% 3.21%
====================================================================
* Includes the Fund's share of the Series' allocated expenses and investment
income--net.
+ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 13
Notes to Financial Statements Merrill Lynch S&P 500 Index Fund
1. Significant Accounting Policies:
Merrill Lynch S&P 500 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'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 Fund seeks to
achieve its investment objective by investing all of its assets in Master S&P
500 Index Series (the "Series") of Quantitative Master Series Trust, which has
the same investment objective and strategies 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
percentage of the Series owned by the Fund at December 31, 2005 was 82.9%. The
Fund offers multiple 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 their 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 1(a)
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 and distributions paid by the Fund
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, $38,452,765 has been reclassified between accumulated realized capital
losses on investments and paid-in capital in excess of par as a result of a
permanent difference attributable to net gains realized on the distribution of
securities not recognized for tax purposes. This reclassification has no effect
on net assets or net asset values per share.
2. Transactions with Affiliates:
The Corporation has entered into an Administrative Services Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general partner of MLIM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund
pays a monthly fee at an annual rate of .245% 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. MLIM has entered into a voluntary arrangement with the Fund under which
the expenses incurred by each class of shares of the Fund (excluding account
maintenance fees) will not exceed .40%. This arrangement has a one-year term and
is renewable.
The Fund may pay a monthly investment advisory fee at an annual rate of .05%
based upon the average daily value of the Fund's net assets. However, the
Investment Adviser has entered into a contractual agreement with the Fund
pursuant to which the investment advisory fee will not be charged to the Fund so
long as the Fund remains invested in the Series. As a result, the investment
advisory fee has not been accrued and will not be payable by the Fund for the
period covered by this report.
14 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Notes to Financial Statements (concluded) Merrill Lynch S&P 500 Index Fund
The Corporation has also entered into a Distribution Agreement and Distribution
Plan with FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is an
indirect, 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 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"), an affiliate of MLIM, 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
MLIM, PSI, FAMD, FDS, and/or ML & Co.
3. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $(229,596,389) and $77,228,211 for the years ended December 31, 2005 and the
year ended December 31, 2004, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 12,923,712 $ 191,625,954
Shares issued to shareholders in
reinvestment of dividends .............. 711,901 11,022,539
--------------------------------
Total issued ............................. 13,635,613 202,648,493
Shares redeemed .......................... (18,311,289) (272,700,248)
--------------------------------
Net decrease ............................. (4,675,676) $ (70,051,755)
================================
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 19,152,185 $ 266,604,093
Shares issued to shareholders in
reinvestment of dividends .............. 773,559 11,276,761
--------------------------------
Total issued ............................. 19,925,744 277,880,854
Shares redeemed .......................... (21,176,733) (295,567,495)
--------------------------------
Net decrease ............................. (1,250,989) $ (17,686,641)
================================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 29,513,490 $ 437,446,074
Shares issued to shareholders in
reinvestment of dividends .............. 1,521,707 23,608,528
--------------------------------
Total issued ............................. 31,035,197 461,054,602
Shares redeemed .......................... (41,483,347) (620,599,236)
--------------------------------
Net decrease ............................. (10,448,150) $(159,544,634)
================================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended December 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 38,557,248 $ 537,823,786
Shares issued to shareholders in
reinvestment of dividends .............. 1,718,853 25,111,714
--------------------------------
Total issued ............................. 40,276,101 562,935,500
Shares redeemed .......................... (33,555,631) (468,020,648)
--------------------------------
Net increase ............................. 6,720,470 $ 94,914,852
================================
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 was as follows:
- -------------------------------------------------------------------------------
12/31/2005 12/31/2004
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $ 36,478,841 $ 38,365,080
--------------------------------
Total taxable distributions .............. $ 36,478,841 $ 38,365,080
================================
As of December 31, 2005, the components of accumulated earnings on a tax basis
were as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income--net ...................... $ 622,175
Undistributed long-term capital gains--net .............. --
-------------
Total undistributed earnings--net ....................... 622,175
Capital loss carryforward ............................... (150,445,859)*
Unrealized gains--net ................................... 385,987,822**
-------------
Total accumulated earnings--net ......................... $ 236,164,138
=============
* On December 31, 2005, the Fund had a net capital loss carryforward of
$150,445,859, of which $4,944,930 expires in 2008, $14,600,496 expires in
2009, $73,055,477 expires in 2010, $7,823,922 expires in 2011, $21,618,948
expires in 2012 and $28,402,086 expires in 2013. This amount will be
available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
realization for tax purposes of unrealized gains/losses on certain futures
contracts and the deferral of post-October capital losses for tax
purposes.
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 15
Report of Independent Registered Public Accounting Firm
Merrill Lynch S&P 500 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 S&P 500 Index Fund, one of the series constituting Merrill Lynch Index
Funds, Inc. (the "Fund"), as of December 31, 2005, 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, 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 S&P 500 Index Fund of Merrill Lynch Index Funds, Inc. as of
December 31, 2005, 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, 2006
16 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Portfolio Information Master S&P 500 Index Series
As of December 31, 2005
S&P 500 Index Percent of
Sector Representation Total Investments
- --------------------------------------------------------------------------------
Financials .................................................. 19.1%
Information Technology ...................................... 13.5
Health Care ................................................. 11.9
Industrials ................................................. 10.1
Consumer Discretionary ...................................... 9.8
Consumer Staples ............................................ 8.6
Energy ...................................................... 8.3
Utilities ................................................... 3.0
Materials ................................................... 2.7
Telecommunication Services .................................. 2.7
Other* ...................................................... 10.3
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
For Series compliance purposes, the Series' sector classifications refer
to any one or more of the sector 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 sector sub-classifications for
reporting ease.
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 17
Summary Schedule of Investments Master S&P 500 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.
Shares Percent of
Industry Held Common Stocks Value Net Assets
===================================================================================================================================
Aerospace & Defense 211,920 Boeing Co. $ 14,885,261 0.5%
267,396 United Technologies Corp. 14,950,110 0.5
Other Securities 36,226,001 1.2
------------------------------
66,061,372 2.2
- -----------------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics 289,700 United Parcel Service, Inc. Class B 21,770,955 0.7
Other Securities 8,516,191 0.3
------------------------------
30,287,146 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
Airlines Other Securities 3,131,476 0.1
- -----------------------------------------------------------------------------------------------------------------------------------
Auto Components Other Securities 4,859,021 0.2
- -----------------------------------------------------------------------------------------------------------------------------------
Automobiles Other Securities 10,607,438 0.4
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages 543,428 The Coca-Cola Co. 21,905,583 0.7
435,588 PepsiCo, Inc. 25,734,539 0.9
Other Securities 16,412,054 0.6
------------------------------
64,052,176 2.2
- -----------------------------------------------------------------------------------------------------------------------------------
Biotechnology 324,047 Amgen, Inc. (a) 25,554,346 0.9
Other Securities 20,145,329 0.7
------------------------------
45,699,675 1.6
- -----------------------------------------------------------------------------------------------------------------------------------
Building Products Other Securities 5,306,302 0.2
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Markets 118,400 Goldman Sachs Group, Inc. 15,120,864 0.5
241,267 Merrill Lynch & Co., Inc. (b) 16,341,014 0.6
282,998 Morgan Stanley 16,057,307 0.5
Other Securities 46,480,248 1.6
------------------------------
93,999,433 3.2
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals Other Securities 45,863,837 1.6
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks 1,061,206 Bank of America Corp. 48,974,657 1.7
483,265 U.S. Bancorp 14,444,791 0.5
413,726 Wachovia Corp. (e) 21,869,556 0.7
439,022 Wells Fargo & Co. 27,583,752 0.9
Other Securities 56,087,250 1.9
------------------------------
168,960,006 5.7
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies Other Securities 20,662,290 0.7
- -----------------------------------------------------------------------------------------------------------------------------------
Communications Equipment 1,612,771 Cisco Systems, Inc. (a) 27,610,640 0.9
652,769 Motorola, Inc. 14,746,052 0.5
431,660 QUALCOMM, Inc. 18,595,913 0.6
Other Securities 19,127,115 0.7
------------------------------
80,079,720 2.7
- -----------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals 220,334 Apple Computer, Inc. (a) 15,839,811 0.5
617,916 Dell, Inc. (a) 18,531,301 0.6
752,117 Hewlett-Packard Co. 21,533,110 0.7
414,667 International Business Machines Corp. 34,085,627 1.2
Other Securities 19,086,182 0.7
------------------------------
109,076,031 3.7
- -----------------------------------------------------------------------------------------------------------------------------------
Construction & Engineering Other Securities 1,557,639 0.1
- -----------------------------------------------------------------------------------------------------------------------------------
Construction Materials Other Securities 1,656,284 0.1
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Finance 325,984 American Express Co. 16,775,137 0.6
Other Securities 21,616,751 0.7
------------------------------
38,391,888 1.3
18 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Summary Schedule of Investments (continued) Master S&P 500 Index Series
Shares Percent of
Industry Held Common Stocks Value Net Assets
===================================================================================================================================
Containers & Packaging Other Securities $ 5,354,450 0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Distributors Other Securities 1,871,607 0.1
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Consumer Services Other Securities 4,753,177 0.2
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 1,328,236 Citigroup, Inc. 64,459,293 2.2
926,456 JPMorgan Chase & Co. 36,771,039 1.2
Other Securities 10,673,986 0.4
------------------------------
111,904,318 3.8
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 1,025,535 AT&T, Inc. 25,115,352 0.8
Services 736,228 Verizon Communications, Inc. 22,175,187 0.8
Other Securities 17,610,778 0.6
------------------------------
64,901,317 2.2
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities Other Securities 46,241,955 1.6
- -----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment Other Securities 13,171,757 0.4
- -----------------------------------------------------------------------------------------------------------------------------------
Electronic Equipment & Other Securities 9,389,930 0.3
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services 151,754 Schlumberger Ltd. 14,742,901 0.5
Other Securities 35,367,450 1.2
------------------------------
50,110,351 1.7
- -----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 655,855 Wal-Mart Stores, Inc. (e) 30,694,014 1.0
Other Securities 40,171,567 1.4
------------------------------
70,865,581 2.4
- -----------------------------------------------------------------------------------------------------------------------------------
Food Products Other Securities 30,860,401 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities Other Securities 730,648 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & 317,540 Medtronic, Inc. (e) 18,280,778 0.6
Supplies Other Securities 44,523,498 1.5
------------------------------
62,804,276 2.1
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & 361,656 UnitedHealth Group, Inc. 22,473,304 0.8
Services Other Securities 72,015,313 2.4
------------------------------
94,488,617 3.2
- -----------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure Other Securities 45,890,668 1.6
- -----------------------------------------------------------------------------------------------------------------------------------
Household Durables Other Securities 22,440,736 0.8
- -----------------------------------------------------------------------------------------------------------------------------------
Household Products 879,964 Procter & Gamble Co. 50,932,316 1.7
Other Securities 17,659,364 0.6
------------------------------
68,591,680 2.3
- -----------------------------------------------------------------------------------------------------------------------------------
IT Services Other Securities 30,492,574 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
Independent Power Producers & Other Securities 18,923,418 0.6
Energy Traders
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates 199,488 3M Co. 15,460,320 0.5
2,774,181 General Electric Co. 97,235,044 3.3
535,025 Tyco International Ltd. 15,440,821 0.5
Other Securities 2,595,304 0.1
------------------------------
130,731,489 4.4
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance 681,507 American International Group, Inc. 46,499,223 1.6
Other Securities 97,346,260 3.3
------------------------------
143,845,483 4.9
- -----------------------------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail Other Securities 16,360,690 0.6
- -----------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services Other Securities 12,782,867 0.4
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products Other Securities 5,243,977 0.2
- -----------------------------------------------------------------------------------------------------------------------------------
Machinery Other Securities 42,143,447 1.4
- -----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 19
Summary Schedule of Investments (continued) Master S&P 500 Index Series
Shares Percent of
Industry Held Common Stocks Value Net Assets
===================================================================================================================================
Media 1,224,184 Time Warner, Inc. (e) $ 21,349,769 0.7%
Other Securities 77,574,869 2.7
------------------------------
98,924,638 3.4
- -----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining Other Securities 24,639,854 0.8
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities Other Securities 32,685,521 1.1
- -----------------------------------------------------------------------------------------------------------------------------------
Multiline Retail Other Securities 33,796,150 1.1
- -----------------------------------------------------------------------------------------------------------------------------------
Office Electronics Other Securities 3,532,144 0.1
- -----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 589,460 Chevron Corp. 33,463,644 1.2
368,178 ConocoPhillips 21,420,596 0.7
1,633,712 Exxon Mobil Corp. (d) 91,765,603 3.1
Other Securities 77,455,808 2.6
------------------------------
224,105,651 7.6
- -----------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products Other Securities 10,554,325 0.4
- -----------------------------------------------------------------------------------------------------------------------------------
Personal Products Other Securities 4,186,352 0.1
- -----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 407,317 Abbott Laboratories 16,060,509 0.5
298,477 Eli Lilly & Co. (e) 16,890,813 0.6
786,577 Johnson & Johnson 47,273,278 1.6
574,057 Merck & Co., Inc. 18,260,753 0.6
1,935,481 Pfizer, Inc. 45,135,417 1.5
352,399 Wyeth 16,235,022 0.6
Other Securities 30,101,238 1.0
------------------------------
189,957,030 6.4
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate Other Securities 22,614,685 0.8
- -----------------------------------------------------------------------------------------------------------------------------------
Road & Rail Other Securities 19,542,532 0.7
- -----------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 1,582,831 Intel Corp. 39,507,462 1.3
Equipment 426,272 Texas Instruments, Inc. 13,670,543 0.5
Other Securities 42,581,401 1.5
------------------------------
95,759,406 3.3
- -----------------------------------------------------------------------------------------------------------------------------------
Software 2,403,324 Microsoft Corp. (d) 62,846,923 2.1
Other Securities 41,763,685 1.4
------------------------------
104,610,608 3.5
- -----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail 557,686 Home Depot, Inc. (e) 22,575,129 0.8
201,540 Lowe's Cos., Inc. (e) 13,434,656 0.5
Other Securities 30,364,412 1.0
------------------------------
66,374,197 2.3
- -----------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Other Securities 11,464,299 0.4
Goods
- -----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance Other Securities 48,499,408 1.6
- -----------------------------------------------------------------------------------------------------------------------------------
Tobacco 546,718 Altria Group, Inc. 40,850,769 1.4
Other Securities 4,105,025 0.1
------------------------------
44,955,794 1.5
- -----------------------------------------------------------------------------------------------------------------------------------
Trading Companies & Other Securities 1,482,079 0.1
Distributors
- -----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 775,515 Sprint Nextel Corp. 18,116,030 0.6
Services Other Securities 6,564,735 0.2
------------------------------
24,680,765 0.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost--$2,397,523,040) 2,957,512,586 100.4
===================================================================================================================================
20 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Summary Schedule of Investments (concluded) Master S&P 500 Index Series
Beneficial Percent of
Interest Short-Term Securities Value Net Asset
===================================================================================================================================
$ 5,655,927 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (b) $ 5,655,927 0.2%
335,568,900 Merrill Lynch Liquidity Series, LLC
Money Market Series (b)(c) 335,568,900 11.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$341,224,827) 341,224,827 11.6
===================================================================================================================================
Total Investments (Cost--$2,738,747,867*) 3,298,737,413 112.0
Liabilities in Excess of Other Assets (352,955,686) (12.0)
-------------------------------
Net Assets $2,945,781,727 100.0%
===============================
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ........................................ $2,824,974,688
==============
Gross unrealized appreciation ......................... $ 680,614,727
Gross unrealized depreciation ......................... (206,852,002)
--------------
Net unrealized appreciation ........................... $ 473,762,725
==============
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Series, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Dividend/
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch & Co. (2,300) $192,551
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ (8,174,589) $484,157
Merrill Lynch Liquidity Series, LLC
Money Market Series $140,261,620 $342,485
--------------------------------------------------------------------------
(c) Security was purchased with the cash proceeds from securities loans.
(d) All or a portion of security held as collateral in connection with open
financial futures contracts.
(e) Security, or a portion of security, is on loan.
o "Other Securities" represent issues that are not identified as the largest
50 holdings of the Series and issues not exceeding 1% of net assets.
o For Series compliance purposes, the Series' industry classifications refer
to any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Series management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets. These
industry classifications are unaudited.
o Financial futures contracts purchased as of December 31, 2005 were as
follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
43 S&P 500 March
Index 2006 $13,560,267 $(71,167)
--------------------------------------------------------------------------
See Notes to Financial Statements.
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 21
Statement of Assets and Liabilities Master S&P 500 Index Series
As of December 31, 2005
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including securities loaned
of $323,644,778) (identified cost--$2,386,617,807) .......................... $ 2,941,171,572
Investments in affiliated securities, at value (identified cost--$352,130,060) 357,565,841
Cash ......................................................................... 158,171
Receivables:
Securities sold ........................................................... $ 30,392,116
Dividends ................................................................. 4,384,062
Contributions ............................................................. 2,260,621
Security lending .......................................................... 26,271 37,063,070
---------------
Prepaid expenses ............................................................. 23,277
---------------
Total assets ................................................................. 3,335,981,931
---------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value .................................... 335,568,900
Payables:
Withdrawals ............................................................... 50,530,323
Securities purchased ...................................................... 3,799,145
Variation margin .......................................................... 33,938
Other affiliates .......................................................... 32,256
Investment adviser ........................................................ 11,671 54,407,333
---------------
Accrued expenses and other liabilities ....................................... 223,971
---------------
Total liabilities ............................................................ 390,200,204
---------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ................................................................... $ 2,945,781,727
===============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Investors' capital ........................................................... $ 2,385,863,348
Unrealized appreciation--net ................................................. 559,918,379
---------------
Net Assets ................................................................... $ 2,945,781,727
===============
See Notes to Financial Statements.
22 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Statement of Operations Master S&P 500 Index Series
For the Year Ended December 31, 2005
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (including $192,551 from affiliates) ........................ $ 55,817,902
Interest from affiliates .............................................. 484,157
Securities lending .................................................... 342,485
---------------
Total income .......................................................... 56,644,544
---------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Accounting services ................................................... $ 423,819
Investment advisory fees .............................................. 151,287
Professional fees ..................................................... 145,417
Custodian fees ........................................................ 125,174
Printing and shareholder reports ...................................... 36,879
Trustees' fees and expenses ........................................... 25,379
Other ................................................................. 77,495
---------------
Total expenses ........................................................ 985,450
---------------
Investment income--net ................................................ 55,659,094
---------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments (including $262,619 from affiliates)--net .............. (73,164,162)
In-kind redemption--net ............................................ 43,525,535
Futures contracts--net ............................................. 775,521 (28,863,106)
---------------
Change in unrealized appreciation/depreciation--net:
Investments--net ................................................... 122,079,955
Futures contracts--net ............................................. (353,920) 121,726,035
----------------------------------
Total realized and unrealized gain--net ............................... 92,862,929
---------------
Net Increase in Net Assets Resulting from Operations .................. $ 148,522,023
===============
See Notes to Financial Statements.
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 23
Statements of Changes in Net Assets Master S&P 500 Index Series
For the Year Ended
December 31,
----------------------------------
Increase (Decrease) in Net Assets: 2005 2004
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................ $ 55,659,094 $ 54,363,547
Realized loss--net .................................................... (28,863,106) (31,855,334)
Change in unrealized appreciation/depreciation--net ................... 121,726,035 263,686,004
----------------------------------
Net increase in net assets resulting from operations .................. 148,522,023 286,194,217
----------------------------------
===================================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ........................................... 829,736,606 1,018,136,288
Fair value of withdrawals ............................................. (970,867,967) (840,535,190)
----------------------------------
Net increase (decrease) in net assets derived from capital transactions (141,131,361) 177,601,098
----------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets .......................................... 7,390,662 463,795,315
Beginning of year ..................................................... 2,938,391,065 2,474,595,750
----------------------------------
End of year ........................................................... $ 2,945,781,727 $ 2,938,391,065
==================================
See Notes to Financial Statements.
24 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Financial Highlights Master S&P 500 Index Series
For the Year Ended
December 31,
The following ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
==================================================================================================================================
Total Investment Return
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return .............. 4.96% 10.90% 28.70% (22.22%) (11.97%)
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. .03% .03% .04% .04% .05%
==================================================================
Investment income--net ............... 1.84% 1.99% 1.76% 1.59% 1.29%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $2,945,782 $2,938,391 $2,474,596 $1,726,705 $1,893,497
==================================================================
Portfolio turnover ................... 10.80% 5.84% 3.60% 4.59% 3.21%
==================================================================
See Notes to Financial Statements.
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 25
Notes to Financial Statements Master S&P 500 Index Series
1. Significant Accounting Policies:
Master S&P 500 Index Series (the "Series"), a non-diversified investment
company, 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 asked
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Trustees of the Trust.
Long positions traded in the 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 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.
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 asked
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 based upon quoted fair valuations
received daily by the Series from a pricing service or counter party. Financial
futures contracts and options thereon, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges. Obligations with
remaining maturities of 60 days or less are valued at amortized cost unless the
Investment Adviser believes that this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the Series.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Series, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Trust under the general supervision of the Trust's Board
of Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government securities,
money market instruments and certain fixed income securities is substantially
completed each day at various times prior to the close of business on the New
York Stock Exchange ("NYSE"). The values of such securities used in computing
the net assets of the 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 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 strategies to provide liquidity or as a proxy for a direct
investment in securities underlying the Series' index. Losses may arise due to
changes in the value of the contract or if the counterparty does not perform
under the contract.
o Financial futures contracts -- The Series may purchase or sell financial
futures contracts and options on such futures contracts. 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
26 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Notes to Financial Statements (continued) Master S&P 500 Index Series
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) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments. The
Fund invests in foreign securities, which may involve a number of risk factors
and special considerations not present with investments in securities of U.S.
corporations.
(d) Income taxes -- The Series is classified as a partnership for federal income
tax purposes. As such, each investor in the Series is treated as owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Series. Therefore, no federal income tax
provision is required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends and capital gains at various rates. It is
intended that the Series' assets will be managed so an investor in the Series
can satisfy the requirements of Subchapter M of the Internal Revenue Code.
(e) Security transactions and investment income -- Security transactions are
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.
(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 investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Series may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Series could experience
delays and costs in gaining access to the collateral. The Series also could
suffer a loss where the value of the collateral falls below the market value of
the borrowed securities, in the event of borrower default or in the event of
losses on investments made with cash collateral.
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 .005% of the average daily value of the Series' net
assets.
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 27
Notes to Financial Statements (concluded) Master S&P 500 Index Series
The Trust has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, or its affiliates.
As of December 31,2005, the Series lent securities with a value of $141,342,548
to MLPF&S or its affiliates. Pursuant to that order, the Trust 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 Trust and the
Series, invest cash collateral received by the Series for such loans, among
other things, in a private investment company managed by MLIM, LLC or in
registered money market funds advised by FAM or its affiliates. For the year
ended December 31, 2005, MLIM, LLC received $148,027 in securities lending agent
fees from the Series.
Merrill Lynch Trust Company ("MLTC"), a wholly-owned subsidiary of ML & Co., is
the Series' custodian.
For the year ended December 31, 2005, the Series reimbursed FAM $71,733 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, MLTC, FAMD, FDS, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities and
including proceeds from an in-kind redemption, for the year ended December 31,
2005 were $323,885,684 and $388,757,576 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, 2005. On November
23, 2005, the credit agreement was renewed for one year under substantially the
same terms.
28 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Report of Independent Registered Public Accounting Firm
Master S&P 500 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 S&P 500 Index Series, one of the
portfolios constituting the Quantitative Master Series Trust (the "Trust"), as
of December 31, 2005, 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. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust'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, 2005, 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
S&P 500 Index Series of the Quantitative Master Series Trust as of December 31,
2005, 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, 2006
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 29
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
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 131 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 177 Portfolios
08543-9011 Director/ (Americas Region) thereof from 2000 to 2001 and
Age: 51 Trustee Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
since 2001; Chief Investment Officer of Oppenheimer-
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which
MLIM or FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company
Act, of the Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators.
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. Doll 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 Knology, Inc.
Burton Princeton, NJ Trustee present Partnership (an investment partnership) since 1979; 42 Portfolios (telecommuni-
08543-9095 Managing General Partner of the South Atlantic cations) and
Age: 61 Venture Funds since 1983; Member of the Investment Symbion, Inc.
Advisory Council of the Florida State Board of (health care)
Administration since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie P.O. Box 9095 Director/ 1999 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: 43
- ------------------------------------------------------------------------------------------------------------------------------------
John P.O. Box 9095 Director/ 2005 to President and Chief Executive Officer of Allmerica 23 Funds ABIOMED
Francis Princeton, NJ Trustee present Financial Corporation (financial services holding 42 Portfolios (medical
O'Brien 08543-9095 company) from 1995 to 2002 and Director from device manuf-
Age: 62 1995 to 2003; President of Allmerica Investment acturer),
Management Co., Inc. (investment adviser) from Cabot Corpor-
1989 to 2002, Director from 1989 to 2002 and ation (chem-
Chairman of the Board from 1989 to 1990; President, icals), LKQ
Chief Executive Officer and Director of First Corporation
Allmerica Financial Life Insurance Company from 1989 (auto parts
to 2002 and Director of various other Allmerica manufact-
Financial companies until 2002; Director since 1989, uring) and
Member of the Governance Nominating Committee TJX Com-
since 2004, Member of the Compensation panies, Inc.
Committee of ABIOMED since 1989 and Member of (retailer)
the Audit Committee of ABIOMED from 1990 to 2004;
Director and Member of the Governance and
Nomination Committee of Cabot Corporation and
Member of the Audit Committee since 1990; Director
and Member of the Audit Committee and
Compensation Committee of LKQ Corporation since
2003; Lead Director of TJX Companies, Inc. since
1999; Trustee of the Woods Hole Oceanographic
Institute since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
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
Age: 64 National Audubon Society since 1998; Director,
The American Museum of Fly Fishing since 1997.
30 MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005
Officers and Directors/Trustees (concluded)
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
====================================================================================================================================
Independent Directors/Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. P.O. Box 9095 Director/ 1998 to Managing Director of FGW Associates 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: 64 Director of Michael J. Fox Foundation for Parkinson's Inc. (pharma-
Research since 2000; Director of BTG International ceutical
PLC (a global technology commercialization company)
company) since 2001.
------------------------------------------------------------------------------------------------------------------------
* Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they
turn 72.
** Chairman of the Board and the Audit Committee.
- ------------------------------------------------------------------------------------------------------------------------------------
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 FAM Distributors, Inc. ("FAMD") since 1999 and
Age: 45 Treasurer 1999 to Director since 2004; Vice President of MLIM and FAM from 1990 to 1997; Director of
present Taxation of MLIM from 1990 to 2001; Vice President, Treasurer and Secretary of the
IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Vincent J. P.O. Box 9011 Vice 2005 to Managing Director of MLIM since 2005; Director of MLIM from 1999 to 2005.
Costa Princeton, NJ President present
08543-9011
Age: 43
- ------------------------------------------------------------------------------------------------------------------------------------
Debra L. P.O. Box 9011 Vice 2005 to Director of MLIM since 1999.
Jelilian Princeton, NJ President present
08543-9011
Age: 38
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey L. P.O. Box 9011 Vice 2005 to Director of MLIM since 2004; Vice President of MLIM from 1994 to 2004.
Russo Princeton, NJ President present
08543-9011
Age: 38
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
Hiller Princeton, NJ Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
08543-9011 Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
Age: 54 Morgan Stanley 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; Senior Counsel in the
Commission's Division of Enforcement in Washington, .D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* 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 1-800-637-3863.
- ------------------------------------------------------------------------------------------------------------------------------------
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
MERRILL LYNCH S&P 500 INDEX FUND DECEMBER 31, 2005 31
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-637-3863; (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 4 -- 12/05
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) Laurie Simon Hodrick, (3) John F. O'Brien, (4) David H.
Walsh and (5) Fred G. Weiss.
The registrant's board of directors has determined that Laurie Simon
Hodrick qualifies as a financial expert 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.
Item 4 - Principal Accountant Fees and Services
S&P 500 Index Fund of Merrill Lynch Index Funds, Inc.
(a) Audit Fees - Fiscal Year Ending December 31, 2005 - $6,500
Fiscal Year Ending December 31, 2004 - $6,200
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2005 - $19,000
Fiscal Year Ending December 31, 2004 - $0
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.
(c) Tax Fees - Fiscal Year Ending December 31, 2005 - $5,700
Fiscal Year Ending December 31, 2004 - $5,200
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending December 31, 2005 - $0
Fiscal Year Ending December 31, 2004 - $0
Master S&P 500 Index Series of Quantitative Master Series Trust
(a) Audit Fees - Fiscal Year Ending December 31, 2005 - $35,500
Fiscal Year Ending December 31, 2004 - $33,400
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2005 - $0
Fiscal Year Ending December 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending December 31, 2005 - $16,200
Fiscal Year Ending December 31, 2004 - $15,000
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending December 31, 2005 - $0
Fiscal Year Ending December 31, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending December 31, 2005 - $5,577,771
Fiscal Year Ending December 31, 2004 - $11,926,355
(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) - $1,227,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense - 2.2% 211,920 Boeing Co. $ 14,885,261
53,748 General Dynamics Corp. (e) 6,129,959
34,987 Goodrich Corp. 1,437,966
228,077 Honeywell International, Inc. 8,495,868
30,574 L-3 Communications Holdings, Inc. 2,273,177
88,870 Lockheed Martin Corp. 5,654,798
95,952 Northrop Grumman Corp. 5,767,675
111,274 Raytheon Co. 4,467,651
43,015 Rockwell Collins, Inc. 1,998,907
267,396 United Technologies Corp. 14,950,110
--------------
66,061,372
- -----------------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 1.0% 76,508 FedEx Corp. (e) 7,910,162
14,774 Ryder System, Inc. 606,029
289,700 United Parcel Service, Inc. Class B 21,770,955
--------------
30,287,146
- -----------------------------------------------------------------------------------------------------------------------------------
Airlines - 0.1% 190,595 Southwest Airlines Co. 3,131,476
- -----------------------------------------------------------------------------------------------------------------------------------
Auto Components - 0.2% 17,930 Cooper Tire & Rubber Co. 274,688
36,845 Dana Corp. 264,547
55,493 The Goodyear Tire & Rubber Co. (a)(e) 964,468
46,020 Johnson Controls, Inc. 3,355,318
--------------
4,859,021
- -----------------------------------------------------------------------------------------------------------------------------------
Automobiles - 0.4% 507,399 Ford Motor Co. (e) 3,917,120
155,306 General Motors Corp. (e) 3,016,043
71,359 Harley-Davidson, Inc. (e) 3,674,275
--------------
10,607,438
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages - 2.2% 207,285 Anheuser-Busch Cos., Inc. 8,904,964
25,988 Brown-Forman Corp. Class B 1,801,488
543,428 The Coca-Cola Co. 21,905,583
92,887 Coca-Cola Enterprises, Inc. 1,780,644
53,000 Constellation Brands, Inc. Class A (a) 1,390,190
18,183 Molson Coors Brewing Co. Class B 1,218,079
46,022 Pepsi Bottling Group, Inc. 1,316,689
435,588 PepsiCo, Inc. 25,734,539
--------------
64,052,176
- -----------------------------------------------------------------------------------------------------------------------------------
Biotechnology - 1.6% 324,047 Amgen, Inc. (a) 25,554,346
49,555 Applera Corp. - Applied Biosystems Group 1,316,181
87,540 Biogen Idec, Inc. (a) 3,968,188
33,734 Chiron Corp. (a) 1,499,814
67,880 Genzyme Corp. (a) 4,804,546
116,500 Gilead Sciences, Inc. (a) 6,131,395
69,252 Medimmune, Inc. (a) 2,425,205
--------------
45,699,675
- -----------------------------------------------------------------------------------------------------------------------------------
Building Products - 0.2% 51,300 American Standard Cos., Inc. 2,049,435
107,879 Masco Corp. 3,256,867
--------------
5,306,302
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 3.2% 65,776 Ameriprise Financial, Inc. 2,696,816
203,795 The Bank of New York Co., Inc. 6,490,871
27,111 The Bear Stearns Cos., Inc. 3,132,134
286,068 The Charles Schwab Corp. 4,196,618
88,100 E*Trade Financial Corp. (a) 1,837,766
24,100 Federated Investors, Inc. Class B 892,664
42,286 Franklin Resources, Inc. 3,975,307
118,400 Goldman Sachs Group, Inc. 15,120,864
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
57,505 Janus Capital Group, Inc. $ 1,071,318
67,878 Lehman Brothers Holdings, Inc. 8,699,923
101,116 Mellon Financial Corp. 3,463,223
241,267 Merrill Lynch & Co., Inc. (b) 16,341,014
282,998 Morgan Stanley 16,057,307
54,627 Northern Trust Corp. 2,830,771
89,823 State Street Corp. 4,979,787
30,724 T. Rowe Price Group, Inc. 2,213,050
--------------
93,999,433
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 1.6% 54,247 Air Products & Chemicals, Inc. 3,210,880
19,758 Ashland, Inc. 1,143,988
249,076 The Dow Chemical Co. 10,914,510
239,373 E.I. du Pont de Nemours & Co. 10,173,353
22,850 Eastman Chemical Co. (e) 1,178,832
56,814 Ecolab, Inc. 2,060,644
29,897 Engelhard Corp. 901,395
24,859 Hercules, Inc. (a) 280,907
22,196 International Flavors & Fragrances, Inc. 743,566
69,577 Monsanto Co. 5,394,305
41,587 PPG Industries, Inc. 2,407,887
79,146 Praxair, Inc. 4,191,572
44,203 Rohm & Haas Co. (e) 2,140,309
17,723 Sigma-Aldrich Corp. 1,121,689
--------------
45,863,837
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 5.7% 86,203 AmSouth Bancorp 2,259,381
137,200 BB&T Corp. (e) 5,750,052
1,061,206 Bank of America Corp. 48,974,657
48,791 Comerica, Inc. 2,769,377
31,502 Compass Bancshares, Inc. 1,521,232
142,856 Fifth Third Bancorp (e) 5,388,528
38,800 First Horizon National Corp. 1,491,472
56,029 Huntington Bancshares, Inc. 1,330,689
105,110 KeyCorp 3,461,272
23,800 M&T Bank Corp. 2,595,390
54,000 Marshall & Ilsley Corp. 2,324,160
153,856 National City Corp. (e) 5,164,946
114,792 North Fork Bancorporation, Inc. 3,140,709
78,468 PNC Financial Services Group, Inc. 4,851,676
112,454 Regions Financial Corp. 3,841,429
91,499 SunTrust Banks, Inc. (e) 6,657,467
71,451 Synovus Financial Corp. 1,929,891
483,265 U.S. Bancorp 14,444,791
413,726 Wachovia Corp. (e) 21,869,556
439,022 Wells Fargo & Co. 27,583,752
21,302 Zions Bancorporation 1,609,579
--------------
168,960,006
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.7% 64,578 Allied Waste Industries, Inc. (a) 564,412
26,058 Avery Dennison Corp. 1,440,226
265,025 Cendant Corp. 4,571,681
42,202 Cintas Corp. 1,737,878
33,702 Equifax, Inc. 1,281,350
28,139 Monster Worldwide, Inc. (a) 1,148,634
56,482 Pitney Bowes, Inc. 2,386,364
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
48,595 RR Donnelley & Sons Co. $ 1,662,435
41,711 Robert Half International, Inc. 1,580,430
141,314 Waste Management, Inc. 4,288,880
--------------
20,662,290
- -----------------------------------------------------------------------------------------------------------------------------------
Communications Equipment - 2.7% 26,065 ADC Telecommunications, Inc. (a) 582,292
43,639 Andrew Corp. (a) 468,246
114,782 Avaya, Inc. (a) 1,224,724
135,695 Ciena Corp. (a) 403,014
1,612,771 Cisco Systems, Inc. (a) 27,610,640
51,443 Comverse Technology, Inc. (a) 1,367,869
396,675 Corning, Inc. (a) 7,798,631
34 Enterasys Networks, Inc. (a) 452
502,687 JDS Uniphase Corp. (a) 1,186,341
1,141,958 Lucent Technologies, Inc. (a)(e) 3,037,608
652,769 Motorola, Inc. 14,746,052
431,660 QUALCOMN, Inc. 18,595,913
37,394 Scientific-Atlanta, Inc. 1,610,560
132,787 Tellabs, Inc. (a) 1,447,378
--------------
80,079,720
- -----------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 3.7% 220,334 Apple Computer, Inc. (a) 15,839,811
617,916 Dell, Inc. (a) 18,531,301
622,854 EMC Corp. (a) 8,483,271
76,498 Gateway, Inc. (a) 192,010
752,117 Hewlett-Packard Co. 21,533,110
414,667 International Business Machines Corp. 34,085,627
34,339 Lexmark International, Inc. Class A (a)(e) 1,539,417
44,736 NCR Corp. (a) 1,518,340
104,521 Network Appliance, Inc. (a) 2,822,067
26,208 QLogic Corp. (a) 852,022
878,056 Sun Microsystems, Inc. (a) 3,679,055
--------------
109,076,031
- -----------------------------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.1% 20,161 Fluor Corp. 1,557,639
- -----------------------------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 24,447 Vulcan Materials Co. 1,656,284
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 1.3% 325,984 American Express Co. 16,775,137
76,167 Capital One Financial Corp. (e) 6,580,829
325,272 MBNA Corp. 8,831,135
112,630 SLM Corp. 6,204,787
--------------
38,391,888
- -----------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.2% 27,560 Ball Corp. 1,094,683
25,636 Bemis Co. 714,475
37,625 Pactiv Corp. (a) 827,750
20,669 Sealed Air Corp. (a) 1,160,978
34,706 Temple-Inland, Inc. 1,556,564
--------------
5,354,450
- -----------------------------------------------------------------------------------------------------------------------------------
Distributors - 0.1% 42,614 Genuine Parts Co. 1,871,607
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Consumer Services - 0.2% 41,800 Apollo Group, Inc. Class A (a)(e) 2,527,228
90,670 H&R Block, Inc. 2,225,949
--------------
4,753,177
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 3.8% 54,100 CIT Group, Inc. 2,801,298
1,328,236 Citigroup, Inc. 64,459,293
926,456 JPMorgan Chase & Co. 36,771,039
69,180 Moody's Corp. 4,249,036
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
76,400 Principal Financial Group, Inc. $ 3,623,652
--------------
111,904,318
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 1,025,535 AT&T, Inc. 25,115,352
Services - 2.2% 472,834 BellSouth Corp. (e) 12,813,801
34,377 CenturyTel, Inc. 1,139,941
98,918 Citizens Communications Co. 1,209,767
433,145 Qwest Communications International Inc. (a) 2,447,269
736,228 Verizon Communications, Inc. 22,175,187
--------------
64,901,317
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.6% 37,520 Allegheny Energy, Inc. (a) 1,187,508
107,520 American Electric Power Co., Inc. 3,987,917
52,028 Cinergy Corp. 2,209,109
80,999 Edison International 3,532,366
59,055 Entergy Corp. 4,054,126
177,228 Exelon Corp. 9,417,896
110,714 FPL Group, Inc. 4,601,274
81,316 FirstEnergy Corp. 3,983,671
90,764 PPL Corp. (e) 2,668,462
21,732 Pinnacle West Capital Corp. 898,618
72,426 Progress Energy, Inc. (e) 3,180,950
188,823 The Southern Co. 6,520,058
--------------
46,241,955
- -----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.4% 48,144 American Power Conversion Corp. 1,059,168
22,352 Cooper Industries Ltd. Class A 1,631,696
105,448 Emerson Electric Co. 7,876,966
44,015 Rockwell Automation, Inc. 2,603,927
--------------
13,171,757
- -----------------------------------------------------------------------------------------------------------------------------------
Electronic Equipment & 113,554 Agilent Technologies, Inc. (a) 3,780,213
Instruments - 0.3% 43,164 Jabil Circuit, Inc. (a) 1,600,953
45,562 Molex, Inc. 1,182,334
156,763 Sanmina-SCI Corp. (a) 667,810
215,312 Solectron Corp. (a) 788,042
59,300 Symbol Technologies, Inc. 760,226
21,636 Tektronix, Inc. 610,352
--------------
9,389,930
- -----------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 1.7% 91,700 BJ Services Co. 3,362,639
84,644 Baker Hughes, Inc. 5,144,662
130,504 Halliburton Co. 8,086,028
37,815 Nabors Industries Ltd. (a)(e) 2,864,486
42,536 National Oilwell Varco, Inc. (a) 2,667,007
40,579 Noble Corp. (e) 2,862,443
35,672 Rowan Cos., Inc. 1,271,350
151,754 Schlumberger Ltd. 14,742,901
82,241 Transocean, Inc. (a)(e) 5,731,375
93,300 Weatherford International Ltd. (a)(e) 3,377,460
--------------
50,110,351
- -----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 2.4% 91,166 Albertson's, Inc. 1,946,394
210,136 CVS Corp. 5,551,793
126,424 Costco Wholesale Corp. 6,254,195
180,724 The Kroger Co. (a) 3,412,069
109,758 Safeway, Inc. 2,596,874
30,042 SUPERVALU Inc. 975,764
158,300 SYSCO Corporation 4,915,215
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
263,524 Walgreen Co. (e) $ 11,663,572
655,855 Wal-Mart Stores, Inc. (e) 30,694,014
36,900 Whole Foods Market, Inc. 2,855,691
--------------
70,865,581
- -----------------------------------------------------------------------------------------------------------------------------------
Food Products - 1.0% 163,334 Archer-Daniels-Midland Co. (e) 4,027,816
59,035 Campbell Soup Co. 1,757,472
130,378 ConAgra Foods, Inc. (e) 2,644,066
86,960 General Mills, Inc. 4,288,867
84,136 HJ Heinz Co. 2,837,066
51,656 The Hershey Co. 2,853,994
74,365 Kellogg Co. (e) 3,214,055
33,200 McCormick & Co., Inc. 1,026,544
191,141 Sara Lee Corp. 3,612,565
67,200 Tyson Foods, Inc. Class A 1,149,120
51,870 Wm. Wrigley Jr. Co. (e) 3,448,836
--------------
30,860,401
- -----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.0% 10,554 Nicor, Inc. 414,878
9,004 Peoples Energy Corp. 315,770
--------------
730,648
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 2.1% 12,987 Bausch & Lomb, Inc. 881,817
159,927 Baxter International, Inc. 6,021,252
61,295 Becton Dickinson & Co. 3,682,604
68,235 Biomet, Inc. (e) 2,495,354
163,464 Boston Scientific Corp. (a) 4,003,233
30,918 CR Bard, Inc. 2,038,115
35,700 Fisher Scientific International (a) 2,208,402
85,121 Guidant Corp. 5,511,585
37,611 Hospira, Inc. (a) 1,608,999
317,540 Medtronic, Inc. (e) 18,280,778
10,555 Millipore Corp. (a) 697,052
26,484 PerkinElmer, Inc. 623,963
91,888 St. Jude Medical, Inc. (a) 4,612,778
81,310 Stryker Corp. 3,612,603
40,757 Thermo Electron Corp. (a) 1,228,008
29,220 Waters Corp. (a) 1,104,516
62,177 Zimmer Holdings, Inc. (a) 4,193,217
--------------
62,804,276
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 3.2% 78,084 Aetna, Inc. New Shares 7,364,102
60,286 AmerisourceBergen Corp. 2,495,840
108,291 Cardinal Health, Inc. (e) 7,445,006
114,435 Caremark Rx, Inc. (a) 5,926,589
35,196 Cigna Corp. 3,931,393
46,500 Coventry Health Care, Inc. (a) 2,648,640
36,000 Express Scripts, Inc. (a) 3,016,800
100,696 HCA, Inc. 5,085,148
69,200 Health Management Associates, Inc. Class A 1,519,632
39,404 Humana, Inc. (a) 2,140,819
58,140 IMS Health, Inc. 1,448,849
33,600 Laboratory Corp. of America Holdings (a) 1,809,360
21,604 Manor Care, Inc. 859,191
78,384 McKesson Corp. 4,043,831
80,901 Medco Health Solutions, Inc. (a) 4,514,276
36,700 Patterson Cos., Inc. (a) 1,225,780
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
48,500 Quest Diagnostics, Inc. $ 2,496,780
113,737 Tenet Healthcare Corp. (a) 871,225
361,656 UnitedHealth Group, Inc. 22,473,304
165,084 WellPoint, Inc. (a) 13,172,052
--------------
94,488,617
- -----------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 1.6% 119,380 Carnival Corp. (e) 6,383,249
39,907 Darden Restaurants, Inc. 1,551,584
50,530 Harrah's Entertainment, Inc. (e) 3,602,284
96,131 Hilton Hotels Corp. 2,317,718
90,420 International Game Technology (e) 2,783,128
47,727 Marriott International, Inc. Class A 3,196,277
324,418 McDonald's Corp. 10,939,375
210,424 Starbucks Corp. (a) 6,314,824
55,868 Starwood Hotels & Resorts Worldwide, Inc. 3,567,730
34,972 Wendy's International, Inc. 1,932,553
70,434 Yum! Brands, Inc. 3,301,946
--------------
45,890,668
- -----------------------------------------------------------------------------------------------------------------------------------
Household Durables - 0.8% 22,342 Black & Decker Corp. 1,942,860
36,268 Centex Corp. 2,592,799
69,400 DR Horton, Inc. 2,479,662
35,615 Fortune Brands, Inc. 2,778,682
22,822 KB HOME 1,658,247
46,816 Leggett & Platt, Inc. 1,074,895
39,522 Lennar Corp. Class A (e) 2,411,632
19,003 Maytag Corp. 357,636
65,854 Newell Rubbermaid, Inc. 1,566,008
60,972 Pulte Homes, Inc. 2,399,858
14,352 Snap-On, Inc. 539,061
19,443 The Stanley Works 934,042
20,360 Whirlpool Corp. 1,705,354
--------------
22,440,736
- -----------------------------------------------------------------------------------------------------------------------------------
Household Products - 2.3% 42,198 Clorox Co. 2,400,644
139,181 Colgate-Palmolive Co. 7,634,078
127,823 Kimberly-Clark Corp. 7,624,642
879,964 Procter & Gamble Co. 50,932,316
--------------
68,591,680
- -----------------------------------------------------------------------------------------------------------------------------------
IT Services - 1.0% 34,000 Affiliated Computer Services, Inc. Class A (a) 2,012,120
146,180 Automatic Data Processing, Inc. 6,708,200
43,650 Computer Sciences Corp. (a) 2,210,436
35,314 Convergys Corp. (a) 559,727
128,787 Electronic Data Systems Corp. (e) 3,096,039
206,400 First Data Corp. 8,877,264
50,492 Fiserv, Inc. (a) 2,184,789
93,558 Paychex, Inc. (e) 3,566,431
33,673 Sabre Holdings Corp. Class A 811,856
79,882 Unisys Corp. (a) 465,712
--------------
30,492,574
- -----------------------------------------------------------------------------------------------------------------------------------
Independent Power Producers & 161,760 The AES Corp. (a)(e) 2,560,661
Energy Traders - 0.6% 49,149 Constellation Energy Group, Inc. 2,830,982
234,519 Duke Energy Corp. (e) 6,437,547
104,771 Dynegy, Inc. Class A (a) 507,092
131,244 TXU Corp. 6,587,136
--------------
18,923,418
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 4.4% 199,488 3M Co. $ 15,460,320
2,774,181 General Electric Co. 97,235,044
33,714 Textron, Inc. 2,595,304
535,025 Tyco International Ltd. 15,440,821
--------------
130,731,489
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance - 4.9% 77,010 ACE Ltd. 4,115,414
25,666 AMBAC Financial Group, Inc. 1,977,822
78,085 AON Corp. (e) 2,807,156
125,799 Aflac, Inc. (e) 5,839,590
175,944 The Allstate Corp. 9,513,292
681,507 American International Group, Inc. 46,499,223
50,953 Chubb Corp. 4,975,560
43,091 Cincinnati Financial Corp. 1,925,306
92,300 Genworth Financial, Inc. Class A 3,191,734
77,325 Hartford Financial Services Group, Inc. 6,641,444
33,136 Jefferson-Pilot Corp. 1,886,432
51,219 Lincoln National Corp. 2,716,144
38,890 Loews Corp. 3,688,717
39,845 MBIA, Inc. 2,397,075
137,398 Marsh & McLennan Cos., Inc. 4,363,760
193,742 Metlife, Inc. 9,493,358
49,700 The Progressive Corp. 5,803,966
132,000 Prudential Financial, Inc. 9,661,080
35,122 Safeco Corp. 1,984,393
180,427 The St. Paul Travelers Cos., Inc. (e) 8,059,674
27,356 Torchmark Corp. 1,520,994
76,667 UnumProvident Corp. 1,744,174
45,105 XL Capital Ltd. Class A 3,039,175
--------------
143,845,483
- -----------------------------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.6% 74,100 Amazon.com, Inc. (a)(e) 3,493,815
297,500 eBay, Inc. (a)(e) 12,866,875
--------------
16,360,690
- -----------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.4% 326,260 Yahoo!, Inc. (a) 12,782,867
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.2% 22,464 Brunswick Corp. 913,386
83,053 Eastman Kodak Co. 1,943,440
42,694 Hasbro, Inc. 861,565
96,434 Mattel, Inc. 1,525,586
--------------
5,243,977
- -----------------------------------------------------------------------------------------------------------------------------------
Machinery - 1.4% 181,588 Caterpillar, Inc. (e) 10,490,339
14,409 Cummins, Inc. 1,292,920
68,250 Danaher Corp. 3,806,985
67,098 Deere & Co. 4,570,045
49,459 Dover Corp. 2,002,595
41,950 Eaton Corp. 2,814,426
22,196 ITT Industries, Inc. 2,282,193
57,221 Illinois Tool Works, Inc. 5,034,876
89,496 Ingersoll-Rand Co. Class A 3,612,954
17,258 Navistar International Corp. (a) 493,924
41,874 Paccar, Inc. 2,898,937
30,003 Pall Corp. 805,881
30,888 Parker Hannifin Corp. 2,037,372
--------------
42,143,447
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Media - 3.4% 145,054 Clear Channel Communications, Inc. (e) $ 4,561,958
469,343 Comcast Corp. Class A (a)(e) 12,184,144
104,405 Comcast Corp. Special Class A (a) 2,682,164
19,419 Dow Jones & Co., Inc. 689,180
21,700 EW Scripps Co. Class A 1,042,034
67,479 Gannett Co., Inc. 4,087,203
97,186 Interpublic Group of Cos., Inc. (a) 937,845
19,151 Knight-Ridder, Inc. 1,212,258
92,516 The McGraw-Hill Cos., Inc. 4,776,601
12,221 Meredith Corp. 639,647
35,847 New York Times Co. Class A 948,153
656,900 News Corp. Class A (e) 10,214,795
49,797 Omnicom Group 4,239,219
1,224,184 Time Warner, Inc. (e) 21,349,769
74,542 Tribune Co. 2,255,641
65,871 Univision Communications, Inc. Class A (a) 1,935,949
410,163 Viacom, Inc. Class B (a) 13,371,314
492,147 Walt Disney Co. 11,796,764
--------------
98,924,638
- -----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.8% 225,245 Alcoa, Inc. 6,660,495
20,428 Allegheny Technologies, Inc. 737,042
52,134 Freeport-McMoRan Copper & Gold, Inc. Class B 2,804,809
111,386 Newmont Mining Corp. (e) 5,948,012
44,032 Nucor Corp. 2,937,815
27,488 Phelps Dodge Corp. 3,954,699
33,222 United States Steel Corp. 1,596,982
--------------
24,639,854
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 1.1% 48,381 Ameren Corp. (e) 2,479,042
66,414 CMS Energy Corp. (a) 963,667
76,570 Centerpoint Energy, Inc. 983,925
70,825 Consolidated Edison, Inc. (e) 3,281,322
40,538 DTE Energy Co. (e) 1,750,836
93,953 Dominion Resources, Inc. 7,253,172
38,661 KeySpan Corp. 1,379,811
59,637 NiSource, Inc. 1,244,028
98,477 PG&E Corp. 3,655,466
900 Progress Energy, Inc. (a)(e) 58
66,864 Public Service Enterprise Group, Inc. (e) 4,344,154
61,138 Sempra Energy 2,741,428
47,396 TECO Energy, Inc. 814,263
97,202 Xcel Energy, Inc. (e) 1,794,349
--------------
32,685,521
- -----------------------------------------------------------------------------------------------------------------------------------
Multiline Retail - 1.1% 27,795 Big Lots, Inc. (a) 333,818
20,364 Dillard's, Inc. Class A 505,434
76,650 Dollar General Corp. 1,461,716
47,964 Family Dollar Stores, Inc. 1,189,028
73,140 Federated Department Stores 4,851,376
64,798 JC Penney Co., Inc. 3,602,769
87,109 Kohl's Corp. (a) 4,233,497
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
63,172 Nordstrom, Inc. $ 2,362,633
24,407 Sears Holdings Corp. (a)(e) 2,819,741
226,235 Target Corp. (e) 12,436,138
--------------
33,796,150
- -----------------------------------------------------------------------------------------------------------------------------------
Office Electronics - 0.1% 241,102 Xerox Corp. (a) 3,532,144
- -----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 7.6% 19,867 Amerada Hess Corp. 2,519,533
61,261 Anadarko Petroleum Corp. 5,804,480
82,642 Apache Corp. 5,662,630
96,636 Burlington Resources, Inc. (e) 8,330,023
589,460 Chevron Corp. 33,463,644
368,178 ConocoPhillips 21,420,596
116,994 Devon Energy Corp. 7,316,805
64,140 EOG Resources, Inc. (e) 4,705,952
159,715 El Paso Corp. 1,942,134
1,633,712 Exxon Mobil Corp. (d) 91,765,603
33,534 Kerr-McGee Corp. 3,046,899
31,134 Kinder Morgan, Inc. 2,862,771
99,272 Marathon Oil Corp. 6,052,614
45,800 Murphy Oil Corp. 2,472,742
103,529 Occidental Petroleum Corp. 8,269,897
38,170 Sunoco, Inc. 2,991,765
158,600 Valero Energy Corp. 8,183,760
143,486 Williams Cos., Inc. 3,324,571
90,333 XTO Energy, Inc. 3,969,232
--------------
224,105,651
- -----------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.4% 124,262 International Paper Co. 4,176,446
36,128 Louisiana-Pacific Corp. 992,436
49,272 MeadWestvaco Corp. 1,381,094
60,361 Weyerhaeuser Co. 4,004,349
--------------
10,554,325
- -----------------------------------------------------------------------------------------------------------------------------------
Personal Products - 0.1% 18,392 Alberto-Culver Co. Class B 841,434
117,160 Avon Products, Inc. 3,344,918
--------------
4,186,352
- -----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 6.4% 407,317 Abbott Laboratories 16,060,509
36,064 Allergan, Inc. 3,893,469
501,261 Bristol-Myers Squibb Co. 11,518,978
298,477 Eli Lilly & Co. (e) 16,890,813
89,664 Forest Laboratories, Inc. (a) 3,647,532
786,577 Johnson & Johnson 47,273,278
56,555 King Pharmaceuticals, Inc. (a) 956,911
574,057 Merck & Co., Inc. 18,260,753
64,500 Mylan Laboratories 1,287,420
1,935,481 Pfizer, Inc. 45,135,417
380,625 Schering-Plough Corp. 7,936,031
26,481 Watson Pharmaceuticals, Inc. (a) 860,897
352,399 Wyeth 16,235,022
--------------
189,957,030
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate - 0.8% 21,400 Apartment Investment & Management Co. Class A 810,418
51,000 Archstone-Smith Trust 2,136,390
97,364 Equity Office Properties Trust 2,953,050
80,340 Equity Residential 3,142,901
44,000 Plum Creek Timber Co., Inc. 1,586,200
70,500 Prologis 3,293,760
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
26,400 Public Storage, Inc. $ 1,787,808
52,300 Simon Property Group, Inc. (e) 4,007,749
34,700 Vornado Realty Trust 2,896,409
--------------
22,614,685
- -----------------------------------------------------------------------------------------------------------------------------------
Road & Rail - 0.7% 93,494 Burlington Northern Santa Fe Corp. 6,621,245
52,878 CSX Corp. 2,684,616
99,442 Norfolk Southern Corp. 4,457,985
71,776 Union Pacific Corp. (e) 5,778,686
--------------
19,542,532
- -----------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 108,447 Advanced Micro Devices, Inc. (a)(e) 3,318,478
Equipment - 3.3% 97,590 Altera Corp. (a) 1,808,343
92,116 Analog Devices, Inc. 3,304,201
410,376 Applied Materials, Inc. 7,362,145
75,467 Applied Micro Circuits Corp. (a) 193,950
78,381 Broadcom Corp. Class A (a) 3,695,664
100,458 Freescale Semiconductor, Inc. Class B (a) 2,528,528
1,582,831 Intel Corp. 39,507,462
56,537 Kla-Tencor Corp. 2,788,970
91,166 LSI Logic Corp. (a) 729,328
81,799 Linear Technology Corp. 2,950,490
90,460 Maxim Integrated Products, Inc. (e) 3,278,270
150,068 Micron Technology, Inc. (a) 1,997,405
89,972 National Semiconductor Corp. (e) 2,337,473
43,500 Novellus Systems, Inc. (a) 1,049,220
49,720 Nvidia Corp. (a) 1,817,763
42,954 PMC-Sierra, Inc. (a) 331,175
46,332 Teradyne, Inc. (a) 675,057
426,272 Texas Instruments, Inc. 13,670,543
95,793 Xilinx, Inc. (e) 2,414,941
--------------
95,759,406
- -----------------------------------------------------------------------------------------------------------------------------------
Software - 3.5% 149,850 Adobe Systems, Inc. 5,538,456
60,728 Autodesk, Inc. 2,608,268
54,220 BMC Software, Inc. (a) 1,110,968
42,305 Citrix Systems, Inc. (a) 1,217,538
128,012 Computer Associates International, Inc. 3,608,658
87,649 Compuware Corp. (a) 786,212
81,100 Electronic Arts, Inc. (a) 4,242,341
49,452 Intuit, Inc. (a) 2,635,792
25,827 Mercury Interactive Corp. (a) 717,732
2,403,324 Microsoft Corp. (d) 62,846,923
93,324 Novell, Inc. (a) 824,051
976,285 Oracle Corp. (a) 11,920,440
63,665 Parametric Technology Corp. (a) 388,357
122,337 Siebel Systems, Inc. 1,294,325
278,317 Symantec Corp. (a) 4,870,547
--------------
104,610,608
- -----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 2.3% 58,800 AutoNation, Inc. (a) 1,277,724
16,977 AutoZone, Inc. (a) 1,557,640
81,024 Bed Bath & Beyond, Inc. (a) 2,929,018
110,569 Best Buy Co., Inc. (e) 4,807,540
47,423 Circuit City Stores, Inc. 1,071,286
160,813 The Gap, Inc. 2,836,741
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
557,686 Home Depot, Inc. (e) $ 22,575,129
91,294 Limited Brands 2,040,421
201,540 Lowe's Cos., Inc. (e) 13,434,656
78,158 Office Depot, Inc. (a) 2,454,161
24,524 OfficeMax, Inc. 621,929
39,598 RadioShack Corp. 832,746
35,292 The Sherwin-Williams Co. 1,602,963
183,451 Staples, Inc. 4,166,172
121,648 TJX Cos., Inc. 2,825,883
35,001 Tiffany & Co. 1,340,188
--------------
66,374,197
- -----------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.4% 94,800 Coach, Inc. (a) 3,160,632
30,860 Jones Apparel Group, Inc. 948,019
24,338 Liz Claiborne, Inc. 871,787
46,310 Nike, Inc. Class B 4,019,245
16,887 Reebok International Ltd. 983,330
26,767 VF Corp. 1,481,286
--------------
11,464,299
- -----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.6% 150,910 Countrywide Financial Corp. 5,159,613
258,273 Fannie Mae 12,606,305
177,703 Freddie Mac (e) 11,612,891
71,596 Golden West Financial Corp. (e) 4,725,336
23,380 MGIC Investment Corp. 1,538,872
87,600 Sovereign Bancorp, Inc. 1,893,912
252,011 Washington Mutual, Inc. (e) 10,962,479
--------------
48,499,408
- -----------------------------------------------------------------------------------------------------------------------------------
Tobacco - 1.5% 546,718 Altria Group, Inc. 40,850,769
25,700 Reynolds American, Inc. 2,449,981
40,535 UST, Inc. 1,655,044
--------------
44,955,794
- -----------------------------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.1% 20,845 WW Grainger, Inc. 1,482,079
- -----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 104,037 Alltel Corp. 6,564,735
Services - 0.8% 775,515 Sprint Nextel Corp. 18,116,030
--------------
24,680,765
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost - $2,397,523,040) - 100.4% 2,957,512,586
- -----------------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Short - Term Securities
- -----------------------------------------------------------------------------------------------------------------------------------
$ 5,655,927 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (b) 5,655,927
335,568,900 Merrill Lynch Liquidity Series, LLC
Money Market Series (b)(c) 335,568,900
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities 341,224,827
(Cost - $341,224,827) - 11.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments
(Cost - $2,738,747,867*) - 112.0% 3,298,737,413
Liabilities in Excess of Other Assets - (12.0%) (352,955,686)
--------------
Net Assets - 100.0% $2,945,781,727
==============
Master S&P 500 Index Series
Schedule of Investments as of December 31, 2005
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 2,824,974,688
===============
Gross unrealized appreciation $ 680,614,727
Gross unrealized depreciation (206,852,002)
---------------
Net unrealized appreciation $ 473,762,725
===============
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Series, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
----------------------------------------------------------------------------------------------------
Dividend/Interest
Affiliate Net Activity Income
----------------------------------------------------------------------------------------------------
Merrill Lynch & Co. (2,300) $ 192,551
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $ (8,174,589) $ 484,157
Merrill Lynch Liquidity Series, LLC Money Market Series $ 140,261,620 $ 342,485
----------------------------------------------------------------------------------------------------
(c) Security was purchased with the cash proceeds from securities loans.
(d) All or a portion of security held as collateral in connection with open
financial futures contracts.
(e) Security, or a portion of security, is on loan.
o For Series compliance purposes, the Series' industry classifications refer
to any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Series management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets. These
industry classifications are unaudited.
o Financial futures contracts purchased as of December 31, 2005 were as
follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
43 S&P 500 Index March 2006 $ 13,560,267 $ (71,167)
--------------------------------------------------------------------------
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
S&P 500 Index Series (the "Series"), one of the portfolios constituting the
Quantitative Master Series Trust (the "Trust"), as of December 31, 2005, and for
the year then ended and have issued our report thereon dated February 23, 2006
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 in securities (the "Schedule") as of December 31, 2005 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
Princeton, New Jersey
February 23, 2006
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.
S&P 500 Index Fund of Merrill Lynch Index Funds, Inc. and Master S&P 500 Index
Series of Quantitative Master Series Trust
By: /s/ Robert C. Doll, Jr.
--------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
S&P 500 Index Fund of Merrill Lynch Index Funds, Inc. and Master S&P 500
Index Series of Quantitative Master Series Trust
Date: February 21, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
--------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
S&P 500 Index Fund of Merrill Lynch Index Funds, Inc. and Master S&P 500
Index Series of Quantitative Master Series Trust
Date: February 21, 2006
By: /s/ Donald C. Burke
--------------------------
Donald C. Burke,
Chief Financial Officer of
S&P 500 Index Fund of Merrill Lynch Index Funds, Inc. and Master S&P 500
Index Series of Quantitative Master Series Trust
Date: February 21, 2006