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 S&P 500 Index Fund of BlackRock Index Funds, Inc.
Master S&P 500 Index Series of Quantitative Master Series Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock S&P 500 Index Fund of BlackRock Index Funds, Inc. and
Master S&P 500 Index Series of Quantitative Master Series Trust, 800
Scudders Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box 9011,
Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/06
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 S&P 500 BLACKROCK
Index Fund
OF BLACKROCK INDEX FUNDS, INC.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock S&P 500 Index Fund
Proxy Results
During the six-month period ended December 31, 2006, BlackRock S&P 500 Index
Fund of BlackRock Index Fund, Inc.'s shareholders voted on the following
proposals, which were approved at a special shareholders' meeting on August 15,
2006. 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. 76,986,815 779,844 1,182,855
- --------------------------------------------------------------------------------------------------
To approve a contingent sub-advisory agreement
with BlackRock Advisors, Inc. 77,005,036 796,019 1,148,460
- --------------------------------------------------------------------------------------------------
Important Tax Information
The following information is provided with respect to the ordinary income
distributions paid by BlackRock S&P 500 Index Fund of BlackRock Index Funds,
Inc. during the fiscal year ended December 31, 2006:
- --------------------------------------------------------------------------------------------------------------------
Record Date July 13, 2006 December 14, 2006
Payable Date July 19, 2006 December 18, 2006
- --------------------------------------------------------------------------------------------------------------------
Qualified Dividend Income for Individuals ........................................ 100% 100%
Dividends Qualifying for the Dividends Received Deduction for Corporations ....... 100% 100%
- --------------------------------------------------------------------------------------------------------------------
2 BLACKROCK S&P 500 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 S&P 500 INDEX FUND DECEMBER 31, 2006 3
A Discussion With Your Fund's Portfolio Managers
Amid a volatile investing environment, the Fund met its objective of
closely tracking the performance of the benchmark S&P 500 Index during the
12-month period.
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 S&P 500 Index Fund's
(formerly Merrill Lynch S&P 500 Index Fund) Institutional and Investor A Shares
had total returns of +15.49% and +15.18%, respectively. For the same period, the
benchmark Standard & Poor's 500 (S&P 500) Index returned +15.79%.
As the returns indicate, the Fund's performance was similar to that of the S&P
500 Index, a market-weighted index composed of 500 common stocks issued by
large-capitalization companies in a wide range of businesses. The stocks
included in the Index collectively represent a substantial portion of all common
stocks publicly traded in the United States. As the value of the S&P 500 Index
fluctuated during the past 12 months, the Fund's performance generally tracked
that of the Index.
Following decent, but uninspiring, results in 2004 and 2005, U.S. equities
surged forward in 2006, with the S&P 500 Index advancing 15.79% to close at
1,418. Small-cap stocks posted even stronger gains, with the Russell 2000 Index
registering an 18.37% increase, thanks to exceptionally strong performance in
the first few months of the year.
Key highlights of the 12-month period included weaker economic growth triggered
by a slowdown in the U.S. housing market; a long-awaited pause in the Federal
Reserve Board's (the Fed) interest rate-hiking campaign; threats of higher
inflation; and robust corporate earnings, which rose by double-digit percentages
for an unprecedented fifth consecutive year. Amid these crosscurrents, financial
markets were left to weather a high degree of volatility.
At the outset, a burgeoning corporate sector, ample liquidity and record levels
of merger-and-acquisition (M&A) activity provided a solid backdrop for equity
markets. During the first few months of 2006, U.S. stocks were solidly on an
upward trajectory, posting the best first quarter gains in several years. Of
note, the S&P 500 Index advanced 4.21% in the quarter, marking its largest gain
since the fourth quarter of 2004 (+9.23%) and its best first quarter since 1999
(+4.98%). Growth continued outside of the housing and auto sectors (capital
spending in particular expanded at a brisk pace); private equity deals, M&A
action and corporate buy-backs abounded in high volumes; and corporate cash
flows held steady.
Notwithstanding such broad-based strength, evidence of an economic slowdown
mounted. By May, there was a striking shift in investor sentiment, triggered by
a deceleration in consumer spending, rising energy prices, a slump in housing
activity and uncertainty around Fed policy and the sustainability of economic
growth. Stock market volatility took on a more negative spin and eventually
resulted in the first double-digit correction for U.S. equity markets in nearly
four years. The average U.S. stock fell by about 12%, with stocks outside the
United States suffering even greater losses. The pullback could be attributed to
several factors, not the least of which was that the lagged effects of higher
interest rates and oil prices finally took their toll on both the economy and
stock prices. Further, a resurgence of inflation fears prompted the Fed to
continue its interest rate tightening campaign. Under the auspices of the new
Chairman Ben Bernanke, the central bank ended the second quarter with its 17th
consecutive 25 basis point interest rate hike since June 2004, bringing the
target federal funds rate to 5.25%.
As the second half of 2006 got underway, positive momentum returned to the
market. The Fed made big news in August by finally ending its streak of interest
rate increases. At the same time, commodity prices collapsed. After reaching an
all-time high near $78 per barrel in July, crude oil ended the year at $61 per
barrel. Stocks generally climbed back above the levels they reached prior to the
market's earlier retrenchment. Most equity markets experienced one of their best
third-quarter periods in several years, though there was a broad-based changing
of the guard that favored larger-cap, higher-quality and more predictable stocks
over small-cap, lower-quality and more cyclical securities (which dominated
early in the year).
Macroeconomic uncertainty persisted in the third quarter. Investors struggled
with moderating economic activity -- real gross domestic product growth came in
at 2.2%, compared to 2.6% in the second quarter and 5.6% in the first quarter.
The magnitude of the housing downturn and its effect on the consumer sector was
a significant wildcard. Weakness in the U.S. dollar was challenging the
stability of currency markets. Moreover, tensions in the Middle East were
heating up, and economic data offered a mixed outlook for inflation.
Still, strong momentum continued in the equity markets during the year's final
quarter. Key to investors' optimism were: a
4 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
strong labor market, where the unemployment rate reached a post-9/11 low and
year-on-year average hourly salaries reached a post-9/11 high; receding risks of
higher inflation and high oil prices; and finally, the pervasive strength in
corporate fundamentals that included reasonably good investment levels, healthy
balance sheets and profit margins. 2006 ended and the new year began with the
world awash in liquidity, global economic growth still quite strong despite the
U.S. slowdown, record-high corporate profitability, fairly low inflation and
interest rates, and relatively strong investor confidence.
Small and mid cap stocks performed quite well during the 12-month period, but
relinquished their leadership to the large cap S&P 500 Index in the second half
of the year. The S&P SmallCap 600 Index and the S&P MidCap 400 Index returned
+15.12% and +10.32%, respectively, for the year, both behind the return of the
S&P 500 Index. Within the S&P 500 Index, the value style of investing
significantly outperformed the growth style for the period, with the S&P 500
Citigroup Value Index returning +20.80% versus the +11.00% return of the S&P 500
Citigroup Growth Index.
Turning to sector performance, each of the 10 S&P 500 Index sectors posted
positive returns for the annual period. The top performer was telecommunication
services, which was up 32.13%, followed by energy and consumer discretionary,
with respective returns of +22.22% and +17.23%. Information technology and
healthcare were the weakest performers, with respective returns of +7.70% and
+5.78%.
What changes were made to the portfolio during the period?
Throughout the period, as changes were made to the composition of the S&P 500
Index, we purchased and sold securities to maintain its objective of replicating
the risks and return of the benchmark.
How would you characterize the portfolio's position at the close of the period?
Heading into 2007, we believe continued moderation in economic growth will put
pressure on corporate earnings, which have been on a record run with five
consecutive years of double-digit growth. Solid corporate fundamentals and
balance sheet strength, alongside strong non-U.S. economic growth, should help
corporate profits remain positive, but the rate of gain will likely slow
noticeably as record-high profit margins will be difficult to sustain. Against
this backdrop, the portfolio remains positioned to match the risk
characteristics of its benchmark, whatever direction the market takes.
Debra L. Jelilian
Vice President and Co-Portfolio Manager
Jeffrey L. Russo, CFA
Vice President and Co-Portfolio Manager
January 17, 2007
- --------------------------------------------------------------------------------
Effective October 2, 2006, the Fund's Class A and Class I Shares were
redesignated Investor A and Institutional Shares, respectively.
- --------------------------------------------------------------------------------
BLACKROCK S&P 500 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 .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
ex-dividend date. Investment return and principal value of shares will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the different
levels of service, distribution and transfer agency fees applicable to each
class, which are deducted from the income available to be paid to shareholders.
Recent Performance Results
6-Month 12-Month Since Inception
As of December 31, 2006 Total Return Total Return Total Return
================================================================================
Institutional Shares* +12.54% +15.49% +113.46%
- --------------------------------------------------------------------------------
Investor A Shares* +12.38 +15.18 +108.35
- --------------------------------------------------------------------------------
S&P 500(R) Index ** +12.74 +15.79 +120.55
- --------------------------------------------------------------------------------
* Cumulative total investment returns are based on changes in net asset
value for the periods shown, and assume reinvestment of all dividends and
capital gains distributions at net asset value on the ex-dividend date.
The Fund's inception date is 4/03/97.
** This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues. Since
inception total return is from 4/03/97. S&P 500 is a registered trademark
of the McGraw-Hill Companies.
6 BLACKROCK S&P 500 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 Institutional
Shares and Investor A Shares compared to growth of an investment in the Standard
& Poor's 500 Index. Values are from April 3, 1997 to December 2006.
Institutional Investor A Standard & Poor's
Shares*+ Shares*+ 500 Index++
4/03/97** $10,000 $10,000 $10,000
12/97 $13,080 $13,053 $13,103
12/98 $16,774 $16,702 $16,848
12/99 $20,204 $20,069 $20,393
12/00 $18,299 $18,138 $18,537
12/01 $16,069 $15,873 $16,333
12/02 $12,451 $12,282 $12,724
12/03 $15,981 $15,723 $16,373
12/04 $17,666 $17,329 $18,155
12/05 $18,484 $18,089 $19,047
12/06 $21,346 $20,835 $22,055
* Assuming transaction costs, if any, and other operating expenses,
including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Master S&P 500 Index Series of
Quantitative Master Series Trust. The Trust's investments are allocated
among common stocks in approximately the same weightings as the S&P 500
Index.
++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
Average Annual Total Return
Institutional Shares Return
================================================================================
One Year Ended 12/31/06 +15.49%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 + 5.84
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/06 + 8.09
- --------------------------------------------------------------------------------
Investor A Shares Return
================================================================================
One Year Ended 12/31/06 +15.18%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 + 5.59
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/06 + 7.82
- --------------------------------------------------------------------------------
BLACKROCK S&P 500 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 $1,125.40 $ 1.85
- ----------------------------------------------------------------------------------------------------------------
Investor A $ 1,000 $1,123.80 $ 3.18
================================================================================================================
Hypothetical (5% annual return before expenses)**
================================================================================================================
Institutional $ 1,000 $1,023.15 $ 1.77
- ----------------------------------------------------------------------------------------------------------------
Investor A $ 1,000 $1,021.91 $ 3.02
- ----------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.35% for Institutional and .60% for Investor A),
multiplied by the average account value over the period, multiplied by
182/365 (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 S&P 500 INDEX FUND DECEMBER 31, 2006
Statement of Assets and Liabilities BlackRock S&P 500 Index Fund
As of December 31, 2006
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investment in Master S&P 500 Index Series (the "Series"), at value
(identified cost -- $1,835,152,568) .................................. $ 2,670,162,331
Prepaid expenses ...................................................... 23,440
---------------
Total assets .......................................................... 2,670,185,771
---------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Payables:
Administrative fees ................................................ $ 520,415
Distributor ........................................................ 189,712
Other affiliates ................................................... 2,712 712,839
---------------
Accrued expenses and other liabilities ................................ 469,247
---------------
Total liabilities ..................................................... 1,182,086
---------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................ $ 2,669,003,685
===============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional Shares of Common Stock, $.0001 par value, 250,000,000
shares authorized .................................................... $ 9,766
Investor A Shares of Common Stock, $.0001 par value, 250,000,000 shares
authorized ........................................................... 5,582
Paid-in capital in excess of par ...................................... 2,094,866,791
Undistributed investment income -- net ................................ $ 1,138,328
Accumulated realized capital losses allocated from the Series -- net .. (262,026,545)
Unrealized appreciation allocated from the Series -- net .............. 835,009,763
---------------
Total accumulated earnings -- net ..................................... 574,121,546
---------------
Net Assets ............................................................ $ 2,669,003,685
===============
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional -- Based on net assets of $1,699,790,754 and 97,662,167
shares outstanding ................................................... $ 17.40
===============
Investor A -- Based on net assets of $969,212,931 and 55,816,119 shares
outstanding .......................................................... $ 17.36
===============
See Notes to Financial Statements
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 9
Statement of Operations BlackRock S&P 500 Index Fund
For the Year Ended December 31, 2006
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Series:
Dividends .......................................................... $ 47,256,633
Interest from affiliates ........................................... 1,026,543
Securities lending -- net .......................................... 316,825
Expenses ........................................................... (936,343)
---------------
Total income .......................................................... 47,663,658
---------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Administration fees ................................................... $ 6,088,565
Service fees -- Investor A ............................................ 2,255,732
Transfer agent fees ................................................... 1,347,346
Printing and shareholder reports ...................................... 129,355
Licensing fees ........................................................ 75,505
Registration fees ..................................................... 61,436
Professional fees ..................................................... 30,639
Directors' fees and expenses .......................................... 21,213
Other ................................................................. 15,382
---------------
Total expenses ........................................................ 10,025,173
---------------
Investment income -- net .............................................. 37,638,485
---------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Series -- Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized loss on investments, in-kind redemption and financial futures
contracts -- net ..................................................... (12,644,618)
Change in unrealized appreciation/depreciation on investments and
financial futures contracts -- net ................................... 335,003,357
---------------
Total realized and unrealized gain -- net ............................. 322,358,739
---------------
Net Increase in Net Assets Resulting from Operations .................. $ 359,997,224
===============
See Notes to Financial Statements.
10 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Statements of Changes in Net Assets BlackRock S&P 500 Index Fund
For the Year Ended
December 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net .............................................. $ 37,638,485 $ 36,372,380
Realized loss -- net .................................................. (12,644,618) (20,749,606)
Change in unrealized appreciation/depreciation -- net ................. 335,003,357 98,239,241
-----------------------------------
Net increase in net assets resulting from operations .................. 359,997,224 113,862,015
-----------------------------------
===================================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net:
Institutional ...................................................... (25,275,471) (24,385,969)
Investor A ......................................................... (11,846,861) (12,092,872)
-----------------------------------
Net decrease in net assets resulting from dividends to shareholders ... (37,122,332) (36,478,841)
-----------------------------------
===================================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions ... (94,689,583) (229,596,389)
-----------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets .............................. 228,185,309 (152,213,215)
Beginning of year .................................................... 2,440,818,376 2,593,031,591
-----------------------------------
End of year* ......................................................... $ 2,669,003,685 $ 2,440,818,376
===================================
* Undistributed investment income -- net .......................... $ 1,138,328 $ 622,175
===================================
See Notes to Financial Statements.
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 11
Financial Highlights BlackRock S&P 500 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 $ 15.29 $ 14.84 $ 13.64 $ 10.76 $ 14.08
-------------------------------------------------------------------------------
Investment income -- net** ....... .26 .23 .24 .17 .16
Realized and unrealized gain
(loss) -- net .................. 2.11 .46 1.19 2.88 (3.33)
-------------------------------------------------------------------------------
Total from investment operations . 2.37 .69 1.43 3.05 (3.17)
-------------------------------------------------------------------------------
Less dividends from investment
income -- net .................. (.26) (.24) (.23) (.17) (.15)
-------------------------------------------------------------------------------
Net asset value, end of year ..... $ 17.40 $ 15.29 $ 14.84 $ 13.64 $ 10.76
===============================================================================
=====================================================================================================================
Total Investment Return
- ---------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 15.49% 4.63% 10.55% 28.35% (22.51%)
===============================================================================
=====================================================================================================================
Ratios to Average Net Assets*
- ---------------------------------------------------------------------------------------------------------------------
Expenses ......................... .35% .35% .34% .36% .36%
===============================================================================
Investment income -- net ......... 1.61% 1.52% 1.68% 1.44% 1.27%
===============================================================================
=====================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of year
(in thousands) ................. $ 1,699,791 $ 1,544,023 $ 1,653,423 $ 1,428,292 $ 931,917
===============================================================================
Portfolio turnover from the Series 3.81% 10.80% 5.84% 3.60% 4.59%
===============================================================================
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 $ 15.26 $ 14.81 $ 13.62 $ 10.75 $ 14.05
-------------------------------------------------------------------------------
Investment income -- net** ....... .22 .19 .20 .14 .13
Realized and unrealized gain
(loss) -- net .................. 2.10 .46 1.19 2.87 (3.31)
-------------------------------------------------------------------------------
Total from investment operations . 2.32 .65 1.39 3.01 (3.18)
-------------------------------------------------------------------------------
Less dividends from investment
income -- net .................. (.22) (.20) (.20) (.14) (.12)
-------------------------------------------------------------------------------
Net asset value, end of year ..... $ 17.36 $ 15.26 $ 14.81 $ 13.62 $ 10.75
===============================================================================
=====================================================================================================================
Total Investment Return
- ---------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 15.18% 4.38% 10.22% 28.02% (22.62%)
===============================================================================
=====================================================================================================================
Ratios to Average Net Assets*
- ---------------------------------------------------------------------------------------------------------------------
Expenses ......................... .60% .60% .59% .61% .61%
===============================================================================
Investment income -- net ......... 1.36% 1.27% 1.42% 1.19% 1.03%
===============================================================================
=====================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of year
(in thousands) ................. $ 969,213 $ 896,796 $ 939,608 $ 880,875 $ 648,569
===============================================================================
Portfolio turnover from the Series 3.81% 10.80% 5.84% 3.60% 4.59%
===============================================================================
* Includes the Fund's share of the Series' allocated expenses and investment
income -- net.
** Based on average shares outstanding.
See Notes to Financial Statements.
12 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Notes to Financial Statements BlackRock S&P 500 Index Fund
1. Significant Accounting Policies:
On September 29, 2006, Merrill Lynch S&P 500 Index Fund, a series of Merrill
Lynch Index Funds, Inc. was renamed BlackRock S&P 500 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 investment company. The Fund's financial statements are prepared
in conformity with U.S. generally accepted accounting principles, which may
require the use of management accruals and estimates. Actual results may differ
from these estimates. The Fund seeks to achieve its investment objective by
investing all of its assets in Master S&P 500 Index Series (the "Series") of
Quantitative Master Series Trust (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 percentage of the Series
owned by the Fund at December 31, 2006 was 95.0%. The Fund offers multiple
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
their account maintenance expenditures. Income, expenses (other than expenses
attributable to a specific class) and realized and unrealized gains and losses
are allocated daily to each class based on its relative net assets. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investment in the Series at
fair value. Valuation of securities held by the Series is discussed in Note 1(a)
of the Series' Notes to Financial Statements, which are included elsewhere in
this report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Series' income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Series are
accounted for on a trade date basis.
(g) 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) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $15,082,516 has been reclassified between paid-in capital in excess of par
and accumulated net realized capital losses allocated from the Series as a
result of a permanent difference attributable to net losses realized on the
distribution of securities not recognized for tax purposes. This
reclassification has no effect on net assets or net asset values per share.
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 13
Notes to Financial Statements (continued) BlackRock S&P 500 Index Fund
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 15, 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, Fund Asset Management, L.P.
("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 Corporation has entered into an Administration Agreement with BlackRock
Advisors, LLC (the "Administrator"). The Fund pays a monthly fee at an annual
rate of .245% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund. Prior to September 29,
2006, MLIM acted as the Fund's Administrator and was compensated at the same fee
rate. The Administrator (and previously MLIM) has entered into a voluntary
arrangement with the Fund under which the expenses incurred by each class of
shares of the Fund (excluding account maintenance fees ("service fees")) will
not exceed .40%. This arrangement has a one-year term and is renewable.
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 with respect to Investor A Shares. 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, and an affiliate of the Distributor, also provide
account maintenance services to the Fund. The ongoing service fee compensates
the Distributors and each broker-dealer (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
$94,689,583 and $229,596,389 for the years ended December 31, 2006 and December
31, 2005, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Institutional Shares for the Year Dollar
Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 28,896,398 $ 467,956,426
Shares issued to shareholders in
reinvestment of dividends ............ 1,407,779 24,580,626
---------------------------------
Total issued ........................... 30,304,177 492,537,052
Shares redeemed ........................ (33,597,086) (542,308,997)
---------------------------------
Net decrease ........................... (3,292,909) $ (49,771,945)
=================================
14 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Notes to Financial Statements (concluded) BlackRock S&P 500 Index Fund
- -------------------------------------------------------------------------------
Institutional Shares for the Year Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 29,513,490 $ 437,446,074
Shares issued to shareholders in
reinvestment of dividends ............ 1,521,707 23,608,528
---------------------------------
Total issued ........................... 31,035,197 461,054,602
Shares redeemed ........................ (41,483,347) (620,599,236)
---------------------------------
Net decrease ........................... (10,448,150) $(159,544,634)
=================================
- -------------------------------------------------------------------------------
Investor A Shares for the Year Dollar
Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 10,760,366 $ 174,132,500
Shares issued to shareholders in
reinvestment of dividends ............ 622,994 10,846,759
---------------------------------
Total issued ........................... 11,383,360 184,979,259
Shares redeemed ........................ (14,329,991) (229,896,897)
---------------------------------
Net decrease ........................... (2,946,631) $ (44,917,638)
=================================
- -------------------------------------------------------------------------------
Investor A Shares for the Year Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 12,923,712 $ 191,625,954
Shares issued to shareholders in
reinvestment of dividends ............ 711,901 11,022,539
---------------------------------
Total issued ........................... 13,635,613 202,648,493
Shares redeemed ........................ (18,311,289) (272,700,248)
---------------------------------
Net decrease ........................... (4,675,676) $ (70,051,755)
=================================
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 ...................... $ 37,122,332 $ 36,478,841
---------------------------------
Total taxable distributions ............ $ 37,122,332 $ 36,478,841
=================================
As of December 31, 2006, the components of accumulated earnings on a tax basis
were as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income -- net ................... $ 1,138,328
Undistributed long-term capital gains -- net ........... --
Total undistributed earnings -- net .................... 1,138,328
Capital loss carryforward .............................. (176,963,470)*
Unrealized gains -- net ................................ 749,946,688**
-------------
Total accumulated earnings -- net ...................... $ 574,121,546
=============
* On December 31, 2006, the Fund had a net capital loss carryforward of
$176,963,470, of which $4,944,930 expires in 2008, $14,600,496 expires in
2009, $73,055,477 expires in 2010, $7,823,922 expires in 2011, $21,618,948
expires in 2012, $28,402,088 expires in 2013 and $26,517,609 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 gains is
attributable primarily to the tax deferral of losses on wash sales and the
realization for tax purposes of unrealized gains/losses on certain futures
contracts.
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 15
Report of Independent Registered BlackRock S&P 500 Index Fund
Public Accounting Firm
To the Shareholders and Board of Directors of BlackRock Index Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of
BlackRock S&P 500 Index Fund (formerly Merrill Lynch S&P 500 Index Fund), one of
the series constituting BlackRock Index Funds, Inc. (formerly Merrill Lynch
Index Funds, Inc.) (the "Fund"), 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 S&P 500 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 U.S. accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
February 26, 2007
16 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Portfolio Information Master S&P 500 Index Series
As of December 31, 2006
S&P 500 Index Sector Percent of
Representation for the Series Total Investments
- --------------------------------------------------------------------------------
Financials ................................................. 19.6%
Information Technology ..................................... 13.3
Health Care ................................................ 10.6
Industrials ................................................ 9.5
Consumer Discretionary ..................................... 9.4
Energy ..................................................... 8.6
Consumer Staples ........................................... 8.1
Utilities .................................................. 3.1
Telecommunication Services ................................. 3.1
Materials .................................................. 2.6
Other* ..................................................... 12.1
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
For Series compliance purposes, the Series' sector classifications refer
to any one or more of the sector sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Series management. This definition may not apply for purposes
of this report, which may combine sector sub-classifications for reporting
ease.
Proxy Results
During the six-month period ended December 31, 2006, Master S&P 500 Index Series
of Quantitative Master Series Trust's interest holders voted on the following
proposals, which were approved at a special interest holders' meeting on
September 29, 2006. A description of the proposals and number of units of
interest voted were 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. 1,353,245,051 13,176,252 19,234,419
- -------------------------------------------------------------------------------------------------------------------
To approve a contingent sub-advisory agreement
with BlackRock Advisors, Inc. 1,353,472,435 13,498,166 18,685,121
- -------------------------------------------------------------------------------------------------------------------
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 17
Summary Schedule of Investments as of December 31, 2006
Master S&P 500 Index Series
This summary schedule of investments is presented to help investors focus on the
Series' principal holdings. It includes the Series' 50 largest holdings and each
investment of any issuer that exceeds 1% of the Series' net assets. "Other
Securities" represent all issues not required to be disclosed under the rules
adopted by the Securities and Exchange Commission. A complete schedule of
investments is available without charge, upon request, by calling 800-441-7762
or on the Securities and Exchange Commission's Web site at http://www.sec.gov.
====================================================================================================================================
Shares Percent of
Industry Held Common Stocks Value Net Assets
====================================================================================================================================
Aerospace & Defense 172,420 Boeing Co. $ 15,317,793 0.5%
220,196 United Technologies Corp. 13,766,654 0.5
Other Securities 36,749,611 1.3
-------------------------------
65,834,058 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics 234,300 United Parcel Service, Inc. Class B (e) 17,567,814 0.6
Other Securities 6,941,687 0.3
-------------------------------
24,509,501 0.9
- ------------------------------------------------------------------------------------------------------------------------------------
Airlines Other Securities 2,512,403 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Auto Components Other Securities 4,403,127 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Automobiles Other Securities 10,625,820 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Beverages 441,928 The Coca-Cola Co. 21,323,026 0.8
357,388 PepsiCo, Inc. 22,354,619 0.8
Other Securities 14,163,750 0.5
-------------------------------
57,841,395 2.1
- ------------------------------------------------------------------------------------------------------------------------------------
Biotechnology 253,747 Amgen, Inc. (a) 17,333,458 0.6
Other Securities 19,417,908 0.7
-------------------------------
36,751,366 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
Building Products Other Securities 4,738,274 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Markets 94,300 Goldman Sachs Group, Inc. (e) 18,798,705 0.7
192,167 Merrill Lynch & Co., Inc. (b) 17,890,748 0.6
234,498 Morgan Stanley 19,095,172 0.7
Other Securities 51,336,074 1.8
-------------------------------
107,120,699 3.8
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals Other Securities 42,365,316 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks 67,468 PNC Financial Services Group, Inc. (b)(e) 4,995,331 0.2
385,265 U.S. Bancorp (e) 13,942,740 0.5
420,718 Wachovia Corp. (e) 23,959,890 0.8
729,944 Wells Fargo & Co. 25,956,809 0.9
Other Securities 46,438,567 1.7
-------------------------------
115,293,337 4.1
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies Other Securities 15,154,149 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Communications Equipment 1,323,271 Cisco Systems, Inc. (a)(e) 36,164,996 1.3
361,460 QUALCOMM, Inc. 13,659,573 0.5
Other Securities 24,823,392 0.9
-------------------------------
74,647,961 2.7
- ------------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals 185,534 Apple Computer, Inc. (a) 15,740,705 0.6
599,517 Hewlett-Packard Co. 24,694,105 0.9
333,167 International Business Machines Corp. 32,367,174 1.1
Other Securities 31,816,714 1.1
-------------------------------
104,618,698 3.7
- ------------------------------------------------------------------------------------------------------------------------------------
Construction & Engineering Other Securities 1,401,196 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Construction Materials Other Securities 1,855,546 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Finance 266,084 American Express Co. 16,143,316 0.6
Other Securities 11,220,810 0.4
-------------------------------
27,364,126 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging Other Securities 5,417,551 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
18 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Summary Schedule of Investments (continued) Master S&P 500 Index Series
Shares Percent of
Industry Held Common Stocks Value Net Assets
====================================================================================================================================
Distributors Other Securities $ 1,741,345 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Consumer Services Other Securities 2,897,687 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 983,934 Bank of America Corp. 52,532,236 1.9
1,071,936 Citigroup, Inc. 59,706,835 2.1
755,056 JPMorgan Chase & Co. 36,469,205 1.3
Other Securities 10,056,151 0.3
-------------------------------
158,764,427 5.6
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 847,035 AT&T, Inc. (e) 30,281,501 1.1
Services 396,334 BellSouth Corp. 18,671,295 0.7
629,028 Verizon Communications, Inc. 23,425,003 0.8
Other Securities 8,152,341 0.3
-------------------------------
80,530,140 2.9
- ------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities Other Securities 43,390,706 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment Other Securities 13,325,937 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments Other Securities 7,613,993 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services 258,608 Schlumberger Ltd. (e) 16,333,681 0.6
Other Securities 31,526,781 1.1
-------------------------------
47,860,462 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 536,855 Wal-Mart Stores, Inc. (e) 24,791,964 0.9
Other Securities 34,626,435 1.2
-------------------------------
59,418,399 2.1
- ------------------------------------------------------------------------------------------------------------------------------------
Food Products Other Securities 30,104,958 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities Other Securities 2,316,281 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies 249,840 Medtronic, Inc. (e) 13,368,938 0.5
Other Securities 30,951,918 1.1
-------------------------------
44,320,856 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services 291,956 United Health Group, Inc. 15,686,796 0.5
Other Securities 52,641,491 1.9
-------------------------------
68,328,287 2.4
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Technology Other Securities 1,223,959 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure Other Securities 44,414,686 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Household Durables Other Securities 17,784,989 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Household Products 692,764 The Procter & Gamble Co. 44,523,942 1.6
Other Securities 15,810,709 0.5
-------------------------------
60,334,651 2.1
- ------------------------------------------------------------------------------------------------------------------------------------
IT Services Other Securities 31,430,580 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Independent Power Producers & Other Securities 11,950,050 0.4
Energy Traders
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates 163,288 3M Co. 12,725,034 0.4
2,242,081 General Electric Co. 83,427,834 3.0
445,125 Tyco International Ltd. 13,531,800 0.5
Other Securities 2,504,972 0.1
-------------------------------
112,189,640 4.0
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance 563,307 American International Group, Inc. 40,366,580 1.5
Other Securities 93,659,112 3.3
-------------------------------
134,025,692 4.8
- ------------------------------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail Other Securities 4,311,916 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services 46,170 Google, Inc. Class A (a) 21,260,362 0.7
Other Securities 15,924,355 0.6
-------------------------------
37,184,717 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 19
Summary Schedule of Investments (continued) Master S&P 500 Index Series
Shares Percent of
Industry Held Common Stocks Value Net Assets
====================================================================================================================================
Leisure Equipment & Products Other Securities $ 5,267,690 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Life Sciences Tools & Services Other Securities 8,154,613 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Machinery Other Securities 39,937,407 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
Media 403,943 Comcast Corp. Class A (a) 17,098,907 0.6
881,484 Time Warner, Inc. 19,198,722 0.7
461,947 Walt Disney Co. (e) 15,830,924 0.6
Other Securities 52,225,944 1.8
-------------------------------
104,354,497 3.7
- ------------------------------------------------------------------------------------------------------------------------------------
Metals & Mining Other Securities 24,686,710 0.9
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities Other Securities 39,273,916 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
Multiline Retail Other Securities 32,596,939 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Office Electronics Other Securities 3,518,854 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 478,560 Chevron Corp. 35,188,517 1.3
359,960 ConocoPhillips 25,899,122 0.9
1,270,212 Exxon Mobil Corp. (d) 97,336,346 3.5
Other Securities 65,358,276 2.3
-------------------------------
223,782,261 8.0
- ------------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products Other Securities 8,359,582 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Personal Products Other Securities 4,443,496 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 331,217 Abbott Laboratories (e) 16,133,580 0.6
635,977 Johnson & Johnson 41,987,202 1.5
471,757 Merck & Co., Inc. 20,568,605 0.7
1,580,581 Pfizer, Inc. 40,937,048 1.5
291,699 Wyeth 14,853,313 0.5
Other Securities 40,777,005 1.4
-------------------------------
175,256,753 6.2
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Other Securities 30,326,293 1.1
Trusts (REITs)
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Management Other Securities 2,851,398 0.1
& Development
- ------------------------------------------------------------------------------------------------------------------------------------
Road & Rail Other Securities 19,068,706 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 1,252,831 Intel Corp. 25,369,828 0.9
Equipment Other Securities 41,540,272 1.5
-------------------------------
66,910,100 2.4
- ------------------------------------------------------------------------------------------------------------------------------------
Software 1,872,324 Microsoft Corp. (d) 55,907,595 2.0
874,285 Oracle Corp. (a) 14,985,245 0.5
Other Securities 23,054,439 0.8
-------------------------------
93,947,279 3.3
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty Retail 447,386 Home Depot, Inc. 17,967,022 0.6
Other Securities 38,228,047 1.4
-------------------------------
56,195,069 2.0
- ------------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods Other Securities 10,940,948 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 212,773 Fannie Mae 12,636,588 0.5
Other Securities 28,310,033 1.0
-------------------------------
40,946,621 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
Tobacco 453,818 Altria Group, Inc. 38,946,661 1.4
Other Securities 4,444,698 0.1
-------------------------------
43,391,359 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors Other Securities 1,262,067 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services Other Securities 17,084,276 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost -- $1,840,530,170) 2,770,475,715 98.6
====================================================================================================================================
20 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Summary Schedule of Investments (concluded) Master S&P 500 Index Series
Beneficial Percent of
Interest Short-Term Securities Value Net Assets
====================================================================================================================================
$ 47,914,225 BlackRock Liquidity Series, LLC
Cash Sweep Series, 5.26% (b)(c) $ 47,914,225 1.7%
335,341,800 BlackRock Liquidity Series, LLC
Money Market Series, 5.29% (b)(c)(f) 335,341,800 11.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $383,256,025) 383,256,025 13.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $2,223,786,195*) 3,153,731,740 112.2
Liabilities in Excess of Other Assets (343,098,483) (12.2)
-------------------------------
Net Assets $2,810,633,257 100.0%
===============================
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2006 as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................. $ 2,295,656,436
===============
Gross unrealized appreciation .............. $ 921,983,748
Gross unrealized depreciation .............. (63,908,444)
---------------
Net unrealized appreciation ................ $ 858,075,304
===============
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Series, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Interest/
Purchase Sale Realized Dividend
Affiliate Cost Cost Gain Income
--------------------------------------------------------------------------
BlackRock
Liquidity
Series, LLC
Cash Sweep
Series $42,258,298+ -- -- $1,100,253
BlackRock
Liquidity
Series, LLC
Money Market
Series -- $ 227,100++ -- $ 342,181
Merrill Lynch &
Co., Inc. -- $2,837,272 $ 872,498 $ 209,992
PNC Financial
Services
Group, Inc. -- $ 683,456 $ 75,399 $ 152,206
--------------------------------------------------------------------------
+ Represents net purchase cost.
++ Represents net sale cost.
(c) Represents the current yield as of December 31, 2006.
(d) All or a portion of security held as collateral in connection with open
financial futures contracts.
(e) Security, or a portion of security, is on loan.
(f) Security was purchased with the cash proceeds from securities loans.
o For Series compliance purposes, the Series' industry classifications refer
to any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Series management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets. These
industry classifications are unaudited.
o Financial futures contracts purchased as of December 31, 2006 were as
follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
--------------------------------------------------------------------------
110 S&P 500 March
Index 2007 $39,184,008 $96,992
--------------------------------------------------------------------------
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.
Some securities, or a portion of, in this category are out on loan.
See Notes to Financial Statements.
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 21
Statement of Assets and Liabilities Master S&P 500 Index Series
As of December 31, 2006
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including
securities loaned of $319,806,817) (identified
cost -- $1,829,039,485) ............................................ $ 2,747,589,636
Investments in affiliated securities, at value (including securities
loaned of $4,990,296) (identified cost -- $394,746,710) ............ 406,142,104
Cash ................................................................ 152,564
Receivables:
Contributions .................................................... $ 15,246,194
Dividends ........................................................ 3,622,069
Securities sold .................................................. 397,257
Securities lending ............................................... 19,190 19,284,710
---------------
Prepaid expenses and other assets ................................... 38,673
---------------
Total assets ........................................................ 3,173,207,687
---------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ........................... 335,341,800
Payables:
Withdrawals ...................................................... 26,774,274
Variation margin ................................................. 206,992
Other affiliates ................................................. 24,897
Investment adviser ............................................... 11,195 27,017,358
---------------
Accrued expenses .................................................... 215,272
---------------
Total liabilities ................................................... 362,574,430
---------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets .......................................................... $ 2,810,633,257
===============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Investors' capital .................................................. $ 1,880,590,720
Unrealized appreciation -- net ...................................... 930,042,537
---------------
Net Assets .......................................................... $ 2,810,633,257
===============
See Notes to Financial Statements.
22 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Statement of Operations Master S&P 500 Index Series
For the Year Ended December 31, 2006
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (including $362,198 from affiliates) ...................... $ 51,797,920
Interest from affiliates ............................................ 1,100,253
Securities lending -- net ........................................... 342,181
---------------
Total income ........................................................ 53,240,354
---------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Accounting services ................................................. $ 410,208
Professional fees ................................................... 206,341
Custodian fees ...................................................... 165,821
Investment advisory fees ............................................ 136,052
Trustees' fees and expenses ......................................... 22,412
Licensing fees ...................................................... 20,000
Printing and shareholder reports .................................... 2,889
Other ............................................................... 59,217
---------------
Total expenses ...................................................... 1,022,940
---------------
Investment income -- net ............................................ 52,217,414
---------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investment -- net (including $947,897 from affiliates) ........... (2,140,277)
In-kind redemption -- net ........................................ (16,386,872)
Financial futures contracts -- net ............................... 3,173,210 (15,353,939)
---------------
Change in unrealized appreciation/depreciation on:
Investments -- net ............................................... 369,955,999
Financial futures contracts -- net ............................... 168,159 370,124,158
-----------------------------------
Total realized and unrealized gain -- net ........................... 354,770,219
---------------
Net Increase in Net Assets Resulting from Operations ................ $ 406,987,633
===============
See Notes to Financial Statements.
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 23
Statements of Changes in Net Assets Master S&P 500 Index Series
For the Year Ended
December 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ............................................ $ 52,217,414 $ 55,659,094
Realized loss -- net ................................................ (15,353,939) (28,863,106)
Change in unrealized appreciation/depreciation -- net ............... 370,124,158 121,726,035
-----------------------------------
Net increase in net assets resulting from operations ................ 406,987,633 148,522,023
-----------------------------------
===================================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ......................................... 682,690,342 829,736,606
Fair value of withdrawals ........................................... (1,224,826,445) (970,867,967)
-----------------------------------
Net decrease in net assets derived from capital transactions ........ (542,136,103) (141,131,361)
-----------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................. (135,148,470) 7,390,662
Beginning of year ................................................... 2,945,781,727 2,938,391,065
-----------------------------------
End of year ......................................................... $ 2,810,633,257 $ 2,945,781,727
===================================
See Notes to Financial Statements.
24 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Financial Highlights Master S&P 500 Index Series
For the Year Ended
December 31,
The following ratios have been derived -----------------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Total Investment Return
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return .............. 15.85% 4.96% 10.90% 28.70% (22.22%)
=======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. .04% .03% .03% .04% .04%
=======================================================================
Investment income -- net ............. 1.92% 1.84% 1.99% 1.76% 1.59%
=======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 2,810,633 $ 2,945,782 $ 2,938,391 $ 2,474,596 $ 1,726,705
=======================================================================
Portfolio turnover ................... 3.81% 10.80% 5.84% 3.60% 4.59%
=======================================================================
See Notes to Financial Statements.
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 25
Notes to Financial Statements Master S&P 500 Index Series
1. Significant Accounting Policies:
Master S&P 500 Index Series (the "Series"), a non-diversified investment
company, is part of Quantitative Master Series Trust (the "Trust"). The Trust is
registered under the Investment Company Act of 1940, as amended, and is
organized as a Delaware statutory trust. The Declaration of Trust permits the
Trustees to issue nontransferable interests in the Series, subject to certain
limitations. The Series' financial statements are prepared in conformity with
U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The following is a summary of significant accounting policies
followed by the Series.
(a) Valuation of investments -- Equity securities that are held by the Series
that are traded on stock exchanges or the NASDAQ Global Market are valued at the
last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available asked
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Trustees of the Trust.
Long positions traded in the over-the-counter ("OTC") markets, NASDAQ Capital
Market or Bulletin Board are valued at the last available bid price or yield
equivalent obtained from one or more dealers or pricing services approved by the
Board of Trustees of the Trust. Short positions traded in the OTC markets are
valued at the last available asked price. 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.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded on the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Series from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Obligations with remaining maturities
of 60 days or less are valued at amortized cost unless BlackRock Advisors, LLC
(the "Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc.,
believes that this method no longer produces fair valuations. Valuation of other
short-term investment vehicles is generally based on the net asset value of the
underlying investment vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the Series.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Series, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Trust under the general supervision of the Trust's Board
of Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government securities,
money market instruments and certain fixed income securities is substantially
completed each day at various times prior to the close of business on the New
York Stock Exchange ("NYSE"). The values of such securities used in computing
the net assets of the Series are determined as of such times. Foreign currency
exchange rates 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 may be valued
at their fair value as determined in good faith by the Trust's Board of Trustees
or by the Manager, using a pricing service and/or procedures approved by the
Trust's Board of Trustees.
(b) Derivative financial instruments -- The Series may engage in various
portfolio investment strategies to provide liquidity or as a proxy for a direct
investment in securities underlying the Series' index. Losses may arise due to
changes in the value of the contract or if the counterparty does not perform
under the contract.
o Financial futures contracts -- The Series may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Series deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Series agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of
26 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Notes to Financial Statements (continued) Master S&P 500 Index Series
the contract. Such receipts or payments are known as variation margin and
are recorded by the Series as unrealized gains or losses. When the
contract is closed, the Series records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time it was closed.
o Options -- The Series may purchase and write call and put options. When
the Series writes an option, an amount equal to the premium received by
the Series is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security sold.
When an option expires (or the Series enters into a closing transaction),
the Series realizes a gain or loss on the option to the extent of the
premiums received or paid (or a gain or loss to the extent that the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes -- The Series is classified as a partnership for federal income
tax purposes. As such, each investor in the Series is treated as owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Series. Therefore, no federal income tax
provision is required. It is intended that the Series' assets will be managed so
an investor in the Series can satisfy the requirements of Subchapter M of the
Internal Revenue Code.
(d) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(e) Securities lending -- The Series may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Series and any additional required collateral is delivered to the Series on
the next business day. Where the Series receives securities as collateral for
the loaned securities, it collects a fee from the borrower. The Series typically
receives the income on the loaned securities but does not receive the income on
the collateral. Where the Series receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Series may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Series could experience
delays and costs in gaining access to the collateral. The Series also could
suffer a loss where the value of the collateral falls below the market value of
the borrowed securities, in the event of borrower default or in the event of
losses on investments made with cash collateral.
(f) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity, including mutual funds, before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the 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.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and 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"),
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 27
Notes to Financial Statements (concluded) Master S&P 500 Index Series
with BlackRock, Inc. to create a new independent company. Merrill Lynch has a
49.8% economic interest and a 45% voting interest in the combined company and
The PNC Financial Services Group, Inc. has approximately a 34% economic and
voting interest. The new company operates under the BlackRock name and is
governed by a board of directors with a majority of independent members.
On September 29, 2006, 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 Trust's 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' investments and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Series. For such services, the
Series pays a monthly fee at an annual rate of .005% of the average daily value
of the Series' net assets. In addition, the Manager has entered into a
sub-advisory agreement with BlackRock Investment Management, LLC ("BIM"), an
affiliate of the Manager, under which the Manager pays the Sub-Adviser for
services it provides a monthly fee that is a percentage of the management fee
paid by the Series to the Manager.
The Trust has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of the Manager, or its
affiliates. As of December 31, 2006, the Series lent securities with a value of
$125,128,074 to MLPF&S or its affiliates. Pursuant to that order, the Trust has
retained BIM as the securities lending agent for a fee based on a share of the
returns on investment of cash collateral. Prior to September 29, 2006, BIM was
organized as Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate
of FAM, and MLIM, LLC was the Trust's 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 company
managed by the Manager or in registered money market funds advised by the
Manager or its affiliates. For the year ended December 31, 2006, BIM received
$146,762 in securities lending agent fees.
Merrill Lynch Trust Company ("MLTC"), a wholly owned subsidiary of Merrill
Lynch, is the Series' custodian.
For the year ended December 31, 2006, the Series reimbursed FAM and the Manager
$46,244 and $12,366 respectively, for certain accounting services.
In addition, MLPF&S received $7 in commissions on the execution of portfolio
security transactions for the Series for the year ended December 31, 2006.
Prior to September 29, 2006, certain officers and/or trustees of the Trust were
officers and/or directors of FAM, PSI, Merrill Lynch, MLIM, MLTC, 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 in-kind redemptions), of investments excluding
short-term securities, for the year ended December 31, 2006 were $103,280,875
and $640,871,714, respectively.
4. 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.
28 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Report of Independent Registered Master S&P 500 Index Series
Public Accounting Firm
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the summary schedule of investments, of Master S&P 500 Index Series, one of the
portfolios constituting the Quantitative Master Series Trust (the "Trust"), as
of December 31, 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. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Master
S&P 500 Index Series of the Quantitative Master Series Trust as of December 31,
2006, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 26, 2007
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 29
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 S&P 500 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 S&P 500 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
30 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
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 each Board had earlier performed a full annual 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
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 31
Disclosure of Investment Advisory Agreement (continued)
fund accounting, marketing services and assistance in meeting 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, allocation of brokerage fees, 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
32 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
the Securities and Exchange Commission and was advised of 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
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 33
Disclosure of Investment Advisory Agreement (concluded)
total advisory fees of the Series would be higher than the 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 and to obtain research services using portfolio
transaction brokerage commissions. 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
34 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
BlackRock Sub-Adviser assist in managing the operations of the Fund or the
Series during the interim period until 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.
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 35
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 Investment
Management, LLC, 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 74% of the
advisory fee received by BlackRock Advisors from the Series. BlackRock Advisors
pays the Sub-Adviser out of its own resources, and there is no increase in 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 74% 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.
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.
36 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
The Boards also discussed the BlackRock Sub-Advisory Agreement between BlackRock
Advisors and BlackRock Investment Management, LLC 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.
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 37
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
described 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 Director, Ruckleshaus Institute and Haub School of 21 Funds Knology, Inc.
Burton Princeton, NJ Trustee present Natural Resources at the University of Wyoming 38 Portfolios (telecommuni-
08543-9095 since 2006; General Partner of The Burton cations),
Age: 62 Partnership, Limited Partnership (an investment Symbion, Inc.
partnership) since 1979; Managing General (health care),
Partner of The South Atlantic Venture Funds and Capital
since 1983; Member of the Investment Advisory Southwest
Council of the Florida State Board of Administration (financial)
since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
38 BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006
Officers and Directors/Trustees (continued)
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)
- ------------------------------------------------------------------------------------------------------------------------------------
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 tion (auto
1989 to 2002, Director from 1989 to 2002 and parts
Chairman of the Board from 1989 to 1990; President, manufacturing)
Chief Executive Officer and Director of First and TJX Com-
Allmerica Financial Life Insurance Company from 1989 panies, Inc.
to 2002 and Director of various other Allmerica (retailer)
Financial companies until 2002; Director from 1989
to 2006, Member of the Governance Nominating
Committee from 2004 to 2006, Member of the
Compensation Committee from 1989 to 2006 and Member
of the Audit Committee from 1990 to 2004 of ABIOMED;
Director, Member of the Governance and Nomination
Committee and Member of the Audit Committee of Cabot
Corporation since 1990; Director and Member of the
Audit Committee and Compensation Committee of LKQ
Corporation since 2003; Lead Director of TJX
Companies, Inc. since 1996; Trustee of the Woods
Hole Oceanographic Institute since 2003; Director,
Ameresco, Inc. since 2006; Director, Boston Lyric
Opera since 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
David H. P.O. Box 9095 Director/ 2003 to Consultant with Putnam Investments from 1993 21 Funds None
Walsh Princeton, NJ Trustee present to 2003, and employed in various capacities 38 Portfolios
08543-9095 therewith from 1973 to 1992; Director,
Age: 65 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 Devel- 38 Portfolios Pharma-
08543-9095 opment 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 1999 First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer thereof from
Age: 46 Treasurer to 1999 to 2006; Vice President of MLIM and FAM from 1990 to 1997.
present
- ------------------------------------------------------------------------------------------------------------------------------------
Debra L. P.O. Box 9011 Vice 2005 to Director of BlackRock, Inc. since 2006; Director of MLIM from 1999 to 2006.
Jelilian Princeton, NJ President present
08543-9011
Age: 39
- ------------------------------------------------------------------------------------------------------------------------------------
BLACKROCK S&P 500 INDEX FUND DECEMBER 31, 2006 39
Officers and Directors/Trustees (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund/Trust Officers* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey L. P.O. Box 9011 Vice 2005 to Director of BlackRock, Inc. since 2006; Director of MLIM from 2004 to 2006; Vice
Russo Princeton, NJ President present President of MLIM from 1994 to 2004.
08543-9011
Age: 39
- ------------------------------------------------------------------------------------------------------------------------------------
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 S&P 500 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 S&P 500 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. 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 Form 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 S&P 500 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 S&P 500 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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Fund voted proxies relating to
securities held in the Fund's portfolio during the most recent 12-month period
ended June 30 is available (1) at www.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Index Funds, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#Index 4-12/06
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 S&P 500 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 S&P 500 Index Series of Quantitative Master Series Trust
(a) Audit Fees - Fiscal Year Ending December 31, 2006 - $35,500
Fiscal Year Ending December 31, 2005 - $35,500
(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 relate to 17f-2 custody counts.
(c) Tax Fees - Fiscal Year Ending December 31, 2006 - $17,000
Fiscal Year Ending December 31, 2005 - $16,200
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 S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense - 2.3% 172,420 Boeing Co. $ 15,317,793
83,996 General Dynamics Corp. 6,245,103
30,187 Goodrich Corp. 1,375,018
171,677 Honeywell International, Inc. 7,766,667
23,874 L-3 Communications Holdings, Inc. 1,952,416
73,870 Lockheed Martin Corp. 6,801,211
76,952 Northrop Grumman Corp. 5,209,650
95,774 Raytheon Co. 5,056,867
37,015 Rockwell Collins, Inc. 2,342,679
220,196 United Technologies Corp. 13,766,654
---------------
65,834,058
- -----------------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 0.9% 63,908 FedEx Corp. 6,941,687
234,300 United Parcel Service, Inc. Class B (e) 17,567,814
---------------
24,509,501
- -----------------------------------------------------------------------------------------------------------------------------------
Airlines - 0.1% 163,995 Southwest Airlines Co. 2,512,403
- -----------------------------------------------------------------------------------------------------------------------------------
Auto Components - 0.1% 47,593 The Goodyear Tire & Rubber Co. (a)(e) 998,977
39,620 Johnson Controls, Inc. 3,404,150
---------------
4,403,127
- -----------------------------------------------------------------------------------------------------------------------------------
Automobiles - 0.4% 393,999 Ford Motor Co. (e) 2,958,932
125,106 General Motors Corp. 3,843,256
54,259 Harley-Davidson, Inc. 3,823,632
---------------
10,625,820
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages - 2.1% 161,185 Anheuser-Busch Cos., Inc. 7,930,302
20,588 Brown-Forman Corp. Class B 1,363,749
441,928 The Coca-Cola Co. 21,323,026
71,587 Coca-Cola Enterprises, Inc. 1,461,807
45,500 Constellation Brands, Inc. Class A (a) 1,320,410
12,783 Molson Coors Brewing Co. Class B 977,133
35,922 Pepsi Bottling Group, Inc. 1,110,349
357,388 PepsiCo, Inc. 22,354,619
---------------
57,841,395
- -----------------------------------------------------------------------------------------------------------------------------------
Biotechnology - 1.3% 253,747 Amgen, Inc. (a) 17,333,458
75,340 Biogen Idec, Inc. (a) 3,705,975
75,336 Celgene Corp. (a) 4,334,080
54,080 Genzyme Corp. (a) 3,330,246
95,600 Gilead Sciences, Inc. (a) 6,207,308
56,852 Medimmune, Inc. (a) 1,840,299
---------------
36,751,366
- -----------------------------------------------------------------------------------------------------------------------------------
Building Products - 0.2% 42,900 American Standard Cos., Inc. 1,966,965
92,779 Masco Corp. (e) 2,771,309
---------------
4,738,274
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 3.8% 56,776 Ameriprise Financial, Inc. 3,094,292
162,495 The Bank of New York Co., Inc. 6,397,428
24,311 The Bear Stearns Cos., Inc. 3,957,345
235,268 The Charles Schwab Corp. 4,550,083
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
86,100 E*Trade Financial Corp. (a) $ 1,930,362
20,700 Federated Investors, Inc. Class B 699,246
35,786 Franklin Resources, Inc. 3,942,544
94,300 Goldman Sachs Group, Inc. (e) 18,798,705
49,505 Janus Capital Group, Inc. 1,068,813
29,900 Legg Mason, Inc. 2,841,995
115,556 Lehman Brothers Holdings, Inc. 9,027,235
87,016 Mellon Financial Corp. (e) 3,667,724
192,167 Merrill Lynch & Co., Inc. (b) 17,890,748
234,498 Morgan Stanley 19,095,172
44,727 Northern Trust Corp. 2,714,482
76,023 State Street Corp. 5,126,991
52,948 T. Rowe Price Group, Inc. 2,317,534
---------------
107,120,699
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 1.5% 46,547 Air Products & Chemicals, Inc. 3,271,323
16,858 Ashland, Inc. 1,166,236
207,976 The Dow Chemical Co. 8,306,561
193,173 E.I. du Pont de Nemours & Co. 9,409,457
19,550 Eastman Chemical Co. 1,159,511
44,814 Ecolab, Inc. 2,025,593
21,359 Hercules, Inc. (a) 412,442
19,096 International Flavors & Fragrances, Inc. 938,759
119,554 Monsanto Co. 6,280,172
35,787 PPG Industries, Inc. 2,297,883
68,146 Praxair, Inc. 4,043,102
36,603 Rohm & Haas Co. 1,871,145
15,223 Sigma-Aldrich Corp. 1,183,132
---------------
42,365,316
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 4.1% 118,100 BB&T Corp. (e) 5,188,133
39,691 Comerica, Inc. 2,329,068
34,300 Commerce Bancorp, Inc. 1,209,761
27,002 Compass Bancshares, Inc. 1,610,669
123,056 Fifth Third Bancorp (e) 5,036,682
33,100 First Horizon National Corp. 1,382,918
54,029 Huntington Bancshares, Inc. (e) 1,283,189
90,510 KeyCorp 3,442,095
19,100 M&T Bank Corp. 2,333,256
49,500 Marshall & Ilsley Corp. (e) 2,381,445
123,456 National City Corp. (e) 4,513,551
67,468 PNC Financial Services Group, Inc. (b)(e) 4,995,331
155,823 Regions Financial Corp. 5,827,780
75,599 SunTrust Banks, Inc. 6,384,336
61,351 Synovus Financial Corp. 1,891,451
385,265 U.S. Bancorp (e) 13,942,740
420,718 Wachovia Corp. (e) 23,959,890
729,944 Wells Fargo & Co. 25,956,809
19,702 Zions Bancorp. 1,624,233
---------------
115,293,337
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.5% 55,678 Allied Waste Industries, Inc. (a) $ 684,283
22,458 Avery Dennison Corp. 1,525,572
35,002 Cintas Corp. 1,389,929
29,002 Equifax, Inc. 1,177,481
24,239 Monster Worldwide, Inc. (a) 1,130,507
48,482 Pitney Bowes, Inc. 2,239,384
41,795 RR Donnelley & Sons Co. 1,485,394
35,811 Robert Half International, Inc. 1,329,304
114,014 Waste Management, Inc. 4,192,295
---------------
15,154,149
- -----------------------------------------------------------------------------------------------------------------------------------
Communications Equipment - 2.7% 22,465 ADC Telecommunications, Inc. (a) 326,417
98,682 Avaya, Inc. (a) 1,379,574
16,670 Ciena Corp. (a) 461,926
1,323,271 Cisco Systems, Inc. (a)(e) 36,164,996
44,143 Comverse Technology, Inc. (a) 931,859
341,475 Corning, Inc. (a) 6,388,997
42,923 JDS Uniphase Corp. (a) 715,097
128,700 Juniper Networks, Inc. (a) 2,437,578
538,369 Motorola, Inc. 11,068,867
361,460 QUALCOMM, Inc. 13,659,573
108,487 Tellabs, Inc. (a) 1,113,077
---------------
74,647,961
- -----------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 3.7% 185,534 Apple Computer, Inc. (a) 15,740,705
484,616 Dell, Inc. (a) 12,159,015
496,354 EMC Corp. (a)(e) 6,551,873
599,517 Hewlett-Packard Co. 24,694,105
333,167 International Business Machines Corp. 32,367,174
20,439 Lexmark International, Inc. Class A (a) 1,496,135
38,536 NCR Corp. (a) 1,647,799
84,921 Network Appliance, Inc. (a) 3,335,697
42,016 QLogic Corp. (a) 920,991
40,000 Sandisk Corp. (a) 1,721,200
735,056 Sun Microsystems, Inc. (a) 3,984,004
---------------
104,618,698
- -----------------------------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 17,161 Fluor Corp. 1,401,196
- -----------------------------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 20,647 Vulcan Materials Co. 1,855,546
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 1.0% 266,084 American Express Co. 16,143,316
87,767 Capital One Financial Corp. 6,742,261
91,830 SLM Corp. 4,478,549
---------------
27,364,126
- -----------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.2% 23,760 Ball Corp. 1,035,936
22,136 Bemis Co. 752,181
32,425 Pactiv Corp. (a) 1,157,248
17,869 Sealed Air Corp. 1,160,055
28,506 Temple-Inland, Inc. 1,312,131
---------------
5,417,551
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Distributors - 0.1% 36,714 Genuine Parts Co. $ 1,741,345
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Consumer Services - 0.1% 28,200 Apollo Group, Inc. Class A (a) 1,098,954
78,070 H&R Block, Inc. (e) 1,798,733
---------------
2,897,687
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 5.6% 983,934 Bank of America Corp. 52,532,236
46,500 CIT Group, Inc. 2,593,305
7,300 Chicago Mercantile Exchange Holdings, Inc. 3,721,175
1,071,936 Citigroup, Inc. 59,706,835
755,056 JPMorgan Chase & Co. 36,469,205
54,180 Moody's Corp. 3,741,671
---------------
158,764,427
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 847,035 AT&T, Inc. (e) 30,281,501
Services - 2.9% 396,334 BellSouth Corp. 18,671,295
27,377 CenturyTel, Inc. 1,195,280
85,318 Citizens Communications Co. 1,226,020
28,475 Embarq Corp. 1,496,646
348,445 Qwest Communications International Inc. (a) 2,916,485
629,028 Verizon Communications, Inc. 23,425,003
92,680 Windstream Corp. 1,317,910
---------------
80,530,140
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.5% 32,320 Allegheny Energy, Inc. (a) 1,483,811
92,320 American Electric Power Co., Inc. 3,930,986
69,699 Edison International 3,169,911
41,755 Entergy Corp. 3,854,822
148,528 Exelon Corp. 9,192,398
93,214 FPL Group, Inc. 5,072,706
66,616 FirstEnergy Corp. 4,016,945
78,164 PPL Corp. 2,801,398
18,732 Pinnacle West Capital Corp. 949,525
60,626 Progress Energy, Inc. 2,975,524
161,223 The Southern Co. 5,942,680
---------------
43,390,706
- -----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.5% 41,544 American Power Conversion Corp. 1,270,831
19,152 Cooper Industries Ltd. Class A 1,731,915
181,696 Emerson Electric Co. 8,007,343
37,915 Rockwell Automation, Inc. 2,315,848
---------------
13,325,937
- -----------------------------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 0.3% 93,554 Agilent Technologies, Inc. (a) 3,260,357
34,764 Jabil Circuit, Inc. 853,456
35,762 Molex, Inc. (e) 1,131,152
134,863 Sanmina-SCI Corp. (a) 465,277
185,312 Solectron Corp. (a) 596,705
51,100 Symbol Technologies, Inc. 763,434
18,636 Tektronix, Inc. 543,612
---------------
7,613,993
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 1.7% 63,700 BJ Services Co. $ 1,867,684
70,044 Baker Hughes, Inc. (e) 5,229,485
224,008 Halliburton Co. 6,955,448
61,530 Nabors Industries Ltd. (a) 1,832,364
36,636 National Oilwell Varco, Inc. (a) 2,241,390
26,579 Noble Corp. (e) 2,023,991
27,772 Rowan Cos., Inc. 922,030
258,608 Schlumberger Ltd. (e) 16,333,681
42,600 Smith International, Inc. 1,749,582
66,541 Transocean, Inc. (a)(e) 5,382,502
79,500 Weatherford International Ltd. (a) 3,322,305
---------------
47,860,462
- -----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 2.1% 180,936 CVS Corp. 5,592,732
97,224 Costco Wholesale Corp. 5,140,233
155,624 The Kroger Co. 3,590,246
39,332 SUPERVALU Inc. 1,406,119
127,100 SYSCO Corp. (e) 4,672,196
90,458 Safeway, Inc. 3,126,228
536,855 Wal-Mart Stores, Inc. (e) 24,791,964
213,424 Walgreen Co. 9,794,027
27,800 Whole Foods Market, Inc. 1,304,654
---------------
59,418,399
- -----------------------------------------------------------------------------------------------------------------------------------
Food Products - 1.1% 140,634 Archer Daniels Midland Co. 4,494,663
47,135 Campbell Soup Co. 1,833,080
103,378 ConAgra Foods, Inc. 2,791,206
30,500 Dean Foods Co. (a) 1,289,540
71,760 General Mills, Inc. 4,133,376
65,836 HJ Heinz Co. 2,963,278
43,256 The Hershey Co. (e) 2,154,149
57,965 Kellogg Co. (e) 2,901,728
28,600 McCormick & Co., Inc. 1,102,816
164,541 Sara Lee Corp. 2,802,133
58,000 Tyson Foods, Inc. Class A 954,100
51,912 Wm. Wrigley Jr. Co. (e) 2,684,889
---------------
30,104,958
- -----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 9,054 Nicor, Inc. 423,727
7,804 Peoples Energy Corp. 347,824
18,600 Questar Corp. 1,544,730
---------------
2,316,281
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 1.6% 9,287 Bausch & Lomb, Inc. 483,481
136,627 Baxter International, Inc. 6,338,127
52,795 Becton Dickinson & Co. 3,703,569
58,635 Biomet, Inc. 2,419,866
256,971 Boston Scientific Corp. (a) 4,414,762
25,218 CR Bard, Inc. (e) 2,092,337
32,411 Hospira, Inc. (a) 1,088,361
249,840 Medtronic, Inc. (e) 13,368,938
73,788 St. Jude Medical, Inc. (a) 2,697,689
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
67,610 Stryker Corp. $ 3,725,987
50,877 Zimmer Holdings, Inc. (a) 3,987,739
---------------
44,320,856
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 2.4% 118,468 Aetna, Inc. 5,115,448
48,286 AmerisourceBergen Corp. 2,170,939
91,591 Cardinal Health, Inc. 5,901,208
94,135 Caremark Rx, Inc. 5,376,050
22,796 Cigna Corp. 2,999,270
37,900 Coventry Health Care, Inc. (a) 1,896,895
27,400 Express Scripts, Inc. (a) 1,961,840
59,400 Health Management Associates, Inc. Class A 1,253,934
33,104 Humana, Inc. (a) 1,830,982
28,900 Laboratory Corp. of America Holdings (a) 2,123,283
13,504 Manor Care, Inc. 633,608
67,484 McKesson Corp. 3,421,439
66,501 Medco Health Solutions, Inc. (a) 3,553,813
31,600 Patterson Cos., Inc. (a) 1,122,116
38,500 Quest Diagnostics, Inc. (e) 2,040,500
97,737 Tenet Healthcare Corp. (a) 681,227
291,956 UnitedHealth Group, Inc. 15,686,796
134,184 WellPoint, Inc. (a) 10,558,939
---------------
68,328,287
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Technology - 0.0% 44,540 IMS Health, Inc. (e) 1,223,959
- -----------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 1.6% 91,680 Carnival Corp. 4,496,904
33,007 Darden Restaurants, Inc. 1,325,891
36,830 Harrah's Entertainment, Inc. 3,046,578
79,031 Hilton Hotels Corp. 2,758,182
77,920 International Game Technology (e) 3,599,904
76,554 Marriott International, Inc. Class A 3,653,157
264,218 McDonald's Corp. 11,712,784
158,624 Starbucks Corp. (a) 5,618,462
43,468 Starwood Hotels & Resorts Worldwide, Inc. 2,716,750
22,072 Wendy's International, Inc. 730,362
45,625 Wyndham Worldwide Corp. (a) 1,460,913
56,034 Yum! Brands, Inc. 3,294,799
---------------
44,414,686
- -----------------------------------------------------------------------------------------------------------------------------------
Household Durables - 0.6% 13,742 Black & Decker Corp. 1,098,948
28,468 Centex Corp. 1,601,894
59,600 DR Horton, Inc. 1,578,804
30,715 Fortune Brands, Inc. (e) 2,622,754
14,900 Harman International Industries, Inc. 1,488,659
14,522 KB Home 744,688
40,316 Leggett & Platt, Inc. 963,552
33,322 Lennar Corp. Class A 1,748,072
56,754 Newell Rubbermaid, Inc. 1,643,028
50,072 Pulte Homes, Inc. 1,658,385
12,252 Snap-On, Inc. 583,685
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
16,743 The Stanley Works $ 842,005
14,581 Whirlpool Corp. 1,210,515
---------------
17,784,989
- -----------------------------------------------------------------------------------------------------------------------------------
Household Products - 2.1% 36,298 Clorox Co. 2,328,517
107,581 Colgate-Palmolive Co. 7,018,584
95,123 Kimberly-Clark Corp. 6,463,608
692,764 The Procter & Gamble Co. 44,523,942
---------------
60,334,651
- -----------------------------------------------------------------------------------------------------------------------------------
IT Services - 1.1% 22,700 Affiliated Computer Services, Inc. Class A (a) 1,108,668
125,780 Automatic Data Processing, Inc. (e) 6,194,665
29,700 Cognizant Technology Solutions Corp. (a) 2,291,652
37,650 Computer Sciences Corp. (a) 2,009,381
30,514 Convergys Corp. (a) 725,623
110,887 Electronic Data Systems Corp. 3,054,937
35,400 Fidelity National Information Services, Inc. 1,419,186
163,600 First Data Corp. 4,175,072
42,992 Fiserv, Inc. (a) 2,253,641
77,558 Paychex, Inc. 3,066,643
28,973 Sabre Holdings Corp. Class A 923,949
68,782 Unisys Corp. (a) 539,251
163,600 The Western Union Co. 3,667,912
---------------
31,430,580
- -----------------------------------------------------------------------------------------------------------------------------------
Independent Power Producers & 139,260 The AES Corp. (a) 3,069,291
Energy Traders - 0.4% 42,349 Constellation Energy Group, Inc. 2,916,576
92,666 Dynegy, Inc. Class A (a) 670,902
97,644 TXU Corp. 5,293,281
---------------
11,950,050
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 4.0% 163,288 3M Co. 12,725,034
2,242,081 General Electric Co. 83,427,834
26,714 Textron, Inc. 2,504,972
445,125 Tyco International Ltd. 13,531,800
---------------
112,189,640
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance - 4.8% 66,210 ACE Ltd. 4,010,340
22,166 AMBAC Financial Group, Inc. 1,974,326
67,285 AON Corp. (e) 2,377,852
108,399 Aflac, Inc. 4,986,354
132,344 The Allstate Corp. 8,616,918
563,307 American International Group, Inc. 40,366,580
86,806 Chubb Corp. 4,592,905
37,091 Cincinnati Financial Corp. 1,680,593
91,000 Genworth Financial, Inc. Class A 3,113,110
65,325 Hartford Financial Services Group, Inc. (e) 6,095,476
66,416 Lincoln National Corp. 4,410,022
94,670 Loews Corp. 3,925,965
33,445 MBIA, Inc. 2,443,492
118,298 Marsh & McLennan Cos., Inc. 3,627,017
166,642 MetLife, Inc. (e) 9,833,544
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
63,400 Principal Financial Group, Inc. $ 3,721,580
171,000 The Progressive Corp. 4,141,620
102,400 Prudential Financial, Inc. 8,792,064
29,822 Safeco Corp. 1,865,366
149,927 The St. Paul Travelers Cos., Inc. 8,049,581
23,556 Torchmark Corp. 1,501,931
65,967 UnumProvident Corp. 1,370,794
35,105 XL Capital Ltd. Class A 2,528,262
---------------
134,025,692
- -----------------------------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.2% 63,600 Amazon.com, Inc. (a)(e) 2,509,656
48,500 IAC/InterActiveCorp (a) 1,802,260
---------------
4,311,916
- -----------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services - 1.3% 249,500 eBay, Inc. (a)(e) 7,502,465
46,170 Google, Inc. Class A (a) 21,260,362
58,400 VeriSign, Inc. (a) 1,404,520
274,760 Yahoo!, Inc. (a) 7,017,370
---------------
37,184,717
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.2% 19,264 Brunswick Corp. 614,522
68,653 Eastman Kodak Co. (e) 1,771,247
36,794 Hasbro, Inc. 1,002,637
82,934 Mattel, Inc. 1,879,284
---------------
5,267,690
- -----------------------------------------------------------------------------------------------------------------------------------
Life Sciences Tools & Services - 0.3% 42,755 Applera Corp. - Applied Biosystems Group 1,568,681
9,055 Millipore Corp. (a) 603,063
22,784 PerkinElmer, Inc. 506,488
93,757 Thermo Electron Corp. (a) 4,246,255
25,120 Waters Corp. (a) 1,230,126
---------------
8,154,613
- -----------------------------------------------------------------------------------------------------------------------------------
Machinery - 1.4% 140,988 Caterpillar, Inc. 8,646,794
9,909 Cummins, Inc. 1,171,046
52,550 Danaher Corp. (e) 3,806,722
47,998 Deere & Co. 4,563,170
42,659 Dover Corp. 2,091,144
35,750 Eaton Corp. 2,686,255
38,292 ITT Corp. 2,175,751
85,842 Illinois Tool Works, Inc. (e) 3,965,042
75,396 Ingersoll-Rand Co. Class A 2,950,246
53,961 PACCAR, Inc. (e) 3,502,069
25,903 Pall Corp. 894,949
26,588 Parker Hannifin Corp. 2,044,085
22,300 Terex Corp. (a) 1,440,134
---------------
39,937,407
- -----------------------------------------------------------------------------------------------------------------------------------
Media - 3.7% 159,781 CBS Corp. Class B 4,981,972
115,954 Clear Channel Communications, Inc. 4,121,005
403,943 Comcast Corp. Class A (a) 17,098,907
49,905 Comcast Corp. Special Class A (a)(e) 2,090,021
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
169,100 The DIRECTV Group, Inc. (a) $ 4,217,354
16,719 Dow Jones & Co., Inc. (e) 635,322
18,700 EW Scripps Co. Class A 933,878
47,179 Gannett Co., Inc. 2,852,442
84,930 Interpublic Group of Cos., Inc. (a) 1,039,543
79,716 The McGraw-Hill Cos., Inc. 5,422,282
10,421 Meredith Corp. 587,223
30,847 New York Times Co. Class A (e) 751,433
519,200 News Corp. Class A (e) 11,152,416
34,797 Omnicom Group 3,637,678
881,484 Time Warner, Inc. 19,198,722
40,942 Tribune Co. 1,260,195
54,371 Univision Communications, Inc. Class A (a) 1,925,821
161,281 Viacom, Inc. Class B (a) 6,617,359
461,947 Walt Disney Co. (e) 15,830,924
---------------
104,354,497
- -----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.9% 186,445 Alcoa, Inc. 5,595,214
20,628 Allegheny Technologies, Inc. 1,870,547
40,134 Freeport-McMoRan Copper & Gold, Inc. Class B 2,236,668
92,686 Newmont Mining Corp. 4,184,773
68,664 Nucor Corp. 3,753,174
42,776 Phelps Dodge Corp. 5,121,143
26,322 United States Steel Corp. 1,925,191
---------------
24,686,710
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 1.4% 41,781 Ameren Corp. 2,244,893
57,314 CMS Energy Corp. (a) 957,144
65,870 Centerpoint Energy, Inc. 1,092,125
47,725 Consolidated Edison, Inc. 2,294,141
34,838 DTE Energy Co. (e) 1,686,508
72,953 Dominion Resources, Inc. 6,116,380
271,546 Duke Energy Corp. 9,018,043
33,261 KeySpan Corp. 1,369,688
51,337 NiSource, Inc. 1,237,222
81,277 PG&E Corp. (e) 3,846,840
900 Progress Energy, Inc. (a)(e) 279
57,664 Public Service Enterprise Group, Inc. 3,827,736
52,638 Sempra Energy 2,949,834
40,796 TECO Energy, Inc. 702,915
83,702 Xcel Energy, Inc. 1,930,168
---------------
39,273,916
- -----------------------------------------------------------------------------------------------------------------------------------
Multiline Retail - 1.2% 23,995 Big Lots, Inc. (a) 549,965
17,564 Dillard's, Inc. Class A 614,213
65,950 Dollar General Corp. 1,059,157
39,464 Family Dollar Stores, Inc. 1,157,479
114,780 Federated Department Stores (e) 4,376,561
49,998 JC Penney Co., Inc. 3,867,845
70,309 Kohl's Corp. (a) 4,811,245
51,572 Nordstrom, Inc. 2,544,562
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
19,307 Sears Holdings Corp. (a) $ 3,242,225
181,835 Target Corp. (e) 10,373,687
---------------
32,596,939
- -----------------------------------------------------------------------------------------------------------------------------------
Office Electronics - 0.1% 207,602 Xerox Corp. (a) 3,518,854
- -----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 8.0% 96,322 Anadarko Petroleum Corp. 4,191,933
67,342 Apache Corp. 4,478,916
78,500 Chesapeake Energy Corp. (e) 2,280,425
478,560 Chevron Corp. 35,188,517
359,960 ConocoPhillips 25,899,122
38,800 Consol Energy, Inc. 1,246,644
99,094 Devon Energy Corp. 6,647,226
55,340 EOG Resources, Inc. 3,455,983
144,615 El Paso Corp. 2,209,717
1,270,212 Exxon Mobil Corp. (d) 97,336,346
48,501 Hess Corp. (e) 2,404,195
25,134 Kinder Morgan, Inc. 2,657,921
75,572 Marathon Oil Corp. 6,990,410
39,400 Murphy Oil Corp. 2,003,490
183,658 Occidental Petroleum Corp. (e) 8,968,020
58,600 Peabody Energy Corp. 2,368,026
26,270 Sunoco, Inc. 1,638,197
135,400 Valero Energy Corp. 6,927,064
123,586 Williams Cos., Inc. (e) 3,228,066
77,833 XTO Energy, Inc. 3,662,043
---------------
223,782,261
- -----------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.3% 106,062 International Paper Co. (e) 3,616,714
42,472 MeadWestvaco Corp. 1,276,708
49,061 Weyerhaeuser Co. 3,466,160
---------------
8,359,582
- -----------------------------------------------------------------------------------------------------------------------------------
Personal Products - 0.2% 100,760 Avon Products, Inc. 3,329,110
27,300 The Estee Lauder Cos., Inc. Class A 1,114,386
---------------
4,443,496
- -----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 6.2% 331,217 Abbott Laboratories (e) 16,133,580
31,264 Allergan, Inc. (e) 3,743,551
22,000 Barr Pharmaceuticals, Inc. (a) 1,102,640
419,661 Bristol-Myers Squibb Co. 11,045,478
217,377 Eli Lilly & Co. 11,325,342
67,064 Forest Laboratories, Inc. (a) 3,393,438
635,977 Johnson & Johnson 41,987,202
48,555 King Pharmaceuticals, Inc. (a) 772,996
471,757 Merck & Co., Inc. 20,568,605
53,000 Mylan Laboratories 1,057,880
1,580,581 Pfizer, Inc. 40,937,048
327,525 Schering-Plough Corp. 7,742,691
22,781 Watson Pharmaceuticals, Inc. (a) 592,989
291,699 Wyeth 14,853,313
---------------
175,256,753
- -----------------------------------------------------------------------------------------------------------------------------------
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 18,500 Apartment Investment & Management
(REITs) - 1.1% Co. Class A $ 1,036,370
43,800 Archstone-Smith Trust 2,549,598
22,200 Boston Properties, Inc. 2,483,736
71,764 Equity Office Properties Trust 3,456,872
68,240 Equity Residential 3,463,180
43,600 Kimco Realty Corp. 1,959,820
37,900 Plum Creek Timber Co., Inc. 1,510,315
57,600 ProLogis 3,500,352
25,300 Public Storage, Inc. 2,466,750
45,000 Simon Property Group, Inc. (e) 4,558,050
27,500 Vornado Realty Trust 3,341,250
---------------
30,326,293
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate Management & 40,000 CB Richard Ellis Group, Inc. (a) 1,328,000
Development - 0.1% 50,244 Realogy Corp. (a) 1,523,398
---------------
2,851,398
- -----------------------------------------------------------------------------------------------------------------------------------
Road & Rail - 0.7% 75,794 Burlington Northern Santa Fe Corp. (e) 5,594,355
90,956 CSX Corp. 3,131,615
87,442 Norfolk Southern Corp. 4,397,458
12,674 Ryder System, Inc. 647,134
57,576 Union Pacific Corp. 5,298,144
---------------
19,068,706
- -----------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 110,147 Advanced Micro Devices, Inc. (a) 2,241,492
Equipment - 2.4% 83,890 Altera Corp. (a) 1,650,955
79,316 Analog Devices, Inc. 2,607,117
291,176 Applied Materials, Inc. 5,372,197
96,421 Broadcom Corp. Class A (a) 3,115,363
1,252,831 Intel Corp. 25,369,828
38,937 Kla-Tencor Corp. 1,937,116
78,566 LSI Logic Corp. (a) 707,094
57,499 Linear Technology Corp. 1,743,370
63,860 Maxim Integrated Products, Inc. 1,955,393
149,568 Micron Technology, Inc. (a) 2,087,969
71,672 National Semiconductor Corp. 1,626,954
32,500 Novellus Systems, Inc. (a) 1,118,650
80,540 Nvidia Corp. (a) 2,980,785
36,954 PMC-Sierra, Inc. (a) 247,961
39,832 Teradyne, Inc. (a) 595,887
339,772 Texas Instruments, Inc. 9,785,434
74,193 Xilinx, Inc. (e) 1,766,535
---------------
66,910,100
- -----------------------------------------------------------------------------------------------------------------------------------
Software - 3.3% 126,050 Adobe Systems, Inc. (a)(e) 5,183,176
52,328 Autodesk, Inc. (a) 2,117,191
46,520 BMC Software, Inc. (a) 1,497,944
105,612 CA, Inc. (e) 2,392,112
36,405 Citrix Systems, Inc. (a) 984,755
75,449 Compuware Corp. (a) 628,490
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
63,300 Electronic Arts, Inc. (a) $ 3,187,788
68,304 Intuit, Inc. (a) 2,083,955
1,872,324 Microsoft Corp. (d) 55,907,595
80,324 Novell, Inc. (a) 498,009
874,285 Oracle Corp. (a) 14,985,245
214,917 Symantec Corp. (a)(e) 4,481,019
---------------
93,947,279
- -----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 2.0% 41,732 AutoNation, Inc. (a) 889,726
13,777 AutoZone, Inc. (a) 1,592,070
55,624 Bed, Bath & Beyond, Inc. (a) 2,119,274
88,369 Best Buy Co., Inc. 4,346,871
36,323 Circuit City Stores, Inc. 689,411
122,813 The Gap, Inc. 2,394,854
447,386 Home Depot, Inc. 17,967,022
78,594 Limited Brands 2,274,510
327,380 Lowe's Cos., Inc. 10,197,887
65,458 Office Depot, Inc. (a) 2,498,532
18,724 OfficeMax, Inc. 929,647
34,098 RadioShack Corp. 572,164
21,192 The Sherwin-Williams Co. 1,347,387
157,851 Staples, Inc. 4,214,622
104,348 TJX Cos., Inc. 2,976,005
30,201 Tiffany & Co. 1,185,087
---------------
56,195,069
- -----------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.4% 81,400 Coach, Inc. (a) 3,496,944
26,560 Jones Apparel Group, Inc. 887,901
20,938 Liz Claiborne, Inc. 909,965
38,310 Nike, Inc. Class B 3,793,839
22,567 VF Corp. 1,852,299
---------------
10,940,948
- -----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.5% 129,910 Countrywide Financial Corp. 5,514,680
212,773 Fannie Mae 12,636,588
146,003 Freddie Mac (e) 9,913,604
17,880 MGIC Investment Corp. 1,118,215
78,985 Sovereign Bancorp, Inc. 2,005,429
214,511 Washington Mutual, Inc. 9,758,105
---------------
40,946,621
- -----------------------------------------------------------------------------------------------------------------------------------
Tobacco - 1.5% 453,818 Altria Group, Inc. 38,946,661
36,300 Reynolds American, Inc. 2,376,561
35,535 UST, Inc. 2,068,137
---------------
43,391,359
- -----------------------------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 18,045 WW Grainger, Inc. 1,262,067
- -----------------------------------------------------------------------------------------------------------------------------------
Master S&P 500 Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 79,737 Alltel Corp. $ 4,822,494
0.6% 649,115 Sprint Nextel Corp. 12,261,782
---------------
17,084,276
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost - $1,840,530,170) - 98.6% 2,770,475,715
- -----------------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Short-Term Securities
- -----------------------------------------------------------------------------------------------------------------------------------
$ 47,914,225 BlackRock Liquidity Series, LLC Cash Sweep
Series, 5.26% (b)(c) 47,914,225
335,341,800 BlackRock Liquidity Series, LLC Money Market
Series, 5.29% (b)(c)(f) 335,341,800
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost - $383,256,025) - 13.6% 383,256,025
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments
(Cost - $2,223,786,195*) - 112.2% 3,153,731,740
Liabilities in Excess of
Other Assets - (12.2%) (343,098,483)
---------------
Net Assets - 100.0% $ 2,810,633,257
===============
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2006 as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 2,295,656,436
===============
Gross unrealized appreciation $ 921,983,748
Gross unrealized depreciation (63,908,444)
---------------
Net unrealized appreciation $ 858,075,304
===============
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Series, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------------------------------------------------------
Affiliate Purchase Cost Sale Cost Realized Gain Income
--------------------------------------------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series $ 42,258,298* $ -- -- $ 1,100,253
BlackRock Liquidity Series, LLC Money Market Series -- $ 227,100** -- $ 342,181
Merrill Lynch & Co., Inc. -- $ 2,837,272 $ 872,498 $ 209,992
PNC Financial Services Group, Inc. -- $ 683,456 $ 475,399 $ 152,206
--------------------------------------------------------------------------------------------------------------------------
* Represents net purchase cost.
** Represents net sale cost.
(c) Represents the current yield as of December 31, 2006.
(d) All or a portion of security held as collateral in connection with open
financial futures contracts.
(e) Security, or a portion of security, is on loan.
(f) Security was purchased with the cash proceeds from securities loans.
o For Series compliance purposes, the Series' industry classifications refer
to any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Series management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets. These
industry classifications are unaudited.
o Financial futures contracts purchased as of December 31, 2006 were as
follows:
-------------------------------------------------------------------------------------------
Unrealized
Number of Contracts Issue Expiration Date Face Value Appreciation
-------------------------------------------------------------------------------------------
110 S&P 500 Index March 2007 $ 39,184,008 $ 96,992
-------------------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON DETAILED SCHEDULE OF
INVESTMENTS
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements of Master
S&P 500 Index Series (the "Series"), one of the portfolios constituting the
Quantitative Master Series Trust (the "Trust"), as of December 31, 2006, and for
the year then ended and have issued our report thereon dated February 26, 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 26, 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 S&P 500 Index Fund of BlackRock Index Funds, Inc. and Master S&P 500
Index Series of Quantitative Master Series Trust
By: /s/ Robert C. Doll, Jr.
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Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock S&P 500 Index Fund of BlackRock Index Funds, Inc. and
Master S&P 500 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.
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Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock S&P 500 Index Fund of BlackRock Index Funds, Inc. and
Master S&P 500 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 S&P 500 Index Fund of BlackRock Index Funds, Inc. and
Master S&P 500 Index Series of Quantitative Master Series Trust
Date: February 20, 2007