UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07899
811-07885
Name of Fund: BlackRock Aggregate Bond Index Fund of BlackRock Index Funds, Inc.
Master Aggregate Bond Index Series of Quantitative Master
Series Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Aggregate Bond Index Fund of BlackRock Index Funds,
Inc. and Master Aggregate Bond Index Series of Quantitative Master Series
Trust, 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing address:
P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/06
Date of reporting period: 01/01/06 - 12/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Aggregate BLACKROCK
Bond Index Fund
OF BLACKROCK INDEX FUNDS, INC.
ANNUAL REPORT | DECEMBER 31, 2006
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Aggregate Bond Index Fund
Proxy Results
During the six-month period ended December 31, 2006, BlackRock Aggregate Bond
Index Fund of BlackRock Index Funds, Inc. s shareholders voted on the following
proposals. On August 15, 2006, a special shareholders' meeting was adjourned
with respect to the proposals until August 31, 2006, at which time they were
approved. A description of the proposals and number of shares voted are as
follows:
- -------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement
with BlackRock Advisors, Inc. 17,653,617 331,638 346,767
- -------------------------------------------------------------------------------------------------
To approve a contingent sub-advisory agreement
with BlackRock Advisors, Inc. 17,593,746 371,073 367,202
- -------------------------------------------------------------------------------------------------
Important Tax Information
The following information is provided with respect to the net investment income
distributions paid monthly by BlackRock Aggregate Bond Index Fund of BlackRock
Index Funds, Inc. during the fiscal year ended December 31, 2006.
- --------------------------------------------------------------------------------
Federal Obligation Interest ......................................... 6.08%*
Interest-Related Dividends for Non-U.S. Residents ................... 94.72%**
- --------------------------------------------------------------------------------
* The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income
tax. We recommend that you consult your tax adviser to determine if any
portion of the dividends you received is exempt from state income tax.
** Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
2 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
A Letter to Shareholders
Dear Shareholder
As 2007 begins, we are able to look back on 2006 as a volatile, but ultimately,
a positive year for most major markets. Returns for the annual and semi-annual
periods ended December 31, 2006 were as follows:
Total Returns as of December 31, 2006 6-month 12-month
================================================================================================
U.S. equities (Standard & Poor's 500 Index) +12.74% +15.79%
- ------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) + 9.38 +18.37
- ------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +14.69 +26.34
- ------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 5.09 + 4.33
- ------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 4.55 + 4.84
- ------------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) + 8.14 +11.92
- ------------------------------------------------------------------------------------------------
After raising the target short-term interest rate 17 times between June 2004 and
June 2006, the Federal Reserve Board (the Fed) finally opted to pause on August
8, 2006. This left the federal funds rate at 5.25%, where it remained through
year-end. In interrupting its two-year interest rate-hiking campaign, the Fed
acknowledged that economic growth is slowing, led by a downturn in the housing
market, but has maintained a cautionary view on inflation.
Overall, it was a good 12 months for U.S. equities, despite a significant
correction in the middle of the year that was largely triggered by rising
interest rates, inflation fears, elevated oil prices and geopolitical
uncertainties. Nevertheless, strong corporate earnings, abundant liquidity and
record merger-and-acquisition activity provided a solid backdrop for stocks.
Many international equity markets (with the notable exception of Japan)
performed even better, outpacing U.S. stocks for the fifth consecutive year.
Strength was especially notable in European equities and select emerging
markets.
Bonds experienced a more modest annual return than stocks. Interest rates and
bond yields moved higher for much of the year as bond prices, which move
opposite of yields, declined. Prices began to improve in the summer as the
economy showed signs of weakening and the Fed paused. Notably, the Treasury
curve remained inverted for much of 2006. The 10-year Treasury yield ended
December at 4.71%, well below the federal funds rate.
As we begin a new year, investors are left with a few key questions: Will the
U.S. economy achieve a soft landing, will the Fed reverse its prior policy and
cut interest rates, and how might these outcomes impact the investment climate.
As you navigate the uncertainties inherent in the financial markets, we
encourage you to start the year by reviewing your investment goals with your
financial professional and making portfolio changes, as needed. For more
reflection on 2006 and our thoughts on the year ahead, please ask your financial
professional for a copy of "What's Ahead in 2007: An Investment Perspective," or
view it online at www.blackrock.com/funds. We thank you for trusting BlackRock
with your investment assets, and we look forward to continuing to serve you in
the new year and beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director/Trustee
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 3
A Discussion With Your Fund's Portfolio Managers
We continue to invest in a statistically selected sample of bonds
correlated to the Lehman Brothers Aggregate Bond Index in an effort to offer
investors returns consistent with the broader investment grade bond market.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended December 31, 2006, BlackRock Aggregate Bond Index
Fund's (formerly Merrill Lynch Aggregate Bond Index Fund) Institutional and
Investor A Shares had total returns of +4.18% and +4.02%, respectively. This
compared to a return of +4.33% for the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, for the same period. (Complete performance information can
be found on pages 6 and 7 of this report to shareholders.) Although the Fund
uses a stratified sampling approach to mimic the composition and performance of
the Index, a minimal margin of error in total return tracking is expected in
seeking to match the return of the benchmark. This often will account for the
variance in returns versus the Index.
The Lehman Brothers Aggregate Bond Index is composed of three major investment
sectors: U.S. government and agency issues, agency-guaranteed mortgage-backed
securities (MBS) and investment grade corporate bonds. Sector weighting and
security selection in the Index are determined by the representation that each
sector has in the overall market. For calendar year 2006, the U.S. government
and agency sector returned +3.48%, the MBS sector returned +5.16% and the
corporate credit sector returned +4.26%.
These returns were realized in a year when rising interest rates and the Federal
Reserve Board (the Fed) vigilance in the first half were followed by a bond
market rally and the Fed pause in the second half. The Treasury yield curve was
inverted for most of 2006. At the beginning of the year, the 10-year U.S.
Treasury note yield stood at 4.39%, two basis points below the 4.41% yield on
the two-year Treasury note. At the end of December, the 10- and two-year
Treasury issues yielded 4.71% and 4.82%, respectively. Short-term interest rates
were volatile during the year, rising rather steadily between January and June
before declining through most of the remainder of 2006. The yield on the
two-year note peaked at 5.29% in late June, and then dipped to a low of 4.52% in
early December. The 10-year Treasury yield reached a high of 5.25% late in the
second quarter of 2006 before falling to a low of 4.43% in early December.
The Fed raised the federal funds interest rate in five increments of 0.25%
during the year, bringing the target interest rate from 4.00% to 5.25% by the
end of June. However, the Fed held the interest rate steady at its meetings in
August, September, October and December, helping to trigger the bond market
rally that ensued. The strength in bond prices at this time was also attributed
to slowing economic growth and moderating oil prices. Gross domestic product in
the U.S. grew at a rate of 2.0% in the third quarter of 2006. This represented a
downturn from the 2.6% growth rate for the second quarter of the year, and was
considerably lower than the 5.6% rate for the first quarter. The price of oil,
which had reached a high of nearly $78 per barrel in July, had fallen to roughly
$61 per barrel by year-end -- the same point at which it started the year.
How was the portfolio managed during the year?
The Fund seeks to replicate the total return, before expenses, of the unmanaged
Lehman Brothers Aggregate Bond Index, a widely accepted investment performance
benchmark composed of dollar-denominated investment grade bonds of different
types. Because it is not practical or logistically possible to create a
portfolio with all of the Index positions, we construct a proxy portfolio
(Master Aggregate Bond Index Series) of far fewer securities that seeks to
duplicate the return of the benchmark.
The investments in the Series are determined by implementing stratified sampling
techniques. Through this approach, we select securities that collectively mimic
the investment characteristics of the Index at the sector and subsector levels.
At December 31, 2006, the Lehman Brothers Aggregate Bond Index was composed of
7,134 securities, and the Series held 1,086 individual investments designed to
match the market exposure and investment characteristics of the Index.
What changes occurred in the Index, and the portfolio, during the year?
In seeking to provide returns that are representative of the bond market as a
whole, we track the sector and subsector weightings of our benchmark index
rather than maintaining a bias to any specific area of the market.
At December 31, 2006, the government and agency sector of the Lehman Brothers
Aggregate Bond Index was composed of 958 securities, accounting for 35.73% of
the Index's total capitalization. This was in comparison to 843 issues
representing 36.39% of the benchmark at December 31, 2005.
4 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
The Fund's position in this sector is designed to match the duration, yield and
convexity of the Index. Therefore, any change in interest rates or the shape of
the yield curve will have an identical effect on the sector's return.
The MBS sector included 3,099 securities and comprised 41.20% of the Index at
December 31, 2006, versus 2,690 securities representing 40.20% of the Index at
December 31, 2005. The Fund's position in the MBS sector has the same exposure
to 30-year, 15-year and balloon MBS as that of the Index. Within these
subsectors, exposure to coupons and issuers also are matched to that of the
Index in an effort to duplicate the return of the Index's MBS sector with
minimal deviation.
Within the corporate sector, there were 3,077 securities representing 23.07% of
the Index at December 31, 2006, compared to 2,920 securities representing 23.41%
of the Index as of December 31, 2005. As with the U.S. government sector, we
seek to match investment characteristics in the portfolio's corporate sector
with those of the Index. However, in the corporate sector, we also seek to
mirror the credit rating and industry exposure of the benchmark.
How was the portfolio positioned at the close of the period?
We continue to use our stratified sampling techniques to create a proxy
portfolio of our benchmark and offer comparable returns. With that in mind, we
expect the portfolio to continue to meet its objective of providing fixed income
returns consistent with those of the broader market.
Keith Anderson
Portfolio Manager
Scott Amero
Portfolio Manager
Matthew Marra
Portfolio Manager
Andrew Phillips
Portfolio Manager
January 15, 2007
- --------------------------------------------------------------------------------
Effective October 2, 2006, the Fund is managed by a team of investment
professionals comprised of Keith Anderson, Scott Amero, Matthew Marra and Andrew
Phillips. Mr. Anderson is a Vice Chairman of BlackRock, a member of the firm's
Executive and Management Committees, Chief Investment Officer for Fixed Income
and Chairman of the Investment Strategy Group. He is a founding member of
BlackRock, having been with the firm since 1988. Mr. Amero is a Managing
Director of BlackRock, co-head of the fixed income portfolio management team and
a member of the Management Committee and the Investment Strategy Group. He has
been with BlackRock since 1990. Mr. Marra is a Managing Director of and
portfolio manager with BlackRock and a member of the Investment Strategy Group.
He joined BlackRock in 1995 and became part of the Portfolio Management Group in
1997. Mr. Phillips also is a Managing Director of and portfolio manager with
BlackRock and is a member of the Investment Strategy Group. He joined BlackRock
in 1991.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective October 2, 2006, the Fund's Class A and Class I Shares were
redesignated Investor A and Institutional Shares, respectively.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
On August 17, 2006, the Board of Directors approved a proposal to liquidate the
Fund. Accordingly, the Fund suspended sales of its shares effective September
11, 2006, except for certain authorized, qualified employee benefit plans,
certain fee-based programs and for reinvestment of dividends and capital gains.
The Fund plans on liquidating on March 29, 2007.
- --------------------------------------------------------------------------------
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 5
Performance Data
About Fund Performance
Effective October 2, 2006, the Fund's Class A and Class I Shares were
redesignated Investor A and Institutional Shares, respectively.
The Fund has multiple classes of shares:
o Institutional Shares do not incur an initial sales charge (front-end load)
or deferred sales charge and bear no ongoing distribution or service fees.
Institutional Shares are available only to eligible investors.
o Investor A Shares do not incur an initial sales charge (front-end load) or
deferred sales charge and bear no ongoing distribution fee. In addition,
Investor A Shares are subject to an ongoing service fee of 0.25% (per
year).
Performance information reflects past performance and does not guarantee future
results. Current performance may be lower or higher than the performance data
quoted. Refer to www.blackrock.com to obtain performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
payable date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different levels
of service, distribution and transfer agency fees applicable to each class,
which are deducted from the income available to be paid to shareholders. The
Fund's administrator voluntarily waived a portion of its administrative fee.
Without such waiver, the Fund's performance would have been lower.
Recent Performance Results
6-Month 12-Month Since Inception Standardized
As of December 31, 2006 Total Return Total Return Total Return 30-Day Yield
=============================================================================================================
Institutional Shares* +5.11% +4.18% +78.21% 4.95%
- -------------------------------------------------------------------------------------------------------------
Investor A Shares* +5.08 +4.02 +74.12 4.69
- -------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index** +5.09 +4.33 +83.50 --
- -------------------------------------------------------------------------------------------------------------
* Cumulative total investment returns are based on changes in net asset
values for the periods shown, and assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date. The
Fund's inception date is 4/03/97.
** This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds. Since inception total return
is from 4/03/97.
6 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund's Investor A
Shares and Institutional Shares compared to growth of an investment in the
Lehman Brothers Aggregate Bond Index. Values are from April 3, 1997 to December
2005.
Lehman
Brothers Aggregate
Investor A Shares*+ Institutional Shares*+ Bond Index++
4/03/97** $10,000 $10,000 $10,000
12/97 $10,929 $10,949 $10,988
12/98 $11,832 $11,883 $11,943
12/99 $11,656 $11,724 $11,845
12/00 $12,961 $13,082 $13,222
12/01 $13,946 $14,112 $14,338
12/02 $15,286 $15,492 $15,808
12/03 $15,796 $16,063 $16,457
12/04 $16,438 $16,757 $17,171
12/05 $17,412 $17,821 $18,350
* Assuming transaction costs, if any, and other operating expenses,
including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Master Aggregate Bond Index Series
of Quantitative Master Series Trust. The Trust may invest in a
statistically selected sample of fixed income securities and other types
of financial instruments.
++ This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgaged-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds.
Past performance is not indicative of future performance.
Average Annual Total Return
Institutional Shares Return
================================================================================
One Year Ended 12/31/06 +4.18%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 +4.78
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/06 +6.11
- --------------------------------------------------------------------------------
Investor A Shares Return
================================================================================
One Year Ended 12/31/06 +4.02%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 +4.54
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/06 +5.86
- --------------------------------------------------------------------------------
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 7
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on July 1, 2006 and held through
December 31, 2006) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders' ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value July 1, 2006 to
July 1, 2006 December 31, 2006 December 31, 2006
===============================================================================================================
Actual
===============================================================================================================
Institutional $ 1,000 $1,051.10 $ 1.75
- ---------------------------------------------------------------------------------------------------------------
Investor A $ 1,000 $1,050.80 $ 3.08
===============================================================================================================
Hypothetical (5% annual return before expenses)**
===============================================================================================================
Institutional $ 1,000 $1,023.40 $ 1.72
- ---------------------------------------------------------------------------------------------------------------
Investor A $ 1,000 $1,022.09 $ 3.04
- ---------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.34% for Institutional and .60% for Investor A),
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period shown). Because the Fund is a
feeder fund, the expense table example reflects the expenses of both the
feeder fund and the master series in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
8 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Statement of Assets and Liabilities BlackRock Aggregate Bond Index Fund
As of December 31, 2006
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investment in Master Aggregate Bond Index Series (the "Series"),
at value (identified cost--$125,582,722) ............................. $ 125,498,725
Receivable from administrator ......................................... 45,847
Prepaid expenses ...................................................... 21,001
-------------
Total assets .......................................................... 125,565,573
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Payables:
Dividends to shareholders .......................................... $ 493,439
Distributor ........................................................ 5,752 499,191
-------------
Accrued expenses ...................................................... 121,208
-------------
Total liabilities ..................................................... 620,399
-------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................ $ 124,945,174
=============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized ........................................ $ 950
Investor A Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized ........................................ 245
Paid-in capital in excess of par ...................................... 128,243,351
Accumulated distributions in excess of investment income --net ........ $ (198,355)
Accumulated realized capital losses allocated from the Series--net .... (3,017,020)
Unrealized depreciation allocated from the Series--net ................ (83,997)
-------------
Total accumulated losses--net ......................................... (3,299,372)
-------------
Net Assets ............................................................ $ 124,945,174
=============
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional--Based on net assets of $99,280,052 and 9,497,871
shares outstanding ................................................... $ 10.45
=============
Investor A--Based on net assets of $25,665,122 and 2,454,445 shares
outstanding .......................................................... $ 10.46
=============
See Notes to Financial Statements.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 9
Statement of Operations BlackRock Aggregate Bond Index Fund
For the Year Ended December 31, 2006
===================================================================================================================================
Investment Income--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Series:
Interest ........................................................... $ 15,689,983
Dividends .......................................................... 62,131
Securities lending--net ............................................ 18,683
Expenses ........................................................... (228,563)
-------------
Total income .......................................................... 15,542,234
-------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Administration fees ................................................... $ 597,989
Transfer agent fees--Institutional .................................... 203,799
Printing and shareholder reports ...................................... 153,437
Service fees--Investor A .............................................. 69,017
Registration fees ..................................................... 40,717
Transfer agent fees--Investor A ....................................... 23,781
Professional fees ..................................................... 11,369
Directors' fees and expenses .......................................... 4,904
Other ................................................................. 11,385
-------------
Total expenses before waiver .......................................... 1,116,398
Waiver of expenses .................................................... (187,976)
-------------
Total expenses after waiver ........................................... 928,422
-------------
Investment income--net ................................................ 14,613,812
-------------
===================================================================================================================================
Realized & Unrealized Loss--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized loss on:
Investments--net ................................................... (2,125,645)
Financial futures contracts and swaps--net ......................... (7,220) (2,132,865)
-------------
Change in unrealized appreciation/depreciation on investments
and options written--net ............................................. (1,271,451)
-------------
Total realized and unrealized loss--net ............................... (3,404,316)
-------------
Net Increase in Net Assets Resulting from Operations .................. $ 11,209,496
=============
See Notes to Financial Statements.
10 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Statements of Changes in Net Assets BlackRock Aggregate Bond Index Fund
For the Year Ended
December 31,
--------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................ $ 14,613,812 $ 14,956,818
Realized gain (loss)--net ............................................. (2,132,865) 522,700
Change in unrealized appreciation/depreciation--net ................... (1,271,451) (8,252,890)
--------------------------------
Net increase in net assets resulting from operations .................. 11,209,496 7,226,628
--------------------------------
===================================================================================================================================
Dividends & Distributions to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Institutional ...................................................... (13,418,121) (13,718,703)
Investor A ......................................................... (1,222,074) (1,248,365)
Realized gain--net:
Institutional ...................................................... -- (1,652,899)
Investor A ......................................................... -- (146,554)
--------------------------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ........................................ (14,640,195) (16,766,521)
--------------------------------
===================================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions .... (232,645,124) (26,930,863)
--------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets .......................................... (236,075,823) (36,470,756)
Beginning of year ..................................................... 361,020,997 397,491,753
--------------------------------
End of year* .......................................................... $ 124,945,174 $ 361,020,997
================================
* Accumulated distributions in excess of investment income--net .... $ (198,355) $ (195,751)
================================
See Notes to Financial Statements.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 11
Financial Highlights BlackRock Aggregate Bond Index Fund
Institutional
----------------------------------------------------------------
The following per share data For the Year Ended
and ratios have been derived December 31,
from information provided in ----------------------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........................... $ 10.51 $ 10.78 $ 10.91 $ 10.95 $ 10.50
----------------------------------------------------------------
Investment income--net* ...................................... .49 .44 .42 .43 .55
Realized and unrealized gain (loss)--net ..................... (.07) (.22) .04 (.03) .45
----------------------------------------------------------------
Total from investment operations ............................. .42 .22 .46 .40 1.00
----------------------------------------------------------------
Less dividends and distributions:
Investment income--net .................................... (.48) (.44) (.43) (.44) (.55)
Realized gain--net ........................................ -- (.05) (.16) -- --
----------------------------------------------------------------
Total dividends and distributions ............................ (.48) (.49) (.59) (.44) (.55)
----------------------------------------------------------------
Net asset value, end of year ................................. $ 10.45 $ 10.51 $ 10.78 $ 10.91 $ 10.95
================================================================
==================================================================================================================================
Total Investment Return
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... 4.18% 2.09% 4.31% 3.70% 9.78%
================================================================
==================================================================================================================================
Ratios to Average Net Assets**
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ...................................... .35% .35% .35% .35% .34%
================================================================
Expenses ..................................................... .40% .39% .36% .37% .36%
================================================================
Investment income--net ....................................... 4.67% 4.12% 3.85% 3.95% 5.16%
================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ....................... $ 99,280 $332,037 $350,026 $365,898 $360,991
================================================================
Portfolio turnover of the Series ............................. 155.13% 147.39% 159.44% 136.76% 112.18%
================================================================
Investor A
----------------------------------------------------------------
The following per share data For the Year Ended
and ratios have been derived December 31,
from information provided in ----------------------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........................... $ 10.51 $ 10.78 $ 10.91 $ 10.96 $ 10.50
----------------------------------------------------------------
Investment income--net* ...................................... .46 .41 .39 .41 .52
Realized and unrealized gain (loss)--net ..................... (.05) (.21) .04 (.05) .46
----------------------------------------------------------------
Total from investment operations ............................. .41 .20 .43 .36 .98
----------------------------------------------------------------
Less dividends and distributions:
Investment income--net .................................... (.46) (.42) (.40) (.41) (.52)
Realized gain--net ........................................ -- (.05) (.16) -- --
----------------------------------------------------------------
Total dividends and distributions ............................ (.46) (.47) (.56) (.41) (.52)
----------------------------------------------------------------
Net asset value, end of year ................................. $ 10.46 $ 10.51 $ 10.78 $ 10.91 $ 10.96
================================================================
==================================================================================================================================
Total Investment Return
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... 4.02% 1.83% 4.05% 3.35% 9.61%
================================================================
==================================================================================================================================
Ratios to Average Net Assets**
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ...................................... .60% .60% .60% .60% .59%
================================================================
Expenses ..................................................... .69% .64% .61% .62% .61%
================================================================
Investment income--net ....................................... 4.41% 3.87% 3.60% 3.70% 4.91%
================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ....................... $ 25,665 $ 28,984 $ 47,466 $ 63,872 $ 61,029
================================================================
Portfolio turnover of the Series ............................. 155.13% 147.39% 159.44% 136.76% 112.18%
================================================================
* Based on average shares outstanding.
** Includes the Fund's share of the Series' allocated expenses and/or
investment income -- net.
See Notes to Financial Statements.
12 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Notes to Financial Statements BlackRock Aggregate Bond Index Fund
1. Significant Accounting Policies:
On September 29, 2006, Merrill Lynch Aggregate Bond Index Fund, a series of
Merrill Lynch Index Funds, Inc., was renamed BlackRock Aggregate Bond Index Fund
(the "Fund"), a series of BlackRock Index Funds, Inc. (the "Corporation"),
respectively. The Fund is registered under the Investment Company Act of 1940,
as amended, as a non-diversified open-end investment company. The Fund seeks to
achieve its investment objective by investing all of its assets in Master
Aggregate Bond Index Series (the "Series") of Quantitative Master Series Trust
(the "Trust"), which has the same investment objective and strategies as the
Fund. The value of the Fund's investment in the Series reflects the Fund's
proportionate interest in the net assets of the Series. The performance of the
Fund is directly affected by the performance of the Series. The financial
statements of the Series, including the Schedule of Investments, are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements. The Fund's financial statements are prepared in conformity
with U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The percentage of the Series owned by the Fund at December 31, 2006
was 15.9%. The Fund offers two classes of shares. Effective October 2, 2006,
Class I and Class A Shares were redesignated Institutional and Investor A
Shares, respectively. Institutional and Investor A Shares are sold without the
imposition of a front-end or deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the same terms and
conditions, except that Investor A Shares bear certain expenses related to the
account maintenance of such shares and have exclusive voting rights with respect
to matters relating to its account maintenance expenditures. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investment in the Series at
fair value. Valuation of securities held by the Series is discussed in Note 1(a)
of the Series' Notes to Financial Statements, which are included elsewhere in
this report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Series' income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Series are
accounted for on a trade date basis.
(g) 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 Fund's 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 Fund's financial statements has not
been determined.
(h) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $23,779 has been reclassified between accumulated net realized capital
losses and accumulated distributions in excess of net investment income and
$15,858 has been reclassified between paid-in capital in excess of par and
accumulated net realized capital losses as a result of permanent differences
attributable to amortization methods on
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 13
Notes to Financial Statements (continued) BlackRock Aggregate Bond Index Fund
fixed income securities, swap agreements, accounting for paydowns and basis
differences on the sale of contributed securities. These reclassifications have
no effect on net assets or net asset values per share.
2. 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, 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. ("PNC"), 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 August 31, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement for the Trust on behalf of the Series with BlackRock Advisors, Inc.,
an indirect, wholly owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc.
was recently reorganized into a limited liability company and renamed BlackRock
Advisors, LLC. The new Investment Advisory Agreement became effective on
September 29, 2006. Prior to September 29, 2006, MLIM was the 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 Corporation has entered into an Administration Agreement with BlackRock
Advisors, LLC (the "Administrator"). The Fund pays a monthly fee at an annual
rate of .19% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund. The Administrator (and
previously MLIM) has entered into a voluntary arrangement with the Fund under
which expenses incurred by the Fund (excluding account maintenance fees
("service fees")) will not exceed .35%. This arrangement has a one-year term and
is renewable. Prior to September 29, 2006, MLIM acted as the Fund's
Administrator and was compensated at the same fee rate. For the period January
1, 2006 to September 29, 2006, MLIM earned fees of $513,053, of which $62,022
was waived. For the period September 30, 2006 to December 31, 2006, the
Administrator earned fees of $84,936, all of which was waived. In addition, for
the period September 30, 2006 to December 31, 2006, the Administrator reimbursed
the Fund $41,018 in other operating expenses.
The Corporation has also entered into separate Distribution Agreements and
Distribution Plans with FAM Distributors, Inc. ("FAMD") and BlackRock
Distributors, Inc. ("BDI") (collectively, the "Distributor"). FAMD is a wholly
owned subsidiary of Merrill Lynch Group, Inc. and BDI is an affiliate of
BlackRock, Inc.
Pursuant to the Distribution Plans adopted by the Corporation in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor an ongoing service fee. The fee is accrued daily and paid monthly at
the annual rate of .25% based upon the average daily net assets of Investor A
Shares.
Pursuant to sub-agreements with each Distributor, broker-dealers, including
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned
subsidiary of Merrill Lynch, also provide account maintenance services to the
Fund. The ongoing service fee compensates the Distributors and the
broker-dealers (including MLPF&S) for providing account maintenance services to
Investor A shareholders.
Effective September 29, 2006, PFPC Inc., an indirect, wholly owned subsidiary of
PNC and an affiliate of the Administrator, became the Fund's transfer agent.
Prior to September 29, 2006, the Fund's transfer agent was Financial Data
Services, Inc. ("FDS"), a wholly owned subsidiary of Merrill Lynch.
Prior to September 29, 2006, certain officers and/or directors of the
Corporation were officers and/or directors of MLIM, PSI, FAMD, FDS, and/or
Merrill Lynch.
Commencing September 29, 2006, certain officers and/or directors of the
Corporation are officers and/or directors of BlackRock, Inc. or its affiliates.
3. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$232,645,124 and $26,930,863 for the years ended December 31, 2006 and December
31, 2005, respectively.
14 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Notes to Financial Statements (concluded) BlackRock Aggregate Bond Index Fund
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Institutional Shares for the Year Dollar
Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 9,574,285 $ 99,064,840
Shares issued to shareholders in
reinvestment of dividends ............ 956,024 9,896,038
---------------------------------
Total issued ........................... 10,530,309 108,960,878
Shares redeemed ........................ (32,622,849) (338,461,791)
---------------------------------
Net decrease ........................... (22,092,540) $(229,500,913)
=================================
- -------------------------------------------------------------------------------
Institutional Shares for the Year Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 10,470,426 $ 111,757,534
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 1,020,713 10,862,316
---------------------------------
Total issued ........................... 11,491,139 122,619,850
Shares redeemed ........................ (12,376,169) (131,893,472)
---------------------------------
Net decrease ........................... (885,030) $ (9,273,622)
=================================
- -------------------------------------------------------------------------------
Investor A Shares for the Year Dollar
Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 471,023 $ 4,879,894
Shares issued to shareholders in
reinvestment of dividends ............ 89,571 929,886
---------------------------------
Total issued ........................... 560,594 5,809,780
Shares redeemed ........................ (863,411) (8,953,991)
---------------------------------
Net decrease ........................... (302,817) $ (3,144,211)
=================================
- -------------------------------------------------------------------------------
Investor A Shares for the Year Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 773,702 $ 8,268,069
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 97,135 1,035,355
---------------------------------
Total issued ........................... 870,837 9,303,424
Shares redeemed ........................ (2,516,993) (26,960,665)
---------------------------------
Net decrease ........................... (1,646,156) $ (17,657,241)
=================================
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended December
31, 2006 and December 31, 2005 was as follows:
- -------------------------------------------------------------------------------
12/31/2006 12/31/2005
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ...................... $ 14,640,195 $ 15,757,158
Net long-term capital gains .......... -- 1,009,363
---------------------------------
Total taxable distributions ............ $ 14,640,195 $ 16,766,521
=================================
As of December 31, 2006, the components of accumulated losses on a tax basis
were as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income--net ...................... $ 76,797
Undistributed long-term capital gains--net .............. --
-----------
Total undistributed earnings--net ....................... 76,797
Capital loss carryforward ............................... (1,843,074)*
Unrealized losses--net .................................. (1,533,095)**
-----------
Total accumulated losses--net ........................... $(3,299,372)
===========
* On December 31, 2006, the Fund had a net capital loss carryforward of
$1,843,074, all of which expires in 2014. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the tax deferral of losses on wash sales, the
tax deferral of losses on straddles, the difference between book and tax
amortization methods for premiums and discounts on fixed income securities
and the deferral of post-October capital losses for tax purposes.
5. Plan of Liquidation:
On August 17, 2006, the Board of Directors approved a proposal to liquidate the
Fund. Accordingly, the Fund suspended sales of its shares effective September
11, 2006, except for certain authorized, qualified employee benefit plans,
certain fee-based programs and for reinvestment of dividends and capital gains.
The Fund plans on liquidating on March 29, 2007.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 15
Report of Independent Registered Public Accounting Firm
BlackRock Aggregate Bond Index Fund
To the Shareholders and Board of Directors of BlackRock Index Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of
BlackRock Aggregate Bond Index Fund (formerly Merrill Lynch Aggregate Bond Index
Fund), one of the series constituting BlackRock Index Funds, Inc. (the "Fund"),
(formerly Merrill Lynch Index Funds, Inc.) 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 Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock Aggregate Bond Index Fund of BlackRock Index Funds, Inc. 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 27, 2007
16 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Portfolio Information Master Aggregate Bond Index Series
As of December 31, 2006
Quality Ratings by Percent of
S&P/Moody's Total Investments
- --------------------------------------------------------------------------------
AAA/Aaa ................................................ 77.1%
AA/Aa .................................................. 5.6
A/A .................................................... 9.0
BBB/Baa ................................................ 7.1
Other* ................................................. 1.2
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term securities and options.
Proxy Results
During the six-month period ended December 31, 2006, Master Aggregate Bond Index
Series of Quantitative Master Series Trusts' 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. 785,917,241 3,561,273 3,704,938
- -----------------------------------------------------------------------------------------------------------------
To approve a contingent sub-advisory agreement
with BlackRock Advisors, Inc. 785,300,176 3,975,768 3,907,506
- -----------------------------------------------------------------------------------------------------------------
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 17
Summary Schedule of Investments Master Aggregate Bond Index Series
As of December 31, 2006 (in U.S. dollars)
This summary schedule of investments is presented to help investors focus on the
Series' principal holdings. It includes the Series' 50 largest holdings and each
investment of any issuer that exceeds 1% of the Series' net assets. "Other
Securities" represent all issues not required to be disclosed under the rules
adopted by the Securities and Exchange Commission. A complete schedule of
investments is available without charge, upon request, by calling 800-441-7762
or on the Securities and Exchange Commission's Web site at http://www.sec.gov.
====================================================================================================================================
Interest Maturity Percent of
Issue Face Amount Rate Date(s) Value Net Assets
====================================================================================================================================
U.S. Government Fannie Mae $ 27,030,000 5.75% 2/15/2008 $ 27,189,774 3.4%
& Agency 21,425,000 4.50 10/15/2008 21,233,846 2.7
Obligations 4,335,000 4.875 4/15/2009 4,323,057 0.5
28,855,000 6.625 9/15/2009 30,045,067 3.8
3,140,000 5.125 4/15/2011 3,162,454 0.4
31,035,000 6.00 5/15/2011 32,314,666 4.1
8,430,000 4.375 3/15/2013 8,160,147 1.0
2,375,000 3.25 - 7.25 1/15/2008 - 5/15/2030 2,729,864 0.3
-------------------------------------------------------------------------------------------------------------------
Freddie Mac 4,860,000 5.75 4/15/2008 4,895,920 0.6
5,555,000 5.125 4/18/2008 5,553,600 0.7
10,820,000 4.875 2/17/2009 10,791,111 1.4
21,970,000 4.125 7/12/2010 21,409,853 2.7
8,355,000 4.875 11/15/2013 8,304,009 1.0
8,655,000 6.75 9/15/2029 10,403,466 1.3
3,820,000 4.75 - 5.00 1/19/2016 - 12/14/2018 3,743,009 0.5
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds 14,375,000 8.75 5/15/2017 19,017,679 2.4
7,275,000 8.50 2/15/2020 9,825,229 1.2
1,805,000 8.125 8/15/2021 2,408,969 0.3
8,225,000 6.25 8/15/2023 9,467,107 1.2
2,950,000 6.875 8/15/2025 3,652,009 0.5
3,680,000 6.375 8/15/2027 4,378,913 0.5
3,110,000 4.50 - 5.375 2/15/2031 - 2/15/2036 3,123,340 0.4
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes 6,325,000 4.00 11/15/2012 6,106,838 0.8
3,300,000 4.875 8/15/2016 3,339,445 0.4
-------------------------------------------------------------------------------------------------------------------
Other Securities 1,530,358 0.2
-------------------------------------------------------------------------------------------------------------------
Total U.S. Government & Agency Obligations (Cost--$258,210,007) 257,109,730 32.3
====================================================================================================================================
U.S. Government Freddie Mac Mortgage 3,708,431 4.00 9/01/2020 - 1/01/2021 3,488,527 0.4
Agency Participation Certificates 32,105,868 4.50 2/01/2011 - 12/01/2035 30,880,468 3.9
Mortgage-Backed 81,281,592 5.00 11/01/2017 - 5/01/2036 78,857,309 9.9
Securities* 80,317,736 5.50 4/01/2014 - 7/01/2036 79,516,154 10.0
3,169,511 6.00 4/01/2016 - 10/01/2017 3,215,293 0.4
14,102,009 6.50 7/01/2015 - 9/01/2036 14,402,406 1.8
2,895,844 7.00 1/01/2011 - 11/01/2032 2,980,239 0.4
1,273,789 7.50 - 12.50 5/01/2007 - 9/01/2032 1,338,923 0.2
-------------------------------------------------------------------------------------------------------------------
Ginnie Mae MBS Certificates 2,545,281 4.50 9/15/2035 2,404,603 0.3
7,880,405 5.00 4/15/2035 - 5/15/2036 7,666,951 1.0
13,580,783 5.50 1/15/2035 - 5/15/2036 13,517,400 1.7
11,008,153 6.00 4/20/2026 - 1/15/2037 (b) 11,167,402 1.4
3,644,704 6.50-9.50 4/15/2013 - 11/15/2034 3,770,905 0.5
-------------------------------------------------------------------------------------------------------------------
Other Securities 2,798,340 0.3
-------------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Mortgage-Backed Securities (Cost--$256,670,363) 256,004,920 32.2
===================================================================================================================
18 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Summary Schedule of Investments (continued) Master Aggregate Bond Index Series
(in U.S. dollars)
Face Percent of
Amount Non-Government Agency Mortgage-Backed Securities* Value Net Assets
====================================================================================================================================
Collateralized Residential Accredit Loans, Inc. (a):
Mortgage $ 7,335,736 Series 2005-QS12 Class A8, 5.66% due 8/25/2035 $ 7,339,726 0.9%
Obligations 6,748,821 Series 2006-QA9 Class A1, 5.50% due 11/25/2036 6,736,883 0.9
----------------------------
14,076,609 1.8
====================================================================================================================================
Commercial 2,280,000 Banc of America Commercial Mortgage, Inc. Series 2005-4
Mortgage-Backed Class A5A, 4.933% due 7/10/2045 2,217,636 0.3
Securities 8,500,000 Capital Auto Receivables Asset Trust Series 2004-2
Class A3, 3.58% due 1/15/2009 8,402,794 1.1
2,463,075 First Union NB-Bank of America Commercial Series 2001-C1
Class A2, 6.136% due 3/15/2033 2,527,874 0.3
9,500,000 Ford Credit Auto Owner Trust Series 2006-B
Class A2A, 5.42% due 7/15/2009 9,505,736 1.2
2,750,000 GE Capital Commercial Mortgage Corp. Series 2005-C1
Class A2, 4.353% due 6/10/2048 2,682,699 0.3
7,825,000 Honda Auto Receivables Owner Trust Series 2006-3
Class A3, 5.12% due 10/15/2010 7,815,363 1.0
JPMorgan Chase Commercial Mortgage Securities Corp.:
2,530,000 Series 2001-CIB3 Class A3, 6.465% due 11/15/2035 2,654,782 0.3
2,174,000 Series 2001-CIB3 Class B, 6.678% due 11/15/2035 2,308,867 0.3
3,050,000 Series 2001-CIBC Class B, 6.446% due 3/15/2033 3,178,611 0.4
1,830,000 Series 2005-LDP4 Class AM, 4.999% due 10/15/2042 (a) 1,782,174 0.2
2,740,000 Series 2006-LDP7 Class A4, 5.875% due 4/15/2045 (a) 2,862,536 0.4
Morgan Stanley Capital I:
1,940,506 Series 1999-RM1 Class A2, 6.71% due 12/15/2031 1,976,444 0.2
5,315,000 Series 1999-WF1 Class B, 6.32% due 11/15/2031 5,393,953 0.7
2,525,000 Series 2005-T19 Class A2, 4.725% due 6/12/2047 2,483,196 0.3
7,275,000 Nissan Auto Receivables Owner Trust Series 2006-A
Class A3, 4.74% due 9/15/2009 7,233,847 0.9
2,200,000 Wachovia Bank Commercial Mortgage Trust Series 2006-C28
Class A4, 5.572% due 10/15/2048 2,232,131 0.3
7,500,000 Whole Auto Loan Trust Series 2004-1 Class A4, 3.26% due 3/15/2011 7,370,580 0.9
Other Securities 9,450,518 1.2
----------------------------
82,079,741 10.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total Non-Government Agency Mortgage-Backed Securities
(Cost--$96,035,415) 96,156,350 12.1
====================================================================================================================================
Industry Corporate Bonds
====================================================================================================================================
Aerospace & Other Securities 5,522,684 0.7
Defense
- ------------------------------------------------------------------------------------------------------------------------------------
Air Freight & Other Securities 114,098 0.0
Logistics
- ------------------------------------------------------------------------------------------------------------------------------------
Airlines Other Securities 790,216 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Auto Components Other Securities 389,388 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Automobiles Other Securities 1,295,563 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Beverages Other Securities 2,440,035 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Biotechnology Other Securities 656,874 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Building Products Other Securities 228,296 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Markets Other Securities 12,934,503 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals Other Securities 2,107,178 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks PNC Funding Corp., 4.20% due 3/10/2008 (c) 490,638 0.1
Other Securities 19,327,623 2.4
----------------------------
19,818,261 2.5
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Services Other Securities 2,992,688 0.4
& Supplies
- ------------------------------------------------------------------------------------------------------------------------------------
Communications Equipment Other Securities 1,374,998 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals Other Securities 1,595,788 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Construction Materials Other Securities 607,254 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 19
Summary Schedule of Investments (continued) Master Aggregate Bond Index Series
(in U.S. dollars)
Percent of
Industry Corporate Bonds Value Net Assets
====================================================================================================================================
Consumer Finance Other Securities $ 6,415,183 0.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging Other Securities 338,182 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Consumer Other Securities 299,063 0.0
Services
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Other Securities 14,773,902 1.9
Services
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Other Securities 11,021,731 1.4
Telecommunication
Services
- ------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities Other Securities 6,333,673 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment Other Securities 251,176 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services Other Securities 442,545 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing Other Securities 2,845,720 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Food Products Other Securities 4,031,205 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities Other Securities 750,460 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Other Securities 821,823 0.1
Supplies
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Other Securities 1,099,916 0.1
Services
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure Other Securities 960,719 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Household Durables Other Securities 2,369,654 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Household Products Other Securities 1,004,765 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates Other Securities 1,493,861 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance Other Securities 7,090,780 0.9
- ------------------------------------------------------------------------------------------------------------------------------------
Machinery Other Securities 2,395,558 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Media Other Securities 8,629,537 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Metals & Mining Other Securities 2,466,998 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities Other Securities 4,733,464 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Multiline Retail Other Securities 2,846,501 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels Other Securities 13,431,524 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products Other Securities 1,740,784 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals Other Securities 3,623,647 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Other Securities 5,102,797 0.6
Trusts (REITs)
- ------------------------------------------------------------------------------------------------------------------------------------
Road & Rail Other Securities 2,641,151 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Software Other Securities 812,484 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty Retail Other Securities 760,679 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance Other Securities 2,328,496 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Tobacco Other Securities 374,848 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Other Securities 3,660,931 0.5
Services
- ------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost--$171,517,767) 170,761,581 21.5
====================================================================================================================================
Foreign Government Obligations
====================================================================================================================================
Other Securities 14,711,374 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total Foreign Government Obligations
(Cost--$14,740,148) 14,711,374 1.8
====================================================================================================================================
Capital Trusts
====================================================================================================================================
Oil, Gas & Consumable Fuels Other Securities 82,575 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Trusts (Cost--$77,141) 82,575 0.0
====================================================================================================================================
20 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Summary Schedule of Investments (concluded) Master Aggregate Bond Index Series
(in U.S. dollars)
Percent of
State Municipal Bonds Value Net Assets
====================================================================================================================================
Illinois Other Securities $ 862,560 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Texas Other Securities 1,028,477 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$1,859,936) 1,891,037 0.2
====================================================================================================================================
Face
Amount Short-Term Securities
====================================================================================================================================
U.S. Government $10,100,000 Federal Home Loan Bank System, 4.80% due 1/02/2007 10,100,000 1.3
Agency Obligations**
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$10,100,000) 10,100,000 1.3
====================================================================================================================================
Total Investments (Cost--$809,210,777) 806,817,567 101.4
====================================================================================================================================
Number of
Contracts Options Written
====================================================================================================================================
Call Options Written 13++ Pay a fixed rate of 4.40% and receive a floating rate based on
3-month LIBOR, expiring December 2007, Broker Deutsche Bank AG (d) (46,528) (0.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Put Options Written 13++ Receive a fixed rate of 5.40% and pay a floating rate based on
3-month LIBOR, expiring December 2007, Broker Deutsche Bank AG (d) (70,694) (0.0)
Total Options Written (Premiums Received--$225,280) (117,222) (0.0)
====================================================================================================================================
Total Investments, Net of Options Written (Cost--$808,985,497+) 806,700,345 101.4
Liabilities in Excess of Other Assets (11,249,580) (1.4)
----------------------------
Net Assets $795,450,765 100.0%
============================
* Mortgage-Backed Securities are subject to principal paydowns. As a result
of prepayments or refinancing of the underlying mortgage instruments, the
average life may be substantially less than the original maturity.
** Short-Term U.S. Government Agency Obligations are traded on a discount
basis; the interest rates shown reflect the discount rates paid at the
time of purchase.
+ The cost and unrealized appreciation (depreciation) of investments, net of
options written, as of December 31, 2006, as computed for federal income
tax purposes, were as follows:
Aggregate cost .............................. $ 810,556,690
=============
Gross unrealized appreciation ............... $ 5,949,743
Gross unrealized depreciation ............... (9,806,088)
-------------
Net unrealized depreciation ................. $ (3,856,345)
=============
++ One contract represents a notional amount of $1,000,000.
(a) Floating rate security.
(b) Represents or includes a "to-be-announced" transaction. The Series has
committed to purchasing and/or selling securities for which all specific
information is not available at this time.
(c) Investments in companies considered to be an affiliate of the Series, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Purchase Sale Realized Interest
Affiliate Cost Cost Gain Income
--------------------------------------------------------------------------
BlackRock Liquidity
Series, LLC
Money Market
Series -- $(50,141,250)* -- $51,939
PNC Funding Corp.,
4.20% due 3/10/2008 -- -- -- $20,942
--------------------------------------------------------------------------
* Represents net sale cost.
(d) This European style swaption, which can be exercised only to the
expiration date, represents a standby commitment whereby the Series is
obligated to enter into a predetermined interest rate swap contract upon
exercise of swaption.
o "Other Securities" represent issues that are not identified as the 50
largest holdings of the Series and issues not exceeding 1% of net assets.
o For Series compliance purposes, the Series' industry classifications refer
to any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Series management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets. These
industry classifications are unaudited.
See Notes to Financial Statements.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 21
Statement of Assets and Liabilities Master Aggregate Bond Index Series
As of December 31, 2006
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$808,711,012) ............................................ $ 806,326,929
Investments in affiliated securities, at value (identified
cost--$499,765) ................................................ 490,638
Cash ............................................................ 1,146,457
Receivables:
Securities sold .............................................. $ 11,183,065
Interest ..................................................... 8,468,684
Contributions ................................................ 5,594,333
Paydowns ..................................................... 4,020 25,250,102
---------------
Prepaid expenses and other assets ............................... 8,375
---------------
Total assets .................................................... 833,222,501
---------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received--$225,280) ......... 117,222
Payables:
Securities purchased ......................................... 37,113,513
Withdrawals .................................................. 345,482
Other affiliates ............................................. 9,798
Investment adviser ........................................... 6,913 37,475,706
---------------
Accrued expenses and other liabilities .......................... 178,808
---------------
Total liabilities ............................................... 37,771,736
---------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ...................................................... $ 795,450,765
---------------
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Investors' capital .............................................. $ 797,735,917
Unrealized depreciation--net .................................... (2,285,152)
---------------
Net Assets ...................................................... $ 795,450,765
===============
See Notes to Financial Statements.
22 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Statement of Operations Master Aggregate Bond Index Series
For the Year Ended December 31, 2006
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Interest (including $20,942 from affiliates) .................... $ 47,771,107
Dividends ....................................................... 178,165
Securities lending--net ......................................... 51,939
---------------
Total income .................................................... 48,001,211
---------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Accounting services ............................................. $ 229,475
Professional fees ............................................... 147,395
Custodian fees .................................................. 116,026
Pricing fees .................................................... 105,823
Investment advisory fees ........................................ 95,790
Trustees' fees and expenses ..................................... 8,204
Interest expense ................................................ 4,368
Printing and shareholder reports ................................ 806
Other ........................................................... 17,485
---------------
Total expenses .................................................. 725,372
---------------
Investment income--net .......................................... 47,275,839
---------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ............................................. (2,882,298)
Financial futures contracts and swaps--net ................... 8,538 (2,873,760)
---------------
Change in unrealized appreciation/depreciation on:
Investments--net ............................................. (3,852,949)
Options written--net ......................................... 108,058 (3,744,891)
-------------------------------------
Total realized and unrealized loss--net ......................... (6,618,651)
---------------
Net Increase in Net Assets Resulting from Operations ............ $ 40,657,188
===============
See Notes to Financial Statements.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 23
Statements of Changes in Net Assets Master Aggregate Bond Index Series
For the Year Ended
December 31,
-------------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .......................................... $ 47,275,839 $ 38,434,655
Realized loss--net .............................................. (2,873,760) (2,016,969)
Change in unrealized appreciation/depreciation--net ............. (3,744,891) (14,667,377)
-------------------------------------
Net increase in net assets resulting from operations ............ 40,657,188 21,750,309
-------------------------------------
===================================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ..................................... 267,930,355 353,608,983
Fair value of withdrawals ....................................... (517,719,844) (210,997,412)
-------------------------------------
Net increase (decrease) in net assets derived from capital
transactions ................................................... (249,789,489) 142,611,571
-------------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ......................... (209,132,301) 164,361,880
Beginning of year ............................................... 1,004,583,066 840,221,186
-------------------------------------
End of year ..................................................... $ 795,450,765 $ 1,004,583,066
=====================================
See Notes to Financial Statements.
24 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Financial Highlights Master Aggregate Bond Index Series
For the Year Ended December 31,
The following ratios have been derived from ------------------------------------------------------------------
information provided in the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Total Investment Return
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return .............. 4.48% 2.48% 4.58% 3.92% 10.13%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding interest expense . .08% .06% .06% .06% .08%
==================================================================
Expenses ............................. .08% .06% .06% .06% .08%
==================================================================
Investment income--net ............... 4.94% 4.41% 4.13% 4.22% 5.37%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 795,451 $1,004,583 $ 840,221 $ 883,027 $ 716,568
==================================================================
Portfolio turnover ................... 155.13% 147.39% 159.44% 136.76% 112.18%
==================================================================
See Notes to Financial Statements.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 25
Notes to Financial Statements Master Aggregate Bond Index Series
1. Significant Accounting Policies:
Master Aggregate Bond 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 -- Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Trust under the general direction
of the Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust. Financial futures contracts
and options thereon, which are traded on exchanges, are valued at their closing
prices as of the close of such exchanges. Options written or purchased are
valued at the last 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. Short-term investments with a remaining maturity of 60 days or
less are valued at amortized cost, which approximates market value, under which
method the investment is valued at cost and any premium or discount is amortized
on a straight line basis to maturity. Repurchase agreements are valued at cost
plus accrued interest. Investments in open-end investment companies are valued
at their net asset value each business day. Securities and other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Trust.
Equity securities 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
OTC markets, NASDAQ Capital Market or Bulletin Board are valued at the last
available bid price obtained from one or more dealers or pricing services
approved by the Board of Trustees of the Trust. Short positions traded in the
OTC markets are valued at the last available asked price. Portfolio securities
that are traded both in the OTC markets and on a stock exchange are valued
according to the broadest and most representative market.
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 value 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
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 Trust's Board of Trustees
or by BlackRock Advisors, LLC (the "Manager"), an indirect, wholly owned
subsidiary of BlackRock, Inc., using a pricing service and/or procedures
approved by the Trust's Board of Trustees.
(b) Derivative financial instruments -- The Series may engage in various
portfolio investment techniques to provide liquidity or as a proxy for a direct
investment in securities underlying the Series' index. Losses may arise due to
changes in the value of the contract due to an unfavorable change in the price
of underlying security or index, 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 the value
26 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Notes to Financial Statements (continued) Master Aggregate Bond Index Series
of the contract. Such receipts or payments are known as variation margin
and are recorded by the Series as unrealized gains or losses. When the
contract is closed, the Series records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time it was closed.
o Options -- The Series may purchase and write call and put options. When
the Series writes an option, an amount equal to the premium received by
the Series is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security sold.
When an option expires (or the Series enters into a closing transaction),
the Series realizes a gain or loss on the option to the extent of the
premiums received or paid (or a gain or loss to the extent that the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Swaps -- The Series may enter into swap agreements, which are OTC
contracts in which the Series and a counterparty agree to make periodic
net payments on a specified notional amount. The net payments can be made
for a set period of time or may be triggered by a predetermined credit
event. The net periodic payments may be based on a fixed or variable
interest rate; the change in market value of a specified security, basket
of securities, or index; or the return generated by a security. These
periodic payments received or made by the Series are recorded in the
accompanying Statement of Operations as realized gains or losses,
respectively. Gains or losses are also realized upon termination of the
swap agreements. Swaps are marked-to-market daily and changes in value are
recorded as unrealized appreciation (depreciation). Risks include changes
in the returns of the underlying instruments, failure of the
counterparties to perform under the contracts' terms and the possible lack
of liquidity with respect to the swap agreements.
(c) Reverse repurchase agreements -- The Series may enter into reverse
repurchase agreements. Under reverse repurchase agreements, the Series sells
securities to the counterparty and agrees to repurchase them at a mutually
agreed upon date and price, and may exchange their respective commitments to pay
or receive interest. If the counterparty defaults on its obligation, the Series'
ability to receive interest will be delayed or limited. Furthermore, if the
Series does not have sufficient client income to pay its obligation under the
reverse repurchase agreement, the Series would be in default and the
counterparty would be able to terminate the repurchase agreement. At the time
the Series enters into a reverse repurchase agreement, it will establish a
segregated account with the custodian containing cash, or cash equivalents of
liquid high grade debt securities having a value at least equal to the
repurchase price.
(d) Income taxes -- The Series is classified as a partnership for federal income
tax purposes. As such, each investor in the Series is treated as owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Series. Therefore, no federal income tax
provision is required. It is intended that the Series' assets will be managed so
an investor in the Series can satisfy the requirements of Subchapter M of the
Internal Revenue Code.
(e) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Series amortizes all premiums and discounts on debt securities.
(f) Dollar rolls -- The Series may sell securities for delivery in the current
month and simultaneously contract to repurchase substantially similar (same
type, coupon and maturity) securities on a specific future date.
(g) Securities lending -- The Series may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Series and any additional required collateral is delivered to the Series on
the next business day. Where the Series receives securities as collateral for
the loaned securities, it collects a fee from the borrower. The Series typically
receives the income on the loaned securities but does not receive the income on
the collateral. Where the Series receives cash collateral, it may invest such
collateral and retain the amount earned on such investments, net of any amount
rebated to the borrower. Loans of securities are
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 27
Notes to Financial Statements (continued) Master Aggregate Bond Index Series
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.
(h) 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. ("PNC"), 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, shareholders of the investors of the Series approved a
new Investment Advisory Agreement for the Trust 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 Trust and the Manager became effective on September 29, 2006. Prior to
September 29, 2006, FAM was the Manager. The general partner of FAM 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 average daily value
of the Series' net assets. In addition, the Manager has entered into a
sub-advisory agreement with BlackRock Financial Management, Inc., 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.
Merrill Lynch Trust Company ("MLTC"), a wholly owned subsidiary of Merrill
Lynch, is the Series' custodian.
The Trust, on behalf of 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
the Manager, or its affiliates. Pursuant to that order, the Trust has retained
BlackRock Investment Management, LLC ("BIM"), an affiliate of the Manager, 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 affiliate of FAM, and
MLIM, LLC was the securities lending agent. BIM may, on behalf of the Trust and
the Series, invest cash collateral received by the Series for such loans, among
other things, in a private investment Series 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 $21,709 in securities lending agent
fees from the Series.
For the year ended December 31, 2006, the Series reimbursed FAM and the Manager
$17,513 and $4,878, respectively, for certain accounting services.
28 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Notes to Financial Statements (concluded) Master Aggregate Bond Index Series
Prior to September 29, 2006, certain officers and/or trustees of the Trust were
officers and/or directors of FAM, PSI, MLTC, Merrill Lynch, MLIM, and/or MLIM,
LLC.
Commencing September 29, 2006, certain officers and/or trustees of the Trust are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the year ended December 31, 2006 were $1,562,414,709 and
$1,833,546,453, respectively.
Transactions in options written for the year ended December 31, 2006 were as
follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of year ........................... -- --
Options written ............................... 13+ $ 85,760
------------------------
Outstanding call options written,
end of year ................................. 13+ $ 85,760
========================
+ One contract represents a notional amount of $1,000,000.
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of year ........................... -- --
Options written ............................... 13+ $139,520
------------------------
Outstanding put options written,
end of year ................................. 13+ $139,520
========================
+ One contract represents a notional amount of $1,000,000.
4. Reverse Repurchase Agreement:
For the year ended December 31, 2006, the Series' average amount outstanding was
approximately $95,000 and the daily weighted average interest rate was 4.61%.
5. Short-Term Borrowings:
The Trust, on behalf of the Series, along with certain other funds managed by
the Manager and its affiliates (or FAM and its affiliates), is a party to a
$500,000,000 credit agreement with a group of lenders. The Series may borrow
under the credit agreement to fund shareholder redemptions and for other lawful
purposes other than for leverage. The Series may borrow up to the maximum amount
allowable under the Series' current prospectus and statement of additional
information, subject to various other legal, regulatory or contractual limits.
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.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 29
Report of Independent Registered Public Accounting Firm
Master Aggregate Bond Index Series
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the summary schedule of investments, of Master Aggregate Bond Index Series, one
of the portfolios constituting the Quantitative Master Series Trust (the
"Trust"), as of December 31, 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 the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 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
Aggregate Bond 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 27, 2007
30 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Disclosure of Investment Advisory Agreement
New BlackRock Investment Advisory Agreement -- Matters Considered by the Boards
The following disclosure appeared in the June 30, 2006 Semi-Annual Report of the
Fund and the Series and is the discussion referred to in "New BlackRock
Sub-Advisory Agreement -- Matters Considered by the Boards" and "Approvals to
Correct Fee Schedules" below. The term "Investment Adviser" as used herein
refers to Fund Asset Management, L.P.
Merrill Lynch Aggregate Bond Index Fund (the "Fund"), a series of Merrill Lynch
Index Funds, Inc. (the "Corporation"), is a "feeder" fund that invests all of
its assets in the Master Aggregate Bond Index Series (the "Series") of
Quantitative Master Series Trust (the "Trust"), which has the same investment
objectives and strategies as the Fund. All investments are made at the Series
level.
In connection with the Transaction between Merrill Lynch and BlackRock, the
Board of Trustees of the Trust (the "trustees") considered a new investment
advisory agreement between the Trust, on behalf of Series, and BlackRock
Advisors, Inc. or its successor ("BlackRock Advisors"). If the Trust's New
Investment Advisory Agreement is approved by shareholders, then that agreement
will become effective upon the closing of the Transaction, which is expected in
the third quarter of 2006.
In addition, in connection with the Transaction, the Board of Directors of the
Corporation (the "directors") considered a new investment advisory agreement
(together with the new advisory agreement for the Trust, the "New Investment
Advisory Agreements") between the Corporation on behalf of the Fund and
BlackRock Advisors. If the Fund's New Investment Advisory Agreement is approved
by shareholders, then that agreement will become effective upon the closing of
the Transaction. Under a contractual arrangement between the Corporation on
behalf of the Fund and BlackRock Advisors, however, no management/advisory fee
will be charged to the Fund under the Fund's New Investment Advisory Agreement
so long as the Fund remains invested in the Series.
Each Board discussed the New Investment Advisory Agreements at telephonic and
in-person meetings held during April and May 2006. Each Board, including the
independent directors/trustees, approved the New Investment Advisory Agreements
on May 8, 2006.
To assist each Board in its consideration of the New Investment Advisory
Agreements, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors/trustees, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the New Investment
Advisory Agreements. The additional information was provided in advance of the
May 2006 meeting. In addition, the independent directors/trustees consulted with
their counsel and counsel for the Corporation and the Trust on numerous
occasions, discussing, among other things, the legal standards and certain other
considerations relevant to each Board's deliberations.
At the Board meetings, each Board discussed with Merrill Lynch management and
certain BlackRock representatives the Transaction, its strategic rationale and
BlackRock's general plans and intentions regarding the Fund and the Series. At
these Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from each Board. Each Board also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Investment Adviser and certain affiliates
being transferred to BlackRock in connection with the Transaction. The
independent directors/trustees also conferred separately and with their counsel
about the Transaction and other matters related to the Transaction on a number
of occasions, including in connection with the April and May 2006 meetings.
After the presentations and after reviewing the written materials provided, the
independent directors/trustees met in executive sessions with their counsel to
consider the New Investment Advisory Agreements.
In connection with each Board's review of the New Investment Advisory
Agreements, Merrill Lynch and/or BlackRock advised the Board about a variety of
matters. The advice included the following, among other matters:
o that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and Series and their shareholders
by BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Fund and the Series should benefit from having access to
BlackRock's state of the art technology and risk
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 31
Disclosure of Investment Advisory Agreement (continued)
management analytic tools, including investment tools, provided under the
BlackRock Solutions(R) brand name;
o that BlackRock has no present intention to alter any applicable expense
waivers or reimbursements currently in effect and, while it reserves the
right to do so in the future, it would seek the approval of the Boards
before making any changes;
o that BlackRock and Merrill Lynch will enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill
Lynch-affiliated broker-dealers will continue to offer the Fund as an
investment product;
o that BlackRock Advisors will have substantially the same access to the
Merrill Lynch sales force when distributing shares of the Fund as is
currently provided to the Investment Adviser and that other arrangements
between the Investment Adviser and Merrill Lynch sales channels will be
preserved;
o that the Fund will have access to BlackRock's network of third party
brokers, retirement plan platforms and registered investment advisers;
o that in connection with the Transaction, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 Act (the "1940 Act") in relation to any public funds advised
by BlackRock or the Investment Adviser (or its affiliates), respectively;
and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund or Series
shareholders.
Each Board considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund and the Series shareholders from being part
of a combined fund family with BlackRock-sponsored funds, including
possible economies of scale and access to investment opportunities;
o the potential for expanding distribution of Fund shares through improved
access to third party distribution;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the New Investment Advisory Agreements,
including the fact that neither the schedule of the total advisory and
administrative fees for the Fund nor the schedule of the total advisory
fees of the Series will increase by virtue of either New Investment
Advisory Agreement, but will remain the same;
o that in May 2005, Board had earlier performed a full review of the
investment advisory agreements currently in effect for the Series and Fund
(the "Current Investment Advisory Agreements") as required by the 1940 Act
and has determined that the Investment Adviser has the capabilities,
resources and personnel necessary to provide the advisory and
administrative services currently provided to the Fund and the Series; and
that the advisory and/or management fees paid by the Series, taking into
account any applicable agreed-upon fee waivers and breakpoints, represent
reasonable compensation to the Investment Adviser in light of the services
provided, the costs to the Investment Adviser of providing those services,
economies of scale, the fees and other expenses paid by similar funds
(including information provided by Lipper Inc. ["Lipper"]), and such other
matters as the Board has considered relevant in the exercise of its
reasonable judgment; and
o that Merrill Lynch agreed to pay all expenses of the Fund and the Series
in connection with each Board's consideration of the New Investment
Advisory Agreements and related agreements and all costs of shareholder
approval of the New Investment Advisory Agreements and as a result neither
the Fund nor the Series would bear any costs in obtaining shareholder
approval of the New Investment Advisory Agreements.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreements, each Board assessed the
nature, scope and quality of the services to be provided to the Fund and the
Series by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meet-
32 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
ing legal and regulatory requirements. In its review of the New Investment
Advisory Agreements, each Board also considered a range of information in
connection with its oversight of the services to be provided by BlackRock
Advisors and its affiliates. Among the matters considered were: (a) fees (in
addition to management fees) to be paid to BlackRock Advisors and its affiliates
by the Fund and the Series; (b) operating expenses of the Fund and the Series
paid to third parties; (c) the resources devoted to and compliance reports
relating to the investment objectives, policies and restrictions of the Fund and
the Series, and their compliance with their Codes of Ethics and BlackRock
Advisors' compliance policies and procedures; and (d) the nature, cost and
character of non-investment management services to be provided by BlackRock
Advisors and its affiliates.
In the period prior to the Board meetings to consider approval or renewal of the
Current Investment Advisory Agreements, each Board had requested and received
materials specifically relating to the Current Investment Advisory Agreements.
These materials included (a) information compiled by Lipper on the fees and
expenses and the investment performance of the Fund and the Series as compared
to a comparable group of funds as classified by Lipper; (b) a discussion by the
portfolio management team for the Series on investment strategies used by the
Series during its most recent fiscal year; (c) information on the profitability
to the Investment Adviser of the Current Investment Advisory Agreements and
other payments received by the Investment Adviser and its affiliates from the
Fund and the Series; and (d) information provided by the Investment Adviser
concerning services related to the valuation and pricing of portfolio holdings
of the Series, portfolio turnover statistics, and direct and indirect benefits
to the Investment Adviser and its affiliates from their relationship with the
Fund and the Series.
In its deliberations, each Board considered information received in connection
with its most recent approval of the Current Investment Advisory Agreements, in
addition to information provided by BlackRock and BlackRock Advisors in
connection with its evaluation of the terms and conditions of the New Investment
Advisory Agreements. The directors/ trustees did not identify any particular
information that was all-important or controlling, and each director/trustee
attributed different weights to the various factors. Each Board, including a
majority of the independent directors/trustees, concluded that the terms of the
New Investment Advisory Agreements are appropriate, that the fees to be paid are
reasonable in light of the services to be provided to the Fund and the Series,
and that the New Investment Advisory Agreements should be approved and
recommended to shareholders.
Nature, Quality and Extent of Services Provided -- Each 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
Fund and the Series, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. Each Board focused primarily on
the Investment Adviser's investment advisory services and the investment
performance of the Fund and the Series, but also considered certain areas in
which both the Investment Adviser and the Fund/Series receive services as part
of the Merrill Lynch complex. Each Board compared the performance of the Fund
and the Series -- both including and excluding the effects of fees and expenses
- -- to the performance of a comparable group of funds, and the performance of a
relevant index or combination of indexes. While each 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.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreements, each Board
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of BlackRock Advisors and how
it would affect the Fund and the Series; the ability of BlackRock Advisors to
perform its duties after the Transaction; and any anticipated changes to the
current investment and other practices of the Fund and the Series.
Each Board was given information with respect to the potential benefits to the
Fund and the Series and their shareholders from having access to BlackRock's
state of the art technology and risk management analytic tools, including the
investment tools provided under the BlackRock Solutions brand name.
Each Board was advised that, as a result of Merrill Lynch's equity interest in
BlackRock after the Transaction, the Fund and the Series will continue to be
subject to restrictions concerning certain transactions involving Merrill Lynch
affiliates (for example, transactions with a Merrill Lynch broker-dealer acting
as principal) absent revised or new regulatory relief. Each Board was advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and was advised of
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 33
Disclosure of Investment Advisory Agreement (continued)
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on its review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, each Board
determined that the nature and quality of services to be provided to the Fund
and the Series under each New Investment Advisory Agreement were expected to be
as good or better than that provided under the Current Investment Advisory
Agreement of the Series. It was noted, however, that it is expected that there
will be changes in personnel following the Transaction and the combination of
the operations of the Investment Adviser and its affiliates with those of
BlackRock. Each Board noted that if current portfolio managers or other
personnel cease to be available, the Board would consider all available options,
which could include seeking the investment advisory or other services of
BlackRock affiliates. Accordingly, each Board concluded that, overall, it was
satisfied at the present time with assurances from BlackRock and BlackRock
Advisors as to the expected nature, extent and quality of the services to be
provided to the Fund/Series under the New Investment Advisory Agreement of the
Series.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of the Current Investment Advisory Agreement
of the Series, each Board had received, among other things, a report from Lipper
comparing the fees, expenses and performance of the Fund and the Series to those
of a peer group selected by Lipper, and information as to the fees charged by
the Investment Adviser or its affiliates to other registered investment company
clients for investment management services. Each Board reviewed the contractual
management fee rate and actual management fee rate of the Fund/Series as a
percentage of total assets at common asset levels -- the actual rate includes
advisory and the effects of any fee waivers and, for the Fund, administrative
service fees -- compared to the other funds in its Lipper category. They also
compared the total expenses of the Fund and the Series to those of other
comparable funds. The information showed that the Fund and the Series had fees
and expenses within the range of fees and expenses of comparable funds. Each
Board considered the services to be provided by and the fees to be charged by
BlackRock Advisors to other funds with similar investment mandates and noted
that the fees charged by BlackRock Advisors in those cases, including fee
waivers and expense reimbursements, were generally comparable to those for the
Fund and the Series. Each Board concluded that the management fee and fee rate
and overall expense ratio of the Fund and the Series are reasonable compared to
those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreements, each Board considered, among other
things, whether advisory and administrative fees or other expenses would change
as a result of the Transaction. Based on its review of the materials provided
and the fact that each New Investment Advisory Agreement, as well as a new
administrative agreement between the Corporation on behalf of the Fund and
BlackRock Advisors as administrator, is substantially similar to its
corresponding current agreement in all material respects, including the rate of
compensation, each Board determined that the Transaction should not increase the
total fees payable, including any fee waivers and expense reimbursements, for
advisory and administrative services. Each Board noted that it was not possible
to predict with certainty New BlackRock's future profitability from its
relationship with the Fund and the Series.
Each Board discussed with BlackRock Advisors its general methodology to be used
in determining New BlackRock's profitability with respect to its relationship
with the Fund and the Series. Each Board noted that it expects to receive
profitability information from New BlackRock on at least an annual basis and
thus be in a position to evaluate whether any adjustments in fees and/or fee
breakpoints of the Fund or Series would be appropriate.
Fees and Economies of Scale -- Each Board considered the extent to which
economies of scale might be realized as the assets of the Fund and the Series
increase and whether there should be changes in the management fee rate or
structure in order to enable the Fund and the Series to participate in these
economies of scale. Each Board determined that changes were not currently
necessary and that the Fund and the Series appropriately participated in these
economies of scale.
In reviewing the Transaction, each Board considered, among other things, whether
advisory and administrative fees or other expenses would change as a result of
the Transaction. Based on the fact that the New Investment Advisory Agreements
and the new administrative agreement are substantially similar to the Current
Investment Advisory Agreements and the current administrative agreement in all
material respects, including the rates of compensation, each Board determined
that as a result of the Transaction, neither the total advisory and
administrative fees of the Fund nor the total advisory fees of the Series would
be higher than the
34 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
fees under the Current Investment Advisory Agreements and administrative
agreement. Each Board noted that in conjunction with its most recent
deliberations concerning the Current Investment Advisory Agreements, the Board
had determined that the total fees for advisory and administrative services for
the Fund and the total fees for advisory services for the Series were reasonable
in light of the services provided. It was noted that in conjunction with the
recent review of the Current Investment Advisory Agreement of the Series, each
Board had received, among other things, a report from Lipper comparing the fees,
expenses and performance to those of a peer group selected by Lipper, and
information as to the fees charged by the Investment Adviser to other registered
investment company clients for investment management services. Each Board
concluded that, because the rate for advisory services for the Series and the
rates for advisory and administrative services for the Fund would be no higher
than current fee rates, the proposed management fee structures, including any
fee waivers, were reasonable and that no additional changes were currently
necessary.
Fall-Out Benefits -- In evaluating the fall-out benefits to be received by
BlackRock Advisors under each New Investment Advisory Agreement, each Board
considered whether the Transaction would have an impact on the fall-out benefits
received by the Investment Adviser by virtue of the Current Investment Advisory
Agreements. Based on its review of the materials provided, including materials
received in connection with their most recent approval of each Current
Investment Advisory Agreement, and its discussions with management of the
Investment Adviser and BlackRock, each Board determined that those benefits
could include increased ability for BlackRock to distribute shares of its funds
and other investment products. The Fund's Board also considered possible
benefits stemming from the proposal that PFPC Financial Services, an affiliate
of BlackRock, serve as transfer agent for the Fund following the Transaction.
Each Board noted that any benefits were difficult to quantify with certainty at
this time, and indicated that they would continue to evaluate them going
forward.
Investment Performance -- Each Board considered investment performance for the
Fund and the Series. Each Board compared the performance of the Fund and the
Series -- both including and excluding the effects of fees and expenses -- to
the performance of a comparable group of funds, and the performance of a
relevant index or combination of indexes. The comparative information received
from Lipper showed Series performance at various levels within the range of
performance of comparable funds over different time periods. While each Board
reviews performance data at least quarterly, consistent with the Investment
Adviser's investment goals, the Board attaches more importance over relatively
long periods of time, typically three to five years. Each Board believed the
performance of the Fund and the Series was satisfactory. Also, each Board took
into account the investment performance of funds currently advised by BlackRock
Advisors. Each Board considered comparative information from Lipper which showed
that the performance of the funds advised by BlackRock Advisors was within the
range of performance of comparable funds over different time periods. Each Board
noted BlackRock's considerable investment management experience and
capabilities, but was unable to predict what effect, if any, consummation of the
Transaction would have on the future performance of the Fund and the Series.
Conclusion -- After the independent directors of the Corporation, on behalf of
the Fund, and trustees of the Trust, on behalf of the Series, deliberated in
executive session, each entire Board, including the independent
directors/trustees, approved the New Investment Advisory Agreements, concluding
that the advisory fee rates were reasonable in relation to the services provided
and that the New Investment Advisory Agreements were in the best interests of
the shareholders. In approving the New Investment Advisory Agreements, each
Board noted that it anticipated reviewing the continuance of the agreements in
advance of the expiration of the initial two-year period.
Contingent BlackRock Sub-Advisory Agreements -- Matters Considered by the Boards
At the telephonic and in-person meetings held during April and May 2006 at which
each Board discussed and approved the New Investment Advisory Agreements, the
Board of Directors of Merrill Lynch Index Funds, Inc. on behalf of the Fund,
including the independent directors, and the Board of Trustees of the Trust on
behalf of the Series, including the independent trustees, also discussed and
approved contingent sub-advisory agreements (the "Contingent Sub-Advisory
Agreements") between the Investment Adviser and BlackRock Advisors (the
"BlackRock Sub-Adviser"). The Contingent Sub-Advisory Agreements are intended to
ensure that the Fund and the Series operate with efficient portfolio management
services until the closing of the Transaction, in the event that the Boards deem
it necessary and in the best interests of the Fund and its shareholders, or the
Series and its shareholders, that the BlackRock Sub-Adviser assist in managing
the operations of the Fund or the Series during the interim period until
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 35
Disclosure of Investment Advisory Agreement (concluded)
the closing of the Transaction. If shareholders approve the Contingent
Sub-Advisory Agreements, they will take effect only upon recommendation from the
Investment Adviser and upon subsequent approval of the Boards in the period up
to the closing of the Transaction. The effectiveness of each Contingent
Sub-Advisory Agreement, therefore, would be contingent on further Board approval
after shareholders approve it. Pursuant to each Contingent Sub-Advisory
Agreement, the BlackRock Sub-Adviser would receive a monthly fee from the
Investment Adviser equal to 50% of the advisory fee received by the Adviser. The
Investment Adviser would pay the BlackRock Sub-Adviser out of its own resources.
There would be no increase in Fund or Series expenses as a result of either
Contingent Sub-Advisory Agreement.
In making its approval at the May in-person meeting, each Board considered the
Contingent Sub-Advisory Agreements in conjunction with the New Investment
Advisory Agreements and reviewed the same information and factors discussed
above. Each Board also considered in conjunction with the Contingent
Sub-Advisory Agreements the necessity of ensuring that the Fund and the Series
operate with effective management services until the closing of the Transaction.
In reviewing the sub-advisory fee rate provided in each Contingent Sub-Advisory
Agreement, each Board took note of the fact that both the Investment Adviser and
the BlackRock Sub-Adviser would have significant responsibilities under their
respective advisory agreements. The Investment Adviser would remain responsible
for oversight of the operations and administration of the Fund/Series and the
BlackRock Sub-Adviser would provide advisory services to the Fund/Series under
each Contingent Sub-Advisory Agreement. Each Board also took into account the
expected short duration of the term of any Contingent Sub-Advisory Agreement and
the fact that total advisory fees paid by the Fund and the Series would not
increase as a result of either Contingent Sub-Advisory Agreement. Under all of
the circumstances, each Board concluded that it was a reasonable allocation of
fees for the BlackRock Sub-Adviser to receive 50% of the advisory fee paid by
the Fund or Series to the Investment Adviser.
After the independent directors/trustees deliberated in executive session, each
entire Board, including the independent directors/trustees, approved each
Contingent Sub-Advisory Agreement, concluding that the advisory fee was
reasonable in relation to the services provided and that the Contingent
Sub-Advisory Agreement was in the best interests of shareholders.
36 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Disclosure of Sub-Advisory Agreement
New BlackRock Sub-Advisory Agreement -- Matters Considered by the Boards
At an in-person meeting held on August 16-17, 2006, the Board of Directors of
BlackRock Index Funds, Inc. (the "Corporation") and the Board of Trustees of
Quantitative Master Series Trust (the "Trust"), including the independent
directors/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 Financial
Management, Inc., an affiliate (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 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 59% 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 Fund
or 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 Boards reviewed their considerations in connection with their
approval of the New Investment Advisory Agreement in May 2006. The Boards 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. In
reviewing the sub-advisory fee rate provided for in the BlackRock Sub-Advisory
Agreement, the Boards 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 Fund and the Series and
for oversight of the Fund's and 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 Boards also took into account the fact that there is no increase
in total advisory fees paid by the Fund or the Series as a result of the
BlackRock Sub-Advisory Agreement. Based on its considerations, each Board
concluded that it was a reasonable allocation of fees for the Sub-Adviser to
receive a fee at an annual rate equal to 59% of the advisory fee paid by the
Series to BlackRock Advisors.
After the independent directors/trustees deliberated in executive session, the
entire Board of the Corporation and the entire Board of the Trust, including the
independent directors/ 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 Fund shareholders.
Approvals to Correct Fee Schedules
As discussed above, at a meeting on May 8, 2006, the Boards, including the
independent directors/trustees, approved the New Investment Advisory Agreement
between BlackRock Advisors and the Trust on behalf of the Series. The New
Investment Advisory Agreement as approved by the Board contained an advisory fee
schedule for the Series that was the same as the fee schedule set forth in the
investment advisory agreements in effect for the Series and the Fund at that
time (the "Current Investment Advisory Agreements"). At a shareholder meeting on
August 15, 2006, the shareholders of the Fund approved a new investment advisory
agreement between BlackRock Advisors and the Trust on behalf of the Series, but
in a form that contained an incorrect advisory fee schedule for the Series. The
proxy statement sent to Fund shareholders in connection with the shareholder
meeting (the "Proxy Statement") stated in several places that the advisory fees
payable by the Series under the New Investment Advisory Agreement would be the
same as the fees payable under the Series' Current Investment Advisory
Agreements. However, subsequent to the shareholder meeting, it was discovered
that the advisory fee schedule for the Series was incorrectly presented in an
appendix in the Proxy Statement as lower than the fee schedule then in effect.
The lower fee schedule that was presented showed the fees presently being
charged to the Series due to fee waivers currently in effect.
At a September 22, 2006 meeting, the Board of the Trust considered ratification
and approval of an investment advisory agreement between BlackRock Advisors and
the Trust on behalf of the Series in the form approved by shareholders with the
lower, incorrect advisory fee schedule. After discussion, the Trustees, and
separately the non-interested trustees present in person at the meeting,
ratified and approved an investment advisory agreement on behalf of the Series
with the lower fee schedule that was approved by shareholders.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 37
Disclosure of Sub-Advisory Agreement (concluded)
The Boards also discussed the BlackRock Sub-Advisory Agreement between BlackRock
Advisors and BlackRock Financial Management, Inc. with respect to the Series.
The Boards reviewed and reaffirmed their considerations in connection with their
approval of the BlackRock Sub-Advisory Agreement at the August 16-17, 2006
meeting. The Directors/Trustees, and separately the non-interested
directors/trustees present, in person, at the meeting, then ratified and
approved the BlackRock Sub-Advisory Agreement with respect to the Series as
previously approved at the August 16-17, 2006 meeting.
38 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
Officers and Directors/Trustees
Number of
Funds and
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Director/Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to 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 Director/ Chairman of the BlackRock Retail Operating
Age: 52 Trustee 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 investment adviser. Mr. Doll is an "interested person," as
defined in the Investment Company Act, of the Fund based on his positions with BlackRock, Inc. and its affiliates.
Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they
turn 72. As Fund President, Mr. Doll serves at the pleasure of the Board of Directors/Trustees.
====================================================================================================================================
Independent Directors/Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. P.O. Box 9095 Director/ 2002 to General Partner of The Burton Partnership, Limited 21 Funds Knology, Inc.
Burton Princeton, NJ Trustee present Partnership (an investment partnership) since 1979; 38 Portfolios (telecommuni-
08543-9095 Managing General Partner of The South Atlantic cations);
Age: 62 Venture Funds since 1983; Member of the Investment Symbion, Inc.
Advisory Council of the Florida State Board of (health care)
Administration since 2001. and Capital
Southwest
(financial)
- ------------------------------------------------------------------------------------------------------------------------------------
John P.O. Box 9095 Director/ 2005 to President and Chief Executive Officer of Allmerica 21 Funds Cabot
Francis Princeton, NJ Trustee present Financial Corporation (financial services holding 38 Portfolios Corporation
O'Brien 08543-9095 company) from 1995 to 2002 and Director from (chemicals);
Age: 63 1995 to 2003; President of Allmerica Investment LKQ Corpora-
Management Co., Inc. (investment adviser) from 1989 tion (auto
to 2002, Director from 1989 to 2002 and Chairman of parts
the Board from 1989 to 1990; President, Chief manufacturing)
Executive Officer and Director of First Allmerica and TJX Com-
Finan- cial Life Insurance Company from 1989 to 2002 panies, Inc.
and Director of various other Allmerica Financial (retailer)
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.
- ------------------------------------------------------------------------------------------------------------------------------------
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 39
Officers and Directors/Trustees (concluded)
Number of
Funds and
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
David H. P.O. Box 9095 Director/ 2003 to Director, Ruckleshaus Institute and Haub School of 21 Funds None
Walsh Princeton, NJ Trustee present 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 Director/ 1998 to Managing Director of FGW Associates since 1997; 21 Funds Watson
Weiss ** Princeton, NJ Trustee present Vice President, Planning, Investment and 38 Portfolios Pharma-
08543-9095 Development of Warner Lambert Co. from 1979 to 1997; ceuticals,
Age: 65 Director of the Michael J. Fox Foundation for Inc. (pharma-
Parkinson's Research since 2000; Director of BTG ceutical
International Plc (a global technology company)
commercialization company) since 2001.
------------------------------------------------------------------------------------------------------------------------
* Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they
turn 72.
** Chairman of the Board of Directors/Trustees and the Audit Committee.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length of
Held with Time
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund/Trust Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1997 to Managing Director of BlackRock, Inc. since 2006; Managing Director of Merrill Lynch
Burke Princeton, NJ President present Investment Managers, L.P. ("MLIM") and Fund Asset Management, L.P. ("FAM") in 2006;
08543-9011 and and First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer thereof from
Age: 46 Treasurer 1999 1999 to 2006; Vice President of MLIM and FAM from 1990 to 1997.
to
present
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Fund Chief 2004 to Managing Director of BlackRock, Inc. and Fund Chief Compliance Officer since 2006;
Hiller Princeton, NJ Compliance present Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
08543-9011 Officer Chief Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief
Age: 55 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.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director of BlackRock, Inc. since 2006; Director (Legal Advisory) of MLIM from 2002
Pellegrino Princeton, NJ present to 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with MLIM
08543-9011 from 1997 to 2006; Secretary of MLIM, FAM, FAM Distributors, Inc. and Princeton
Age: 46 Services from 2004 to 2006.
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund/Trust serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-441-7762.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
Merrill Lynch Trust Company, FSB
1300 Merrill Lynch Drive
3rd Floor -- MSC 0303
Pennington, NJ 08534
Transfer Agent
PFPC Inc.
Wilmington, DE 19809
40 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
BlackRock Funds
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
Availability of Additional Information
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site or shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment
advisers, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock Web site at http://www.blackrock.com/edelivery
2) Select eDelivery under the More Information section
3) Log into your account
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and it is intended to reduce expenses and
eliminate duplicate mailings of shareholder documents. Mailings of your
shareholder documents may be householded indefinitely unless you instruct us
otherwise. If you do not want the mailing of these documents to be combined with
those for other members of your household, please contact the Fund at (800)
441-7762.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 41
BlackRock Funds (concluded)
Availability of Additional Information (concluded)
Availability of Proxy Voting Policies and Procedures
The Fund has delegated proxy voting responsibilities to BlackRock and its
affiliates, subject to the general oversight of the Fund's Board of
Directors/Trustees. A description of the policies and procedures that BlackRock
and its affiliates use to determine how to vote proxies relating to portfolio
securities is available without charge, upon request, on our Web site at
www.blackrock.com, by calling (800) 441-7762, or on the Web site of the
Securities and Exchange Commission (the"Commission") at http://www.sec.gov.
Availability of Proxy Voting Record
Information on how proxies relating to the Fund's voting securities were voted
(if any) by BlackRock during the most recent 12-month period ended June 30 is
available, upon request and without charge, on our Web site at
www.blackrock.com, by calling (800) 441-7762 or on the Web site of the
Commission at http://www.sec.gov.
Availability of Quarterly Portfolio Schedule
The Fund files its complete schedule of portfolio holdings for the first and
third quarters of its fiscal year with the Commission on Forms N-Q. The Fund's
Forms N-Q are available on the Commission's Web site at http://www.sec.gov and
may be reviewed and copied at the Commission's Public Reference Room in
Washington, D.C. Information regarding the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330. The Fund's Forms N-Q may also be
obtained upon request, without charge, by calling (800) 441-7762.
Shareholder Privileges
Account Information
Call us at (800) 441-7762 8:00 AM - 6:00 PM EST to get information about your
account balances, recent transactions and share prices. You can also reach us on
the Web at www.blackrock.com.
Automatic Investment Plans
Investor Class shareholders who want to invest regularly can arrange to have $50
or more automatically deducted from their checking or savings account and
invested in any of the BlackRock portfolios.
Systematic Withdrawal Plans
Investor Class shareholders can establish a systematic withdrawal plan and
receive periodic payments of $50 or more from their BlackRock portfolios, as
long as their account is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover,
Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.
42 BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006
A World-Class Mutual Fund Family
BlackRock now offers an expanded lineup of open-end mutual funds. Our range
includes more than 85 funds crossing all investment styles and managed by
experts in equity, fixed income and tax-exempt investing.
Equity Portfolios
BlackRock All-Cap Global Resources Portfolio
BlackRock Aurora Portfolio
BlackRock Asset Allocation Portfolio+
BlackRock Balanced Capital Fund+
BlackRock Basic Value Fund
BlackRock Developing Capital Markets Fund
BlackRock Equity Dividend Fund
BlackRock EuroFund
BlackRock Focus Twenty Fund
BlackRock Focus Value Fund
BlackRock Fundamental Growth Fund
BlackRock Global Allocation Fund+
BlackRock Global Dynamic Equity Fund
BlackRock Global Financial Services Fund
BlackRock Global Growth Fund
BlackRock Global Opportunities Portfolio
BlackRock Global Resources Portfolio*
BlackRock Global Science & Technology Opportunities Portfolio
BlackRock Global SmallCap Fund
BlackRock Global Technology Fund
BlackRock Global Value Fund
BlackRock Healthcare Fund
BlackRock Health Sciences Opportunities Portfolio
BlackRock Index Equity Portfolio*
BlackRock International Fund
BlackRock International Index Fund
BlackRock International Opportunities Portfolio*
BlackRock International Value Fund
BlackRock Investment Trust
BlackRock Large Cap Core Fund
BlackRock Large Cap Growth Fund
BlackRock Large Cap Value Fund
BlackRock Latin America Fund
BlackRock Capital Appreciation Portfolio
BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Mid-Cap Value Equity Portfolio
BlackRock Mid Cap Value Opportunities Fund
BlackRock Natural Resources Trust
BlackRock Pacific Fund
BlackRock Small Cap Core Equity Portfolio
BlackRock Small Cap Growth Equity Portfolio
BlackRock Small Cap Growth Fund II
BlackRock Small Cap Index Fund
BlackRock Small Cap Value Equity Portfolio*
BlackRock Small/Mid-Cap Growth Portfolio
BlackRock S&P 500 Index Fund
BlackRock U.S. Opportunities Portfolio
BlackRock Utilities and Telecommunications Fund
BlackRock Value Opportunities Fund
Fixed Income Portfolios
BlackRock Bond Fund
BlackRock Enhanced Income Portfolio
BlackRock GNMA Portfolio
BlackRock Government Income Portfolio
BlackRock High Income Fund
BlackRock High Yield Bond Portfolio
BlackRock Inflation Protected Bond Portfolio
BlackRock Intermediate Bond Portfolio
BlackRock Intermediate Bond Portfolio II
BlackRock Intermediate Government Bond Portfolio
BlackRock International Bond Portfolio
BlackRock Low Duration Bond Portfolio
BlackRock Managed Income Portfolio
BlackRock Real Investment Fund
BlackRock Short-Term Bond Fund
BlackRock Total Return Portfolio
BlackRock Total Return Portfolio II
BlackRock World Income Fund
Municipal Bond Portfolios
BlackRock AMT-Free Municipal Bond Portfolio
BlackRock California Insured Municipal Bond Fund
BlackRock Delaware Municipal Bond Portfolio
BlackRock Florida Municipal Bond Fund
BlackRock High Yield Municipal Fund
BlackRock Intermediate Municipal Fund
BlackRock Kentucky Municipal Bond Portfolio
BlackRock Municipal Insured Fund
BlackRock National Municipal Fund
BlackRock New Jersey Municipal Bond Fund
BlackRock New York Municipal Bond Fund
BlackRock Ohio Municipal Bond Portfolio
BlackRock Pennsylvania Municipal Bond Fund
BlackRock Short-Term Municipal Fund
Money Market Portfolios
BlackRock Money Market Portfolio
BlackRock Municipal Money Market Portfolio@
BlackRock NC Municipal MM Portfolio@
BlackRock NJ Municipal MM Portfolio@
BlackRock OH Municipal MM Portfolio@
BlackRock PA Municipal MM Portfolio@
BlackRock Summit Cash Reserves Fund*
BlackRock U.S. Treasury MM Portfolio
BlackRock VA Municipal MM Portfolio@
* See the prospectus for information on specific limitations on investments
in the fund.
+ Mixed asset fund.
@ Tax-exempt fund.
BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and
certain funds are also distributed by FAM Distributors, Inc. You should consider
the investment objectives, risks, charges and expenses of the funds under
consideration carefully before investing. Each fund's prospectus contains this
and other information and is available at www.blackrock.com or by calling
800-882-0052 or from your financial advisor. The prospectus should be read
carefully before investing.
BLACKROCK AGGREGATE BOND INDEX FUND DECEMBER 31, 2006 43
This report is transmitted to shareholders only. It is not authorized for use as
an offer of sale or a solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past performance
results shown in this report should not be considered a representation of future
performance. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject to change.
BlackRock Index Funds, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#Index 1-12/06
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
BlackRock Aggregate Bond Index Fund of BlackRock Index Funds, Inc.
(a) Audit Fees - Fiscal Year Ending December 31, 2006 - $6,500
Fiscal Year Ending December 31, 2005 - $6,500
(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 - $6,000
Fiscal Year Ending December 31, 2005 - $5,700
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
Master Aggregate Bond Index Series of Quantitative Master Series Trust
(a) Audit Fees - Fiscal Year Ending December 31, 2006 - $42,900
Fiscal Year Ending December 31, 2005 - $42,500
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2006 - $24,000
Fiscal Year Ending December 31, 2005 - $21,600
The nature of the services include 17f-2 custody counts.
(c) Tax Fees - Fiscal Year Ending December 31, 2006 - $22,700
Fiscal Year Ending December 31, 2005 - $21,600
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 - Attached hereto
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face Interest Maturity
Issue Amount Rate Date(s) Value
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Fannie Mae $ 895,000 3.25 % 1/15/2008 $ 877,539
& Agency 27,030,000 5.75 2/15/2008 27,189,774
Obligations 21,425,000 4.50 10/15/2008 21,233,846
- - 32.3% 4,335,000 4.875 4/15/2009 4,323,057
28,855,000 6.625 9/15/2009 30,045,067
3,140,000 5.125 4/15/2011 3,162,454
31,035,000 6.00 5/15/2011 32,314,666
8,430,000 4.375 3/15/2013 8,160,147
140,000 5.25 9/15/2016 142,531
1,340,000 7.25 5/15/2030 1,709,794
-------------------------------------------------------------------------------------------------------------------
Freddie Mac 4,860,000 5.75 4/15/2008 4,895,920
5,555,000 5.125 4/18/2008 5,553,600
10,820,000 4.875 2/17/2009 10,791,111
21,970,000 4.125 7/12/2010 21,409,853
8,355,000 4.875 11/15/2013 8,304,009
1,920,000 4.75 1/19/2016 1,887,788
1,900,000 5.00 12/14/2018 1,855,221
8,655,000 6.75 9/15/2029 10,403,466
-------------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority Series E 1,390,000 6.25 12/15/2017 1,530,358
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds 14,375,000 8.75 5/15/2017 19,017,679
7,275,000 8.50 2/15/2020 9,825,229
1,805,000 8.125 8/15/2021 2,408,969
8,225,000 6.25 8/15/2023 9,467,107
2,950,000 6.875 8/15/2025 3,652,009
3,680,000 6.375 8/15/2027 4,378,913
1,380,000 5.375 2/15/2031 1,478,217
1,730,000 4.50 2/15/2036 1,645,123
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes 6,325,000 4.00 11/15/2012 6,106,838
3,300,000 4.875 8/15/2016 3,339,445
-------------------------------------------------------------------------------------------------------------------
Total U.S. Government & Agency Obligations (Cost - $258,210,007) - 32.3% 257,109,730
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Fannie Mae Guaranteed Pass-Through 423,666 5.50 6/01/2011 - 2/01/2019 424,712
Agency Certificates 522,000 6.00 2/01/2013 - 6/01/2015 530,095
Mortgage-Backed 1,081,755 6.50 1/1/2013 - 1/01/2030 1,109,122
Securities* 237,917 7.00 4/01/2027 - 3/01/2031 245,551
- - 32.2% 191,793 7.50 10/01/2027 - 5/01/2032 200,040
182,865 8.00 9/01/2015 - 9/01/2031 193,235
15,712 8.50 5/01/2030 - 1/01/2031 16,888
45,462 9.50 7/01/2017 49,525
19,622 10.00 10/01/2018 - 5/01/2022 21,484
7,202 10.50 12/01/2016 7,688
------------
2,798,340
-------------------------------------------------------------------------------------------------------------------
Freddie Mac Mortgage Participation 3,708,431 4.00 9/01/2020 - 1/01/2021 3,488,527
Certificates 32,105,868 4.50 2/11/2011 - 12/01/2035 30,880,468
81,281,592 5.00 11/01/2017 - 5/01/2036 78,857,309
80,317,736 5.50 4/01/2014 - 7/01/2036 79,516,154
3,169,511 6.00 4/01/2016 - 10/01/2017 3,215,293
14,102,009 6.50 7/01/2015 - 9/01/2036 14,402,406
2,895,844 7.00 1/01/2011 - 11/01/2032 2,980,239
641,454 7.50 5/01/2007 - 9/01/2032 667,245
324,163 8.00 11/01/2024 - 3/01/2032 341,033
35,859 8.50 5/01/2028 - 8/01/2030 38,426
8,126 9.00 9/01/2014 8,603
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face Interest Maturity
Issue Amount Rate Date(s) Value
- ------------------------------------------------------------------------------------------------------------------------------------
$ 182,219 9.50 % 2/01/2019 $ 195,858
29,971 10.00 3/01/2010 - 9/01/2017 31,489
23,154 10.50 4/01/2016 24,346
9,940 11.00 9/01/2016 10,987
3,534 11.50 8/01/2015 3,853
15,369 12.50 2/01/2014 17,083
------------
214,679,319
-------------------------------------------------------------------------------------------------------------------
Ginnie Mae MBS Certificates 2,545,281 4.50 9/15/2035 2,404,603
7,880,405 5.00 4/15/2035 - 5/15/2036 7,666,951
13,580,783 5.50 1/15/2035 - 5/15/2036 13,517,400
11,008,153 6.00 4/20/2026 - 1/15/2037 (d) 11,167,402
1,804,185 6.50 2/15/2014 - 11/15/2034 1,852,763
1,086,731 7.00 4/15/2013 - 10/15/2031 1,123,250
398,602 7.50 3/15/2024 - 3/15/2032 416,252
207,820 8.00 12/15/2022 - 6/15/2031 220,219
82,561 8.50 11/15/2017 - 3/15/2031 88,553
57,869 9.00 4/15/2018 - 11/15/2024 62,266
6,936 9.50 9/15/2021 7,602
------------
38,527,261
-------------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Mortgage-Backed Securities (Cost - $256,670,363) - 32.2% 256,004,920
- ------------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Face
Amount Non-Government Agency Mortgage-Backed Securities*
- -----------------------------------------------------------------------------------------------------------------------------------
Collateralized Mortgage $ 7,335,736 Residential Accredit Loans, Inc. Series 2005-QS12 Class A8,
Obligations - 1.8% 5.68% due 8/25/2035 (c) 7,339,726
6,748,821 Residential Accredit Loans, Inc. Series 2006-QA9 Class A1, 5.50%
due 11/25/2036 (c) 6,736,883
------------
14,076,609
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage-Backed 2,280,000 Banc of America Commercial Mortgage, Inc. Series 2005-4 Class A5A,
Securities - 10.3% 4.933% due 7/10/2045 2,217,636
1,625,000 Bear Stearns Commercial Mortgage Securities Series 2005-PWR8 Class
AJ, 4.75% due 6/11/2041 1,551,938
1,800,000 CS First Boston Mortgage Securities Corp. Series 2001-CK1 Class C,
6.73% due 12/18/2035 1,891,007
8,500,000 Capital Auto Receivables Asset Trust Series 2004-2 Class A3, 3.58%
due 1/15/2009 8,402,794
2,463,075 First Union NB-Bank of America Commercial Series 2001-C1 Class A2,
6.136% due 3/15/2033 2,527,874
9,500,000 Ford Credit Auto Owner Trust Series 2006-B Class A2A,
5.42% due 7/15/2009 9,505,736
2,750,000 GE Capital Commercial Mortgage Corp. Series 2005-C1 Class A2,
4.353% due 6/10/2048 2,682,699
1,950,000 GS Mortgage Securities Corp. II Series 2004-GG2 Class A5, 5.279%
due 8/10/2038 (c) 1,950,577
2,206,925 GS Mortgage Securities Corp. II Series 2005-GG4 Class A4, 4.761%
due 7/10/2039 2,122,908
7,825,000 Honda Auto Receivables Owner Trust Series 2006-3 Class A3, 5.12%
due 10/15/2010 7,815,363
2,530,000 JPMorgan Chase Commercial Mortgage Securities Corp. Series 2001-CIB3
Class A3, 6.465% due 11/15/2035 2,654,782
2,174,000 JPMorgan Chase Commercial Mortgage Securities Corp. Series 2001-CIB3
Class B, 6.678% due 11/15/2035 2,308,867
3,050,000 JPMorgan Chase Commercial Mortgage Securities Corp. Series 2001-CIBC
Class B, 6.446% due 3/15/2033 3,178,611
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Amount Non-Government Agency Mortgage-Backed Securities* Value
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,830,000 JPMorgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP4
Class AM, 4.999% due 10/15/2042 (c) $ 1,782,174
2,740,000 JPMorgan Chase Commercial Mortgage Securities Corp. Series 2006-LDP7
Class A4, 5.875% due 4/15/2045 (c) 2,862,536
1,950,000 LB-UBS Commercial Mortgage Trust Series 2003-C8 Class A4, 5.124%
due 11/15/2032 (c) 1,934,088
1,940,506 Morgan Stanley Capital I Series 1999-RM1 Class A2, 6.71%
due 12/15/2031 1,976,444
5,315,000 Morgan Stanley Capital I Series 1999-WF1 Class B, 6.32%
due 11/15/2031 5,393,953
2,525,000 Morgan Stanley Capital I Series 2005-T19 Class A2, 4.725%
due 6/12/2047 2,483,196
7,275,000 Nissan Auto Receivables Owner Trust Series 2006-A Class A3, 4.74%
due 9/15/2009 7,233,847
2,200,000 Wachovia Bank Commercial Mortgage Trust Series 2006-C28 Class A4,
5.572% due 10/15/2048 2,232,131
7,500,000 Whole Auto Loan Trust Series 2004-1 Class A4, 3.26% due 3/15/2011 7,370,580
------------
82,079,741
- -----------------------------------------------------------------------------------------------------------------------------------
Total Non-Government Agency Mortgage-Backed Securities
(Cost - $96,035,415) - 12.1% 96,156,350
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Industry Corporate Bonds
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense - 0.7% 200,000 BAE Systems Holdings, Inc., 4.75% due 8/15/2010 (a) 194,623
850,000 Boeing Capital Corp., 7.375% due 9/27/2010 911,287
460,000 General Dynamics Corp., 3% due 5/15/2008 445,399
100,000 Honeywell International, Inc., 6.125% due 11/01/2011 103,592
605,000 Honeywell International, Inc., 5.40% due 3/15/2016 604,948
450,000 Lockheed Martin Corp. Series B, 6.15% due 9/01/2036 472,788
587,000 Northrop Grumman Corp., 7.125% due 2/15/2011 626,128
165,000 Northrop Grumman Corp., 7.75% due 2/15/2031 204,518
21,000 Raytheon Co., 6.15% due 11/01/2008 21,269
350,000 Raytheon Co., 6.75% due 3/15/2018 382,856
150,000 Rockwell Collins, Inc., 4.75% due 12/01/2013 146,385
1,355,000 United Technologies Corp., 6.35% due 3/01/2011 1,408,891
------------
5,522,684
- -----------------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 0.0% 90,000 United Parcel Service, Inc., 8.375% due 4/01/2020 114,098
- -----------------------------------------------------------------------------------------------------------------------------------
Airlines - 0.1% 540,000 Continental Airlines, Inc. Series 2002-1, 6.563% due 8/15/2013 558,406
250,000 Southwest Airlines Co., 5.125% due 3/01/2017 231,810
------------
790,216
- -----------------------------------------------------------------------------------------------------------------------------------
Auto Components - 0.0% 200,000 Johnson Controls, Inc., 5.25% due 1/15/2011 198,423
200,000 Johnson Controls, Inc., 4.875% due 9/15/2013 190,965
------------
389,388
- -----------------------------------------------------------------------------------------------------------------------------------
Automobiles - 0.2% 280,000 DaimlerChrysler NA Holding Corp., 7.30% due 1/15/2012 297,227
425,000 DaimlerChrysler NA Holding Corp., 6.50% due 11/15/2013 436,350
350,000 DaimlerChrysler NA Holding Corp., 8.50% due 1/18/2031 416,652
150,000 Harley-Davidson, Inc., 3.625% due 12/15/2008 (a) 145,334
------------
1,295,563
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages - 0.3% 160,000 Anheuser-Busch Cos., Inc., 5.95% due 1/15/2033 158,533
140,000 Anheuser-Busch Cos., Inc., 6% due 11/01/2041 136,398
545,000 Coca-Cola Enterprises, Inc., 6.75% due 9/15/2028 598,384
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
$ 140,000 Diageo Capital Plc, 3.50% due 11/19/2007 $ 137,859
550,000 Diageo Finance B.V., 5.30% due 10/28/2015 538,850
250,000 Miller Brewing Co., 5.50% due 8/15/2013 (a) 247,225
255,000 Pepsi Bottling Group, Inc. Series B, 7% due 3/01/2029 291,477
92,000 Pepsi Bottling Holdings, Inc., 5.625% due 2/17/2009 (a) 92,813
250,000 PepsiAmericas, Inc., 5% due 5/15/2017 238,496
------------
2,440,035
- -----------------------------------------------------------------------------------------------------------------------------------
Biotechnology - 0.1% 395,000 Amgen, Inc., 4% due 11/18/2009 383,222
180,000 Genentech, Inc., 4.40% due 7/15/2010 175,973
105,000 Genentech, Inc., 5.25% due 7/15/2035 97,679
------------
656,874
- -----------------------------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 250,000 Masco Corp., 4.80% due 6/15/2015 228,296
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 1.6% 600,000 The Bank of New York Co., Inc. Series CD, 5.05% due 3/03/2009 595,935
850,000 The Bear Stearns Cos., Inc., 3.25% due 3/25/2009 815,451
525,000 The Bear Stearns Cos., Inc., 4.65% due 7/02/2018 482,262
800,000 Credit Suisse First Boston USA, Inc., 6.50% due 1/15/2012 840,744
150,000 Credit Suisse First Boston USA, Inc., 5.125% due 8/15/2015 147,646
280,000 Credit Suisse First Boston USA, Inc., 7.125% due 7/15/2032 329,708
460,000 Deutsche Bank Financial, Inc., 7.50% due 4/25/2009 481,070
70,000 Goldman Sachs Group, Inc., 4.125% due 1/15/2008 69,200
1,000,000 Goldman Sachs Group, Inc., 3.875% due 1/15/2009 974,175
1,800,000 Goldman Sachs Group, Inc., 6.60% due 1/15/2012 1,902,883
400,000 Goldman Sachs Group, Inc., 5.25% due 4/01/2013 397,390
525,000 Goldman Sachs Group, Inc., 5.125% due 1/15/2015 512,965
430,000 Goldman Sachs Group, Inc., 6.125% due 2/15/2033 438,154
200,000 Jefferies Group, Inc., 6.25% due 1/15/2036 194,010
600,000 Lehman Brothers Holdings, Inc., 7% due 2/01/2008 610,141
500,000 Lehman Brothers Holdings, Inc., 3.50% due 8/07/2008 486,052
245,000 Lehman Brothers Holdings, Inc., 7.875% due 8/15/2010 264,531
400,000 Lehman Brothers Holdings, Inc., 4.80% due 3/13/2014 385,052
300,000 Lehman Brothers Holdings, Inc., 5.50% due 4/04/2016 299,959
250,000 Mellon Funding Corp., 5% due 12/01/2014 243,125
600,000 Morgan Stanley, 4.25% due 5/15/2010 579,842
495,000 Morgan Stanley, 6.60% due 4/01/2012 522,760
200,000 Morgan Stanley, 5.375% due 10/15/2015 198,211
600,000 Morgan Stanley, 7.25% due 4/01/2032 704,687
150,000 State Street Bank & Trust Co., 5.30% due 1/15/2016 148,480
300,000 UBS AG, 5.875% due 7/15/2016 310,070
------------
12,934,503
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 0.3% 170,000 Albemarle Corp., 5.10% due 2/01/2015 161,250
175,000 Cytec Industries, Inc., 6% due 10/01/2015 173,458
450,000 The Dow Chemical Co., 6% due 10/01/2012 462,355
150,000 Lubrizol Corp., 6.50% due 10/01/2034 150,944
345,000 Potash Corp. of Saskatchewan Inc., 7.75% due 5/31/2011 375,889
235,000 Praxair, Inc., 6.50% due 3/01/2008 238,095
70,000 Praxair, Inc., 3.95% due 6/01/2013 64,684
200,000 Rohm & Haas Co., 7.85% due 7/15/2029 241,434
250,000 Yara International ASA, 5.25% due 12/15/2014 (a) 239,069
------------
2,107,178
- -----------------------------------------------------------------------------------------------------------------------------------
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 2.5% $ 700,000 BB&T Corp., 6.50% due 8/01/2011 $ 733,928
295,000 Bank One Corp., 5.90% due 11/15/2011 300,976
378,000 Bank One Corp., 8% due 4/29/2027 466,558
400,000 Comerica, Inc., 4.80% due 5/01/2015 377,371
535,000 Corporacion Andina de Fomento, 6.875% due 3/15/2012 568,931
500,000 Eksportfinans A/S, 4.75% due 12/15/2008 497,414
350,000 Eksportfinans A/S, 5.50% due 5/25/2016 360,374
500,000 Fifth Third Bank, 4.20% due 2/23/2010 485,340
575,000 HSBC Bank USA NA, 5.875% due 11/01/2034 575,336
200,000 Huntington National Bank, 5.50% due 2/15/2016 195,484
1,000,000 KFW International Finance, 5.125% due 5/13/2009 1,002,505
450,000 Key Bank National Association, 4.95% due 9/15/2015 431,753
600,000 KfW - Kreditanstalt fuer Wiederaufbau, 3.25% due 3/30/2009 576,764
600,000 KfW - Kreditanstalt fuer Wiederaufbau, 4.125% due 10/15/2014 568,547
1,130,000 KfW - Kreditanstalt fuer Wiederaufbau, 4.375% due 7/21/2015 1,077,719
1,000,000 Korea Development Bank, 4.75% due 7/20/2009 987,197
500,000 M&T Bank Corp., 3.85% due 4/01/2013 (a)(c) 491,420
470,000 National Australia Bank Ltd. Series A, 8.60% due 5/19/2010 518,266
600,000 National City Bank, 4.50% due 3/15/2010 583,981
500,000 PNC Funding Corp., 4.20% due 3/10/2008 (b) 490,638
200,000 Popular North America, Inc., 4.70% due 6/30/2009 195,781
350,000 Regions Financial Corp., 6.375% due 5/15/2012 365,840
865,000 Royal Bank of Scotland Group Plc, 5.05% due 1/08/2015 843,794
200,000 Santander Central Hispano Issuances Ltd., 7.625%
due 9/14/2010 216,074
450,000 Sovereign Bank, 5.125% due 3/15/2013 439,638
400,000 Synovus Financial Corp., 4.875% due 2/15/2013 389,870
400,000 US Bank NA, 4.40% due 8/15/2008 394,817
500,000 US Bank NA, 6.30% due 2/04/2014 527,249
400,000 UnionBanCal Corp., 5.25% due 12/16/2013 392,594
625,000 Wachovia Bank NA, 4.875% due 2/01/2015 601,354
895,000 Wachovia Corp., 5.625% due 12/15/2008 899,383
610,000 Wachovia Corp., 3.625% due 2/17/2009 590,629
30,000 Wachovia Corp., 5.25% due 8/01/2014 29,635
1,670,000 Wells Fargo & Co., 3.125% due 4/01/2009 1,597,121
250,000 Wells Fargo & Co., 5.125% due 9/15/2016 244,290
500,000 Wells Fargo & Co., 5.375% due 2/07/2035 476,523
350,000 Westpac Banking Corp., 4.625% due 6/01/2018 323,167
------------
19,818,261
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies 1,000,000 International Lease Finance Corp., 5% due 4/15/2010 988,975
- - 0.4% 385,000 Pitney Bowes, Inc., 4.75% due 5/15/2018 358,963
250,000 RR Donnelley & Sons Co., 4.95% due 5/15/2010 244,708
80,000 Science Applications International Corp., 5.50% due 7/01/2033 70,408
1,250,000 Waste Management, Inc., 7.375% due 8/01/2010 1,329,634
------------
2,992,688
- -----------------------------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.2% 525,000 Alltel Corp., 7% due 7/01/2012 545,419
350,000 Cisco Systems, Inc., 5.50% due 2/22/2016 350,223
100,000 Harris Corp., 6.35% due 2/01/2028 102,499
350,000 Motorola Inc., 7.625% due 11/15/2010 376,857
------------
1,374,998
- -----------------------------------------------------------------------------------------------------------------------------------
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.2% $ 200,000 Dell, Inc., 7.10% due 4/15/2028 $ 217,595
335,000 Hewlett-Packard Co., 3.625% due 3/15/2008 328,654
500,000 International Business Machines Corp., 4.75% due 11/29/2012 488,129
550,000 International Business Machines Corp., 5.875% due 11/29/2032 561,410
------------
1,595,788
- -----------------------------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 355,000 Hanson Australia Funding Ltd., 5.25% due 3/15/2013 346,224
250,000 Lafarge SA, 6.50% due 7/15/2016 261,030
------------
607,254
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.8% 1,285,000 American Express Co., 3.75% due 11/20/2007 1,267,893
545,000 American General Finance Corp. Series H, 5.375% due 10/01/2012 543,489
500,000 Capital One Bank, 4.875% due 5/15/2008 496,918
250,000 Capital One Financial Corp., 6.15% due 9/01/2016 258,553
150,000 CitiFinancial, 10% due 5/15/2009 166,070
715,000 HSBC Finance Corp., 5.875% due 2/01/2009 725,257
800,000 HSBC Finance Corp., 4.75% due 5/15/2009 791,346
300,000 HSBC Finance Corp., 4.75% due 4/15/2010 295,989
450,000 HSBC Finance Corp., 4.75% due 7/15/2013 436,347
400,000 MBNA America Bank NA, 4.625% due 8/03/2009 394,532
225,000 MBNA America Bank NA, 7.125% due 11/15/2012 245,139
800,000 SLM Corp., 5.375% due 5/15/2014 793,650
------------
6,415,183
- -----------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 200,000 Sealed Air Corp., 5.375% due 4/15/2008 (a) 199,038
135,000 Sealed Air Corp., 6.95% due 5/15/2009 (a) 139,144
------------
338,182
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Consumer Services 300,000 J. Paul Getty Trust Series 2003, 5.875% due 10/01/2033 299,063
- - 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 113,000 Bank of America Corp., 6.60% due 5/15/2010 117,313
- - 1.9% 855,000 Bank of America Corp., 4.50% due 8/01/2010 835,885
750,000 Bank of America Corp., 4.875% due 1/15/2013 733,697
850,000 Bank of America Corp., 4.75% due 8/01/2015 816,117
300,000 Bank of America NA, 6% due 6/15/2016 312,115
730,000 Brascan Corp., 5.75% due 3/01/2010 735,727
250,000 CIT Group Funding Co. of Canada, 5.20% due 6/01/2015 242,146
400,000 CIT Group, Inc., 5.50% due 11/30/2007 400,881
640,000 CIT Group, Inc., 4.125% due 11/03/2009 620,669
250,000 CIT Group, Inc., 6% due 4/01/2036 246,495
90,000 Citicorp, 6.375% due 11/15/2008 91,728
350,000 Citigroup, Inc., 3.50% due 2/01/2008 343,702
125,000 Citigroup, Inc., 6.50% due 1/18/2011 130,787
200,000 Citigroup, Inc., 6% due 2/21/2012 206,216
540,000 Citigroup, Inc., 6.625% due 6/15/2032 596,552
375,000 Citigroup, Inc., 6% due 10/31/2033 384,072
350,000 Citigroup, Inc., 5.85% due 12/11/2034 355,311
500,000 General Electric Capital Corp., 4.25% due 1/15/2008 495,452
1,055,000 General Electric Capital Corp., 6.75% due 3/15/2032 1,208,268
1,000,000 General Electric Capital Corp. Series A, 4.125% due 3/04/2008 988,301
600,000 General Electric Capital Corp. Series A, 4.875% due 10/21/2010 593,688
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
$ 550,000 JPMorgan Chase & Co., 4% due 2/01/2008 $ 542,704
400,000 JPMorgan Chase & Co., 3.50% due 3/15/2009 385,690
500,000 JPMorgan Chase & Co., 4.50% due 11/15/2010 486,922
645,000 JPMorgan Chase & Co., 6.625% due 3/15/2012 680,340
380,000 JPMorgan Chase & Co., 5.125% due 9/15/2014 373,660
500,000 JPMorgan Chase & Co., 5.15% due 10/01/2015 490,656
390,000 Nissan Motor Acceptance Corp., 4.625% due 3/08/2010 (a) 379,098
430,000 Toyota Motor Credit Corp., 4.25% due 3/15/2010 419,446
525,000 UFJ Finance Aruba AEC, 6.75% due 7/15/2013 560,264
------------
14,773,902
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 940,000 AT&T, Inc., 5.30% due 11/15/2010 940,130
Services - 1.4% 750,000 AT&T, Inc., 6.15% due 9/15/2034 737,675
614,000 BellSouth Corp., 6% due 10/15/2011 629,948
250,000 BellSouth Corp., 5.20% due 9/15/2014 243,979
170,000 BellSouth Corp., 6.55% due 6/15/2034 174,271
350,000 BellSouth Corp., 6% due 11/15/2034 336,040
1,295,000 British Telecommunications Plc, 8.625% due 12/15/2010 1,445,233
200,000 British Telecommunications Plc, 9.125% due 12/15/2030 273,575
800,000 Deutsche Telekom International Finance BV, 3.875% due 7/22/2008 782,982
150,000 Deutsche Telekom International Finance BV, 8% due 6/15/2010 162,425
300,000 Deutsche Telekom International Finance BV, 5.75% due 3/23/2016 295,592
450,000 Deutsche Telekom International Finance BV, 8.25% due 6/15/2030 553,203
430,000 Embarq Corp., 7.082% due 6/01/2016 437,749
400,000 France Telecom SA, 8.50% due 3/01/2031 525,091
255,000 GTE Corp., 6.94% due 4/15/2028 267,348
490,000 Royal KPN NV, 8% due 10/01/2010 528,702
750,000 Telecom Italia Capital SA, 5.25% due 11/15/2013 715,117
200,000 Telecom Italia Capital SA, 4.95% due 9/30/2014 185,288
475,000 Telecom Italia Capital SA, 5.25% due 10/01/2015 443,702
200,000 Telecom Italia Capital SA, 6% due 9/30/2034 181,393
250,000 Telefonos de Mexico, SA de CV, 4.75% due 1/27/2010 244,404
575,000 Verizon Global Funding Corp., 4.90% due 9/15/2015 548,396
315,000 Verizon Global Funding Corp., 7.75% due 12/01/2030 369,488
------------
11,021,731
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.8% 200,000 American Electric Power Co., Inc., 5.25% due 6/01/2015 195,242
150,000 Appalachian Power Co., 6.375% due 4/01/2036 154,019
235,000 Arizona Public Service Co., 5.50% due 9/01/2035 210,040
280,000 Commonwealth Edison Co., 6.95% due 7/15/2018 288,774
175,000 Consolidated Edison Co. of New York, 4.70% due 6/15/2009 172,967
375,000 Consolidated Edison Co. of New York, Series 03-C,
5.10% due 6/15/2033 333,463
500,000 DTE Energy Co., 6.35% due 6/01/2016 519,393
125,000 Entergy Mississippi, Inc., 5.15% due 2/01/2013 120,521
200,000 Exelon Corp., 5.625% due 6/15/2035 188,392
175,000 FPL Group Capital, Inc., 7.375% due 6/01/2009 183,124
200,000 FirstEnergy Corp. Series B, 6.45% due 11/15/2011 208,562
305,000 Florida Power & Light Co., 5.40% due 9/01/2035 290,273
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
$ 160,000 Georgia Power Co. Series K, 5.125% due 11/15/2012 $ 158,009
160,000 Hydro-Quebec, 8.40% due 1/15/2022 207,707
160,000 Hydro Quebec Series GF, 8.875% due 3/01/2026 223,554
200,000 Metropolitan Edison Co., 4.875% due 4/01/2014 190,558
200,000 Ohio Power Co. Series G, 6.60% due 2/15/2033 212,826
350,000 Pepco Holdings Inc, 6.45% due 8/15/2012 362,870
110,000 Progress Energy, Inc., 7.10% due 3/01/2011 117,145
850,000 Progress Energy, Inc., 5.625% due 1/15/2016 848,020
175,000 Public Service Co. of Colorado Series 15, 5.50% due 4/01/2014 175,419
150,000 Public Service Co. of New Mexico, 4.40% due 9/15/2008 147,252
150,000 Southern California Edison Co., 6% due 1/15/2034 152,931
125,000 Southern California Edison Co., 5.55% due 1/15/2036 119,705
300,000 Westar Energy, Inc., 5.10% due 7/15/2020 278,951
280,000 Wisconsin Electric Power, 5.625% due 5/15/2033 273,956
------------
6,333,673
- -----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 250,000 Cooper Industries, Inc., 5.50% due 11/01/2009 251,176
- -----------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services 150,000 Halliburton Co., 5.50% due 10/15/2010 149,733
- - 0.1% 225,000 Nabors Industries, Inc., 5.375% due 8/15/2012 219,960
75,000 Weatherford International Ltd., 5.50% due 2/15/2016 72,852
------------
442,545
- -----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.4% 200,000 CVS Corp., 4% due 9/15/2009 193,357
525,000 The Kroger Co., 7.50% due 4/01/2031 589,253
110,000 SYSCO Corp., 5.375% due 9/21/2035 103,930
1,735,000 Wal-Mart Stores, Inc., 6.875% due 8/10/2009 1,807,568
125,000 Wal-Mart Stores, Inc., 7.55% due 2/15/2030 151,612
------------
2,845,720
- -----------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.5% 285,000 Archer Daniels Midland Co., 5.935% due 10/01/2032 288,933
200,000 Campbell Soup Co., 4.875% due 10/01/2013 192,856
200,000 ConAgra Foods, Inc., 7% due 10/01/2028 216,675
400,000 General Mills Inc., 6% due 2/15/2012 409,723
350,000 The Hershey Co., 5.45% due 9/01/2016 351,014
500,000 Kellogg Co., 2.875% due 6/01/2008 482,599
260,000 Kraft Foods, Inc., 5.625% due 11/01/2011 262,764
1,000,000 Kraft Foods, Inc. Series A, 4.125% due 11/12/2009 969,942
170,000 Sara Lee Corp., 6.25% due 9/15/2011 173,139
180,000 Sara Lee Corp., 6.125% due 11/01/2032 162,869
90,000 Unilever Capital Corp., 7.125% due 11/01/2010 95,600
200,000 Unilever Capital Corp., 5.90% due 11/15/2032 201,708
235,000 WM Wrigley Jr. Co., 4.65% due 7/15/2015 223,383
------------
4,031,205
- -----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 200,000 AGL Capital Corp., 4.45% due 4/15/2013 186,498
300,000 Atmos Energy Corp., 7.375% due 5/15/2011 320,276
260,000 Nisource Finance Corp., 5.25% due 9/15/2017 243,686
------------
750,460
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & 320,000 Baxter International, Inc., 4.625% due 3/15/2015 301,497
Supplies - 0.1% 355,000 Boston Scientific Corp., 5.45% due 6/15/2014 340,835
185,000 Medtronic, Inc., 4.375% due 9/15/2010 179,491
------------
821,823
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & 300,000 Quest Diagnostics, Inc., 5.45% due 11/01/2015 289,590
Services - 0.1% 375,000 UnitedHealth Group, Inc., 3.30% due 1/30/2008 366,789
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
$ 150,000 UnitedHealth Group, Inc., 5.375% due 3/15/2016 $ 148,541
300,000 UnitedHealth Group, Inc., 5.80% due 3/15/2036 294,996
------------
1,099,916
- -----------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & 380,000 Carnival Corp., 3.75% due 11/15/2007 374,852
Leisure - 0.1% 225,000 Carnival Corp., 6.15% due 4/15/2008 226,066
350,000 Yum! Brands, Inc., 7.65% due 5/15/2008 359,801
------------
960,719
- -----------------------------------------------------------------------------------------------------------------------------------
Household Durables - 0.3% 360,000 Black & Decker Corp., 4.75% due 11/01/2014 334,142
320,000 Centex Corp., 7.875% due 2/01/2011 344,972
430,000 DR Horton, Inc., 6.50% due 4/15/2016 432,622
200,000 Fortune Brands, Inc., 5.125% due 1/15/2011 196,258
200,000 Lennar Corp., 5.95% due 3/01/2013 199,798
110,000 Pulte Homes, Inc., 7.875% due 8/01/2011 119,071
350,000 Pulte Homes, Inc., 5.25% due 1/15/2014 334,857
75,000 The Stanley Works, 4.90% due 11/01/2012 72,839
325,000 Toll Brothers Finance Corp., 6.875% due 11/15/2012 335,095
------------
2,369,654
- -----------------------------------------------------------------------------------------------------------------------------------
Household Products - 0.1% 390,000 Clorox Co., 4.20% due 1/15/2010 378,329
180,000 The Procter & Gamble Co., 4.95% due 8/15/2014 175,791
200,000 The Procter & Gamble Co., 4.85% due 12/15/2015 192,962
250,000 The Procter & Gamble Co., 5.80% due 8/15/2034 257,683
------------
1,004,765
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates 575,000 General Electric Co., 5% due 2/01/2013 568,618
- - 0.2% 300,000 Tyco International Group SA, 6.125% due 1/15/2009 304,439
600,000 Tyco International Group SA, 6% due 11/15/2013 620,804
------------
1,493,861
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.9% 350,000 ACE INA Holdings Inc., 5.875% due 6/15/2014 356,719
600,000 AXA Financial, Inc., 7.75% due 8/01/2010 646,243
400,000 The Allstate Corp., 6.125% due 2/15/2012 414,326
220,000 The Allstate Corp., 5% due 8/15/2014 214,689
150,000 The Allstate Corp., 5.35% due 6/01/2033 140,762
325,000 American General Corp., 7.50% due 7/15/2025 385,354
450,000 Berkshire Hathaway Finance Corp., 4.125% due 1/15/2010 437,348
350,000 Berkshire Hathaway Finance Corp., 4.85% due 1/15/2015 339,123
300,000 Genworth Financial, Inc., 5.75% due 6/15/2014 305,678
300,000 Hartford Financial Services Group, Inc., 6.10% due 10/01/2041 303,452
275,000 John Hancock Financial Services, Inc., 5.625% due 12/01/2008 276,359
175,000 Marsh & McLennan Cos., Inc., 6.25% due 3/15/2012 178,426
200,000 Marsh & McLennan Cos., Inc., 5.75% due 9/15/2015 196,762
150,000 MetLife, Inc., 6.125% due 12/01/2011 155,063
450,000 MetLife, Inc., 5% due 11/24/2013 440,322
200,000 MetLife, Inc., 5.70% due 6/15/2035 195,447
500,000 Monumental Global Funding II, 4.375% due 7/30/2009 (a) 489,172
145,000 New York Life Insurance Co., 5.875% due 5/15/2033 (a) 148,029
75,000 The Progressive Corp., 6.25% due 12/01/2032 79,596
500,000 Prudential Financial, Inc., 5.10% due 9/20/2014 488,391
100,000 RLI Corp., 5.95% due 1/15/2014 98,008
150,000 SunAmerica, Inc., 5.60% due 7/31/2097 134,559
250,000 Travelers Property Casualty Corp., 6.375% due 3/15/2033 263,300
350,000 W.R. Berkley Corp., 5.125% due 9/30/2010 345,245
60,000 Western & Southern Financial Group, Inc., 5.75% due 7/15/2033 (a) 58,407
------------
7,090,780
- -----------------------------------------------------------------------------------------------------------------------------------
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Machinery - 0.3% $ 300,000 Caterpillar Financial Services Corp., 4.60% due 1/15/2014 $ 284,968
1,000,000 Caterpillar, Inc., 6.55% due 5/01/2011 1,046,870
230,000 Deere & Co., 6.95% due 4/25/2014 250,210
220,000 Dover Corp., 4.875% due 10/15/2015 210,951
500,000 John Deere Capital Corp., 4.875% due 3/16/2009 495,545
100,000 John Deere Capital Corp, 7% due 3/15/2012 107,014
------------
2,395,558
- -----------------------------------------------------------------------------------------------------------------------------------
Media - 1.1% 255,000 British Sky Broadcasting Plc, 8.20% due 7/15/2009 271,524
330,000 CBS Corp., 5.50% due 5/15/2033 274,067
200,000 COX Enterprises, Inc., 4.375% due 5/01/2008 (a) 196,537
450,000 Comcast Cable Communications, 8.875% due 5/01/2017 541,931
465,000 Comcast Corp., 5.85% due 1/15/2010 471,489
300,000 Comcast Corp., 6.50% due 1/15/2017 313,057
445,000 Comcast Corp., 7.05% due 3/15/2033 475,838
250,000 Comcast Corp., 6.50% due 11/15/2035 251,766
85,000 Cox Communications, Inc., 7.125% due 10/01/2012 90,616
450,000 Cox Communications, Inc., 6.80% due 8/01/2028 459,723
200,000 IAC/InterActiveCorp, 7% due 1/15/2013 207,121
665,000 News America, Inc., 7.25% due 5/18/2018 729,381
340,000 News America, Inc., 7.28% due 6/30/2028 365,908
345,000 The Thomson Corp., 5.75% due 2/01/2008 346,033
325,000 The Thomson Corp., 4.25% due 8/15/2009 315,695
352,000 Time Warner Companies, Inc., 6.875% due 6/15/2018 374,280
1,660,000 Time Warner, Inc., 6.875% due 5/01/2012 1,754,203
400,000 Time Warner, Inc., 7.70% due 5/01/2032 451,317
350,000 Viacom, Inc., 6.875% due 4/30/2036 346,038
375,000 Walt Disney Co., 6.375% due 3/01/2012 393,013
------------
8,629,537
- -----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.3% 300,000 Alcan, Inc., 5% due 6/01/2015 285,340
150,000 Alcan, Inc., 5.75% due 6/01/2035 141,024
70,000 Alcoa, Inc., 6% due 1/15/2012 71,830
400,000 Alcoa, Inc., 5.375% due 1/15/2013 399,260
365,000 BHP Finance USA Ltd., 6.42% due 3/01/2026 388,090
200,000 Barrick Gold Finance, Inc., 4.875% due 11/15/2014 189,534
120,000 Corporacion Nacional del Cobre de Chile - CODELCO, 6.375%
due 11/30/2012 (a) 125,261
300,000 Inco Ltd., 7.75% due 5/15/2012 328,158
150,000 Teck Cominco Ltd., 6.125% due 10/01/2035 144,116
400,000 Textron Financial Corp. Series E, 4.125% due 3/03/2008 394,385
------------
2,466,998
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.6% 180,000 Baltimore Gas & Electric, 5.20% due 6/15/2033 157,474
300,000 CenterPoint Energy Resources Corp. Series B, 7.875% due 4/01/2013 332,853
115,000 Cincinnati Gas & Electric, 5.70% due 9/15/2012 116,079
250,000 Dominion Resources, Inc., 4.125% due 2/15/2008 246,268
300,000 Dominion Resources, Inc., 5.70% due 9/17/2012 303,400
180,000 Dominion Resources, Inc., 5.95% due 6/15/2035 176,963
541,000 Dominion Resources, Inc. Series A, 8.125% due 6/15/2010 586,677
1,150,000 Duke Energy Corp., 6.25% due 1/15/2012 1,197,440
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
$ 200,000 New York State Electric & Gas Corp., 5.75% due 5/01/2023 $ 191,514
250,000 Pacific Gas & Electric Co., 4.20% due 3/01/2011 239,363
200,000 Pacific Gas & Electric Co., 6.05% due 3/01/2034 201,715
245,000 Public Service Electric & Gas, 5.125% due 9/01/2012 241,689
170,000 South Carolina Electric & Gas, 6.70% due 2/01/2011 178,264
290,000 Southern Power Co. Series B, 6.25% due 7/15/2012 299,628
250,000 Xcel Energy, Inc., 6.50% due 7/01/2036 264,137
------------
4,733,464
- -----------------------------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.4% 25,000 Federated Department Stores, 6.625% due 9/01/2008 25,407
135,000 Federated Department Stores, 6.30% due 4/01/2009 137,250
670,000 JC Penny Corp. Inc., 8% due 3/01/2010 713,365
235,000 Kohl's Corp., 6.30% due 3/01/2011 242,322
600,000 The May Department Stores Co., 5.75% due 7/15/2014 586,910
888,000 Target Corp., 10% due 1/01/2011 1,029,410
100,000 Target Corp., 6.75% due 1/01/2028 111,837
------------
2,846,501
- -----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 20,000 Amerada Hess Corp., 7.30% due 8/15/2031 22,321
- - 1.7% 390,000 Anadarko Finance Co. Series B, 6.75% due 5/01/2011 408,804
60,000 Anadarko Finance Co. Series B, 7.50% due 5/01/2031 68,077
370,000 Apache Corporation, 6.25% due 4/15/2012 384,175
320,000 Atlantic Richfield Co., 5.90% due 4/15/2009 324,794
730,000 Burlington Resources Finance Co., 6.50% due 12/01/2011 767,702
525,000 Canadian Natural Resources Ltd., 4.90% due 12/01/2014 495,093
485,000 ChevronTexaco Capital Co., 3.375% due 2/15/2008 475,368
125,000 Colonial Pipeline Co., 7.63% due 4/15/2032 (a) 155,225
555,000 Conoco Phillips Holding Co., 6.95% due 4/15/2029 630,411
475,000 Consolidated Natural Gas Co. Series C, 6.25% due 11/01/2011 490,596
600,000 EnCana Corp., 4.75% due 10/15/2013 569,632
900,000 Enterprise Products Operating LP, 5.60% due 10/15/2014 883,919
104,500 Kern River Funding Corp., 4.893% due 4/30/2018 (a) 101,449
250,000 Kinder Morgan Energy Partners LP, 5.35% due 8/15/2007 249,671
760,000 Midamerican Energy Holdings Co., 5.875% due 10/01/2012 773,640
175,000 Midamerican Energy Holdings Co., 6.125% due 4/01/2036 176,409
150,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (a) 148,120
100,000 Murphy Oil Corp., 6.375% due 5/01/2012 102,210
400,000 Nexen, Inc., 5.05% due 11/20/2013 386,059
950,000 Norsk Hydro ASA, 6.36% due 1/15/2009 968,152
150,000 Occidental Petroleum Corp., 8.45% due 2/15/2029 196,894
745,000 Ocean Energy, Inc., 7.25% due 10/01/2011 794,843
200,000 PTT PCL, 5.875% due 8/03/2035 (a) 186,664
1,025,000 Pemex Project Funding Master Trust, 8.85% due 9/15/2007 1,047,550
405,000 Pemex Project Funding Master Trust, 9.125% due 10/13/2010 454,208
40,000 Pemex Project Funding Master Trust, 8.625% due 2/01/2022 49,440
200,000 Petro-Canada, 5.95% due 5/15/2035 189,648
210,000 Plains All American Pipeline LP, 5.625% due 12/15/2013 206,631
150,000 TGT Pipeline LLC, 5.20% due 6/01/2018 139,477
225,000 Talisman Energy, Inc., 5.85% due 2/01/2037 205,361
300,000 Texas Gas Transmission Corp., 4.60% due 6/01/2015 277,993
200,000 Transocean, Inc., 7.50% due 4/15/2031 226,362
400,000 Valero Energy Corp., 6.875% due 4/15/2012 422,924
175,000 XTO Energy, Inc., 4.90% due 2/01/2014 166,827
300,000 XTO Energy, Inc., 5% due 1/31/2015 284,875
------------
13,431,524
- -----------------------------------------------------------------------------------------------------------------------------------
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.2% $ 300,000 Celulosa Arauco y Constitucion SA, 5.125% due 7/09/2013 $ 289,964
300,000 International Paper Co., 5.30% due 4/01/2015 289,113
150,000 Inversiones CMPC SA, 4.875% due 6/18/2013 (a) 144,268
200,000 Westvaco Corp., 8.20% due 1/15/2030 224,261
242,000 Weyerhaeuser Co., 5.95% due 11/01/2008 243,935
250,000 Weyerhaeuser Co., 6.75% due 3/15/2012 262,191
275,000 Weyerhaeuser Co., 7.375% due 3/15/2032 287,052
------------
1,740,784
- -----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.5% 225,000 Abbott Laboratories, 3.50% due 2/17/2009 217,730
385,000 Abbott Laboratories, 5.875% due 5/15/2016 396,562
560,000 AstraZeneca Group Plc, 5.40% due 6/01/2014 562,410
290,000 Eli Lilly & Co., 7.125% due 6/01/2025 338,273
200,000 GlaxoSmithKline Capital Inc., 5.375% due 4/15/2034 193,727
300,000 Johnson & Johnson, 4.95% due 5/15/2033 282,320
300,000 Merck & Co., 6.40% due 3/01/2028 320,606
250,000 Pfizer, Inc., 4.65% due 3/01/2018 235,421
160,000 Teva Pharmaceutical Finance LLC, 6.15% due 2/01/2036 155,460
700,000 Wyeth, 5.50% due 2/01/2014 703,592
200,000 Wyeth, 6.50% due 2/01/2034 217,546
------------
3,623,647
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 215,000 AvalonBay Communities, Inc., 6.625% due 9/15/2011 225,874
(REITs) - 0.6% 195,000 Brandywine Operating Partnership LP, 5.625% due 12/15/2010 195,710
530,000 Developers Diversified Realty Corp., 6.625% due 1/15/2008 535,764
100,000 Developers Diversified Realty Corp., 5.375% due 10/15/2012 99,040
450,000 Duke Realty LP, 5.25% due 1/15/2010 447,779
200,000 EOP Operating LP, 6.75% due 2/15/2012 215,994
25,000 EOP Operating LP, 7.50% due 4/19/2029 28,174
400,000 ERP Operating LP, 5.25% due 9/15/2014 395,516
400,000 HRPT Properties Trust, 5.75% due 2/15/2014 400,263
265,000 iStar Financial, Inc., 5.65% due 9/15/2011 264,421
275,000 Liberty Property-LP, 7.25% due 3/15/2011 292,788
350,000 Prologis, 5.625% due 11/15/2015 348,275
250,000 Simon Property Group LP, 4.60% due 6/15/2010 243,831
750,000 Simon Property Group LP, 6.10% due 5/01/2016 777,434
400,000 Vornado Realty LP, 5.60% due 2/15/2011 398,794
240,000 Westfield Capital Corp. Ltd., 5.125% due 11/15/2014 (a) 233,140
------------
5,102,797
- -----------------------------------------------------------------------------------------------------------------------------------
Road & Rail - 0.3% 250,000 Burlington Northern Santa Fe Corp., 6.20% due 8/15/2036 257,572
400,000 CSX Corp., 6.75% due 3/15/2011 419,997
500,000 Canadian National Railway Co., 6.375% due 10/15/2011 521,648
675,000 Norfolk Southern Corp., 6.75% due 2/15/2011 709,873
105,000 Norfolk Southern Corp., 5.59% due 5/17/2025 101,828
315,000 Norfolk Southern Corp., 7.25% due 2/15/2031 367,896
275,000 TTX Co., 4.90% due 3/01/2015 (a) 262,337
------------
2,641,151
- -----------------------------------------------------------------------------------------------------------------------------------
Software - 0.1% 830,000 Oracle Corp. and Ozark Holding, Inc., 5.25% due 1/15/2016 812,484
- -----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 500,000 Home Depot, Inc., 5.40% due 3/01/2016 489,023
65,000 Lowe's Cos., Inc., 6.50% due 3/15/2029 69,467
200,000 Limited Brands, 6.125% due 12/01/2012 202,189
------------
760,679
- -----------------------------------------------------------------------------------------------------------------------------------
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance $ 550,000 Countrywide Financial Corp. Series A, 4.50% due 6/15/2010 $ 536,207
- - 0.3% 230,000 Golden West Financial Corp., 4.75% due 10/01/2012 223,444
300,000 Residential Capital Corp., 6.375% due 6/30/2010 303,491
300,000 Residential Capital Corp., 6.50% due 4/17/2013 304,031
145,000 Washington Mutual Financial Corp., 6.875% due 5/15/2011 153,897
435,000 Washington Mutual, Inc., 4.20% due 1/15/2010 421,212
90,000 Washington Mutual, Inc., 8.25% due 4/01/2010 96,942
300,000 Washington Mutual, Inc., 5.25% due 9/15/2017 289,272
------------
2,328,496
- -----------------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.0% 345,000 Altria Group Inc., 7% due 11/04/2013 374,848
- -----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 495,000 AT&T Wireless Services, Inc., 8.75% due 3/01/2031 643,285
Services - 0.5% 250,000 America Movil SA de CV, 6.375% due 3/01/2035 243,911
150,000 Cingular Wireless LLC, 7.125% due 12/15/2031 166,163
400,000 Sprint Capital Corp., 6.375% due 5/01/2009 408,009
260,000 Sprint Capital Corp., 8.375% due 3/15/2012 288,959
200,000 Sprint Capital Corp., 6.90% due 5/01/2019 206,207
600,000 Sprint Capital Corp., 8.75% due 3/15/2032 722,167
530,000 Vodafone Group Plc, 7.75% due 2/15/2010 564,812
185,000 Vodafone Group Plc, 7.875% due 2/15/2030 217,050
200,000 Vodafone Group Plc, 6.25% due 11/30/2032 200,368
------------
3,660,931
- -----------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds
(Cost - $171,517,767) - 21.5% 170,761,581
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Government Obligations
- -----------------------------------------------------------------------------------------------------------------------------------
1,990,000 Canadian Government International Bond, 5.25% 1,999,715
due 11/05/2008
350,000 Chile Government International Bond, 5.50% due 1/15/2013 352,590
500,000 China Government International Bond, 7.30% due 12/15/2008 519,591
400,000 Export-Import Bank of Korea, 5.125% due 2/14/2011 397,220
625,000 Export-Import Bank of Korea, 5.125% due 3/16/2015 611,340
1,000,000 Inter-American Development Bank, 6.80% due 10/15/2025 1,180,947
675,000 Italy Government International Bond, 4% due 6/16/2008 663,784
450,000 Italy Government International Bond, 6% due 2/22/2011 464,442
420,000 Italy Government International Bond, 4.50% due 1/21/2015 402,782
1,050,000 Italy Government International Bond, 6.875% due 9/27/2023 1,212,111
525,000 Italy Government International Bond, 5.375% due 6/15/2033 517,691
1,000,000 Landwirtschaftliche Rentenbank, 4.875% due 2/14/2011 993,309
1,580,000 Mexico Government International Bond Series A, 6.75%
due 9/27/2034 1,706,400
220,000 Poland Government International Bond, 5% due 10/19/2015 216,165
920,000 Province of Manitoba Canada, 5.50% due 10/01/2008 926,366
850,000 Province of Ontario, 3.125% due 5/02/2008 827,193
500,000 Province of Ontario, 4.75% due 1/19/2016 488,927
250,000 Province of Quebec, 7.50% due 9/15/2029 317,214
950,000 Province of Quebec, 4.60% due 5/26/2015 913,587
- -----------------------------------------------------------------------------------------------------------------------------------
Total Foreign Government Obligations
(Cost - $14,740,148) - 1.8% 14,711,374
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Trusts
- -----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 75,000 Pemex Project Funding Master Trust, 7.375% due 12/15/2014 82,575
- - 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Capital Trusts (Cost - $77,141) - 0.0% 82,575
- -----------------------------------------------------------------------------------------------------------------------------------
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Face
State Amount Municipal Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Illinois - 0.1% $ 900,000 Illinois State, GO, 5.10% due 6/01/2033 $ 862,560
- -----------------------------------------------------------------------------------------------------------------------------------
Texas - 0.1% 1,040,000 Dallas, Texas, GO, Series C, 5.25% due 2/15/2024 1,028,477
- -----------------------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost - $1,859,936) - 0.2% 1,891,037
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term Securities
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency 10,100,000 Federal Home Loan Bank System, 4.80% due 1/02/2007 10,100,000
Obligations**
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost - $10,100,000) - 1.3% 10,100,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost - $809,210,777) - 101.4% 806,817,567
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Contracts Options Written
- -----------------------------------------------------------------------------------------------------------------------------------
Call Options Written - (0.0%) 13++ Pay a fixed rate of 4.40% and receive a floating rate based on
3-month LIBOR, expiring December 2007, Broker Deutsche Bank AG (e) (46,528)
- -----------------------------------------------------------------------------------------------------------------------------------
Put Options Written - (0.0%) 13++ Receive a fixed rate of 5.40% and pay a floating rate based on
3-month LIBOR, expiring December 2007, Broker Deutsche Bank AG (e) (70,694)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Options Written
(Premiums Received - $225,280) - (0.0%) (117,222)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, Net of Options Written
(Cost - $808,985,497+) - 101.4% 806,700,345
Liabilities in Excess of Other Assets - (1.4%) (11,249,580)
------------
Net Assets - 100.0% $795,450,765
============
* Mortgage-Backed Securities are subject to principal paydowns. As a result
of prepayments or refinancing of the underlying mortgage instruments, the
average life may be substantially less than the original maturity.
** Short-term U.S. Government Agency Obligations are traded on a discount
basis; the interest rates shown reflect the discount rates paid at the
time of purchase.
+ The cost and unrealized appreciation (depreciation) of investments, net of
options written, as of December 31, 2006, as computed for federal income
tax purposes, were as follows:
Aggregate cost $ 810,556,690
=============
Gross unrealized appreciation $ 5,949,743
Gross unrealized depreciation (9,806,088)
-------------
Net unrealized depreciation $ (3,856,345)
=============
++ One contract represents a notional amount of $1,000,000.
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Investments in companies considered to be an affiliate of the Series, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
---------------------------------------------------------------------------------------------------------------------------
Purchase Sale Realized Interest
Affiliate Cost Cost Gain Income
---------------------------------------------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Money Market Series -- ($50,141,250) * -- $ 51,939
PNC Funding Corp., 4.20% due 3/10/2008 -- -- -- $ 20,942
---------------------------------------------------------------------------------------------------------------------------
* Represents net sale cost.
(c) Floating rate security.
(d) Represents or includes a "to-be-announced" transaction. The Series has
committed to purchasing and/or selling securities for which all specific
information is not available at this time.
(e) This European style swaption, which can be exercised only to the
expiration date, represents a standby commitment whereby the Series is
obligated to enter into a predetermined interest rate swap contract upon
exercise of swaption.
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON DETAILED SCHEDULE OF
INVESTMENTS
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements of Master
Aggregate Bond Index Series (the "Series"), one of the portfolios constituting
the Quantitative Master Series Trust (the "Trust"), as of December 31, 2006, and
for the year then ended and have issued our report thereon dated February 27,
2007 which report and financial statements are included in Item 1 of this
Certified Shareholder Report on Form N-CSR. Our audit also included the Series'
schedule of investments in securities (the "Schedule") as of December 31, 2006
appearing in Item 6 of this Form N-CSR. This Schedule is the responsibility of
the Trust's management. Our responsibility is to express an opinion based on our
audit. In our opinion, the Schedule referred to above, when considered in
relation to the basic financial statements taken as a whole of the Series
referred to above, presents fairly, in all material respects, the information
set forth therein.
Deloitte & Touche LLP
Princeton, New Jersey
February 27, 2007
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.
BlackRock Aggregate Bond Index Fund of BlackRock Index Funds, Inc. and Master
Aggregate Bond Index Series of Quantitative Master Series Trust
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Aggregate Bond Index Fund of BlackRock Index Funds, Inc. and
Master Aggregate Bond 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
BlackRock Aggregate Bond Index Fund of BlackRock Index Funds, Inc. and
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Date: February 20, 2007
By: /s/ Donald C. Burke
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Donald C. Burke,
Chief Financial Officer of
BlackRock Aggregate Bond Index Fund of BlackRock Index Funds, Inc. and
Master Aggregate Bond Index Series of Quantitative Master Series Trust
Date: February 20, 2007