UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07885
Name of Fund: Master Mid Cap Index Series of Quantitative Master Series Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Master Mid Cap Index Series of Quantitative Master Series Trust,
800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box
9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/06
Date of reporting period: 01/01/06 - 12/31/06
Item 1 - Report to Stockholders
Master Mid Cap Index Series of Quantitative Master Series Trust
Annual Report, December 31, 2006
A Discussion With Your Fund's Portfolio Managers
During the annual period, Master Mid Cap Index Series of Quantitative Master
Series Trust met its objective of closely tracking the returns of its benchmark,
the Standard & Poor's (S&P) MidCap 400 Index.
How did the portfolio perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended December 31, 2006, Master Mid Cap Index Series had
a net total return of +10.30%. For the same period, the benchmark S&P MidCap 400
Index returned +10.32%.
As the returns indicate, the Series met its objective of closely tracking the
performance of the S&P MidCap 400 Index, a market-weighted index composed of 400
common stocks issued by mid-capitalization companies in a wide range of
businesses. As the value of the S&P MidCap 400 fluctuated during the past 12
months, the portfolio's performance generally tracked that of the Index.
Following decent, but uninspiring, results in 2004 and 2005, U.S. equities
surged forward in 2006, with the S&P 500 Index advancing 15.79% to close at
1,418. Small-cap stocks posted even stronger gains, with the Russell 2000 Index
registering an 18.37% increase, thanks to exceptionally strong performance in
the first few months of the year.
1
Key highlights of the 12-month period included weaker economic growth triggered
by a slowdown in the U.S. housing market; a long-awaited pause in the Federal
Reserve Board's (the Fed) interest rate-hiking campaign; threats of higher
inflation; and robust corporate earnings, which rose by double-digit percentages
for an unprecedented fifth consecutive year. Amid these crosscurrents, financial
markets were left to weather a high degree of volatility.
At the outset, a burgeoning corporate sector, ample liquidity and record levels
of merger-and-acquisition (M&A) activity provided a solid backdrop for equity
markets. During the first few months of 2006, U.S. stocks were solidly on an
upward trajectory, posting the best first quarter gains in several years. Of
note, the S&P 500 Index advanced 4.21% in the quarter, marking its largest gain
since the fourth quarter of 2004 (+9.23%) and its best first quarter since 1999
(+4.98%). Growth continued outside of the housing and auto sectors (capital
spending in particular expanded at a brisk pace); private equity deals, M&A
action and corporate buy-backs abounded in high volumes; and corporate cash
flows held steady.
Notwithstanding such broad-based strength, evidence of an economic slowdown
mounted. By May, we saw a striking shift in investor sentiment, triggered by a
deceleration in consumer spending, rising energy prices, a slump in housing
activity and uncertainty around the Fed policy and the sustainability of
economic growth. Stock market volatility took on a more negative spin and
eventually resulted in the first double-digit correction for U.S. equity markets
in nearly four years. The average U.S. stock fell by about 12% and stocks
outside the United States were hit even harder. The pullback could be attributed
to several factors, not the least of which was that the lagged effects of higher
interest rates and oil prices finally took their toll on both the
2
economy and stock prices. Further, a resurgence of inflation fears prompted the
Fed to continue its interest rate tightening campaign. Under the auspices of new
Chairman Ben Bernanke, the central bank ended the second quarter with its 17th
consecutive 25 basis point interest rate hike since June 2004, bringing the
target federal funds rate to 5.25%.
As the second half of 2006 got underway, positive momentum returned to the
market. The Fed made big news in August by finally ending its streak of interest
rate increases. At the same time, commodity prices collapsed. After reaching an
all-time high near $78 per barrel in July, crude oil ended the year at $61 per
barrel. Stocks generally climbed back above the levels they reached prior to the
market's earlier retrenchment. Most equity markets experienced one of their best
third-quarter periods in several years, though there was a broad-based changing
of the guard that favored larger-cap, higher-quality and more predictable stocks
over smaller-cap, lower-quality and more cyclical securities (as was the trend
early in the year).
Macroeconomic uncertainty persisted in the third quarter. Investors struggled
with moderating economic activity - real gross domestic product growth was
estimated at 2%, compared to 2.6% in the second quarter and 5.6% in the first
quarter. The magnitude of the housing downturn and its effect on the consumer
sector was a significant wildcard. Weakness in the U.S. dollar was challenging
the stability of currency markets. Moreover, tensions in the Middle East were
heating up, and economic data offered a mixed outlook for inflation.
Still, strong momentum continued in the equity markets during the year's final
quarter. Key to investors' optimism were: a strong labor market, where the
unemployment rate reached a post-9/11 low and year-on-year average hourly
salaries reached a post-9/11 high; receding risks of
3
higher inflation and high oil prices; and finally, the pervasive strength in
corporate fundamentals that included reasonably good investment levels, healthy
balance sheets and profit margins. 2006 ended and the new year began with the
world awash in liquidity, global economic growth still quite strong despite the
U.S. slowdown, record-high corporate profitability, fairly low inflation and
interest rates, and relatively strong investor confidence.
For the 12-month period, mid cap stocks, as measured by the S&P MidCap 400
Index, underperformed both small and large cap stocks. The S&P MidCap 400 Index
returned +10.32%, while the S&P SmallCap 600 Index returned +15.12% and the
large-cap S&P 500 Index returned +15.79%. In terms of sector performance, with
the exception of health care, each of the 10 S&P MidCap 400 sectors posted
positive returns for the 12-month period. The top performer was
telecommunication services, which was up +46.98%, followed by utilities and
materials, with respective returns of +18.12% and +14.23%. At the bottom was
health care, which posted a return of -1.16%, followed by the consumer
discretionary and energy sectors, with respective returns of +1.69% and +1.94%.
What changes were made to the portfolio during the period?
Throughout the year, as changes were made to the composition of the S&P MidCap
400 Index, the portfolio purchased and sold securities to maintain its objective
of replicating the risks and return of the benchmark.
How would you characterize the portfolio's position at the close of the period?
Heading into 2007, we believe continued moderation in economic growth will put
pressure on corporate earnings, which have been on a record run with five
consecutive
4
years of double-digit growth. Solid corporate fundamentals and balance sheet
strength, alongside strong non-U.S. economic growth, should help corporate
profits remain positive, but the rate of gain will likely slow noticeably, as
record-high profit margins will be difficult to sustain. Against this backdrop,
the portfolio remains positioned to match the risk characteristics of its
benchmark, whatever direction the market takes.
Debra L. Jelilian
Vice President and Co-Portfolio Manager
Jeffrey L. Russo, CFA
Vice President and Co-Portfolio Manager
January 22, 2007
5
Master Mid Cap Index Series
Portfolio Information as of December 31, 2006
Sector Representation Percent of Total Investments
- --------------------------------------------------------------------------------
Financials 17.0%
Industrials 14.5
Consumer Discretionary 14.0
Information Technology 13.8
Health Care 10.0
Utilities 7.4
Energy 6.9
Materials 5.2
Consumer Staples 2.1
Telecommunication Services 0.5
Other* 8.6
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
For Series compliance purposes, the Series' sector 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 sector sub-classifications for reporting ease.
6
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense - 1.3% 3,599 Alliant Techsystems, Inc. (a) $ 281,406
4,200 DRS Technologies, Inc. 221,256
13,684 Precision Castparts Corp. 1,071,184
------------
1,573,846
- ---------------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 1.3% 17,296 CH Robinson Worldwide, Inc. (e) 707,233
21,314 Expeditors International Washington, Inc. 863,217
------------
1,570,450
- ---------------------------------------------------------------------------------------------------------------------------------
Airlines - 0.4% 8,400 AirTran Holdings, Inc. (a) 98,616
4,224 Alaska Air Group, Inc. (a) 166,848
17,762 JetBlue Airways Corp. (a)(b) 252,220
------------
517,684
- ---------------------------------------------------------------------------------------------------------------------------------
Auto Components - 0.9% 7,045 ArvinMeritor, Inc. 128,430
1,040 Bandag, Inc. 52,447
5,905 BorgWarner, Inc. 348,513
14,127 Gentex Corp. 219,816
7,001 Lear Corp. 206,740
2,921 Modine Manufacturing Co. 73,113
------------
1,029,059
- ---------------------------------------------------------------------------------------------------------------------------------
Automobiles - 0.1% 3,362 Thor Industries, Inc. 147,894
- ---------------------------------------------------------------------------------------------------------------------------------
Beverages - 0.3% 5,700 Hansen Natural Corp. (a) 191,691
5,507 PepsiAmericas, Inc. 115,537
------------
307,228
- ---------------------------------------------------------------------------------------------------------------------------------
Biotechnology - 1.3% 6,180 Cephalon, Inc. (a) 435,134
3,475 Martek Biosciences Corp. (a) 81,107
30,752 Millennium Pharmaceuticals, Inc. (a) 335,197
11,788 PDL BioPharma, Inc. (a) 237,410
11,454 Vertex Pharmaceuticals, Inc. (a) 428,609
------------
1,517,457
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 2.2% 7,392 AG Edwards, Inc. 467,840
12,385 Eaton Vance Corp. 408,829
6,351 Investors Financial Services Corp. 270,997
9,972 Jefferies Group, Inc. New Shares 267,449
7,380 Nuveen Investments, Inc. Class A 382,874
8,654 Raymond James Financial, Inc. 262,303
6,526 SEI Investments Co. 388,689
8,951 Waddell & Reed Financial, Inc. Class A 244,899
------------
2,693,880
- ---------------------------------------------------------------------------------------------------------------------------------
Chemicals - 3.1% 7,486 Airgas, Inc. 303,333
4,181 Albemarle Corp. 300,196
6,611 Cabot Corp. 288,041
23,193 Chemtura Corp. 223,349
3,989 Cytec Industries, Inc. 225,418
4,062 FMC Corp. 310,946
3,681 Ferro Corp. 76,160
6,549 Lubrizol Corp. 328,301
21,048 Lyondell Chemical Co. 538,197
1,987 Minerals Technologies, Inc. 116,816
7,848 Olin Corp. 129,649
11,224 RPM International, Inc. 234,469
4,866 The Scotts Miracle-Gro Co. 251,329
4,124 Sensient Technologies Corp. 101,450
10,136 Valspar Corp. 280,159
------------
3,707,813
- ---------------------------------------------------------------------------------------------------------------------------------
7
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 3.1% 12,826 Associated Banc-Corp. 447,371
4,831 Bank of Hawaii Corp. $ 260,632
4,800 Cathay General Bancorp 165,648
4,187 City National Corp. 298,114
16,000 The Colonial BancGroup, Inc. 411,840
5,762 Cullen/Frost Bankers, Inc. 321,635
8,129 FirstMerit Corp. 196,234
5,208 Greater Bay Bancorp 137,127
12,232 Mercantile Bankshares Corp. 572,335
3,750 SVB Financial Group (a) 174,825
11,265 TCF Financial Corp. 308,886
3,264 Westamerica Bancorp. 165,256
6,583 Wilmington Trust Corp. 277,605
------------
3,737,508
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies 8,575 Adesa, Inc. 237,956
- - 3.7% 2,546 Banta Corp. 92,674
4,861 The Brink's Co. 310,715
8,170 ChoicePoint, Inc. (a) 321,735
6,688 Copart, Inc. (a) 200,640
4,125 Corporate Executive Board Co. 361,762
5,214 Deluxe Corp. 131,393
6,364 Dun & Bradstreet Corp. (a) 526,876
4,718 HNI Corp. 209,526
6,242 Herman Miller, Inc. 226,959
1,781 Kelly Services, Inc. Class A 51,542
4,039 Korn/Ferry International (a) 92,735
8,798 Manpower, Inc. 659,234
2,800 Mine Safety Appliances Co. 102,620
4,900 Navigant Consulting, Inc. (a) 96,824
11,744 Republic Services, Inc. Class A 477,628
2,606 Rollins, Inc. 57,619
4,355 Stericycle, Inc. (a) 328,803
------------
4,487,241
- ---------------------------------------------------------------------------------------------------------------------------------
Communications Equipment - 2.0% 40,981 3Com Corp. (a) 168,432
6,757 Adtran, Inc. 153,384
15,100 Andrew Corp. (a) 154,473
5,383 Avocent Corp. (a) 182,215
6,100 CommScope, Inc. (a) 185,928
3,702 Dycom Industries, Inc. (a) 78,186
4,175 F5 Networks, Inc. (a) 309,827
13,339 Harris Corp. 611,727
4,318 Plantronics, Inc. 91,542
8,582 Polycom, Inc. (a) 265,270
12,093 Powerwave Technologies, Inc. (a) 78,000
11,388 UTstarcom, Inc. (a)(b) 99,645
------------
2,378,629
- ---------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 1.0% 6,824 Diebold, Inc. 317,998
3,599 Imation Corp. 167,102
14,563 McData Corp. (a) 80,825
10,800 Palm, Inc. (a) 152,172
21,600 Western Digital Corp. (a) 441,936
------------
1,160,033
- ---------------------------------------------------------------------------------------------------------------------------------
Construction & Engineering 3,281 Granite Construction, Inc. 165,100
- - 0.7% 5,861 Jacobs Engineering Group, Inc. (a) 477,906
11,483 Quanta Services, Inc. (a) 225,871
------------
868,877
- ---------------------------------------------------------------------------------------------------------------------------------
8
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------------
Construction Materials - 0.6% 4,700 Florida Rock Industries, Inc. $ 202,335
4,683 Martin Marietta Materials, Inc. 486,611
------------
688,946
- ---------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.5% 11,306 AmeriCredit Corp. (a) 284,572
8,200 MoneyGram International, Inc. 257,152
------------
541,724
- ---------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.4% 7,588 Packaging Corp. of America 167,695
9,520 Sonoco Products Co. 362,331
------------
530,026
- ---------------------------------------------------------------------------------------------------------------------------------
Diversified Consumer Services 9,548 Career Education Corp. (a) 236,599
- - 1.2% 8,638 Corinthian Colleges, Inc. (a) 117,736
5,874 DeVry, Inc. 164,472
3,424 ITT Educational Services, Inc. (a) 227,251
4,964 Laureate Education, Inc. (a) 241,399
4,762 Regis Corp. 188,289
5,775 Sotheby's Holdings, Inc. Class A 179,141
1,350 Strayer Education, Inc. 143,168
------------
1,498,055
- ---------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 15,834 Leucadia National Corp. 446,519
- - 0.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 23,339 Cincinnati Bell, Inc. (a) 106,659
Services - 0.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 2.2% 11,899 DPL, Inc. 330,554
8,104 Duquesne Light Holdings, Inc. 160,864
8,386 Great Plains Energy, Inc. 266,675
7,676 Hawaiian Electric Industries, Inc. 208,403
4,618 IDACORP, Inc. 178,486
15,216 Northeast Utilities 428,483
18,558 Pepco Holdings, Inc. 482,694
21,218 Sierra Pacific Resources (a) 357,099
8,823 Westar Energy, Inc. 229,045
------------
2,642,303
- ---------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.0% 10,077 Ametek, Inc. 320,852
5,780 Hubbell, Inc. Class B 261,314
8,400 Roper Industries, Inc. 422,016
5,027 Thomas & Betts Corp. (a) 237,677
------------
1,241,859
- ---------------------------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments 8,900 Amphenol Corp. Class A 552,512
- - 2.3% 11,813 Arrow Electronics, Inc. (a) 372,700
13,213 Avnet, Inc. (a) 337,328
6,157 CDW Corp. 432,960
13,300 Ingram Micro, Inc. Class A (a) 271,453
7,783 Kemet Corp. (a) 56,816
5,286 National Instruments Corp. 143,991
3,781 Newport Corp. (a) 79,212
4,446 Plexus Corp. (a) 106,170
5,770 Tech Data Corp. (a) 218,510
17,810 Vishay Intertechnology, Inc. (a) 241,147
------------
2,812,799
- ---------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 3.3% 11,448 Cameron International Corp. (a) 607,316
15,572 ENSCO International, Inc. 779,534
7,038 FMC Technologies, Inc. (a) 433,752
12,985 Grant Prideco, Inc. (a) 516,413
9,846 Hanover Compressor Co. (a) 185,991
10,222 Helmerich & Payne, Inc. 250,132
9
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------------
16,187 Patterson-UTI Energy, Inc. $ 376,024
15,967 Pride International, Inc. (a) 479,170
6,101 Tidewater, Inc. 295,044
------------
3,923,376
- ---------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.2% 6,745 BJ's Wholesale Club, Inc. (a) 209,837
3,140 Ruddick Corp. 87,135
------------
296,972
- ---------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.8% 6,979 Hormel Foods Corp. 260,596
6,020 The J.M. Smucker Co. 291,789
2,661 Lancaster Colony Corp. 117,909
10,300 Smithfield Foods, Inc. (a) 264,298
2,268 Tootsie Roll Industries, Inc. 74,164
------------
1,008,756
- ---------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 1.5% 7,818 AGL Resources, Inc. 304,198
12,415 Equitable Resources, Inc. 518,326
8,408 National Fuel Gas Co. 324,044
11,282 Oneok, Inc. 486,480
5,248 WGL Holdings, Inc. 170,980
------------
1,804,028
- ---------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies 6,069 Advanced Medical Optics, Inc. (a) 213,629
- - 3.1% 6,433 Beckman Coulter, Inc. 384,693
10,894 Cytyc Corp. (a) 308,300
15,710 Dentsply International, Inc. 468,943
5,895 Edwards Lifesciences Corp. (a) 277,301
5,075 Gen-Probe, Inc. (a) 265,778
6,355 Hillenbrand Industries, Inc. 361,790
3,725 Intuitive Surgical, Inc. (a) 357,228
7,100 Resmed, Inc. (a) 349,462
6,094 Steris Corp. 153,386
13,103 Varian Medical Systems, Inc. (a) 623,310
------------
3,763,820
- ---------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services 4,542 Apria Healthcare Group, Inc. (a) 121,044
- - 3.0% 9,606 Community Health Systems, Inc. (a) 350,811
11,763 Health Net, Inc. (a) 572,388
8,578 Henry Schein, Inc. (a) 420,150
5,733 LifePoint Hospitals, Inc. (a) 193,202
9,613 Lincare Holdings, Inc. (a) 382,982
12,350 Omnicare, Inc. 477,081
5,300 Psychiatric Solutions, Inc. (a) 198,856
8,545 Triad Hospitals, Inc. (a) 357,437
5,877 Universal Health Services, Inc. Class B 325,762
8,050 VCA Antech, Inc. (a) 259,130
------------
3,658,843
- ---------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 7,601 Applebee's International, Inc. 187,517
- - 1.7% 3,755 Bob Evans Farms, Inc. 128,496
4,520 Boyd Gaming Corp. 204,801
12,835 Brinker International, Inc. 387,104
3,304 CBRL Group, Inc. 147,887
8,232 The Cheesecake Factory, Inc. (a) 202,507
3,364 International Speedway Corp. Class A 171,699
7,149 OSI Restaurant Partners, Inc. 280,241
5,743 Ruby Tuesday, Inc. 157,588
6,900 Scientific Games Corp. Class A (a) 208,587
------------
2,076,427
- ---------------------------------------------------------------------------------------------------------------------------------
10
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------------
Household Durables - 1.6% 6,082 American Greetings Class A $ 145,177
4,050 Beazer Homes USA, Inc. 190,390
2,124 Blyth, Inc. 44,073
5,301 Furniture Brands International, Inc. 86,035
3,433 Hovnanian Enterprises, Inc. Class A (a) 116,379
3,600 MDC Holdings, Inc. 205,380
5,230 Mohawk Industries, Inc. (a) 391,518
4,517 Ryland Group, Inc. 246,719
12,277 Toll Brothers, Inc. (a) 395,688
5,645 Tupperware Corp. 127,633
------------
1,948,992
- ---------------------------------------------------------------------------------------------------------------------------------
Household Products - 0.6% 6,443 Church & Dwight Co., Inc. 274,794
5,870 Energizer Holdings, Inc. (a) 416,711
------------
691,505
- ---------------------------------------------------------------------------------------------------------------------------------
IT Services - 2.0% 7,199 Acxiom Corp. 184,654
6,481 Alliance Data Systems Corp. (a) 404,868
12,591 The BISYS Group, Inc. (a) 162,550
5,158 CSG Systems International, Inc. (a) 137,873
13,425 Ceridian Corp. (a)(e) 375,631
9,054 CheckFree Corp. (a) 363,609
6,057 DST Systems, Inc. (a) 379,350
5,227 Gartner, Inc. Class A (a) 103,442
9,788 MPS Group, Inc. (a) 138,794
3,800 SRA International, Inc. Class A (a) 101,612
------------
2,352,383
- ---------------------------------------------------------------------------------------------------------------------------------
Independent Power Producers & 3,474 Black Hills Corp. 128,330
Energy Traders - 0.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.5% 2,921 Carlisle Cos., Inc. 229,298
581 Sequa Corp. Class A (a) 66,850
4,152 Teleflex, Inc. 268,053
------------
564,201
- ---------------------------------------------------------------------------------------------------------------------------------
Insurance - 4.4% 6,574 American Financial Group, Inc. 236,072
9,561 Arthur J. Gallagher & Co. 282,528
11,110 Brown & Brown, Inc. (e) 313,413
6,630 Everest Re Group Ltd. 650,469
21,168 Fidelity National Title Group, Inc. Class A 505,492
9,729 First American Corp. 395,776
10,699 HCC Insurance Holdings, Inc. 343,331
4,930 The Hanover Insurance Group, Inc. 240,584
3,700 Horace Mann Educators Corp. 74,740
3,250 Mercury General Corp. 171,373
6,462 Ohio Casualty Corp. 192,632
23,001 Old Republic International Corp. 535,463
6,670 Protective Life Corp. 316,825
5,162 Stancorp Financial Group, Inc. 232,548
4,064 Unitrin, Inc. 203,647
16,766 W.R. Berkley Corp. 578,595
------------
5,273,488
- ---------------------------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.1% 6,100 Coldwater Creek, Inc. (a) 149,572
- ---------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services - 9,270 ValueClick, Inc. (a) 219,050
0.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 6,110 Callaway Golf Co. 88,045
0.1%
- ---------------------------------------------------------------------------------------------------------------------------------
11
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------------
Life Sciences Tools & Services - 7,100 Affymetrix, Inc. (a) $ 163,726
1.6% 7,074 Charles River Laboratories International, Inc. (a) 305,950
6,318 Covance, Inc. (a) 372,193
5,075 Invitrogen Corp. (a) 287,194
10,000 Pharmaceutical Product Development, Inc. 322,200
3,725 Techne Corp. (a) 206,551
3,321 Varian, Inc. (a) 148,748
3,060 Ventana Medical Systems, Inc. (a) 131,672
------------
1,938,234
- ---------------------------------------------------------------------------------------------------------------------------------
Machinery - 3.7% 9,005 AGCO Corp. (a) 278,615
4,791 Crane Co. 175,542
6,805 Donaldson Co., Inc. 236,202
4,200 Federal Signal Corp. 67,368
5,514 Flowserve Corp. (a) 278,292
6,483 Graco, Inc. 256,856
4,062 Harsco Corp. 309,118
11,762 Joy Global, Inc. 568,575
4,100 Kennametal, Inc. 241,285
4,300 Lincoln Electric Holdings, Inc. 259,806
3,599 Nordson Corp. 179,338
7,200 Oshkosh Truck Corp. 348,624
9,754 Pentair, Inc. 306,276
5,980 SPX Corp. 365,737
9,075 Timken Co. 264,809
7,703 Trinity Industries, Inc. 271,146
------------
4,407,589
- ---------------------------------------------------------------------------------------------------------------------------------
Marine - 0.2% 4,421 Alexander & Baldwin, Inc. 196,027
- ---------------------------------------------------------------------------------------------------------------------------------
Media - 1.4% 8,126 Belo Corp. Class A 149,275
3,943 Catalina Marketing Corp. 108,432
3,245 Entercom Communications Corp. 91,444
4,917 Harte-Hanks, Inc. 136,250
4,050 John Wiley & Sons, Inc. Class A 155,804
4,162 Lee Enterprises, Inc. 129,272
2,131 Media General, Inc. Class A 79,209
8,855 The Reader's Digest Association, Inc. Class A 147,879
2,905 Scholastic Corp. (a) 104,115
4,767 Valassis Communications, Inc. (a) 69,122
565 The Washington Post Class B 421,264
5,907 Westwood One, Inc. 41,703
------------
1,633,769
- ---------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.8% 12,300 Commercial Metals Co. 317,340
6,600 Reliance Steel & Aluminum Co. 259,908
9,400 Steel Dynamics, Inc. 305,030
6,827 Worthington Industries, Inc. 120,974
------------
1,003,252
- ---------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 3.5% 12,113 Alliant Energy Corp. 457,508
35,335 Aquila, Inc. (a) 166,074
14,181 Energy East Corp. 351,689
17,428 MDU Resources Group, Inc. 446,854
10,679 NSTAR 366,930
9,419 OGE Energy Corp. 376,760
7,374 PNM Resources, Inc. 229,331
11,605 Puget Energy, Inc. 294,303
11,316 SCANA Corp. 459,656
12
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------------
7,126 Vectren Corp. $ 201,523
4,543 WPS Resources Corp. 245,458
11,729 Wisconsin Energy Corp. 556,658
------------
4,152,744
- ---------------------------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.5% 4,976 99 Cents Only Stores (a) 60,558
10,513 Dollar Tree Stores, Inc. (a) 316,441
14,171 Saks, Inc. 252,527
------------
629,526
- ---------------------------------------------------------------------------------------------------------------------------------
Office Electronics - 0.2% 6,896 Zebra Technologies Corp. Class A (a) 239,912
- ---------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 3.7% 14,110 Arch Coal, Inc. 423,723
11,550 Denbury Resources, Inc. (a) 320,975
5,857 Forest Oil Corp. (a) 191,407
13,015 Newfield Exploration Co. (a) 598,039
17,665 Noble Energy, Inc. 866,822
3,024 Overseas Shipholding Group 170,251
12,454 Pioneer Natural Resources Co. 494,299
7,754 Plains Exploration & Production Co. (a) 368,548
5,739 Pogo Producing Co. 277,997
5,800 Quicksilver Resources, Inc. (a) 212,222
16,800 Southwestern Energy Co. (a) 588,840
------------
4,513,123
- ---------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.3% 5,930 Bowater, Inc. 133,425
9,810 Louisiana-Pacific Corp. 211,209
4,125 P.H. Glatfelter Co. 63,938
------------
408,572
- ---------------------------------------------------------------------------------------------------------------------------------
Personal Products - 0.1% 7,200 Alberto-Culver Co. 154,440
- ---------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.0% 5,700 Medicis Pharmaceutical Corp. Class A 200,241
3,883 Par Pharmaceutical Cos., Inc. (a) 86,863
7,283 Perrigo Co. 125,996
11,070 Sepracor, Inc. (a) 681,691
8,973 Valeant Pharmaceuticals International 154,695
------------
1,249,486
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 8,786 AMB Property Corp. 514,947
(REITs) - 4.6% 11,025 Developers Diversified Realty Corp. (b) 694,024
5,764 Highwoods Properties, Inc. 234,941
8,210 Hospitality Properties Trust 390,221
9,298 Liberty Property Trust 456,904
7,086 Longview Fibre Co. 155,538
7,200 The Macerich Co. 623,304
6,505 Mack-Cali Realty Corp. 331,755
10,380 New Plan Excel Realty Trust 285,242
4,163 Potlatch Corp. 182,423
7,316 Rayonier, Inc. 300,322
6,725 Regency Centers Corp. 525,693
13,875 United Dominion Realty Trust, Inc. 441,086
7,575 Weingarten Realty Investors 349,283
------------
5,485,683
- ---------------------------------------------------------------------------------------------------------------------------------
Road & Rail - 0.9% 10,360 Avis Budget Group, Inc. 224,708
4,595 Con-way, Inc. 202,364
11,096 JB Hunt Transport Services, Inc. 230,464
5,498 Swift Transportation Co., Inc. (a) 144,432
13
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------------
5,433 Werner Enterprises, Inc. $ 94,969
5,906 YRC Worldwide, Inc. (a) 222,833
------------
1,119,770
- ---------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 41,670 Atmel Corp. (a) 252,103
Equipment - 3.7% 7,543 Cree, Inc. (a)(b) 130,645
13,587 Cypress Semiconductor Corp. (a) 229,213
12,007 Fairchild Semiconductor International, Inc. (a) 201,838
19,420 Integrated Device Technology, Inc. (a) 300,622
7,324 International Rectifier Corp. (a) 282,194
14,463 Intersil Corp. Class A 345,955
14,379 Lam Research Corp. (a) 727,865
10,523 Lattice Semiconductor Corp. (a) 68,189
16,650 MEMC Electronic Materials, Inc. (a) 651,681
5,567 Micrel, Inc. (a) 60,012
21,796 Microchip Technology, Inc. 712,729
20,071 RF Micro Devices, Inc. (a) 136,282
7,407 Semtech Corp. (a) 96,809
5,764 Silicon Laboratories, Inc. (a) 199,723
12,645 TriQuint Semiconductor, Inc. (a) 56,903
------------
4,452,763
- ---------------------------------------------------------------------------------------------------------------------------------
Software - 2.6% 25,621 Activision, Inc. (a)(e) 441,706
1,800 Advent Software, Inc. (a) 63,522
27,929 Cadence Design Systems, Inc. (a) 500,208
5,936 Fair Isaac Corp. 241,298
7,617 Jack Henry & Associates, Inc. 163,004
5,602 Macrovision Corp. (a) 158,313
15,637 McAfee, Inc. (a) 443,778
7,643 Mentor Graphics Corp. (a) 137,803
10,800 Parametric Technology Corp. (a) 194,616
9,339 Sybase, Inc. (a) 230,673
13,569 Synopsys, Inc. (a) 362,699
3,521 Transaction Systems Architects, Inc. Class A (a) 114,679
7,583 Wind River Systems, Inc. (a) 77,726
------------
3,130,025
- ---------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 5.9% 8,748 Abercrombie & Fitch Co. Class A 609,123
10,275 Advance Auto Parts 365,379
5,500 Aeropostale, Inc. (a) 169,785
19,927 American Eagle Outfitters, Inc. 621,922
7,420 AnnTaylor Stores Corp. (a) 243,673
5,276 Barnes & Noble, Inc. 209,510
6,583 Borders Group, Inc. 147,130
10,461 Carmax, Inc. (a)(e) 561,023
12,700 Charming Shoppes, Inc. (a) 171,831
17,284 Chico's FAS, Inc. (a) 357,606
9,701 Claire's Stores, Inc. 321,491
3,420 Dick's Sporting Goods, Inc. (a) 167,546
15,225 Foot Locker, Inc. 333,884
7,300 GameStop Corp. Class A (a) 402,303
10,923 O'Reilly Automotive, Inc. (a) 350,191
14,341 PetSmart, Inc. 413,881
7,373 Pacific Sunwear of California, Inc. (a) 144,363
6,845 Payless Shoesource, Inc. (a) 224,653
6,982 Rent-A-Center, Inc. (a) 206,039
14
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------------
14,481 Ross Stores, Inc. $ 424,293
10,775 Urban Outfitters, Inc. (a) 248,148
11,169 Williams-Sonoma, Inc. 351,153
------------
7,044,927
- ---------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury 9,900 Hanesbrands, Inc. (a) 233,838
Goods - 0.7% 5,950 Polo Ralph Lauren Corp. 462,077
4,986 Timberland Co. Class A (a) 157,458
------------
853,373
- ---------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 8,229 Astoria Financial Corp. 248,187
- - 2.1% 11,500 First Niagara Financial Group, Inc. 170,890
7,051 IndyMac Bancorp, Inc. 318,423
25,138 New York Community Bancorp, Inc. 404,722
8,929 The PMI Group, Inc. 421,181
8,361 Radian Group, Inc. 450,742
8,213 Washington Federal, Inc. 193,252
5,364 Webster Financial Corp. 261,334
------------
2,468,731
- ---------------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 2,852 Universal Corp. 139,777
- ---------------------------------------------------------------------------------------------------------------------------------
Trading Companies & 12,502 Fastenal Co. 448,572
Distributors - 0.9% 5,395 GATX Corp. 233,765
5,200 MSC Industrial Direct Co. Class A 203,580
6,599 United Rentals, Inc. (a) 167,813
------------
1,053,730
- ---------------------------------------------------------------------------------------------------------------------------------
Water Utilities - 0.2% 12,601 Aqua America, Inc. (b) 287,051
- ---------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 4,558 Telephone & Data Systems, Inc. 247,636
Services - 0.4% 5,583 Telephone & Data Systems, Inc. (Special Shares) 276,917
------------
524,553
- ---------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost - $78,584,159) - 92.4% 111,241,334
- ---------------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Short-Term Securities
- ---------------------------------------------------------------------------------------------------------------------------------
$ 9,005,937 BlackRock Liquidity Series, LLC Cash Sweep Series, 5.26% (c)(d) 9,005,937
1,428,500 BlackRock Liquidity Series, LLC Money Market Series,
5.29% (c)(d)(f) 1,428,500
- ---------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost - $10,434,437) - 8.7% 10,434,437
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost - $89,018,596*) - 101.1% 121,675,771
Liabilities in Excess of Other Assets - (1.1%) (1,311,249)
------------
Net Assets - 100.0% $120,364,522
============
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 90,013,481
============
Gross unrealized appreciation $ 33,584,324
Gross unrealized deprecation (1,922,034)
------------
Net unrealized appreciation $ 31,662,290
============
(a) Non-income producing security.
(b) Security, or a portion of security, is on loan.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
------------------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series $(14,836,561) $ 646,091
BlackRock Liquidity Series, LLC Money Market Series $ (358,600) $ 7,662
------------------------------------------------------------------------------------
15
Master Mid Cap Index Series
Schedule of Investments as of December 31, 2006
(d) Represents the current yield as of December 31, 2006.
(e) All or a portion of security held as collateral in connection with
financial futures contracts.
(f) Security was purchased with the cash proceeds from securities loans.
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, 2006 were as
follows:
---------------------------------------------------------------------------------------------
Number of Expiration Unrealized
Contracts Issue Date Face Value Depreciation
---------------------------------------------------------------------------------------------
22 S&P 400 Midcap Index March 2007 $9,057,619 ($133,319)
---------------------------------------------------------------------------------------------
See Notes to Financial Statements.
16
Master Mid Cap Index Series
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Assets: Investments in unaffiliated securities, at value (including
securities loaned of $1,367,900) (identified cost - $78,584,159) ............. $111,241,334
Investments in affiliated securities, at value ............................... 10,434,437
(identified cost - $10,434,437)
Receivables:
Contributions ....................................................... $ 487,347
Dividends ........................................................... 76,073
Securities sold ..................................................... 54,840
Securities lending .................................................. 357 618,617
------------
Prepaid expenses and other assets ............................................ 5,251
------------
Total assets ................................................................. 122,299,639
------------
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities: Collateral on securities loaned, at value .................................... 1,428,500
Payables:
Withdrawals ......................................................... 238,026
Securities purchased ................................................ 194,616
Variation margin .................................................... 60,604
Other affiliates .................................................... 1,133
Investment adviser .................................................. 958 495,337
------------
Accrued expenses ............................................................. 11,280
------------
Total liabilities ............................................................ 1,935,117
------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ................................................................... $120,364,522
============
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets Investors' capital ........................................................... $ 87,840,666
Consist of: Unrealized appreciation-net .................................................. 32,523,856
------------
Net assets ................................................................... $120,364,522
============
See Notes to Financial Statements.
17
Master Mid Cap Index Series
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Dividends ............................................................... $ 1,487,307
Income: Interest from affiliates ................................................ 646,091
Securities lending-net .................................................. 7,662
------------
Total income ............................................................ 2,141,060
------------
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses: Professional fees ....................................................... $ 40,788
Accounting services ..................................................... 24,227
Custodian fees .......................................................... 13,746
Investment advisory fees ................................................ 12,598
Licensing fees .......................................................... 10,000
Printing and shareholder reports ........................................ 4,800
Trustees' fees and expenses ............................................. 2,632
Other ................................................................... 6,993
------------
Total expenses .......................................................... 115,784
------------
Investment income-net ................................................... 2,025,276
------------
- -----------------------------------------------------------------------------------------------------------------------------------
Realized & Unrealized Realized gain on:
Gain (Loss) - Net: Investments-net .................................................... 15,624,199
Financial futures contracts-net .................................... 642,761 16,266,960
------------
Change in unrealized appreciation/depreciation on:
Investments-net .................................................... (4,815,277)
Financial futures contracts-net .................................... 44,620 (4,770,657)
------------ ------------
Total realized and unrealized gain-net .................................. 11,496,303
------------
Net Increase in Net Assets Resulting from Operations .................... $ 13,521,579
============
See Notes to Financial Statements.
18
Master Mid Cap Index Series
STATEMENTS OF CHANGES IN NET ASSETS
For the
Year Ended
December 31,
-----------------------------
Increase (Decrease) in Net Assets: 2006 2005
- -----------------------------------------------------------------------------------------------------------------------------------
Operations: Investment income-net ......................................................... $ 2,025,276 $ 2,460,156
Realized gain-net ............................................................. 16,266,960 12,714,786
Change in unrealized appreciation/depreciation-net ............................ (4,770,657) 4,173,899
------------- -------------
Net increase in net assets resulting from operations .......................... 13,521,579 19,348,841
------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Proceeds from contributions ................................................... 114,776,687 56,288,460
Transactions: Fair value of withdrawals ..................................................... (158,466,451) (104,393,473)
------------- -------------
Net decrease in net assets derived from capital transactions .................. (43,689,764) (48,105,013)
------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets .................................................. (30,168,185) (28,756,172)
Beginning of year ............................................................. 150,532,707 179,288,879
------------- -------------
End of year ................................................................... $ 120,364,522 $ 150,532,707
============= =============
See Notes to Financial Statements.
19
Master Mid Cap Index Series
FINANCIAL HIGHLIGHTS
The following ratios have For the Year Ended December 31,
been derived from information provided -------------------------------------------------------------
in the financial statements. 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------- -----------------------------------
Total Investment 10.30% 12.56% 16.41% 35.53% (14.80%)
Return: ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------- -----------------------------------
Ratios to Expenses, net of reimbursement ................ .09% .08% .09% .17% .08%
Average Net ======== ======== ======== ======== ========
Assets: Expenses ...................................... .09% .08% .09% .17% .38%
======== ======== ======== ======== ========
Investment income-net ......................... 1.61% 1.50% 1.12% 1.06% 1.06%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------- -----------------------------------
Supplemental Net assets, end of year (in thousands) ........ $120,365 $150,533 $179,289 $ 83,858 $ 35,981
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................ 27.54% 23.06% 17.25% 8.25% 42.18%
======== ======== ======== ======== ========
See Notes to Financial Statements.
20
Master Mid Cap Index Series
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Master Mid Cap 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 held by the Series that are
traded on stock exchanges or the NASDAQ Global 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") markets, NASDAQ Capital
Market 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 markets are
valued at the last available asked price. Series securities that are traded both
in the OTC markets and on a stock exchange are valued according to the broadest
and most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Series from a pricing service or counterparty. 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 BlackRock Advisors, LLC
(the "Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc.,
believes that this method no longer produces fair valuations. Valuation of other
short-term investment vehicles is generally based on the net asset value of the
underlying investment vehicle or amortized cost.
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 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 will generally be determined as of the close of business on the
NYSE. Occasionally, events affecting the values of such securities and such
21
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 will be valued
at their fair value as determined in good faith by the Board of Trustees or by
the Manager using a pricing service and/or procedures approved by the Board of
Trustees.
(b) Derivative financial instruments - The Series may engage in various
portfolio investment strategies both to increase the return of the Series and to
hedge, or protect, its exposure to interest rate movements and movements in the
securities markets. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
o Financial futures contracts - The Series may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Series deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Series agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Series as unrealized gains or
losses. When the contract is closed, the Series records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed.
o Options - The Series may purchase and write call and put options. When the
Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current
market value of the option written. When a security is purchased or sold
through an exercise of an option, the related premium paid (or received)
is added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When an
option expires (or the Series enters into a closing transaction), the
Series realizes a gain or loss on the option to the extent of the premiums
received or paid (or a gain or loss to the extent that the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes - The Series is classified as a partnership for federal income
tax purposes. As such, each investor in the Series is treated as owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Series. Therefore, no federal income tax
provision is required. It is intended that the Series' assets will be managed so
an investor in the Series can satisfy the requirements of Subchapter M of the
Internal Revenue Code.
(d) Security transactions and investment income - Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(e) Securities lending - The Series may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Series and any additional required collateral is delivered to the Series on
the next business day. Where the Series receives securities as collateral for
the loaned
22
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.
(f) Recent accounting pronouncements - In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the Series' financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implications of
FAS 157. At this time, its impact on the Series' financial statements has not
been determined.
2. Investment Advisory Agreement and Transactions with Affiliates: On September
29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill Lynch")
combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P.("MLIM"),and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc., has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On September 29, 2006, the investors in the Series approved a new Investment
Advisory Agreement for the Series with the Manager. BlackRock Advisors, Inc. was
recently reorganized into a limited liability company and renamed BlackRock
Advisors, LLC. The new Investment Advisory Agreement between the Series and the
Manager became effective on September 29, 2006. Prior to September 29, 2006, FAM
was the Series' Manager. The general partner of MLIM is Princeton Services, Inc.
("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch, which is the
limited partner.
The Manager is responsible for the management of the Series' portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Series. For such services, the
Series pays a monthly fee at an annual rate of .01% of the Series' average daily
net assets. In addition, the Manager has entered into a sub-advisory agreement
with BlackRock Investment Management, LLC ("BIM"), an affiliate of the Manager,
under which the Manager pays the Sub-Adviser for services it provides a monthly
fee that is a percentage of the management fee paid by the Series to the
Manager.
The Series has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of Merrill Lynch, or its
affiliates. Pursuant to that order, the Series also has retained BIM as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. Prior to September 29, 2006, BIM was organized as Merrill
Lynch Investment Managers, LLC ("MLIM, LLC"), an
23
affiliate of Merrill Lynch, and MLIM, LLC was the securities lending agent. BIM
may, on behalf of the Series, invest cash collateral received by the Series for
such loans, among other things, in a private investment company managed by the
Manager or in registered money market funds advised by the Manager or its
affiliates. For the year ended December 31, 2006, BIM received $3,254 in
securities lending agent fees.
In addition, MLPF&S received $2,406 in commissions on the execution of portfolio
security transactions for the year ended December 31, 2006.
For the year ended December 31, 2006, the Series reimbursed FAM and the Manager
$2,089 and $552, respectively for certain accounting services.
Prior to September 29, 2006, certain officers and/or trustees of the Series were
officers and/or directors of FAM, PSI, ML & Co., Merrill Lynch, and/or MLIM,
LLC.
Commencing September 29, 2006, certain officers and/or trustees of the Series
are officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 2006 were $31,525,070 and $56,340,983, 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
Series shareholder redemptions and for other lawful purposes other than for
leverage. The Series may borrow up to the maximum amount allowable under the
Series' current prospectus and statement of additional information, subject to
various other legal, regulatory or contractual limits. On November 22, 2006 the
credit agreement was renewed for one year under substantially the same terms.
The Series pays a commitment fee of .06% 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 .35% 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, 2006.
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Investors and Board of Trustees of
Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master Mid Cap Index Series, one of the
portfolios constituting the Quantitative Master Series Trust (the "Trust"), as
of December 31, 2006, 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 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, 2006, 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
Mid Cap Index Series of the Quantitative Master Series Trust as of December 31,
2006, 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 accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 26, 2007
25
QUANTITATIVE MASTER SERIES TRUST
Master MidCap Index Series
BlackRock Investment Advisory Agreement - Matters Considered by the Board
The following disclosure appeared in the June 30, 2006 Semi-Annual Report of the
Series and is the discussion referred to in "New BlackRock Sub-Advisory
Agreement - Matters Considered by the Board" below. The term "Investment
Adviser" as used herein refers to Fund Asset Management, L.P.
Disclosure of Investment Advisory Agreement
Activities and Composition of the Board of Trustees All but one member of the
Board of Trustees is an independent trustee whose only affiliation with Fund
Asset Management, L.P. (the "Investment Adviser") or other Merrill Lynch
affiliates is as a trustee of the Trust and as a trustee or director of certain
other funds advised by the Investment Adviser or its affiliates. The Chairman is
an independent trustee. New trustee nominees are chosen by a Nominating
Committee comprised entirely of independent trustees. All independent trustees
also are members of the Board's Audit Committee, and the independent trustees
meet in executive session at each in-person Board meeting. The Board and the
Audit Committee meet in person for at least two days each quarter and conduct
other in-person and telephone meetings throughout the year, some of which are
formal Board meetings and some of which are informational meetings. Independent
counsel to the independent trustees attends all in-person Board and Audit
Committee meetings and other meetings at the independent trustees' request.
Investment Advisory Agreements - Matters Considered by the Board
Every year, the Board considers approval of the Trust's investment advisory
agreement on behalf of the Series (the "Investment Advisory Agreement"). The
Board assesses the nature, scope and quality of the services provided to the
Series and the Trust by the personnel of the Investment Adviser and its
affiliates, including administrative services, shareholder services, oversight
of fund accounting, marketing services and assistance in meeting legal and
regulatory requirements. The Board also receives and assesses information
regarding the services provided to the Series and the Trust by certain
unaffiliated service providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the Investment Adviser and its
affiliates by the Series and/or the Trust, such as transfer agency fees and fees
for marketing and distribution; (b) Series/Trust operating expenses paid to
third parties; (c) the resources devoted to and compliance reports relating to
the Series' investment objective, policies and restrictions, and the
Series'/Trust's compliance with its Code of Ethics and compliance policies and
procedures; and (d) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by the
Investment Adviser to be of high quality. The Board also believes that the
Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated with one of America's largest financial firms.
The Board works closely with the Investment Adviser in overseeing the Investment
Adviser's efforts to achieve good performance. As part of this effort, the Board
discusses portfolio manager effectiveness and, when performance is not
satisfactory, discusses with the Investment Adviser taking steps such as
changing investment personnel.
Annual Consideration of Approval by the Boards In the period prior to the Board
meeting to consider renewal of the Investment Advisory Agreement, the Board
requests and receives materials specifically relating to the Investment Advisory
Agreement. These materials include (a) information on the fees and expenses and
the investment performance of the Series; (b) sales and redemption data for the
Series; (c) a discussion by the Series'
26
portfolio management team of investment strategies used by the Series during its
most recent fiscal year; (d) information on the profitability to the Investment
Adviser and its affiliates of the Investment Advisory Agreement and other
relationships with the Series and the Trust; and (e) information provided by the
Investment Adviser concerning investment advisory fees charged to other clients,
such as collective investment trusts, under similar investment mandates. The
Board noted that the Investment Adviser had informed the Board that no
information compiled by Lipper Inc. ("Lipper") was provided in connection with
the Series because retail data provided by Lipper is not comparable to the
Series, which is sold only in private placements. The Board also considers other
matters it deems important to the approval process, such as payments made to the
Investment Adviser or its affiliates relating to the distribution of Series
shares, services related to the valuation and pricing of Series portfolio
holdings, the Series' portfolio turnover statistics, and direct and indirect
benefits to the Investment Adviser and its affiliates from their relationship
with the Series and the Trust. The Board did not identify any particular
information as controlling, and each member of the Board attributed different
weights to the various items considered.
Certain Specific Renewal Data
In connection with the most recent renewal of the Trust's Investment Advisory
Agreement on behalf of the Series in June 2006, the independent trustees' and
Board's review included the following:
Services Provided by the Investment Adviser. The Board reviewed the nature,
extent and quality of services provided by the Investment Adviser, including the
investment advisory services and the resulting performance of the Series. The
Board focused primarily on the Investment Adviser's investment advisory services
and the Series' investment performance. The Board compared Series performance -
both including and excluding the effects of the Series' fees and expenses - to
the performance of a relevant index. While the Board reviews performance data at
least quarterly, consistent with the Investment Adviser's investment goals, the
Board attaches more importance to performance over relatively long periods of
time, typically three to five years. The Board concluded that the Series'
performance was consistent with the Series' investment objective and its
benchmark index. Considering these factors, the Board concluded that the nature
and quality of the services provided and the Series' performance supported the
continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process. The Board reviews at
least annually the Series' investment objectives and strategies. The Board
discusses with senior management of the Investment Adviser responsible for
investment operations and the senior management of the Investment Adviser's
equity investing group the strategies being used to achieve the stated
objectives. Among other things, the Board considers the size, education and
experience of the Investment Adviser's investment staff, its use of technology,
and the Investment Adviser's approach to training and retaining portfolio
managers and other research, advisory and management personnel. The Board also
reviews the Investment Adviser's compensation policies and practices with
respect to the Series' portfolio managers. The Board also considered the
experience of the Series' investment management team and noted that each of the
Series' co-portfolio managers, Messrs. Leon Roisenberg and Jeffrey Russo, has
extensive experience in analyzing and managing the types of investments used by
the Series. The Board concluded that the Series benefits from that expertise.
Management Fees and Other Expenses. The Board reviewed the Series' management
fee rate and total expenses. The Board noted that the Series' fees reflect that
the shares are available only to a limited number of institutional investors,
including investment companies, common or commingled trust Series, and certain
other "accredited investors," and that as such, the fees are lower than fees
charged to retail mutual funds. The Board concluded that the Series' management
fee rate and overall expense ratio are reasonable.
Profitability. The Board considers the cost of the services provided to the
Series by the Investment Adviser and the Investment Adviser's and its
affiliates' profits relating to the management and distribution of the Series
and the MLIM/FAM-advised funds. As part of its analysis, the Board reviewed the
Investment Adviser's methodology in allocating its costs to the management of
the Series and concluded that there was a reasonable basis for the allocation.
The Board concluded that the profits of the Investment Adviser and its
27
affiliates are reasonable in relation to the nature and quality of services
provided and given the level of fees and expenses overall.
Economies of Scale. The Board noted that although the assets of the Trust and
the Series have not increased sufficiently to provide economies of scale, the
management fee rate reflects the economies of scale realized based on the
institutional nature of the Trust's shareholder base. The Board determined that
the management fee structure was reasonable and that no changes were currently
necessary.
Conclusion After the independent trustees deliberated in executive session, the
entire Board, including all of the independent trustees, approved the renewal of
the existing Investment Advisory Agreement, concluding that the advisory fees
were reasonable in relation to the services provided and that a contract renewal
was in the best interests of the shareholders
New BlackRock Sub-Advisory Agreement - Matters Considered by the Board
At an in-person meeting held on August 16-17, 2006, the Board of Trustees,
including the independent trustees, discussed and approved the sub-advisory
agreement with respect to the Series between BlackRock Advisors, LLC (previously
organized as BlackRock Advisors, Inc.) ("BlackRock Advisors") and BlackRock
Investment Management, LLC (the "Sub-Adviser") (the "BlackRock Sub-Advisory
Agreement"). The BlackRock Sub-Advisory Agreement became effective on September
29, 2006, at the same time the New Investment Advisory Agreement with BlackRock
Advisors (which had been approved by the Series' shareholders) became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors at an annual rate equal to 74% of the
advisory fee received by BlackRock Advisors from the Series. BlackRock Advisors
pays the Sub-Adviser out of its own resources, and there is no increase in
Series expenses as a result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of the New Investment Advisory Agreement in May 2006. The Board relied on the
same information and considered the same factors as those discussed above in
connection with the approval of the New Investment Advisory Agreement, and came
to the same conclusions. In reviewing the sub-advisory fee rate provided for in
the BlackRock Sub-Advisory Agreement, the Board noted the fact that both
BlackRock Advisors and the Sub-Adviser have significant responsibilities under
their respective advisory agreements. Under the New Investment Advisory
Agreement, BlackRock Advisors remains responsible for the overall management of
the Series and for oversight of the Series' operations and administration. Under
the BlackRock Sub-Advisory Agreement, the Sub-Adviser provides advisory services
to the Series and is responsible for the day-to-day management of the Series'
portfolio. The Board also took into account the fact that there is no increase
in total advisory fees paid by the Series as a result of the BlackRock
Sub-Advisory Agreement. Based on its considerations, the Board concluded that it
was a reasonable allocation of fees for the Sub-Adviser to receive a fee at an
annual rate equal to 74% of the advisory fee paid by the Series to BlackRock
Advisors.
After the independent trustees deliberated in executive session, the entire
Board, including the independent trustees, approved the BlackRock Sub-Advisory
Agreement, concluding that the sub-advisory fee was reasonable in relation to
the services provided and that the BlackRock Sub-Advisory Agreement was in the
best interests of the Series' shareholders.
28
Officers and Trustees
Number of
Funds and
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held with Of Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustees
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to Vice Chairman and Director of BlackRock, Inc., 122 Funds None
Doll, Jr.* Princeton, NJ and present Global Chief Investment Officer for Equities, 168 Portfolios
08543-9011 Trustee Chairman of the BlackRock Retail Operating
Age: 52 Committee, and member of the BlackRock Executive
Committee since 2006; President of the funds
advised by Merrill Lynch Investment Managers, L.P.
("MLIM") and its affiliates ("MLIM/FAM-advised
funds") from 2005 to 2006 and Chief Investment
Officer thereof from 2001 to 2006; President of
MLIM and Fund Asset Management, L.P. ("FAM") from
2001 to 2006; Co-Head (Americas Region) thereof
from 2000 to 2001 and Senior Vice President from
1999 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") and
President of Princeton Administrators, L.P.
("Princeton Administrators") from 2001 to 2006;
Chief Investment Officer of OppenheimerFunds, 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
BlackRock Advisors, LLC and its affiliates act as an investment adviser. Mr. Doll is an "interested person," as
described in the Investment Company Act, of the Fund based on his positions with BlackRock, Inc. and its
affiliates. Trustees serve until their resignation, removal or death, or until December 31 of the year in which
they turn 72. As Trust President, Mr. Doll serves at the pleasure of the Board of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. P.O. Box 9095 Trustee 2002 to General Partner of The Burton Partnership, 21 Funds Knology,
Burton Princeton, NJ present Limited partnership (an investment partnership) 38 Portfolios Inc., (tele-
08543-9095 since 1979; Managing General Partner of The South communica-
Age: 62 Atlantic Venture Funds since 1983; Member of the tions);
Investment Advisory Council of the Florida State Symbion, Inc.
Board of Administration since 2001. (healthcare);
Capital
Southwest
(financial)
- ------------------------------------------------------------------------------------------------------------------------------------
John P.O. Box 9095 Trustee 2005 to President and Chief Executive Officer of 21 Funds Cabot Corpor-
Francis Princeton, NJ present Allmerica Financial Corporation (financial 38 Portfolios ation
O'Brien 08543-9095 services holding company) from 1995 to 2002 and (chemicals);
Age: 63 Director from 1995 to 2003; President of LKQ Corpora-
Allmerica Investment Management Co., Inc. tion (auto
(investment adviser) from 1989 to 2002; Director parts manufa-
from 1989 to 2002 and Chairman of the Board from cturing); TJX
1989 to 1990; President, Chief Executive Officer Companies,
and Director of First Allmerica Financial Life Inc.
Insurance Company from 1989 to 2002 and Director (retailer)
of various other Allmerica Financial companies
until 2002; Director from 1989 to 2006, Member of
the Governance Nominating Committee from 2004 to
2006, Member of the Compensation Committee from
1989 to 2006 and Member of the Audit Committee
from 1990 to 2004 of ABIOMED; Director, Member of
the Governance and Nomination Committee and
Member of the Audit Committee of Cabot
Corporation since 1990; Director and Member of
the Audit Committee and Compensation Committee of
LKQ Corporation since 2003; Lead Director of TJX
Companies, Inc. since 1996; Trustee of the Woods
Hole Oceanographic Institute since 2003;
Director, Ameresco, Inc. since 2006; Director,
Boston Lyric Opera since 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
29
Officers and Trustees (continued)
Number of
Funds and
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held with Of Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
David H. P.O. Box 9095 Trustee 2003 to Director, Ruckleshaus Institute and Haub School 21 Funds None
Walsh Princeton, NJ present of Natural Resources at the University of Wyoming 38 Portfolios
08543-9095 since 2006; Consultant with Putnam Investments
Age: 65 from 1993 to 2003 and employed in various
capacities therewith from 1973 to 1992; Director,
Massachusetts Audubon Society from 1990 to 1997;
Director, The National Audubon Society from 1998
to 2005; Director, The American Museum of Fly
Fishing since 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. P.O. Box 9095 Trustee 2000 to Managing Director of FGW Associates since 1997; 21 Funds Watson
Weiss** Princeton, NJ present Vice President, Planning, Investment and 38 Portfolios Pharmaceu-
08543-9095 Development of Warner Lambert Co. from 1979 to ticals, Inc.
Age: 65 1997; Director of the Michael J. Fox Foundation (pharmace-
for Parkinson's Research since 2000; Director of utical
BTG International, Plc (a global technology company)
commercialization company) since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
* Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Chairman of the Board of Trustees and the Audit Committee.
====================================================================================================================================
Trust Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1997 to Managing Director of BlackRock, Inc.
Burke Princeton, NJ President present since 2006; Managing Director of
08543-9011 and and 1999 Merrill Lynch Investment Managers, L.P.
Age: 46 Treasurer to and Fund Asset Management, L.P. in
present 2006; First Vice President of MLIM and
FAM from 1997 to 2005 and Treasurer
thereof from 1999 to 2006; Vice
President of MLIM and FAM from 1990 to 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Debra L. P.O. Box 9011 Vice 2005 to Director of BlackRock, Inc. since 2006;
Jelilian Princeton, NJ President present Director of MLIM from 1999 to 2006.
08543-9011
Age: 39
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey L. P.O. Box 9011 Vice 2005 to Director of BlackRock, Inc. since 2006;
Russo Princeton, NJ President present Director of MLIM from 2004 to 2006;
08543-9011 Vice President of MLIM from 1994 to 2004.
Age: 39
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O Box 9011 Fund Chief 2004 to Managing Director of BlackRock, Inc. and Fund
Hiller Princeton, NJ Compliance present Chief Compliance Officer since 2006; Chief
08534 Officer Compliance Officer of the MLIM/FAM-advised funds
Age: 55 and First Vice President and Chief Compliance
Officer of MLIM (Americas Region) from 2004 to
2006; Chief Compliance Officer of the IQ Funds
since 2004; Global Director of Compliance at
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 Securities and Exchange
Commission's Division of Enforcement in
Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
30
Officers and Trustees (concluded)
Position(s) Length
Held with Of Time
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Trust Officers (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director of BlackRock, Inc. since 2006; Director
Pellegrino Princeton, NJ present (Legal Advisory) of MLIM from 2002 to 2006; Vice
08543-9011 President of MLIM from 1999 to 2002; Attorney
Age: 46 associated with MLIM from 1997 to 2006; Secretary
of MLIM, FAM, FAM Distributors, Inc. and
Princeton Services from 2004 to 2006.
- ------------------------------------------------------------------------------------------------------------------------------------
* Officers of the Trust serve at the pleasure of the Board of Trustees.
Further information about the Trust's Officers and Trustees is available in the Trust's Statement of Additional
Information, which can be obtained without charge by calling 1-800-441-7762.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
JPMorgan Chase Bank
3 Chase MetroTech Center
Brooklyn, NY 11245
Transfer Agent
PFPC Inc.
Wilmington, DE 19809
Availability of Quarterly Schedule of Investments
The Series 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 Series' Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Series' 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.
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Series voted proxies relating
to securities held in the Series' portfolio during the most recent 12-month
period ended December 31st is available (1) at www.blackrock.com; and (2) on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
- --------------------------------------------------------------------------------
31
Proxy Results
During the six-month period ended December 31, 2006, Master Mid Cap Index Series
of Quantitative Master Series Trust's interest holders voted on the following
proposals, which were approved at a special interest holders' meeting on
September 29, 2006. A description of the proposals and number of units of
interest voted are as follows:
- ------------------------------------------------------------------------------------------------------------------------------
Units of Interest Units of Interest Units of Interest
Voted For Voted Against Voted Abstain
- ------------------------------------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement with
BlackRock Advisors, Inc. 116,764,404 72,599 40,657
- ------------------------------------------------------------------------------------------------------------------------------
To approve a contingent sub-advisory agreement with
BlackRock Advisors, Inc. 116,759,028 78,345 40,288
- ------------------------------------------------------------------------------------------------------------------------------
32
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 at
www.blackrock.com.
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 (resigned as of May 1, 2006), (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
(a) Audit Fees - Fiscal Year Ending December 31, 2006 - $27,300
Fiscal Year Ending December 31, 2005 - $27,000
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2006 - $0
Fiscal Year Ending December 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending December 31, 2006 - $9,200
Fiscal Year Ending December 31, 2005 - $8,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending December 31, 2006 - $0
Fiscal Year Ending December 31, 2005 - $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, 2006 - $3,071,450
Fiscal Year Ending December 31, 2005 - $5,577,771
(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) - $1,739,500, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - As of September 29, 2006, with the conclusion of the combination of
Merrill Lynch's asset management business with BlackRock, the registrant
was migrated to BlackRock's trading and compliance monitoring systems,
and various personnel changes occurred. In conjunction with these
business improvements, there were no changes in the registrants internal
control over financial reporting (as defined in Rule 30a-3(d) under Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year of
the period covered by this report that has materially affected, or is
reasonably likely to affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Master Mid Cap Index Series of Quantitative Master Series Trust
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Master Mid Cap Index Series of Quantitative Master Series Trust
Date: February 20, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Master Mid Cap Index Series of Quantitative Master Series Trust
Date: February 20, 2007
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Master Mid Cap Index Series of Quantitative Master Series Trust
Date: February 20, 2007