UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07885
Name of Fund: Master Enhanced S&P 500 Series of Quantitative Master Series Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Master Enhanced S&P 500 Series of Quantitative Master Series
Trust, 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing address:
P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/06
Date of reporting period: 01/01/06 - 12/31/06
Item 1 - Report to Stockholders
Master Enhanced S&P 500 Series of Quantitative Master Series Trust
Annual Report, December 31, 2006
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 Standard & Poor's 500 (S&P 500) Index
during the 12-month period.
How did the portfolio perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended December 31, 2006, Master Enhanced S&P 500 Series
of Quantitative Master Series Trust had a total return of +15.64%. For the same
period, the S&P 500 Index generated a +15.80% return. Positive performance from
our stock-substitution strategies was offset slightly by disappointing results
from our stock-selection strategies.
With respect to our stock-substitution strategies, performance benefited
primarily from merger arbitrage strategies. Portfolio trading conducted in
response to structural index changes also contributed positively to performance.
Regarding our stock-selection strategies, the value, turn of the year and
earnings quality signals aided performance. Among the detractors were price
momentum, earnings surprise, short interest and external financing signals. Risk
control positions also hindered performance during the annual period.
Following decent, but uninspiring, results in 2004 and 2005, U.S. equities
surged forward in 2006, with the S&P 500 Index advancing 15.80% to close at
1,418. Small-cap stocks posted even
1
stronger gains, with the Russell 2000 Index registering an 18.40% increase,
thanks to exceptionally strong performance in the first few months of the year.
Key highlights of the 12-month period include 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
U.S. suffering even
2
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 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 rate
increases. At the same time, commodity prices collapsed. After reaching an
all-time high near $78 per barrel in July, crude oil ended the year at $61 per
barrel. Stocks generally climbed back above the levels they reached prior to the
market's earlier retrenchment. Most equity markets experienced one of their best
third-quarter periods in several years, though there was a broad-based changing
of the guard that favored larger-cap, higher-quality and more predictable stocks
over smaller-cap, lower-quality and more cyclical securities (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.
3
Still, strong momentum continued in the equity markets during the year's final
quarter. Key to investors' optimism were: a strong labor market, where the
unemployment rate reached a post-9/11 low and year-on-year average hourly
salaries reached a post-9/11 high; receding risks of 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, which posted
substantial returns during the second half of the year. Within the S&P 500, 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 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 health
care were the weakest performers, with respective returns of +7.70% and +5.78%.
4
What changes were made to the portfolio during the period?
Throughout the fiscal year, as changes were made to the composition of the S&P
500 Index, we purchased and sold securities to maintain the Series' objective of
tracking the risks and return of the benchmark.
We continued to use our quantitative stock-selection and stock-substitution
strategies in an effort to generate returns above those offered by the index.
The goal of our stock-selection process is to use quantitative techniques to
determine whether a stock might outperform or underperform the market. We
analyze each security by using quantitative screens that provide signals that
ultimately inform our investment decisions. These signals may include earnings
quality, valuations, earnings surprises, external financing, short interest and
price momentum factors, among others.
We also apply stock-substitution strategies opportunistically as a value-added
trading strategy. Our goal is to take advantage of temporary price strength in a
security that might result from a corporate acquisition, corporate restructuring
or index composition change. We also might employ convertible bond substitution
when opportunities exist, taking a position in a company's convertible
securities -- bonds that can be exchanged for shares of stock, in certain
situations -- as a cheaper alternative to buying its equity shares.
In December 2006, we implemented the turn of the year signal. We also removed
the earnings surprise signal and increased the turn of the year signal exposure
heading into year-end.
5
How would you characterize the portfolio's position at the close of the period?
We believe the portfolio remains positioned to match the risk characteristics of
its benchmark, regardless of the direction the market takes.
Leon Roisenberg
Vice President and Co-Portfolio Manager
Jeffrey L. Russo, CFA
Vice President and Co-Portfolio Manager
January 19, 2007
6
Master Enhanced S&P 500 Series
Portfolio Information
As of December 31, 2006
Percent of
Sector Representation Total Investments
- --------------------------------------------------------------------------------
Financial Services 20.1%
Information Technology 14.2
Industrials 11.7
Consumer Discretionary 10.9
Health Care 10.2
Energy 8.9
Consumer Staples 6.8
Utilities 3.9
Telecommunication Services 2.6
Materials 2.5
Other* 8.2
- --------------------------------------------------------------------------------
* 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.
7
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense - 2.4% 51,700 Boeing Co. $ 4,593,028
11,200 General Dynamics Corp. 832,720
70,800 Honeywell International, Inc. 3,202,992
300 L-3 Communications Holdings, Inc. 24,534
10,200 Lockheed Martin Corp. 939,114
14,100 Northrop Grumman Corp. 954,570
63,800 Raytheon Co. 3,368,640
7,100 Rockwell Collins, Inc. 449,359
------------
14,364,957
- ------------------------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 1.2% 9,100 FedEx Corp. 988,442
84,800 United Parcel Service, Inc. Class B (d) 6,358,304
------------
7,346,746
- ------------------------------------------------------------------------------------------------------------------------------
Airlines - 0.1% 32,213 Southwest Airlines Co. 493,503
- ------------------------------------------------------------------------------------------------------------------------------
Auto Components - 0.0% 3,400 Johnson Controls, Inc. 292,128
- ------------------------------------------------------------------------------------------------------------------------------
Automobiles - 0.2% 77,000 Ford Motor Co. (d) 578,270
15,300 General Motors Corp. 470,016
6,000 Harley-Davidson, Inc. 422,820
------------
1,471,106
- ------------------------------------------------------------------------------------------------------------------------------
Beverages - 0.3% 3,800 The Coca-Cola Co. 183,350
50,800 Constellation Brands, Inc. Class A (a) 1,474,216
12 Molson Coors Brewing Co. Class B 917
5,610 PepsiCo, Inc. 350,906
------------
2,009,389
- ------------------------------------------------------------------------------------------------------------------------------
Biotechnology - 0.8% 42,380 Amgen, Inc. (a) 2,894,978
8,010 Biogen Idec, Inc. (a) 394,012
1,800 Genzyme Corp. (a) 110,844
5,500 MedImmune, Inc. (a) 178,035
55,400 Sirna Therapeutics, Inc. (a) 720,754
18,200 Tanox, Inc. (a) 362,180
------------
4,660,803
- ------------------------------------------------------------------------------------------------------------------------------
Building Products - 0.3% 65,200 Masco Corp. 1,947,524
- ------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 2.7% 2,900 Ameriprise Financial, Inc. 158,050
21,300 The Bank of New York Co., Inc. 838,581
185,900 The Charles Schwab Corp. 3,595,306
6,100 E*Trade Financial Corp. (a) 136,762
3,350 Franklin Resources, Inc. 369,070
15,700 Goldman Sachs Group, Inc. 3,129,795
29,600 Janus Capital Group, Inc. 639,064
17,100 Lehman Brothers Holdings, Inc. 1,335,852
25,000 Mellon Financial Corp. 1,053,750
48,800 Morgan Stanley 3,973,784
1,300 Northern Trust Corp. 78,897
7,700 State Street Corp. 519,288
2,900 T. Rowe Price Group, Inc. 126,933
------------
15,955,132
- ------------------------------------------------------------------------------------------------------------------------------
Chemicals - 0.8% 3,600 Air Products & Chemicals, Inc. 253,008
2,900 Ashland, Inc. 200,622
15,600 Monsanto Co. 819,468
14,100 PPG Industries, Inc. 905,361
38,600 Praxair, Inc. 2,290,138
------------
4,468,597
- ------------------------------------------------------------------------------------------------------------------------------
8
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 3.7% 14,225 BB&T Corp. $ 624,904
200 Comerica, Inc. 11,736
5,318 Compass Bancshares, Inc. 317,219
13,534 Fifth Third Bancorp 553,947
10,100 Huntington Bancshares, Inc. 239,875
4,900 Interchange Financial Services Corp. 112,651
6,400 KeyCorp 243,392
14,400 Marshall & Ilsley Corp. 692,784
18,462 National City Corp. 674,971
12,102 PNC Financial Services Group, Inc. (b) 896,032
19,298 Regions Financial Corp. 721,745
8,737 State National Bancshares, Inc. 336,287
51,800 SunTrust Banks, Inc. 4,374,510
1,000 Synovus Financial Corp. 30,830
62,154 U.S. Bancorp 2,249,353
85,180 Wachovia Corp. 4,851,001
136,510 Wells Fargo & Co. 4,854,296
------------
21,785,533
- ------------------------------------------------------------------------------------------------------------------------------
Commercial Services & 56,799 Aramark Corp. 1,899,927
Supplies - 0.5% 4,700 Banta Corp. 171,080
21,900 Robert Half International, Inc. 812,928
------------
2,883,935
- ------------------------------------------------------------------------------------------------------------------------------
Communications Equipment - 2.4% 18,800 Avaya, Inc. (a) 262,824
3,414 Ciena Corp. (a) 94,602
143,500 Cisco Systems, Inc. (a) 3,921,855
8,300 Comverse Technology, Inc. (a) 175,213
87,700 Corning, Inc. (a) 1,640,867
112,500 Juniper Networks, Inc. (a) 2,130,750
144,203 Motorola, Inc. 2,964,814
67,600 QUALCOMM, Inc. 2,554,604
18,405 Tellabs, Inc. (a) 188,835
------------
13,934,364
- ------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 4.1% 40,700 Apple Computer, Inc. (a) 3,452,988
172,400 Dell, Inc. (a) 4,325,516
96,908 EMC Corp. (a) 1,279,186
147,107 Hewlett-Packard Co. 6,059,337
58,747 International Business Machines Corp. 5,707,271
26,000 Lexmark International, Inc. Class A (a) 1,903,200
300 NCR Corp. (a) 12,828
15,400 Network Appliance, Inc. (a) 604,912
6,500 QLogic Corp. (a) 142,480
144,800 Sun Microsystems, Inc. (a) 784,816
------------
24,272,534
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 1.3% 99,390 American Express Co. 6,029,991
21,644 Capital One Financial Corp. 1,662,692
------------
7,692,683
- ------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.1% 13,500 Pactiv Corp. (a) 481,815
- ------------------------------------------------------------------------------------------------------------------------------
Diversified Consumer 5,700 Apollo Group, Inc. Class A (a) 222,129
Services - 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
Diversified Financial 116,166 Bank of America Corp. (h) 6,202,103
Services - 4.9% 800 Chicago Mercantile Exchange Holdings, Inc. 407,800
261,513 Citigroup, Inc. 14,566,274
9
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ------------------------------------------------------------------------------------------------------------------------------
150,163 JPMorgan Chase & Co. $ 7,252,873
4,900 Moody's Corp. 338,394
------------
28,767,444
- ------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 110,935 AT&T Inc. 3,965,926
Services - 2.6% 107,223 BellSouth Corp. 5,051,276
6,152 Embarq Corp. 323,349
160,300 Qwest Communications International Inc. (a) 1,341,711
109,540 Verizon Communications, Inc. 4,079,270
33,300 Windstream Corp. 473,526
------------
15,235,058
- ------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.8% 6,800 Allegheny Energy, Inc. (a) 312,188
7,000 American Electric Power Co., Inc. 298,060
13,500 Edison International 613,980
21,124 Exelon Corp. 1,307,364
9,400 FPL Group, Inc. 511,548
55,000 PPL Corp. 1,971,200
------------
5,014,340
- ------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.6% 59,500 American Power Conversion Corp. 1,820,105
3,700 Cooper Industries Ltd. Class A 334,591
24,300 Emerson Electric Co. 1,070,901
1,700 Rockwell Automation, Inc. 103,836
------------
3,329,433
- ------------------------------------------------------------------------------------------------------------------------------
Electronic Equipment & 27,200 Agilent Technologies, Inc. (a) 947,920
Instruments - 0.7% 7,600 Jabil Circuit, Inc. 186,580
5,800 Molex, Inc. 183,454
21,900 Sanmina-SCI Corp. (a) 75,555
37,700 Solectron Corp. (a) 121,394
162,143 Symbol Technologies, Inc. 2,422,416
------------
3,937,319
- ------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 1.2% 96,100 BJ Services Co. 2,817,652
8,200 Baker Hughes, Inc. 612,212
53,300 Halliburton Co. (d) 1,654,965
2,700 Nabors Industries Ltd. (a) 80,406
3,600 Noble Corp. 274,140
23,700 Rowan Cos., Inc. 786,840
7,700 Transocean, Inc. (a) 622,853
------------
6,849,068
- ------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.4% 19,300 Costco Wholesale Corp. 1,020,391
16,700 The Kroger Co. 385,269
13 SUPERVALU Inc. 465
9,800 Safeway, Inc. 338,688
16,005 Wal-Mart Stores, Inc. 739,111
------------
2,483,924
- ------------------------------------------------------------------------------------------------------------------------------
Food Products - 1.7% 88,300 Archer Daniels Midland Co. 2,822,068
38 Campbell Soup Co. 1,478
136,400 ConAgra Foods, Inc. 3,682,800
10,000 HJ Heinz Co. 450,100
84,100 McCormick & Co., Inc. 3,242,896
------------
10,199,342
- ------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.0% 5,000 Spectra Energy Corp. (a) 138,750
- ------------------------------------------------------------------------------------------------------------------------------
10
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & 10,100 Becton Dickinson & Co. $ 708,515
Supplies - 0.8% 8,600 Biomet, Inc. 354,922
161,307 Boston Scientific Corp. (a) 2,771,254
20,500 Conor Medsystems, Inc. (a) 642,265
------------
4,476,956
- ------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & 28,200 Aetna, Inc. 1,217,676
Services - 4.2% 64,300 AmerisourceBergen Corp. 2,890,928
61,355 Cardinal Health, Inc. 3,953,103
11,809 Caremark Rx, Inc. 674,412
22,900 Cigna Corp. 3,012,953
10,900 Horizon Health Corp. (a) 213,313
41,000 Humana, Inc. (a) 2,267,710
59,400 McKesson Corp. 3,011,580
16 Medco Health Solutions, Inc. (a) 855
12,795 Per-Se Technologies, Inc. (a) 355,445
108,713 UnitedHealth Group, Inc. 5,841,149
20,357 WellPoint, Inc. (a) 1,601,892
------------
25,041,016
- ------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & 19,930 Aztar Corp. (a) 1,084,591
Leisure - 2.0% 27 Carnival Corp. 1,324
5,100 Chipotle Mexican Grill, Inc. Class A (a) 290,700
3,300 Harrah's Entertainment, Inc. (h) 272,976
16,198 Hilton Hotels Corp. 565,310
6,800 International Game Technology 314,160
3,200 Las Vegas Sands Corp. (a) 286,336
27,100 Marriott International, Inc. Class A 1,293,212
48,482 McDonald's Corp. 2,149,207
98,400 Starbucks Corp. (a) 3,485,328
8,600 Starwood Hotels & Resorts Worldwide, Inc. 537,500
1,300 Tim Hortons, Inc. 37,648
6,544 Wendy's International, Inc. 216,541
19,000 Wyndham Worldwide Corp. (a) 608,380
3,100 Wynn Resorts Ltd. 290,935
4,400 Yum! Brands, Inc. 258,720
------------
11,692,868
- ------------------------------------------------------------------------------------------------------------------------------
Household Durables - 0.6% 21,500 Centex Corp. 1,209,805
11,100 DR Horton, Inc. 294,039
2,700 Harman International Industries, Inc. 269,757
7,500 Leggett & Platt, Inc. 179,250
5,699 Lennar Corp. Class A 298,970
1,600 Pulte Homes, Inc. 52,992
2,400 Snap-On, Inc. 114,336
34,400 Yankee Candle Co., Inc. 1,179,232
------------
3,598,381
- ------------------------------------------------------------------------------------------------------------------------------
Household Products - 1.7% 15,200 Colgate-Palmolive Co. 991,648
65,600 Kimberly-Clark Corp. 4,457,520
68,605 The Procter & Gamble Co. 4,409,243
------------
9,858,411
- ------------------------------------------------------------------------------------------------------------------------------
IT Services - 1.1% 14,700 Automatic Data Processing, Inc. 723,975
1,700 Computer Sciences Corp. (a) 90,729
5,700 Convergys Corp. (a) 135,546
11
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ------------------------------------------------------------------------------------------------------------------------------
23,500 Electronic Data Systems Corp. $ 647,425
14,700 Fidelity National Information Services, Inc. 589,323
32,155 First Data Corp. 820,596
52,629 Kanbay International, Inc. (a) 1,514,136
4,400 Paychex, Inc. 173,976
41,100 Sabre Holdings Corp. Class A 1,310,679
100 Unisys Corp. (a) 784
34,755 The Western Union Co. 779,207
------------
6,786,376
- ------------------------------------------------------------------------------------------------------------------------------
Independent Power Producers & 27,300 The AES Corp.(a)(h) 601,692
Energy Traders - 0.6% 1,700 Constellation Energy Group, Inc. 117,079
201 Dynegy, Inc. Class A (a) 1,455
57,500 TXU Corp. 3,117,075
------------
3,837,301
- ------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 4.2% 69,700 3M Co. 5,431,721
415,400 General Electric Co. 15,457,034
1,100 Textron, Inc. 103,147
121,442 Tyco International Ltd. 3,691,837
------------
24,683,739
- ------------------------------------------------------------------------------------------------------------------------------
Insurance - 4.6% 38,500 ACE Ltd. 2,331,945
2,200 AON Corp. 77,748
63,700 The Allstate Corp. 4,147,507
101,675 American International Group, Inc. (h) 7,286,031
17,000 Chubb Corp. 899,470
21,500 Direct General Corp. 443,760
7,096 Genworth Financial, Inc. Class A 242,754
22,000 Hartford Financial Services Group, Inc. 2,052,820
5,865 Lincoln National Corp. 389,436
9,286 Loews Corp. 385,090
100 MBIA, Inc. 7,306
12,000 Marsh & McLennan Cos., Inc. 367,920
84,300 MetLife, Inc. (d) 4,974,543
4,300 Principal Financial Group, Inc. 252,410
15,300 Prudential Financial, Inc. 1,313,658
20,829 The St. Paul Travelers Cos., Inc. 1,118,309
14,100 UnumProvident Corp. 292,998
7,400 XL Capital Ltd. Class A 532,948
------------
27,116,653
- ------------------------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.4% 62,200 IAC/InterActiveCorp (a) 2,311,352
- ------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services - 1.3% 9,500 Digital Insight Corp. (a) 365,655
29,600 Digitas, Inc. (a) 396,936
41,005 eBay, Inc. (a) 1,233,020
9,138 Google, Inc. Class A (a) 4,207,866
10,100 VeriSign, Inc. (a) 242,905
42,232 Yahoo!, Inc. (a) 1,078,605
------------
7,524,987
- ------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.4% 90,700 Eastman Kodak Co. 2,340,060
600 Mattel, Inc. 13,596
------------
2,353,656
- ------------------------------------------------------------------------------------------------------------------------------
Life Sciences Tools & 21,900 Applera Corp. - Applied Biosystems Group 803,511
Services - 0.8% 16,300 PerkinElmer, Inc. 362,349
12
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ------------------------------------------------------------------------------------------------------------------------------
78,635 Thermo Electron Corp. (a) $ 3,561,379
4,200 Waters Corp. (a) 205,674
------------
4,932,913
- ------------------------------------------------------------------------------------------------------------------------------
Machinery - 1.8% 66,800 Caterpillar, Inc. 4,096,844
23,500 Danaher Corp. (d) 1,702,340
35,900 Deere & Co. 3,413,013
1,100 Eaton Corp. 82,654
17,200 Illinois Tool Works, Inc. 794,468
4,400 Ingersoll-Rand Co. Class A 172,172
5,050 PACCAR, Inc. 327,745
4,600 Terex Corp. (a) 297,068
------------
10,886,304
- ------------------------------------------------------------------------------------------------------------------------------
Media - 3.6% 13,300 Advo, Inc. 433,580
61,648 CBS Corp. Class B 1,922,185
11,700 Clear Channel Communications, Inc. 415,818
89,257 Comcast Corp. Class A (a)(d) 3,778,249
19,300 The DIRECTV Group, Inc. (a) 481,342
9,790 Gannett Co., Inc. 591,903
100 Interpublic Group of Cos., Inc. (a) 1,224
2,300 Liberty Media Holding Corp. - Capital (a) 225,354
5,100 Live Nation (a) 114,240
39,400 The McGraw-Hill Cos., Inc. 2,679,988
80,400 News Corp. Class A 1,726,992
19,600 News Corp. Class B 436,296
7,100 Omnicom Group 742,234
49,500 The Reader's Digest Association, Inc. Class A 826,650
179,825 Time Warner, Inc. 3,916,589
84,200 Univision Communications, Inc. Class A (a) 2,982,364
7 Walt Disney Co. 240
------------
21,275,248
- ------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.7% 119,500 Alcoa, Inc. 3,586,195
1,600 Allegheny Technologies, Inc. 145,088
41,700 Freeport-McMoRan Copper & Gold, Inc. Class B 2,323,941
8,500 Nucor Corp. 464,610
24,600 Oregon Steel Mills, Inc. (a) 1,535,286
13,300 Phelps Dodge Corp. 1,592,276
5,100 United States Steel Corp. 373,014
------------
10,020,410
- ------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 2.5% 7,300 DTE Energy Co. 353,393
46,400 Dominion Resources, Inc. 3,890,176
147,524 Duke Energy Corp. (d) 4,899,272
1,800 KeySpan Corp. 74,124
11,215 NiSource, Inc. 270,282
21,600 NorthWestern Corp. 764,208
49,100 PG&E Corp. 2,323,903
4,400 Public Service Enterprise Group, Inc. 292,072
3,800 Sempra Energy 212,952
83,100 Xcel Energy, Inc. 1,916,286
------------
14,996,668
- ------------------------------------------------------------------------------------------------------------------------------
Multiline Retail - 1.3% 4,700 Big Lots, Inc. (a) 107,724
29,200 Dillard's, Inc. Class A 1,021,124
13
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ------------------------------------------------------------------------------------------------------------------------------
33,800 Dollar General Corp. $ 542,828
14,270 Federated Department Stores 544,115
41,500 JC Penney Co., Inc. 3,210,440
10,200 Nordstrom, Inc. 503,268
18,200 Saks, Inc. 324,324
28,500 Target Corp. 1,625,925
------------
7,879,748
- ------------------------------------------------------------------------------------------------------------------------------
Office Electronics - 0.1% 40,700 Xerox Corp. (a) 689,865
- ------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 8.0% 18,800 Anadarko Petroleum Corp. (h) 818,176
13,600 Apache Corp. 904,536
7,800 Chesapeake Energy Corp. 226,590
84,702 Chevron Corp. 6,228,138
69,000 ConocoPhillips 4,964,550
900 Consol Energy, Inc. 28,917
47,890 Devon Energy Corp. 3,212,461
4,300 EOG Resources, Inc. 268,535
28,600 El Paso Corp. 437,008
279,490 Exxon Mobil Corp. 21,417,319
6,900 Forest Oil Corp. (a) 225,492
3,218 Giant Industries, Inc. (a) 241,189
12,775 Hess Corp. 633,257
1,000 Houston Exploration Co. (a) 51,780
11,200 Kinder Morgan, Inc. 1,184,400
11,236 Marathon Oil Corp. 1,039,330
10,100 Mariner Energy, Inc. (a) 197,960
1,800 Murphy Oil Corp. 91,530
27,504 Occidental Petroleum Corp. 1,343,020
5,800 Peabody Energy Corp. 234,378
1,000 Sunoco, Inc. 62,360
41,623 Valero Energy Corp. 2,129,433
24,600 Williams Cos., Inc. 642,552
17,500 XTO Energy, Inc. 823,375
------------
47,406,286
- ------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.1% 7,500 MeadWestvaco Corp. 225,450
4,200 Weyerhaeuser Co. 296,730
------------
522,180
- ------------------------------------------------------------------------------------------------------------------------------
Personal Products - 0.6% 11,100 Alberto-Culver Co. 238,095
7,500 Avon Products, Inc. 247,800
69,300 The Estee Lauder Cos., Inc. Class A 2,828,826
------------
3,314,721
- ------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 3.9% 21,100 Abbott Laboratories (h) 1,027,781
6 Allergan, Inc. 718
8,100 Forest Laboratories, Inc. (a) 409,860
64,309 Johnson & Johnson 4,245,680
10,002 Merck & Co., Inc. 436,087
115,900 Mylan Laboratories 2,313,364
415,040 Pfizer, Inc. 10,749,536
46,400 Schering-Plough Corp. 1,096,896
48,400 Wyeth 2,464,528
------------
22,744,450
- ------------------------------------------------------------------------------------------------------------------------------
14
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 2,500 Archstone-Smith Trust $ 145,525
(REITs) - 0.8% 1,292 Boston Properties, Inc. 144,549
6,200 Equity Office Properties Trust 298,654
9,200 Government Properties Trust, Inc. 97,520
7,607 Host Marriott Corp. 186,752
9,401 Kimco Realty Corp. 422,575
74,819 MortgageIT Holdings, Inc. 1,103,580
10,000 ProLogis 607,700
1,004 Public Storage, Inc. 97,890
9,390 Simon Property Group, Inc. 951,113
22,300 Trustreet Properties, Inc. 375,755
2,100 Vornado Realty Trust 255,150
------------
4,686,763
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate Management & 400 CB Richard Ellis Group, Inc. (a) 13,280
Development - 0.1% 20,649 Realogy Corp. (a) 626,078
------------
639,358
- ------------------------------------------------------------------------------------------------------------------------------
Road & Rail - 0.9% 9,600 Burlington Northern Santa Fe Corp. 708,576
18,100 CSX Corp. 623,183
18,400 Norfolk Southern Corp. 925,336
49,200 RailAmerica, Inc. (a) 791,136
22,100 Union Pacific Corp. 2,033,642
------------
5,081,873
- ------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 13 Advanced Micro Devices, Inc. (a) 264
Equipment - 2.2% 14,800 Altera Corp. (a) 291,264
14,800 Analog Devices, Inc. 486,476
56,800 Applied Materials, Inc. 1,047,960
12,300 Broadcom Corp. Class A (a) 397,413
307,700 Intel Corp. 6,230,925
1,600 Kla-Tencor Corp. 79,600
16,400 LSI Logic Corp. (a) 147,600
3,500 Maxim Integrated Products, Inc. 107,170
30,100 Micron Technology, Inc. (a) 420,196
12,300 National Semiconductor Corp. 279,210
5,200 Novellus Systems, Inc. (a) 178,984
8,100 Nvidia Corp. (a) 299,781
10,800 Portalplayer, Inc. (a) 145,260
8,200 Teradyne, Inc. (a) 122,672
75,200 Texas Instruments, Inc. 2,165,760
17,342 Verigy Ltd. (a) 307,821
14,100 Xilinx, Inc. (d) 335,721
------------
13,044,077
- ------------------------------------------------------------------------------------------------------------------------------
Software - 2.7% 8,700 BMC Software, Inc. (a) 280,140
17,000 CA, Inc. 385,050
12,700 Electronic Arts, Inc. (a) 639,572
5,000 Intuit, Inc. (a) 152,550
452,490 Microsoft Corp. (d) 13,511,351
100 Novell, Inc. (a) 620
32,483 Open Solutions, Inc. (a) 1,222,660
3,698 Oracle Corp. (a) 63,384
------------
16,255,327
- ------------------------------------------------------------------------------------------------------------------------------
15
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
Shares
Industry Held Common Stocks Value
- ------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 1.5% 17 AutoNation, Inc. (a) $ 362
66,900 Bed Bath & Beyond, Inc. (a) 2,548,890
11,500 Best Buy Co., Inc. 565,685
34,900 Circuit City Stores, Inc. 662,402
22,000 The Gap, Inc. 429,000
75,800 Home Depot, Inc. 3,044,128
4,874 Limited Brands 141,054
4,800 Office Depot, Inc. (a) 183,216
3,100 OfficeMax, Inc. 153,915
5,600 RadioShack Corp. 93,968
11,100 Sally Beauty Co., Inc. (a) 86,580
4,600 The Sherwin-Williams Co. 292,468
17,300 Staples, Inc. 461,910
------------
8,663,578
- ------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury 62,800 Coach, Inc. (a) 2,697,888
Goods - 1.1% 4,600 Jones Apparel Group, Inc. 153,778
26,200 Nike, Inc. Class B 2,594,586
12,300 VF Corp. 1,009,584
------------
6,455,836
- ------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.9% 16,700 Countrywide Financial Corp. 708,915
70,700 Fannie Mae 4,198,873
22,620 Freddie Mac 1,535,898
109,155 Washington Mutual, Inc. 4,965,461
------------
11,409,147
- ------------------------------------------------------------------------------------------------------------------------------
Tobacco - 2.3% 125,833 Altria Group, Inc. 10,798,988
44,000 UST, Inc. 2,560,800
------------
13,359,788
- ------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 5,633 Alltel Corp. 340,683
Services - 0.1% 3,000 Sprint Nextel Corp. 56,670
------------
397,353
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost - $465,343,384) - 93.7% 554,181,145
- ------------------------------------------------------------------------------------------------------------------------------
Exchange-Traded Funds (f)
- ------------------------------------------------------------------------------------------------------------------------------
200 MidCap SPDR Trust Series 1 29,228
30,220 SPDR Trust Series 1 (d) 4,282,174
------------
4,311,402
- ------------------------------------------------------------------------------------------------------------------------------
Total Exchange-Traded Funds
(Cost - $3,998,204) - 0.7% 4,311,402
- ------------------------------------------------------------------------------------------------------------------------------
Face
Amount Fixed Income Securities
- ------------------------------------------------------------------------------------------------------------------------------
Biotechnology - 0.1% $ 475,000 Genzyme Corp., 1.25% due 12/01/2023 (c) 494,000
- ------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 291,000 Tyco International Group SA, 3.125% due 1/15/2023 (c) 412,129
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
(Cost - $926,616) - 0.2% 906,129
- ------------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Short-Term Securities
- ------------------------------------------------------------------------------------------------------------------------------
$ 30,589,577 BlackRock Liquidity Series, LLC Cash Sweep Series,
5.26% (b)(e) 30,589,577
19,648,700 BlackRock Liquidity Series, LLC Money Market Series,
5.29% (b)(e)(g) 19,648,700
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost - $50,238,277) - 8.5% 50,238,277
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost - $520,506,481*) - 103.1% 609,636,953
Liabilities in Excess of Other Assets - (3.1%) (18,456,120)
------------
Net Assets - 100.0% $591,180,833
============
16
Master Enhanced S&P 500 Series
Schedule of Investments as of December 31, 2006
* 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 $ 528,147,106
=============
Gross unrealized appreciation $ 84,921,701
Gross unrealized depreciation (3,431,854)
-------------
Net unrealized appreciation $ 81,489,847
=============
(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 Sale Realized Interest/Dividend
Cost Cost Gain Income
-----------------------------------------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash
Sweep Series -- $ 801,965** -- $ 1,295,331
BlackRock Liquidity Series, LLC Money
Market Series $ 333,600* -- -- $ 27,141
Merrill Lynch & Co., Inc. $ 182,496 $ 2,314,352 $ 817,341 $ 28,050
PNC Financial Services Group, Inc. $ 785,284 $ 902,268 $ 92,349 $ 23,444
-----------------------------------------------------------------------------------------------------------------------
* Represents net purchase cost.
** Represents net sale cost.
(c) Convertible security.
(d) Security, or a portion of security, is on loan.
(e) Represents the current yield as of December 31, 2006.
(f) Depositary receipts.
(g) Security was purchased with the cash proceeds from securities loans.
(h) All or portion of security held as collateral in connection with open
financial futures contracts.
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
--------------------------------------------------------------------------------------
162 S&P 500 Index March 2007 $57,751,490 $ 98,710
--------------------------------------------------------------------------------------
See Notes to Financial Statements.
17
Master Enhanced S&P 500 Series
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2006
===============================================================================================================================
Assets: Investments in unaffiliated securities, at value (including securities
loaned of $19,029,444) (identified cost-$469,582,385) ...................... $ 558,502,644
Investments in affiliated securities, at value (identified cost-$50,924,096) 51,134,309
Cash ....................................................................... 325,294
Receivables:
Securities sold ...................................................... $ 1,755,041
Dividends ............................................................ 772,925
Interest ............................................................. 4,625
Securities lending ................................................... 2,130 2,534,721
-------------
Prepaid expenses ........................................................... 5,403
-------------
Total assets ............................................................... 612,502,371
-------------
===============================================================================================================================
Liabilities: Collateral on securities loaned, at value .................................. 19,648,700
Payables:
Securities purchased ................................................. 1,068,692
Withdrawals .......................................................... 334,234
Variation margin ..................................................... 218,875
Other affiliates ..................................................... 5,218
Investment adviser ................................................... 4,686 1,631,705
-------------
Accrued expenses ........................................................... 41,133
-------------
Total liabilities .......................................................... 21,321,538
-------------
===============================================================================================================================
Net Assets: Net assets ................................................................. $ 591,180,833
=============
===============================================================================================================================
Net Assets Investors' capital ......................................................... $ 501,951,651
Consist of: Unrealized appreciation-net ................................................ 89,229,182
-------------
Net assets ................................................................. $ 591,180,833
=============
===============================================================================================================================
See Notes to Financial Statements.
18
Master Enhanced S&P 500 Series
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006
=================================================================================================================================
Investment Dividends (including $51,494 from affiliates)
Income: (net of $465 foreign withholding tax) .................................... $ 10,607,197
Interest (including $1,295,331 from affiliates) ............................ 1,321,307
Securities lending-net ..................................................... 27,141
-------------
Total income ............................................................... 11,955,645
-------------
=================================================================================================================================
Expenses: Accounting services ........................................................ $ 83,882
Professional fees .......................................................... 73,619
Custodian fees ............................................................. 63,786
Investment advisory fees ................................................... 54,644
Trustees' fees and expenses ................................................ 6,716
Printing and shareholder reports ........................................... 6,229
Pricing fees ............................................................... 638
Other ...................................................................... 15,387
-------------
Total expenses ............................................................. 304,901
-------------
Investment income-net ...................................................... 11,650,744
-------------
=================================================================================================================================
Realized & Realized gain (loss) on:
Unrealized Gain Investments-net (including $909,690 from affiliates) .................... 36,884,850
(Loss)-Net Foreign currency transactions-net ....................................... (2,811)
Financial futures contracts-net ......................................... 4,473,700
Options written-net ..................................................... 65,430 41,421,169
-------------
Change in unrealized appreciation/depreciation on:
Investments-net ......................................................... 25,804,868
Financial futures contracts-net ......................................... 773,558 26,578,426
------------- -------------
Total realized and unrealized gain-net ..................................... 67,999,595
-------------
Net Increase in Net Assets Resulting from Operations ....................... $ 79,650,339
=============
=================================================================================================================================
See Notes to Financial Statements.
19
Master Enhanced S&P 500 Series
STATEMENTS OF CHANGES IN NET ASSETS
For the
Year Ended
December 31,
------------------------------
Increase (Decrease) in Net Assets: 2006 2005
================================================================================================================================
Operations: Investment income-net ...................................................... $ 11,650,744 $ 9,040,500
Realized gain-net .......................................................... 41,421,169 21,447,347
Change in unrealized appreciation/depreciation-net ......................... 26,578,426 559,865
------------- -------------
Net increase in net assets resulting from operations ....................... 79,650,339 31,047,712
------------- -------------
================================================================================================================================
Capital Proceeds from contributions ................................................ 41,176,802 172,703,936
Transactions: Fair value of withdrawals .................................................. (42,346,836) (37,325,571)
------------- -------------
Net increase (decrease) in net assets derived from capital transactions .... (1,170,034) 135,378,365
------------- -------------
================================================================================================================================
Net Assets: Total increase in net assets ............................................... 78,480,305 166,426,077
Beginning of year .......................................................... 512,700,528 346,274,451
------------- -------------
End of year ................................................................ $ 591,180,833 $ 512,700,528
============= =============
================================================================================================================================
See Notes to Financial Statements.
20
Master Enhanced S&P 500 Series
FINANCIAL HIGHLIGHTS
The following ratios have For the Year Ended December 31,
been derived from information provided ---------------------------------------------------------------
in the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Total Investment ............................................. 15.64% 5.66% 11.51% 27.63% (21.61%)
Return: ======== ======== ======== ======== ========
==================================================================================================================================
Ratios to Expenses, net of reimbursement ............ .06% .06% .06% .09% .08%
Average Net ======== ======== ======== ======== ========
Assets: Expenses .................................. .06% .06% .06% .09% .18%
======== ======== ======== ======== ========
Investment income-net ..................... 2.13% 1.79% 1.99% 1.70% 1.59%
======== ======== ======== ======== ========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) .... $591,181 $512,701 $346,274 $269,475 $159,592
Data: ======== ======== ======== ======== ========
Portfolio turnover ........................ 178.95% 177.41% 119.58% 78.62% 101.85%
======== ======== ======== ======== ========
==================================================================================================================================
See Notes to Financial Statements.
21
Master Enhanced S&P 500 Series
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Master Enhanced S&P 500 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 financial statements of the Series 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") market, 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 market are
valued at the last available asked price. Portfolio securities that are traded
both in the OTC market and on a stock exchange are valued according to the
broadest and most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Series from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Obligations with remaining maturities
of 60 days or less are valued at amortized cost unless BlackRock Advisors, LLC
(the "Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc.,
believes that this method no longer produces fair valuations. Valuation of other
short-term investment vehicles is generally based on the net asset value of the
underlying investment vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the Series.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Trust, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Trust under the general supervision of the Board of
Trustees of the Trust. 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 will be valued
at their fair value as determined in good
22
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 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 Swaps - The Series may enter into swap agreements, which are OTC
contracts in which the Series and a counterparty agree to make
periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by
a predetermined credit event. The net periodic payments may be based
on a fixed or variable interest rate; the change in market value of
a specified security, basket of securities, or index; or the return
generated by a security. These periodic payments received or made by
the Series are recorded in the accompanying Statement of Operations
as realized gains or losses, respectively. Gains or losses are also
realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as
unrealized appreciation (depreciation). Risks include changes in the
returns of the underlying instruments, failure of the counterparties
to perform under the contracts' terms and the possible lack of
liquidity with respect to the swap agreements.
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 loss or gain to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts - The Series may enter into
forward foreign exchange contracts as a hedge against either
specific transactions or portfolio positions. The contract is
marked-to-market daily and the change in market value is recorded by
the Series as an unrealized gain or loss. When the contract is
closed, the Series records a realized gain or loss equal to the
difference between the value at the time it was opened and the value
at the time it was closed.
o Foreign currency options and futures - The Series may also purchase
or sell listed or OTC foreign currency options, foreign currency
futures and related options on foreign currency futures as a short
or long hedge against possible variations in foreign exchange rates.
Such transactions may be effected with respect to hedges on non-U.S.
dollar-denominated securities owned by the
23
Series, sold by the Series but not yet delivered, or committed or
anticipated to be purchased by the Series.
(c) Foreign currency transactions - Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Series invests in foreign securities, which may involve a number of risk
factors and special considerations, not present with investments in securities
of U.S. corporations.
(d) Income taxes - The Series is classified as a partnership for federal income
tax purposes. As such, each investor in the Series is treated as owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Series. Therefore, no federal income tax
provision is required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends and capital gains at various rates. It is
intended that the Series' assets will be managed so an investor in the Series
can satisfy the requirements of subchapter M of the Internal Revenue Code.
(e) Security transactions and investment income - Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(f) Securities lending - The Series may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Series and any additional required collateral is delivered to the Series on
the next business day. Where the Series receives securities as collateral for
the loaned securities, it receives 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.
(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 Portfolio'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
24
measurements. Management is currently evaluating the implications of FAS 157. At
this time, its impact on the Portfolio's financial statements has not been
determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM"), and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc., has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On September 29, 2006, the 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' portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Series. For such services, the
Series pays a monthly fee at an annual rate of .01% of the average daily value
of the Series' net assets. In addition, the Manager has entered into a
Sub-Advisory Agreement with BlackRock Investment Management, LLC ("BIM"), an
affiliate of the Manager, under which the Manager pays the Sub-Advisor for
services it provides a monthly fee at an annual rate that is a percentage of the
management fee paid by the Series to the Manager.
The Trust, on behalf of the Series, has received an exemptive order from the
Securities and Exchange Commission permitting the Series to lend its portfolio
securities to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an
affiliate of Manager, or its affiliates. As of December 31, 2006, the Series
lent securities with a value of $4,258,864 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, and MLIM, LLC was the securities
lending agent. BIM, may, on behalf of the Fund, invest cash collateral received
by the Fund 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
$11,689 in securities lending agent fees.
In addition, MLPF&S received $6,610 in commissions on the execution of portfolio
security transactions for the Series for the year ended December 31, 2006.
For the year ended December 31, 2006, the Series reimbursed FAM and the Manager
$8,945 and $2,613, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or trustees of the Trust were
officers and/or directors of MLIM, PSI, FAM, Merrill Lynch, 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.
25
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 2006 were $944,982,916 and $926,377,276, respectively.
Transactions in options written for the year ended December 31, 2006 were as
follows:
===============================================================================
Number of Premiums
Call Options Written Contracts Received
===============================================================================
Outstanding call options written,
beginning of year ........................ -- --
Options written ............................ 1,420 $ 122,206
Options expired ............................ (18) (1,242)
Options exercised .......................... (211) (27,023)
Options closed ............................. (1,191) (93,941)
------------------------
Outstanding call options written,
end of year .............................. -- $ --
========================
- -------------------------------------------------------------------------------
===============================================================================
Number of Premiums
Put Options Written Contracts Received
===============================================================================
Outstanding put options written,
beginning of year ........................ -- --
Options written ............................ 1,494 $ 109,652
Options expired ............................ (15) (1,685)
Options exercised .......................... (55) (4,255)
Options closed ............................. (1,424) (103,712)
------------------------
Outstanding put options written,
end of year .............................. -- $ --
========================
- -------------------------------------------------------------------------------
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 Series shareholder redemptions and for other
lawful purposes other than for leverage. The Series may borrow up to the maximum
amount allowable under the Series' current prospectus and statement of
additional information, subject to various other legal, regulatory or
contractual limits. On November 22, 2006, the credit agreement was renewed for
one year under substantially the same terms. The Series pays a commitment fee of
..06% per annum based on the Series' pro rata share of the unused portion of the
credit agreement. Amounts borrowed under the credit agreement bear interest at a
rate equal to, at each Series' election, the federal funds rate plus .35% or a
base rate as defined in the credit agreement. The Series did not borrow under
the credit agreement during the year ended December 31, 2006.
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Investors and Board of Trustees of
Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master Enhanced S&P 500 Series, one of the
portfolios constituting the Quantitative Master Series Trust (the "Trust"), as
of December 31, 2006, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2006, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Master
Enhanced S&P 500 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
27
QUANTITATIVE MASTER SERIES TRUST
Master Enhanced S&P 500 Series
BlackRock Investment Advisory Agreement - Matters Considered by the Board
The following disclosure appeared in the June 30, 2006 Semi-Annual Report of the
Series and is the discussion referred to in "New BlackRock Sub-Advisory
Agreement - Matters Considered by the Board" below. The term "Investment
Adviser"as used herein refers to Fund Asset Management, L.P.
New BlackRock Investment Advisory Agreement - Matters Considered by the Board
In connection with the Transaction between Merrill Lynch and BlackRock,
the Trust's Board of Trustees considered a new investment advisory agreement
(the "New Investment Advisory Agreement") between the Trust and BlackRock
Advisors, Inc. ("BlackRock Advisors"). If the New Investment Advisory Agreement
is approved by shareholders, it will become effective upon the closing of the
Transaction, which is expected in the third quarter of 2006.
The Board discussed the New Investment Advisory Agreement at telephonic
and in-person meetings held during April and May 2006. The Board, including the
independent trustees, approved the New Investment Advisory Agreement on May 8,
2006.
To assist the Board in its consideration of the New Investment Advisory
Agreement, 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 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
Agreement. The additional information was provided in advance of the May 2006
meeting. In addition, the independent trustees consulted with their counsel and
counsel for the Trust on numerous occasions, discussing, among other things, the
legal standards and certain other considerations relevant to the trustees'
deliberations.
At the Board meetings, the trustees discussed with Merrill Lynch
management and certain BlackRock representatives the Transaction, its strategic
rationale and BlackRock's general plans and intentions regarding the Series and
the Trust. At these Board meetings, representatives of Merrill Lynch and
BlackRock made presentations to and responded to questions from the Board. The
trustees 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 trustees of the Board 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 trustees met in executive sessions with
their counsel to consider the New Investment Advisory Agreement.
In connection with the Board's review of the New Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the trustees 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 Series and its
shareholders by BlackRock Advisors, including compliance services;
28
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 Series should benefit from having access to BlackRock's
state of the art technology and risk 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 Board before making any changes;
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 (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 Series
shareholders.
The trustees considered the information provided by Merrill Lynch and
BlackRock above, and, among other factors, the following:
o the potential benefits to 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 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 Agreement,
including the fact that the schedule of the Series' total advisory
fees will not increase by virtue of the New Investment Advisory
Agreement, but will remain the same;
o that in May and August 2005, the Board had performed a full annual
review of the investment advisory agreement currently in effect for
the Series (the "Current Investment Advisory Agreement") 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
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 trustees have considered relevant in the exercise of
their reasonable judgment; and
o that Merrill Lynch agreed to pay all expenses of the Series in
connection with the Board's consideration of the New Investment
Advisory Agreement and related agreements and all costs of
shareholder approval of the New
29
Investment Advisory Agreement and as a result the Series would bear
no costs in obtaining shareholder approval of the New Investment
Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, the Board assessed
the nature, scope and quality of the services to be provided to the Series by
the personnel of BlackRock Advisors and its affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing services
and assistance in meeting legal and regulatory requirements. In its review of
the New Investment Advisory Agreement, the 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 Series; (b) operating expenses of the Series paid to third
parties; (c) the resources devoted to and compliance reports relating to the
investment objective, policies and restrictions of the Series, and its
compliance with the Trust's Code 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 renewal of the
Current Investment Advisory Agreement, the Board had requested and received
materials specifically relating to the Current Investment Advisory Agreement.
These materials included (a) information compiled by Lipper on the fees and
expenses and the investment performance of 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 Agreement and other
payments received by the Investment Adviser and its affiliates from the Series
and the Trust; 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 Series and the Trust.
In their deliberations, the trustees considered information received in
connection with their most recent continuation of the Current Investment
Advisory Agreement, in addition to information provided by BlackRock and
BlackRock Advisors in connection with their evaluation of the terms and
conditions of the New Investment Advisory Agreement. The trustees did not
identify any particular information that was all-important or controlling, and
each trustee attributed different weights to the various factors. The trustees,
including a majority of the independent trustees, concluded that the terms of
the New Investment Advisory Agreement are appropriate, that the fees to be paid
are reasonable in light of the services to be provided to the Series, and that
the New Investment Advisory Agreement should be approved and recommended to
Series shareholders.
Nature, Quality and Extent of Services Provided. The Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of the
Series, as well as the nature, quality and extent of services expected to be
provided by BlackRock Advisors. The Board focused primarily on the Investment
Adviser's investment advisory services and the investment performance of the
Series, but also considered certain areas in which both the Investment Adviser
and the Series receive services as part of the Merrill Lynch complex. The Board
compared the performance of 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
the Board reviews performance data at least quarterly, consistent with the
Investment Adviser's investment goals, the Board attaches more importance to
performance over relatively long periods of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be
provided by BlackRock Advisors under the New Investment Advisory Agreement, the
trustees considered, among other things, the expected impact of the Transaction
on the
30
operations, facilities, organization and personnel of BlackRock Advisors and how
it would affect 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 Series.
The trustees were given information with respect to the potential benefits
to the Series and its 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.
The trustees were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Trust 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. The trustees were advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they
had received from the management of Merrill Lynch and of BlackRock, the trustees
determined that the nature and quality of services to be provided to the Series
under the New Investment Advisory Agreement were expected to be as good or
better than that provided under the Current Investment Advisory Agreement. 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. The trustees
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, the trustees concluded that, overall, they were 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 Series
under the New Investment Advisory Agreement.
Costs of Services Provided and Profitability. It was noted that, in
conjunction with the recent review of the Current Investment Advisory Agreement,
the trustees had received, among other things, a report from Lipper comparing
the fees, expenses and performance of 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. The Board reviewed the contractual management
fee rate and actual management fee rate of the Series as a percentage of total
assets at common asset levels - the actual rate includes advisory fees and the
effects of any fee waivers - compared to the other funds in its Lipper category.
They also compared the total expenses of the Series to those of other comparable
funds. The information showed that the Series had fees and expenses within the
range of fees and expenses of comparable funds. The Board concluded that the
management fee and fee rate and overall expense ratio of 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 Agreement, the trustees considered,
among other things, whether advisory fees or other expenses would change as a
result of the Transaction. Based on their review of the materials provided and
the fact that the New Investment Advisory Agreement is substantially similar to
the Current Investment Advisory Agreement in all material respects, including
the rates of compensation, the trustees determined that the Transaction should
not increase the total fees payable, including any fee waivers and expense
reimbursements, for advisory and administrative services. The trustees noted
that it was not possible to predict with certainty New BlackRock's future
profitability from its relationship with the Series.
The trustees discussed with BlackRock Advisors its general methodology to
be used in determining New BlackRock's profitability with respect to its
relationship with the Series and the Trust. The trustees noted that they expect
to receive profitability information from New BlackRock on at least an annual
basis and thus be
31
in a position to evaluate whether any adjustments in fees and/or fee breakpoints
of the Series would be appropriate.
Fees and Economies of Scale. The Board considered the extent to which
economies of scale might be realized as the assets of the Series increase and
whether there should be changes in the management fee rate or structure in order
to enable the Series to participate in these economies of scale. The Board
determined that changes were not currently necessary and that the Series
appropriately participated in these economies of scale.
In reviewing the Transaction, the trustees considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the New Investment Advisory Agreement is
substantially similar to the Current Investment Advisory Agreement in all
material respects, including the rate of compensation, the trustees determined
that as a result of the Transaction, the total advisory fees of the Series would
be no higher than the fees under the Current Investment Advisory Agreement. The
trustees noted that in conjunction with their most recent deliberations
concerning the Current Investment Advisory Agreement, the trustees had
determined that the total fees for advisory and administrative 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,
the trustees had received, among other things, a report from Lipper comparing
the fees, expenses and performance of the Series 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. The trustees concluded that, because the rates for advisory for the
Series would be no higher than its current fee rates, the proposed management
fee structure, including any fee waivers, was 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 the New Investment Advisory Agreement, the trustees
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
Agreement. Based on their review of the materials provided, including materials
received in connection with their most recent approval or continuance of the
Current Investment Advisory Agreement, and their discussions with management of
the Investment Adviser and BlackRock, the trustees 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
the Series' portfolio transaction brokerage commissions. The trustees 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. The trustees considered investment performance for
the Series. The trustees compared the Series' performance -- 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 the 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. The trustees believed the performance of the Series was
satisfactory. Also, the trustees took into account the investment performance of
funds currently advised by BlackRock Advisors. The 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. The 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 Series.
Conclusion. After the independent trustees of the Trust deliberated in
executive session, the entire Board, including the independent trustees,
approved the New Investment Advisory Agreement on behalf of the Series,
concluding that the advisory fee rate was reasonable in relation to the services
provided and that the
32
New Investment Advisory Agreement was in the best interests of the shareholders.
In approving the New Investment Advisory Agreement, the Board noted that it
anticipated reviewing the continuance of the agreement in advance of the
expiration of the initial two-year period.
Contingent BlackRock Sub-Advisory Agreement - Matters Considered by the Board
At the telephonic and in-person meetings held during April and May 2006 at
which the Board discussed and approved the New Investment Advisory Agreement,
the Board of Trustees, including the independent trustees, also discussed and
approved a contingent sub-advisory agreement (the "Contingent Sub-Advisory
Agreement") between the Investment Adviser and BlackRock Advisors (the
"BlackRock Sub-Adviser"). The Contingent Sub-Advisory Agreement is intended to
ensure that the Series operates with efficient portfolio management services
until the closing of the Transaction, in the event that the Board deems it
necessary and in the best interests of a series and its shareholders that the
BlackRock Sub-Adviser assist in managing the operations of the series during the
interim period until the closing of the Transaction. If shareholders approve the
Contingent Sub-Advisory Agreement, it will take effect only upon recommendation
from the Investment Adviser and upon subsequent approval of the Board in the
period up to the closing of the Transaction. The effectiveness of the 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 Series expenses as a result of the Contingent
Sub-Advisory Agreement.
In making its approval at the May in-person meeting, the Board considered
the Contingent Sub-Advisory Agreement in conjunction with the New Investment
Advisory Agreement and reviewed the same information and factors discussed
above. The Board also considered in conjunction with the Contingent Sub-Advisory
Agreement the necessity of ensuring that the Series operates with effective
management services until the closing of the Transaction. In reviewing the
sub-advisory fee rate provided in the Contingent Sub-Advisory Agreement, the
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 Series and the BlackRock
Sub-Adviser would provide advisory services to the Series under the Contingent
Sub-Advisory Agreement. The 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 Series would not increase as a result of the
Contingent Sub-Advisory Agreement. Under all of the circumstances, the 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 Series to the
Investment Adviser.
After the independent trustees deliberated in executive session, the entire
Board, including the independent trustees, approved the 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.
New BlackRock Sub-Advisory Agreement - Matters Considered by the Board
At an in-person meeting held on August 16-17, 2006, the Board of Trustees,
including the independent trustees, discussed and approved the sub-advisory
agreement with respect to the Series between BlackRock Advisors, LLC (previously
organized as BlackRock Advisors, Inc.) ("BlackRock Advisors") and BlackRock
Investment Management, LLC (the "Sub-Adviser") (the "BlackRock Sub-Advisory
Agreement"). The BlackRock Sub-Advisory Agreement became effective on September
29, 2006, at the same time the New Investment Advisory Agreement with BlackRock
Advisors (which had been approved by the Series' shareholders) became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors at an annual rate equal to 74% of the
advisory fee
33
received by BlackRock Advisors from the Series. BlackRock Advisors pays the
Sub-Adviser out of its own resources, and there is no increase in Series
expenses as a result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of the New Investment Advisory Agreement in May 2006. The Board relied on the
same information and considered the same factors as those discussed above in
connection with the approval of the New Investment Advisory Agreement, and came
to the same conclusions. In reviewing the sub-advisory fee rate provided for in
the BlackRock Sub-Advisory Agreement, the Board noted the fact that both
BlackRock Advisors and the Sub-Adviser have significant responsibilities under
their respective advisory agreements. Under the New Investment Advisory
Agreement, BlackRock Advisors remains responsible for the overall management of
the Series and for oversight of the Series' operations and administration. Under
the BlackRock Sub-Advisory Agreement, the Sub-Adviser provides advisory services
to the Series and is responsible for the day-to-day management of the Series'
portfolio. The Board also took into account the fact that there is no increase
in total advisory fees paid by the Series as a result of the BlackRock
Sub-Advisory Agreement. Based on its considerations, the Board concluded that it
was a reasonable allocation of fees for the Sub-Adviser to receive a fee at an
annual rate equal to 74% of the advisory fee paid by the Series to BlackRock
Advisors.
After the independent trustees deliberated in executive session, the entire
Board, including the independent trustees, approved the BlackRock Sub-Advisory
Agreement, concluding that the sub-advisory fee was reasonable in relation to
the services provided and that the BlackRock Sub-Advisory Agreement was in the
best interests of the Series' shareholders.
34
Officers and Trustees
Number of
Funds and
Portfolios
in Fund Other Public
Position(s) Length Complex Directorships
Held with of Time Principal Occupation(s) During Past 5 Overseen by Held by
Name Address & Age Trust Served Years Trustee Trustee
===================================================================================================================================
Interested Trustees
===================================================================================================================================
Robert C. P.O. Box 9011 President 2005 to Vice Chairman and Director of BlackRock, Inc., 122 Funds None
Doll, Jr.* Princeton, NJ and present Global Chief 168 Portfolios Investment Officer
08543-9011 Trustee for Equities, Chairman of the BlackRock Retail
Age: 52 Operating 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
Oppenheimer Funds, Inc. in 1999 and Executive Vice
President thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which
BlackRock Advisors, LLC and its affiliates act as an investment adviser. Mr. Doll is an "interested person," as
described in the Investment Company Act, of the Fund based on his positions with BlackRock, Inc. and its
affiliates. Trustees serve until their resignation, removal or death, or until December 31 of the year in which
they turn 72. As Trust President, Mr. Doll serves at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
Independent Trustees*
===================================================================================================================================
Donald W. P.O. Box 9095 Trustee 2002 to General Partner of The Burton Partnership, 21 Funds Knology, Inc.,
Burton Princeton, NJ present Limited partnership (an investment partnership) 38 Portfolios (tele-
08543-9095 since 1979; Managing General Partner of The communications)
Age: 62 South Atlantic Venture Funds since 1983; Member Symbion, Inc.
of the Investment Advisory Council of the Florida (healthcare);
State Board of Administration since 2001. Capital
Southwest
(financial)
- ------------------------------------------------------------------------------------------------------------------------------------
John P.O. Box 9095 Trustee 2005 to President and Chief Executive Officer of 21 Funds Cabot
Francis Princeton, NJ present Allmerica Financial Corporation (financial 38 Portfolios Corporation
O'Brien 08543-9095 services holding company) from 1995 to 2002 and (chemicals),
Age: 63 Director from 1995 to 2003; President of LKQ Corporation
Allmerica Investment Management Co., Inc. (auto parts
(investment adviser) from 1989 to 2002; Director manufacturing);
from 1989 to 2002 and Chairman of the Board from TJX Companies,
1989 to 1990; President, Chief Executive Officer Inc. (retailer)
and Director of First Allmerica Financial Life
Insurance Company from 1989 to 2002 and Director
of various other Allmerica Financial companies
until 2002; Director from 1989 to 2006, Member of
the Governance Nominating Committee from 2004 to
2006, Member of the Compensation Committee from
1989 to 2006 and Member of the Audit Committee
from 1990 to 2004 of ABIOMED; Director, Member of
the Governance and Nomination Committee and
Member of the Audit Committee of Cabot
Corporation since 1990; Director and Member of
the Audit Committee and Compensation Committee of
LKQ Corporation since 2003; Lead Director of TJX
Companies, Inc. since 1996; Trustee of the Woods
Hole Oceanographic Institute since 2003;
Director, Ameresco, Inc since 2006; Director,
Boston Lyric Opera since 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
35
Officers and Trustees (continued)
Number of
Funds and
Portfolios
in Fund Other Public
Position(s) Length Complex Directorships
Held with of Time Principal Occupation(s) During Past 5 Overseen by Held by
Name Address & Age Trust Served Years Trustee Trustee
===================================================================================================================================
Independent Trustees (concluded)
===================================================================================================================================
David H. P.O. Box 9095 Trustee 2003 to Director, Ruckleshaus Institute and Haub School 21 Funds None
Walsh Princeton, NJ present of Natural Resources at the University of 38 Portfolios
08543-9095 Wyoming since 2006; Consultant with Putnam
Age: 65 Investments from 1993 to 2003 and employed in
various capacities therewith from 1973 to 1992;
Director, Massachusetts Audubon Society from 1990
to 1997; Director, The National Audubon Society
from 1998 to 2005; Director, The American Museum
of Fly Fishing since 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. P.O. Box 9095 Trustee 2000 to Managing Director of FGW Associates since 1997; 21 Funds Watson
Weiss** Princeton, NJ present Vice President, Planning, Investment and 38 Portfolios Pharmaceuticals,
08543-9095 Development of Warner Lambert Co. from 1979 to Inc.
Age: 65 1997; Director of the Michael J. Fox Foundation (pharmaceutical
for Parkinson's Research since 2000; Director of company)
BTG International, Plc (a global technology
commercialization company) since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
* Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Chairman of the Board of Trustees and the Audit Committee.
===================================================================================================================================
Trust Officers
===================================================================================================================================
Donald C. P.O. Box 9011 Vice 1997 to Managing Director of BlackRock since 2006;
Burke Princeton, NJ President present Managing Director of Merrill Lynch Investment
08543-9011 and and 1999 Managers, L.P. and Fund Asset Management, L.P.
Age: 46 Treasurer to in 2006; First Vice President of MLIM and FAM
present from 1997 to 2005 and Treasurer thereof from 1999
to 2006; Vice President of MLIM and FAM from 1990
to 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Debra L. P.O. Box 9011 Vice 2005 to Director of BlackRock, Inc. since 2006;
Jelilian Princeton, NJ President present Director of MLIM from 1999 to 2006.
08543-9011
Age: 39
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey L. P.O. Box 9011 Vice 2005 to Director of BlackRock, Inc. since 2006;
Russo Princeton, NJ President present Director of MLIM from 2004 to 2006; Vice
08543-9011 President of MLIM from 1994 to 2004.
Age: 39
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O Box 9011 Fund Chief 2004 to Managing Director of BlackRock, Inc. and Fund
Hiller Princeton, NJ Compliance present Chief Compliance Officer since 2006; Chief
08534 Officer Compliance Officer of the MLIM/FAM-advised funds
Age: 55 and First Vice President and Chief Compliance
Officer of MLIM (Americas Region) from 2004 to
2006; Chief Compliance Officer of the IQ Funds
since 2004; Global Director of Compliance at
Morgan Stanley Investment Management from 2002 to
2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from
2000 to 2002; Chief Compliance Officer at Soros
Fund Management in 2000; Chief Compliance
Officer at Prudential Financial from 1995 to
2000; Senior Counsel in the Securities and
Exchange Commission's Division of Enforcement in
Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
36
Officers and Trustees (concluded)
Position(s) Length
Held with of Time Principal Occupation(s) During Past
Name Address & Age Trust Served 5 Years
===================================================================================================================================
Trust Officers (concluded)
===================================================================================================================================
Alice A. P.O. Box 9011 Secretary 2004 to Director of BlackRock, Inc. since 2006; Director
Pellegrino Princeton, NJ present (Legal Advisory) of MLIM from 2002 to 2006; Vice
08543-9011 President of MLIM from 1999 to 2002; Attorney
Age: 46 associated with MLIM from 1997 to 2006; Secretary
of MLIM, FAM, FAM Distributors, Inc. and Princeton
Services from 2004 to 2006.
- ------------------------------------------------------------------------------------------------------------------------------------
* Officers of the Trust serve at the pleasure of the Board of Trustees.
Further information about the Trust's Officers and Trustees is available in the Trust's Statement of Additional
Information, which can be obtained without charge by calling 1-800-441-7762.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
JPMorgan Chase Bank
3 Chase MetroTech Center
Brooklyn, NY 11245
Transfer Agent
PFPC Inc.
Wilmington, DE 19809
Availability of Quarterly Schedule of Investments
The Series files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Series' Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Series' Forms
N-Q may also be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room
may be obtained by calling 1-800-SEC-0330.
A description of the policies and procedures that the Series uses to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Series voted proxies relating
to securities held in the Series' portfolio during the most recent 12-month
period ended December 31st is available (1) at www.blackrock.com; and (2) on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
37
Proxy Results
During the six-month period ended December 31, 2006, Master Enhanced S&P 500
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 15, 2006. A description of the proposals and number of units of
interest voted are as follows:
Units of Interest Units of Interest Units of Interest
Voted For Voted Against Voted Abstain
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement with
BlackRock Advisors, Inc. 549,454,553 0 0
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement with
BlackRock Advisors, Inc. 549,454,553 0 0
- -------------------------------------------------------------------------------------------------------------------------
38
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge at
www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Donald W.
Burton, (2) Laurie Simon Hodrick (resigned as of May 1, 2006), (3) John
F. O'Brien, (4) David H. Walsh and (5) Fred G. Weiss.
The registrant's board of directors has determined that Laurie Simon
Hodrick qualifies as a financial expert pursuant to Item 3(c)(4) of
Form N-CSR.
Ms. Hodrick has a thorough understanding of generally accepted
accounting principals, financial statements, and internal controls and
procedures for financial reporting. Ms. Hodrick earned a Ph.D. in
economics and has taught courses in finance for over 15 years. Her
M.B.A.-level course centers around the evaluation and analysis of
firms' corporate financial statements. She has also taught in financial
analysts' training programs. Ms. Hodrick has also worked with several
prominent corporations in connection with the analysis of financial
forecasts and projections and analysis of the financial statements of
those companies, serving on the Financial Advisory Council of one of
these major corporations. She has also served as the Treasurer and
Finance Chair of a 501(c)(3) organization. Ms. Hodrick has published a
number of articles in leading economic and financial journals and is
the associate editor of two leading finance journals.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending December 31, 2006 - $33,400
Fiscal Year Ending December 31, 2005 - $33,000
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2006 - $0
Fiscal Year Ending December 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending December 31, 2006 - $9,200
Fiscal Year Ending December 31, 2005 - $8,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending December 31, 2006 - $0
Fiscal Year Ending December 31, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending December 31, 2006 - $3,071,450
Fiscal Year Ending December 31, 2005 - $5,577,771
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,739,500, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - As of September 29, 2006, with the conclusion of the combination of
Merrill Lynch's asset management business with BlackRock, the registrant
was migrated to BlackRock's trading and compliance monitoring systems,
and various personnel changes occurred. In conjunction with these
business improvements, there were no changes in the registrants internal
control over financial reporting (as defined in Rule 30a-3(d) under Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year of
the period covered by this report that has materially affected, or is
reasonably likely to affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Master Enhanced S&P 500 Series of Quantitative Master Series Trust
By: /s/ Robert C. Doll, Jr.
--------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Master Enhanced S&P 500 Series of Quantitative Master Series Trust
Date: February 20, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
--------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Master Enhanced S&P 500 Series of Quantitative Master Series Trust
Date: February 20, 2007
By: /s/ Donald C. Burke
--------------------------
Donald C. Burke,
Chief Financial Officer of
Master Enhanced S&P 500 Series of Quantitative Master Series Trust
Date: February 20, 2007