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: 811-4984
AMERICAN AADVANTAGE FUNDS
(Exact name of registrant as specified in charter)
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Address of principal executive offices)-(Zip code)
WILLIAM F. QUINN, PRESIDENT
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Name and address of agent for service)
Registrant's telephone number, including area code: (817) 967-3509
Date of fiscal year end: December 31, 2003
Date of reporting period: June 30, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
[LOGO OF AMERICAN AADVANTAGE FUNDS]
AMERICAN AADVANTAGE FUNDS(R)
- -----------------------------------[GRAPHIC]------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2003
[GRAPHIC]
MONEY MARKET FUNDS
Money Market Fund
U.S. Government Money Market Fund
Municipal Money Market Fund
MANAGED BY AMR INVESTMENTS
ABOUT AMR INVESTMENTS
- --------------------------------------------------------------------------------
AMR Investments is an experienced provider of investment advisory services to
institutional and retail markets. We act as manager of the American AAdvantage
Funds, a family of diversified mutual funds, and offer customized fixed income
portfolio management services.
Our clients include defined benefit plans, defined contribution plans,
foundations, endowments, corporations, and other institutional investors.
AMR Investments is a wholly owned subsidiary of AMR Corporation, the parent
company of American Airlines, Inc.
Incorporated in 1986, we are directly responsible for the investment
management and oversight of AMR Corporation's defined benefit and defined
contribution plans, as well as its fixed income investments.
CONTENTS
- --------------------------------------------------------------------------------
President's Message ........................................ 1
Financial Highlights
Money Market Fund ....................................... 14
U.S. Government
Money Market Fund ....................................... 16
Municipal
Money Market Fund ....................................... 18
Schedule of Investments
Money Market Portfolio .................................. 20
U.S. Government
Money Market Portfolio .................................. 22
Municipal
Money Market Portfolio .................................. 23
Additional Information ..................................... Inside Back Cover
---------------------------------------------------------------------------
Any opinions herein, including forecasts, reflect our judgement as of the
end of the reporting period and are subject to change. Each adviser's
strategies and each Fund's portfolio composition will change depending on
economic and market conditions. This report is not a complete analysis of
market conditions and therefore, should not be relied upon as investment
advice. Although economic and market information has been compiled from
reliable sources, AMR Investment Services, Inc. makes no representation as
to the completeness or accuracy of the statements contained herein.
---------------------------------------------------------------------------
American AAdvantage Funds June 30, 2003
[GRAPHIC OF AMR INVESTMENTS]
FELLOW SHAREHOLDERS:
I am pleased to present you with the Semi-Annual Report for the American
AAdvantage Funds for the six months ended June 30, 2003. While this period was
marked with some uncertainty, investors were pleased as most major stock market
indices posted positive returns for the first time in three years. June ended
with a new low for interest rates as the Fed Funds rate was decreased by 25
basis points to 1.00%.
The past six months saw a quick resolution to the war in Iraq, the lowest
interest rates in 45 years, the ongoing fight against global terrorism, the
effects of the SARS epidemic, and a tax cut. The American AAdvantage Money
Market Funds produced strong relative returns for the period.
The Money Market Fund-Cash Management Class returned 0.58% for the six
months, outperforming the Lipper Institutional Money Market Average return of
0.45%. The U.S. Government Money Market Fund-Cash Management Class outpaced the
Lipper Institutional U.S. Government Money Market Average with a return of 0.57%
versus 0.45% for the Average.
In mid-July, Federal Reserve Chairman Alan Greenspan expressed his belief
that the economy would post stronger growth by year's end. He cautioned against
deflation, renewing his commitment to keep interest rates low for a prolonged
period. Thus, we will continue to closely monitor Federal Reserve policy and
structure the Funds accordingly.
Please review the enclosed portfolio listings and detailed financial data.
As always, we welcome the opportunity to serve your financial needs. We value
the trust you have placed in the American AAdvantage Funds. Should you have any
questions about the enclosed information, please do not hesitate to contact us
at 800-967-9009. You may also access fund and account information at
www.aafunds.com. Thank you for your continued confidence in the American
AAdvantage Funds.
Sincerely,
/s/ William F. Quinn
William F. Quinn
President
American AAdvantage Funds
1
ECONOMIC OVERVIEW
================================================================================
The year began with the possibility of war with Iraq, unemployment on the rise
and a stock market that had bounced back from previous lows. After a successful
campaign in Iraq, the Bush Administration shifted its focus to stimulating the
economy through tax cuts. However, a great deal of uncertainty surrounded
short-term interest rates, as the world economy remained weak and excess
capacity continued to hinder the goods and labor markets. Federal Reserve
Chairman Alan Greenspan expressed concern over deflation, indicating that
policymakers would be diligent in monitoring the potential threat of falling
prices. Subsequently, the overnight Fed Funds Rate was lowered by 25 basis
points to 1% in June. This was the lowest overnight level in over forty-five
years. In addition, the housing market remained robust due to historically low
interest rates, which prompted a refinancing boom. However, the employment
picture remained weak, as the unemployment rate rose to 6.4% in June--a rate not
seen since 1994. By the end of June, overall consumer confidence had picked up,
and the stock market posted some significantly positive returns.
Looking forward, all indications are that the Federal Reserve Bank will
continue to implement an accommodative monetary policy until they see a
prolonged period of stronger economic data. The low interest rates should have a
positive effect on consumer spending, while the recent drop in the dollar should
spur commercial spending. This positive outlook has led many economists to
forecast an increase in economic activity for the second half of the year.
2
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MONEY MARKET FUND (R)
================================================================================
The American AAdvantage Money Market Fund adopted a neutral stance in the
first quarter of the year in anticipation of a stable interest rate environment.
However, as forecasts indicated lower interest rates during the second
quarter, the weighted average maturity was extended close to 60 days. This
strategy proved successful as the Federal Reserve Bank lowered interest rates at
the June 25th FOMC meeting.
For the six months ended June 30, 2003, the total return of the Cash
Management Class of the American AAdvantage Money Market Fund was 0.58%. The
Fund outperformed the Lipper Institutional Money Market Average return of 0.45%
by 13 basis points. Lipper Analytical Services ranked the Institutional Class of
the Fund 92nd among 282, 40th among 175, and 11th among 73 Institutional Money
Market Funds for the one-year, five-years and ten-years ended June 30, 2003,
respectively.
The Fund will continue to look for opportunities in both the variable rate
securities and commercial paper markets in the months ahead.
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF JUNE 30, 2003
[CHART OF CASH MANAGEMENT CLASS]
American AAdvantage Lipper Institutional Money
Money Market Fund Market Fund Average
1 Year 1.39% 1.14%
3 Years* 3.27% 3.04%
5 Years* 4.15% 3.92%
10 Years* 4.66% 4.47%
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
===================================
AS OF 6/30/03
-----------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,3) ......... 1.39% 4.15% 4.66%
Institutional Class (1) ............. 1.32% 4.13% 4.65%
PlanAhead Class (1,2) ............... 1.05% 3.83% 4.36%
Platinum Class (1,2) ................ 0.61% 3.40% 4.09%
1 Past performance is not indicative of future performance. An investment in
the American AAdvantage Money Market Fund is neither insured nor guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in this Fund.
2 Fund performance for the ten-year period represents the total returns
achieved by the Institutional Class from 7/1/93 up to 8/1/94, the inception
date of the PlanAhead Class, and up to 11/8/95, the inception date of the
Platinum Class, and the returns of the PlanAhead and Platinum Classes since
inception of these Classes. Expenses of the PlanAhead and Platinum Classes
are higher than those of the Institutional Class. Therefore, total returns
shown are higher than they would have been had the PlanAhead and Platinum
Classes been in place since 7/1/93.
3 Fund performance for the five and ten-year periods represents the total
returns achieved by the Institutional Class from 7/1/93 up to 12/1/01, the
inception date of the Cash Management Class and the returns of the Cash
Management Class since its inception. Expenses of the Cash Management Class
are lower than those of the Institutional Class. Therefore, total returns
shown are lower than they would have been had the Cash Management Class been
in place since 7/1/93.
PORTFOLIO STATISTICS AS OF JUNE 30, 2003
CASH
MANAGEMENT INSTITUTIONAL PLANAHEAD PLATINUM
CLASS CLASS CLASS CLASS
---------- ------------- --------- --------
7-day Current Yield* 1.06% 0.94% 0.67% 0.22%
7-day Effective Yield* 1.07% 0.94% 0.67% 0.22%
30-day Yield* 1.11% 0.99% 0.72% 0.27%
Weighted Average Maturity 37 Days 37 Days 37 Days 37 Days
Moody's Rating Aaa Aaa N/A N/A
S&P Rating AAAm AAAm N/A N/A
*Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day
yield.
TOP TEN HOLDINGS AS OF JUNE 30, 2003
Metropolitan Life Insurance Company 7.8%
Bank One, NA 7.4%
General Electric Capital Assurance Company 5.9%
National City Bank 5.6%
Goldman Sachs Group, LP 4.8%
Tulip Funding Corporation 4.7%
General Electric Capital Corporation 4.3%
Southtrust Bank, NA 3.6%
Merrill Lynch & Company, Incorporated 3.6%
Branch Banking & Trust Company 3.6%
3
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND (SM)
================================================================================
As short-term interest rates remained flat to declining during the first
half of the year, the American AAdvantage U.S. Government Money Market Fund
maintained a weighted average maturity towards 60 days. This was accomplished
primarily by purchasing fixed rate agencies with maturities of six months to one
year. In addition to term agencies, the Fund maintained liquidity by investing
in overnight investments such as repurchase agreements. This strategy worked
well during the past six months as the Federal Reserve Bank lowered the Fed
Funds Rate in June to 1.00%.
For the six months ended June 30, 2003, the total return of the Cash
Management Class of the American AAdvantage U.S. Government Money Market Fund
was 0.57%. The Fund outperformed the Lipper Institutional U.S. Government Money
Market Average return of 0.45% by 12 basis points. Lipper Analytical Services
ranked the Cash Management Class of the Fund 29th among 140, 11th among 93, and
13th among 45 Institutional U.S. Government Money Market Funds for the
one-year, five-years and ten-years ended June 30, 2003, respectively.
In anticipation of a prolonged period of a stable overnight rate, the Fund
will seek to take advantage of a positively sloped yield curve. The weighted
average maturity will likely remain in the 40 to 50 day range until the economy
shows stronger signs of strength.
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF JUNE 30, 2003
[CHART OF CASH MANAGEMENT CLASS]
American AAdvantage Lipper Institutional
U.S. Government U.S. Government
Money Market Fund Money Market Fund Average
1 Year 1.33% 1.13%
3 Years* 3.20% 2.97%
5 Years* 4.06% 3.83%
10 Years* 4.50% 4.36%
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
===================================
AS OF 6/30/03
-----------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,3) ......... 1.33% 4.06% 4.50%
PlanAhead Class (1,2) ............... 0.96% 3.70% 4.17%
Platinum Class (1,2) ................ 0.55% 3.27% 3.91%
1 Past performance is not indicative of future performance. An investment in
the American AAdvantage U.S. Government Money Market Fund is neither insured
nor guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of an
investment at $1.00 per share, it is possible to lose money by investing in
this Fund.
2 Fund performance for the ten-year period represents the total returns
achieved by the Cash Management Class from 7/1/93 up to 8/1/94, the inception
date of the PlanAhead Class, and up to 11/8/95, the inception date of the
Platinum Class, and the returns of the PlanAhead and Platinum Classes since
inception of these Classes. Expenses of the PlanAhead and Platinum Classes
are higher than those of the Cash Management Class. Therefore, total returns
shown are higher than they would have been had the PlanAhead and Platinum
Classes been in existence since 7/1/93.
3 Prior to December 1, 2001, the Cash Management Class of the Fund was known as
the Institutional Class.
PORTFOLIO STATISTICS AS OF JUNE 30, 2003
CASH
MANAGEMENT PLANAHEAD PLATINUM
CLASS CLASS CLASS
---------- --------- ---------
7-day Current Yield* 1.02% 0.56% 0.22%
7-day Effective Yield* 1.02% 0.56% 0.22%
30-day Yield* 1.10% 0.65% 0.30%
Weighted Average Maturity 37 Days 37 Days 37 Days
Moody's Rating Aaa N/A N/A
S&P Rating AAAm N/A N/A
*Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day
yield.
4
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND (SM)
================================================================================
In anticipation of a stable interest rate environment, the American
AAdvantage Municipal Money Market Fund began the year with a neutral average
maturity. However, as interest rates began to fall, commercial paper was
purchased to extend the weighted average maturity of the portfolio. Maturity
dates in April and August were targeted, as those months typically see an
increase in short-term rates. During this period, the Fund continued to
purchase variable rate commercial paper backed by letters of credit and
short-term notes with the highest ratings.
For the six months ended June 30, 2003, the total return of the
Institutional Class of the American AAdvantage Municipal Money Market Fund was
0.43%. The Fund outperformed the Lipper Institutional Tax-Exempt Money Market
Average return of 0.41% by 2 basis points.
As we move forward, the Fund will continue to look for opportunities within
the commercial paper and fixed-rate note markets.
INSTITUTIONAL CLASS TOTAL RETURNS AS OF JUNE 30, 2003
[CHART OF INSTITUTIONAL CLASS]
American AAdvantage Lipper Institutional
Municipal Tax-Exempt
Money Market Fund Money Market Fund Average
1 Year 1.04% 0.97%
3 Years* 2.07% 2.02%
5 Years* 2.53% 2.48%
Since Inception* 2.93% 2.84%
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
=====================================
AS OF 6/30/03
-------------------------------------
1 YEAR 5 YEARS SINCE INCEP.
------ ------- ------------
Institutional Class (1) ............. 1.04% 2.53% 2.93%
PlanAhead Class (1,2) ............... 0.74% 2.25% 2.65%
Platinum Class (1,2) ................ 0.39% 1.85% 2.38%
1 Past performance is not indicative of future performance. An investment in
the American AAdvantage Municipal Money Market Fund is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of an
investment at $1.00 per share, it is possible to lose money by investing in
this Fund.
2 Fund performance for the inception period represents the total returns
achieved by the Institutional Class from 11/10/93 up to 8/1/94, the inception
date of the PlanAhead Class, and up to 11/8/95, the inception date of the
Platinum Class, and the returns of the PlanAhead and Platinum Classes since
inception of these Classes. Expenses of the PlanAhead and Platinum Classes
are higher than those of the Institutional Class. Therefore, total returns
shown are higher than they would have been had the PlanAhead and Platinum
Classes been in place since 11/10/93.
PORTFOLIO STATISTICS AS OF JUNE 30, 2003
INSTITUTIONAL PLANAHEAD PLATINUM
CLASS CLASS CLASS
------------- --------- --------
7-day Current Yield* 0.75% 0.40% 0.17%
7-day Effective Yield* 0.75% 0.40% 0.17%
30 day Yield* 0.79% 0.44% 0.21%
Weighted Average Maturity 15 Days 15 Days 15 Days
*Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day
yield.
TOP TEN HOLDINGS AS OF JUNE 30, 2003
State of Texas Tax and Revenue 14.5%
Moffat County, Colorado Pollution Control 8.0%
Gulf Coast Waste Disposal Authority (Texas) 7.0%
Pierce County, Washington Economic Development Corporation 6.2%
Claremore Industrial and Redevelopment Authority 6.0%
Brazos Harbor Industrial Development Corporation 6.0%
Clark County, Nevada Highway Revenue 4.8%
Alachua County, Florida Housing Financial Authority 4.4%
Ohio Water Development Authority 4.1%
South Carolina JOBS Economic Development Authority 4.1%
5
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2003 (Unaudited)
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS:
Investment in Portfolio, at value ............................ $ 462,476 $ 55,024 $ 10,192
Receivable for fund shares sold .............................. 87 - -
Receivable for expense reimbursement ......................... 9 9 -
Other assets ................................................. - - 13
------------ ------------ ----------
TOTAL ASSETS ........................................... 462,572 55,033 10,205
------------ ------------ ----------
LIABILITIES:
Payable for fund shares redeemed ............................. 16 - -
Dividends payable ............................................ 85 31 -
Administrative services fees payable (Note 2) ................ 63 9 3
Distribution fees payable .................................... 12 - 1
Other liabilities ............................................ 150 8 -
------------ ------------ ----------
TOTAL LIABILITIES ...................................... 326 48 4
------------ ------------ ----------
NET ASSETS ......................................................... $ 462,246 $ 54,985 $ 10,201
============ ============ ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital .............................................. 462,246 54,985 10,201
------------ ------------ ----------
NET ASSETS ......................................................... $ 462,246 $ 54,985 $ 10,201
============ ============ ==========
Shares outstanding (no par value):
Cash Management Class ........................................ 2,071,814 19,679,438 N/A
============ ============ ==========
Institutional Class .......................................... 266,359,380 N/A 1,172,309
============ ============ ==========
PlanAhead Class .............................................. 140,790,897 26,883,404 4,649,687
============ ============ ==========
Platinum Class ............................................... 53,026,293 8,421,864 4,378,518
============ ============ ==========
Net asset value per share, offering and redemption price per share:
Cash Management Class ........................................ $ 1.00 $ 1.00 N/A
============ ============ ==========
Institutional Class .......................................... $ 1.00 N/A $ 1.00
============ ============ ==========
PlanAhead Class .............................................. $ 1.00 $ 1.00 $ 1.00
============ ============ ==========
Platinum Class ............................................... $ 1.00 $ 1.00 $ 1.00
============ ============ ==========
See accompanying notes
- --------------------------------------------------------------------------------
6
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2003 (Unaudited)
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
(IN THOUSANDS)
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income ............................................... $ 4,484 $ 1,348 $ 120
Portfolio expenses ............................................ (371) (125) (12)
------- ------- -----
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO .......... 4,113 1,223 108
------- ------- -----
FUND EXPENSES:
Administrative service fees (Note 2):
Cash Management Class ...................................... 10 8 -
Institutional Class ........................................ 162 - 1
PlanAhead Class ............................................ 78 80 2
Platinum Class ............................................. 488 68 43
Transfer agent fees:
Cash Management Class ...................................... 2 3 -
Institutional Class ........................................ 29 - -
PlanAhead Class ............................................ 28 48 2
Platinum Class ............................................. 12 3 -
Professional fees ............................................. 19 4 1
Registration fees and expenses ................................ 39 16 6
Distribution fees - Platinum Class (Note 2) ................... 188 26 16
Service Fees - PlanAhead Class (Note 2) ....................... 195 200 7
Other expenses ................................................ 53 25 9
------- ------- -----
TOTAL FUND EXPENSES ..................................... 1,303 481 87
------- ------- -----
LESS REIMBURSEMENT OF EXPENSES (NOTE 2) ............................ 107 32 13
------- ------- -----
NET FUND EXPENSES ....................................... 1,196 449 74
------- ------- -----
NET INVESTMENT INCOME .............................................. 2,917 774 34
------- ------- -----
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments .............................. 4 1 -
------- ------- -----
NET GAIN ON INVESTMENTS ................................. 4 1 -
------- ------- -----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $ 2,921 $ 775 $ 34
======= ======= =====
See accompanying notes
- --------------------------------------------------------------------------------
7
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
MONEY MARKET
------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002
------------- ------------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ........................................... $ 2,917 $ 22,479
Net realized gain on investments ................................ 4 11
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...... 2,921 22,490
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Cash Management Class ........................................ (171) (847)
Institutional Class .......................................... (1,767) (10,046)
PlanAhead Class .............................................. (636) (2,284)
Platinum Class ............................................... (343) (9,305)
Net realized gain on investments:
Cash Management Class ........................................ - (1)
Institutional Class .......................................... (2) (1)
PlanAhead Class .............................................. (2) -
Platinum Class ............................................... - (9)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS: ............................ (2,921) (22,493)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ................................... 1,693,664 6,690,114
Reinvestment of dividends and distributions ..................... 1,898 20,382
Cost of shares redeemed ......................................... (2,783,654) (7,013,224)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS ............................................ (1,088,092) (302,728)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ................................ (1,088,092) (302,731)
NET ASSETS:
Beginning of period ............................................. 1,550,338 1,853,069
----------- -----------
END OF PERIOD ................................................... $ 462,246 $ 1,550,338
=========== ===========
See accompanying notes
- --------------------------------------------------------------------------------
8
================================================================================
U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
- ------------------------------ ------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002 (UNAUDITED) 2002
- ------------- ------------ ------------- ------------
(IN THOUSANDS)
$ 774 $ 3,655 $ 34 $ 486
1 26 - -
--------- --------- --------- ---------
775 3,681 34 486
--------- --------- --------- ---------
(125) (763) - -
- - (5) (9)
(610) (1,617) (14) (61)
(39) (1,275) (15) (416)
- (4) - -
- - - -
(1) (10) - -
- (12) - -
--------- --------- --------- ---------
(775) (3,681) (34) (486)
--------- --------- --------- ---------
252,852 833,690 11,788 168,645
45 1,710 27 484
(531,171) (760,047) (81,223) (153,415)
--------- --------- --------- ---------
(278,274) 75,353 (69,408) 15,714
--------- --------- --------- ---------
(278,274) 75,353 (69,408) 15,714
333,259 257,906 79,609 63,895
--------- --------- --------- ---------
$ 54,985 $ 333,259 $ 10,201 $ 79,609
========= ========= ========= =========
See accompanying notes
- --------------------------------------------------------------------------------
9
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (Unaudited)
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American AAdvantage Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940 (the
"Act"), as amended, as a no-load, open-end management investment company with
separate series. The following series are included in this report: American
AAdvantage Money Market, American AAdvantage U.S. Government Money Market and
American AAdvantage Municipal Money Market Funds (each a "Fund" and
collectively, the "Funds").
Each Fund invests all of its investable assets in the corresponding
portfolio of the AMR Investment Services Trust, an open-end diversified
management investment company, as follows:
AMERICAN AADVANTAGE: --> INVESTS ASSETS IN --> AMR INVESTMENT SERVICES TRUST:
- -------------------- ------------------------------
Money Market Fund Money Market Portfolio
U.S. Government Money Market Fund U.S. Government Money Market Portfolio
Municipal Money Market Fund Municipal Money Market Portfolio
Each AMR Investment Services Trust Portfolio has the same investment
objectives as its corresponding Fund. The value of such investment reflects each
Fund's proportionate interest in the net assets of the corresponding portfolio
(10.98%, 22.44% and 24.56% at June 30, 2003 of the AMR Investment Services Trust
Money Market, U.S. Government Money Market and Municipal Money Market
Portfolios, respectively) (each a "Portfolio" and collectively the
"Portfolios"). The financial statements of the Portfolios are included elsewhere
in this report and should be read in conjunction with the Funds' financial
statements.
AMR Investment Services, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services to the Trust and other
investors.
The following is a summary of the significant accounting policies followed
by the Funds.
Valuation of Investments
Valuation of securities by the Portfolios is discussed in Note 1 of the
Portfolios' Notes to Financial Statements which are included elsewhere in this
report.
Investment Income and Dividends to Shareholders
Each Fund records its share of net investment income (loss) and realized
gain (loss) in the Portfolio each day. All net investment income (loss) and
realized gain (loss) of each Portfolio are allocated pro rata among the
corresponding Fund and other investors in each Portfolio at the time of such
determination. The Funds generally declare dividends daily from net investment
income and net short-term capital gain, if any, payable monthly.
Dividends are determined in accordance with income tax principles which may
treat certain transactions differently than accounting principles generally
accepted in the United States.
Federal Income and Excise Taxes
It is the policy of each of the Funds to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all net investment income as well as any net realized
capital gains on the sale of investments. Therefore, no federal income or excise
tax provision is required.
- --------------------------------------------------------------------------------
10
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2003 (Unaudited)
================================================================================
100% of dividends paid by the Municipal Money Market Fund were
"exempt-interest dividends" which are free of any regular federal income tax.
Approximately 22% of interest earned was derived from investments in certain
private activity bonds for purposes of the federal alternative minimum tax
calculation.
Expenses
Expenses directly attributable to a Fund are charged to that Fund's
operations. Expenses directly attributable to a Class of shares are charged to
that Class. Expenses incurred by the Trust with respect to any two or more of
the Funds are allocated in proportion to the net assets of each Fund, except
where allocations of direct expenses to each Fund can otherwise be made
fairly. Each share of each Fund, regardless of class, bears equally those
expenses that are allocated to the Fund as a whole.
Valuation of Shares
The price per share is calculated separately for each class of each Fund on
each day on which shares are offered for sale and orders accepted or upon
receipt of a redemption request. With respect to a class of a Fund, price per
share is computed by dividing the value of the Class' pro rata allocation of the
Fund's investments and other assets, less liabilities, by the number of Class
shares outstanding.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimated.
2. TRANSACTIONS WITH AFFILIATES
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
which obligates the Manager to provide or oversee administrative and management
services to the Funds. As compensation for performing the duties required under
the Administrative Services Agreement, the Manager receives an annualized fee of
0.10% of the net assets of each of the Institutional, PlanAhead and Platinum
Classes of the Funds.
The Trust has adopted an Administrative Services Plan with respect to the
Platinum Classes of the Funds. As compensation for providing administrative
services, the Manager receives an annual fee of 0.55% of the average daily net
assets of each of the Platinum Classes of the Funds.
A separate Administrative Services Plan has been adopted for the Cash
Management Classes of the Funds. As compensation for providing administrative
services, the Manager receives an annualized fee of 0.07% of the average daily
net assets of each of the Cash Management Classes of the Funds.
Distribution Plan
The Trust, except for the Platinum Class of the Funds, has adopted a
"defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Act, pursuant to which no fees may be charged to the Funds for distribution
purposes. However, the Plan authorizes the fees received by the Manager and
- --------------------------------------------------------------------------------
11
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2003 (Unaudited)
================================================================================
the investment advisers hired by the Manager to be used for distribution
purposes. Under this plan, the Trust does not intend to compensate the Manager
or any other party, either directly or indirectly, for the distribution of Trust
shares. During the six months ended June 30, 2003, the Manager waived service
fees totaling $4,898 for the U.S. Government Money Market Fund.
A separate Distribution Plan (the "Distribution Plan") has been adopted
pursuant to Rule 12b-1 under the Act for the Platinum Classes of the Funds.
Under the Distribution Plan, as compensation for distribution assistance, the
Manager receives an annual fee of 0.25% of the average daily net assets of each
of the Platinum Classes. The fee will be payable without regard to whether the
amount of the fee is more or less than the actual expenses incurred in a
particular month by the Manager for distribution assistance. During the six
months ended June 30, 2003, the Manager waived distribution fees totaling
$100,942 $18,931 and $12,768 for the Platinum Class of the Money Market, U.S.
Government Money Market and Municipal Money Market Funds, respectively.
Reimbursement of Expenses
Effective 3/1/03 the Manager contractually agreed to reimburse each Cash
Management Class Fund for other expenses through December 31, 2003 to the extent
that total annual fund operating expenses exceed 0.15% and 0.19% for the Money
Market and U.S. Government Money Market Funds, respectively. Prior to 3/1/03,
the Manager contractually agreed to reimburse the Cash Management Class of the
Money Market Fund for other expenses to the extent that total annual fund
operating expenses exceeded 0.19%. During the six months ended June 30, 2003,
the Manager waived other expenses totaling $5,736 and $8,428 for the Cash
Management Class of the Money Market and U.S. Government Money Market Funds,
respectively.
The Manager has contractually agreed to reimburse each Platinum Class Fund
for other expenses through December 31, 2003 to the extent that total annual
fund operating expenses exceed 0.99%. In addition, effective 6/25/03, the
Manager agreed to voluntarily waive additional fees to the extent necessary to
preserve a certain minimum level of returns for Platinum Class Fund
shareholders. Thereafter, for a period of up to three years, each Platinum Class
Fund is required to reimburse the Manager for these expenses, provided that its
average net assets have grown or expenses have declined sufficiently to allow
reimbursement without causing its expense ratio to exceed the previously
agreed upon contractual expense waiver.
Service Agreement
The Manager and the Trust entered into a Service Agreement which obligates
the Manager to oversee additional shareholder servicing of the PlanAhead
Class. As compensation for performing the duties required under the Service
Agreement, the Manager receives 0.25% based on the daily net assets of the
PlanAhead Class.
Other
Certain officers or trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Unaffiliated trustees and their spouses are provided
free unlimited air transportation on American. However, the Trust compensates
each trustee with payments in an amount equal to the trustee's income tax on
the value of this free airline travel. Retired trustees and their spouses
receive American Airlines flight benefits, plus reimbursement of any tax
liability relating to such benefits, up to a maximum annual value of $40,000.
One trustee, as a retiree of American, already receives flight benefits. This
trustee receives an annual retainer of $40,000 plus $1,250 for each Board
meeting attended. For the six months ended June 30, 2003, the cost of air
transportation was not material to any of the Funds.
- --------------------------------------------------------------------------------
12
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2003 (Unaudited)
================================================================================
3. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each Class of
the Funds (in thousands). Each share is valued at $1.00:
Six Months Ended June 30, 2003
- ------------------------------
CASH MANAGEMENT
MONEY MARKET FUND CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- ----------------- --------------- ------------------- --------------- --------------
Shares sold ......................... 258,433 1,289,909 104,383 40,939
Reinvestment of dividends ........... 140 1,168 481 109
Shares redeemed ..................... (263,143) (1,499,640) (119,608) (901,263)
--------- ----------- --------- ---------
Net decrease in shares outstanding .. (4,570) (208,563) (14,744) (860,215)
========= =========== ========= =========
U.S. GOVERNMENT MONEY MARKET FUND
- ---------------------------------
Shares sold ......................... 45,074 202,102 5,676
Reinvestment of dividends ........... 18 10 17
Shares redeemed ..................... (63,724) (350,344) (117,103)
--------- --------- ---------
Net decrease in shares outstanding .. (18,632) (148,232) (111,410)
========= ========= =========
MUNICIPAL MONEY MARKET FUND
- ---------------------------
Shares sold ......................... 2,578 1,671 7,539
Reinvestment of dividends ........... 4 15 8
Shares redeemed ..................... (2,540) (4,382) (74,301)
----------- --------- ---------
Net increase (decrease) in shares
outstanding ....................... 42 (2,696) (66,754)
=========== ========= =========
Year Ended December 31, 2002
- ----------------------------
MONEY MARKET FUND
- -----------------
Shares sold ......................... 722,000 4,884,795 426,319 657,000
Reinvestment of dividends ........... 811 8,095 2,161 9,315
Shares redeemed ..................... (731,175) (5,223,810) (436,770) (621,469)
--------- ----------- --------- ---------
Net increase (decrease) in shares
outstanding ....................... (8,364) (330,920) (8,290) 44,846
========= =========== ========= =========
U.S. GOVERNMENT MONEY MARKET FUND
- ---------------------------------
Shares sold ......................... 146,102 471,135 216,453
Reinvestment of dividends ........... 372 51 1,287
Shares redeemed ..................... (174,466) (375,005) (210,576)
--------- --------- ---------
Net increase (decrease) in shares
outstanding ....................... (27,992) 96,181 7,164
========= ========= =========
MUNICIPAL MONEY MARKET FUND
- ---------------------------
Shares sold ......................... 4,606 10,081 153,958
Reinvestment of dividends ........... 7 61 416
Shares redeemed ..................... (4,282) (6,465) (142,668)
----------- --------- ---------
Net increase in shares outstanding .. 331 3,677 11,706
=========== ========= =========
- --------------------------------------------------------------------------------
13
AMERICAN AADVANTAGE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
CASH MANAGEMENT CLASS
-----------------------------------------------------
SIX MONTHS ONE MONTH
ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
2003 2002 2001(B)
----------- ------------ ------------
(UNAUDITED)
Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00
------ ------ -------
Net investment income(A)........... 0.01 0.02 -
Less dividends from net
investment income................ (0.01) (0.02) -
------ ------ -------
Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00
====== ====== =======
Total return.......................... 0.58%(C) 1.73% 0.19%(C)
====== ====== =======
Ratios and supplemental data:
Net assets, end of period
(in thousands)................... $2,072 $6,641 $15,006
Ratios to average net assets
(annualized)(A):
Expenses...................... 0.18% 0.19% 0.19%
Net investment income......... 1.22% 1.73% 1.96%
Decrease reflected in above
expense ratio due to
absorption of expenses
by the Manager.............. 0.05% 0.03% -
INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
- ----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ---------- ---------- ----------
0.01 0.02 0.04 0.06 0.01 0.05 0.06
(0.01) (0.02) (0.04) (0.06) (0.01) (0.05) (0.06)
-------- -------- -------- -------- ---------- ---------- ----------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========== ========== ==========
0.54%(C) 1.67% 4.15% 6.45% 0.94%(C) 5.09% 5.63%
======== ======== ======== ======== ========== ========== ==========
$266,358 $474,922 $805,843 $886,608 $1,978,123 $1,652,323 $1,241,999
0.26% 0.24% 0.25% 0.24% 0.23% 0.24% 0.23%
1.09% 1.68% 4.13% 6.17% 5.65% 4.99% 5.49%
- - - - - - -
- --------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses
of the AMR Investment Services Money Market Portfolio.
(B) The Money Market Fund commenced sales of a fourth class of shares
designated as "Cash Management Class" on December 1, 2001.
(C) Not annualized.
- --------------------------------------------------------------------------------
14
================================================================================
PLANAHEAD CLASS
- -----------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
- ----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
- 0.01 0.04 0.06 0.01 0.05 0.05
- (0.01) (0.04) (0.06) (0.01) (0.05) (0.05)
-------- -------- -------- -------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
0.40%(C) 1.37% 3.83% 6.14% 0.89%(C) 4.79% 5.31%
======== ======== ======== ======== ======== ======== ========
$140,791 $155,535 $163,825 $299,304 $262,748 $343,532 $288,759
0.53% 0.54% 0.55% 0.54% 0.55% 0.53% 0.53%
0.82% 1.36% 3.83% 5.95% 5.32% 4.69% 5.18%
- - - - - - -
PLATINUM CLASS
- -----------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
- ----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- -------- -------- --------
- 0.01 0.03 0.06 0.01 0.04 0.05
- (0.01) (0.03) (0.06) (0.01) (0.04) (0.05)
------- -------- -------- -------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ======== ======== ========
0.18%(C) 0.98% 3.45% 5.69% 0.82%(C) 4.33% 4.89%
======= ======== ======== ======== ======== ======== ========
$53,025 $913,240 $868,395 $800,196 $866,041 $841,653 $744,226
0.94% 0.93% 0.93% 0.97% 1.00% 0.97% 0.94%
0.46% 0.97% 3.36% 5.54% 4.87% 4.24% 4.78%
0.14% 0.01% - - - - -
- --------------------------------------------------------------------------------
15
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
CASH MANAGEMENT CLASS
-----------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001(B) 2000 1999 1999 1998
----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
Net investment income(A)........... 0.01 0.02 0.04 0.06 0.01 0.05 0.05
Less dividends from net
investment income................ (0.01) (0.02) (0.04) (0.06) (0.01) (0.05) (0.05)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= =======
Total return.......................... 0.57%(C) 1.67% 4.09% 6.31% 0.94%(C) 4.94% 5.47%
======= ======= ======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period
(in thousands)................... $19,680 $38,310 $66,302 $36,391 $37,385 $32,427 $39,004
Ratios to average net assets
(annualized)(A):
Expenses...................... 0.19% 0.19% 0.25% 0.26% 0.18% 0.19% 0.30%
Net investment income......... 1.15% 1.69% 3.74% 6.16% 5.60% 4.83% 5.34%
Decrease reflected in above
expense ratio due to
absorption of expenses
by the Manager.............. 0.08% 0.04% - - - - -
- --------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses
of the AMR Investment Services U.S. Government Money Market Portfolio.
(B) Prior to December 1, 2001, the Cash Management Class of the American
AAdvantage U.S. Government Money Market Fund was known as the
Institutional Class of the American AAdvantage U.S. Government Money
Market Fund. The Institutional Class had a higher expense structure than
the Cash Management Class.
(C) Not annualized.
- --------------------------------------------------------------------------------
16
================================================================================
PLANAHEAD CLASS
- -----------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
- ----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- ------- ------- ------- -------
- 0.01 0.04 0.06 0.01 0.05 0.05
- (0.01) (0.04) (0.06) (0.01) (0.05) (0.05)
------- -------- ------- ------- ------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======= ======= ======= =======
0.37%(C) 1.30% 3.79% 5.95% 0.86%(C) 4.56% 5.13%
======= ======== ======= ======= ======= ======= =======
$26,883 $175,115 $78,934 $65,795 $59,560 $59,960 $99,869
0.57% 0.55% 0.55% 0.60% 0.64% 0.56% 0.57%
0.77% 1.25% 3.59% 5.81% 5.15% 4.45% 5.01%
- - - - - - -
PLATINUM CLASS
- -----------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
- ----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ -------- -------- ------- ------- ------- -------
- 0.01 0.03 0.05 0.01 0.04 0.05
- (0.01) (0.03) (0.05) (0.01) (0.04) (0.05)
------ -------- -------- ------- ------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======== ======== ======= ======= ======= =======
0.17%(C) 0.90% 3.37% 5.53% 0.80%(C) 4.09% 4.71%
====== ======== ======== ======= ======= ======= =======
$8,422 $119,833 $112,670 $78,857 $78,585 $84,385 $78,412
0.96% 0.95% 0.95% 1.00% 1.02% 1.01% 1.01%
0.37% 0.88% 3.20% 5.40% 4.77% 4.01% 4.62%
0.18% 0.03% - - - - 0.01%
- --------------------------------------------------------------------------------
17
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
INSTITUTIONAL CLASS
-----------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------
Net investment income(A)........... - 0.01 0.03 0.04 0.01 0.03 0.03
Less dividends from net
investment income................ - (0.01) (0.03) (0.04) (0.01) (0.03) (0.03)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ======
Total return.......................... 0.43%(B) 1.21% 2.52% 3.93% 0.58%(B) 2.92% 3.46%
====== ====== ====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period
(in thousands)................... $1,172 $1,131 $ 799 $ 779 $ 750 $ 745 $ 847
Ratios to average net assets
(annualized)(A):
Expenses...................... 0.39% 0.30% 0.31% 0.31% 0.35% 0.39% 0.33%
Net investment income......... 0.87% 1.17% 2.49% 3.87% 3.49% 2.91% 3.35%
Decrease reflected in above
expense ratio due to
absorption of expenses
by the Manager.............. - - - - - - -
- --------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses
of the AMR Investment Services Municipal Money Market Portfolio.
(B) Not annualized.
- --------------------------------------------------------------------------------
18
PLANAHEAD CLASS
- -----------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
- ----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ -------
- 0.01 0.02 0.04 0.01 0.03 0.03
- (0.01) (0.02) (0.04) (0.01) (0.03) (0.03)
------ ------ ------ ------ ------ ------ -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== =======
0.27%(B) 0.93% 2.25% 3.61% 0.52%(B) 2.68% 3.17%
====== ====== ====== ====== ====== ====== =======
$4,650 $7,346 $3,669 $5,175 $7,479 $9,795 $13,474
0.71% 0.57% 0.58% 0.63% 0.73% 0.65% 0.64%
0.55% 0.94% 2.30% 3.48% 3.09% 2.61% 3.07%
- - - - - - -
PLATINUM CLASS
- -----------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
- ----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ -------- ------- ------- ------- ------- --------
- - 0.02 0.03 0.01 0.02 0.03
- - (0.02) (0.03) (0.01) (0.02) (0.03)
------ -------- ------- ------- ------- ------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======== ======= ======= ======= ======= ========
0.14%(B) 0.51% 1.82% 3.21% 0.47%(B) 2.27% 2.75%
====== ======== ======= ======= ======= ======= ========
$4,379 $71,132 $59,427 $89,602 $76,076 $81,118 $87,852
0.99% 0.99% 1.00% 1.02% 1.05% 1.04% 1.04%
0.22% 0.52% 1.87% 3.17% 2.77% 2.24% 2.69%
0.19% 0.02% - - 0.03% 0.01% 0.03%
- --------------------------------------------------------------------------------
19
AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2003 (Unaudited)
================================================================================
PAR
AMOUNT VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
TIME DEPOSITS - 10.10%
Den Danske Bank, 1.31%, Due 7/1/2003 ...................................... $ 200,000 $ 200,000
Societe Generale, 1.31%, Due 7/1/2003 ..................................... 225,000 225,000
----------
TOTAL TIME DEPOSITS .................................................. 425,000
----------
VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES (NOTE E) - 34.13%
Bank One, NA,
1.45%, Due 8/21/2003 .................................................... 25,000 25,007
1.30%, Due 9/15/2003 .................................................... 75,000 75,034
1.17%, Due 9/17/2003 .................................................... 213,000 213,061
Bank of New York, 1.36%, Due 10/20/2003 ................................... 100,000 100,024
Branch Banking & Trust Company, 1.22%, Due 2/10/2004 ...................... 150,000 149,991
Canadian Imperial Bank of Commerce, 1.12%, Due 3/12/2004 .................. 100,000 99,996
FCC National Bank, 1.44%, Due 2/10/2004 ................................... 47,000 47,058
First Tennessee Bank, NA, 1.36%, Due 7/21/2004 ............................ 50,000 50,052
First Union National Bank,
1.46%, Due 6/3/2004 ..................................................... 96,500 96,698
1.29%, Due 6/16/2004 .................................................... 5,000 5,010
National City Bank,
1.31%, Due 11/14/2003 ................................................... 35,000 35,007
1.19%, Due 12/9/2003 .................................................... 200,000 199,991
Southtrust Bank, NA,
1.16%, Due 3/19/2004 .................................................... 50,000 50,045
1.36%, Due 5/24/2004 .................................................... 82,000 82,077
1.11%, Due 6/21/2004 .................................................... 21,500 21,521
Suntrust Bank, NA,
1.37%, Due 9/5/2003 ..................................................... 11,100 11,103
1.39%, Due 4/12/2004 .................................................... 125,000 125,157
US Bank, NA, 1.35%, Due 10/29/2003 ........................................ 50,000 50,013
----------
TOTAL VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES ........... 1,436,845
----------
PROMISSORY NOTES - 4.75%
Goldman Sachs Group, LP, 1.25%, Due 9/26/2003 ............................. 200,000 200,000
----------
TOTAL PROMISSORY NOTES ............................................... 200,000
----------
VARIABLE RATE FUNDING AGREEMENTS (NOTES A AND E) - 13.78%
General Electric Capital Assurance Company, 1.35%, Due 12/2/2003 .......... 250,000 250,000
Metropolitan Life Insurance Company,
1.39%, Due 7/18/2003 .................................................... 135,000 135,000
1.36%, Due 11/21/2003 ................................................... 195,000 195,000
----------
TOTAL VARIABLE RATE FUNDING AGREEMENTS ............................... 580,000
----------
ASSET-BACKED COMMERCIAL PAPER, 144A (NOTES C AND D) - 5.93%
Jupiter Asset Securitization Corporation, 1.07%, Due 8/11/2003 ............ 50,000 49,941
Tulip Funding Corporation, 1.07%, Due 8/1/2003 ............................ 200,000 199,822
----------
TOTAL ASSET-BACKED COMMERCIAL PAPER .................................. 249,763
----------
VARIABLE RATE MEDIUM-TERM NOTES (NOTE E) - 17.56%
American Honda Finance Corporation, 144A (Note C),
1.25%, Due 11/26/2003 ................................................... 50,000 49,996
1.48%, Due 12/5/2003 .................................................... 15,000 15,015
1.35%, Due 6/11/2004 .................................................... 15,000 15,027
Bank of America Corporation,
1.55%, Due 5/3/2004 ..................................................... 5,000 5,012
1.38%, Due 7/2/2004 ..................................................... 35,000 35,041
Citigroup, Incorporated, 1.42%, Due 7/26/2004 ............................. 60,000 60,107
Donaldson, Lufkin & Jenrette, 1.85%, Due 7/18/2003 ........................ 13,200 13,203
General Electric Capital Corporation, 1.17%, Due 7/17/2004 ................ 180,000 180,000
See accompanying notes
- --------------------------------------------------------------------------------
20
AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2003 (Unaudited)
================================================================================
PAR
AMOUNT VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Merrill Lynch & Company, Incorporated,
1.46%, Due 1/14/2004 .................................................... $ 50,000 $ 50,044
1.60%, Due 1/26/2004 .................................................... 100,000 100,160
Salomon Smith Barney Holdings,
1.60%, Due 7/24/2003 .................................................... 17,000 17,003
1.49%, Due 10/10/2003 ................................................... 20,000 20,013
1.20%, Due 12/19/2003 ................................................... 35,000 35,027
1.45%, Due 1/28/2004 .................................................... 10,000 10,010
SLM Corporation, 1.47%, Due 7/26/2004 ..................................... 37,000 37,073
US Bancorp, 1.41%, Due 9/15/2003 .......................................... 11,500 11,507
USA Education, Incorporated, 1.40%, Due 6/16/2004 ......................... 24,000 24,066
Wells Fargo Financial, Incorporated, 1.14%, Due 3/26/2004 ................. 61,000 61,040
----------
TOTAL VARIABLE RATE MEDIUM-TERM NOTES ................................ 739,344
----------
REPURCHASE AGREEMENTS (NOTE B) - 19.82%
Banc of America Securities, LLC, 1.25%, Due 7/1/2003 ...................... 300,000 300,000
Goldman Sachs, 1.25%, Due 7/1/2003 ........................................ 300,000 300,000
UBS Securities, LLC, 1.22%, Due 7/1/2003 .................................. 234,350 234,350
----------
TOTAL REPURCHASE AGREEMENTS .......................................... 834,350
----------
TOTAL INVESTMENTS - 106.07% (COST $4,465,302) ............................. 4,465,302
----------
LIABILITIES, NET OF OTHER ASSETS - (6.07%) ................................ (255,450)
----------
TOTAL NET ASSETS - 100% ................................................... $4,209,852
==========
- --------------
Based on the cost of investments of $4,465,302 for federal income tax purposes
at June 30, 2003, there was no unrealized appreciation or depreciation of
investments.
(A) Obligation is subject to an unconditional put back to the issuer with
ninety calendar days notice.
(B) Collateral held at Bank of New York for Banc of America Securities, LLC,
6.00%, Due 3/1/2033, Total Value - $306,000,000; and Goldman Sachs,
3.83%-7.00%, Due 8/1/2014-6/1/2033, Total Value - $306,000,000; and at
JP Morgan Chase Bank for UBS Securities, LLC, 4.50%-8.00%,
Due 10/1/2010-5/1/2033, Total Value - $239,040,414.
(C) Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $329,801 or 7.83% of net
assets.
(D) Rates represent discount rate at time of purchase.
(E) The coupon rate shown on floating or adjustable rate securities represents
the rate at period end. The due date on these types of securities reflects
the final maturity date.
ABBREVIATIONS:
LLC - Limited Liability Company
LP - Limited Partnership
NA - National Association
See accompanying notes
- --------------------------------------------------------------------------------
21
AMR INVESTMENT SERVICES U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2003 (Unaudited)
================================================================================
PAR
AMOUNT VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTES A AND B) - 47.15%
Banc of America Securities, LLC, 1.25%, Due 7/1/2003 ...................... $ 50,000 $ 50,000
Goldman Sachs, 1.25%, Due 7/1/2003 ........................................ 50,000 50,000
UBS Securities, LLC, 1.22%, Due 7/1/2003 .................................. 15,617 15,617
----------
TOTAL REPURCHASE AGREEMENTS .......................................... 115,617
----------
U.S. GOVERNMENT AGENCY INSTRUMENTS - 43.79%
Federal Farm Credit Bank,
Discount Note, 0.95%, Due 7/17/2003 ..................................... 5,000 5,000
Federal Home Loan Bank,
Discount Note, 1.34%, Due 7/17/2003 (Note C) ............................ 2,100 2,099
Discount Note, 1.23%, Due 11/14/2003 (Note C) ........................... 5,000 4,977
Note 4.857%, 1.255%, Due 4/16/2004 ...................................... 4,000 4,113
Floating Rate Note, 1.151%, Due 8/11/2004 (Note D) ...................... 5,000 4,998
Federal Home Loan Mortgage Corporation, (Note C)
Discount Note, 1.76%, Due 7/17/2003 ..................................... 10,000 9,992
Discount Note, 1.23%, Due 11/6/2003 ..................................... 2,525 2,514
Discount Note, 1.24%, Due 12/15/2003 .................................... 4,765 4,737
Federal National Mortgage Association,
Discount Note, 0.97%, Due 7/7/2003 (Note C) ............................. 20,000 19,997
Discount Note, 1.24%, Due 8/20/2003 (Note C) ............................ 10,000 9,983
Discount Note, 1.67%, Due 8/22/2003 (Note C) ............................ 15,000 14,964
Discount Note, 1.24%, Due 8/27/2003 (Note C) ............................ 1,195 1,193
Discount Note, 1.24%, Due 9/30/2003 (Note C) ............................ 5,000 4,984
Discount Note, 1.23%, Due 11/14/2003 (Note C) ........................... 4,005 3,986
Discount Note, 1.23%, Due 1/29/2004 (Note C) ............................ 1,000 993
Discount Note, 1.25%, Due 1/29/2004 (Note C) ............................ 2,650 2,630
Note 5.125%, 1.28%, Due 2/13/2004 ....................................... 5,000 5,116
Note 5.125%, 1.33%, Due 2/13/2004 ....................................... 5,000 5,117
----------
TOTAL U.S. GOVERNMENT AGENCY INSTRUMENTS ............................. 107,393
----------
SHARES
-----------
SHORT-TERM INVESTMENTS - 8.97%
AIM Government Money Market Fund .......................................... 11,000,000 11,000
One Group Institutional Money Market Fund ................................. 11,000,000 11,000
----------
TOTAL SHORT-TERM INVESTMENTS ......................................... 22,000
----------
TOTAL INVESTMENTS - 99.91% (COST $245,010) ................................ 245,010
----------
OTHER ASSETS, NET OF LIABILITIES - 0.09% .................................. 216
----------
TOTAL NET ASSETS - 100% ................................................... $ 245,226
==========
- --------------
Based on the cost of investments of $245,010 for federal income tax purposes at
June 30, 2003, there was no unrealized appreciation or depreciation of
investments.
(A) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities. All collateral is held at a tri-party bank.
The collateral is monitored daily by the Portfolio so that its market value
exceeds the carrying value of the repurchase agreement.
(B) Collateral held at Bank of New York for Banc of America Securities, LLC,
6.00%, Due 3/1/2033, Total Value - $51,000,000; and Goldman Sachs, 5.50%,
Due 11/1/2017, Total Value - $51,000,000; and at JP Morgan Chase Bank for
UBS Securities, LLC, 6.50%, Due 7/1/2032, Total Value - $15,852,742.
(C) Rates represent discount rate.
(D) The coupon rate shown on floating or adjustable rate securities represents
the rate at period end. The due date on these types of securities reflects
the final maturity date.
ABBREVIATIONS:
LLC - Limited Liability Company
See accompanying notes
- --------------------------------------------------------------------------------
22
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2003 (Unaudited)
================================================================================
PAR
AMOUNT VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
MUNICIPAL OBLIGATIONS - 92.71%
COMMERCIAL PAPER (NOTE A) - 3.61%
Sarasota County Public Hospital District, Variable Rate
Demand Hospital Revenue Bonds, Series A (Sarasota Memorial
Hospital Project), 1.10%, Due 8/14/2003, LOC Suntrust Bank .............. $ 1,500 $ 1,500
----------
TOTAL COMMERCIAL PAPER 1,500
----------
TAX AND REVENUE ANTICIPATION NOTES (NOTE A) - 14.49%
State of Texas Tax and Revenue Anticipation
Notes, 2.75%, Due 8/29/2003 ............................................. 6,000 6,012
----------
TOTAL TAX AND REVENUE ANTICIPATION NOTES ............................. 6,012
----------
DEMAND OBLIGATIONS (NOTE A) - 74.61%
FIXED RATE - 3.38%
School District of Palm Beach County, Florida, General Obligation
Refunding Bonds, Fixed Rate, Series 2002A, 3.50%,
Due 8/1/2003, Bond Insurance - FGIC ..................................... 1,400 1,402
----------
TOTAL FIXED RATE ..................................................... 1,402
----------
VARIABLE RATE - 71.23%
COLORADO - 7.95%
Moffat County, Colorado Pollution Control Revenue Bonds, Series 1984
(Ute Electric Company Project), Bond Insurance - Ambac Assurance
Corporation, 1.25%, Due 7/1/2010, SPA Societe Generale .................. 3,300 3,300
----------
TOTAL COLORADO ....................................................... 3,300
----------
FLORIDA - 7.71%
Alachua County, Florida Housing Financial Authority,
Multifamily Housing Revenue Bonds, Series 2001 (University Cove
Apartment Project), 1.00%, Due 6/15/2034, LOC
Southtrust Bank, NA ..................................................... 1,835 1,835
Florida Housing Finance Corporation, Multifamily Mortgage Revenue
Bonds, Series 2002 L-1 (Bridgewater Club Apartments Project),
1.03%, Due 6/1/2034, LOC Suntrust Bank .................................. 1,365 1,365
----------
TOTAL FLORIDA ........................................................ 3,200
----------
ILLINOIS - 2.58%
Solid Waste Disposal Facility Revenue Bonds for the County of Lake,
Illinois, Series 1996 (Countryside Landfill Inc. Project), 1.15%,
Due 4/1/2021, LOC JP Morgan Chase Bank .................................. 1,070 1,070
----------
TOTAL ILLINOIS ....................................................... 1,070
----------
INDIANA - 4.84%
Fort Wayne, Indiana Industrial Economic Development Revenue Bonds,
Series 1989 (ND-Tech Corporation Project), 1.10%, Due 7/1/2009,
LOC Societe Generale .................................................... 1,000 1,000
City of Garrett, Indiana, Variable Rate Economic Development Revenue
Bonds, Series 1991 (Group Dekko Int'l Project), 1.05%,
Due 12/1/2011, LOC Bank One ............................................. 1,010 1,010
----------
TOTAL INDIANA ........................................................ 2,010
----------
LOUISIANA - 3.83%
Calcasieu Parish Public Trust Authority, Waste Disposal Revenue Bonds,
Series 1997 (WPT Corporation Project), 1.05%, Due 12/1/2027,
LOC JP Morgan Chase Bank ................................................ 1,589 1,589
----------
TOTAL LOUISIANA ...................................................... 1,589
----------
NEVADA - 4.82%
Clark County, Nevada Highway Revenue (Motor Vehicle Tax) Commercial
Paper Notes, Series B, 1.00%, Due 11/1/2031,
LOC Toronto Dominion .................................................... 2,000 2,000
----------
TOTAL NEVADA ......................................................... 2,000
----------
OHIO - 4.10%
Ohio Water Development Authority, Environmental Improvement Revenue
Bonds, Series 2000B (Waste Management, Incorporated,
Project), 1.20%, Due 7/1/2020, LOC Fleet National Bank .................. 1,700 1,700
----------
TOTAL OHIO ........................................................... 1,700
----------
See accompanying notes
- --------------------------------------------------------------------------------
23
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2003 (Unaudited)
================================================================================
PAR
AMOUNT VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
OKLAHOMA - 6.02%
Claremore Industrial and Redevelopment Authority, Development Revenue
Bonds, Series 2001 (Whirlwind Steel Buildings, Inc. Project), 1.15%,
Due 9/1/2019, LOC JP Morgan Chase Bank .................................. $ 2,500 $ 2,500
----------
TOTAL OKLAHOMA ...................................................... 2,500
----------
PENNSYLVANIA - 5.99%
Berks County Industrial Development Authority Manufacturing Facilities
Revenue Bonds, Series 1995 (Grafika Commerial Printing Inc.), 1.15%,
Due 9/1/2010, LOC First Union National Bank ............................. 1,485 1,485
Chartiers Valley, Pennsylvania Industrial and Commercial
Development Authority Commercial Development Bonds (William Penn
Plaza Project), 1.20%, Due 12/1/2016, LOC PNC Bank, NA .................. 1,000 1,000
----------
TOTAL PENNSYLVANIA .................................................. 2,485
----------
SOUTH CAROLINA - 4.10%
South Carolina JOBS Economic Development Authority Revenue Bonds,
Series 1998 (Klockner Namasco Corporation Project), 1.10%,
Due 4/1/2008, LOC Bayeriche Landesbank .................................. 1,700 1,700
----------
TOTAL SOUTH CAROLINA ................................................ 1,700
----------
TEXAS - 13.06%
Brazos Harbor Industrial Development Corporation Solid Waste Disposal
Revenue Bonds, Series 2002 (Republic Waste Services of Texas,
Ltd. Project), 1.10%, Due 12/1/2024, LOC Bank of America Corporation .... 2,500 2,500
Gulf Coast Waste Disposal Authority (Texas), Enviromental Facilities
Revenue Bonds, Series 2002 (Waste Corporation of Texas, L.P. Project),
1.15%, Due 9/1/2022, LOC - Wells Fargo Texas ............................ 2,920 2,920
----------
TOTAL TEXAS ......................................................... 5,420
----------
WASHINGTON - 6.23%
Pierce County, Washington Economic Development Corporation Dock & Wharf
Facilities Revenue Bonds, Series 1995 (SCS Industries Project), 1.10%,
Due 7/1/2030, LOC Bank of Nova Scotia ................................... 2,585 2,585
----------
TOTAL WASHINGTON .................................................... 2,585
----------
TOTAL VARIABLE RATE ................................................. 29,559
----------
TOTAL DEMAND OBLIGATIONS ............................................ 30,961
----------
TOTAL MUNICIPAL OBLIGATIONS ......................................... 38,473
----------
SHARES
----------
SHORT-TERM INVESTMENTS - 6.79%
Dreyfus Municipal Cash Management Plus .................................... 76 -
Federated Municipal Obligations Fund ...................................... 1,935,707 1,936
Provident Muni Cash Fund .................................................. 877,644 878
----------
TOTAL OTHER INVESTMENTS ......................................... 2,814
----------
TOTAL INVESTMENTS - 99.50% (COST $41,287) ................................. 41,287
----------
OTHER ASSETS, NET OF LIABILITIES - 0.50% .................................. 207
----------
TOTAL NET ASSETS - 100% ................................................... $ 41,494
==========
- --------------
Based on the cost of investments of $41,287 for federal income tax purposes at
June 30, 2003, there was no unrealized appreciation or depreciation of
investments.
(A) Rates represent yield to maturity or yield to next reset date.
ABBREVIATIONS:
FGIC - Financial Guaranty Insurance Company
LOC - Letter of Credit
SPA - Support Agreement
NA - National Association
See accompanying notes
- --------------------------------------------------------------------------------
24
AMERICAN INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2003 (Unaudited)
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
ASSETS:
Investments in securities at value (cost - $3,630,952;
$129,393, $41,287, respectively) ............................. $ 3,630,952 $ 129,393 $ 41,287
Repurchase agreements (cost - $834,350; $115,617; $0,
respectively) ................................................ 834,350 115,617 -
Cash ........................................................... 19 - -
Dividends and interest receivable .............................. 4,685 246 215
----------- ----------- ---------
TOTAL ASSETS ................................................ 4,470,006 245,256 41,502
----------- ----------- ---------
LIABILITIES:
Payable for investments purchased .............................. 259,789 - -
Management and investment advisory fees payable (Note 2) ....... 274 19 4
Other liabilities .............................................. 91 11 4
----------- ----------- ---------
TOTAL LIABILITIES ........................................... 260,154 30 8
----------- ----------- ---------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS ......... $ 4,209,852 $ 245,226 $ 41,494
=========== =========== =========
See accompanying notes
- --------------------------------------------------------------------------------
25
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2003 (Unaudited)
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
(IN THOUSANDS)
INVESTMENT INCOME:
Interest income ................................................ $ 32,850 $ 2,260 $ 330
----------- ----------- ---------
TOTAL INVESTMENT INCOME. .................................... 32,850 2,260 330
----------- ----------- ---------
EXPENSES:
Management and investment advisory fees (Note 2) ............... 2,418 170 26
Custodian fees ................................................. 140 19 5
Professional fees .............................................. 65 3 1
Other expenses ................................................. 95 18 1
----------- ----------- ---------
TOTAL EXPENSES .............................................. 2,718 210 33
----------- ----------- ---------
NET INVESTMENT INCOME ............................................ 30,132 2,050 297
----------- ----------- ---------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ............................... 28 3 -
----------- ----------- ---------
NET GAIN ON INVESTMENTS ..................................... 28 3 -
----------- ----------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $ 30,160 $ 2,053 $ 297
=========== =========== =========
See accompanying notes
- --------------------------------------------------------------------------------
26
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------------------------- -------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2003 DECEMBER 31, 2003 DECEMBER 31,
(UNAUDITED) 2002 (UNAUDITED) 2002
------------- -------------- ------------- --------------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .......................... $ 30,132 $ 165,857 $ 2,050 $ 6,840
Net realized gain on investments ............... 28 6 3 34
------------ ------------- ----------- ------------
TOTAL INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................... 30,160 165,863 2,053 6,874
------------ ------------- ----------- ------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions .................................. 26,940,823 106,944,248 618,081 2,200,353
Withdrawals .................................... (29,996,802) (108,139,347) (845,545) (2,032,412)
------------ ------------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM TRANSACTIONS IN
INVESTORS' BENEFICIAL INTERESTS ........... (3,055,979) (1,195,099) (227,464) 167,941
------------ ------------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS ....... (3,025,819) (1,029,236) (225,411) 174,815
------------ ------------- ----------- ------------
NET ASSETS:
Beginning of period ............................ 7,235,671 8,264,907 470,637 295,822
------------ ------------- ----------- ------------
END OF PERIOD .................................. $ 4,209,852 $ 7,235,671 $ 245,226 $ 470,637
============ ============= =========== ============
MUNICIPAL
MONEY MARKET
- ------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
2003 DECEMBER 31,
(UNAUDITED) 2002
- ------------- --------------
$ 297 $ 1,656
- -
- ----------- ------------
297 1,656
- ----------- ------------
44,127 204,033
(115,040) (191,801)
- ----------- ------------
(70,913) 12,232
- ----------- ------------
(70,616) 13,888
- ----------- ------------
112,110 98,222
- ----------- ------------
$ 41,494 $ 112,110
=========== ============
See accompanying notes
- --------------------------------------------------------------------------------
27
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
================================================================================
MONEY MARKET
------------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
Total Return.......................... 0.61%(A) 1.81% 4.30% N/A N/A N/A N/A
Ratios to average net assets
(annualized):
Expenses........................... 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 0.16%
Net investment income.............. 1.26% 1.81% 3.95% 6.40% 5.77% 5.11% 5.56%
- --------------
(A) Not annualized.
- --------------------------------------------------------------------------------
28
================================================================================
U.S. GOVERNMENT MONEY MARKET
- ------------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
- ----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
0.60%(A) 1.74% 4.24% N/A N/A N/A N/A
0.12% 0.12% 0.11% 0.13% 0.12% 0.12% 0.17%
1.21% 1.71% 3.99% 6.27% 5.67% 4.89% 5.45%
MUNCIPAL MONEY MARKET
- ------------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED OCTOBER 31,
JUNE 30, -------------------------------- DECEMBER 31, ------------------------
2003 2002 2001 2000 1999 1999 1998
- ----------- -------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
0.57%(A) 1.39% 2.71% N/A N/A N/A N/A
0.13% 0.12% 0.13% 0.13% 0.14% 0.15% 0.19%
1.14% 1.39% 2.71% 4.05% 3.69% 3.13% 3.55%
- --------------------------------------------------------------------------------
29
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (Unaudited)
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
AMR Investment Services Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a no load, open-end management
investment company which was organized as a trust under the laws of the State
of New York pursuant to a Declaration of Trust dated as of June 27, 1995 and
amended on August 11, 1995. Beneficial interests in the Trust are divided into
separate series, each having distinct investment objectives and policies. These
financial statements relate to the AMR Investment Services Money Market
Portfolio, AMR Investment Services U.S. Government Money Market Portfolio and
AMR Investment Services Municipal Money Market Portfolio (each a "Portfolio" and
collectively the "Portfolios"). The assets of each Portfolio belong only to
that Portfolio, and the liabilities of each Portfolio are borne solely by that
Portfolio and no other.
AMR Investment Services, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services.
The following is a summary of the significant accounting policies followed
by the Portfolios.
Security Valuation
Securities of the Portfolios are valued using the amortized cost method. In
the event that a deviation of 1/2 of 1% or more exists between the $1.00 per
share price of the Portfolios, calculated at amortized cost, and the price per
share calculated by reference to market quotations, or if there is any other
deviation which the Board believes would result in a material dilution to
shareholders or purchasers, the Board will promptly consider the appropriate
action which should be initiated.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale. Interest income is earned from settlement date, recorded on
the accrual basis, and adjusted, if necessary, for amortization of premiums or
accretion of discounts on investment grade short-term securities and zero coupon
instruments. For financial and tax reporting purposes, realized gains and
losses are determined on the basis of specific lot identification.
Federal Income and Excise Taxes
The Portfolios will be treated as partnerships for federal income tax
purposes. As such, each investor in a Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that each
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of subchapter M of the
Internal Revenue Code.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by a
Portfolio from a securities dealer or a bank which are subject to resale at a
later date. Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities. All collateral is held at the Portfolio's
custodian bank, State Street Bank and Trust Company, or at subcustodian banks.
The collateral is monitored daily by each Portfolio so that the collateral's
market value exceeds the carrying value of the repurchase agreement.
- --------------------------------------------------------------------------------
30
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2003 (Unaudited)
================================================================================
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimated.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement which
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory and portfolio management services. The Manager serves as the
sole investment adviser to each of the Portfolios. As compensation for
performing the duties required under the Management Agreement, the Manager
receives from the Portfolios 0.10% of the average daily net assets of each of
the Portfolios.
Other
Certain officers or trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Unaffiliated trustees and their spouses are provided
free unlimited air transportation on American. However, the Trust compensates
each trustee with payments in an amount equal to the trustee's income tax on the
value of this free airline travel. Retired trustees and their spouses receive
American Airlines flight benefits, plus reimbursement of any tax liability
relating to such benefits, up to a maximum annual value of $40,000. One trustee,
as a retiree of American, already receives flight benefits. This trustee
receives an annual retainer of $40,000 plus $1,250 for each Board meeting
attended. For the six months ended June 30, 2003, the cost of air transportation
was not material to any of the Funds.
- --------------------------------------------------------------------------------
31
[GRAPHIC]
- --------------------------------------------------------------------------------
32
[LOGO OF AMERICAN AADVANTAGE FUNDS]
AMERICAN AADVANTAGE FUNDS(R)
- --------------------------------------------------------------------------------
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report, and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. They will begin sending
you individual copies thirty days after receiving your request.
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS:
[GRAPHIC OF KEYBOARD] [GRAPHIC OF MOUSE]
BY E-MAIL: ON THE INTERNET:
American_AAdvantage.Funds@aa.com Visit our website at www.aafunds.com
- --------------------------------------------------------------------------------
[GRAPHIC OF TELEPHONE] [GRAPHIC OF MAILBOX]
BY TELEPHONE: BY MAIL:
Cash Management Class PlanAhead Class(R) Cash Management Class
Institutional Class ------------------ Institutional Class
- --------------------- Call (800)388-3344 Platinum Class(sm) PlanAhead Class(R)
Call (800)658-5811 ------------------ ------------------
American AAdvantage Funds American AAdvantage Funds
Platinum Class(sm) P.O. Box 619003, MD 2450 P.O. Box 219643
------------------- DFW Airport, TX 75261-9003 Kansas City, MO 64121-9643
Call (800)967-9009
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR
STATE STREET BANK AND TRUST NATIONAL FINANCIAL DATA SERVICES ERNST & YOUNG LLP SWS FINANCIAL SERVICES
Boston, Massachusetts Kansas City, Missouri Dallas, Texas Dallas, Texas
This report is prepared for shareholders of the American AAdvantage Funds and
may be distributed to others only if preceded or accompanied by a current
prospectus.
- --------------------------------------------------------------------------------
American Airlines is not responsible for investments made in the American
AAdvantage Funds. American AAdvantage Funds is a registered service mark of AMR
Corporation. PlanAhead Class and American AAdvantage Money Market Fund are
registered service marks of AMR Investment Services, Inc. Platinum Class,
American AAdvantage U.S. Government Money Market Fund, and American AAdvantage
Municipal Money Market Fund are service marks of AMR Investment Services, Inc.
- --------------------------------------------------------------------------------
[GRAPHIC]
527727
[AMERICAN AADVANTAGE FUNDS LOGO]
- ---------------------------------------o---------------------------------------
SEMI-ANNUAL REPORT
June 30, 2003
[GRAPHIC]
S&P 500 INDEX FUND
SMALL CAP INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
MANAGED BY AMR INVESTMENTS
[AA EAGLE]
About AMR Investments
- --------------------------------
AMR Investments is an
experienced provider of
investment advisory services to
institutional and retail
markets. We act as manager of
the American AAdvantage Funds, a
family of diversified mutual
funds, and offer customized
fixed income portfolio
management services.
Our clients include defined
benefit plans, defined
contribution plans, foundations,
endowments, corporations, and
other institutional investors.
AMR Investments is a wholly
owned subsidiary of AMR
Corporation, the parent company
of American Airlines, Inc.
Incorporated in 1986, we are
directly responsible for the
investment management and
oversight of AMR Corporation's
defined benefit and defined
contribution plans, as well as
its fixed income investments.
Any opinions herein, including forecasts, reflect our judgement as of the end of
the reporting period and are subject to change. Each adviser's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, AMR Investment
Services, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
<Table>
<Caption>
Contents
--------------------------------------------
President's Message..................... 1
Performance Overviews................... 3
American AAdvantage Funds
Statements of Assets and
Liabilities....................... 8
Statements of Operations............. 9
Statements of Changes in Net Assets.. 10
Notes to Financial Statements........ 11
Financial Highlights................. 16
State Street Equity 500 Index Portfolio
Portfolio of Investments............. 20
Statement of Assets and Liabilities.. 26
Statement of Operations.............. 27
Statement of Changes in Net Assets... 28
Financial Highlights................. 29
Notes to Financial Statements........ 30
Master Small Cap Index Series
Schedule of Investments.............. 33
Statement of Assets and Liabilities.. 66
Statement of Operations.............. 67
Statement of Changes in Net Assets... 68
Financial Highlights................. 69
Notes to Financial Statements........ 70
Master International Index Series
Schedule of Investments.............. 74
Statement of Assets and Liabilities.. 95
Statement of Operations.............. 96
Statement of Changes in Net Assets... 97
Financial Highlights................. 98
Notes to Financial Statements........ 99
Additional Information.....Inside Back Cover
</Table>
American AAdvantage Funds June 30, 2003
[BILL QUINN PICTURE]
FELLOW SHAREHOLDERS:
I am pleased to present you with the Semi-Annual Report for the Index Funds of
the American AAdvantage Funds for the six months ended June 30, 2003. While this
period was marked with some uncertainty, investors were pleased as most major
market indices posted positive returns for the first time in three years. The
Dow Jones Industrial Average gained 9.02%, the S&P 500 Index increased by
11.76%, while the EAFE Index surged 9.47% for the six-month period.
The past six months saw a quick resolution to the war in Iraq, the lowest
interest rates in 45 years, the ongoing fight against global terrorism, the
effects of the SARS epidemic, and a tax cut.
During the six-month period, the Institutional Class of the American
AAdvantage S&P 500 Index Fund realized an increase of 11.56%, the American
AAdvantage Small Cap Index Fund grew by 17.79%, and the American AAdvantage
International Equity Index Fund returned 9.90%.
Looking forward, corporate earnings, interest rates, unemployment and
consumer spending will be paramount as investors seek sustained economic growth.
Most importantly, business investing will be critical to the strengthening of
the U.S. economy.
We value the trust you have placed in the American AAdvantage Funds. The
Index Funds will continue to pursue their objective to replicate the returns,
before expenses, of each Fund's corresponding Index.
Please review the enclosed portfolio listings and detailed financial data.
As always, we welcome the opportunity to serve your financial needs. Should you
have any questions about the enclosed information, please do not hesitate to
contact us at 800-967-9009. You may also access Fund and account information at
www.aafunds.com. Thank you for your continued confidence in the American
AAdvantage Funds.
Sincerely,
-s- WILLIAM F. QUINN
William F. Quinn, President
American AAdvantage Funds
1
[AMERICAN EAGLE LOGO]
2
ECONOMIC OVERVIEW
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The first quarter of 2003 brought negative returns and extreme volatility.
Markets lost ground consistently over the beginning of the quarter and then
spiked on news of the start of a U.S.-led war with Iraq. The downtrend returned
after investors realized that the conflict might last longer than anticipated,
potentially curbing business spending. Most indices finished the first quarter
in negative territory. The second quarter of 2003 brought impressive gains and
what some are calling a "bull rally." Markets rose consistently over the
quarter, spurred by optimism that economic and profit growth will accelerate. On
June 16th, the S&P 500(R) closed above the 1,000 mark (at 1,010.74) for the
first time since June 20, 2002.
Most indices finished the first six months of 2003 in positive territory.
The S&P 500 Index returned 11.76% and the NASDAQ generated an impressive 21.90%
total return. Technology stocks have outperformed the broader market on
expectations that companies in that sector will be among the first beneficiaries
of an economic recovery. Small cap U.S. stocks also fared well, as the Russell
2000(R) Index produced a total return of 17.88%. The MSCI Euro Index was up only
3.13% in Euros, but it was up 12.86% in U.S. Dollars, reflecting the continued
appreciation of the Euro during the six-month period. The Euro closed at a rate
of 1.1484, up 9.43% versus the U.S. Dollar. The MSCI EAFE Index also posted
positive total returns for the period, up 9.47% in U.S. Dollars. Global markets
saw positive returns as well, with the MSCI World returning 11.12% in U.S.
Dollars.
Investor confidence remained shaken early in 2003 with threats of
terrorism, nuclear tensions in North Korea, and unexpectedly high unemployment.
The war in Iraq left investors with inconsistent views about the market, and
trading was reactionary to news from the front lines. Markets rallied across all
sectors and countries following the resolution of military affairs in Iraq and
investors became increasingly bullish about the outlook for equities. It has
been encouraging to see that the SARS virus appears to have been brought under
control in Hong Kong, Singapore, China and, hopefully, Taiwan.
Despite unstable markets, the Federal Open Market Committee (FOMC) left
rates unchanged at 1.25% at its January 29 and March 18th meetings. After
leaving the rates unchanged again at its May 6th meeting, the FOMC lowered its
target for the Federal Funds rate by 25 basis points to 1% at its June 25th
meeting. Some believe the modest 25 basis point cut, rather than the expected 50
basis point cut, leaves room for further Federal Reserve rate reductions in the
future. In response to the Fed's decision, financial markets were initially
disappointed, with long-term interest rates backing up sharply and stock prices
falling.
At its March 6th meeting, the Governing Council of the European Central
Bank (ECB) cut its benchmark rate to 2.5%, the lowest in almost 3 1/2 years.
Economists expected a 50 basis point cut, and stocks slumped after the 25 basis
point reduction was announced. At its June 6th meeting, the ECB cut its key
interest rate by 50 basis points bringing the rate to 2%, the lowest level since
1999. The cut reflected an effort to boost Europe's struggling economy and
counter the Euro's rise. The Euro surged, and businesses and consumers showed
little appetite for spending more, raising doubts about what it will take to
stimulate the Eurozone economy.
Economic indicators for the current global economy are ambiguous, but the
economy may strengthen and produce strong results for the second half of 2003.
Many of the geo-political factors that may have exacerbated the slowdown in
activity (war fears, higher oil prices, poor weather and SARS) have been largely
resolved. While the economy is clearly improving, the rate of change is only
gradual. Data indicates that further policy stimulus will hit the economy in the
second half of the year, but it is worth noting the lack of growth given the
large cuts in interest rates already seen. Additionally, a key factor is the
concern about whether consumers will continue to spend long enough to prop up
the economy until a corporate spending cycle emerges.
S&P is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for
use. "Standard and Poor's(R)," "S&P(R)," "Standard & Poor's 500," "S&P500(R)"
and "500" are all trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by State Street Bank and Trust Company.
Russell 2000 Index is a service mark of the Frank Russell Company.
3
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE S&P 500 INDEX FUND+
- --------------------------------------------------------------------------------
For the six months ended June 30, 2003, the total return of the
Institutional Class of the American AAdvantage S&P 500 Index Fund was 11.56%.
The Fund trailed slightly behind the S&P 500 Index return of 11.76%, but kept
pace with the Lipper S&P 500 Index return of 11.56%.
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
----------------------------------------
PERIODS ENDED 6/30/03
----------------------------------------
SINCE
INCEPTION
6 MONTHS* 1 YEAR 5 YEAR (12/31/96)
--------- ------ ------ ----------
Institutional
Class(1)............ 11.56% -0.12% -1.75% 5.69%
PlanAhead
Class(1,2).......... 11.28% -0.55% -2.13% 5.38%
Lipper S&P 500
Index............... 11.56% 0.00% -1.88% 5.57%
S&P 500 Index........ 11.76% 0.26% -1.61% 5.85%
</Table>
* Not Annualized
1 Past performance is not indicative of future performance.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Fund performance in the table above does not
reflect the deduction of taxes a shareholder would pay on distributions or
the redemption of shares.
2 Fund performance for the since inception period represents
the total returns achieved by the Institutional Class from 12/31/96 up to
3/2/98, the inception date of the PlanAhead Class, and the returns of the
PlanAhead Class since its inception. Expenses of the PlanAhead Class are
higher than those of the Institutional Class. Therefore, total returns shown
may be higher than they would have been had the PlanAhead Class been in
existence since 12/31/96.
All ten economic sectors in the S&P 500 Index posted gains for the
six-month period ended June 30, 2003. The sector that provided the largest
contribution to the Index return was Information Technology with a six-month
return of 17.1% and a contribution to return of 277 basis points. Strong
performances by Intel Corp, Cisco Systems and Dell Computer contributed to the
sector's strong return. Returns were 34.0%, 28.2% and 19.1%, respectively, with
a total contribution to return of 98 basis points. The biggest detractor from
return for the sector was Automatic Data Processing with a return of -13.1%,
which reduced the total return by 5 basis points.
The other standout sector in the Index was Financials, with a six-month
return of 12.4% and a contribution to total return of 249 basis points. The
notable names included Citigroup, JP Morgan Chase and Bank of America. These
three companies added 98 basis points to total return. The weakest performers in
the sector included AIG, Freddie Mac and Charles Schwab. Together these three
names detracted 19 basis points from total return.
The Fund will continue to strive towards accomplishing its objective of
closely replicating, before expenses, the return of its benchmark, the S&P 500
Index.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF EQUITIES*
--------------
General Electric Co. 3.2%
Microsoft Corp. 3.1%
Pfizer, Inc. 3.0%
Exxon Mobil Corp. 2.7%
Wal Mart Stores, Inc. 2.6%
Citigroup, Inc. 2.5%
Johnson & Johnson 1.7%
American Int'l. Group, Inc. 1.6%
IBM 1.6%
Intel Corp. 1.5%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financials 20.4%
Information Technology 16.2%
Health Care 14.8%
Consumer Staples 11.7%
Consumer Discretionary 11.1%
Industrials 10.4%
Energy 5.8%
Telecommunication Services 3.9%
Utilities 3.0%
Materials 2.7%
</Table>
* Percent of equity portion of State Street Equity 500 Index
Portfolio
+ The S&P 500 Index Fund is not sponsored, sold or promoted by Standard &
Poor's, and Standard & Poor's makes no representation regarding the
advisability of investing in this fund.
4
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE SMALL CAP INDEX FUND(SM)
- --------------------------------------------------------------------------------
For the six months ended June 30, 2003, the total return for the
Institutional Class of the American AAdvantage Small Cap Index Fund was 17.79%
versus a return of 17.88% for the Russell 2000 Index. The Lipper Small Cap Core
Index returned 14.33%.
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------------
PERIODS ENDED 6/30/03
------------------------------
SINCE
INCEPTION
6 MONTHS* 1 YEAR (7/31/00)
--------- ------ ---------
Institutional Class(1).......... 17.79% -1.58% -2.36%
Lipper Small Cap Core Index..... 14.33% -2.38% 0.19%
Russell 2000 Index.............. 17.88% -1.64% -2.31%
</Table>
* Not Annualized
1 Past performance is not indicative of future performance.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Fund performance in the table above does not
reflect the deduction of taxes a shareholder would pay on distributions or
the redemption of shares.
For the six-month period, the Health Care sector outperformed all other
sectors in the Russell 2000 Index ("Index"), posting a return of 29.1%. Other
top performing sectors were Technology, up 26.8%, and Consumer Discretionary, up
18.1%. The worst performer for the six-month period was Other, which includes
many conglomerates that fall across multiple sectors, posting a return of -1.7%.
Materials and Processing, Autos and Transportation, and Consumer Staples also
performed poorly in comparison with other sectors, with respective returns of
8.7%, 8.5% and 6.2%.
Overall, the top contributors to the Index during the period included
Imclone Systems Inc., Sonus Networks Inc., and XM Satellite Radio. Detractors
from the Index's performance included Pinnacle Systems Inc., Internet Systems
Inc., and Payless Shoesource Inc.
The Fund will continue to strive towards meeting its objective of closely
tracking, before expenses, the return of its benchmark, the Russell 2000 Index.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF EQUITIES*
--------------
AMR Corp. 0.22%
Zale Corp. 0.19%
Affiliated Managers Group, Inc. 0.19%
Hyperion Solutions Corp. 0.18%
Activision, Inc. 0.18%
Techne Corp. 0.18%
Pacific Capital Bancorp 0.18%
First Industrial Realty Trust, Inc. 0.18%
UCBH Holdings, Inc. 0.17%
Cincinnati Bell, Inc. 0.17%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financial Services 23.2%
Consumer Discretionary 19.2%
Technology 14.2%
Health Care 12.8%
Materials and Processing 8.0%
Producer Durables 7.6%
Utilities 4.4%
Autos and Transportation 4.2%
Other Energy 3.9%
Consumer Staples 2.1%
Other 0.4%
Integrated Oils 0.0%
</Table>
* Percent of equity portion of Master Small Cap Index Series
5
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND(SM)
- --------------------------------------------------------------------------------
For the six months ended June 30, 2003, the total return of the
Institutional Class of the American AAdvantage International Equity Index Fund
was 9.90%, outperforming the MSCI EAFE Index return of 9.47% and the Lipper
International Index return of 9.18%.
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------------
PERIODS ENDED 6/30/03
------------------------------
SINCE
INCEPTION
6 MONTHS* 1 YEAR (7/31/00)
--------- ------ ---------
Institutional Class(1).......... 9.90% -6.38% -12.78%
Lipper Int'l. Index............. 9.18% -6.41% -11.63%
MSCI EAFE Index(2).............. 9.47% -6.46% -12.55%
</Table>
* Not Annualized
1 Past performance is not indicative of future performance.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Fund performance in the table above does not
reflect the deduction of taxes a shareholder would pay on distributions or
the redemption of shares.
2 Performance is that of the MSCI EAFE Index through
9/30/01, the MSCI Provisional EAFE Index from 10/1/01 through 5/31/02, and
the MSCI EAFE Index thereafter.
Performance was positive for all countries in the MSCI EAFE Index
("Index"). The best performing countries for the six-month period were New
Zealand, Spain and Austria with respective returns of 28.5%, 25.5%, and 22.8%.
The Netherlands was the worst performing country this period, up only 1.7%,
followed by Japan, up 2.9%, and Hong Kong, up 3.5%.
Turning to sector performance, all ten Index sectors posted positive
returns for the period. The sector that provided the largest contribution to the
Index return was Information Technology, with a six-month return of 15.8%.
Alcatel, SAP AG, and Ericsson contributed significantly to the sector's strong
performance. Other top performers were the Telecommunication Services and
Financials sectors, with respective returns of 15.7% and 13.5%. The worst
performing sector for the period was Consumer Staples, with a return of 1.0%.
Weak performances by Unilever, Seven-Eleven Japan, and Ahold contributed to the
sector's poor return. However, the Materials and Energy sectors experienced
gains of 5.4% and 5.6%, respectively.
The Fund continues to pursue its objective of closely replicating, before
expenses, the return of its benchmark, the MSCI EAFE Index.
6
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND(SM) -- CONTINUED
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF EQUITIES*
--------------
BP Amoco PLC 2.6%
Vodafone Group PLC 2.3%
HSBC Holdings PLC 2.2%
GlaxoSmithKline PLC 2.1%
Royal Dutch Petroleum Co. 1.7%
Total Fina Elf SA 1.6%
Novartis AG 1.6%
Nestle SA 1.4%
Royal Bank of Scotland Group PLC 1.3%
Nokia Oyj 1.3%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES* EAFE
-------------- -----
Financials 25.6% 25.8%
Consumer Discretionary 12.4% 12.5%
Health Care 9.5% 9.5%
Consumer Staples 8.9% 8.9%
Energy 8.8% 8.8%
Industrials 8.7% 8.5%
Telecommunication Services 7.9% 7.9%
Information Technology 6.8% 6.8%
Materials 6.5% 6.4%
Utilities 4.9% 4.9%
</Table>
COUNTRY ALLOCATION
(COUNTRY WEIGHTINGS PIE CHART)
<Table>
<Caption>
% OF EQUITIES* EAFE
-------------- -----
United Kingdom 26.9% 26.9%
Japan 21.4% 21.4%
France 9.6% 9.7%
Switzerland 7.5% 7.4%
Germany 6.3% 6.4%
Australia 5.2% 5.1%
Netherlands 5.1% 5.1%
Italy 3.8% 3.8%
Spain 3.7% 3.7%
Sweden 2.1% 2.1%
Finland 1.8% 1.9%
Hong Kong 1.5% 1.5%
Belgium 1.1% 1.0%
Denmark 0.8% 0.8%
Ireland 0.8% 0.8%
Singapore 0.8% 0.8%
Norway 0.5% 0.4%
Greece 0.4% 0.4%
Portugal 0.4% 0.4%
New Zealand 0.2% 0.2%
Austria 0.1% 0.2%
</Table>
* Percent of equity portion of Master International Index
Series
7
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
(in thousands, except share and per share amounts)
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INDEX INDEX EQUITY INDEX
----------- ---------- -------------
ASSETS:
Investment in master portfolio, at value................ $ 241,932 $ 22,082 $ 5,930
Receivable for fund shares sold......................... 188 -- --
Other assets............................................ 194 -- 2
----------- ---------- --------
TOTAL ASSETS........................................ 242,314 22,082 5,932
----------- ---------- --------
LIABILITIES:
Payable for fund shares redeemed........................ 34 -- --
Administrative service fees payable (Note 2)............ 13 1 --
Other liabilities....................................... 36 1 --
----------- ---------- --------
TOTAL LIABILITIES................................... 83 2 --
----------- ---------- --------
NET ASSETS.................................................. $ 242,231 $ 22,080 $ 5,932
=========== ========== ========
ANALYSIS OF NET ASSETS:
Paid-in capital......................................... $ 275,293 $ 23,720 $ 7,931
Undistributed net investment income..................... 850 74 99
Accumulated net realized loss........................... (42,738) (871) (1,228)
Unrealized net appreciation (depreciation) of
investments and futures contracts..................... 8,826 (843) (870)
----------- ---------- --------
NET ASSETS.................................................. $ 242,231 $ 22,080 $ 5,932
=========== ========== ========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class..................................... 16,048,737 2,435,288 921,213
=========== ========== ========
PlanAhead Class......................................... 2,206,272 N/A N/A
=========== ========== ========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class..................................... $ 13.29 $ 9.07 $ 6.44
=========== ========== ========
PlanAhead Class......................................... $ 13.16 N/A N/A
=========== ========== ========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
8
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
(in thousands)
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INDEX INDEX EQUITY INDEX
------- --------- -------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO:
Portfolio income........................................ $1,983 $ 82 $109
Portfolio expenses**.................................... (51) (6) (3)
------- ------ ----
NET INVESTMENT INCOME ALLOCATED FROM MASTER
PORTFOLIO......................................... 1,932 76 106
------- ------ ----
FUND EXPENSES:
Administrative service fees (Note 2):
Institutional Class................................. 50 3 1
PlanAhead Class..................................... 33 -- --
Transfer agency fees:
Institutional Class................................. 14 2 --
PlanAhead Class..................................... 10 -- --
Professional fees....................................... 2 3 1
Registration fees....................................... 13 1 1
Service fees - PlanAhead Class (Note 2)................. 33 -- --
Printing................................................ -- 2 1
Other expenses.......................................... -- 1 1
------- ------ ----
TOTAL FUND EXPENSES................................. 155 12 5
Less reimbursement of fund expenses (Note 2)...... (5) -- --
------- ------ ----
NET FUND EXPENSES................................... 150 12 5
------- ------ ----
NET INVESTMENT INCOME....................................... 1,782 64 101
------- ------ ----
REALIZED AND UNREALIZED GAIN (LOSS) ALLOCATED FROM MASTER
PORTFOLIO:
Net realized loss from investment transactions.......... (9,902) (94) (81)
Net realized gain from futures transactions............. 1,123 -- --
Net change in unrealized appreciation (depreciation) of
investments and futures contracts..................... 32,963 2,200 485
------- ------ ----
NET GAIN ON INVESTMENTS............................. 24,184 2,106 404
------- ------ ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $25,966 $2,170 $505
======= ====== ====
</Table>
- ----------
** Expenses allocated from the Master Small Cap Index Series and Master
International Index Series include expense waivers from their investment
adviser. Had expenses not been waived, allocated expenses would have been
higher.
See notes to financial statements.
- --------------------------------------------------------------------------------
9
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(in thousands)
<Table>
<Caption>
S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX
-------------------------- -------------------------- --------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2003 2002 2003 2002 2003 2002
----------- ------------ ----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................ $ 1,782 $ 3,604 $ 64 $ 150 $ 101 $ 89
Net realized loss on investments and
futures transactions............... (8,779) (8,115) (94) (889) (81) (413)
Change in net unrealized appreciation
(depreciation) of investments and
futures contracts.................. 32,963 (59,391) 2,200 (2,815) 485 (569)
--------- --------- ------- ------- ------ -------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS...................... 25,966 (63,902) 2,170 (3,554) 505 (893)
--------- --------- ------- ------- ------ -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class.............. (915) (3,240) -- (140) -- (71)
PlanAhead Class.................. (69) (297) -- -- -- --
--------- --------- ------- ------- ------ -------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS.................... (984) (3,537) -- (140) -- (71)
--------- --------- ------- ------- ------ -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........ 157,515 111,986 10,837 9,040 1,194 5,088
Reinvestments of dividends and
distributions...................... 884 3,518 -- 140 -- 71
Cost of shares redeemed.............. (161,403) (114,385) (2,154) (6,062) (679) (3,056)
--------- --------- ------- ------- ------ -------
NET INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL SHARE
TRANSACTIONS.................... (3,004) 1,119 8,683 3,118 515 2,103
--------- --------- ------- ------- ------ -------
NET INCREASE (DECREASE) IN NET ASSETS... 21,978 (66,320) 10,853 (576) 1,020 1,139
--------- --------- ------- ------- ------ -------
NET ASSETS:
Beginning of period.................. 220,253 286,573 11,227 11,803 4,912 3,773
--------- --------- ------- ------- ------ -------
END OF PERIOD*....................... $ 242,231 $ 220,253 $22,080 $11,227 $5,932 $ 4,912
========= ========= ======= ======= ====== =======
* Includes undistributed net
investment income of............... $ 850 $ 67 $ 74 $ 10 $ 99 $ 18
========= ========= ======= ======= ====== =======
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
10
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American AAdvantage Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940 (the
"Act"), as amended, as a no load, open-end management investment company. These
financial statements and notes to the financial statements relate to the
American AAdvantage S&P 500 Index Fund, the American AAdvantage Small Cap Index
Fund and the American AAdvantage International Equity Index Fund (each a "Fund"
and collectively, the "Funds"), each a series of the Trust. The S&P 500 Index
Fund commenced operations on December 31, 1996, and commenced sale of a second
class of shares of the Fund, designated as "PlanAhead Class" shares, on March 2,
1998. The Institutional Classes of the Small Cap Index and the International
Equity Index Funds commenced operations on July 31, 2000.
Each Fund invests all of its investable assets in a corresponding
portfolio. The State Street Equity 500 Index Portfolio, Master Small Cap Index
Series and the Master International Index Series (each a "Portfolio" and
collectively the "Portfolios") are open-ended management investment companies
registered under the Act. The value of such investment reflects each Fund's
proportionate interest in the net assets of the corresponding Portfolio.
<Table>
<Caption>
% OF PORTFOLIO
HELD BY FUND AT
AMERICAN AADVANTAGE: PORTFOLIOS: JUNE 30, 2003
- -------------------- ----------- ---------------
S&P 500 Index Fund State Street Equity 500 Index Portfolio 10.7%
Small Cap Index Fund Master Small Cap Index Series 10.3%
International Equity Index Fund Master International Index Series 3.3%
</Table>
The financial statements of the Portfolios are included elsewhere in this
report and should be read in conjunction with the Funds' financial statements.
AMR Investment Services, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services to the Trust and other
investors.
The following is a summary of the significant accounting policies followed
by the Funds.
Valuation of Investments
Valuation of securities by each Portfolio is discussed in the Portfolio's
Notes to Financial Statements which are included elsewhere in this report.
Investment Income
Each Fund records its share of net investment income and realized and
unrealized gains and losses from the security transactions of its corresponding
Portfolio each day. All net investment income and realized and unrealized gains
(losses) of the Portfolio are allocated pro rata among the investors in the
Portfolio at the time of such determination.
Dividends
Dividends from net investment income of the Small Cap Index and
International Equity Index Funds normally will be declared and paid annually.
The S&P 500 Index Fund normally will declare and pay dividends quarterly.
Distributions of net realized capital gains earned by the Funds, if any,
- --------------------------------------------------------------------------------
11
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
will be paid annually. Dividends are determined in accordance with income tax
principles which may treat certain transactions differently than generally
accepted accounting principles.
The tax character of distributions during the six months ended June 30,
2003 and the fiscal year ended December 31, 2002 were as follows:
<Table>
<Caption>
S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX
------------------------- ------------------------- ---------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2003 2002 2003 2002 2003 2002
---------- ------------ ---------- ------------ ----------- -------------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class............. $915,069 $3,239,570 $ -- $139,615 $ -- $71,181
Plan Ahead Class................ 69,201 297,033 -- --
-------- ---------- -------- -------- -------- -------
TOTAL DISTRIBUTIONS PAID............... $984,270 $3,536,603 $ -- $139,615 $ -- $71,181
======== ========== ======== ======== ======== =======
</Table>
As of December 31, 2002 the components of distributable earnings were as
follows:
<Table>
<Caption>
INTERNATIONAL
S&P 500 INDEX SMALL CAP INDEX EQUITY INDEX
------------- --------------- -------------
COST BASIS OF INVESTMENTS FOR FEDERAL INCOME
TAX......................................... $257,325,546 $14,394,651 $ 6,478,204
Unrealized appreciation.................. 18,876,402 1,189,082 507,641
Unrealized depreciation.................. (55,529,610) (4,385,539) (2,019,827)
------------ ----------- -----------
Net unrealized
appreciation/(depreciation)............ (36,653,208) (3,196,457) (1,512,186)
Undistributed ordinary income............ 51,808 9,791 7,841
Undistributed long-term gain/(loss)...... (21,443,335) (623,020) (1,000,337)
------------ ----------- -----------
UNDISTRIBUTED EARNINGS........................ $(58,044,735) $(3,809,686) $(2,504,682)
============ =========== ===========
</Table>
The differences between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to the tax deferral of
losses from wash sales, the realization for tax purposes of unrealized
gains/(losses) on certain derivative instruments, the difference between book
and tax amortization for premium and market discount, and the realization for
tax purposes of unrealized gains/(losses) on investment in passive foreign
investment companies.
To the extent future capital gains are offset by capital loss
carryforwards, such gains will not be distributed. Net capital losses incurred
after October 31, and within the taxable year are deemed to arise on the first
business day of the Fund's next taxable year. For the year ended December 31,
2002, the following gains and/or losses were deferred to January 1, 2003:
<Table>
<Caption>
DEFERRED
FUND CAPITAL GAIN
- ---- ------------
S&P 500 Index............................................... $465,825
Small Cap Index............................................. 6,041
International Equity Index.................................. 164,412
</Table>
Federal Income and Excise Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies, and to distribute
substantially all net investment income as well as any net realized capital
gains on the sale of investments. Therefore, no federal income or excise
- --------------------------------------------------------------------------------
12
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
tax provision is required. At December 31, 2002, capital loss carryforward
positions for federal income tax purposes were as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYOVER
FUND AMOUNT EXPIRES
- ---- ------------ ---------
S&P 500 Index............................................... $20,977,510 2005-2010
Small Cap Index............................................. 616,979 2008-2010
International Equity Index.................................. 835,925 2009-2010
</Table>
Expenses
Expenses directly attributable to each Fund are charged to that Fund's
operations. Expenses directly attributable to a class are charged to that class.
Other Fund expenses are allocated amongst the classes in proportion to the net
assets of each class. Expenses incurred by the Trust with respect to any two of
more of the Funds are allocated in proportion to the net assets of each Fund,
except where allocations of direct expenses to each Fund can otherwise be made
fairly. Each share of each Fund bears equally those expenses that are allocated
to the Fund as a whole.
Valuation of Shares
The price per share is calculated on each day on which shares are offered
for sale and orders accepted or upon receipt of a redemption request. Net asset
value per share is computed by dividing the value of each Fund's total assets
(which includes the value of the Fund's investment in its Portfolio), less
liabilities, by the number of Fund shares outstanding.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements. Actual results could differ from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
that obligates the Manager to provide or oversee administrative and management
services to the Fund. As compensation for performing the duties required under
the Administrative Services Agreement, the Manager receives an annualized fee of
0.05% of the average daily net assets of the Institutional Class of the S&P 500
Index Fund, International Equity Index Fund, and Small Cap Index Fund and an
annualized fee of 0.25% of the average daily net assets of the PlanAhead Class
of the S&P 500 Index Fund.
Service Agreement
The Manager and the Trust entered into a Service Agreement which obligates
the Manager to oversee additional shareholder servicing of the PlanAhead Class
of the S&P 500 Index Fund. As compensation for performing the duties required
under the Service Agreement, the Manager receives 0.25% based on the daily net
assets of the PlanAhead Class of the S&P 500 Index Fund.
- --------------------------------------------------------------------------------
13
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
Other
Certain officers or Trustees of the Trust are also officers of the Manager
or American. The Trust makes no direct payments to its officers. Unaffiliated
Trustees and their spouses are provided unlimited air transportation on
American. However, the Trust compensates each Trustee with payments in an amount
equal to the Trustee's income tax on the value of this free airline travel. For
the six months ended June 30, 2003, the cost of air transportation for the
Trustees was not material to any of the Funds. One Trustee, as a retiree of
American, already receives flight benefits. This Trustee receives an annual
retainer of $40,000 plus $1,250 for each Board meeting attended.
At June 30, 2003, the employee benefit plans of AMR Corporation and its
subsidiary companies owned 90.9% of the Institutional Class of the S&P 500 Index
Fund and 100% of the Institutional Class of both the Small Cap Index and
International Equity Index Funds.
Reimbursement of Expenses
For the period ended June 30, 2003, the Manager reimbursed expenses
totaling $4,631 to the PlanAhead Class of the S&P 500 Index Fund.
3. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares of the Funds:
S&P 500 INDEX FUND
<Table>
<Caption>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
--------------------------- -------------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ----------- ------------- ---------- ------------
Shares sold....................... 12,508,334 $ 148,837,891 7,200,563 $ 92,333,428
Reinvestment of dividends......... 70,024 817,183 249,102 3,229,100
Shares redeemed................... (12,869,618) (154,159,482) (7,388,124) (94,764,097)
----------- ------------- ---------- ------------
Net increase (decrease) in capital
shares outstanding.............. (291,260) $ (4,504,408) 61,541 $ 798,431
=========== ============= ========== ============
</Table>
<Table>
<Caption>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
------------------------ -------------------------
PLANAHEAD CLASS SHARES AMOUNT SHARES AMOUNT
- --------------- --------- ------------ ---------- ------------
Shares sold............................ 720,533 $ 8,677,604 1,397,297 $ 19,652,433
Reinvestment of dividends.............. 5,797 67,072 22,392 289,205
Shares redeemed........................ (619,604) (7,243,403) (1,404,639) (19,621,383)
-------- ----------- ---------- ------------
Net increase in capital shares
outstanding.......................... 106,726 $ 1,501,273 15,050 $ 320,256
======== =========== ========== ============
</Table>
- --------------------------------------------------------------------------------
14
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
SMALL CAP INDEX FUND
<Table>
<Caption>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
------------------------- ----------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ---------- ------------ -------- -----------
Shares sold.............................. 1,252,113 $10,836,533 955,743 $ 9,039,698
Reinvestment of dividends................ 0 0 17,853 139,614
Shares redeemed.......................... (274,908) (2,154,103) (721,156) (6,061,590)
--------- ----------- -------- -----------
Net increase in capital shares
outstanding............................ 977,205 $ 8,682,430 252,440 $ 3,117,722
========= =========== ======== ===========
</Table>
INTERNATIONAL EQUITY INDEX FUND
<Table>
<Caption>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
------------------------- ----------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ---------- ------------ -------- -----------
Shares sold................................ 201,532 $1,194,101 775,200 $ 5,087,960
Reinvestment of dividends.................. 0 0 12,273 71,181
Shares redeemed............................ (117,874) (679,099) (483,575) (3,055,729)
-------- ---------- -------- -----------
Net increase in capital shares
outstanding.............................. 83,658 $ 515,002 303,898 $ 2,103,412
======== ========== ======== ===========
</Table>
- --------------------------------------------------------------------------------
15
AMERICAN AADVANTAGE S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------
2003 2002 2001 2000(B) 1999 1998
----------- -------- -------- -------- -------- --------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 11.96 $ 15.62 $ 17.99 $ 20.05 $ 16.78 $ 13.16
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income............... 0.09 0.20 0.20 0.23 0.19 0.16
Net gains (losses) on securities
(both realized and unrealized).... 1.29 (3.66) (2.38) (2.05) 3.27 3.62
-------- -------- -------- -------- -------- --------
Total from investment operations........ 1.38 (3.46) (2.18) (1.82) 3.46 3.78
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................ (0.05) (0.20) (0.19)(C) (0.24)(C) (0.19) (0.16)
-------- -------- -------- -------- -------- --------
Total distributions..................... (0.05) (0.20) (0.19) (0.24) (0.19) (0.16)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......... $ 13.29 $ 11.96 $ 15.62 $ 17.99 $ 20.05 $ 16.78
======== ======== ======== ======== ======== ========
TOTAL RETURN............................ 11.56%(D) (22.27%) (12.12%) (9.15%) 20.70% 28.87%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................ $213,196 $195,368 $254,289 $321,805 $568,645 $100,870
Ratios to average net assets
(annualized):(A)
Net investment income.......... 1.64% 1.47% 1.22% 1.09% 1.28% 1.41%
Expenses....................... 0.12% 0.14% 0.15% 0.16% 0.17% 0.20%
Decrease reflected in above
expense ratio due to
absorption of expenses by
State Street Bank, BT and AMR
Investment Services, Inc. ... -- -- -- -- -- 0.06%
</Table>
- ---------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the BT Equity 500 Index Portfolio prior to March 1, 2000, and the State
Street Equity 500 Index Portfolio thereafter.
(B) On March 1, 2000, the Fund invested all of its investable assets in the
State Street Equity 500 Index Portfolio. Prior to March 1, 2000, the Fund
invested all of its investable assets in the BT Equity 500 Index Portfolio.
(C) Includes a tax return of capital distribution which amounts to less than
$0.01 per share.
(D) Not annualized.
- --------------------------------------------------------------------------------
16
AMERICAN AADVANTAGE S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, MARCH 2, TO
JUNE 30, ------------------------------------------- DECEMBER 31,
2003 2002 2001 2000(B) 1999 1998
----------- -------- -------- ------- ------- ------------
(UNAUDITED)
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 11.85 $ 15.49 $ 17.99 $ 20.12 $ 16.83 $ 14.27
------- -------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:(A)
Net investment income.. 0.07 0.14 0.14 0.13 0.15 0.08
Net gains (losses) on
securities (both
realized and
unrealized).......... 1.27 (3.64) (2.39) (2.00) 3.25 2.56
------- -------- -------- ------- ------- -------
Total from investment
operations............... 1.34 (3.50) (2.25) (1.87) 3.40 2.64
------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment income.... (0.03) (0.14) (0.25)(C) (0.26)(C) (0.11) (0.08)
------- -------- -------- ------- ------- -------
Total distributions........ (0.03) (0.14) (0.25) (0.26) (0.11) (0.08)
------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD................... $ 13.16 $ 11.85 $ 15.49 $ 17.99 $ 20.12 $ 16.83
======= ======== ======== ======= ======= =======
TOTAL RETURN............... 11.28%(D) (22.59%) (12.48%) (9.38%) 20.24% 18.58%(D)
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (in
thousands)........... $29,035 $ 24,885 $ 32,284 $ 5,143 $ 6,173 $ 1,963
Ratios to average net
assets
(annualized):(A)
Net investment
income.......... 1.21% 1.06% 0.89% 0.66% 0.91% 1.04%
Expenses.......... 0.59% 0.55% 0.56% 0.54% 0.55% 0.55%
Decrease reflected
in above expense
ratio due to
absorption of
expenses by
State Street
Bank, BT and AMR
Investment
Services,
Inc............. 0.03% 0.08% 0.05% 0.16% 0.17% 0.24%
</Table>
- ---------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the BT Equity 500 Index Portfolio prior to March 1, 2000, and the State
Street Equity 500 Index Portfolio thereafter.
(B) On March 1, 2000, the Fund invested all of its investable assets in the
State Street Equity 500 Index Portfolio. Prior to March 1, 2000, the Fund
invested all of its investable assets in the BT Equity 500 Index Portfolio.
(C) Includes a tax return of capital distribution which amounted to less than
$0.01 per share.
(D) Not annualized.
- --------------------------------------------------------------------------------
17
AMERICAN AADVANTAGE SMALL CAP INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31, JULY 31 TO
JUNE 30, ------------------ DECEMBER 31,
2003 2002 2001 2000
----------- -------- ------- ------------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 7.70 $ 9.79 $ 9.69 $ 10.00
------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income.......................... 0.02 0.11 0.09 0.05
Net gains (losses) on securities (both realized
and unrealized).............................. 1.35 (2.10) 0.11 (0.31)
------- -------- ------- -------
Total from investment operations................... 1.37 (1.99) 0.20 (0.26)
------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........... -- (0.10) (0.09) (0.05)
Tax return of capital.......................... -- -- (0.01) --
------- -------- ------- -------
Total distributions................................ -- (0.10) (0.10) (0.05)
------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD..................... $ 9.07 $ 7.70 $ 9.79 $ 9.69
======= ======== ======= =======
TOTAL RETURN....................................... 17.79%(B) (20.37%) 2.07% (2.59%)(B)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....... $22,080 $ 11,227 $11,803 $ 4,120
Ratios to average net assets (annualized):(A)
Net investment income..................... 1.01% 1.13% 1.36% 1.61%
Expenses.................................. 0.27% 0.20% 0.19% 0.50%
Decrease reflected in above expense ratio
due to absorption of expenses by AMR
Investment Services, Inc................ -- -- -- 0.46%
</Table>
- ---------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Master Small Cap Index Series.
(B) Not annualized.
- --------------------------------------------------------------------------------
18
AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31, JULY 31 TO
JUNE 30, ------------------- DECEMBER 31,
2003 2002 2001 2000
----------- -------- -------- ------------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 5.86 $ 7.07 $ 9.21 $ 10.00
------ -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income........................ 0.11 0.11 0.10 0.02
Net gains (losses) on securities (both
realized and unrealized)................... 0.47 (1.23) (2.12) (0.72)
------ -------- -------- -------
Total from investment operations................. 0.58 (1.12) (2.02) (0.70)
------ -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income......... -- (0.09) (0.09) (0.03)
Distributions from net realized gain on
investments................................ -- -- -- (0.05)
Tax return of capital........................ -- -- (0.03) (0.01)
------ -------- -------- -------
Total distributions.............................. -- (0.09) (0.12) (0.09)
------ -------- -------- -------
NET ASSET VALUE, END OF PERIOD................... $ 6.44 $ 5.86 $ 7.07 $ 9.21
====== ======== ======== =======
TOTAL RETURN..................................... 9.90%(B) (15.65%) (22.14%) (7.03%)(B)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $5,932 $ 4,912 $ 3,773 $ 3,542
Ratios to average net assets (annualized):(A)
Net investment income................... 4.14% 1.97% 1.49% 0.63%
Expenses................................ 0.36% 0.25% 0.29% 0.60%
Decrease reflected in above expense
ratio due to absorption of expenses by
AMR Investment Services, Inc.......... -- -- -- 1.52%
</Table>
- ---------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Master International Index Series.
(B) Not annualized.
- --------------------------------------------------------------------------------
19
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 95.7%
CONSUMER DISCRETIONARY - 10.6%
American Greetings Corp. Class
A............................ 14,414 $ 283
AOLTime Warner, Inc. .......... 1,085,147 17,460
AutoNation, Inc. (a)........... 68,200 1,072
AutoZone, Inc. (a)............. 21,587 1,640
Bed Bath & Beyond, Inc. (a).... 71,714 2,783
Best Buy Co. (a)............... 77,721 3,414
Big Lots, Inc. (a)............. 25,438 383
Black & Decker Corp............ 18,233 792
Brunswick Corp................. 21,529 539
Carnival Corp.................. 151,419 4,923
Centex Corp.................... 15,788 1,228
Circuit City Stores-Circuit
City Group................... 46,839 412
Clear Channel Communications,
Inc. (a)..................... 148,165 6,281
Comcast Corp. (a).............. 542,667 16,378
Cooper Tire & Rubber Co........ 16,437 289
Dana Corp...................... 33,349 386
Darden Restaurants, Inc. ...... 40,010 759
Delphi Corp.................... 130,467 1,126
Dillard's, Inc. Class A........ 19,253 259
Dollar General Corp............ 81,615 1,490
Dow Jones & Co., Inc. ......... 19,426 836
Eastman Kodak Co............... 67,837 1,855
eBay, Inc. (a)................. 76,580 7,978
Family Dollar Stores, Inc. .... 42,568 1,624
Federated Department Stores,
Inc. ........................ 44,676 1,646
Ford Motor Co.................. 439,955 4,835
Fortune Brands, Inc. .......... 35,466 1,851
Gannett Co., Inc. ............. 64,838 4,980
Gap, Inc. ..................... 214,030 4,015
General Motors Corp............ 134,273 4,834
Genuine Parts Co............... 43,093 1,379
Goodyear Tire & Rubber Co...... 37,442 197
Harley-Davidson, Inc. ......... 73,338 2,923
Harrah's Entertainment, Inc.
(a).......................... 27,933 1,124
Hasbro, Inc. .................. 41,787 731
Hilton Hotels Corp............. 87,443 1,118
Home Depot, Inc. .............. 554,357 18,360
International Game Technology
(a).......................... 20,588 2,107
Interpublic Group Cos.,
Inc. ........................ 96,577 1,292
JC Penney & Co., Inc. ......... 63,088 1,063
Johnson Controls, Inc. ........ 20,998 1,797
Jones Apparel Group, Inc.
(a).......................... 29,279 857
KB HOME........................ 11,631 721
Knight-Ridder, Inc. ........... 20,191 1,392
Kohl's Corp. (a)............... 81,410 4,183
Leggett & Platt, Inc. ......... 46,154 946
Limited Brands................. 124,578 1,931
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Liz Claiborne, Inc. ........... 26,641 $ 939
Lowe's Cos., Inc. ............. 188,923 8,114
Marriot International, Inc.
Class A...................... 57,339 2,203
Mattel, Inc. .................. 106,745 2,020
May Department Stores Co....... 69,167 1,540
Maytag Corp.................... 17,129 418
McDonald's Corp................ 307,053 6,774
McGraw-Hill, Inc. ............. 46,413 2,878
Meredith Corp.................. 11,147 490
New York Times Co. Class A..... 36,145 1,645
Newell Rubbermaid, Inc. ....... 64,821 1,815
NIKE, Inc. Class B............. 64,013 3,424
Nordstrom, Inc. ............... 30,138 588
Office Depot, Inc. (a)......... 74,470 1,081
Omnicom Group, Inc. ........... 45,017 3,228
Pulte Homes, Inc. ............. 14,718 908
Radioshack Corp................ 39,053 1,027
Reebok International, Ltd.
(a).......................... 13,071 440
Sears Roebuck & Co............. 75,354 2,535
Sherwin-Williams Co............ 35,070 943
Snap-On, Inc. ................. 12,948 376
Stanley Works.................. 20,532 567
Staples, Inc. (a).............. 117,450 2,155
Starbucks Corp. (a)............ 94,626 2,320
Starwood Hotels & Resorts
Worldwide, Inc. Class B...... 49,012 1,401
Target Corp.................... 219,857 8,319
Tiffany & Co................... 36,268 1,185
TJX Cos., Inc. ................ 125,013 2,355
Toys "R" Us, Inc. (a).......... 51,369 623
Tribune Co..................... 73,755 3,562
Tupperware Corp................ 13,036 187
Univision Communications, Inc.
Class A (a).................... 54,918 1,670
V.F. Corp...................... 25,188 858
Viacom, Inc. Class B (a)....... 424,789 18,546
Visteon Corp................... 29,453 202
Walt Disney Co................. 493,673 9,750
Wendy's International, Inc. ... 26,767 775
Whirlpool Corp................. 17,066 1,087
Yum! Brands, Inc. (a).......... 72,522 2,144
----------
239,564
----------
CONSUMER STAPLES - 11.2%
Adolph Coors Co. Class B....... 8,444 414
Alberto Culver Co. Class B..... 13,639 697
Albertson's, Inc. ............. 92,013 1,767
Altria Group, Inc. ............ 488,564 22,200
Anheuser-Busch Cos., Inc. ..... 201,367 10,280
Archer-Daniels-Midland Co...... 156,867 2,019
Avon Products, Inc. ........... 56,374 3,506
Brown-Forman Corp. Class B..... 14,141 1,112
Campbell Soup Co............... 98,283 2,408
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
20
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Clorox Co...................... 53,710 $ 2,291
Coca-Cola Co................... 594,335 27,583
Coca-Cola Enterprises, Inc. ... 109,100 1,980
Colgate-Palmolive Co........... 130,235 7,547
ConAgra Foods, Inc. ........... 130,846 3,088
Costco Wholesale Corp. (a)..... 110,151 4,032
CVS Corp....................... 94,092 2,637
General Mills, Inc. ........... 89,164 4,227
Gillette Co.................... 246,444 7,852
H.J. Heinz Co.................. 84,220 2,778
Hershey Foods Corp............. 32,904 2,292
Kellogg Co..................... 98,829 3,397
Kimberly-Clark Corp............ 123,164 6,422
Kroger Co. (a)................. 186,122 3,105
McCormick & Co., Inc. ......... 32,700 889
Pepsi Bottling Group, Inc. .... 69,153 1,384
PepsiCo, Inc. ................. 416,610 18,539
Procter & Gamble Co............ 312,411 27,861
R.J. Reynolds Tobacco Holdings,
Inc. ........................ 20,840 775
Safeway, Inc. (a).............. 105,693 2,162
Sara Lee Corp.................. 189,317 3,561
SuperValu, Inc. ............... 32,260 688
SYSCO Corp..................... 156,681 4,707
USTCorp........................ 41,647 1,459
Wal-Mart Stores, Inc. ......... 1,056,628 56,709
Walgreen Co.................... 248,010 7,465
Winn-Dixie Stores, Inc. ....... 31,710 390
Wrigley Wm., Jr. Co............ 54,616 3,071
----------
253,294
----------
ENERGY - 5.5%
Amerada Hess Corp.............. 22,302 1,097
Anadarko Petroleum Corp........ 60,554 2,693
Apache Corp.................... 38,265 2,489
Ashland, Inc. ................. 15,580 478
Baker Hughes, Inc. ............ 80,080 2,688
BJ Services Co. (a)............ 38,855 1,452
Burlington Resources, Inc. .... 48,928 2,645
ChevronTexaco Corp............. 257,647 18,602
Conocophillips................. 163,641 8,967
Devon Energy Corp.............. 55,861 2,983
EOG Resources, Inc. ........... 27,384 1,146
ExxonMobil Corp................ 1,611,702 57,876
Halliburton Co................. 104,586 2,405
Kerr-McGee Corp................ 23,736 1,063
Marathon Oil Corp.............. 76,734 2,022
Nabors Industries, Ltd. (a).... 35,515 1,405
Noble Corp. (a)................ 31,623 1,085
Occidental Petroleum Corp...... 92,123 3,091
Rowan Cos., Inc. .............. 21,239 476
Schlumberger, Ltd.............. 140,507 6,684
Sunoco, Inc. .................. 19,228 726
Transocean, Inc. .............. 75,995 1,670
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Unocal Corp.................... 63,488 $ 1,821
----------
125,564
----------
FINANCIALS - 19.6%
ACE, Ltd....................... 62,955 2,159
AFLAC, Inc. ................... 124,716 3,835
Allstate Corp.................. 169,807 6,054
Ambac Financial Group, Inc. ... 25,047 1,659
American Express Co............ 312,973 13,085
American International Group,
Inc. ........................ 628,583 34,685
AmSouth Bancorp................ 86,919 1,898
AON Corp....................... 76,223 1,835
Apartment Investment &
Management Co. Class A....... 21,900 758
Bank of America Corp........... 362,178 28,623
Bank of New York Co., Inc. .... 186,079 5,350
Bank One Corp.................. 275,662 10,249
BB&TCorp....................... 113,818 3,904
Bear Stearns Cos., Inc. ....... 23,799 1,724
Capital One Financial Corp..... 54,615 2,686
Charles Schwab Corp............ 327,493 3,304
Charter One Financial, Inc. ... 55,117 1,719
Chubb Corp..................... 44,639 2,678
Cincinnati Financial Corp...... 39,667 1,471
Citigroup, Inc. ............... 1,242,171 53,165
Comerica, Inc. ................ 42,832 1,992
Countrywide Credit Industries,
Inc. ........................ 30,972 2,155
Equity Office Properties
Trust........................ 100,441 2,713
Equity Residential............. 65,907 1,710
Fannie Mae..................... 236,429 15,945
Federal Home Loan Mortgage
Corp......................... 165,846 8,420
Federated Investors, Inc. Class
B............................ 24,900 683
Fifth Third Bancorp............ 138,300 7,930
First Tennessee National
Corp......................... 31,017 1,362
FleetBoston Financial Corp..... 254,085 7,549
Franklin Resources, Inc. ...... 62,944 2,459
Golden West Financial Corp..... 37,411 2,993
Goldman Sachs Group, Inc. ..... 114,100 9,556
Hartford Financial Services
Group, Inc. ................. 66,988 3,374
Huntington Bancshares, Inc. ... 56,454 1,102
J.P. Morgan Chase & Co......... 490,114 16,752
Janus Capital Group, Inc. ..... 57,319 940
Jefferson-Pilot Corp........... 34,460 1,429
John Hancock Financial
Services, Inc. .............. 68,478 2,104
KeyCorp........................ 101,009 2,553
Lehman Brothers Holdings,
Inc. ........................ 58,618 3,897
Lincoln National Corp.......... 42,431 1,512
Loews Corp..................... 44,414 2,100
Marsh & McLennan Cos., Inc. ... 128,536 6,564
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
21
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Marshall & Ilsley Corp......... 54,692 $ 1,673
MBIA, Inc. .................... 34,758 1,695
MBNACorp....................... 305,902 6,375
Mellon Financial Corp.......... 105,123 2,917
Merrill Lynch & Co., Inc. ..... 224,127 10,462
MetLife, Inc. ................. 183,407 5,194
MGIC Investment Corp........... 24,062 1,122
Moody's Corp................... 35,965 1,896
Morgan Stanley................. 261,643 11,185
National City Corp............. 146,591 4,795
North Fork Bancorp, Inc. ...... 37,990 1,294
Northern Trust Corp............ 54,140 2,263
Plum Creek Timber Co., Inc. ... 46,180 1,198
PNC Financial Services Group,
Inc. ........................ 68,847 3,360
Principal Financial Group,
Inc. ........................ 78,950 2,546
Progressive Corp............... 52,747 3,856
Providian Financial Corp.
(a).......................... 69,973 648
Prudential Financial, Inc. .... 135,700 4,566
Regions Financial Corp......... 52,489 1,773
SAFECO Corp.................... 33,364 1,177
Simon Property Group, Inc. .... 44,563 1,739
SLM Corp....................... 111,342 4,361
SouthTrust Corp................ 82,779 2,252
St. Paul Cos., Inc. ........... 55,428 2,024
State Street Corp. (Note 4).... 80,925 3,188
SunTrust Banks, Inc. .......... 68,272 4,051
Synovus Financial Corp......... 71,104 1,529
T. Rowe Price Group, Inc. ..... 31,490 1,189
Torchmark Corp................. 27,576 1,027
Travelers Property Casualty
Corp. Class B................ 243,056 3,833
U.S. Bancorp................... 463,261 11,350
Union Planters Corp............ 47,944 1,488
UnumProvident Corp............. 70,435 945
Wachovia Corp.................. 324,626 12,972
Washington Mutual, Inc. ....... 224,513 9,272
Wells Fargo Co................. 404,211 20,372
XLCapital, Ltd. Class A........ 32,532 2,700
Zions Bancorp.................. 23,319 1,180
----------
444,102
----------
HEALTH CARE - 14.2%
Abbott Laboratories............ 377,267 16,509
Aetna, Inc. ................... 36,632 2,205
Allergan, Inc. ................ 31,691 2,443
AmerisourceBergen Corp......... 27,016 1,874
Amgen, Inc. (a)................ 303,875 20,354
Anthem, Inc. (a)............... 33,900 2,615
Applera Corp. - Applied
Biosystems Group............. 52,567 1,000
Bausch & Lomb, Inc. ........... 11,925 447
Baxter International, Inc. .... 144,526 3,758
Becton, Dickinson & Co......... 62,029 2,410
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Biogen, Inc. (a)............... 35,094 $ 1,334
Biomet, Inc. .................. 61,841 1,772
Boston Scientific Corp. (a).... 98,948 6,046
Bristol-Myers Squibb Co........ 467,717 12,699
C.R. Bard, Inc. ............... 12,397 884
Cardinal Health, Inc. ......... 108,266 6,962
Chiron Corp. (a)............... 45,744 2,000
CIGNACorp...................... 33,989 1,595
Eli Lilly & Co................. 271,097 18,698
Forest Laboratories, Inc.
(a).......................... 87,706 4,802
Genzyme Corp. (a).............. 52,305 2,186
Guidant Corp................... 73,464 3,261
HCA, Inc. ..................... 123,759 3,965
Health Management Associates,
Inc. Class A................. 55,698 1,028
Humana, Inc. (a)............... 38,225 577
IMS Health, Inc. .............. 59,681 1,074
Johnson & Johnson.............. 715,746 37,004
King Pharmaceuticals, Inc.
(a).......................... 56,832 839
Manor Care, Inc. (a)........... 23,151 579
McKesson Corp.................. 69,231 2,474
MedImmune, Inc. (a)............ 59,965 2,181
Medtronic, Inc. ............... 294,402 14,122
Merck & Co., Inc. ............. 541,203 32,770
Millipore Corp................. 11,728 520
Pfizer, Inc. .................. 1,905,074 65,058
Quest Diagnostics, Inc. (a).... 25,200 1,608
Quintiles Transnational Corp.
(a).......................... 26,218 372
Schering-Plough Corp........... 354,424 6,592
St. Jude Medical, Inc. (a)..... 43,197 2,484
Stryker Corp................... 48,004 3,330
Tenet Healthcare Corp. (a)..... 111,809 1,303
UnitedHealth Group, Inc. ...... 142,984 7,185
Watson Pharmaceuticals, Inc.
(a).......................... 27,003 1,090
WellPoint Health Networks, Inc.
(a).......................... 36,089 3,042
Wyeth.......................... 319,931 14,573
Zimmer Holdings, Inc. (a)...... 47,920 2,159
----------
321,783
----------
INDUSTRIALS - 10.0%
3M Co.......................... 94,342 12,168
Allied Waste Industries, Inc.
(a).......................... 55,167 554
American Power Conversion Corp.
(a).......................... 47,767 745
American Standard Cos., Inc.
(a).......................... 17,907 1,324
Apollo Group, Inc. (a)......... 41,775 2,580
Avery Dennison Corp............ 26,670 1,339
Boeing Co...................... 202,845 6,962
Burlington Northern Santa Fe
Corp......................... 91,250 2,595
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
22
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Caterpillar, Inc. ............. 83,085 $ 4,625
Cendant Corp. (a).............. 247,222 4,529
Cintas Corp.................... 41,582 1,474
Cooper Industries, Ltd......... 23,421 967
Crane Co....................... 13,402 303
CSX Corp....................... 51,524 1,550
Cummins, Inc. ................. 9,173 329
Danaher Corp................... 37,013 2,519
Deere & Co..................... 58,441 2,671
Delta Air Lines, Inc. ......... 27,793 408
Deluxe Corp.................... 15,220 682
Dover Corp..................... 47,813 1,433
Eaton Corp..................... 17,439 1,371
Emerson Electric Co............ 100,835 5,153
Equifax, Inc. ................. 32,469 844
FedEx Corp..................... 71,546 4,438
Fluor Corp..................... 20,406 687
General Dynamics Corp.......... 48,706 3,531
General Electric Co............ 2,411,623 69,165
Goodrich Co.................... 26,755 562
H&R Block, Inc. ............... 42,910 1,856
Honeywell International,
Inc. ........................ 207,042 5,559
Illinois Tool Works, Inc. ..... 73,664 4,851
Ingersoll-Rand Co. Class A..... 39,950 1,890
ITTIndustries, Inc. ........... 22,102 1,447
Lockheed Martin Corp........... 109,171 5,193
Masco Corp..................... 114,974 2,742
McDermott International, Inc.
(a).......................... 13,841 88
Monster Worldwide, Inc. (a).... 26,292 519
Navistar International Corp.
(a).......................... 17,880 583
Norfolk Southern Corp.......... 94,361 1,812
Northrop Grumman Corp.......... 44,039 3,800
PACCAR, Inc. .................. 28,247 1,904
Pall Corp...................... 31,474 708
Parker-Hannifin Corp........... 29,223 1,227
Pitney Bowes, Inc. ............ 56,639 2,176
Power-One, Inc. (a)............ 17,400 124
R.R. Donnelley & Sons Co....... 26,460 692
Raytheon Co.................... 98,914 3,248
Robert Half International, Inc.
(a).......................... 39,414 747
Rockwell Automation, Inc. ..... 43,920 1,047
Rockwell Collins, Inc. ........ 41,219 1,015
Ryder Systems, Inc. ........... 15,680 402
Southwest Airlines Co.......... 185,540 3,191
Textron, Inc. ................. 31,875 1,244
Thomas & Betts Corp. (a)....... 13,042 188
Tyco International, Ltd........ 482,748 9,163
Union Pacific Corp............. 61,440 3,565
United Parcel Service, Inc.
Class B...................... 271,200 17,275
United Technologies Corp....... 112,557 7,972
W.W. Grainger, Inc. ........... 21,309 996
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Waste Management, Inc. ........ 144,179 $ 3,473
----------
226,205
----------
INFORMATION TECHNOLOGY - 15.5%
ADC Telecommunications, Inc.
(a).......................... 175,727 409
Adobe Systems, Inc. ........... 56,671 1,817
Advanced Micro Devices, Inc.
(a).......................... 77,484 497
Agilent Technologies, Inc.
(a).......................... 113,727 2,223
Altera Corp. (a)............... 94,278 1,546
Analog Devices, Inc. (a)....... 88,161 3,070
Andrew Corp. (a)............... 22,127 204
Apple Computer, Inc. (a)....... 86,246 1,649
Applied Materials, Inc. (a).... 399,961 6,343
Applied Micro Circuits Corp.
(a).......................... 67,542 409
Autodesk, Inc. ................ 24,415 395
Automatic Data Processing,
Inc. ........................ 143,638 4,864
Avaya, Inc. (a)................ 89,315 577
BMC Software, Inc. (a)......... 54,836 895
Broadcom Corp. (a)............. 67,546 1,683
CIENACorp. (a)................. 113,688 590
Cisco Systems, Inc. (a)........ 1,693,559 28,096
Citrix Systems, Inc. (a)....... 41,653 848
Computer Associates
International, Inc. ......... 139,444 3,107
Computer Sciences Corp. (a).... 44,982 1,715
Compuware Corp. (a)............ 85,557 494
Comverse Technology, Inc. (a).. 45,438 683
Concord EFS, Inc. (a).......... 121,140 1,783
Convergys Corp. (a)............ 39,505 632
Corning, Inc. (a).............. 305,485 2,258
Dell Computer Corp. (a)........ 622,091 19,882
Electronic Arts, Inc. (a)...... 34,650 2,564
Electronic Data Systems
Corp......................... 116,186 2,492
EMC Corp. (a).................. 527,041 5,518
First Data Corp................ 182,002 7,542
Fiserv, Inc. (a)............... 45,547 1,622
Gateway, Inc. (a).............. 72,665 265
Hewlett-Packard Co............. 736,519 15,688
Intel Corp..................... 1,576,603 32,768
International Business Machines
Corp......................... 416,918 34,396
Intuit, Inc. (a)............... 49,851 2,220
Jabil Circuit, Inc. (a)........ 49,813 1,101
JDS Uniphase Corp. (a)......... 345,119 1,211
KLATencor Corp. (a)............ 45,464 2,114
Lexmark International Group,
Inc. Class A (a)............. 30,802 2,180
Linear Technology Corp......... 74,975 2,415
LSI Logic Corp. (a)............ 84,235 596
Lucent Technologies, Inc. ..... 991,072 2,012
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
23
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Maxim Integrated Products,
Inc. ........................ 78,356 $ 2,679
Mercury Interactive Corp.
(a).......................... 21,548 832
Micron Technology, Inc. (a).... 145,732 1,695
Microsoft Corp................. 2,590,604 66,345
Molex, Inc. ................... 46,210 1,247
Motorola, Inc. ................ 558,798 5,269
National Semiconductor Corp.
(a).......................... 45,609 899
NCR Corp. (a).................. 21,792 558
Network Appliance, Inc. (a).... 82,567 1,338
Novell, Inc. (a)............... 81,042 250
Novellus Systems, Inc. (a)..... 36,169 1,325
NVIDIACorp. (a)................ 36,951 850
Oracle Corp. (a)............... 1,271,438 15,283
Parametric Technology Corp.
(a).......................... 59,341 181
Paychex, Inc. ................. 90,127 2,642
PeopleSoft, Inc. (a)........... 74,923 1,318
PerkinElmer, Inc. ............. 29,357 405
PMC-Sierra, Inc. (a)........... 37,024 434
QLogic Corp. (a)............... 22,845 1,104
QUALCOMM, Inc. ................ 190,439 6,808
Sabre Holdings Corp. Class A... 33,324 821
Sanmina-SCI Corp. (a).......... 118,958 751
Scientific-Atlanta, Inc. ...... 36,768 877
Siebel Systems, Inc. (a)....... 117,158 1,118
Solectron Corp. (a)............ 200,214 749
Sun Microsystems, Inc. (a)..... 774,388 3,562
SunGard Data Systems, Inc.
(a).......................... 67,750 1,755
Symantec Corp. (a)............. 36,300 1,592
Symbol Technologies, Inc. ..... 55,585 723
Tektronix, Inc. (a)............ 21,029 454
Tellabs, Inc. (a).............. 99,475 654
Teradyne, Inc. (a)............. 44,592 772
Texas Instruments, Inc. ....... 418,703 7,369
Thermo Electron Corp. (a)...... 39,029 820
Unisys Corp. (a)............... 76,279 937
VERITAS Software Corp. (a)..... 99,983 2,866
Waters Corp. (a)............... 29,757 867
Xerox Corp. (a)................ 188,542 1,997
Xilinx, Inc. (a)............... 82,704 2,093
Yahoo!, Inc. (a)............... 145,593 4,770
----------
350,382
----------
MATERIALS - 2.5%
Air Products & Chemicals,
Inc. ........................ 54,389 2,263
Alcoa, Inc. ................... 202,446 5,162
Allegheny Technologies,
Inc. ........................ 17,729 117
Ball Corp...................... 13,385 609
Bemis Co., Inc. ............... 11,864 555
Boise Cascade Corp............. 12,419 297
Dow Chemical Co................ 220,899 6,839
E.I. Du Pont de Nemours & Co... 240,439 10,012
Eastman Chemical Co............ 17,362 550
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Ecolab, Inc. .................. 63,726 $ 1,631
Engelhard Corp................. 29,430 729
Freeport-McMoRan Copper &
Gold, Inc. Class B............. 35,114 860
Georgia-Pacific Group.......... 58,140 1,102
Great Lakes Chemical Corp...... 10,803 220
Hercules, Inc. (a)............. 24,298 241
International Flavors &
Fragrances, Inc. ............ 21,504 687
International Paper Co......... 115,656 4,132
Louisiana Pacific Corp. (a).... 23,459 253
MeadWestvaco Corp.............. 49,588 1,225
Monsanto Co.................... 60,946 1,319
Newmont Mining Corp............ 97,942 3,179
Nucor Corp..................... 20,202 987
Pactiv Corp. (a)............... 35,864 707
Phelps Dodge Corp. (a)......... 20,605 790
PPG Industries, Inc. .......... 41,090 2,085
Praxair, Inc. ................. 38,410 2,308
Rohm & Haas Co................. 53,796 1,669
Sealed Air Corp. (a)........... 21,136 1,007
Sigma Aldrich Corp............. 17,193 932
Temple-Inland, Inc. ........... 14,314 614
United States Steel Corp....... 22,902 375
Vulcan Materials Co............ 26,296 975
Weyerhaeuser Co................ 52,424 2,831
Worthington Industries,
Inc. ........................ 19,229 258
----------
57,520
----------
TELECOMMUNICATION
SERVICES - 3.7%
ALLTELCorp..................... 75,298 3,631
AT&TCorp....................... 187,747 3,614
AT&TWireless Services, Inc.
(a).......................... 653,638 5,366
BellSouth Corp................. 445,828 11,873
CenturyTel, Inc. .............. 33,608 1,171
Citizens Communications Co.
(a).......................... 68,377 881
Nextel Communications, Inc.
Class A (a).................... 248,236 4,488
Qwest Communications
International, Inc. (a)...... 402,622 1,925
SBC Communications, Inc. ...... 800,704 20,458
Sprint Corp. (Fon Group)....... 218,284 3,143
Sprint Corp. (PCS Group) (a)... 246,178 1,416
Verizon Communications,
Inc. ........................ 663,598 26,179
----------
84,145
----------
UTILITIES - 2.9%
AES Corp. (a).................. 147,814 939
Allegheny Energy, Inc. ........ 28,099 237
Ameren Corp.................... 38,242 1,686
American Electric Power Co.,
Inc. ........................ 95,354 2,844
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
24
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Calpine Corp. (a).............. 91,952 $ 607
CenterPoint Energy, Inc. ...... 68,593 559
Cinergy Corp................... 42,458 1,562
CMS Energy Corp................ 29,705 241
Consolidated Edison, Inc. ..... 53,922 2,334
Constellation Energy Group,
Inc. ........................ 38,803 1,331
Dominion Resources, Inc. ...... 74,987 4,819
DTE Energy Co.................. 41,046 1,586
Duke Energy Corp............... 216,077 4,311
Dynegy, Inc. Class A........... 82,030 344
Edison International (a)....... 80,762 1,327
El Paso Corp................... 153,494 1,240
Entergy Corp................... 54,143 2,858
Exelon Corp.................... 77,989 4,664
FirstEnergy Corp............... 71,312 2,742
FPLGroup, Inc. ................ 44,489 2,974
KeySpan Corp................... 38,606 1,369
Kinder Morgan, Inc. ........... 29,838 1,631
Mirant Corp. (a)............... 95,088 276
NICOR, Inc. ................... 10,113 375
NiSource, Inc. ................ 65,367 1,242
Peoples Energy Corp............ 7,631 327
PG&E Corp. (a)................. 100,623 2,128
Pinnacle West Capital Corp..... 21,081 789
PPLCorp........................ 40,668 1,749
Progress Energy, Inc. ......... 58,008 2,547
Public Service Enterprise
Group, Inc. ................. 54,522 2,304
Sempra Energy.................. 50,589 1,443
Southern Co.................... 174,158 5,427
TECO Energy, Inc. ............. 41,176 494
TXU Corp....................... 75,948 1,705
Williams Cos., Inc. ........... 124,937 987
Xcel Energy, Inc. ............. 93,397 1,405
----------
65,403
----------
TOTAL COMMON STOCKS (COST
$2,143,116,851).......... 2,167,962
----------
<Caption>
PAR
AMOUNT VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
GOVERNMENT AND AGENCY SECURITIES - 0.3%
United States Treasury Bills
0.90% due 09/11/03 (b)(c).... $ 5,910 $ 5,900
----------
TOTAL GOVERNMENT AND AGENCY
SECURITIES (COST
$5,899,362).............. 5,900
----------
</Table>
<Table>
<Caption>
SHARES
----------
(IN
THOUSANDS)
SHORT TERM INVESTMENTS - 6.0%
AIM Short Term Investment Prime
Portfolio.................... 81,577 81,577
Federated Money Market
Obligations Trust............ 6,560 6,560
State Street Navigator
Securities Lending Prime
Portfolio (d) (Note 4)....... 47,883 47,883
----------
TOTAL SHORT TERM INVESTMENTS
(COST $136,020,299)...................... 136,020
----------
TOTAL INVESTMENTS - 102.0%
(IDENTIFIED COST $2,285,036,512)......... $2,309,882
----------
OTHER ASSETS AND LIABILITIES NET -
(2.0)%................................... (45,214)
----------
NET ASSETS - 100%.......................... $2,264,668
==========
</Table>
SCHEDULE OF FUTURES CONTRACTS
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS DEPRECIATION
--------- ------------
(DOLLARS IN THOUSANDS)
S&P500 Financial Futures
Contracts (long)Expiration
date 09/2003................ 392 $2,358
------
Total unrealized depreciation
on open futures contracts
purchased................... $2,358
======
</Table>
- ---------------
(a) Non-income producing security.
(b) Held as collateral in connection with futures contracts purchased by the
Portfolio.
(c) Rate represents annualized yield at date of purchase.
(d) Security represents investment made with cash collateral received from
securities loaned.
See notes to financial statements.
- --------------------------------------------------------------------------------
25
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
(amounts in thousands)
<Table>
ASSETS:
Unaffiliated investments at market (identified cost
$2,234,463) -- including $46,643 of securities loaned
(Note 2)............................................... $2,258,811
Affiliated investments at market (identified cost
$50,574) (Note 4)...................................... 51,071
Receivables:
Dividends and interest.............................. 2,753
----------
TOTAL ASSETS........................................ 2,312,635
----------
LIABILITIES:
Payables:
Due upon return of securities loaned................ 47,883
Management fees (Note 4)............................ 84
----------
TOTAL LIABILITIES................................... 47,967
----------
NET ASSETS.................................................. $2,264,668
==========
COMPOSITION OF NET ASSETS
Paid-in capital......................................... $2,242,181
Net unrealized appreciation on investments and futures
contracts.............................................. 22,487
----------
NET ASSETS.................................................. $2,264,668
==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
26
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
(amounts in thousands)
<Table>
INVESTMENT INCOME:
Dividends............................................... $ 17,652
Interest................................................ 428
Security lending income................................. 47
---------
TOTAL INVESTMENT INCOME............................. 18,127
EXPENSES:
Management fees (Note 4)................................ $ 460
---------
TOTAL EXPENSES...................................... 460
---------
NET INVESTMENT INCOME....................................... 17,667
---------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments......................................... (87,027)
Futures contracts................................... 10,399
---------
(76,628)
---------
Net change in unrealized appreciation (depreciation) on:
Investments......................................... 297,207*
Futures contracts................................... (1,542)
---------
295,665
---------
Net realized and unrealized gain............................ 219,037
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 236,704
=========
</Table>
- ---------------
* Excludes unrealized depreciation of $1,680 on contributed securities.
See notes to financial statements.
- --------------------------------------------------------------------------------
27
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR
FOR THE SIX ENDED
MONTHS ENDED DECEMBER 31,
JUNE 30, 2003 2002
------------- ------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income......................... $ 17,667 $ 34,956
Net realized loss on investments, futures
contracts, and withdrawals in-kind.......... (76,628) (70,428)
Net change in unrealized appreciation
(depreciation).............................. 295,665 (532,213)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................... 236,704 (567,685)
---------- ----------
CAPITAL TRANSACTIONS:
Proceeds from contributions................... 308,450 557,561
Contributions in-kind......................... 19,659 41,343
Fair value of withdrawals..................... (292,693) (520,988)
Withdrawals in-kind........................... -- (209,981)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL TRANSACTIONS........................ 35,416 (132,065)
---------- ----------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS....... 272,120 (699,750)
NET ASSETS:
Beginning of period........................... 1,992,548 2,692,298
---------- ----------
END OF PERIOD................................. $2,264,668 $1,992,548
========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
28
STATE STREET EQUITY 500 INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected supplemental data and ratios to
average net assets:
<Table>
<Caption>
FOR THE SIX
MONTHS PERIOD
ENDED YEAR ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000*
------------ ------------ ------------ ------------
(UNAUDITED)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands)...... $2,264,668 $1,992,548 $2,692,298 $2,957,271
Ratios to average net assets:
Operating expenses....................... 0.045%+ 0.045% 0.045% 0.045%+
Net investment income.................... 1.73%+ 1.57% 1.34% 1.14%+
Portfolio turnover rate**..................... 9%++ 13% 14% 18%+
Total return(a)............................... 11.75%++ (22.16%) (11.94%) (2.41%)++
</Table>
- ---------------
* The Portfolio commenced operations on March 1, 2000.
** The Portfolio turnover rate excludes in-kind security transactions.
+ Annualized.
++ Not Annualized.
(a) Results represent past performance and are not indicative of future results.
See notes to financial statements.
- --------------------------------------------------------------------------------
29
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION
The State Street Master Funds (the "Trust") is a registered and diversified
open-end investment company, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"), that was organized as a business trust under the
laws of the Commonwealth of Massachusetts on July 27, 1999. The Trust comprises
seven investment portfolios: the State Street Equity 500 Index Portfolio, the
State Street Equity 400 Index Portfolio, the State Street Equity 2000 Index
Portfolio, the State Street MSCI(R) EAFE(R) Index Portfolio, the State Street
Aggregate Bond Index Portfolio, the State Street Money Market Portfolio, and the
State Street U.S. Government Money Market Portfolio. Information presented in
these financial statements pertains only to the State Street Equity 500 Index
Portfolio (the "Portfolio"). At June 30, 2003, only the Portfolio and State
Street MSCI(R) EAFE(R) Index Portfolio had commenced operations. Pursuant to the
Trust's Declaration of Trust, the Board of Trustees may issue an unlimited
number of non-transferable beneficial interests.
The Portfolio's investment objective is to replicate, as closely as
possible, before expenses, the performance of the Standard & Poor's 500
Composite Stock Price Index (the "S&P500 Index"). The Portfolio uses a passive
management strategy designed to track the performance of the S&P500 Index. The
S&P500 Index is a well-known, unmanaged, stock index that includes common stocks
of 500 companies from several industrial sectors representing a significant
portion of the market value of all stocks publicly traded in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
The Portfolio's financial statements are prepared in accordance with
generally accepted accounting principles that require the use of management
estimates. Actual results could differ from those estimates. The following is a
summary of the significant accounting policies consistently followed by the
Portfolio in the preparation of its financial statements.
Security Valuation
The Portfolio's investments are valued each business day by independent
pricing services. Equity securities for which market quotations are available
are valued at the last sale price or official closing price (closing bid price
if no sale has occurred) on the primary market or exchange on which they trade.
Investments in other mutual funds are valued at the net asset value per share.
Fixed-income securities and options are valued on the basis of the closing bid
price. Futures contracts are valued on the basis of the last sale price. Money
market instruments maturing within 60 days of the valuation date are valued at
amortized cost, a method by which each money market instrument is initially
valued at cost, and thereafter a constant accretion or amortization of any
discount or premium is recorded until maturity of the security. The Portfolio
may value securities for which market quotations are not readily available at
"fair value," as determined in good faith pursuant to procedures established by
the Board of Trustees.
Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded daily on the
accrual basis and includes amortization of premium and accretion of discount on
investments. Realized gains and losses from securities transactions are recorded
on the basis of identified cost. Expenses are accrued daily based on average
daily net assets.
- --------------------------------------------------------------------------------
30
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
All of the net investment income and realized and unrealized gains and
losses from the security transactions of the Portfolio are allocated pro rata
among the partners in the Portfolio based on each partner's daily ownership
percentage.
Federal Income Taxes
The Portfolio is not required to pay federal income taxes on its net
investment income and net capital gains because it is treated as a partnership
for federal income tax purposes. All interest, dividends, gains and losses of
the Portfolio are deemed to have been "passed through" to the Portfolio's
partners in proportion to their holdings in the Portfolio, regardless of whether
such items have been distributed by the Portfolio. Each partner is responsible
for tax liability based on its distributive share; therefore, no provision has
been made for federal income taxes.
Futures
The Portfolio may enter into financial futures contracts as part of its
strategy to track the performance of the S&P500 Index. Upon entering into a
futures contract, the Portfolio is required to deposit with the broker cash or
securities in an amount equal to a certain percentage of the contract amount.
Variation margin payments are made or received by the Portfolio each day,
depending on the daily fluctuations in the value of the underlying security or
index, and are recorded for financial statement purposes as unrealized gains or
losses by the Portfolio. The Portfolio recognizes a realized gain or loss when
the contract is closed. The Portfolio voluntarily segregates securities in an
amount equal to the outstanding value of the open futures con- tracts in
accordance with Securities and Exchange Commission (the "SEC") requirements.
The primary risks associated with the use of futures contracts are an
imperfect correlation between the change in market value of the securities held
by the Portfolio and the prices of futures contracts and the possibility of an
illiquid market.
Securities Lending
The Trust, on behalf of the Portfolio, entered into a Securities Lending
Agreement (the "Agreement") with State Street Bank and Trust Company ("State
Street"). Under the terms of the Agreement, the Portfolio may lend portfolio
securities to qualified borrowers in order to earn additional income. The
Agreement requires that loans are secured at all times by cash, U.S. Government
securities or irrevocable lines of credit in an amount at least equal to 102% of
the market value of domes- tic securities loaned (105% in the case of foreign
securities), plus accrued interest and dividends, determined on a daily basis.
Proceeds collected by State Street on investment of cash collateral or any fee
income is allocated as follows: 75% to the Portfolio and 25% to State Street.
For the six months ended June 30, 2003, the earned income for the Portfolio and
State Street was $46,723 and $15,574, respectively.
The primary risk associated with securities lending is that if the borrower
defaults on its obligation to return the securities loaned because of insolvency
or other reasons, the Portfolio could experience delays and costs in recovering
the securities loaned or in gaining access to the collateral. At June 30, 2003,
the value of the securities loaned amounted to $46,642,751. The loans were
collateralized with cash of $47,883,163, which the Portfolio then invested in
the State Street Navigator Securities Lending Prime Portfolio (the "Prime
Portfolio"), an affiliated investment company.
- --------------------------------------------------------------------------------
31
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
3. SECURITIES TRANSACTIONS
For the period ended June 30, 2003, purchases and sales of investment
securities, excluding short-term investments, futures contracts, and in-kind
contributions and withdrawals, aggregated to $191,416,948 and $181,101,312,
respectively The aggregate value of in-kind contributions and withdrawals were
$19,659,189 and $0, respectively.
At June 30, 2003, the cost of investments on a book basis was
$2,285,036,512. The aggregate gross unrealized appreciation and gross unrealized
depreciation was $332,790,014 and $307,944,587, respectively, for all securities
as computed on a book basis.
4. RELATED PARTY FEES AND TRANSACTIONS
The Portfolio has entered into an investment advisory agreement with
SSgAFunds Management, Inc. ("SSgA"), a subsidiary of State Street Corp. and an
affiliate of State Street, under which SSgA directs the investments of the
Portfolio in accordance with its investment objective, policies, and
limitations. The Trust has contracted with State Street to provide custody,
administration and transfer agent services to the Portfolio. In compensation for
SSgA's services as investment adviser and for State Street's services as
administrator, custodian and transfer agent (and for assuming ordinary operating
expenses of the Portfolio, including ordinary legal and audit expenses), State
Street receives a unitary fee, calculated daily, at the annual rate of 0.045% of
the Portfolio's average daily net assets.
Certain investments made by the Portfolio represent securities affiliated
with State Street and SSgA. Investments made with cash collateral received from
securities loaned were used to purchase shares of the Prime Portfolio, which is
offered by State Street and advised by SSgA. Investments in State Street Corp.,
the holding company of State Street, were made according to its representative
portion of the S&P500 Index. The market value of each of these investments at
June 30, 2003 is listed in the Portfolio of Investments.
During the period, the Portfolio had investment transactions executed
through State Street Global Markets LLC. For the period ended June 30, 2003, the
Portfolio paid brokerage commissions to State Street Global Markets LLC, of
$265,675.
- --------------------------------------------------------------------------------
32
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
COMMON STOCKS
Advertising Agencies - 0.5%
+ADVO Systems, Inc. ........ 5,890 $ 261,516
+aQuantive, Inc. ........... 12,800 134,400
+Catalina Marketing
Corporation............... 10,400 183,560
+Cross Media Marketing
Corporation............... 1,000 250
Grey Global Group Inc. .... 236 182,311
+R.H. Donnelley
Corporation............... 5,833 212,730
+ValueClick, Inc. .......... 21,600 130,248
------------
1,105,015
------------
Advertising/Marketing Services - 0.0%
+Digital Generation Systems,
Inc. ..................... 3,600 6,948
+FindWhat.com............... 3,900 74,529
------------
81,477
------------
Aerospace - 0.4%
Curtiss-Wright
Corporation.............. 2,767 174,874
+Ducommun Incorporated...... 2,000 28,200
HEICO Corporation (Class
A)....................... 2,726 33,257
+Integrated Defense
Technologies, Inc. ....... 1,800 27,918
+Moog Inc. (Class A)........ 4,506 156,584
+Orbital Sciences
Corporation............... 15,335 111,946
+Teledyne Technologies
Incorporated.............. 9,334 122,275
United Industrial
Corporation.............. 3,000 48,900
------------
703,954
------------
Aerospace & Defense - 0.1%
Applied Signal Technology,
Inc. .................... 3,500 60,270
+KVH Industries, Inc. ...... 3,500 86,170
------------
146,440
------------
Agricultural Commodities/Milling - 0.0%
+Darling International
Inc. ..................... 10,500 25,200
------------
Agriculture Fishing & Ranching - 0.1%
Alico, Inc. ............... 900 22,221
Delta and Pine Land
Company.................. 11,078 243,494
+Seminis, Inc. (Class A).... 8,200 30,176
+Virbac Corporation......... 2,600 15,756
------------
311,647
------------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Air Transport - 1.3%
AAR Corp. ................. 11,568 $ 81,670
+AMR Corporation............ 47,500 522,500
Airborne, Inc. ............ 14,201 296,801
+AirTran Holdings, Inc. .... 17,820 186,575
+Alaska Air Group, Inc. .... 6,399 137,259
+Atlantic Coast Airlines
Holdings, Inc. ........... 11,323 152,746
+Aviall, Inc. .............. 4,100 46,617
+Continental Airlines, Inc.
(Class B)................. 18,800 281,436
+EGL, Inc. ................. 9,295 141,284
+ExpressJet Holdings,
Inc. ..................... 7,600 114,760
+Frontier Airlines, Inc. ... 10,255 93,115
+Mesa Air Group, Inc. ...... 9,656 77,248
+Mesaba Holdings, Inc. ..... 2,744 16,930
+Northwest Airlines
Corporation............... 19,400 215,534
+Offshore Logistics,
Inc. ..................... 5,685 123,649
+Petroleum Helicopters, Inc.
(Voting Shares)........... 1,100 34,485
SkyWest, Inc. ............. 16,000 305,280
------------
2,827,889
------------
Airlines - 0.0%
+America West Holdings
Corporation (Class B)..... 6,700 45,560
------------
Aluminum - 0.0%
Century Aluminum Company... 3,602 25,322
------------
Apparel/Footwear - 0.1%
+Perry Ellis International,
Inc. ..................... 1,600 31,184
+Warnaco Group, Inc. ....... 11,500 155,250
Weyco Group, Inc. ......... 100 4,601
------------
191,035
------------
Apparel/Footwear Retail - 0.0%
+Casual Male Retail Group
Inc. ..................... 6,700 35,108
+Jos. A. Bank Clothiers,
Inc. ..................... 1,800 60,300
------------
95,408
------------
Auto Parts - After Market - 0.2%
+Aftermarket Technology
Corp. .................... 4,100 43,091
+Keystone Automotive
Industries, Inc. ......... 2,300 41,998
+Raytech Corporation........ 5,900 25,075
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
33
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Sports Resorts
International, Inc. ...... 3,500 $ 17,010
Standard Motor Products,
Inc. .................... 3,100 34,410
Superior Industries
International, Inc. ..... 7,099 296,028
+TBC Corporation............ 4,700 89,535
------------
547,147
------------
Auto Parts - Original Equipment - 0.2%
+Collins & Aikman
Corporation............... 9,278 27,370
+Dura Automotive Systems,
Inc. ..................... 6,053 59,380
Sauer-Danfoss, Inc. ....... 2,273 24,435
+Stoneridge, Inc. .......... 3,487 47,598
+Strattec Security
Corporation............... 700 37,240
+Tenneco Automotive Inc. ... 9,200 33,119
+Tower Automotive, Inc. .... 16,071 58,820
Visteon Corporation........ 36,300 249,381
------------
537,343
------------
Auto Trucks & Parts - 0.3%
Modine Manufacturing Co. .. 7,794 150,970
Oshkosh Truck Corporation.. 4,463 264,745
+Wabash National
Corporation............... 8,545 119,886
------------
535,601
------------
Banks - Outside New York City - 7.5%
1st Source Corporation..... 3,740 69,414
ABC Bancorp................ 2,900 41,557
AMCORE Financial, Inc. .... 8,318 193,643
Alabama National
BanCorporation........... 2,421 117,370
Allegiant Bancorp, Inc. ... 3,600 72,900
American National
Bankshares Inc. ......... 1,300 34,957
Arrow Financial
Corporation.............. 1,858 62,001
BancFirst Corporation...... 1,045 54,194
Bank of Granite Corp. ..... 3,886 66,256
Bank of the Ozarks,
Inc. .................... 800 31,008
Banner Corporation......... 4,013 82,226
Boston Private Financial
Holdings, Inc. .......... 6,993 147,412
Bryn Mawr Bank
Corporation.............. 1,000 37,070
CB Bancshares, Inc. ....... 1,550 96,286
CCBT Financial Companies
Inc. .................... 2,500 59,725
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
CVB Financial Corp. ....... 8,735 $ 170,507
Camden National
Corporation.............. 1,500 41,250
Capital City Bank Group,
Inc. .................... 2,477 89,667
Capitol Bancorp Ltd. ...... 1,700 46,070
Cascade Bancorp............ 2,400 41,304
Cathay Bancorp, Inc. ...... 5,108 227,715
+Central Coast Bancorp...... 2,433 40,801
Central Pacific Financial
Corp. ................... 4,038 111,853
Century Bancorp, Inc.
(Class A)................ 1,700 50,626
Chemical Financial
Corporation.............. 6,251 186,280
Chittenden Corporation..... 9,926 271,476
Citizens Banking
Corporation.............. 13,600 367,336
City Holding Company....... 4,893 143,218
CityBank................... 2,099 56,799
CoBiz Inc. ................ 2,184 29,571
Columbia Bancorp........... 1,600 38,400
Columbia Banking System,
Inc. .................... 5,135 91,968
Community Bank System,
Inc. .................... 3,200 121,600
Community Banks, Inc. ..... 2,200 65,428
Community First Bankshares,
Inc. .................... 11,540 315,042
Community Trust Bancorp,
Inc. .................... 2,970 77,636
Corus Bankshares, Inc. .... 2,276 110,227
East West Bancorp, Inc. ... 7,298 263,750
F&M Bancorp................ 3,172 156,443
FNB Corporation............ 1,700 46,019
Farmers Capital Bank
Corporation.............. 1,685 53,835
Financial Institutions,
Inc. .................... 1,600 37,600
First Bancorp.............. 1,924 49,851
First Busey Corporation.... 2,576 62,442
First Charter
Corporation.............. 7,823 136,120
First Citizens BancShares,
Inc. (Class A)........... 1,547 155,999
First Commonwealth
Financial Corporation.... 15,734 203,913
First Community Bancorp.... 4,400 137,148
First Community Bancshares,
Inc. .................... 2,540 89,662
First Essex Bancorp,
Inc. .................... 2,416 113,890
First Financial Bancorp.... 9,187 146,992
First Financial Bankshares,
Inc. .................... 3,765 125,977
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
34
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
First Financial
Corporation.............. 2,022 $ 106,964
The First of Long Island
Corporation.............. 660 24,042
First Merchants
Corporation.............. 4,330 105,262
First National
Corporation.............. 2,230 54,992
First Oak Brook Bancshares,
Inc. .................... 700 23,093
First South Bancorp,
Inc. .................... 900 29,934
First State
Bancorporation........... 2,200 60,522
Franklin Financial
Corporation.............. 300 9,015
Frontier Financial
Corporation.............. 3,841 109,123
GBC Bancorp................ 2,934 112,666
German American Bancorp.... 1,743 30,415
Glacier Bancorp, Inc. ..... 4,360 107,343
Gold Banc Corporation...... 12,622 132,657
Greater Bay Bancorp........ 16,400 328,656
Hancock Holding Company.... 3,727 175,393
Hanmi Financial
Corporation.............. 1,500 26,205
Harleysville National
Corporation.............. 5,639 152,591
Humboldt Bancorp........... 5,180 77,493
Independent Bank
Corporation
(Massachusetts).......... 3,245 73,305
Independent Bank
Corporation (Michigan)... 5,310 136,414
Integra Bank Corporation... 4,474 76,998
Interchange Financial
Services Corporation..... 3,300 64,746
International Bancshares
Corporation.............. 1 36
Irwin Financial
Corporation.............. 4,648 120,383
LSB Bancshares, Inc. ...... 2,500 43,275
Lakeland Bancorp, Inc. .... 3,427 54,763
Lakeland Financial
Corporation.............. 1,500 45,570
MASSBANK Corp. ............ 1,700 61,489
MB Financial, Inc.......... 3,000 120,120
Macatawa Bank Corporation.. 2,450 59,021
Main Street Banks, Inc. ... 3,100 78,430
MainSource Financial Group,
Inc. .................... 1,720 41,916
Merchants Bancshares,
Inc. .................... 2,000 52,000
Mid-State Bancshares....... 7,050 139,238
Midway Banc Holdings,
Inc. .................... 4,280 83,118
NBC Capital Corporation.... 1,929 48,804
NBT Bancorp Inc. .......... 8,413 162,792
Nara Bancorp, Inc. ........ 3,800 72,200
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
National Penn Bancshares,
Inc. .................... 5,362 $ 150,565
Old Second Bancorp, Inc. .. 1,888 80,901
Omega Financial
Corporation.............. 2,441 83,482
Oriental Financial Group
Inc. .................... 3,221 82,747
Pacific Capital Bancorp.... 10,833 379,697
Pacific Northwest Bancorp.. 5,608 194,934
Pacific Union Bank......... 2,100 28,119
Peapack-Gladstone Financial
Corporation.............. 1,800 57,654
PennRock Financial Services
Corp. ................... 1,510 40,785
Peoples Bancorp Inc. ...... 2,200 55,594
The Peoples Holding
Company.................. 1,555 68,809
PrivateBancorp, Inc. ...... 2,450 66,812
Prosperity Bancshares,
Inc. .................... 2,700 51,975
Provident Bancshares
Corporation.............. 7,714 196,013
R & G Financial Corporation
(Class B)................ 5,441 161,598
Republic Bancorp Inc. ..... 14,273 191,544
Republic Bancorp, Inc.
(Class A)................ 3,409 50,555
Republic Bancshares,
Inc. .................... 3,034 75,880
Riggs National
Corporation.............. 4,601 70,027
Royal Bancshares of
Pennsylvania, Inc. ...... 1,289 27,520
S&T Bancorp, Inc. ......... 6,963 190,995
S.Y. Bancorp, Inc. ........ 1,300 45,981
Sandy Spring Bancorp,
Inc. .................... 3,614 114,202
Santander BanCorp.......... 1,358 22,217
Seacoast Banking
Corporation of Florida... 3,050 51,972
Second Bancorp,
Incorporated............. 2,317 59,779
+Silicon Valley
Bancshares................ 10,700 254,767
Simmons First National
Corporation (Class A).... 4,200 84,042
The South Financial Group,
Inc. .................... 14,738 343,838
Southwest Bancorp, Inc. ... 1,600 43,856
+Southwest Bancorporation of
Texas, Inc. .............. 9,124 296,621
State Bancorp, Inc. ....... 1,965 38,455
Sterling Bancshares,
Inc. .................... 13,376 174,958
Sterling Financial
Corporation.............. 5,050 117,413
Suffolk Bancorp............ 3,300 106,260
Summit Bancshares, Inc. ... 2,500 58,700
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
35
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Sun Bancorp, Inc. ......... 1,600 $ 32,288
+Sun Bancorp, Inc. (New
Jersey)................... 3,070 61,093
Susquehanna Bancshares,
Inc. .................... 12,604 294,303
Texas Regional Bancshares,
Inc. (Class A)........... 7,584 263,165
Tompkins Trustco, Inc. .... 2,200 98,230
TriCo Bancshares........... 1,600 40,688
Troy Financial
Corporation.............. 1,745 47,377
The Trust Company of New
Jersey................... 5,480 166,044
TrustCo Bank Corp NY....... 22,016 243,937
UCBH Holdings, Inc. ....... 12,398 355,575
UMB Financial Corporation.. 4,376 185,542
U.S.B. Holding Co.,
Inc. .................... 3,284 58,291
Umpqua Holdings
Corporation.............. 8,370 158,946
Union Bankshares
Corporation.............. 2,200 62,193
United Community Banks,
Inc. .................... 4,500 112,410
United National Bancorp.... 6,091 168,051
Unizan Financial Corp. .... 6,219 109,268
Virginia Financial Group,
Inc. .................... 2,100 58,800
Washington Trust Bancorp,
Inc. .................... 3,800 87,362
WesBanco, Inc. ............ 6,063 147,331
West Coast Bancorp......... 3,400 61,880
Wintrust Financial
Corporation.............. 5,900 174,640
Yardville National
Bancorp.................. 3,600 70,200
------------
16,018,299
------------
Beverage - Alcoholic - 0.0%
+Central European
Distribution
Corporation............... 2,700 54,540
------------
Beverage - Brewers (Wineries) - 0.1%
+The Boston Beer Company,
Inc. (Class A)............ 2,100 30,240
+The Robert Mondavi
Corporation (Class A)..... 3,542 89,648
------------
119,888
------------
Beverage - Soft Drinks - 0.1%
Coca-Cola Bottling Co.
Consolidated............. 687 37,510
Farmer Brothers Co. ....... 171 58,019
+Green Mountain Coffee,
Inc. ..................... 1,011 19,209
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+National Beverage Corp. ... 1,895 $ 26,341
+Peets Coffee & Tea Inc. ... 3,900 68,094
------------
209,173
------------
Biotechnology - 0.4%
+AVANT Immunotherapeutics,
Inc. ..................... 22,300 64,447
+AVI BioPharma, Inc. ....... 8,000 48,000
+Aclara Biosciences Inc. ... 4,200 17,724
+Alteon Inc. ............... 7,700 37,345
+Dendreon Corporation....... 3,700 21,978
+Discovery Laboratories
Inc. ..................... 10,400 66,768
+Dov Pharmaceutical Inc. ... 4,100 46,330
+GTC Biotherapeutics,
Inc. ..................... 2,500 8,325
+Gen-Probe Incorporated..... 6,700 274,499
+Nuvelo, Inc. .............. 17,400 34,800
+Palatin Technologies
Inc. ..................... 8,500 27,115
+Regeneration Technologies,
Inc. ..................... 8,200 108,978
+Repligen Corporation....... 6,100 31,048
+SFBC International,
Inc. ..................... 2,300 41,722
+SciClone Pharmaceuticals,
Inc. ..................... 9,700 83,032
+Sirna Therapeutics,
Inc. ..................... 600 5,208
+Third Wave Technologies.... 4,600 21,528
------------
938,847
------------
Biotechnology Research & Production - 2.5%
+ARIAD Pharmaceuticals,
Inc. ..................... 13,419 60,251
+Abgenix, Inc. ............. 24,800 260,152
+Aksys, Ltd. ............... 9,500 123,025
+Albany Molecular Research,
Inc. ..................... 6,687 100,974
+Alexion Pharmaceuticals,
Inc. ..................... 5,580 95,139
+Antigenics Inc. ........... 7,113 81,942
+Applera Corporation -
Celera Genomics Group..... 20,000 206,400
+Arena Pharmaceuticals,
Inc. ..................... 5,800 38,512
+ArthroCare Corporation..... 6,120 102,571
+BioReliance Corporation.... 800 16,960
+Cell Genesys, Inc. ........ 10,124 87,471
+Cell Therapeutics, Inc. ... 9,831 95,656
+Ciphergen Biosystems,
Inc. ..................... 5,200 53,300
+Corixa Corporation......... 14,257 110,207
+Cubist Pharmaceuticals,
Inc. ..................... 9,267 98,786
+CuraGen Corporation........ 12,700 70,485
+deCODE Genetics, Inc. ..... 9,800 30,576
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
36
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Deltagen, Inc. ............ 100 $ 13
+Digene Corporation......... 3,624 98,682
+Diversa Corporation........ 5,778 56,798
+Encysive Pharmaceuticals
Inc. ..................... 9,796 47,021
+Enzon, Inc. ............... 12,800 160,256
+Exact Sciences
Corporation............... 3,200 35,072
+Exelixis, Inc. ............ 13,118 91,039
+Gene Logic Inc. ........... 9,139 54,560
+Genencor International
Inc. ..................... 1,700 27,999
+Genta Incorporated......... 12,897 171,788
+Geron Corporation.......... 10,429 76,757
+Immunomedics, Inc. ........ 12,709 80,194
+Incyte Genomics, Inc. ..... 21,224 98,479
+Integra LifeSciences
Holdings.................. 5,500 145,090
+InterMune Inc. ............ 7,614 122,662
+Interpore International,
Inc. ..................... 6,500 82,745
+Kensey Nash Corporation.... 3,100 80,600
+Kosan Biosciences, Inc. ... 3,300 19,470
+Lexicon Genetics
Incorporated.............. 7,605 51,030
+Martek Biosciences
Corporation............... 7,112 305,389
+Maxygen Inc. .............. 6,701 73,510
+Myriad Genetics, Inc. ..... 7,900 107,519
+NPS Pharmaceuticals,
Inc. ..................... 9,223 224,488
+Nabi Biopharmaceuticals.... 9,854 67,598
+OSI Pharmaceuticals,
Inc. ..................... 11,000 354,310
+Peregrine Pharmaceuticals,
Inc. ..................... 39,055 57,020
+Pharmacopeia, Inc. ........ 7,885 65,050
+Progenics Pharmaceuticals,
Inc. ..................... 1,500 22,590
+Rigel Pharmaceuticals,
Inc. ..................... 78 845
+Seattle Genetics, Inc. .... 3,900 20,085
+Serologicals Corporation... 6,972 95,028
+Tanox, Inc. ............... 7,845 125,912
+Telik, Inc. ............... 9,532 153,179
+Transkaryotic Therapies,
Inc. ..................... 9,740 112,400
+Trimeris, Inc. ............ 4,038 184,456
+Vicuron Pharmaceuticals
Inc. ..................... 10,906 154,647
+Zymogentics, Inc. ......... 2,600 30,264
------------
5,286,952
------------
Broadcasting - 0.1%
Gray Television, Inc. ..... 10,100 125,240
------------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Building Materials - 0.5%
Ameron International
Corporation.............. 1,900 $ 66,063
Building Materials Holding
Corporation.............. 5,100 75,531
Hughes Supply, Inc. ....... 6,890 239,083
LSI Industries Inc. ....... 4,150 46,065
+Mestek, Inc. .............. 1,000 18,000
+NCI Building Systems,
Inc. ..................... 5,568 92,986
+Simpson Manufacturing Co.,
Inc. ..................... 4,066 148,816
Texas Industries, Inc. .... 6,045 143,870
+Trex Company, Inc. ........ 1,709 67,078
Watsco, Inc. .............. 4,165 68,972
------------
966,464
------------
Building - Air Conditioning - 0.2%
Lennox International
Inc. .................... 11,235 144,594
York International
Corporation.............. 10,738 251,269
------------
395,863
------------
Building - Cement - 0.0%
Centex Construction
Products, Inc. .......... 1,377 55,204
------------
Building - Heating & Plumbing - 0.0%
+Aaon, Inc. ................ 1,700 31,484
------------
Building - Miscellaneous - 0.1%
+Drew Industries
Incorporated.............. 1,800 32,760
+Griffon Corporation........ 8,047 128,752
------------
161,512
------------
Building - Roofing & Wallboard - 0.2%
ElkCorp.................... 6,351 142,898
+USG Corporation............ 11,700 222,300
------------
365,198
------------
Cable Television Services - 0.3%
+Charter Communications,
Inc. (Class A)............ 79,700 297,281
+Crown Media Holdings, Inc.
(Class A)................. 6,698 27,663
+Insight Communications
Company, Inc. ............ 13,200 173,976
+TiVo Inc. ................. 10,594 129,035
------------
627,955
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
37
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Cable/Satellite TV - 0.0%
+Pegasus Communications
Corporation............... 1,300 $ 37,908
------------
Casinos & Gambling - 0.7%
+Ameristar Casinos, Inc. ... 4,100 87,535
+Argosy Gaming Company...... 7,425 155,257
+Aztar Corporation.......... 8,391 135,179
+Boyd Gaming Corporation.... 8,715 150,421
Churchill Downs
Incorporated............. 1,332 51,029
Dover Downs Gaming &
Entertainment, Inc. ..... 2,278 21,072
+Isle of Capri Casinos,
Inc. ..................... 4,475 73,972
+MTR Gaming Group, Inc. .... 8,400 64,848
+Magna Entertainment Corp.
(Class A)................. 14,800 74,000
+Multimedia Games, Inc. .... 3,400 86,700
+Pinnacle Entertainment,
Inc. ..................... 6,964 47,355
+Scientific Games
Corporation............... 12,600 118,440
+Shuffle Master, Inc. ...... 5,700 167,523
+WMS Industries Inc. ....... 7,612 118,671
------------
1,352,002
------------
Catalog/Specialty Distribution - 0.0%
+Chronimed Inc. ............ 5,100 49,215
------------
Chemicals - 1.5%
A. Schulman, Inc. ......... 10,006 160,696
Albemarle Corp. ........... 9,500 265,715
Arch Chemicals, Inc. ...... 5,456 104,210
+Cabot Microelectronics
Corporation............... 5,800 292,726
Calgon Carbon Corporation.. 10,101 58,081
Cambrex Corporation........ 5,685 130,869
Crompton Corporation....... 33,760 238,008
+Energy Conversion Devices,
Inc. ..................... 4,264 38,802
Georgia Gulf Corporation... 8,437 167,053
Great Lakes Chemical
Corporation.............. 11,800 240,720
+Hercules Incorporated...... 24,700 244,530
MacDermid, Inc. ........... 7,167 188,492
+Medis Technologies Ltd. ... 3,441 24,534
Millennium Chemicals
Inc. .................... 17,240 163,952
NL Industries, Inc. ....... 2,434 41,377
+OM Group, Inc. ............ 9,400 138,462
Octel Corp. ............... 2,000 27,800
+Omnova Solutions Inc. ..... 9,695 39,168
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
PolyOne Corporation........ 24,767 $ 110,213
Quaker Chemical
Corporation.............. 1,800 45,090
Solutia Inc. .............. 30,054 65,518
Stepan Company............. 1,555 35,143
+W.R. Grace & Co. .......... 23,000 101,430
+Wilson Greatbatch
Technologies, Inc. ....... 6,500 234,650
------------
3,157,239
------------
Chemicals - Specialty - 0.0%
Aceto Corporation.......... 3,500 64,855
+Ethyl Corporation.......... 2,800 27,860
------------
92,715
------------
Coal - 0.3%
Arch Coal, Inc. ........... 14,500 333,210
Massey Energy Company...... 18,200 239,330
+Westmoreland Coal
Company................... 1,000 18,190
------------
590,730
------------
Commercial Information Services - 0.3%
+Arbitron Inc. ............. 8,758 312,661
+infoUSA Inc. .............. 6,461 52,334
+LookSmart, Ltd. ........... 25,300 71,599
+Neoforma, Inc. ............ 1,200 13,104
+ProQuest Company........... 6,474 167,029
+SOURCECORP, Incorporated... 4,553 98,345
------------
715,072
------------
Communications Technology - 1.9%
+Aether Systems, Inc. ...... 10,800 52,920
+Anaren Microwave, Inc. .... 6,622 62,048
+Anixter International
Inc. ..................... 9,172 214,900
+Aspect Communications
Corporation............... 12,200 47,214
+Avanex Corporation......... 16,178 64,712
Bel Fuse Inc. ............. 2,259 51,731
Black Box Corporation...... 5,488 198,666
+CSG Systems International,
Inc. ..................... 14,300 204,776
+Catapult Communications
Corporation............... 1,572 16,695
+Centillium Communications,
Inc. ..................... 9,009 89,279
+CommScope, Inc. ........... 13,488 128,136
+Echelon Corporation........ 8,313 114,470
+Enterasys Networks,
Inc. ..................... 56,400 170,892
+Entrust Technologies
Inc. ..................... 12,200 35,868
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
38
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Extreme Networks, Inc. .... 28,500 $ 151,050
+Finisar Corporation........ 40,700 63,085
+Harmonic Inc. ............. 17,896 72,837
+Inet Technologies, Inc. ... 2,600 25,922
+Infonet Services
Corporation (Class B)..... 12,600 20,034
Inter-Tel Inc. ............ 5,777 122,588
+Ixia....................... 6,229 40,052
+j2 Global Communications,
Inc. ..................... 2,800 128,744
+Net2Phone, Inc. ........... 9,880 42,780
+New Focus, Inc. ........... 16,568 61,964
+Nuance Communications
Inc. ..................... 4,234 22,864
+Oplink Communications,
Inc. ..................... 29,919 55,949
+Optical Communication
Products, Inc. ........... 1,283 2,309
+Packeteer, Inc. ........... 6,807 105,985
+REMEC, Inc. ............... 17,540 122,078
+Redback Networks Inc. ..... 45,100 40,590
+Riverstone Networks,
Inc. ..................... 39,400 46,492
+SeaChange International,
Inc. ..................... 7,008 66,855
+Secure Computing
Corporation............... 9,488 82,830
+Sonus Networks, Inc. ...... 58,700 295,261
+Standard Microsystems
Corporation............... 4,660 70,692
+Stratex Networks, Inc. .... 24,471 78,307
+Sycamore Networks, Inc. ... 46,500 178,095
TALX Corporation........... 4,620 104,366
+TIBCO Software Inc. ....... 22,600 115,034
+Tekelec.................... 15,000 169,500
+Tellium, Inc. ............. 12,300 11,193
+Turnstone Systems, Inc. ... 7,886 19,794
+Ulticom, Inc. ............. 2,440 23,180
+ViaSat, Inc. .............. 6,101 87,488
+WebEx Communications,
Inc. ..................... 7,131 99,477
------------
3,979,702
------------
Computer Communications - 0.0%
+JNI Corp. ................. 9,200 45,816
+Network Equipment
Technologies, Inc. ....... 5,100 42,942
------------
88,758
------------
Computer Peripherals - 0.2%
+Dot Hill Systems Corp. .... 6,900 90,390
+Gerber Scientific, Inc. ... 4,700 31,302
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Komag Inc. ................ 5,800 $ 67,512
+SafeNet, Inc. ............. 2,100 58,716
+Sigma Designs, Inc. ....... 6,000 65,460
+Sonic Solutions............ 4,900 42,042
------------
355,422
------------
Computer Processing Hardware - 0.0%
+Cyberguard Corp. .......... 1,400 9,940
+Neoware Systems, Inc. ..... 4,900 75,166
------------
85,106
------------
Computer Services Software & Systems - 4.9%
+@Road, Inc. ............... 6,600 72,072
+ANSYS, Inc. ............... 4,916 152,888
+Agile Software
Corporation............... 12,802 123,539
+Akamai Technologies,
Inc. ..................... 32,500 157,950
+Altiris, Inc. ............. 3,200 64,160
+American Management
Systems, Incorporated..... 12,495 178,429
+Anteon International
Corporation............... 4,800 133,968
+Ariba, Inc. ............... 75,700 224,829
+Ascential Software
Corporation............... 17,795 292,553
+AsianInfo Holdings,
Inc. ..................... 10,697 87,715
+Aspen Technology, Inc. .... 12,808 61,478
+Borland Software
Corporation............... 20,867 203,871
+CACI International Inc.
(Class A)................. 8,516 292,099
+CIBER, Inc. ............... 15,202 106,718
+Computer Horizons Corp. ... 9,000 40,860
+Concord Communications,
Inc. ..................... 4,800 65,904
+Datastream Systems,
Inc. ..................... 4,511 47,771
+Dendrite International,
Inc. ..................... 8,464 109,016
+Digimarc Corporation....... 2,737 42,971
+Digital River, Inc. ....... 7,500 144,750
+Digitas Inc. .............. 2,107 10,451
+Documentum, Inc. .......... 13,477 265,093
+E.piphany, Inc. ........... 18,980 96,988
+EPIQ Systems, Inc. ........ 4,645 79,755
+Electronics for Imaging,
Inc. ..................... 14,039 284,851
+Embarcadero Technologies,
Inc. ..................... 2,530 17,710
+F5 Networks, Inc. ......... 6,819 114,900
+Fidelity National
Information Solutions,
Inc. ..................... 4,261 111,127
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
39
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Gartner Group, Inc. (Class
A)........................ 23,559 $ 178,577
+Hyperion Solutions
Corporation............... 11,306 381,691
+iGATE Capital Corporation.. 2,300 7,981
+Informatica Corporation.... 17,300 119,543
+Integral Systems, Inc. .... 2,100 41,748
+Internet Security Systems,
Inc. ..................... 11,000 159,390
+Interwoven, Inc. .......... 35,000 77,700
+JDA Software Group,
Inc. ..................... 8,408 94,086
+Keane, Inc. ............... 14,858 202,515
+Keynote Systems, Inc. ..... 4,238 44,414
+Lawson Software, Inc. ..... 14,400 111,888
+Legato Systems, Inc. ...... 25,679 215,447
+MAPICS, Inc. .............. 3,100 25,420
+MRO Software, Inc. ........ 5,030 43,409
+MSC.Software Corp. ........ 7,000 47,180
+Macrovision Corporation.... 11,500 229,080
+Magma Design Automation,
Inc. ..................... 6,800 116,620
+Manhattan Associates,
Inc. ..................... 6,439 167,221
+ManTech International
Corporation (Class A)..... 3,500 67,130
+Manugistics Group, Inc. ... 17,900 73,569
+MatrixOne, Inc. ........... 13,497 77,473
+Mentor Graphics
Corporation............... 19,900 288,152
+Mercury Computer Systems,
Inc. ..................... 6,256 113,609
+Micromuse, Inc. ........... 17,500 139,825
+Micros Systems, Inc. ...... 5,399 178,059
+NYFIX, Inc. ............... 8,453 53,677
+Nassda Corporation......... 2,600 20,072
+Netegrity, Inc. ........... 7,555 44,121
+NetIQ Corporation.......... 14,874 229,952
+NetScout Systems, Inc. .... 3,385 18,177
+OPNET Technologies, Inc. .. 2,200 26,818
+Openwave Systems Inc. ..... 47,800 93,210
+PC-Tel, Inc. .............. 7,026 83,328
+PDF Solutions, Inc. ....... 3,200 36,960
+PEC Solutions, Inc. ....... 1,877 30,220
+Parametric Technology
Corporation............... 65,000 198,250
+Pegasystems Inc. .......... 1,400 10,318
+Pinnacle Systems, Inc. .... 16,291 174,314
+Pomeroy Computer Resources,
Inc. ..................... 4,300 47,558
+Progress Software
Corporation............... 8,608 178,444
+Quest Software, Inc. ...... 10,400 123,760
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Rainbow Technologies,
Inc. ..................... 6,923 $ 58,222
+Retek Inc. ................ 14,100 90,240
+Roxio, Inc. ............... 7,696 51,486
+SERENA Software, Inc. ..... 6,697 139,833
+SPSS Inc. ................. 2,689 45,014
+SRA International, Inc.
(Class A)................. 2,000 64,000
+SS&C Technologies, Inc. ... 3,200 51,040
+Sanchez Computer
Associates, Inc. ......... 2,099 10,915
+Sapient Corporation........ 26,692 73,937
+ScanSoft, Inc. ............ 16,200 87,966
+SeeBeyond Technology
Corporation............... 14,227 32,864
+SonicWALL, Inc. ........... 13,941 66,917
+SpeechWorks International
Inc. ..................... 5,576 26,207
+Sybase, Inc. .............. 24,500 340,795
+Sykes Enterprises,
Incorporated.............. 7,061 34,528
+Synplicity, Inc. .......... 3,600 18,828
+Syntel, Inc. .............. 883 13,890
+Systems & Computer
Technology Corporation.... 8,492 76,428
+Tier Technologies, Inc.
(Class B)................. 5,500 42,625
+Transaction Systems
Architects, Inc. (Class
A)........................ 10,185 91,258
+The TriZetto Group,
Inc. ..................... 7,108 42,932
+Tyler Technologies,
Inc. ..................... 8,300 35,275
+Vastera, Inc. ............. 7,700 45,969
+Verint Systems Inc. ....... 2,100 53,361
+Verity, Inc. .............. 6,967 88,202
+Vignette Corporation....... 61,000 126,880
+Vitria Technology, Inc. ... 5,300 30,369
+WatchGuard Technologies,
Inc. ..................... 12,162 55,945
+webMethods, Inc. .......... 14,220 115,609
+Websense, Inc. ............ 6,551 102,589
+Wind River Systems,
Inc. ..................... 21,200 80,772
+Zoran Corporation.......... 8,146 156,485
------------
10,506,703
------------
Computer Technology - 1.6%
+Adaptec, Inc. ............. 29,500 234,525
+Advanced Digital
Information Corporation... 19,534 195,145
Analogic Corporation....... 2,772 135,163
+CompuCom Systems, Inc. .... 4,700 21,244
+Computer Network Technology
Corporation............... 8,254 66,857
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
40
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Concurrent Computer
Corporation............... 17,479 $ 51,039
+Constellation 3D, Inc. .... 2,000 2
+Cray, Inc. ................ 17,700 139,830
+FalconStor Software,
Inc. ..................... 9,909 66,291
+FileNET Corporation........ 10,882 196,310
+Gateway Inc. .............. 60,500 220,825
+Handspring, Inc. .......... 27,600 31,188
+Hutchinson Technology
Incorporated.............. 7,217 237,367
+InFocus Corporation........ 11,866 56,008
+Intergraph Corp. .......... 13,587 292,121
+Interland, Inc. ........... 46,003 45,083
+Iomega Corporation......... 14,603 154,792
+Lexar Media, Inc. ......... 14,374 137,128
+Overland Storage, Inc. .... 3,200 65,088
+Palm, Inc. ................ 9,310 151,474
+Perot Systems Corporation
(Class A)................. 19,900 226,064
+Quantum Corporation - DLT &
Storage Systems........... 38,800 157,140
+RSA Security Inc. ......... 12,900 138,675
+Radiant Systems, Inc. ..... 4,357 29,366
+RadiSys Corporation........ 6,442 85,034
+Safeguard Scientifics,
Inc. ..................... 30,847 83,287
+Silicon Graphics, Inc. .... 55,207 62,936
+StorageNetworks, Inc. ..... 37,700 52,403
+Synaptics Incorporated..... 3,700 49,802
+UNOVA, Inc. ............... 13,609 151,060
------------
3,533,247
------------
Construction - 0.2%
+EMCOR Group, Inc. ......... 4,218 208,200
Granite Construction
Incorporated............. 10,671 204,456
+Modtech Holdings, Inc. .... 1,300 11,947
------------
424,603
------------
Consumer Electronics - 0.9%
+Activision, Inc. .......... 30,600 393,822
+Alloy, Inc. ............... 10,067 64,932
+Atari, Inc. ............... 4,453 19,816
+CNET Networks, Inc. ....... 32,200 200,606
+eUniverse, Inc. ........... 5,500 2,750
+EarthLink, Inc. ........... 36,600 288,774
+Lifeline Systems, Inc. .... 1,100 31,240
+Midway Games Inc. ......... 8,774 31,850
+NIC Inc. .................. 4,700 13,724
+NetFlix Inc. .............. 3,700 94,535
+Register.com, Inc. ........ 10,800 63,287
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+THQ Inc. .................. 12,025 $ 216,450
+Take-Two Interactive
Software, Inc. ........... 12,014 340,477
+United Online, Inc. ....... 7,900 200,186
+Universal Electronics
Inc. ..................... 3,886 49,274
------------
2,011,723
------------
Consumer Products - 0.8%
+American Greetings
Corporation (Class A)..... 17,000 333,880
+The Boyds Collection,
Ltd. ..................... 5,129 24,158
CSS Industries, Inc. ...... 1,075 41,441
+Jarden Corp. .............. 3,900 107,913
Matthews International
Corporation (Class A).... 7,473 185,031
The Nautilus Group,
Inc. .................... 8,463 104,941
+Oakley, Inc. .............. 6,100 71,797
+Playtex Products, Inc. .... 6,376 40,934
+RC2 Corporation............ 3,200 54,432
The Topps Company, Inc. ... 10,391 89,259
The Toro Company........... 7,198 286,121
Tupperware Corporation..... 15,874 227,951
+The Yankee Candle Company,
Inc. ..................... 10,083 234,127
------------
1,801,985
------------
Containers & Packaging - Metal & Glass - 0.3%
+Crown Holdings, Inc. ...... 46,869 334,645
Greif Bros. Corporation
(Class A)................ 3,675 84,525
+Mobile Mini, Inc. ......... 4,871 79,543
+Silgan Holdings Inc. ...... 3,200 100,096
------------
598,809
------------
Containers & Packaging - Paper & Plastic - 0.0%
+EarthShell Corporation..... 2,200 880
Myers Industries, Inc. .... 5,720 54,340
------------
55,220
------------
Contract Drilling - 0.0%
+Petroleum Development
Corp. .................... 7,000 63,840
------------
Copper - 0.1%
+Mueller Industries,
Inc. ..................... 10,082 273,323
------------
Cosmetics - 0.1%
+Del Laboratories, Inc. .... 735 17,273
+Elizabeth Arden, Inc. ..... 3,493 46,003
Inter Parfums, Inc. ....... 2,000 14,800
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
41
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Nu Skin Enterprises, Inc.
(Class A)................ 10,426 $ 108,952
+Revlon, Inc. (Class A)..... 6,560 19,680
------------
206,708
------------
Data Processing Services - 0.0%
+iPayment Holdings, Inc. ... 2,200 52,448
------------
Diversified Financial Services - 0.1%
+Euronet Worldwide, Inc. ... 4,700 50,807
+iDine Rewards Network
Inc. ..................... 5,400 74,196
------------
125,003
------------
Diversified Materials & Processing - 0.6%
Acuity Brands, Inc. ....... 11,160 202,777
+Armor Holdings, Inc. ...... 6,516 87,314
Barnes Group Inc. ......... 4,657 101,336
CLARCOR Inc. .............. 7,355 283,535
+Graphic Packaging
International Corp. ...... 4,700 21,197
+Hexcel Corporation......... 6,562 20,998
Olin Corporation........... 15,514 265,289
Tredegar Corporation....... 7,745 116,098
Valhi, Inc. ............... 8,520 81,962
------------
1,180,506
------------
Diversified Production - 0.1%
+Thomas & Betts
Corporation............... 12,652 182,821
------------
Drug & Grocery Store Chains - 0.5%
+7-Eleven, Inc. ............ 6,779 71,518
+Arden Group, Inc. (Class
A)........................ 432 25,488
Casey's General Stores,
Inc. .................... 13,307 188,161
+Duane Read Inc. ........... 6,428 94,813
+The Great Atlantic &
Pacific Tea Company,
Inc. ..................... 5,931 52,193
Ingles Markets,
Incorporated (Class A)... 4,664 47,106
Longs Drug Stores
Corporation.............. 9,783 162,398
Nash-Finch Company......... 4,177 69,546
+Pathmark Stores, Inc. ..... 9,842 75,291
Ruddick Corporation........ 8,269 129,989
+Smart & Final Inc. ........ 2,629 12,172
Weis Markets, Inc. ........ 3,300 102,366
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Wild Oats Markets, Inc. ... 8,729 $ 95,146
------------
1,126,187
------------
Drugs & Pharmaceuticals - 2.9%
+aaiPharma Inc. ............ 4,100 81,508
+Adolor Corporation......... 9,300 114,111
+Alkermes, Inc. ............ 14,600 156,950
Alpharma, Inc. (Class A)... 10,725 231,660
+Aphton Corporation......... 7,824 64,470
+AtheroGenics, Inc. ........ 9,700 144,821
+Atrix Laboratories,
Inc. ..................... 6,700 147,333
+Bentley Pharmaceuticals,
Inc. ..................... 2,600 34,190
+BioMarin Pharmaceutical
Inc. ..................... 17,448 170,292
+Biopure Corporation........ 9,172 56,041
+Bone Care International,
Inc. ..................... 1,810 25,159
+Bradley Pharmaceuticals,
Inc. ..................... 2,300 37,950
+CIMA Labs Inc. ............ 4,472 120,252
+CV Therapeutics, Inc. ..... 8,400 249,144
+Chattem, Inc. ............. 4,900 92,120
+Columbia Laboratories,
Inc. ..................... 8,904 100,170
+Connetics Corporation...... 8,902 133,263
D & K Healthcare Resources,
Inc. .................... 4,100 66,174
+Durect Corporation......... 5,400 13,014
+Enzo Biochem, Inc. ........ 6,015 129,452
+Esperion Therapeutics,
Inc. ..................... 9,217 180,561
+First Horizon
Pharmaceutical
Corporation............... 5,900 23,305
+Guilford Pharmaceuticals
Inc. ..................... 9,236 41,931
+ILEX Oncology, Inc. ....... 9,624 186,802
+ImmunoGen, Inc. ........... 13,027 55,625
+Impax Laboratories,
Inc. ..................... 9,100 109,109
+Indevus Pharmaceuticals,
Inc. ..................... 11,088 69,189
+Isis Pharmaceuticals,
Inc. ..................... 14,289 75,732
+K-V Pharmaceutical Company
(Class A)................. 6,200 172,360
+Kos Pharmaceuticals,
Inc. ..................... 2,666 62,571
+La Jolla Pharmaceutical
Company................... 11,900 38,913
+Lannett Company, Inc. ..... 1,700 39,848
+Ligand Pharmaceuticals
Incorporated (Class B).... 17,816 242,119
+MGI Pharma, Inc. .......... 8,002 205,091
+Medarex, Inc. ............. 21,800 143,662
+The Medicines Company...... 12,027 236,812
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
42
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Nektar Therapeutics........ 15,100 $ 139,373
+NeoPharm, Inc. ............ 3,845 53,253
+Neose Technologies, Inc. .. 4,363 43,674
+Noven Pharmaceuticals,
Inc. ..................... 6,531 66,877
+Onyx Pharmaceuticals,
Inc. ..................... 8,000 98,640
+POZEN Inc. ................ 7,800 85,644
+PRAECIS Pharmaceuticals
Incorporated.............. 13,217 64,763
+Pain Therapeutics, Inc. ... 4,600 29,716
+Penwest Pharmaceuticals
Co. ...................... 3,400 82,858
Perrigo Company............ 18,815 294,267
+Priority Healthcare
Corporation (Class B)..... 11,100 205,905
+Quidel Corporation......... 5,600 34,832
+Regeneron Pharmaceuticals,
Inc. ..................... 10,119 159,374
+Salix Pharmaceuticals,
Ltd. ..................... 4,900 51,401
+SangStat Medical
Corporation............... 7,839 102,613
+SuperGen, Inc. ............ 10,682 57,683
+Tularik Inc. .............. 12,495 124,200
+United Therapeutics
Corporation............... 5,146 112,080
+VIVUS, Inc. ............... 7,500 38,550
+Vertex Pharmaceuticals
Incorporated.............. 21,700 317,471
------------
6,214,878
------------
Education Services - 0.3%
+Bright Horizons Family
Solutions, Inc. .......... 2,802 94,035
+Learning Tree
International, Inc. ...... 2,730 42,670
+The Princeton Review,
Inc. ..................... 2,500 14,750
+Renaissance Learning,
Inc. ..................... 2,249 49,253
Strayer Education, Inc. ... 3,392 269,494
+Sylvan Learning System,
Inc. ..................... 10,528 240,460
------------
710,662
------------
Electrical & Electronics - 0.4%
+Benchmark Electronics,
Inc. ..................... 7,291 224,271
+InVision Technologies,
Inc. ..................... 5,100 126,735
+OSI Systems, Inc. ......... 4,700 75,482
+Plexus Corporation......... 11,861 136,757
+Power Integrations,
Inc. ..................... 7,632 185,610
+TTM Technologies, Inc. .... 3,400 15,946
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Universal Display
Corporation............... 4,307 $ 38,418
------------
803,219
------------
Electrical Equipment & Components - 0.7%
A.O. Smith Corporation..... 4,881 137,400
Baldor Electric Company.... 8,071 166,263
CTS Corporation............ 10,108 105,629
+Cable Design Technology.... 12,884 92,121
Cohu, Inc. ................ 6,718 104,801
Franklin Electric Co.,
Inc. .................... 1,830 101,840
General Cable Corporation.. 9,790 52,866
+The Genlyte Group
Incorporated.............. 3,573 124,948
+Littelfuse Inc. ........... 4,760 106,434
+MKS Instruments, Inc. ..... 6,900 125,787
+Powell Industries, Inc. ... 1,931 28,270
+Power-One, Inc. ........... 18,500 132,275
Technitrol, Inc. .......... 10,661 160,448
+Triumph Group, Inc. ....... 3,979 112,088
------------
1,551,170
------------
Electrical Products - 0.0%
+Valence Technology, Inc. .. 10,700 31,993
------------
Electrical - Household Appliance - 0.1%
+Applica Incorporated....... 5,896 50,116
National Presto Industries,
Inc. .................... 1,350 42,660
+REX Stores Corporation..... 1,400 16,954
------------
109,730
------------
Electronic Components - 0.1%
+Innovex, Inc. ............. 5,600 56,560
+Pemstar Inc. .............. 4,600 19,274
+Superconductor Technologies
Inc. ..................... 10,100 22,523
------------
98,357
------------
Electronic Equipment/Instruments - 0.1%
+ActivCard Corp. ........... 8,800 82,720
+Fargo Electronics.......... 2,100 20,433
+Metrologic Instruments
Inc. ..................... 900 29,934
+Stratasys, Inc. ........... 1,700 58,786
------------
191,873
------------
Electronics - 0.9%
+II-VI Incorporated......... 3,986 91,997
+Aeroflex Incorporated...... 16,412 127,029
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
43
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Avid Technology, Inc. ..... 8,394 $ 294,378
BEI Technologies, Inc. .... 2,532 30,384
+Daktronics, Inc. .......... 5,299 86,639
+Drexler Technology
Corporation............... 3,600 55,800
+EMS Technologies, Inc. .... 4,100 54,407
+FLIR Systems, Inc. ........ 9,466 285,400
+Kopin Corporation.......... 20,500 125,460
+MRV Communications, Inc. .. 29,379 59,052
+Manufacturers' Services
Limited................... 2,400 11,640
Methode Electronics........ 9,880 106,210
Park Electrochemical
Corp. ................... 5,049 100,728
Pioneer-Standard
Electronics, Inc. ....... 9,863 83,638
+Read-Rite Corporation...... 7,058 459
+Research Frontiers
Incorporated.............. 3,304 46,256
Richardson Electronics,
Ltd. .................... 200 1,620
+Semtech Corporation........ 16,300 232,275
+Supertex, Inc. ............ 1,867 34,297
------------
1,827,669
------------
Electronics/Appliances - 0.0%
+Emerson Radio Corporation.. 2,900 19,488
------------
Electronics - Instruments Gauges & Meters - 0.1%
+Itron, Inc. ............... 6,482 139,752
Keithley Instruments,
Inc. .................... 2,701 39,029
+Zygo Corporation........... 4,395 35,160
------------
213,941
------------
Electronics - Medical Systems - 0.5%
+Bruker Daltonics, Inc. .... 5,387 28,713
+CardioDynamics
International
Corporation............... 7,132 24,320
Datascope Corp. ........... 3,470 102,469
+EPIX Medical, Inc. ........ 2,800 39,620
+eResearch Technology,
Inc. ..................... 5,900 130,744
+Haemonetics Corporation.... 5,472 102,326
+Hologic, Inc. ............. 5,800 76,444
+Intuitive Surgical,
Inc. ..................... 7,962 60,352
+Luminex Corporation........ 4,451 22,967
+Possis Medical, Inc. ...... 4,588 62,947
+PracticeWorks, Inc. ....... 4,800 92,640
+TriPath Imaging, Inc. ..... 6,532 44,614
+VISX, Incorporated......... 12,586 218,367
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Zoll Medical Corporation... 3,061 $ 102,727
------------
1,109,250
------------
Electronics - Semiconductors/Components - 2.1%
+Actel Corp. ............... 6,816 139,728
+Alliance Semiconductor
Corporation............... 9,241 44,726
+Artisan Components,
Inc. ..................... 5,500 124,355
+ChipPAC, Inc. ............. 13,651 104,703
+Cirrus Logic, Inc. ........ 20,500 82,410
+Conexant Systems, Inc. .... 76,600 320,954
+DSP Group, Inc. ........... 8,883 191,251
+ESS Technology, Inc. ...... 9,729 94,858
+Exar Corporation........... 11,827 187,221
+Excel Technology, Inc. .... 1,973 45,044
+Genesis Microchip
Incorporated.............. 9,200 124,568
+GlobespanVirata, Inc. ..... 32,616 269,082
+IXYS Corporation........... 3,593 28,636
+Integrated Silicon
Solution, Inc. ........... 8,238 57,172
+Lattice Semiconductor
Corporation............... 27,900 229,617
+Micrel, Inc. .............. 15,100 157,040
+Microsemi Corporation...... 9,245 147,920
+Microtune, Inc. ........... 11,209 35,869
+Monolithic System
Technology, Inc. ......... 5,300 48,018
+ON Semiconductor
Corporation............... 7,800 21,060
+Oak Technology, Inc. ...... 15,768 97,919
+OmniVision Technologies,
Inc. ..................... 6,100 190,320
+Pericom Semiconductor
Corporation............... 4,993 46,435
+Pixelworks, Inc. .......... 9,564 56,810
+Planar Systems Inc. ....... 4,129 80,763
+RF Micro Devices, Inc. .... 52,700 310,930
+SBS Technologies, Inc. .... 3,988 39,206
+SIPEX Corporation.......... 6,161 30,189
+Silicon Image, Inc. ....... 20,476 114,256
+Silicon Storage Technology,
Inc. ..................... 20,858 87,395
+Siliconix Incorporated..... 1,700 61,370
+Skyworks Solutions,
Inc. ..................... 40,733 275,762
+Three-Five Systems,
Inc. ..................... 5,156 35,576
+Transmeta Corporation...... 33,700 53,920
+TriQuint Semiconductor,
Inc. ..................... 39,336 163,638
+Virage Logic Corporation... 2,500 18,100
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
44
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Vitesse Semiconductor
Corporation............... 59,800 $ 294,216
+White Electronic Designs
Corporation............... 7,000 74,130
+Xicor, Inc. ............... 5,734 35,952
------------
4,521,119
------------
Electronics - Technology - 0.9%
+Checkpoint Systems,
Inc. ..................... 9,623 136,165
+Coherent, Inc. ............ 8,680 207,712
Cubic Corporation.......... 4,352 96,701
+DRS Technologies, Inc. .... 6,668 186,171
EDO Corporation............ 5,626 99,580
+Herley Industries, Inc. ... 4,200 71,316
+Identix Incorporated....... 25,930 164,656
+Intermagnetics General
Corporation............... 5,656 112,215
+Kemet Corp. ............... 24,100 243,410
+ScanSource, Inc. .......... 3,200 85,600
Sypris Solutions, Inc. .... 600 6,198
+The Titan Corporation...... 22,200 228,438
+Trimble Navigation
Limited................... 9,404 215,634
------------
1,853,796
------------
Energy - 0.0%
+Pacific Gulf Resources..... 4,517 226
------------
Energy Equipment - 0.0%
+Global Power Equipment
Group Inc. ............... 8,500 39,525
+Plug Power Inc. ........... 4,500 21,015
------------
60,540
------------
Energy - Miscellaneous - 0.3%
+FuelCell Energy, Inc. ..... 10,026 82,113
Holly Corporation.......... 2,100 57,960
Penn Virginia Corporation.. 2,179 93,697
+TETRA Technologies, Inc. .. 4,661 138,199
+Tesoro Petroleum
Corporation............... 18,665 128,415
+Veritas DGC Inc. .......... 10,297 118,416
------------
618,800
------------
Engineering & Construction - 0.1%
+KFX Inc. .................. 4,100 15,908
+Matrix Service Company..... 3,500 60,025
+Perini Corporation......... 3,000 23,850
+Washington Group
International, Inc. ...... 8,300 182,268
------------
282,051
------------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Engineering & Contracting Services - 0.2%
+Dycom Industries, Inc. .... 13,002 $ 211,933
+Integrated Electrical
Services, Inc. ........... 6,997 50,728
+Quanta Services, Inc. ..... 19,700 139,870
+URS Corporation............ 4,677 91,014
------------
493,545
------------
Entertainment - 0.5%
+AMC Entertainment Inc. .... 9,200 105,248
+Alliance Gaming
Corporation............... 13,400 253,394
+Boca Resorts, Inc. (Class
A)........................ 6,657 86,541
+Carmike Cinemas, Inc. ..... 200 4,544
Dover Motorsports, Inc. ... 4,240 17,384
+Gaylord Entertainment
Company................... 4,755 93,055
+Hollywood Entertainment
Corporation............... 15,707 270,160
+LodgeNet Entertainment
Corporation............... 3,072 33,638
+Movie Gallery, Inc. ....... 7,115 131,272
Speedway Motorsports,
Inc. .................... 3,355 89,914
------------
1,085,150
------------
Environmental Services - 0.0%
+Clean Harbors, Inc. ....... 3,600 34,308
+Duratek, Inc. ............. 300 2,379
------------
36,687
------------
Fertilizers - 0.1%
IMC Global Inc. ........... 34,300 230,153
------------
Finance Companies - 0.2%
American Home Mortgage
Holdings, Inc. .......... 4,300 84,194
+Credit Acceptance
Corporation............... 2,849 28,746
+Saxon Capital, Inc. ....... 8,000 139,040
+World Acceptance
Corporation............... 5,700 92,796
------------
344,776
------------
Finance - Rental/Leasing - 0.10%
+Accredited Home Lenders
Holding Company........... 3,500 67,235
Medallion Financial
Corp. ................... 1,700 11,849
+United Panam Financial
Corp...................... 2,500 30,875
------------
109,959
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
45
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Financial Conglomerates - 0.0%
Sanders Morris Harris Group
Inc. .................... 1,000 $ 9,140
------------
Financial Data Processing Services & Systems - 0.8%
+Advent Software, Inc. ..... 10,300 176,336
+CCC Information Services
Group Inc. ............... 3,506 50,837
+CompuCredit Corporation.... 3,289 39,961
+Digital Insight
Corporation............... 8,630 164,402
+eFunds Corporation......... 13,788 158,976
+eSPEED, Inc. (Class A)..... 7,323 144,702
+Hypercom Corporation....... 7,600 31,540
+The InterCept Group,
Inc. ..................... 6,743 56,371
John H. Harland Company.... 8,182 214,041
+Kronos, Inc. .............. 5,866 298,051
NDCHealth Corporation...... 10,264 188,344
+National Processing,
Inc. ..................... 1,100 17,688
+PRG-Schultz International,
Inc. ..................... 11,513 67,927
+Portal Software, Inc. ..... 31,200 62,400
------------
1,671,576
------------
Financial Information Services - 0.1%
+HomeStore.com, Inc. ....... 32,400 57,348
+S1 Corporation............. 20,522 82,909
Value Line, Inc. .......... 400 19,644
------------
159,901
------------
Financial - Miscellaneous - 0.80%
Advanta Corp. (Class B).... 5,000 50,300
+BARRA, Inc. ............... 4,359 155,616
Cash America International,
Inc. .................... 5,419 71,639
+Federal Agricultural
Mortgage Corporation...... 2,300 51,405
+Financial Federal
Corporation............... 3,467 84,595
LandAmerica Financial
Group, Inc. ............. 5,499 261,203
+LendingTree, Inc. ......... 4,400 107,712
Metris Companies Inc. ..... 10,300 57,165
New Century Financial
Corporation.............. 5,900 257,535
+Sotheby's Holdings, Inc.
(Class A)................. 11,536 85,828
Sterling Bancorp........... 2,328 64,928
+Stewart Information
Services Corporation...... 4,322 120,368
+Triad Guaranty Inc. ....... 2,276 86,374
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+WFS Financial Inc. ........ 2,947 $ 98,754
WSFS Financial
Corporation.............. 2,291 87,974
------------
1,641,396
------------
Financial Publishing/Services - 0.0%
+MarketWatch.com, Inc. ..... 400 3,344
+TheStreet.com, Inc. ....... 5,700 26,847
+Tradestation Group Inc. ... 6,300 64,197
------------
94,388
------------
Food Retail - 0.0%
+The Pantry, Inc. .......... 700 5,523
+The Penn Traffic Company... 300 45
------------
5,568
------------
Food - Specialty/Candy - 0.0%
+John B. Sanfilippo & Son
Inc. ..................... 2,500 40,800
+M & F Worldwide Corp. ..... 600 4,320
------------
45,120
------------
Foods - 1.0%
+American Italian Pasta
Company (Class A)......... 4,434 184,676
+Aurora Food Inc. .......... 300 105
+Chiquita Brands
International, Inc. ...... 9,300 134,850
Flowers Foods, Inc. ....... 9,557 188,836
+Hain Celestial Group,
Inc. ..................... 7,557 120,836
+Horizon Organic Holding
Corporation............... 2,800 66,724
+International Multifoods... 5,144 117,849
Interstate Bakeries
Corporation.............. 12,828 162,916
+J & J Snack Foods Corp. ... 1,800 56,934
Lance, Inc. ............... 7,300 66,649
+Maui Land & Pineapple
Company, Inc. ............ 1,063 23,896
+NBTY Inc. ................. 16,014 337,255
Natures Sunshine Products,
Inc. .................... 2,600 20,826
Pilgrim's Pride
Corporation.............. 2,969 28,710
+Ralcorp Holdings, Inc. .... 8,495 212,035
Riviana Foods Inc. ........ 1,787 48,088
Sanderson Farms, Inc. ..... 1,500 42,150
Seaboard Corporation....... 12 2,484
Sensient Technologies
Corporation.............. 12,657 290,984
------------
2,106,803
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
46
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Forest Products - 0.4%
Deltic Timber Corporation.. 3,109 $ 88,451
Longview Fibre Company..... 15,121 123,992
+Louisiana-Pacific
Corporation............... 32,709 354,566
Pope & Talbot, Inc. ....... 4,644 51,316
Potlatch Corporation....... 7,797 200,773
Universal Forest Products,
Inc. .................... 4,134 86,566
------------
905,664
------------
Forms & Bulk Printing Services - 0.1%
Ennis Business Forms,
Inc. .................... 3,300 48,015
New England Business
Services, Inc. .......... 2,607 78,210
The Standard Register
Company.................. 3,945 65,014
------------
191,239
------------
Funeral Parlors & Cemeteries - 0.1%
+Alderwoods Group, Inc. .... 9,400 51,324
+Stewart Enterprises, Inc.
(Class A)................. 26,424 113,623
------------
164,947
------------
Gas Distributors - 0.0%
Chesapeake Utilities
Corporation.............. 2,600 58,760
------------
Glass - 0.0%
Apogee Enterprises,
Inc. .................... 8,700 78,474
------------
Gold - 0.1%
Royal Gold, Inc. .......... 5,500 118,195
------------
Health Care Facilities - 0.5%
+American Healthways,
Inc. ..................... 4,350 157,122
+Beverly Enterprises,
Inc. ..................... 26,926 94,241
+Genesis Health Ventures,
Inc. ..................... 7,100 125,315
+Kindred Healthcare,
Inc. ..................... 4,300 76,712
+LifePoint Hospitals,
Inc. ..................... 11,800 249,098
+National Healthcare
Corporation............... 1,900 37,392
+Specialty Laboratories,
Inc. ..................... 1,824 18,696
+Sunrise Assisted Living,
Inc. ..................... 5,237 117,204
+United Surgical Partners
International, Inc. ...... 4,900 110,691
------------
986,471
------------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Health Care Management Services - 1.1%
+AMERIGROUP Corporation..... 5,500 $ 204,600
+Allscripts Healthcare
Solutions, Inc. .......... 6,741 24,739
+American Medical Security
Group, Inc. .............. 2,600 49,660
+AmSurg Corp. .............. 5,900 179,950
+Centene Corporation........ 3,400 132,260
+Cerner Corporation......... 8,400 191,520
+Cobalt Corporation......... 5,900 121,245
Computer Programs and
Systems, Inc. ........... 1,500 30,015
+CorVel Corporation......... 1,257 45,252
+DVI, Inc. ................. 6,207 28,987
+Eclipsys Corporation....... 10,031 104,724
Hooper Holmes, Inc. ....... 14,497 93,361
+MIM Corporation............ 8,500 55,505
+MedQuist Inc. ............. 2,196 44,447
+Omnicell, Inc. ............ 3,000 30,720
+Orthodontic Centers of
America, Inc. ............ 13,200 105,732
+Pediatrix Medical Group,
Inc. ..................... 7,000 249,550
+Per-Se Technologies,
Inc. ..................... 8,698 97,679
+Select Medical
Corporation............... 6,000 148,980
+Sierra Health Services,
Inc. ..................... 6,926 138,520
+US Oncology, Inc. ......... 22,623 167,184
+VitalWorks Inc. ........... 11,100 43,845
------------
2,288,475
------------
Health Care Services - 0.5%
+Accredo Health,
Incorporated.............. 13,500 292,275
+Alliance Imaging, Inc. .... 2,300 10,120
+Dynacq International,
Inc. ..................... 1,652 27,754
+Gentiva Health Services,
Inc. ..................... 9,590 86,310
+Healthcare Services Group,
Inc. ..................... 2,600 36,738
+IDX Systems Corporation.... 4,927 76,467
+IMPATH Inc. ............... 5,298 74,914
+LabOne, Inc. .............. 3,100 66,836
+Matria Healthcare, Inc. ... 3,600 63,540
+Odyssey Healthcare,
Inc. ..................... 6,000 222,000
+Province Healthcare
Company................... 13,136 145,416
------------
1,102,370
------------
Home Furnishings - 0.0%
Hooker Furniture
Corporation.............. 300 7,419
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
47
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Select Comfort
Corporation............... 5,300 $ 87,132
------------
94,551
------------
Homebuilding - 0.5%
+Beazer Homes USA, Inc. .... 4,117 343,770
Brookfield Homes
Corporation.............. 3,300 50,886
+Dominion Homes, Inc. ...... 1,900 45,315
M/I Schottenstein Homes,
Inc. .................... 3,600 153,648
+Meritage Corporation....... 2,200 108,372
Standard Pacific Corp. .... 9,530 316,015
+Technical Olympic USA,
Inc. ..................... 700 16,541
+William Lyon Homes, Inc. .. 700 22,295
------------
1,056,842
------------
Hotel/Motel - 0.3%
+Choice Hotels
International, Inc. ...... 5,779 157,824
+Extended Stay America,
Inc. ..................... 19,500 263,055
Marcus Corporation......... 5,079 75,931
+Prime Hospitality Corp. ... 13,090 87,834
+Wyndham International,
Inc. ..................... 1,000 440
------------
585,084
------------
Household Furnishings - 0.0%
American Woodmark
Corporation.............. 1,600 74,496
Bassett Furniture
Industries,
Incorporated............. 2,400 31,872
+The Bombay Company,
Inc. ..................... 9,900 105,237
+Department 56, Inc. ....... 2,300 35,259
Haverty Furniture
Companies, Inc. ......... 4,636 81,130
Libbey, Inc. .............. 4,588 104,148
Oneida Ltd. ............... 6,664 44,982
Stanley Furniture Company,
Inc. .................... 1,400 38,374
------------
515,498
------------
Household/Personal Care - 0.0%
+USANA Health Sciences,
Inc. ..................... 1,600 70,720
------------
Identification Control & Filter Devices - 1.0%
+Advanced Energy Industries,
Inc. ..................... 5,112 72,846
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Artesyn Technologies,
Inc. ..................... 11,367 $ 63,769
+ASystemsTechnologies,
Inc. ..................... 11,341 75,871
C&D Technologies, Inc. .... 5,994 86,074
+CUNO Incorporated.......... 4,431 160,048
+ESCO Technologies Inc. .... 3,966 174,504
+Flowserve Corporation...... 12,900 253,743
The Gorman-Rupp Company.... 1,400 33,600
IDEX Corporation........... 8,181 296,479
Mine Safety Appliances
Company.................. 1,742 75,986
+Paxar Corporation.......... 9,682 106,502
Robbins & Myers, Inc. ..... 3,212 59,422
Roper Industries, Inc. .... 8,321 309,541
+Veeco Instruments Inc. .... 6,727 114,561
+Vicor Corporation.......... 5,696 54,682
Watts Industries, Inc.
(Class A)................ 4,336 77,398
X-Rite, Incorporated....... 5,917 58,637
------------
2,073,663
------------
Industrial Machinery - 0.1%
+Enpro Industries Inc. ..... 4,300 45,967
+Rofin-Sinar Technologies,
Inc. ..................... 4,300 60,759
------------
106,726
------------
Industrial Specialties - 0.0%
+Ceradyne Inc. ............. 2,900 53,940
------------
Information Technology Services - 0.2%
+Epicor Software
Corporation............... 9,100 54,509
+MTC Technologies, Inc. .... 1,100 25,850
+QAD Inc. .................. 1,700 12,614
+Veridian Corporation....... 7,100 247,719
------------
340,692
------------
Insurance Brokers/Services - 0.0%
+U.S.I. Holdings
Corporation............... 5,000 58,500
------------
Insurance - Life - 0.6%
AmerUs Group Co. .......... 12,300 346,737
+Citizens, Inc. ............ 6,155 44,747
Delphi Financial Group,
Inc. (Class A)........... 4,680 219,024
Financial Industries
Corporation.............. 3,800 56,012
Great American Financial
Resources, Inc. ......... 2,133 27,964
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
48
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Kansas City Life Insurance
Company.................. 1,042 $ 43,868
+National Western Life
Insurance Company (Class
A)........................ 662 73,105
The Phoenix Companies,
Inc. .................... 25,900 233,877
Presidential Life
Corporation.............. 7,293 102,904
+Universal American
Financial Corp. .......... 6,800 43,316
------------
1,191,554
------------
Insurance - Multiline - 0.6%
Alfa Corporation........... 9,940 126,337
+Allmerica Financial
Corporation............... 14,600 262,654
CNA Surety Corporation..... 3,086 30,397
Crawford & Company (Class
B)....................... 6,309 30,977
EMC Insurance Group,
Inc. .................... 100 1,853
FBL Financial Group, Inc.
(Class A)................ 2,425 48,864
+HealthExtras, Inc. ........ 3,300 25,806
Hilb, Rogal and Hamilton
Company.................. 8,906 303,160
Horace Mann Educators
Corporation.............. 11,568 186,592
Independence Holding
Company.................. 1,000 21,110
+PICO Holdings, Inc. ....... 3,297 42,861
+UICI....................... 10,939 164,851
Zenith National Insurance
Corp. ................... 3,337 95,105
------------
1,340,567
------------
Insurance - Property/Casualty - 1.1%
21st Century Insurance
Group.................... 6,800 97,240
+American Physicians
Capital, Inc. ............ 2,571 62,347
Argonaut Group, Inc. ...... 6,166 76,027
Baldwin & Lyons, Inc.
(Class B)................ 2,432 57,760
The Commerce Group,
Inc. .................... 6,645 240,549
Fremont General
Corporation.............. 17,961 246,066
Harleysville Group Inc. ... 8,262 190,191
The Midland Company........ 1,858 41,266
NYMAGIC, Inc. ............. 1,400 28,364
+The Navigators Group,
Inc. ..................... 1,200 35,784
+Ohio Casualty Corporation.. 18,015 237,438
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
PMA Capital Corporation
(Class A)................ 8,006 $ 100,635
+Philadelphia Consolidated
Holding Corp. ............ 4,556 184,062
+ProAssurance Corporation... 7,023 189,551
RLI Corp. ................. 4,654 153,117
Selective Insurance Group,
Inc. .................... 8,811 220,716
State Auto Financial
Corporation.............. 2,812 63,129
United Fire & Casualty
Company.................. 1,500 48,735
------------
2,272,977
------------
Internet - 0.0%
+USinternetworking, Inc. ... 4,300 --
------------
Internet Retail - 0.0%
+FTD, Inc. (Class A)........ 100 2,024
------------
Internet Software/Services - 0.4%
+Ask Jeeves, Inc. .......... 9,300 126,945
+BroadVision, Inc. ......... 5,700 31,635
+CMGI Inc. ................. 100,000 151,000
+Ecollege.Com............... 4,600 52,256
+InfoSpace, Inc. ........... 6,700 91,656
+Kana Software, Inc. ....... 4,100 12,464
+Lionbridge Technologies
Inc. ..................... 8,800 44,792
+MicroStrategy Incorporated
(Class A)................. 3,100 113,522
+Opsware, Inc. ............. 11,500 46,115
+Sohu Com Inc. ............. 4,600 156,400
+Stellent, Inc. ............ 2,900 15,660
+Support.com, Inc. ......... 9,300 60,264
------------
902,709
------------
Investment Banks/Brokers - 0.0%
+First Albany Companies
Inc. ..................... 3,600 43,452
------------
Investment Management Companies - 0.3%
+Affiliated Managers Group,
Inc. ..................... 6,600 402,270
+Gabelli Asset Management
Inc. (Class A)............ 1,996 72,056
Gladstone Capital
Corporation.............. 1,500 30,945
MCG Capital Corporation.... 6,700 97,150
------------
602,421
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
49
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Jewelry Watches & Gemstones - 0.1%
+Fossil, Inc. .............. 7,355 $ 173,284
Friedman's Inc. (Class
A)....................... 6,400 72,768
Movado Group, Inc. ........ 1,700 36,975
------------
283,027
------------
Leisure Time - 0.6%
Action Performance
Companies, Inc. ......... 4,700 89,300
+Bally Total Fitness Holding
Corporation............... 8,841 79,834
Callaway Golf Company...... 17,800 235,316
+K2 Inc. ................... 8,300 101,675
+Penn National Gaming,
Inc. ..................... 9,978 205,048
+SCP Pool Corporation....... 5,673 195,151
+Six Flags, Inc. ........... 25,100 170,178
+Steinway Musical
Instruments, Inc. ........ 2,600 40,040
Sturm, Ruger & Company,
Inc. .................... 6,278 62,780
+Vail Resorts, Inc. ........ 4,256 57,328
+West Marine, Inc. ......... 4,300 75,293
------------
1,311,943
------------
Machine Tools - 0.1%
Lincoln Electric Holdings,
Inc. .................... 9,092 185,568
------------
Machinery & Engineering - 0.1%
Applied Industrial
Technologies, Inc. ...... 6,107 128,858
------------
Machinery - Agricultural - 0.0%
Alamo Group Inc. .......... 500 6,110
Lindsay Manufacturing
Co. ..................... 3,513 81,572
------------
87,682
------------
Machinery - Construction & Handling - 0.3%
+Astec Industries, Inc. .... 4,717 41,132
The Manitowoc Co., Inc. ... 7,811 174,185
NACCO Industries, Inc.
(Class A)................ 1,387 81,750
Stewart & Stevenson
Services, Inc. .......... 9,424 148,428
+Terex Corporation.......... 12,743 248,743
------------
694,238
------------
Machinery - Engines - 0.1%
Briggs & Stratton
Corporation.............. 6,059 305,980
------------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Machinery - Industrial/Specialty - 0.7%
+Actuant Corporation (Class
A)........................ 3,100 $ 146,692
+Gardner Denver Inc. ....... 3,757 76,868
+Joy Global Inc. ........... 14,100 208,257
+Kadant Inc. ............... 2,570 48,188
Kennametal Inc. ........... 9,903 335,118
Milacron Inc. ............. 8,672 42,406
Nordson Corporation........ 6,710 160,034
+SureBeam Corporation (Class
A)........................ 19,786 52,433
Tecumseh Products Company
(Class A)................ 5,328 204,116
Tennant Company............ 2,637 96,910
Thomas Industries Inc. .... 2,799 75,713
Woodward Governor
Company.................. 2,593 111,499
------------
1,558,234
------------
Machinery - Oil Well Equipment & Service - 0.9%
CARBO Ceramics Inc. ....... 2,468 91,933
+Cal Dive International,
Inc. ..................... 11,337 247,147
+Dril-Quip, Inc. ........... 1,688 30,722
+Global Industries, Ltd. ... 24,300 117,126
+Gulf Island Fabrication,
Inc. ..................... 1,917 32,436
+Hanover Compressor
Company................... 13,900 157,070
+Horizon Offshore, Inc. .... 10,685 53,211
+Hydril Company............. 4,100 111,725
+Input/Output, Inc. ........ 13,046 70,187
Lufkin Industries, Inc. ... 2,600 63,310
+Newpark Resources, Inc. ... 21,420 117,382
+Oceaneering International,
Inc. ..................... 6,704 171,287
+Oil States International,
Inc. ..................... 5,700 68,970
+Parker Drilling Company.... 29,181 84,917
RPC, Inc. ................. 3,200 35,200
+SEACOR SMIT Inc. .......... 5,008 182,742
+Superior Energy Services,
Inc. ..................... 12,005 113,807
+Universal Compression
Holdings, Inc. ........... 4,726 98,584
+W-H Energy Services,
Inc. ..................... 7,657 149,158
------------
1,996,914
------------
Machinery - Specialty - 0.2%
+Applied Films Corporation.. 3,100 80,228
Cascade Corporation........ 1,800 31,320
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
50
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Engineered Support Systems,
Inc. .................... 3,950 $ 165,308
Helix Technology
Corporation.............. 7,861 104,001
JLG Industries, Inc. ...... 10,698 72,746
+Semitool, Inc. ............ 3,441 16,964
------------
470,567
------------
Major Banks - 0.1%
+CNB Financial Corporation.. 600 26,664
Exchange National
Bancshares, Inc. ........ 400 22,388
+Greene County Bancshares
Inc. ..................... 1,100 23,265
+Heartland Financial USA
Inc. ..................... 2,200 70,400
National Bankshares
Inc. .................... 500 19,775
Shore Bancshares Inc. ..... 900 27,675
Sierra Bancorp............. 100 1,411
+Virginia Commerce Bancorp,
Inc. ..................... 300 5,865
+Western Sierra Bancorp..... 1,600 52,464
Yadkin Valley Bank & Trust
Company.................. 1,000 16,080
------------
265,987
------------
Major Telecommunications - 0.0%
+Primus Telecommunications
Group, Incorporated....... 15,100 77,614
------------
Manufactured Housing - 0.1%
+Champion Enterprises,
Inc. ..................... 15,427 79,912
+Palm Harbor Homes, Inc. ... 4,005 75,855
Skyline Corporation........ 1,401 42,030
------------
197,797
------------
Manufacturing - 0.2%
Federal Signal
Corporation.............. 14,159 248,774
+Rayovac Corporation........ 8,964 116,084
Standex International
Corporation.............. 3,231 67,851
------------
432,709
------------
Marine Shipping - 0.0%
Maritrans Inc. ............ 600 8,790
+Seabulk International,
Inc. ..................... 1,700 14,824
------------
23,614
------------
Medical & Dental Instruments & Supplies - 3.0%
+ALARIS Medical, Inc. ...... 4,000 51,800
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Advanced Medical Optics,
Inc. ..................... 9,800 $ 167,090
+Advanced Neuromodulation
Systems, Inc. ............ 3,300 170,841
+Align Technology, Inc. .... 12,100 151,855
+American Medical Systems
Holdings, Inc. ........... 6,500 109,655
Arrow International,
Inc. .................... 2,954 130,419
+Biosite Diagnostics
Incorporated.............. 3,349 161,087
+CONMED Corporation......... 8,528 155,721
+Cantel Medical Corp. ...... 900 12,078
+Cardiac Science, Inc. ..... 15,200 40,736
+Cepheid, Inc. ............. 10,900 53,846
+Cerus Corporation.......... 5,825 43,862
+Cholestech Corporation..... 2,900 28,623
+Closure Medical
Corporation............... 1,513 28,565
+Conceptus, Inc. ........... 5,100 71,655
Cooper Companies, Inc. .... 9,184 319,328
+CryoLife, Inc. ............ 6,028 62,390
+Cyberonics, Inc. .......... 6,469 139,148
+Cytyc Corporation.......... 31,900 336,545
+DJ Orthopedics
Incorporated.............. 600 6,576
Diagnostic Products
Corporation.............. 5,500 225,775
+ICU Medical, Inc. ......... 3,750 116,813
+IGEN International,
Inc. ..................... 5,276 165,666
+INAMED Corporation......... 5,627 302,114
+Immucor, Inc. ............. 3,500 76,265
Invacare Corp. ............ 7,722 254,826
+Inverness Medical
Innovations, Inc. ........ 2,340 45,162
+Kyphon Inc. ............... 4,200 63,504
Landauer, Inc. ............ 1,778 74,374
Mentor Corporation......... 12,144 235,351
+Merit Medical Systems,
Inc. ..................... 4,600 91,908
+Molecular Devices
Corporation............... 4,437 70,593
+Ocular Sciences, Inc. ..... 5,914 117,393
+OraSure Technologies,
Inc. ..................... 9,459 70,564
+OrthoLogic Corp. .......... 12,800 58,752
Owens & Minor, Inc. ....... 9,298 207,810
+PSS World Medical, Inc. ... 23,073 132,670
PolyMedica Corporation..... 3,057 139,980
+Sola International Inc. ... 6,300 109,620
+SonoSite, Inc. ............ 4,915 98,054
+SurModics, Inc. ........... 4,663 142,222
+Sybron Dental Specialties,
Inc. ..................... 10,300 243,080
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
51
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Techne Corporation......... 12,129 $ 367,994
+Theragenics Corporation.... 6,932 29,808
+Therasense, Inc. .......... 7,100 71,000
+Thoratec Laboratories
Corporation............... 13,547 201,850
+Ventana Medical Systems,
Inc. ..................... 2,980 80,996
+Viasys Healthcare Inc. .... 6,800 140,760
Vital Signs, Inc. ......... 2,424 62,927
West Pharmaceutical
Services, Inc. .......... 3,638 89,131
+Wright Medical Group,
Inc. ..................... 4,700 89,300
+Young Innovations, Inc. ... 600 17,100
------------
6,435,182
------------
Medical Services - 0.4%
+Covance Inc. .............. 18,391 332,877
+Curative Health Services,
Inc. ..................... 4,100 69,700
+Hanger Orthopedic Group,
Inc. ..................... 4,800 54,960
+Option Care, Inc. ......... 5,181 59,737
+PAREXEL International
Corporation............... 8,097 112,952
+RehabCare Group, Inc. ..... 5,795 84,897
+U.S. Physical Therapy,
Inc. ..................... 3,550 45,369
+VCA Antech, Inc. .......... 7,900 154,603
------------
915,095
------------
Medical Specialties - 0.5%
+Aspect Medical Systems,
Inc. ..................... 1,100 8,118
+Biolase Technology Inc. ... 6,600 71,214
+CTI Molecular Imaging,
Inc. ..................... 6,400 119,360
+Candela Corporation........ 3,600 41,688
+Dade Behring Holdings
Inc. ..................... 10,900 246,449
+Exactech Inc. ............. 900 13,041
+I-STAT Corporation......... 3,100 27,342
+Laserscope................. 5,000 39,950
+Medical Action Industries
Inc. ..................... 3,600 58,536
Meridian Bioscience,
Inc. .................... 4,600 43,148
+Novoste Corporation........ 3,000 18,030
+Osteotech, Inc. ........... 5,500 74,745
+Retractable Technologies
Inc. ..................... 500 4,245
+STAAR Surgical Company..... 6,100 70,577
+Savient Pharmaceuticals
Inc. ..................... 17,467 81,047
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Synovis Life Technologies,
Inc. ..................... 3,200 $ 62,400
------------
979,890
------------
Metal Fabricating - 0.7%
CIRCOR International,
Inc. .................... 2,400 42,792
Commercial Metals
Company.................. 7,378 131,255
+Encore Wire Corporation.... 2,500 23,750
Kaydon Corp. .............. 9,226 191,901
+Lone Star Technology....... 7,958 168,550
Material Sciences
Corporation.............. 4,000 38,800
+Maverick Tube Corporation.. 12,363 236,751
NN, Inc. .................. 5,065 64,123
+NS Group, Inc. ............ 3,855 37,586
Penn Engineering &
Manufacturing Corp. ..... 2,256 30,794
Quanex Corporation......... 4,805 142,805
+RTI International Metals,
Inc. ..................... 4,513 48,876
Reliance Steel & Aluminum
Co. ..................... 6,947 143,803
Ryerson Tull, Inc. ........ 4,893 42,960
+SPS Technologies, Inc. .... 2,444 66,086
+The Shaw Group Inc. ....... 9,900 119,295
Valmont Industries,
Inc. .................... 3,658 71,185
------------
1,601,312
------------
Metals & Minerals Miscellaneous - 0.3%
AMCOL International
Corporation.............. 4,473 35,784
+Brush Engineered Materials
Inc. ..................... 5,711 47,687
+Cleveland-Cliffs Inc. ..... 3,659 65,313
+GrafTech International
Ltd. ..................... 15,144 82,535
+Hecla Mining Company....... 34,600 146,358
+Liquidmetal Technologies... 4,700 24,111
Minerals Technologies,
Inc. .................... 5,553 270,209
+Stillwater Mining Company.. 11,317 58,169
------------
730,166
------------
Milling - Fruit & Grain Processing - 0.2%
Corn Products
International, Inc. ..... 10,689 320,991
------------
Miscellaneous - 0.0%
+Enstar Group Inc. ......... 300 11,895
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
52
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Miscellaneous Commercial Services - 0.2%
+Concur Technologies,
Inc. ..................... 7,900 $ 79,553
+DigitalThink, Inc. ........ 6,700 21,909
Gevity HR, Inc. ........... 5,300 62,646
+Portfolio Recovery
Associates, Inc. ......... 3,800 119,358
+SM&A....................... 4,700 53,110
+Saflink Corporation........ 9,400 59,596
+The Source Information
Management Company........ 5,500 41,745
------------
437,917
------------
Miscellaneous Manufacturing - 0.1%
BHA Group Holdings, Inc. .. 2,100 41,916
+Gundle/SLT Environmental,
Inc. ..................... 400 5,448
Raven Industries Inc. ..... 2,900 58,203
United Capital Corp. ...... 900 31,320
------------
136,887
------------
Miscellaneous Materials & Commodities - 0.2%
+Lydall, Inc. .............. 2,800 29,960
+Symyx Technologies......... 6,879 112,265
WD-40 Company.............. 5,689 162,421
------------
304,646
------------
Miscellaneous Materials & Processing - 0.2%
+Insituform Technologies,
Inc. (Class A)............ 7,838 138,576
+Rogers Corporation......... 4,555 151,682
USEC Inc. ................. 22,859 160,470
------------
450,728
------------
Multi-Sector Companies - 0.4%
+FMC Corporation............ 9,500 214,985
GenCorp Inc. .............. 9,271 82,419
+Jacuzzi Brands, Inc. ...... 24,450 129,341
Kaman Corp. (Class A)...... 6,494 75,915
+Sequa Corporation (Class
A)........................ 1,065 36,530
Trinity Industries,
Inc. .................... 10,050 186,026
Walter Industries, Inc. ... 7,402 86,974
------------
812,190
------------
Office Furniture & Business Equipment - 0.2%
+General Binding
Corporation............... 900 10,800
+Imagistics International
Inc. ..................... 4,624 119,299
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Kimball International
(Class B)................ 7,974 $ 124,394
+Presstek, Inc. ............ 11,340 70,648
------------
325,141
------------
Offshore Drilling - 0.0%
+Atwood Oceanics, Inc. ..... 2,327 63,178
------------
Oil & Gas Production - 0.1%
+Clayton Williams Energy,
Inc. ..................... 1,900 35,112
+KCS Energy, Inc. .......... 7,600 40,964
+McMoRan Exploration Co. ... 2,500 27,850
+PetroCorp Incorporated..... 500 5,575
------------
109,501
------------
Oil - Crude Producers - 2.2%
Berry Petroleum Company
(Class A)................ 3,701 66,433
Cabot Oil & Gas Corporation
(Class A)................ 7,974 220,162
+Cimarex Energy Co. ........ 11,300 268,375
+Comstock Resources, Inc. .. 10,057 137,580
+Denbury Resources Inc. .... 11,770 158,071
+Encore Acquisition
Company................... 1,500 28,725
+Energy Partners, Ltd. ..... 6,200 71,610
+Evergreen Resources,
Inc. ..................... 5,296 287,626
+Forest Oil Corporation..... 12,800 321,536
Frontier Oil Corporation... 8,715 132,468
+Grey Wolf, Inc. ........... 47,443 191,670
+Harvest Natural Resources,
Inc. ..................... 7,700 49,049
+The Houston Exploration
Company................... 3,383 117,390
+Magnum Hunter Resources,
Inc. ..................... 19,872 158,777
+The Meridian Resource
Corporation............... 13,311 62,961
+Nuevo Energy Company....... 6,411 111,872
Patina Oil & Gas
Corporation.............. 9,157 294,398
+Plains Exploration &
Production Company........ 10,487 113,364
+Plains Resources Inc. ..... 6,850 96,928
+Prima Energy Corporation... 2,743 57,274
+Quicksilver Resources
Inc. ..................... 2,810 67,300
+Range Resources
Corporation............... 12,637 79,234
+Remington Oil & Gas
Corporation............... 6,920 127,190
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
53
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Resource America, Inc.
(Class A)................ 4,349 $ 45,012
+Spinnaker Exploration
Company................... 6,787 177,819
St. Mary Land & Exploration
Company.................. 8,926 243,680
+Stone Energy Corporation... 6,578 275,750
+Swift Energy Company....... 7,917 87,087
+Tom Brown, Inc. ........... 10,115 281,096
+Unit Corporation........... 10,808 225,995
Vintage Petroleum, Inc. ... 14,583 164,496
------------
4,720,928
------------
Other Consumer Services - 0.1%
+autobytel.com inc.......... 10,100 60,297
+Ambassadors International,
Inc. ..................... 200 2,400
+Bankrate, Inc. ............ 500 6,060
+E-LOAN, Inc. .............. 15,100 83,654
------------
152,411
------------
Packaged Software - 0.0%
+Ansoft Corporation......... 600 6,330
+Convera Corporation........ 700 2,744
+Group 1 Software, Inc. .... 1,900 34,827
+Mobius Management
Solutions................. 700 5,292
+Puma Technology, Inc. ..... 7,400 25,160
------------
74,353
------------
Paints & Coatings - 0.2%
Ferro Corporation.......... 10,476 236,024
H.B. Fuller Company........ 8,340 183,647
------------
419,671
------------
Paper - 0.3%
Albany International Corp.
(Class A)................ 7,026 192,512
+Buckeye Technologies
Inc. ..................... 6,998 47,586
+Caraustar Industries,
Inc. ..................... 8,874 71,081
Chesapeake Corporation..... 4,092 89,410
P.H. Glatfelter Company.... 6,901 101,790
Rock-Tenn Company (Class
A)....................... 5,880 99,666
Wausau - Mosinee Paper
Corporation.............. 10,942 122,550
------------
724,595
------------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Personnel Services - 0.0%
+Hudson Highland Group
Inc. ..................... 2,800 $ 52,864
------------
Pharmaceuticals - Generic - 0.0%
+Able Laboratories, Inc. ... 4,400 86,680
------------
Pharmaceuticals - Other - 0.2%
+CollaGenex Pharmaceuticals,
Inc. ..................... 3,700 49,062
+Hi-Tech Pharmacal Co.,
Inc. ..................... 1,600 65,440
+Hollis-Eden
Pharmaceuticals, Inc. .... 3,000 37,890
+Inspire Pharmaceuticals,
Inc. ..................... 7,300 78,913
+Inveresk Research Group,
Inc. ..................... 7,900 141,410
------------
372,715
------------
Photography - 0.1%
CPI Corp. ................. 3,698 65,270
+Concord Camera Corp. ...... 9,274 65,753
------------
131,023
------------
Plastics - 0.1%
Brady Corporation.......... 5,147 171,652
Spartech Corporation....... 5,854 124,163
------------
295,815
------------
Pollution Control & Environmental Services - 0.1%
+Headwaters Incorporated.... 8,846 129,948
+Ionics, Inc. .............. 5,867 131,245
+TRC Companies, Inc. ....... 2,500 36,900
------------
298,093
------------
Power Transmission Equipment - 0.1%
Regal-Beloit Corporation.... 6,951 132,764
Woodhead Industries,
Inc. ..................... 2,611 32,690
------------
165,454
------------
Precious Metals - 0.0%
+Coeur d'Alene Mines
Corporation............... 54,600 75,894
------------
Printing & Copying Services - 0.1%
Bowne & Co., Inc. ......... 9,982 130,065
+Mail-Well, Inc. ........... 8,960 22,579
Schawk, Inc. .............. 2,200 23,056
------------
175,700
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
54
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Production Technology Equipment - 1.5%
+ATMI, Inc. ................ 7,757 $ 193,692
+Axcelis Technologies,
Inc. ..................... 29,100 178,092
+Brooks Automation, Inc. ... 12,088 137,078
+Cognex Corporation......... 10,056 224,752
+Credence Systems
Corporation............... 20,268 171,670
+Cymer, Inc. ............... 10,700 343,149
+Dionex Corporation......... 5,531 219,857
+DuPont Photomasks, Inc. ... 4,308 81,120
+Electro Scientific
Industries, Inc. ......... 8,561 129,785
+Entegris Inc. ............. 14,300 192,192
+Esterline Technologies
Corporation............... 5,190 90,358
+FEI Company................ 6,355 119,220
+Kulicke and Soffa
Industries................ 14,656 93,652
+LTX Corporation............ 14,603 125,878
MTS Systems Corporation.... 7,500 110,550
+Mattson Technology,
Inc. ..................... 6,099 18,846
+Mykrolis Corporation....... 11,000 111,650
+Photon Dynamics, Inc. ..... 4,762 131,574
+Photronics, Inc. .......... 7,979 139,234
+Rudolph Technologies,
Inc. ..................... 4,173 66,601
+Ultratech Stepper, Inc. ... 6,790 125,547
+Varian Semiconductor
Equipment Associates,
Inc. ..................... 8,842 263,138
------------
3,267,635
------------
Property/Casualty Insurance - 0.1%
Infinity Property &
Casualty Corporation..... 3,500 82,600
Penn-America Group, Inc. .. 4,700 52,875
Safety Insurance Group
Inc. .................... 1,300 19,123
------------
154,598
------------
Publishing - Miscellaneous - 0.3%
Advanced Marketing
Services, Inc. .......... 4,281 55,653
Banta Corporation.......... 7,594 245,818
+Consolidated Graphics,
Inc. ..................... 2,500 57,200
Courier Corporation........ 800 41,200
+Information Holdings
Inc. ..................... 4,818 87,929
+Martha Stewart Living
Omnimedia, Inc. (Class
A)........................ 5,182 48,659
+PRIMEDIA Inc. ............. 39,600 120,780
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Playboy Enterprises,
Inc. ..................... 3,707 $ 50,415
+Thomas Nelson, Inc. ....... 1,400 17,500
------------
725,154
------------
Publishing - Newspapers - 0.2%
Hollinger International
Inc. .................... 11,129 119,859
+Journal Register Co. ...... 7,933 143,508
Pulitzer Inc. ............. 1,855 91,674
------------
355,041
------------
Radio & TV Broadcasters - 0.7%
+Acme Communications,
Inc. ..................... 1,200 9,120
+Beasley Broadcast Group,
Inc. (Class A)............ 2,733 37,387
+Cumulus Media Inc. (Class
A)........................ 11,700 219,609
+Emmis Communications
Corporation (Class A)..... 12,200 282,186
+Fisher Communications,
Inc. ..................... 1,100 53,801
The Liberty Corporation.... 4,454 189,295
+Lin TV Corp. (Class A)..... 7,000 164,850
+Paxson Communications
Corporation............... 8,968 53,718
+Regent Communications,
Inc. ..................... 7,771 45,849
+Saga Communications, Inc.
(Class A)................. 3,433 66,772
+Salem Communications
Corporation (Class A)..... 2,583 51,688
+Shop At Home, Inc. ........ 6,300 18,207
+Sinclair Broadcast Group,
Inc. (Class A)............ 12,464 144,707
+Spanish Broadcasting
System, Inc. (Class A).... 11,184 91,150
World Wrestling Federation
Entertainment, Inc. ..... 2,568 26,425
+Young Broadcasting Inc.
(Class A)................. 4,408 93,141
------------
1,547,905
------------
Railroad Equipment - 0.1%
Wabtec Corporation......... 8,539 118,777
------------
Railroads - 0.2%
Florida East Coast
Industries, Inc. ........ 5,181 132,375
+Genesee & Wyoming Inc.
(Class A)................. 2,600 53,482
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
55
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Kansas City Southern
Industries, Inc. ......... 19,176 $ 230,687
+RailAmerica, Inc. ......... 7,802 65,927
------------
482,471
------------
Real Estate - 0.2%
+Avatar Holdings Inc. ...... 1,300 39,260
+Insignia Financial Group,
Inc. ..................... 7,972 88,569
+Jones Lang Lasalle Inc. ... 9,208 145,486
+Tejon Ranch Co. ........... 1,315 39,582
+Trammell Crow Company...... 6,978 74,037
+WCI Communities, Inc. ..... 5,800 111,534
------------
498,468
------------
Real Estate Development - 0.0%
Consolidated-Tomoka Land
Company.................. 2,100 52,752
+Reading International, Inc.
(Class A)................. 900 4,995
------------
57,747
------------
Real Estate Investment Trusts - 5.8%
Acadia Realty Trust........ 6,601 60,399
+Alexander's, Inc. ......... 367 30,641
Alexandria Real Estate
Equities, Inc. .......... 5,356 241,020
American Land Lease,
Inc. .................... 2,800 47,040
American Mortgage
Acceptance Corp. ........ 3,600 62,496
Amli Residential Properties
Trust.................... 4,540 106,917
Anthracite Capital,
Inc. .................... 13,300 160,398
Anworth Mortgage Asset
Corporation.............. 10,900 168,078
Apex Mortgage Capital,
Inc. .................... 12,800 70,016
Associated Estates Realty
Corporation.............. 4,700 30,879
Bedford Property Investors,
Inc. .................... 3,899 110,732
Boykin Lodging Company..... 7,832 61,090
Brandywine Realty Trust.... 6,847 168,573
Capital Automotive......... 8,050 225,320
Capstead Mortgage
Corporation.............. 4,677 52,710
Chateau Communities,
Inc. .................... 6,908 204,408
Colonial Properties
Trust.................... 5,306 186,718
Commercial Net Lease
Realty................... 10,675 184,037
Cornerstone Realty Income
Trust, Inc. ............. 16,103 117,713
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Corporate Office Properties
Trust.................... 8,600 $ 145,598
Correctional Properties
Trust.................... 3,000 84,000
+Crimi Mae Inc. ............ 4,900 53,655
Crown American Realty
Trust.................... 9,900 106,326
EastGroup Properties,
Inc. .................... 5,327 143,829
Entertainment Properties
Trust.................... 5,080 146,050
Equity Inns Inc. .......... 11,940 82,386
Equity One, Inc. .......... 7,000 114,800
Essex Property Trust,
Inc. .................... 4,895 280,239
FelCor Lodging Trust
Inc. .................... 16,970 133,215
First Industrial Realty
Trust, Inc. ............. 12,300 388,680
Gables Residential Trust... 7,282 220,135
Getty Realty Corporation... 3,700 82,584
Glenborough Realty Trust
Incorporated............. 4,739 90,752
Glimcher Realty Trust...... 9,856 220,774
Great Lakes REIT, Inc. .... 3,927 62,832
Health Care REIT, Inc. .... 11,669 355,905
Heritage Property
Investment Trust......... 4,600 124,568
Highwoods Properties,
Inc. .................... 14,800 330,040
Home Properties of New
York, Inc. .............. 8,820 310,817
Impac Mortgage Holdings,
Inc. .................... 13,700 228,653
Innkeepers USA Trust....... 7,492 50,946
Investors Real Estate
Trust.................... 8,400 90,636
Keystone Property Trust.... 4,204 77,816
Kilroy Realty
Corporation.............. 6,978 191,895
Koger Equity, Inc. ........ 5,848 100,761
Kramont Realty Trust....... 5,300 87,450
LTC Properties............. 3,600 34,380
+La Quinta Corporation...... 38,800 167,228
LaSalle Hotel Properties... 3,520 52,026
Lexington Corporate
Properties Trust......... 8,942 158,273
MFA Mortgage Investments,
Inc. .................... 14,500 145,580
Manufactured Home
Communities, Inc. ....... 4,094 143,740
Meristar Hospitality
Corp. ................... 15,258 78,426
Mid-America Apartment
Communities, Inc. ....... 3,929 106,122
Mid-Atlantic Realty
Trust.................... 6,400 134,016
Mission West Properties
Inc. .................... 4,200 47,754
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
56
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
National Health Investors,
Inc. .................... 7,829 $ 144,367
National Health Realty,
Inc. .................... 1,800 28,782
Nationwide Health
Properties, Inc. ........ 15,959 254,227
Newcastle Investment
Corporation.............. 7,200 140,976
Novastar Financial,
Inc. .................... 3,300 197,175
+OMEGA Healthcare Investors,
Inc. ..................... 2,200 11,550
PS Business Parks, Inc. ... 3,208 113,242
Parkway Properties,
Inc. .................... 2,204 92,678
Pennsylvania Real Estate
Investment Trust......... 5,079 152,116
Post Properties, Inc. ..... 10,186 269,929
Prentiss Properties
Trust.................... 9,950 298,401
+Price Legacy Corporation... 6,000 22,500
RAIT Investment Trust...... 5,800 153,700
RFS Hotel Investors,
Inc. .................... 9,020 111,126
Ramco-Gershenson Properties
Trust.................... 2,200 51,260
Reckson Associates Realty
Corporation.............. 13,800 287,868
Redwood Trust, Inc. ....... 4,295 171,413
SL Green Realty Corp. ..... 8,032 280,236
Saul Centers, Inc. ........ 2,422 62,003
Senior Housing Properties
Trust.................... 11,814 160,198
Sizeler Property Investors,
Inc. .................... 5,600 57,400
Sovran Self Storage,
Inc. .................... 3,804 119,826
Summit Properties Inc. .... 6,319 130,487
Sun Communities, Inc. ..... 4,043 158,890
Tanger Factory Outlet
Centers, Inc. ........... 1,861 61,562
+Tarragon Realty Investors
Inc. ..................... 200 2,910
Taubman Centers, Inc. ..... 14,108 270,309
Town & Country Trust....... 3,863 89,815
U.S. Restaurant Properties,
Inc. .................... 5,700 89,490
United Mobile Homes,
Inc. .................... 300 4,548
Universal Health Realty
Income Trust............. 2,427 65,529
Urstadt Biddle Properties
(Class A)................ 5,500 70,730
Ventas, Inc. .............. 23,205 351,556
Washington Real Estate
Investment Trust......... 9,965 271,048
Winston Hotels, Inc. ...... 4,955 40,482
------------
12,450,401
------------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Recreational Vehicles & Boats - 0.3%
Arctic Cat Inc. ........... 5,643 $ 108,120
Coachmen Industries,
Inc. .................... 2,907 34,739
+Fleetwood Enterprises,
Inc. ..................... 11,699 86,573
Marine Products Corp. ..... 500 5,425
+Monaco Coach Corporation... 7,524 115,343
Thor Industries, Inc. ..... 5,242 213,978
Winnebago Industries,
Inc. .................... 3,495 132,461
------------
696,639
------------
Regional Banks - 0.5%
+Americanwest
Bancorporation............ 1,500 24,570
BancTrust Financial Group,
Inc. .................... 500 8,030
C & F Financial Corp. ..... 1,500 58,500
+Capital Corporation of the
West...................... 2,300 57,730
Center Bancorp, Inc. ...... 3,800 57,456
+Columbia Bancorp Oregon.... 700 9,331
Commercial Bankshares,
Inc. .................... 300 8,889
+Commercial Capital Bancorp,
Inc. ..................... 2,700 41,823
Eastern Virginia
Bankshares, Inc. ........ 500 11,475
FNB Corp. ................. 2,300 56,580
First Bell Bancorp,
Inc. .................... 300 7,578
First Citizens Banc
Corp. ................... 2,100 54,495
First M&F Corporation...... 400 13,084
First United Corporation... 900 18,900
Firstbank Corporation
Michigan................. 2,300 69,667
Foothill Independent
Bancorp.................. 200 3,726
Greater Community
Bancorp.................. 200 3,044
Heritage Commerce Corp. ... 5,200 62,660
Heritage Financial
Corporation.............. 600 12,966
IBT Bancorp Inc. .......... 300 14,997
LNB Bancorp Inc. .......... 400 8,552
MBT Financial Corp. ....... 3,500 61,215
Mercantile Bank
Corporation.............. 2,200 62,810
Northern States Financial
Corporation.............. 100 2,871
+Oak Hill Financial Inc. ... 1,800 45,072
PAB Bankshares, Inc. ...... 400 5,196
Penns Woods Bancorp Inc. .. 1,400 59,066
Resource Bankshares
Corporation.............. 1,500 51,000
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
57
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Security Bank Corporation.. 700 $ 24,241
Southside Bancshares Inc... 3,700 65,786
State Financial Services
(Class A)................ 500 10,975
Taylor Capital Group
Inc. .................... 100 2,085
United Securities
Bancshares California.... 100 2,174
United Securities
Bancshares Inc. ......... 500 22,580
Wayne Bancorp Inc. ........ 2,100 64,029
West Bancorporation
Inc. .................... 3,500 62,615
------------
1,145,768
------------
Rental & Leasing Services - Commercial - 0.2%
+Electro Rent Corporation... 3,353 36,145
GATX Corporation........... 11,200 183,120
Interpool, Inc. ........... 1,683 27,635
McGrath Rentcorp........... 1,905 50,940
+United Rentals, Inc. ...... 14,500 201,405
------------
499,245
------------
Rental & Leasing Services - Consumer - 0.1%
Aaron Rents, Inc. ......... 4,708 121,466
+Dollar Thrifty Automotive
Group, Inc. .............. 6,795 126,047
+Rent-Way, Inc. ............ 6,178 28,728
+WESCO International,
Inc. ..................... 4,058 24,348
------------
300,589
------------
Restaurants - 1.6%
+AFC Enterprises, Inc. ..... 3,900 63,336
Bob Evans Farms, Inc. ..... 10,480 289,562
+California Pizza Kitchen,
Inc. ..................... 5,900 126,850
+CEC Entertainment Inc. .... 6,300 232,659
+CKE Restaurants, Inc. ..... 12,300 68,757
+Chicago Pizza & Brewery,
Inc. ..................... 4,200 42,000
+Dave & Buster's, Inc. ..... 2,000 21,800
IHOP Corp. ................ 5,248 165,679
+Jack in the Box Inc. ...... 10,018 223,401
Landry's Restaurants,
Inc. .................... 6,396 150,946
Lone Star Steakhouse &
Saloon, Inc. ............ 5,554 120,911
+O'Charley's Inc. .......... 6,984 150,366
+P.F. Chang's China Bistro,
Inc. ..................... 7,508 369,469
+Panera Bread Company (Class
A)........................ 7,700 308,000
+Papa John's International,
Inc. ..................... 4,148 116,351
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+RARE Hospitality
International, Inc. ...... 6,518 $ 213,008
+Red Robin Gourmet
Burgers................... 3,600 68,256
+Ryan's Family Steak Houses,
Inc. ..................... 12,900 180,600
+Sonic Corp. ............... 11,476 291,835
+The Steak 'n Shake
Company................... 5,128 78,202
+Triarc Companies, Inc. .... 3,825 114,712
------------
3,396,700
------------
Retail - 4.7%
+1-800-CONTACTS, INC. ...... 1,600 39,168
+1-800-FLOWERS.COM, Inc. ... 3,824 31,510
+A.C. Moore Arts & Crafts,
Inc. ..................... 3,700 74,111
+Aeropostale, Inc. ......... 5,000 107,400
+American Eagle Outfitters,
Inc. ..................... 14,600 269,662
+AnnTaylor Stores
Corporation............... 12,441 360,167
+Asbury Automotive Group
Inc. ..................... 2,300 31,004
+BJ's Wholesale Club,
Inc. ..................... 21,400 322,284
+bebe stores, inc........... 1,740 33,286
Blair Corporation.......... 1,600 35,520
+Brookstone, Inc. .......... 3,400 68,850
Brown Shoe Company, Inc. .. 5,279 157,314
+The Buckle, Inc. .......... 1,249 24,018
Burlington Coat Factory
Warehouse Corporation.... 5,392 96,517
+CSK Auto Corporation....... 8,534 123,316
The Cato Corporation (Class
A)....................... 4,897 103,229
+Central Garden & Pet
Company................... 4,700 112,095
+Charlotte Russe Holding
Inc. ..................... 3,400 35,088
+Charming Shoppes, Inc. .... 33,040 164,209
+The Children's Place Retail
Stores, Inc. ............. 4,485 89,072
+Christopher & Banks
Corporation............... 6,952 257,154
+Coldwater Creek Inc. ...... 1,347 16,609
+Cole National Corporation
(Class A)................. 4,700 58,844
+Cost Plus, Inc. ........... 6,276 223,802
Deb Shops, Inc. ........... 500 9,400
Dillard's, Inc. (Class
A)....................... 16,700 224,949
+The Dress Barn, Inc. ...... 5,645 71,522
+Drugstore.com, Inc. ....... 9,400 54,896
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
58
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Electronics Boutique
Holdings Corp. ........... 4,531 $ 104,711
+Finlay Enterprises,
Inc. ..................... 800 13,240
+Footstar, Inc. ............ 5,636 73,268
Fred's, Inc. .............. 8,090 300,786
+FreeMarkets, Inc. ......... 11,769 81,912
+GSI Commerce, Inc. ........ 4,600 30,728
+Galyan's Trading Company... 2,000 28,680
+GameStop Corporation....... 7,100 91,732
+Gart Sports Company........ 2,800 79,408
+Genesco Inc. .............. 6,438 113,953
+GenesisIntermedia, Inc. ... 3,300 --
+Global Imaging Systems,
Inc. ..................... 5,300 122,748
Goody's Family Clothing,
Inc. .................... 7,100 61,415
+Group 1 Automotive, Inc. .. 4,832 156,605
+Guitar Center, Inc. ....... 4,639 134,531
+The Gymboree Corporation... 8,658 145,281
Hancock Fabrics, Inc. ..... 5,400 87,210
+Handleman Company.......... 7,261 116,176
+Hibbett Sporting Goods,
Inc. ..................... 2,800 92,232
+Hot Topic, Inc. ........... 9,254 249,025
+Insight Enterprises,
Inc. ..................... 15,298 153,898
+InterTAN, Inc. ............ 6,779 55,588
+J. Jill Group Inc. ........ 5,662 95,348
+Jo-Ann Stores Inc. ........ 4,500 113,850
Lawson Products, Inc. ..... 1,447 39,849
+Linens 'n Things, Inc. .... 12,218 288,467
Lithia Motors, Inc. ....... 2,700 43,659
+MarineMax, Inc. ........... 1,000 14,000
+The Men's Wearhouse,
Inc. ..................... 10,261 224,203
+Mothers Work, Inc. ........ 1,700 45,509
+OfficeMax, Inc. ........... 34,100 223,355
+Overstock.com, Inc. ....... 1,900 27,569
+PC Connection, Inc. ....... 1,059 7,201
+PETCO Animal Supplies,
Inc. ..................... 9,700 211,460
+Pacific Sunwear of
California, Inc. ......... 13,952 336,104
+Party City Corporation..... 2,800 28,756
+Payless ShoeSource,
Inc. ..................... 20,100 251,250
+Priceline.com
Incorporated.............. 6,516 145,893
+Restoration Hardware,
Inc. ..................... 5,700 25,650
Russ Berrie and Company,
Inc. .................... 2,847 103,944
+School Specialty, Inc. .... 5,554 158,067
+Sharper Image Corporation.. 2,600 70,902
+ShopKo Stores, Inc. ....... 8,898 115,674
+Sonic Automotive, Inc. .... 7,700 168,707
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+The Sports Authority,
Inc. ..................... 9,800 $ 104,860
+Stage Stores, Inc. ........ 4,300 101,050
+Stamps.com Inc. ........... 10,807 51,874
+Stein Mart, Inc. .......... 5,524 33,089
+Too Inc. .................. 9,566 193,712
+Tractor Supply Company..... 4,300 205,325
+Trans World Entertainment
Corporation............... 5,030 25,754
+Tuesday Morning
Corporation............... 3,290 86,527
+Tweeter Home Entertainment
Group, Inc. .............. 6,430 55,812
+Ultimate Electronics,
Inc. ..................... 4,219 54,088
+United Auto Group, Inc. ... 4,031 87,795
+United Natural Foods,
Inc. ..................... 6,190 174,187
+Urban Outfitters, Inc. .... 3,200 114,880
+ValueVision International,
Inc. (Class A)............ 5,856 79,817
+The Wet Seal, Inc. (Class
A)........................ 6,575 70,221
+Whitehall Jewellers,
Inc. ..................... 3,200 29,024
+Wilsons The Leather Experts
Inc. ..................... 5,099 36,764
+Zale Corporation........... 8,900 356,000
------------
10,088,319
------------
Savings & Loans - 3.0%
Anchor Bancorp, Inc. ...... 6,437 153,780
BSB Bancorp, Inc. ......... 3,241 80,442
Bank Mutual Corporation.... 2,400 78,000
BankAtlantic Bancorp, Inc.
(Class A)................ 13,442 159,825
+BankUnited Financial
Corporation (Class A)..... 9,573 192,896
+Bay View Capital
Corporation............... 18,814 108,745
Berkshire Hills Bancorp,
Inc. .................... 2,400 68,160
Brookline Bancorp, Inc. ... 18,587 260,218
CFS Bancorp, Inc. ......... 2,800 39,480
Charter Financial
Corporation.............. 500 14,125
Citizens First Bancorp,
Inc. .................... 1,700 37,128
Coastal Bancorp, Inc. ..... 1,132 32,171
Coastal Financial
Corporation.............. 2,830 36,337
Commercial Federal
Corporation.............. 13,627 288,892
Connecticut Bancshares,
Inc. .................... 3,800 149,150
Dime Community
Bancshares............... 6,866 174,740
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
59
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Fidelity Bankshares,
Inc. .................... 3,948 $ 88,040
First Defiance Financial
Corp. ................... 1,500 29,760
First Federal Capital
Corp. ................... 5,012 99,488
First Financial Holdings,
Inc. .................... 4,026 108,863
First Indiana
Corporation.............. 3,388 58,003
First Niagara Financial
Group, Inc. ............. 22,518 314,351
First Place Financial
Corp. ................... 2,800 48,496
First Republic Bank........ 3,100 82,460
First Sentinel Bancorp
Inc. .................... 5,667 90,502
FirstFed America Bancorp,
Inc. .................... 1,500 51,750
+FirstFed Financial
Corp. .................... 4,900 172,921
Flagstar Bancorp, Inc. .... 9,550 233,498
Flushing Financial
Corporation.............. 3,850 85,355
Great Southern Bancorp,
Inc. .................... 1,539 59,313
Harbor Florida Bancshares,
Inc. .................... 6,817 163,335
+Hawthorne Financial
Corporation............... 1,600 55,456
Hudson River Bancorp,
Inc. .................... 3,700 103,304
IBERIABANK Corporation..... 2,400 117,120
+ITLA Capital Corporation... 1,400 56,602
+Local Financial Corp. ..... 6,630 95,737
MAF Bancorp, Inc. ......... 6,269 232,392
NASB Financial Inc. ....... 300 8,337
Net.B@nk, Inc. ............ 15,411 202,809
Northwest Bancorp, Inc. ... 2,667 42,672
OceanFirst Financial
Corp. ................... 2,796 68,306
+Ocwen Financial
Corporation............... 7,965 36,161
PFF Bancorp, Inc. ......... 3,244 125,381
Parkvale Financial
Corporation.............. 1,200 29,496
Partners Trust Financial
Group, Inc. ............. 800 15,264
PennFed Financial Services,
Inc. .................... 1,900 52,725
Port Financial Corp. ...... 1,899 102,318
Provident Bancorp, Inc. ... 900 28,890
+Quaker City Bancorp,
Inc. ..................... 1,500 61,575
Seacoast Financial Services
Corporation.............. 8,302 164,380
St. Francis Capital
Corporation.............. 2,900 84,303
Staten Island Bancorp,
Inc. .................... 15,384 299,680
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Sterling Financial
Corporation............... 3,940 $ 95,978
Superior Financial
Corp. ................... 2,700 64,800
United Community Financial
Corp. ................... 8,973 82,911
W Holding Company, Inc. ... 14,777 250,027
Warwick Community Bancorp,
Inc. .................... 1,600 46,800
Waypoint Financial
Corp. ................... 8,600 155,144
Westcorp................... 2,836 79,408
Westfield Financial,
Inc. .................... 400 7,524
Willow Grove Bankcorp,
Inc. .................... 4,600 78,200
------------
6,403,924
------------
Savings Banks - 0.4%
Camco Financial
Corporation.............. 2,600 40,378
Cavalry Bancorp, Inc. ..... 300 5,094
Citizens South Banking
Corporation.............. 4,300 56,932
ESB Financial Corporation.. 600 8,100
EverTrust Financial Group
Inc. .................... 300 7,017
FFLC Bancorp, Inc. ........ 400 10,388
FLAG Financial
Corporation.............. 400 5,484
FMS Financial Corporation.. 400 6,508
First Federal Financial
Corporation of Kentucky.. 300 9,741
FloridaFirst Bancorp,
Inc. .................... 1,000 23,970
GA Financial, Inc. ........ 2,100 52,815
GB&T Bancshares Inc. ...... 400 9,828
Horizon Financial Corp. ... 4,600 72,818
Klamath First Bancorp,
Inc. .................... 3,100 53,072
MutualFirst Financial
Inc. .................... 2,300 53,544
Patriot Bank Corp. ........ 700 12,593
Provident Financial
Holdings................. 300 8,802
Provident Financial
Services, Inc. .......... 15,200 289,560
Sound Federal Bancorp
Inc. .................... 2,300 31,487
Southern Financial
Bancorp.................. 900 27,531
+TierOne Corporation........ 7,800 152,490
------------
938,152
------------
Scientific Equipment & Suppliers - 0.2%
+Newport Corporation........ 11,235 166,278
+Varian Inc. ............... 9,235 320,177
------------
486,455
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
60
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Securities Brokerage & Services - 0.4%
Charter Municipal Mortgage
Acceptance Company....... 12,145 $ 230,876
+Investment Technology
Group, Inc. .............. 14,700 273,420
+Knight Trading Group,
Inc. ..................... 23,500 146,170
+NCO Group, Inc. ........... 5,361 96,016
SWS Group, Inc. ........... 4,104 82,696
+SoundView Technology Group,
Inc. ..................... 6,329 64,047
------------
893,225
------------
Semiconductors - 0.0%
+Diodes Inc. ............... 1,200 23,136
+ParthusCeva, Inc. ......... 2,800 22,904
------------
46,040
------------
Services - Commercial - 3.2%
+4Kids Entertainment,
Inc. ..................... 2,863 53,252
ABM Industries, Inc. ...... 11,170 172,018
+AMN Healthcare Services,
Inc. ..................... 4,100 52,070
+APAC Customer Services
Inc. ..................... 7,538 19,222
+Administaff, Inc. ......... 6,661 68,608
+The Advisory Board
Company................... 3,400 137,768
+Ambassadors Group, Inc. ... 500 6,985
Angelica Corporation....... 1,800 30,510
The Brink's Company........ 14,700 214,179
+CDI Corp. ................. 3,701 96,078
+Casella Waste Systems,
Inc. ..................... 3,778 34,115
Central Parking
Corporation.............. 5,085 62,851
+Century Business Services,
Inc. ..................... 18,933 61,532
+Charles River Associates
Incorporated.............. 2,800 79,156
+Clark, Inc. ............... 5,600 66,920
+Coinstar, Inc. ............ 6,692 126,211
+Copart, Inc. .............. 19,300 184,894
+Cornell Companies, Inc. ... 4,600 69,644
+Corrections Corporation of
America................... 9,594 243,016
+CoStar Group Inc. ......... 3,550 106,003
+Cross Country Healthcare,
Inc. ..................... 6,900 91,011
+Exult Inc. ................ 10,500 89,985
+FTI Consulting, Inc. ...... 12,941 323,137
+First Consulting Group,
Inc. ..................... 4,674 21,828
+Forrester Research,
Inc. ..................... 4,081 66,765
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
G & K Services, Inc. (Class
A)....................... 5,577 $ 165,079
+Harris Interactive Inc. ... 14,400 94,896
+Heidrick & Struggles
International, Inc. ...... 6,058 76,452
+ICT Group, Inc. ........... 1,600 16,736
+Insurance Auto Auctions,
Inc. ..................... 2,565 32,216
Kelly Services, Inc. (Class
A)....................... 4,968 116,500
+Korn/Ferry International... 9,368 75,881
+Kroll Inc. ................ 11,400 308,484
+Labor Ready, Inc. ......... 11,922 85,481
+Lightbridge, Inc. ......... 9,691 84,893
+MAXIMUS, Inc. ............. 4,404 121,683
+MPS Group, Inc. ........... 25,305 174,098
+Medical Staffing Network
Holdings, Inc. ........... 5,200 36,400
+MemberWorks Incorporated... 2,254 44,517
+Metro One
Telecommunications,
Inc. ..................... 7,592 39,175
+Midas Group, Inc. ......... 5,342 64,745
+Monro Muffler Brake,
Inc. ..................... 2,600 73,476
+Navigant Consulting,
Inc. ..................... 13,623 161,433
+Navigant International,
Inc. ..................... 5,111 65,932
+NetRatings, Inc. .......... 1,417 12,951
+Overture Services, Inc. ... 18,153 329,114
+PDI, Inc. ................. 2,421 24,597
+Pegasus Systems, Inc. ..... 8,239 133,884
The Pep Boys - Manny, Moe &
Jack..................... 14,210 191,977
+Pre-Paid Legal Services,
Inc. ..................... 4,648 114,015
+Raindance Communications,
Inc. ..................... 9,600 23,904
+Resources Connection,
Inc. ..................... 6,516 155,472
+Right Management
Consultants, Inc. ........ 4,815 60,910
Rollins, Inc. ............. 6,168 116,267
Roto-Rooter, Inc. ......... 2,886 110,072
+Spherion Corporation....... 17,529 121,827
+StarTek, Inc. ............. 2,540 66,802
+TeleTech Holdings, Inc. ... 13,089 55,366
+Tetra Tech, Inc. .......... 14,831 254,055
UniFirst Corporation....... 1,600 35,040
+Volt Information Sciences,
Inc. ..................... 1,559 21,280
+Wackenhut Corrections
Corporation............... 2,700 37,017
+Waste Connections, Inc. ... 8,412 294,841
+Watson Wyatt & Company
Holdings.................. 8,825 204,564
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
61
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Wireless Facilities,
Inc. ..................... 6,813 $ 81,075
World Fuel Services
Corporation.............. 2,500 61,475
------------
6,822,340
------------
Services - Health Industry - 0.1%
+Impac Medical Systems
Inc. ..................... 2,500 54,200
+Quality Systems, Inc. ..... 1,500 40,890
+VistaCare, Inc. (Class
A)........................ 4,100 99,630
+Vital Images Inc. ......... 3,400 62,832
------------
257,552
------------
Shipping - 0.3%
Alexander & Baldwin,
Inc. .................... 12,192 323,454
+GulfMark Offshore, Inc. ... 4,000 67,520
+Kirby Corporation.......... 5,430 153,126
Overseas Shipholding Group,
Inc. .................... 5,598 123,212
------------
667,312
------------
Shoes - 0.4%
+The Finish Line, Inc. ..... 6,033 133,993
+Kenneth Cole Productions,
Inc. (Class A)............ 1,692 32,977
K-Swiss Inc. (Class A)..... 3,548 122,477
+Maxwell Shoe Company Inc.
(Class A)................. 5,000 72,000
+Shoe Carnival, Inc. ....... 1,200 17,712
+Skechers U.S.A., Inc.
(Class A)................. 5,755 42,587
+Steve Madden, Ltd. ........ 2,912 63,598
The Stride Rite
Corporation.............. 11,335 112,897
+Vans, Inc. ................ 7,183 64,503
Wolverine World Wide,
Inc. .................... 11,772 226,729
------------
889,473
------------
Specialty Stores - 0.2%
+America's Car-Mart Inc. ... 2,100 38,178
+Big 5 Sporting Goods
Corporation............... 2,700 34,155
+Blue Rhino Corporation..... 4,300 51,170
+Dick's Sporting Goods,
Inc. ..................... 4,200 154,056
+Kirkland's, Inc. .......... 2,300 37,950
------------
315,509
------------
Specialty Telecommunications - 0.1%
D&E Communications, Inc. .. 5,200 59,072
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Hungarian Telephone and
Cable Corp. .............. 400 $ 3,660
+McLeod USA Incorporated
(Class A)................. 26,100 38,367
Warwick Valley Telephone
Company.................. 300 24,612
+WilTel Communications,
Inc. ..................... 6,900 102,258
------------
227,969
------------
Steel - 0.3%
+AK Steel Holding
Corporation............... 31,927 115,576
Allegheny Technologies
Incorporated............. 21,800 143,880
Carpenter Technology
Corporation.............. 5,926 92,446
Gibraltar Steel
Corporation.............. 2,423 49,623
Schnitzer Steel Industries,
Inc. (Class A)........... 1,800 79,416
+Steel Dynamics, Inc. ...... 10,797 147,919
------------
628,860
------------
Synthetic Fibers - 0.1%
Wellman, Inc. ............. 9,418 105,482
------------
Telecommunications - 0.0%
+OmniSky Corporation........ 300 --
------------
Telecommunications Equipment - 0.8%
+Allen Telecom Inc. ........ 8,184 135,200
+Andrew Corporation......... 27,600 257,784
+Arris Group Inc. .......... 18,000 89,280
+Audiovox Corporation (Class
A)........................ 3,885 43,473
Belden Inc. ............... 7,069 112,326
+C-COR.net Corp. ........... 9,334 45,736
+Comtech Telecommunications
Corp. .................... 2,700 76,113
+Corvis Corporation......... 98,700 143,115
+Ditech Communications
Corporation............... 5,300 25,122
+InteliData Technologies
Corporation............... 10,400 31,408
+InterVoice-Brite, Inc. .... 7,200 34,416
+MasTec, Inc. .............. 5,100 29,376
+Plantronics, Inc. ......... 11,010 238,587
+Powerwave Technologies,
Inc. ..................... 19,477 122,121
+Proxim Corporation (Class
A)........................ 43,534 63,560
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
62
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+SpectraLink Corporation.... 4,280 $ 42,286
+SymmetriCom, Inc. ......... 8,300 36,520
+Terayon Communication
Systems, Inc. ............ 19,376 52,896
+Tollgrade Communications,
Inc. ..................... 3,841 71,635
+Westell Technologies,
Inc. ..................... 14,300 118,404
------------
1,769,358
------------
Textile Products - 0.1%
+DHB Capital Group Inc. .... 2,500 10,225
Interface, Inc. ........... 12,821 59,489
+Unifi, Inc. ............... 13,672 84,766
------------
154,480
------------
Textiles Apparel Manufacturers - 0.5%
+Cherokee Inc. ............. 800 16,016
+Guess?, Inc. .............. 1,185 7,110
Kellwood Co. .............. 7,882 249,308
+Nautica Enterprises,
Inc. ..................... 9,066 116,317
OshKosh B'Gosh, Inc. (Class
A)....................... 2,702 72,954
Oxford Industries, Inc. ... 2,221 92,216
Phillips-Van Heusen
Corporation.............. 7,354 100,235
+Quiksilver, Inc. .......... 16,050 264,665
Russell Corporation........ 7,817 148,523
------------
1,067,344
------------
Tires & Rubber - 0.3%
Bandag, Incorporated....... 2,774 103,387
Cooper Tire & Rubber
Company.................. 18,100 318,379
The Goodyear Tire & Rubber
Company.................. 42,400 222,600
------------
644,366
------------
Tobacco - 0.4%
DIMON Incorporated......... 12,855 92,042
Schweitzer-Manduit
International, Inc. ..... 4,420 106,699
Standard Commercial
Corporation.............. 2,800 47,600
+Star Scientific, Inc. ..... 10,300 34,711
Universal Corporation...... 7,856 332,309
Vector Group Ltd. ......... 7,438 130,165
------------
743,526
------------
Toys - 0.1%
+JAKKS Pacific, Inc. ....... 8,561 113,776
------------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Transportation - Miscellaneous - 0.1%
Quixote Corporation........ 2,300 $ 58,719
+SCS Transportation,
Inc. ..................... 5,581 70,488
+U.S. Xpress Enterprises,
Inc. (Class A)............ 1,700 18,122
------------
147,329
------------
Truckers - 0.8%
Arkansas Best Corporation.. 7,341 174,642
+Covenant Transport, Inc.
(Class A)................. 1,500 25,500
+Forward Air Corporation.... 3,188 80,880
+Heartland Express, Inc. ... 8,928 198,648
+Knight Transportation,
Inc. ..................... 6,750 168,075
+Landstar System, Inc. ..... 4,704 295,646
+Old Dominion Freight Line,
Inc. ..................... 4,300 91,977
+P.A.M. Transportation
Services, Inc. ........... 1,000 25,120
+Pacer International,
Inc. ..................... 5,500 103,730
Roadway Express, Inc. ..... 4,131 117,857
USF Corporation............ 8,402 226,602
+Yellow Corporation......... 9,663 223,698
------------
1,732,375
------------
Trucks/Construction/Farm Machinery - 0.0%
+A.S.V., Inc. .............. 3,000 43,620
+The Greenbrier Companies,
Inc. ..................... 500 5,425
------------
49,045
------------
Utilities - Cable TV & Radio - 0.1%
+Mediacom Communications
Corporation............... 14,800 146,076
------------
Utilities - Electrical - 1.8%
Allegheny Energy, Inc. .... 39,200 331,240
Avista Corporation......... 13,475 190,671
Black Hills Corporation.... 8,800 270,160
CH Energy Group, Inc. ..... 4,689 211,005
CMS Energy Corporation..... 38,100 308,610
Central Vermont Public
Service Corporation...... 3,403 66,529
Cleco Corporation.......... 14,267 247,104
+El Paso Electric Company... 13,808 170,253
Empire District Electric
Company.................. 7,668 166,779
IDAcorp Inc. .............. 12,100 317,625
MGE Energy, Inc. .......... 4,545 142,622
Otter Tail Company......... 6,786 183,086
PNM Resources Inc. ........ 11,519 308,133
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
63
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Sierra Pacific Resources... 34,577 $ 205,387
UIL Holdings Corporation... 4,000 162,200
UniSource Energy
Corporation.............. 8,383 157,600
Westar Energy, Inc. ....... 19,800 321,354
------------
3,760,358
------------
Utilities - Gas Distributors - 1.1%
Atmos Energy Corporation... 14,338 355,582
Cascade Natural Gas
Corporation.............. 3,222 61,540
Energen Corporation........ 10,992 366,034
EnergySouth, Inc. ......... 2,000 65,600
The Laclede Group, Inc. ... 4,848 129,926
New Jersey Resources
Corporation.............. 7,974 283,077
Northwest Natural Gas
Company.................. 7,599 207,073
NUI Corporation............ 5,083 78,888
SEMCO Energy, Inc. ........ 8,387 48,812
South Jersey Industries,
Inc. .................... 3,266 120,352
+Southern Union Company..... 16,955 287,218
Southwest Gas Corporation.. 8,790 186,172
+Southwestern Energy
Company................... 11,124 166,971
------------
2,357,245
------------
Utilities - Gas Pipelines - 0.0%
+TransMontaigne Inc. ....... 5,131 33,249
------------
Utilities - Miscellaneous - 0.1%
Aquila, Inc. .............. 49,500 127,710
------------
Utilities - Telecommunications - 0.9%
+Boston Communications
Group, Inc. .............. 5,521 94,575
CT Communications, Inc. ... 3,755 40,366
+Centennial Communications
Corp. .................... 1,526 6,104
+Cincinnati Bell Inc. ...... 52,700 353,090
+Commonwealth Telephone
Enterprises, Inc. ........ 6,933 304,844
+General Communication, Inc.
(Class A)................. 11,339 98,196
+Golden Telecom, Inc. ...... 3,592 80,604
Hickory Tech Corporation... 3,399 38,069
+Intrado Inc. .............. 4,300 67,897
North Pittsburgh Systems,
Inc. .................... 4,321 65,117
+PTEK Holdings, Inc. ....... 11,000 53,350
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
+Price Communications
Corporation............... 13,104 $ 169,173
+RCN Corporation............ 22,100 43,758
Shenandoah
Telecommunications
Company.................. 600 28,776
SureWest Communications.... 3,700 111,925
+TALK America Holdings,
Inc. ..................... 8,833 96,368
+Time Warner Telecom Inc.
(Class A)................. 13,700 87,269
+Triton PCS Holdings, Inc.
(Class A)................. 4,300 21,715
+Western Wireless
Corporation (Class A)..... 16,600 191,398
------------
1,952,594
------------
Utilities - Water - 0.2%
American States Water
Company.................. 3,685 100,601
California Water Service
Group.................... 3,796 106,744
Connecticut Water Service,
Inc. .................... 2,389 61,039
Middlesex Water Company.... 2,287 56,352
SJW Corp. ................. 558 47,570
Southwest Water Company.... 4,395 61,398
------------
433,704
------------
Wholesale Distributors - 0.0%
Noland Company............. 100 3,555
------------
Wholesalers - 0.2%
+United Stationers, Inc. ... 9,649 349,004
------------
Wireless Telecommunications - 0.1%
+CycleLogic, Inc. .......... 8 2
+Dobson Communications
Corporation (Class A)..... 3,500 18,445
+NII Holdings Inc. (Class
B)........................ 3,900 148,785
+SBA Communications
Corporation............... 8,700 26,187
------------
193,419
------------
TOTAL COMMON STOCKS
(COST - $219,126,166) - 97.8%..... 210,290,001
------------
RIGHTS & WARRANTS
Biotechnology Research & Production - 0.0%
+Rigel Pharmaceuticals, Inc.
(Rights) (c).............. 333 652
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
64
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ------------
Telecommunication Services - 0.0%
XO Communications
(Rights)................. 53,600 $ 6
------------
Telephone - 0.0%
Focal Communications
Corporation (Warrants)
(a)...................... 221 2
------------
TOTAL RIGHTS & WARRANTS
(COST - $0) - 0.0%.... 660
------------
SHORT-TERM SECURITIES
Merrill Lynch Liquidity
Series, LLC Cash Sweep
Series I*................ 14,733,669 14,733,669
Merrill Lynch Liquidity
Series, LLC Money Market
Series (b)*.............. 3,407,656 3,407,656
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ------------
Merrill Lynch Premier
Institutional Fund
(b)*..................... 2,271,770 $ 2,271,770
------------
TOTAL SHORT-TERM
SECURITIES
(COST - $20,413,095) - 9.5%.. 20,413,095
------------
TOTAL INVESTMENTS
(COST - $239,539,261) - 107.3%.. 230,703,756
VARIATION MARGIN ON
FINANCIAL FUTURES
CONTRACTS** - 0.0%........ (60,321)
LIABILITIES IN EXCESS OF
OTHER ASSETS - (7.3%)..... (15,558,024)
------------
NET ASSETS - 100.0%......... $215,085,411
============
</Table>
- ---------------
(a) Warrants entitle the Series to purchase a predetermined number of shares on
common stock and are non-income producing. The purchase price and number of
shares are subject to adjustment under certain conditions until the
expiration date.
(b) Security purchased with the cash proceeds from securities loans.
(c) The rights may be exercised until 7/25/2003.
+ Non-income producing security.
++ For Series compliance purposes, "Industry" means 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
such industry sub-classifications for reporting ease.
* Investments in companies considered to be an affiliate of the Series (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
<Table>
<Caption>
INTEREST/
NET DIVIDEND
AFFILIATE ACTIVITY INCOME
--------- ---------- ---------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I..... $11,816,609 $43,737
Merrill Lynch Liquidity Series, LLC Money Market Series..... $ 623,221 $13,625
Merrill Lynch Premier Institutional Fund.................... (197,445) $ 8,966
</Table>
** Financial futures contracts purchased as of June 30, 2003 were as follows:
<Table>
<Caption>
NUMBER OF EXPIRATION
CONTRACTS ISSUE DATE VALUE
--------- ------------ ---------- ----------
27 Russell September $6,053,400
2000........ 2003
----------
(Total Contract Price - $6,153,201) $6,053,400
==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
65
MASTER SMALL CAP INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (including securities loaned of
$5,315,916) (identified cost - $239,539,261)........... $230,703,756
Cash.................................................... 1,317,160
Cash on deposit for financial futures contracts......... 324,000
Receivables:
Securities sold..................................... $38,101,480
Contributions....................................... 319,217
Dividends........................................... 234,088
Interest............................................ 14,947
Securities lending - net............................ 3,962 38,673,694
-----------
Prepaid expenses and other assets....................... 40,267
------------
TOTAL ASSETS........................................ 271,058,877
------------
LIABILITIES:
Collateral on securities loaned, at value............... 5,679,426
Payables:
Securities purchased................................ 47,826,133
Withdrawals......................................... 2,404,725
Variation margin.................................... 60,321
Investment adviser.................................. 1,832
Other affiliates.................................... 1,029 50,294,040
----------- ------------
TOTAL LIABILITIES................................... 55,973,466
------------
NET ASSETS.................................................. $215,085,411
============
NET ASSETS CONSIST OF:
Investors' capital...................................... $224,020,717
Unrealized depreciation on investments - net............ (8,935,306)
------------
NET ASSETS.................................................. $215,085,411
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
66
MASTER SMALL CAP INDEX SERIES
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $756 foreign withholding tax)......... $ 1,032,313
Interest................................................ 43,832
Securities lending - net................................ 22,591
-----------
TOTAL INCOME........................................ 1,098,736
-----------
EXPENSES:
Professional fees....................................... $ 61,114
Accounting services..................................... 17,765
Custodian fees.......................................... 10,201
Investment advisory fees................................ 9,145
Trustees' fees and expenses............................. 1,262
Printing and shareholder reports........................ 1,000
Other................................................... 2,252
-----------
Total expenses before reimbursement................. 102,739
Reimbursement of expenses............................... (20,960)
-----------
TOTAL EXPENSES AFTER REIMBURSEMENT.................. 81,779
-----------
INVESTMENT INCOME - NET..................................... 1,016,957
-----------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET:
Realized loss on investments - net...................... (1,991,794)
Change in unrealized depreciation on
investments - net...................................... (32,704,279)
-----------
TOTAL REALIZED AND UNREALIZED GAIN ON
INVESTMENTS - NET................................... 30,712,485
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $31,729,442
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
67
MASTER SMALL CAP INDEX SERIES
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net................................. $ 1,016,957 $ 2,405,288
Realized loss on investments - net...................... (1,991,794) (12,560,901)
Change in unrealized depreciation on
investments - net..................................... 32,704,279 (35,615,150)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................ 31,729,442 (45,770,763)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 41,407,306 105,968,467
Fair value of withdrawals............................... (39,966,808) (61,250,024)
------------ ------------
NET INCREASE IN NET ASSETS DERIVED FROM CAPITAL
TRANSACTIONS.......................................... 1,440,498 44,718,443
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 33,169,940 (1,052,320)
NET ASSETS:
Beginning of period..................................... 181,915,471 182,967,791
------------ ------------
END OF PERIOD........................................... $215,085,411 $181,915,471
============ ============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
68
MASTER SMALL CAP INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------
2003 2002 2001 2000 1999
------------ -------- -------- -------- --------
(UNAUDITED)
TOTAL INVESTMENT RETURN**..... 17.83%+ (20.19%) 2.37% -- --
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of
reimbursement........... .09%* .08% .08% .09% .14%
-------- -------- -------- -------- --------
Expenses.................. .11%* .14% .13% .13% .17%
-------- -------- -------- -------- --------
Investment income --net... 1.11%* 1.26% 1.45% 1.90% 1.83%
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).......... $215,085 $181,915 $182,968 $169,244 $114,799
-------- -------- -------- -------- --------
Portfolio turnover........ 23.33% 39.00% 48.50% 50.51% 51.20%
-------- -------- -------- -------- --------
</Table>
- ---------------
* Annualized.
** Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
+ Aggregate total investment return.
See notes to financial statements.
- --------------------------------------------------------------------------------
69
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Master Small Cap Index Series (the "Series") 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 Trust, subject to certain limitations. The Series' financial statements are
prepared in conformity with accounting principles generally accepted in the
United States of America, which may require the use of management accruals and
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a normal,
recurring nature. The following is a summary of significant accounting policies
followed by the Series.
A. Valuation of investments
Portfolio securities that are traded on stock exchanges or the Nasdaq
National Market are valued at the last sale price or official closing price on
the exchange on which such securities are traded, 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 ask price for
short positions. Securities traded in the over-the-counter market are valued at
the last quoted bid price at the close of trading on the New York Stock Exchange
on each day by brokers that make markets in the securities. Portfolio securities
that are traded both in the over-the-counter 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. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair market value, as
determined in good faith by or under the direction of the Trust's Board of
Trustees. Occasionally, events affecting the values of securities and other
assets may occur between the times at which valuations of such securities are
determined (that is, close of the market on which such securities trade) and the
close of business on the NYSE. If events (for example, company announcement,
natural disasters, market volatility) occur during such periods that are
expected to materially affect the value for such securities, those securities
may be valued at their fair market value as determined in good faith by the
Trust's Board of Trustees or by the investment adviser using a pricing service
and/or procedures approved by the Board of Trustees of the Trust.
B. Derivative financial instruments
The Series may engage in various portfolio investment strategies both to
increase the return of the Series and to hedge, or protect, its exposure to
interest rate movement and movements in the securities markets. Losses may arise
due to changes in the value of the contract or if the counterparty does not
perform under the contract.
Financial futures contracts
The Series may purchase or sell financial futures contracts and options on
such futures contracts. 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
- --------------------------------------------------------------------------------
70
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
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.
Options
The Series is authorized to 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 (ora gain or loss to the extent that the
cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
C. Income taxes
The Series is classified as a partnership for Federal income tax purposes.
As such, each investor in the Series is treated as owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Series. Therefore, no Federal income tax provision is required.
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.
D. Security transactions and investment income
Security transactions are accounted for on the date the securities are
purchased or sold (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend income is
recorded on the ex-dividend dates. Interest income is recognized on the accrual
basis.
E. Securities lending
The Series may lend securities to financial institutions that provide cash
or securities issued or guaranteed by the U.S. government as collateral, which
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The market value of the loaned
securities is determined at the close of business of the Series and any
additional required collateral is delivered to the Series on the next business
day. Where the Series receives securities as collateral for the loaned
securities, it collects a fee from the borrower. The Series typically receives
the income on the loaned securities but does not receive the income on the
collateral. Where the Series receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Series may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return
- --------------------------------------------------------------------------------
71
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
borrowed securities because of insolvency or for any other reason, the Series
could experience delays and costs in gaining access to the collateral. The
Series also could suffer a loss where the value of the collateral falls below
the market value of the borrowed securities, in the event of borrower default or
in the event of losses on investments made with cash collateral.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Series' portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Series. For such services, the Series pays a
monthly fee at an annual rate of .01% of the average daily value of the Series'
net assets. FAM has entered into a contractual arrangement with the Series under
which the expenses incurred by the Series will not exceed .09%. This arrangement
expires December 31, 2003 and is renewable. FAM reimbursed the Series for
additional expenses of $20,960.
Merrill Lynch Trust Company, an indirect, wholly-owned Subsidiary of ML &
Co., is the Series' Custodian.
The Series has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner and Smith Incorporated ("MLPF&S") or its affiliates. As of June 30, 2003,
the Series lent securities with a value of $754,833 to MLPF&S or its affiliates.
Pursuant to that order, the Series also has retained Merrill Lynch Investment
Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities lending
agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Series, invest cash collateral
received by the Series for such loans, among other things, in a private
investment company managed by MLIM, LLC or in registered money market funds
advised by FAM or its affiliates. For the six months ended June 30, 2003, MLIM,
LLC received $9,548 in securities lending agent fees.
For the six months ended June 30, 2003, the Series reimbursed FAM $2,161
for certain accounting services.
Certain officers and/or trustees of the Series are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. INVESTMENTS
Purchases and sales of investments, excluding short-term securities, for
the six months ended June 30, 2003 were $49,523,304 and $41,418,683,
respectively.
Net realized gains (losses) for the six months ended June 30, 2003 and net
unrealized losses as of June 30, 2003 were as follows:
<Table>
<Caption>
REALIZED UNREALIZED
GAINS (LOSSES) LOSSES
-------------- -----------
Long-term investments.................................. $(3,150,070) $(8,835,505)
Financial futures contracts............................ 1,158,276 (99,801)
----------- -----------
Total.................................................. $(1,991,794) $(8,935,306)
=========== ===========
</Table>
- --------------------------------------------------------------------------------
72
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
As of June 30, 2003, net unrealized depreciation for Federal income tax
purposes aggregated $12,210,600, of which $25,243,650 related to appreciated
securities and $37,454,250 related to depreciated securities. At June 30, 2003,
the aggregate cost of investments for Federal income tax purposes
was$242,914,356.
4. SHORT-TERM BORROWINGS
The Series, along with certain other funds managed by FAM and its
affiliates, is a party to a $500,000,000 credit agreement with Bank One, N.A.
and certain other lenders. The Series may borrow under the credit agreement to
fund shareholder redemptions and for other lawful purposes other than for
leverage. The Series may borrow up to the maximum amount allowable under the
Fund's current prospectus and statement of additional information, subject to
various other legal, regulatory or contractual limits. The Series pays a
commitment fee of .09% 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 fund's election, the Federal
Funds rate plus .50% or a base rate as determined by Bank One, N.A. On November
29, 2002, the credit agreement was renewed for one year under the same terms,
except that the commitment was reduced from $1,000,000,000 to $500,000,000. The
Series did not borrow under the credit agreement during the six months ended
June 30, 2003.
- --------------------------------------------------------------------------------
73
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
COMMON STOCKS
AUSTRALIA
Beverages - 0.2%
Coca-Cola Amatil Limited...... 15,506 $ 59,379
Foster's Brewing Group
Limited..................... 83,121 234,687
Southcorp Limited............. 8,843 16,724
------------
310,790
------------
Biotechnology - 0.0%
CSL Limited................... 3,407 27,305
------------
Capital Markets - 0.1%
Macquarie Bank Limited........ 10,694 206,552
------------
Chemicals - 0.0%
Orica Limited................. 5,805 42,163
------------
Commercial Banks - 1.7%
Australia and New Zealand
Banking Group Ltd. ......... 50,236 626,989
Commonwealth Bank of
Australia................... 40,816 808,879
National Australia Bank
Limited..................... 45,536 1,023,048
Westpac Banking Corporation
Limited..................... 60,555 659,932
------------
3,118,848
------------
Commercial Services & Supplies - 0.1%
Brambles Industries Limited... 44,098 135,155
------------
Construction Materials - 0.2%
Boral Limited................. 19,286 65,447
CSR Limited................... 36,728 47,785
James Hardie Industries NV.... 8,663 40,901
Rinker Group Limited.......... 36,728 129,070
------------
283,203
------------
Containers & Packaging - 0.1%
Amcor Limited................. 25,946 141,294
------------
Diversified Financial Services - 0.0%
Suncorp-Metway Limited........ 10,318 80,269
------------
Diversified Telecommunication Services - 0.1%
Telstra Corporation Limited... 52,103 153,749
------------
Food & Staples Retailing - 0.3%
Coles Myer Limited............ 28,979 136,043
Woolworths Limited............ 39,044 327,834
------------
463,877
------------
Gas Utilities - 0.1%
Australian Gas Light Company
Limited..................... 20,023 147,041
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Health Care Equipment & Supplies - 0.0%
Cochlear Limited.............. 993 $ 21,510
Pacific Dunlop Limited (a).... 7,344 28,813
------------
50,323
------------
Health Care Providers & Services - 0.0%
Mayne Nickless Limited........ 33,090 60,806
------------
Hotels, Restaurants & Leisure - 0.1%
Aristocrat Leisure Limited.... 77,973 69,549
TABCORP Holdings Limited...... 19,869 143,512
------------
213,061
------------
IT Services - 0.0%
Computershare Limited......... 11,639 14,597
------------
Industrial Conglomerates - 0.1%
Wesfarmers Limited............ 10,979 186,286
------------
Insurance - 0.2%
AMP Limited................... 27,802 92,668
Insurance Australia Group
Limited..................... 24,564 56,011
QBE Insurance Group Limited... 30,223 188,908
------------
337,587
------------
Media - 0.3%
John Fairfax Holdings
Limited..................... 31,318 60,490
The News Corporation Limited.. 52,723 396,017
------------
456,507
------------
Metals & Mining - 0.6%
Alumina Limited............... 42,215 115,228
BHP Billiton Limited.......... 105,585 611,803
BHP Steel Limited............. 27,058 67,505
Newcrest Mining Limited....... 20,996 107,719
OneSteel Limited.............. 23,360 30,079
Rio Tinto Limited............. 4,633 90,759
WMC Resources Limited (a)..... 42,215 99,373
------------
1,122,466
------------
Oil & Gas - 0.1%
Origin Energy Limited......... 1,355 3,680
Santos Limited................ 24,995 98,901
Woodside Petroleum Limited.... 6,460 53,635
------------
156,216
------------
Paper & Forest Products - 0.0%
Paperlinx Limited............. 377 1,158
------------
Real Estate - 0.5%
AMP Diversified Property
Trust....................... 52,807 108,016
Gandel Retail Trust........... 112,770 100,587
General Property Trust........ 62,350 122,100
Lend Lease Corporation
Limited..................... 18,698 104,707
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
74
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Mirvac Group.................. 43,171 $ 128,550
Stockland Trust Group......... 46,236 155,351
Westfield Holdings Limited.... 4,962 48,585
Westfield Trust............... 92,935 215,028
------------
982,924
------------
Transportation Infrastructure - 0.1%
Macquarie Infrastructure
Group....................... 24,317 58,546
Patrick Corporation Limited... 5,500 46,292
------------
104,838
------------
TOTAL COMMON STOCKS IN
AUSTRALIA
(COST - $7,123,884) - 4.9%.. 8,797,015
------------
AUSTRIA
Building Products - 0.0%
Wienerberger Baustoffindustrie
AG.......................... 122 2,144
------------
Construction Materials - 0.0%
RHI AG (a).................... 53 630
------------
Containers & Packaging - 0.1%
Mayr-Melnhof Karton AG........ 911 75,856
------------
Diversified Telecommunication Services - 0.0%
Telekom Austria AG (a)........ 3,644 41,344
------------
Electric Utilities - 0.0%
Oesterreichische
Elektrizitaetswirtschafts-AG
"Verbund" 'A'............... 47 4,330
------------
Machinery - 0.0%
VA Technologie AG (a)......... 458 12,102
------------
Metals & Mining - 0.0%
Boehler-Uddeholm AG........... 390 21,555
------------
Oil & Gas - 0.0%
OMV AG........................ 329 39,526
------------
Transportation Infrastructure - 0.0%
Flughafen Wien AG............. 1,446 52,555
------------
TOTAL COMMON STOCKS IN AUSTRIA
(COST - $199,801) - 0.1%.... 250,042
------------
BELGIUM
Beverages - 0.0%
Interbrew..................... 2,492 55,374
------------
Chemicals - 0.1%
Solvay SA..................... 1,416 97,564
------------
Commercial Banks - 0.2%
Dexia......................... 17,437 220,462
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
KBC Bancassurance Holding..... 2,802 $ 110,012
------------
330,474
------------
Construction & Engineering - 0.0%
Suez Lyonnaise des Eaux SA
(a)......................... 4,785 55
------------
Distributors - 0.0%
D'leteren SA.................. 222 31,816
------------
Diversified Financial Services - 0.4%
Fortis........................ 34,518 599,338
Groupe Bruxelles Lambert SA... 2,091 94,607
------------
693,945
------------
Electric Utilities - 0.1%
Electrabel SA................. 908 231,375
------------
Electrical Equipment - 0.0%
Bekaert NV.................... 1,022 47,766
------------
Electronic Equipment & Instruments - 0.0%
Barco NV (New Shares)......... 520 31,111
------------
Food & Staples Retailing - 0.1%
Colruyt NV.................... 1,048 72,449
Delhaize "Le Lion" SA......... 592 18,015
------------
90,464
------------
Food Products - 0.0%
Delhaize "Le Lion" SA (ADR)
(b)......................... 950 29,127
------------
Leisure Equipment & Products - 0.1%
Agfa Gevaert NV............... 5,023 106,653
------------
Marine - 0.0%
Compagnie Maritime Belge SA
(CMB)....................... 628 24,880
Exmar NV (a).................. 628 21,462
------------
46,342
------------
Metals & Mining - 0.0%
Union Miniere SA.............. 1,057 54,779
------------
Pharmaceuticals - 0.1%
UCB SA........................ 4,104 112,448
------------
TOTAL COMMON STOCKS IN BELGIUM
(COST - $2,134,930) - 1.1%.. 1,959,293
------------
BERMUDA
Specialty Retail - 0.0%
Yue Yuen Industrial (Holdings)
Limited..................... 21,785 55,733
------------
TOTAL COMMON STOCKS IN BERMUDA
(COST - $50,757) - 0.0%..... 55,733
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
75
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
DENMARK
Beverages - 0.0%
Carlsberg A/S 'B'............. 285 $ 10,197
------------
Chemicals - 0.0%
Novozymes A/S 'B'............. 2,267 63,069
------------
Commercial Banks - 0.2%
Danske Bank................... 14,837 288,939
------------
Commercial Services & Supplies - 0.0%
Group 4 Falck A/S............. 2,132 35,423
ISS A/S....................... 527 18,815
------------
54,238
------------
Construction & Engineering - 0.0%
FLS Industries A/S 'B' (a).... 1,417 11,826
------------
Diversified Telecommunication Services - 0.1%
TDC A/S....................... 3,905 116,786
------------
Electrical Equipment - 0.0%
NKT Holding A/S............... 820 11,343
Vestas Wind Systems A/S....... 3,906 44,674
------------
56,017
------------
Food Products - 0.1%
A/S Det Ostasiatiske
Kompagni.................... 555 15,183
Danisco A/S................... 2,482 97,245
------------
112,428
------------
Health Care Equipment & Supplies - 0.0%
Coloplast A/S 'B'............. 93 7,187
William Demant A/S (a)........ 1,530 34,998
------------
42,185
------------
Household Durables - 0.0%
Bang & Olufsen Holding A/S
'B'......................... 464 12,622
------------
Insurance - 0.0%
Topdanmark A/S (a)............ 907 33,153
------------
Marine - 0.2%
A/S Dampskibsselskabet
Svendborg 'B'............... 47 254,246
------------
Pharmaceuticals - 0.2%
H. Lundbeck A/S............... 502 10,164
Novo Nordisk A/S 'B'.......... 10,122 354,343
------------
364,507
------------
TOTAL COMMON STOCKS IN DENMARK
(COST - $1,300,341) - 0.8%.. 1,420,213
------------
FINLAND
Communications Equipment - 1.3%
Nokia Oyj 'A' (ADR) (b)....... 1,270 20,866
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Nokia Oyj (Series A).......... 134,008 $ 2,206,754
------------
2,227,620
------------
Diversified Telecommunication Services - 0.1%
HPY Holding - HTF Holding Oyj
Abp (a)..................... 4,700 40,371
TeliaSonera AB................ 36,201 148,826
------------
189,197
------------
Health Care Equipment & Supplies - 0.1%
Instrumentarium Corporation... 3,019 114,753
------------
IT Services - 0.0%
Tietoenator Oyj............... 3,005 50,589
------------
Insurance - 0.1%
Pohjola Group PLC 'D'......... 2,198 37,634
Sampo Insurance Company Ltd.
'A'......................... 11,884 87,204
------------
124,838
------------
Leisure Equipment & Products - 0.0%
Amer Group Ltd. .............. 1,968 60,160
------------
Machinery - 0.0%
Kone Corporation 'B'.......... 201 8,425
Metso Oyj..................... 4,366 38,856
Wartsila Oyj 'B'.............. 154 1,913
------------
49,194
------------
Metals & Mining - 0.0%
Outokumpu Oyj................. 447 3,927
Rautaruukki Oyj (a)........... 3,289 14,163
------------
18,090
------------
Oil & Gas - 0.1%
Fortum Corporation, the IVO-
Neste Group................. 10,540 84,483
------------
Paper & Forest Products - 0.2%
Stora Enso Oyj 'R'............ 22,459 250,944
UPM-Kymmene Oyj............... 14,736 215,080
------------
466,024
------------
TOTAL COMMON STOCKS IN FINLAND
(COST - $3,550,276) - 1.9%.. 3,384,948
------------
FRANCE
Aerospace & Defense - 0.1%
European Aeronautic Defense
and Space Company........... 4,658 57,127
Thomson CSF................... 5,228 155,192
------------
212,319
------------
Auto Components - 0.2%
Compagnie Generale des
Etablissements Michelin
'B'......................... 3,065 119,670
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
76
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Valeo SA...................... 3,198 $ 110,907
------------
230,577
------------
Automobiles - 0.3%
PSA Peugeot Citroen........... 6,516 316,516
Renault SA.................... 5,151 272,333
------------
588,849
------------
Beverages - 0.1%
Pernod Ricard................. 2,180 194,514
------------
Building Products - 0.2%
Compagnie de Saint-Gobain..... 7,976 313,887
Lafarge SA (Rights) (e)....... 5,015 13,534
------------
327,421
------------
Chemicals - 0.2%
Air Liquide................... 2,984 442,384
------------
Commercial Banks - 1.1%
BNP Paribas SA................ 24,727 1,256,489
Credit Agricole S.A. ......... 10,307 195,886
Societe Generale 'A'.......... 7,748 491,137
------------
1,943,512
------------
Commercial Services & Supplies - 0.0%
Societe BIC SA................ 1,954 76,067
------------
Communications Equipment - 0.2%
Alcatel (a)................... 38,404 346,195
Sagem SA (New Shares)......... 550 44,211
------------
390,406
------------
Construction & Engineering - 0.1%
Societe Generale d'Entreprises
SA.......................... 1,886 127,240
------------
Construction Materials - 0.2%
Imetal SA..................... 298 43,392
Lafarge SA (Ordinary)......... 5,016 293,751
------------
337,143
------------
Diversified Telecommunication Services - 0.3%
France Telecom SA (a)......... 22,097 542,012
------------
Electrical Equipment - 0.2%
Alstom (a).................... 13,495 46,491
Schneider SA.................. 5,791 272,255
------------
318,746
------------
Energy Equipment & Service - 0.0%
Compagnie Francaise d'Etudes
et de Construction (Technip
SA)......................... 733 64,141
------------
Food & Staples Retailing - 0.5%
Carrefour SA.................. 16,918 829,178
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Etablissements Economiques du
Casino Guichard-Perrachon
SA.......................... 1,789 $ 139,699
------------
968,877
------------
Food Products - 0.3%
Groupe Danone................. 3,584 495,940
------------
Health Care Equipment & Supplies - 0.1%
Essilor International SA...... 2,316 93,298
------------
Hotels, Restaurants & Leisure - 0.2%
Accor SA...................... 5,124 185,351
Sodexho Alliance SA........... 3,743 101,009
------------
286,360
------------
Household Durables - 0.1%
Thomson Multimedia............ 6,869 105,936
------------
IT Services - 0.0%
Cap Gemini SA (a)............. 2,001 71,049
------------
Insurance - 0.3%
Axa........................... 41,163 638,611
------------
Internet Software & Services - 0.1%
Wanadoo (a)................... 12,500 83,686
------------
Media - 0.5%
Lagardere S.C.A. ............. 3,917 170,253
Publicis SA................... 3,608 96,828
Societe Television Francaise
1........................... 5,565 171,267
Vivendi Universal SA (a)...... 18,089 329,244
Vivendi Universal SA (ADR) (a)
(b)......................... 6,053 111,617
------------
879,209
------------
Metals & Mining - 0.1%
Arcelor....................... 10,996 128,040
Pechiney SA 'A'............... 1,951 70,036
------------
198,076
------------
Multi-Utilities & Unregulated Power - 0.3%
Suez SA....................... 24,765 394,163
Vivendi Environment........... 6,928 142,408
------------
536,571
------------
Multiline Retail - 0.1%
Pinault-Printemps-Redoute SA.. 2,228 167,839
------------
Oil & Gas - 1.6%
TotalFinaElf SA............... 18,208 2,751,644
TotalFinaElf SA 'B'........... 939 142,120
TotalFinaElf SA 'STRIP' (a)... 4,140 48
------------
2,893,812
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
77
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Personal Products - 0.4%
L'Oreal SA.................... 10,798 $ 761,353
------------
Pharmaceuticals - 1.0%
Aventis SA.................... 20,554 1,130,828
Sanofi-Synthelabo SA.......... 11,420 668,822
------------
1,799,650
------------
Real Estate - 0.1%
Klepierre..................... 2,142 105,770
Unibail (Union du Credit-Bail
Immobilier)................. 113 8,370
------------
114,140
------------
Semiconductors & Semiconductor Equipment - 0.2%
STMicroelectronics NV......... 17,662 370,352
------------
Software - 0.0%
Business Objects SA (a)....... 718 16,012
Dassault Systemes SA.......... 1,856 60,956
------------
76,968
------------
Textiles, Apparel & Luxury Goods - 0.2%
LVMH (Louis Vuitton Moet
Hennessy)................... 6,541 324,415
------------
Wireless Telecommunication Services - 0.1%
Bouygues SA................... 6,902 190,539
------------
TOTAL COMMON STOCKS IN FRANCE
(COST - $16,036,544) - 9.4%.. 16,852,012
------------
GERMANY
Air Freight & Logistics - 0.1%
Deutsche Post AG (Registered
Shares)..................... 16,358 240,256
------------
Airlines - 0.0%
Deutsche Lufthansa AG
(Registered Shares)......... 5,765 67,526
------------
Auto Components - 0.1%
Continental AG................ 4,191 87,977
------------
Automobiles - 0.6%
DaimlerChrysler AG............ 25,764 899,417
Volkswagen AG................. 5,122 216,511
------------
1,115,928
------------
Biotechnology - 0.0%
QIAGEN NV (a)................. 4,938 41,679
------------
Building Products - 0.0%
Buderus AG.................... 2,231 74,297
------------
Capital Markets - 0.6%
Deutsche Bank AG (Registered
Shares)..................... 16,030 1,039,686
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Marschollek, Lautenschlaeger
und Partner AG (a).......... 3,609 $ 53,877
------------
1,093,563
------------
Chemicals - 0.8%
BASF AG....................... 15,058 643,257
Bayer AG...................... 22,263 515,916
Linde AG...................... 3,341 123,693
------------
1,282,866
------------
Commercial Banks - 0.2%
Bayerische Hypo- und
Vereinsbank AG (a).......... 13,994 231,247
Commerzbank AG................ 8,210 114,832
------------
346,079
------------
Construction Materials - 0.0%
Heidelberger Zement AG (a).... 51 1,136
Heidelberger Zement AG (a).... 1,346 15
Heidelberger Zement AG........ 1,778 39,711
------------
40,862
------------
Diversified Financial Services - 0.1%
Deutsche Boerse AG............ 1,833 97,100
------------
Diversified Telecommunication Services - 0.5%
Deutsche Telekom AG
(Registered Shares) (a)..... 58,330 890,207
------------
Electric Utilities - 0.5%
E.On AG....................... 16,212 833,485
------------
Electronic Equipment & Instruments - 0.0%
Epcos AG (a).................. 2,386 30,742
------------
Food & Staples Retailing - 0.1%
Douglas Holding AG............ 1,160 25,043
Metro AG...................... 1,873 60,547
------------
85,590
------------
Health Care Providers & Services - 0.1%
Fresenius Medical Care AG..... 1,880 93,048
Gehe AG....................... 1,654 64,996
------------
158,044
------------
Hotels, Restaurants & Leisure - 0.0%
Preussag AG................... 4,174 62,072
------------
Industrial Conglomerates - 0.6%
Siemens AG.................... 22,354 1,096,631
Siemens AG (ADR) (b).......... 860 42,011
------------
1,138,642
------------
Insurance - 0.5%
Allianz AG (Registered
Shares)..................... 7,265 603,849
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
78
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered
Shares)..................... 3,140 $ 320,124
------------
923,973
------------
Machinery - 0.0%
MAN AG........................ 3,990 67,446
------------
Metals & Mining - 0.1%
Thyssen Krupp AG.............. 9,157 105,575
------------
Multi-Utilities & Unregulated Power - 0.2%
RWE AG........................ 11,991 362,010
------------
Multiline Retail - 0.0%
Karstadt AG................... 1,640 35,105
------------
Personal Products - 0.1%
Beiersdorf AG................. 1,419 189,675
------------
Pharmaceuticals - 0.2%
Altana AG..................... 977 61,639
Merck KGaA.................... 2,378 69,089
Schering AG................... 4,520 221,013
------------
351,741
------------
Semiconductors & Semiconductor Equipment - 0.1%
Infineon Technologies AG (a).. 10,701 103,469
------------
Software - 0.4%
SAP AG (Systeme, Anwendungen,
Produkte in der
Datenverarbeitung).......... 6,154 725,775
------------
Textiles, Apparel & Luxury Goods - 0.1%
Adidas-Salomon AG............. 1,302 111,344
------------
TOTAL COMMON STOCKS IN GERMANY
(COST - $12,011,917) - 6.0%.. 10,663,028
------------
GREECE
Beverages - 0.1%
Hellenic Bottling Co. ........ 3,612 59,646
------------
Commercial Banks - 0.2%
Alpha Credit Bank............. 7,965 138,845
Bank of Piraeus............... 1,959 14,892
Commercial Bank of Greece..... 1,938 33,872
EFG Eurobank Ergasias......... 4,179 62,962
National Bank of Greece SA.... 4,068 68,761
------------
319,332
------------
Communications Equipment - 0.0%
Intracom SA................... 8,070 53,564
------------
Construction Materials - 0.0%
Titan Cement Company.......... 1,341 48,508
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Diversified Telecommunication Services - 0.1%
Hellenic Telecommunications
Organization SA (OTE)....... 14,796 $ 174,667
------------
Hotels, Restaurants & Leisure - 0.0%
Greek Organization of Football
Prognostics................. 2,510 25,595
------------
Metals & Mining - 0.0%
Viohalco, Hellenic Copper and
Aluminum Industry SA........ 4,057 20,219
------------
Wireless Telecommunication Services - 0.0%
Panafon Hellenic Telecom
Co. ........................ 4,650 30,971
------------
TOTAL COMMON STOCKS IN GREECE
(COST - $809,855) - 0.4%.... ......... 732,502
------------
HONG KONG
Airlines - 0.0%
Cathay Pacific Airways........ 51,263 69,024
------------
Commercial Banks - 0.3%
BOC Hong Kong (Holdings)
Limited..................... 91,000 91,605
Bank of East Asia, Ltd. ...... 34,339 67,814
Hang Seng Bank Limited........ 28,153 297,843
------------
457,262
------------
Distributors - 0.0%
Li & Fung Limited............. 56,719 73,098
------------
Diversified Financial Services - 0.2%
Hong Kong Exchanges & Clearing
Ltd. ....................... 42,000 60,322
Swire Pacific Limited 'A'..... 41,077 179,623
Wharf (Holdings) Ltd. ........ 36,107 69,453
------------
309,398
------------
Diversified Telecommunication Services - 0.0%
PCCW Limited (a).............. 34,195 21,158
------------
Electric Utilities - 0.3%
CLP Holdings Limited.......... 67,187 293,797
Hongkong Electric Holdings
Limited..................... 55,500 217,782
------------
511,579
------------
Electrical Equipment - 0.1%
ASM Pacific Technology
Limited..................... 5,004 14,631
Johnson Electric Holdings
Limited..................... 52,828 65,373
------------
80,004
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
79
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Gas Utilities - 0.1%
Hong Kong and China Gas
Company Ltd. ............... 102,240 $ 129,141
------------
Hotels, Restaurants & Leisure - 0.0%
Shangri-La Asia Limited....... 24,734 15,700
------------
Industrial Conglomerates - 0.2%
Hutchison Whampoa Limited..... 64,989 395,860
------------
Media - 0.0%
South China Morning Post
Holdings Ltd. .............. 34,025 13,417
Television Broadcasts Ltd. ... 5,646 20,236
------------
33,653
------------
Real Estate - 0.3%
Cheung Kong (Holdings) Ltd. .. 38,735 232,962
Henderson Land Development
Company Limited............. 28,491 81,840
New World Development Company
Ltd. ....................... 57,637 22,358
Sino Land Company Limited..... 48,421 15,058
Sun Hung Kai Properties
Ltd. ....................... 42,324 213,841
------------
566,059
------------
Specialty Retail - 0.0%
Esprit Holdings Limited....... 16,000 39,086
------------
TOTAL COMMON STOCKS IN HONG
KONG
(COST - $3,498,502) - 1.5%.. 2,701,022
------------
IRELAND
Airlines - .01%
Ryanair Holdings PLC (a)...... 27,680 199,300
------------
Commercial Banks - 0.5%
Allied Irish Banks PLC........ 32,040 486,405
Bank of Ireland............... 26,151 315,620
------------
802,025
------------
Construction Materials - 0.1%
CRH PLC....................... 936 14,736
CRH PLC....................... 14,200 221,769
------------
236,505
------------
Food Products - 0.1%
Greencore Group PLC........... 16,409 54,645
Kerry Group PLC 'A'........... 4,710 72,801
------------
127,446
------------
Household Durables - 0.0%
Waterford Wedgwood PLC........ 25,516 7,032
------------
Industrial Conglomerates - 0.0%
DCC PLC....................... 3,189 42,846
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Insurance - 0.1%
Irish Life & Permanent PLC.... 11,194 $ 121,733
------------
Media - 0.0%
Independent News & Media
PLC......................... 21,817 38,833
------------
Pharmaceuticals - 0.0%
Elan Corporation PLC (a)...... 4,431 22,898
Elan Corporation PLC (ADR) (a)
(b)......................... 5,755 32,458
------------
55,356
------------
TOTAL COMMON STOCKS IN IRELAND
(COST - $1,757,813) - 0.9%.. 1,631,076
------------
ITALY
Aerospace & Defense - 0.0%
Finmeccanica SpA.............. 97,905 62,735
------------
Automobiles - 0.0%
Fiat SpA (a).................. 5,647 41,061
------------
Capital Markets - 0.2%
Banca Fideuram SpA............ 1,700 9,285
Mediobanca SpA................ 20,672 206,289
Mediolanum SpA................ 10,572 59,075
------------
274,649
------------
Commercial Banks - 0.9%
Banca Intesa SpA.............. 13,658 31,400
Banca Nazionale del Lavoro
(Ordinary) (a).............. 80,547 135,229
Banca Popolare di Milano
(BPM)....................... 13,422 58,801
Banca di Roma SpA (a)......... 81,420 143,520
Banca Popolare di Verona e
Novara Scrl................. 7,339 100,290
Intesa BCI SpA................ 117,406 375,482
San Paolo-IMI SpA............. 21,941 203,911
Unicredito Italiano SpA....... 96,070 457,836
------------
1,506,469
------------
Construction Materials - 0.0%
Italcementi SpA............... 5,565 63,164
------------
Diversified Financial Services - 0.0%
Fineco Group SpA (a).......... 48,440 26,011
------------
Diversified Telecommunication Services - 0.5%
Telecom Italia SpA............ 69,689 630,855
Telecom Italia SpA (Registered
Shares)..................... 55,725 305,241
------------
936,096
------------
Electric Utilities - 0.3%
Enel SpA...................... 71,623 446,937
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
80
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Electrical Equipment - 0.1%
Pirelli SpA (a)............... 74,074 $ 75,025
------------
Food Products - 0.0%
Parmalat Finanziaria SpA...... 22,512 70,808
------------
Gas Utilities - 0.0%
Snam Rete Gas SpA............. 11,664 45,809
------------
Health Care Equipment & Supplies - 0.0%
Snia SpA...................... 26,845 52,715
------------
Hotels, Restaurants & Leisure - 0.0%
Autogrill SpA (a)............. 4,473 48,797
------------
Insurance - 0.6%
Alleanza Assicurazioni........ 13,965 132,784
Assicurazioni Generali........ 28,636 663,602
Riunione Adriatica di Sicurta
SpA......................... 13,239 200,832
------------
997,218
------------
Internet Software & Services - 0.0%
Tiscali SpA (a)............... 9,266 47,446
------------
Media - 0.2%
Gruppo Editoriale L'Espresso
SpA......................... 15,754 62,450
Mediaset SpA.................. 11,887 100,604
Mondadori (Arnoldo) Editore
SpA......................... 5,198 37,725
Seat Pagine Gialle SpA (a).... 104,262 72,436
------------
273,215
------------
Oil & Gas - 0.6%
ENI SpA....................... 62,764 949,372
ENI SpA (ADR) (b)............. 1,875 142,575
------------
1,091,947
------------
Textiles, Apparel & Luxury Goods - 0.1%
Benetton Group SpA............ 5,296 54,978
Bulgari SpA................... 4,032 22,368
Luxottica Group SpA........... 1,412 19,333
------------
96,679
------------
Wireless Telecommunication Services - 0.3%
Telecom Italia Mobile (TIM)
SpA......................... 115,617 569,711
------------
TOTAL COMMON STOCKS IN ITALY
(COST - $6,623,487) - 3.8%.. 6,726,492
------------
JAPAN
Air Freight & Logistics - 0.1%
Yamato Transport Co., Ltd. ... 19,000 210,294
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Airlines - 0.0%
Japan Airlines System
Corporation................. 28,000 $ 61,095
------------
Auto Components - 0.4%
Bridgestone Corp. ............ 17,000 230,772
Denso Corporation............. 17,600 278,932
NGK Spark Plug Co., Ltd. ..... 9,000 63,111
Sanden Corporation............ 20,000 95,107
------------
667,922
------------
Automobiles - 2.0%
Honda Motor Co., Ltd. ........ 22,400 848,803
Nissan Motor Co., Ltd. ....... 71,000 678,809
Toyota Motor Corporation...... 81,300 2,105,709
------------
3,633,321
------------
Beverages - 0.3%
Asahi Breweries Limited....... 20,000 120,758
Kirin Brewery Company, Ltd. .. 23,000 161,666
Sapporo Breweries Limited..... 43,000 106,000
Takara Shuzo Co., Ltd. ....... 8,000 43,173
------------
431,597
------------
Building Products - 0.4%
Asahi Glass Company, Limited.. 15,000 93,067
Daikin Industries, Ltd. ...... 8,000 146,908
Nippon Sheet Glass Company,
Ltd. ....................... 23,000 68,957
Tostem Corporation............ 9,000 129,669
Toto Limited.................. 16,000 95,007
------------
533,608
------------
Capital Markets - 0.6%
Daiwa Securities Group
Inc. ....................... 39,000 224,110
The Nikko Securities Co.,
Ltd. ....................... 28,000 112,396
The Nomura Securities Co.,
Ltd. ....................... 53,000 672,680
------------
1,009,186
------------
Chemicals - 1.0%
Asahi Chemical Industry Co.,
Ltd. ....................... 43,000 122,832
Daicel Chemical Industries,
Ltd. ....................... 3,000 9,519
Dainippon Ink and Chemicals,
Inc. ....................... 30,000 60,712
Denki Kagaku Kogyo Kabushiki
Kaisha...................... 3,000 8,320
Ishihara Sangyo Kaisha,
Ltd. ....................... 11,000 18,597
Kaneka Corporation............ 13,000 80,117
Kuraray Co., Ltd. ............ 8,000 52,501
Mitsubishi Chemical
Corporation................. 45,000 91,818
Mitsubishi Gas Chemical
Company, Inc. .............. 18,000 38,076
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
81
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Mitsui Chemicals Inc. ........ 5,000 $ 23,111
Nissan Chemical Industries,
Ltd. ....................... 16,000 85,547
Nitto Denko Corporation....... 5,800 189,831
Shin-Etsu Chemical Co.,
Ltd. ....................... 10,600 361,940
Showa Denko K.K. (a).......... 58,000 100,954
Sumitomo Chemical Co., Ltd. .. 32,000 100,471
Teijin Limited................ 22,000 54,966
Toray Industries, Inc. ....... 37,000 85,971
Tosoh Corporation............. 3,000 6,696
Ube Industries, Ltd. ......... 13,000 19,163
------------
1,511,142
------------
Commercial Banks - 0.9%
The 77 Bank, Ltd. ............ 12,000 54,466
The Bank of Fukuoka, Ltd. .... 5,000 19,196
The Bank of Yokohama, Ltd. ... 26,000 84,880
The Chiba Bank, Ltd. ......... 2,000 7,096
Daiwa Bank Holdings, Inc.
(a)......................... 152,000 105,068
The Gunma Bank Ltd. .......... 13,000 59,113
The Hokuriku Bank, Ltd. ...... 5,000 7,662
The Joyo Bank, Ltd. .......... 23,000 64,168
Mitsubishi Tokyo Financial
Group, Inc. ................ 104 470,306
Mitsui Trust Holdings,
Inc. ....................... 22,000 48,370
Mizuho Financial Group,
Inc. ....................... 130 102,744
The Shizuoka Bank, Ltd. ...... 18,000 120,675
Sumitomo Mitsui Financial
Group, Inc. ................ 71 154,920
The Sumitomo Trust and Banking
Co., Ltd. .................. 16,000 55,299
UFJ Holdings, Inc. ........... 98 143,644
------------
1,497,607
------------
Commercial Services & Supplies - 0.3%
Benesse Corporation........... 2,000 34,478
Dai Nippon Printing Co.,
Ltd. ....................... 24,000 253,841
Kokuyo Co., Ltd. ............. 5,000 47,637
Meitec Corp. ................. 500 15,199
Secom Co., Ltd. .............. 7,500 219,863
Toppan Printing Co., Ltd. .... 14,000 100,271
------------
671,289
------------
Computers & Peripherals - 0.4%
Fujitsu Limited (a)........... 40,000 163,898
Mitsumi Electric Company,
Ltd. ....................... 6,000 62,011
NEC Corporation (a)........... 42,000 209,869
Oracle Corporation Japan...... 400 14,391
Toshiba Corporation........... 79,000 271,722
------------
721,891
------------
Construction & Engineering - 0.1%
JGC Corporation............... 15,000 100,937
Kajima Corporation............ 29,000 68,832
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Kinden Corporation............ 9,000 $ 30,206
Nippon COMSYS Corporation..... 15,000 76,452
Obayashi Corporation.......... 25,000 76,619
Shimizu Corporation........... 16,000 44,372
Taisei Corporation............ 27,000 53,067
Toda Corporation.............. 3,000 6,446
------------
456,931
------------
Construction Materials - 0.0%
Sumitomo Osaka Cement Co.,
Ltd. ....................... 2,000 3,931
Taiheiyo Cement Corporation... 10,000 17,156
------------
21,087
------------
Consumer Finance - 0.4%
Acom Co., Ltd. ............... 2,100 75,903
Aiful Corporation............. 650 27,716
Credit Saison Co., Ltd. ...... 6,500 106,588
Orix Corporation.............. 3,200 176,956
Promise Co., Ltd. ............ 2,200 82,265
Takefuji Corporation.......... 3,020 156,690
------------
626,118
------------
Containers & Packaging - 0.0%
Toyo Seikan Kaisha, Ltd. ..... 5,000 46,762
------------
Diversified Telecommunication Services - 0.4%
Nippon Telegraph & Telephone
Corporation (NTT)........... 163 639,375
------------
Electric Utilities - 0.9%
Chubu Electric Power Company,
Incorporated................ 22,000 401,249
Kansai Electric Power Company,
Inc. ....................... 23,500 370,677
Kyushu Electric Power Company,
Incorporated................ 7,100 110,513
Tohoku Electric Power Co.,
Inc. ....................... 16,900 249,964
Tokyo Electric Power.......... 31,900 609,706
------------
1,742,109
------------
Electrical Equipment - 0.3%
Fujikura Ltd. (a)............. 16,000 52,767
The Furukawa Electric Co.,
Ltd. ....................... 35,000 114,262
Matsushita Electric Works,
Ltd. ....................... 4,000 23,685
Mitsubishi Electric
Corporation................. 49,000 159,151
Sumitomo Electric
Industries.................. 14,000 102,253
------------
452,118
------------
Electronic Equipment & Instruments - 1.1%
Alps Electric Co., Ltd. ...... 8,000 102,469
Anritsu Corp. (a)............. 8,000 43,639
Citizen Watch Co. ............ 13,000 69,831
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
82
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Dainippon Screen Mfg. Co.,
Ltd. (a).................... 8,000 $ 39,176
Hirose Electric Co., Ltd. .... 900 74,428
Hitachi Ltd. ................. 87,000 368,795
Hoya Corporation.............. 2,400 165,297
Keyence Corporation........... 1,300 238,184
Kyocera Corporation........... 4,200 240,300
Mabuchi Motor Co., Ltd. ...... 200 15,290
Murata Manufacturing Co.,
Ltd. ....................... 6,800 267,300
Nidec Corporation............. 1,800 118,876
Omron Corporation............. 8,000 134,916
TDK Corporation............... 2,100 103,710
Taiyo Yuden Co., Ltd. ........ 6,000 58,463
Yokogawa Electric
Corporation................. 8,000 61,761
------------
2,102,435
------------
Food & Staples Retailing - 0.3%
Ito-Yokado Co., Ltd. ......... 9,000 215,490
JUSCO Co., Ltd. .............. 9,000 206,121
Keio Electric Railway Co.,
Ltd. ....................... 2,000 9,128
Lawson Inc. .................. 1,000 27,483
Seven-Eleven Japan Co.,
Ltd. ....................... 10,000 249,011
Uny Co., Ltd. ................ 4,000 34,445
------------
741,678
------------
Food Products - 0.2%
Ajinomoto Co., Inc. .......... 22,000 210,702
Nichirei Corporation.......... 1,000 3,489
Nippon Meat Packers, Inc. .... 10,000 94,441
Nissin Food Products Co.,
Ltd. ....................... 2,800 58,413
Snow Brand Milk Products Co.,
Ltd. (a).................... 500 1,253
Yakult Honsha Co., Ltd. ...... 2,000 26,817
Yamazaki Baking Co., Ltd. .... 7,000 44,597
------------
439,712
------------
Gas Utilities - 0.2%
Osaka Gas Co. ................ 54,000 133,567
Tokyo Gas Co. ................ 56,000 160,899
------------
294,466
------------
Health Care Equipment & Supplies - 0.2%
Olympus Optical Co., Ltd. .... 9,000 186,259
Terumo Corporation............ 7,600 126,271
------------
312,530
------------
Hotels, Restaurants & Leisure - 0.0%
Oriental Land Co., Ltd........ 1,700 74,470
Skylark Co., Ltd. ............ 2,000 23,735
------------
98,205
------------
Household Durables - 1.4%
Casio Computer Co., Ltd. ..... 11,000 70,264
Daito Trust Construction Co.,
Ltd. ....................... 2,000 42,057
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Daiwa House Industry Co.,
Ltd. ....................... 15,000 $ 103,186
Matsushita Electric Industrial
Company, Ltd. .............. 60,000 594,129
Pioneer Corporation........... 6,800 152,904
Sanyo Electric Co., Ltd. ..... 56,000 191,680
Sekisui Chemical Co., Ltd. ... 25,000 84,531
Sekisui House, Ltd. .......... 12,000 90,943
Sharp Corporation............. 32,000 410,677
Sony Corporation.............. 23,700 667,133
------------
2,407,504
------------
Household Products - 0.2%
Kao Corporation............... 17,000 316,427
Uni-Charm Corporation......... 400 17,289
------------
333,716
------------
IT Services - 0.2%
CSK Corporation............... 3,200 87,146
NTT Data Corporation.......... 30 92,442
Toyo Information Systems Co.,
Ltd. ....................... 400 7,662
------------
187,250
------------
Insurance - 0.4%
Millea Holdings, Inc. ........ 44 336,390
Mitsui Marine and Fire
Insurance Company, Ltd. .... 38,000 176,273
The Yasuda Fire & Marine
Insurance Co. Ltd. ......... 17,000 92,734
------------
605,397
------------
Internet Software & Services - 0.1%
Softbank Corp. ............... 10,100 191,360
------------
Leisure Equipment & Products - 0.4%
Fuji Photo Film............... 11,000 317,885
Konica Corporation............ 16,000 182,153
Shimano Inc. ................. 3,500 55,032
Yamaha Corporation............ 6,000 82,249
------------
637,319
------------
Machinery - 0.6%
Amada Co., Ltd. .............. 5,000 16,073
Ebara Corporation............. 13,000 45,688
Fanuc Ltd. ................... 2,100 104,060
Ishikawajima-Harima Heavy
Industries Co., Ltd. ....... 27,000 30,356
Kawasaki Heavy Industries
Ltd. ....................... 61,000 62,486
Komatsu Ltd. ................. 25,000 95,773
Koyo Seiko Co. ............... 12,000 85,846
Kubota Corporation............ 39,000 105,884
Kurita Water Industries
Ltd. ....................... 3,000 33,204
Minebea Company Ltd. ......... 17,000 67,391
Mitsubishi Heavy Industries,
Ltd. ....................... 72,000 186,483
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
83
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Mitsui Engineering &
Shipbuilding Co., Ltd. ..... 15,000 $ 18,863
NGK Insulators, Ltd. ......... 13,000 72,105
NSK Limited................... 14,000 44,539
NTN Corporation............... 3,000 11,093
SMC Corporation............... 2,200 185,234
Sumitomo Heavy Industries,
Ltd. (a).................... 30,000 44,472
Takuma Co., Ltd. ............. 8,000 38,909
------------
1,248,459
------------
Marine - 0.1%
Kawasaki Kisen Kaisha,
Ltd. ....................... 2,000 4,830
Nippon Yusen Kabushiki
Kaisha...................... 46,000 179,288
------------
184,118
------------
Media - 0.0%
Asatsu-Dk Inc. ............... 600 10,743
Dentsu Inc. .................. 9 28,032
Fuji Television Network,
Incorporated................ 13 45,905
Toho Co., Ltd. ............... 5,000 43,889
Tokyo Broadcasting System,
Inc. ....................... 4,000 48,736
------------
177,305
------------
Metals & Mining - 0.3%
Dowa Mining Co., Ltd. ........ 4,000 15,357
JFE Holdings, Inc. ........... 9,100 136,415
Mitsubishi Materials
Corporation................. 35,000 44,889
Mitsui Mining & Smelting Co.,
Ltd. ....................... 20,000 59,130
Nippon Steel Corporation...... 198,000 272,080
Sumitomo Metal Industries,
Ltd. ....................... 107,000 73,962
Sumitomo Metal Mining Co. .... 19,000 72,788
------------
674,621
------------
Multiline Retail - 0.1%
The Daimaru, Inc. ............ 9,000 36,127
Hankyu Department Stores,
Inc. ....................... 6,000 34,928
Isetan Company Ltd. .......... 8,000 53,900
Marui Co., Ltd. .............. 6,000 53,317
Mitsukoshi, Ltd. ............. 16,000 42,107
Takashimaya Co., Ltd. ........ 19,000 94,466
------------
314,845
------------
Office Electronics - 0.8%
Canon, Inc. .................. 23,000 1,055,424
Ricoh Co., Ltd. .............. 21,000 343,136
------------
1,398,560
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Oil & Gas - 0.1%
Nippon Mining Holdings,
Inc. ....................... 33,500 $ 72,538
Nippon Mitsubishi Oil
Corp. ...................... 54,000 234,304
Showa Shell Sekiyu K.K........ 6,000 43,073
------------
349,915
------------
Paper & Forest Products - 0.2%
Nippon Unipac Holding......... 22 85,930
Oji Paper Co., Ltd. .......... 27,000 118,051
------------
203,981
------------
Personal Products - 0.1%
Kanebo, Ltd. (a).............. 7,000 8,278
Shiseido Company, Limited..... 15,000 145,784
------------
154,062
------------
Pharmaceuticals - 1.2%
Chugai Pharmaceutical Co.,
Ltd. ....................... 8,900 101,100
Daiichi Pharmaceutical Co.,
Ltd. ....................... 8,000 104,202
Eisai Company, Ltd. .......... 6,000 123,423
Fujisawa Pharmaceutical Co.,
Ltd. ....................... 10,000 187,383
Kaken Pharmaceutical Co.,
Ltd. ....................... 8,000 42,907
Kyowa Hakko Kogyo Co., Ltd. .. 7,000 37,776
Sankyo Company, Ltd. ......... 13,000 155,253
Shionogi & Co., Ltd. ......... 8,000 108,399
Taisho Pharmaceutical Company,
Ltd. ....................... 4,000 57,764
Takeda Chemical Industries,
Ltd. ....................... 23,000 848,553
Yamanouchi Pharmaceutical Co.,
Ltd. ....................... 6,000 156,402
------------
1,923,162
------------
Real Estate - 0.4%
Japan Real Estate Investment
Corporation................. 21 113,329
Mitsubishi Estate Company,
Limited..................... 19,000 128,645
Mitsui Fudosan Co., Ltd. ..... 23,000 146,917
Office Building Fund of Japan
Incorporated................ 22 120,375
Sumitomo Realty & Development
Co., Ltd. .................. 17,000 75,603
------------
584,869
------------
Road & Rail - 0.7%
Central Japan Railway
Company..................... 31 222,028
East Japan Railway Company.... 92 409,144
Keihin Electric Express
Railway Co., Ltd. .......... 15,000 73,329
Kinki Nippon Railway Co.,
Ltd. ....................... 39,000 101,337
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
84
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Nippon Express Co., Ltd. ..... 37,000 $ 143,594
Seino Transportation Co.,
Ltd. ....................... 13,000 74,379
Tobu Railway Co., Ltd. ....... 6,000 17,039
Tokyu Corporation............. 33,000 106,359
West Japan Railway Company.... 46 174,308
------------
1,321,517
------------
Semiconductors & Semiconductor Equipment - 0.5%
Advantest Corporation......... 2,000 88,611
Nikon Corporation............. 10,000 82,365
Rohm Company Ltd. ............ 2,800 305,243
Tokyo Electron Limited........ 4,400 208,503
------------
684,722
------------
Software - 0.1%
Konami Co., Ltd. ............. 2,600 46,554
Namco Ltd. ................... 3,100 49,466
Nintendo Company Ltd. ........ 2,600 189,032
Sega Enterprises Ltd. (a)..... 4,800 34,099
Trend Micro Incorporated (a).. 4,000 62,128
------------
381,279
------------
Specialty Retail - 0.0%
Aoyamma Trading Co., Ltd. .... 2,800 37,310
Autobacs Seven Co., Ltd. ..... 1,300 24,306
Fast Retailing Co., Ltd. ..... 1,000 30,897
Shimamura Co., Ltd. .......... 600 33,129
Yamada Denki Co. Ltd. ........ 600 13,242
------------
138,884
------------
Textiles, Apparel & Luxury Goods - 0.0%
Nisshinbo Industries Inc. .... 1,000 4,580
Onward Kashiyama Co., Ltd. ... 4,000 32,313
Toyobo Co., Ltd. ............. 2,000 3,481
Wacoal Corp. ................. 5,000 38,934
World Co., Ltd. .............. 1,600 30,314
------------
109,622
------------
Tobacco - 0.1%
Japan Tobacco, Inc. .......... 25 135,124
------------
Trading Companies & Distributors - 0.5%
ITOCHU Corporation............ 35,000 88,028
Marubeni Corporation.......... 61,000 79,250
Mitsubishi Corporation........ 22,000 152,621
Mitsui & Co., Ltd. ........... 47,000 235,636
Sumitomo Corporation.......... 21,000 96,889
------------
652,424
------------
Transportation Infrastructure - 0.0%
Mitsubishi Logistics Corp. ... 8,000 48,370
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Wireless Telecommunication Services - 0.6%
NTT DoCoMo, Inc. ............. 489 $ 1,058,838
------------
TOTAL COMMON STOCKS IN JAPAN
(COST - $39,717,175) - 19.6%.. 35,029,701
------------
NETHERLANDS
Air Freight & Logistics - 0.1%
TNT Post Group NV............. 10,581 183,718
------------
Beverages - 0.1%
Heineken NV................... 6,000 212,904
------------
Chemicals - 0.2%
Akzo Nobel NV................. 8,649 229,232
DSM NV........................ 1,361 57,390
------------
286,622
------------
Commercial Banks - 0.5%
ABN AMRO Holding NV........... 46,408 887,322
------------
Commercial Services & Supplies - 0.1%
Vedior NV 'A'................. 7,896 71,545
------------
Diversified Financial Services - 0.5%
ING Groep NV.................. 49,607 861,898
------------
Diversified Telecommunication Services - 0.2%
KPN NV (a).................... 52,705 373,432
------------
Energy Equipment & Service - 0.0%
IHC Caland NV................. 926 47,278
------------
Food & Staples Retailing - 0.1%
Koninklijke Ahold NV.......... 17,283 143,493
------------
Food Products - 0.6%
Koninklijke Numico NV......... 7,546 116,117
Unilever NV 'A'............... 16,207 869,520
------------
985,637
------------
Household Durables - 0.4%
Koninklijke (Royal) Philips
Electronics NV (a).......... 37,983 722,310
------------
Insurance - 0.2%
Aegon NV...................... 40,525 405,801
------------
Media - 0.3%
Elsevier NV................... 14,552 171,620
VNU NV........................ 7,054 217,335
Wolters Kluwer NV 'A'......... 10,798 130,199
------------
519,154
------------
Office Electronics - 0.0%
Oce NV........................ 194 2,003
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
85
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Oil & Gas - 1.6%
Royal Dutch Petroleum
Company..................... 62,651 $ 2,908,027
------------
Real Estate - 0.0%
Corio NV...................... 1,655 53,253
------------
Semiconductors & Semiconductor Equipment - 0.1%
ASM Lithography Holding NV
(a)......................... 15,150 143,877
------------
Specialty Retail - 0.0%
Vendex KBB NV................. 1,228 14,215
------------
Trading Companies & Distributors - 0.0%
Hagemeyer NV.................. 2,945 11,329
------------
TOTAL COMMON STOCKS IN THE
NETHERLANDS
(COST - $10,725,151) - 5.0%.. 8,833,818
------------
NEW ZEALAND
Construction Materials - 0.0%
Fletcher Building Limited..... 20,926 44,962
------------
Diversified Telecommunication Services - 0.1%
Telecom Corporation of New
Zealand Limited............. 62,565 191,934
------------
Electric Utilities - 0.1%
Contact Energy Limited........ 31,055 91,815
------------
Health Care Equipment & Supplies - 0.0%
Fisher & Paykel Industries
Limited..................... 1,054 7,615
------------
Household Durables - 0.0%
Fisher & Paykel Appliances
Holdings Limited............ 1,098 8,775
------------
Multiline Retail - 0.0%
The Warehouse Group Limited... 16,257 49,301
------------
Paper & Forest Products - 0.0%
Carter Holt Harvey Limited.... 7,526 7,887
Fletcher Challenge Forests
(a)......................... 9,927 6,684
------------
14,571
------------
Transportation Infrastructure - 0.1%
Auckland International Airport
Limited..................... 16,200 58,139
------------
TOTAL COMMON STOCKS IN NEW
ZEALAND
(COST - $312,613) - 0.3%.... 467,112
------------
NORWAY
Airlines - 0.0%
SAS AB (a).................... 2,392 12,924
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Beverages - 0.0%
Orkla ASA 'A'................. 2,153 $ 37,283
------------
Commercial Banks - 0.1%
DNB Holding ASA............... 22,060 108,796
------------
Communications Equipment - 0.0%
Tandberg ASA (a).............. 2,592 13,430
------------
Diversified Telecommunication Services - 0.1%
Telenor A/S (ADR) (b)......... 8,900 113,475
------------
Energy Equipment & Service - 0.1%
Aker Kvaerner ASA (a)......... 4,090 53,963
Smedvig ASA 'A'............... 3,691 23,470
------------
77,433
------------
Insurance - 0.0%
Storebrand ASA (a)............ 18,604 74,742
------------
Machinery - 0.0%
Tomra Systems ASA............. 2,598 11,157
------------
Media - 0.0%
Schibsted ASA................. 3,568 49,429
------------
Oil & Gas - 0.2%
Norsk Hydro ASA............... 5,649 277,817
Statoil ASA................... 6,904 58,821
------------
336,638
------------
Paper & Forest Products - 0.0%
Norske Skogindustrier ASA..... 3,089 46,217
------------
TOTAL COMMON STOCKS IN NORWAY
(COST - $978,317) - 0.5%.... 881,524
------------
PORTUGAL
Commercial Banks - 0.3%
BPI-SGPS, SA (Registered
Shares)..................... 41,741 117,916
Banco Comercial Portugues, SA
(BCP) (Registered Shares)... 48,091 84,495
Banco Espirito Santo, SA
(Registered Shares)......... 8,484 125,680
------------
328,091
------------
Construction Materials - 0.0%
CIMPOR - Cimentos de Portugal,
SGPS, SA.................... 15,305 58,175
------------
Diversified Telecommunication Services - 0.1%
Portugal Telecom SA
(Registered Shares)......... 22,054 158,032
------------
Electric Utilities - 0.0%
Eletricidade de Portugal, SA
(EDP)....................... 34,389 73,452
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
86
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Food & Staples Retailing - 0.0%
Jeronimo Martins SGPS, SA
(a)......................... 3,120 $ 24,686
------------
Industrial Conglomerates - 0.0%
Sonae, S.G.P.S., SA (a)....... 2,561 1,441
------------
Media - 0.0%
PT Multimedia-Servicos de
Telecomunicacoes e
Multimedia, SGPS, SA (a).... 2,349 41,136
------------
Transportation Infrastructure - 0.0%
Brisa - Auto Estradas de
Portugal, SA................ 11,704 65,857
------------
TOTAL COMMON STOCKS IN
PORTUGAL
(COST - $853,320) - 0.4%.... 750,870
------------
SINGAPORE
Aerospace & Defense - 0.0%
Singapore Technologies
Engineering Ltd. ........... 56,213 55,543
------------
Airlines - 0.1%
Singapore Airlines Limited.... 20,582 121,552
------------
Beverages - 0.0%
Fraser & Neave Limited........ 4,263 20,819
------------
Commercial Banks - 0.4%
DBS Group Holdings Limited.... 26,751 156,465
Oversea-Chinese Banking
Corporation Ltd. ........... 32,598 185,111
United Overseas Bank Ltd. .... 43,204 304,219
------------
645,795
------------
Computers & Peripherals - 0.0%
Creative Technology Limited... 5,907 47,296
------------
Distributors - 0.0%
Cycle & Carriage Ltd. ........ 2,461 6,903
------------
Diversified Telecommunication Services - 0.1%
Singapore Telecommunications,
Ltd. ....................... 103,718 88,935
------------
Electronic Equipment & Instruments - 0.1%
Venture Manufacturing
(Singapore) Ltd. ........... 11,000 100,568
------------
Hotels, Restaurants & Leisure - 0.0%
Overseas Union Enterprise
Ltd. ....................... 2,631 10,458
------------
Industrial Conglomerates - 0.1%
Haw Par Corporation Ltd. ..... 1,766 4,352
Keppel Corporation Ltd. ...... 33,914 94,366
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Sembcorp Industries Limited... 24,154 $ 17,557
------------
116,275
------------
Marine - 0.0%
Neptune Orient Lines Limited
(a)......................... 18,873 15,861
------------
Media - 0.0%
Singapore Press Holdings
Ltd. ....................... 5,792 60,189
------------
Real Estate - 0.0%
Capitaland Limited............ 33,833 23,823
City Developments Limited..... 20,535 51,775
------------
75,598
------------
Road & Rail - 0.0%
ComfortDelGro Corporation
Limited (a)................. 104,816 47,914
------------
Semiconductors & Semiconductor Equipment - 0.0%
Chartered Semiconductor
Manufacturing Limited (a)... 13,000 6,718
Chartered Semiconductor
Manufacturing Limited (ADR)
(a) (b)..................... 1,120 5,768
------------
12,486
------------
TOTAL COMMON STOCKS IN
SINGAPORE
(COST - $1,659,325) - 0.8%.. 1,426,192
------------
SOUTH AFRICA
Beverages - 0.1%
SABMiller PLC................. 27,200 182,117
------------
TOTAL COMMON STOCKS IN SOUTH
AFRICA
(COST - $194,019) - 0.1%.... 182,117
------------
SPAIN
Airlines - 0.0%
Iberia Lineas Aereas de Espana
SA.......................... 15,500 30,081
------------
Biotechnology - 0.0%
Zeltia, SA.................... 6,228 42,053
------------
Commercial Banks - 1.3%
Banco Bilbao Vizcaya, SA...... 83,773 880,236
Banco Popular Espanol SA...... 5,888 297,505
Banco Santander Central
Hispano SA.................. 132,471 1,160,699
------------
2,338,440
------------
Construction & Engineering - 0.1%
ACS, Actividades de
Construccion y Servicios,
SA.......................... 1,897 80,928
Fomento de Construcciones y
Contratas SA................ 2,428 67,837
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
87
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Grupo Dragados SA............. 6,180 $ 124,407
------------
273,172
------------
Diversified Telecommunication Services - 0.9%
Telefonica SA................. 138,653 1,609,736
Telefonica SA (ADR) (b)....... 1,081 37,370
------------
1,647,106
------------
Electric Utilities - 0.5%
Endesa SA..................... 25,765 431,382
Iberdrola SA.................. 20,100 348,074
Union Electrica Fenosa, SA.... 8,715 147,616
------------
927,072
------------
Gas Utilities - 0.1%
Gas Natural SDG, SA 'E'....... 6,184 124,274
------------
IT Services - 0.0%
Amadeus Global Travel
Distribution SA 'A'......... 835 4,785
------------
Insurance - 0.1%
Corporacion Mapfre SA......... 7,932 84,711
------------
Internet Software & Services - 0.1%
Terra Networks, SA (a)........ 12,990 78,613
------------
Metals & Mining - 0.1%
Acerinox SA................... 2,745 104,906
------------
Oil & Gas - 0.2%
Repsol-YPF, SA................ 27,190 440,878
------------
Real Estate - 0.0%
Vallehermoso SA............... 4,963 55,055
------------
Specialty Retail - 0.1%
Industria de Disenso Textil,
SA.......................... 5,665 142,468
------------
Tobacco - 0.1%
Altadis....................... 6,366 163,168
------------
Transportation Infrastructure - 0.1%
Autopistas, Concesionaria
Espanola SA................. 6,334 88,520
------------
Water Utilities - 0.0%
Sociedad General de Aguas de
Barcelona, SA............... 3,496 47,774
------------
TOTAL COMMON STOCKS IN SPAIN
(COST - $5,373,299) - 3.7%.. 6,593,076
------------
SWEDEN
Airlines - 0.0%
SAS AB (a).................... 1,680 9,218
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Auto Components - 0.0%
Trelleborg AB (Class B)....... 358 $ 3,824
------------
Building Products - 0.1%
Assa Abloy AB 'B'............. 8,188 79,272
------------
Commercial Banks - 0.5%
Nordbanken Holding AB......... 81,914 394,991
Skandinaviska Enskilda Banken
(SEB) 'A'................... 19,255 196,039
Svenska Handelsbanken AB...... 21,104 345,364
------------
936,394
------------
Commercial Services & Supplies - 0.1%
Securitas AB 'B'.............. 12,631 129,388
------------
Communications Equipment - 0.2%
Telefonaktiebolaget LM
Ericsson (Sponsored ADR) (a)
(b)......................... 1,407 14,956
Telefonaktiebolaget LM
Ericsson AB 'B' (a)......... 380,392 408,669
------------
423,625
------------
Construction & Engineering - 0.0%
Skanska AB 'B'................ 11,713 66,869
------------
Diversified Financial Services - 0.0%
OM Gruppen AB................. 1,010 7,192
------------
Diversified Telecommunication Services - 0.2%
Tele2 AB 'B' (a).............. 3,784 140,630
Telia AB...................... 28,554 118,426
------------
259,056
------------
Health Care Providers & Services - 0.0%
Gambro AB 'B'................. 3,981 26,358
------------
Household Durables - 0.1%
Electrolux AB 'B'............. 9,442 186,364
------------
IT Services - 0.0%
WM-Data AB 'B' (a)............ 4,275 6,515
------------
Insurance - 0.0%
Skandia Forsakrings AB........ 26,306 69,996
------------
Machinery - 0.4%
Atlas Copco AB 'A'............ 6,014 152,135
SKF AB 'B'.................... 4,117 118,805
Sandvik AB.................... 8,210 214,866
Volvo AB 'A'.................. 1,148 24,093
Volvo AB 'B'.................. 8,230 180,948
------------
690,847
------------
Media - 0.0%
Modern Times Group MTG AB 'B'
(a)......................... 2,810 43,177
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
88
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Paper & Forest Products - 0.2%
Billerud...................... 277 $ 3,235
Svenska Cellulosa AB (SCA)
'B'......................... 7,546 257,819
------------
261,054
------------
Real Estate - 0.0%
Drott AB 'B'.................. 1,400 17,664
------------
Specialty Retail - 0.2%
Hennes & Mauritz AB 'B'....... 16,531 379,978
------------
Tobacco - 0.1%
Swedish Match AB.............. 11,456 86,582
------------
TOTAL COMMON STOCKS IN SWEDEN
(COST - $4,190,200) - 2.1%.. 3,683,373
------------
SWITZERLAND
Biotechnology - 0.1%
Serono SA 'B'................. 291 171,006
------------
Capital Markets - 1.7%
Credit Suisse Group........... 33,776 888,941
UBS AG (Registered Shares).... 37,606 2,091,921
------------
2,980,862
------------
Chemicals - 0.4%
Ciba Specialty Chemicals AG
(Registered Shares)......... 2,833 171,500
Clariant AG (Registered
Shares) (a)................. 1,294 11,846
Givaudan (Registered Shares).. 345 145,177
Lonza Group AG (Registered
Shares)..................... 2,834 129,717
Syngenta AG................... 2,268 113,689
------------
571,929
------------
Commercial Services & Supplies - 0.1%
Adecco SA (Registered
Shares)..................... 4,777 196,786
SGS Societe Generale de
Surveillance Holding SA
'R'......................... 62 24,213
------------
220,999
------------
Computers & Peripherals - 0.0%
Logitech International SA
(Registered Shares) (a)..... 269 10,088
------------
Construction Materials - 0.1%
Holcim Ltd. (Registered
Shares)..................... 4,220 155,927
------------
Diversified Telecommunication Services - 0.2%
Swisscom AG (Registered
Shares)..................... 988 280,817
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Electrical Equipment - 0.1%
ABB Ltd. (a).................. 43,465 $ 142,792
------------
Electronic Equipment & Instruments - 0.0%
Kudelski SA (Bearer) (a)...... 1,763 31,953
------------
Food Products - 1.4%
Nestle SA (Registered
Shares)..................... 12,235 2,524,589
------------
Health Care Equipment & Supplies - 0.1%
Centerpulse AG (Registered
Shares) (a)................. 528 142,081
Synthes-Stratec Inc. ......... 55 39,508
------------
181,589
------------
Insurance - 0.6%
Swiss Re (Registered
Shares)..................... 10,042 556,386
Zurich Financial Services
AG.......................... 4,302 512,918
------------
1,069,304
------------
Machinery - 0.0%
Sulzer AG (Registered
Shares)..................... 133 18,582
------------
Pharmaceuticals - 2.6%
Novartis AG (Registered
Shares)..................... 71,573 2,832,168
Roche Holding AG.............. 22,362 1,754,060
Roche Holding AG (Bearer)..... 911 111,979
------------
4,698,207
------------
Semiconductors & Semiconductor Equipment - 0.0%
Unaxis Holding AG 'R'......... 136 11,069
------------
Textiles, Apparel & Luxury Goods - 0.1%
Compagnie Financiere Richemont
AG 'A'...................... 15,784 255,191
Swatch Group AG 'B'........... 449 40,689
Swatch Group AG (Registered
Shares)..................... 2,276 41,418
------------
337,298
------------
TOTAL COMMON STOCKS IN
SWITZERLAND
(COST - $13,689,447) - 7.5%.. ......... 13,407,011
------------
UNITED KINGDOM
Aerospace & Defense - 0.2%
BAE Systems PLC............... 111,566 262,343
Rolls-Royce Group PLC......... 74,522 157,712
------------
420,055
------------
Air Freight & Logistics - 0.1%
Ocean Group PLC............... 9,717 99,735
------------
Airlines - 0.0%
British Airways PLC (a)....... 16,342 40,855
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
89
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Auto Components - 0.1%
GKN PLC....................... 21,805 $ 80,059
------------
Automobiles - 0.0%
TI Automotive Limited 'A'
(a)......................... 1,025 0
------------
Beverages - 0.6%
Diageo PLC.................... 88,284 942,561
Scottish & Newcastle PLC...... 16,039 97,001
------------
1,039,562
------------
Biotechnology - 0.1%
Celltech Group PLC (a)........ 14,811 83,830
------------
Building Products - 0.0%
Pilkington PLC................ 53,235 58,198
------------
Capital Markets - 0.2%
3i Group PLC.................. 23,991 223,676
Amvescap PLC.................. 9,940 68,562
Close Brothers Group PLC...... 2,797 29,885
Man Group PLC................. 12,480 246,303
Schroders PLC................. 4,105 42,658
------------
611,084
------------
Chemicals - 0.1%
BOC Group PLC................. 18,186 233,325
Imperial Chemical Industries
PLC......................... 21,892 44,343
------------
277,668
------------
Commercial Banks - 5.8%
Barclays PLC.................. 188,577 1,400,310
HBOS PLC...................... 118,418 1,532,970
HSBC Holdings PLC............. 310,085 3,663,674
HSBC Holdings PLC (ADR) (b)... 4,900 289,639
Lloyds TSB Group PLC.......... 145,116 1,030,289
Lloyds TSB Group PLC (ADR)
(b)......................... 2,530 73,395
Royal Bank of Scotland Group
PLC......................... 83,854 2,352,317
------------
10,342,594
------------
Commercial Services & Supplies - 0.3%
Brambles Industries PLC....... 31,990 86,573
Bunzl PLC..................... 5,197 36,426
Capita Group PLC.............. 29,810 111,172
Chubb PLC..................... 13,844 17,248
Hays PLC...................... 68,298 108,194
Rentokil Initial PLC.......... 66,396 207,348
Serco Group PLC............... 2,405 6,350
------------
573,311
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Construction & Engineering - 0.1%
AMEC PLC...................... 18,532 $ 79,509
BICC PLC...................... 30,308 96,525
------------
176,034
------------
Construction Materials - 0.1%
BPB PLC....................... 8,834 44,753
Hanson PLC.................... 28,353 158,022
RMC Group PLC................. 7,554 57,558
------------
260,333
------------
Consumer Finance - 0.0%
Provident Financial PLC....... 7,073 74,406
------------
Containers & Packaging - 0.1%
Rexam PLC..................... 16,452 103,435
------------
Diversified Telecommunication Services - 0.6%
BT Group PLC.................. 263,060 884,455
BT Group PLC (ADR) (b)........ 900 30,294
Cable & Wireless PLC.......... 48,379 90,211
------------
1,004,960
------------
Electric Utilities - 0.4%
Scottish and Southern Energy
PLC......................... 29,957 308,465
ScottishPower PLC............. 50,102 300,940
ScottishPower PLC (ADR) (b)... 993 24,140
------------
633,545
------------
Electrical Equipment - 0.0%
Kidde PLC..................... 1,460 2,048
------------
Electronic Equipment & Instruments - 0.0%
Electrocomponents PLC......... 12,308 65,906
------------
Food & Staples Retailing - 0.8%
Boots Group PLC............... 20,529 219,685
J Sainsbury PLC............... 31,443 131,789
Safeway PLC................... 38,721 164,531
Tesco PLC..................... 233,934 846,362
------------
1,362,367
------------
Food Products - 0.5%
Cadbury Schweppes PLC......... 70,284 415,205
Tate & Lyle PLC............... 8,252 46,638
Unilever PLC.................. 75,508 601,192
------------
1,063,035
------------
Gas Utilities - 0.3%
Centrica PLC.................. 150,436 436,285
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
90
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Health Care Equipment & Supplies - 0.2%
Nycomed Amersham PLC.......... 27,874 $ 209,168
Seton Scholl Healthcare Group
PLC......................... 3,902 18,930
Smith & Nephew PLC............ 23,723 136,328
------------
364,426
------------
Hotels, Restaurants & Leisure - 0.7%
Carnival PLC.................. 6,324 192,125
Compass Group PLC............. 62,507 337,029
Hilton Group PLC.............. 69,991 212,512
InterContinental Hotels Group
PLC (a)..................... 28,847 204,691
Mitchells & Butlers PLC (a)... 40,487 156,165
Rank Group PLC................ 29,178 119,889
Whitbread PLC................. 1,813 20,284
------------
1,242,695
------------
Household Durables - 0.1%
Barratt Developments PLC...... 546 3,892
George Wimpey PLC............. 21,841 106,321
Taylor Woodrow PLC............ 1,561 5,178
------------
115,391
------------
Household Products - 0.2%
Reckitt Benckiser PLC......... 21,576 395,912
------------
IT Services - 0.1%
Logica PLC.................... 45,320 107,129
------------
Industrial Conglomerates - 0.2%
FKI PLC....................... 9,108 11,986
Smiths Industries PLC......... 13,554 157,234
Tomkins PLC................... 40,701 152,459
------------
321,679
------------
Insurance - 0.7%
AVIVA PLC..................... 67,201 466,577
Friends Provident PLC......... 32,421 60,722
Legal & General Group PLC..... 191,597 265,577
Prudential Corporation PLC.... 60,807 368,250
Royal & Sun Alliance Insurance
Group PLC................... 72,384 165,729
------------
1,326,855
------------
Internet & Catalog Retail - 0.2%
The Great Universal Stores
PLC......................... 35,771 400,797
------------
Machinery - 0.0%
IMI PLC....................... 11,268 55,782
Invensys PLC.................. 127,264 43,051
------------
98,833
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
Media - 1.3%
Aegis Group PLC............... 75,089 $ 98,197
British Sky Broadcasting Group
PLC ("BSkyB") (a)........... 43,678 483,985
Carlton Communications PLC.... 38,415 96,037
Daily Mail and General Trust
'A'......................... 3,119 29,337
EMAP PLC...................... 5,946 83,940
EMI Group PLC................. 37,723 75,943
Granada PLC................... 45,137 67,779
Pearson PLC................... 18,799 175,580
Reed Elsevier PLC............. 47,511 395,333
Reuters Group PLC............. 40,508 117,479
United Business Media PLC..... 19,481 97,404
WPP Group PLC................. 31,038 243,282
------------
1,964,296
------------
Metals & Mining - 0.6%
Billiton PLC.................. 78,487 413,154
Johnson Matthey PLC........... 3,020 44,004
Rio Tinto PLC (Registered
Shares)..................... 33,847 636,719
------------
1,093,877
------------
Multi-Utilities & Unregulated Power - 0.5%
International Power PLC (a)... 62,528 133,361
National Grid Group PLC....... 81,872 555,265
United Utilities PLC.......... 10,623 103,249
------------
791,875
------------
Multiline Retail - 0.3%
Marks & Spence Group PLC...... 52,033 271,110
Next PLC...................... 11,491 194,643
------------
465,753
------------
Oil & Gas - 4.0%
BG Group PLC.................. 103,543 458,763
BP Amoco PLC.................. 652,016 4,521,568
BP Amoco PLC (ADR) (b)........ 3,849 161,735
Shell Transport & Trading
Company..................... 299,741 1,978,469
------------
7,120,535
------------
Pharmaceuticals - 3.2%
AstraZeneca Group PLC......... 50,744 2,034,764
Glaxo Wellcome PLC (ADR)
(b)......................... 800 32,432
GlaxoSmithKline PLC........... 185,087 3,735,300
------------
5,802,496
------------
Real Estate - 0.2%
The British Land Company PLC.. 23,225 184,246
Canary Wharf Group PLC........ 11,328 47,854
Hammerson PLC................. 6,585 53,842
Land Securities Group PLC..... 18,331 236,395
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
91
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
Liberty International PLC..... 4,393 $ 44,908
Slough Estates PLC............ 473 2,667
------------
569,912
------------
Road & Rail - 0.1%
FirstGroup PLC................ 20,287 90,387
Stagecoach Holdings PLC....... 18,574 19,003
------------
109,390
------------
Semiconductors & Semiconductor Equipment - 0.0%
ARM Holdings PLC (a).......... 33,823 37,395
------------
Software - 0.2%
Misys PLC..................... 27,041 114,678
The Sage Group PLC............ 45,501 121,635
------------
236,313
------------
Specialty Retail - 0.5%
Dixons Group PLC.............. 43,124 93,933
Kingfisher PLC................ 98,210 449,314
Signet Group PLC.............. 79,661 118,636
------------
661,883
------------
Tobacco - 0.6%
British American Tobacco PLC.. 53,717 609,407
Imperial Tobacco Group PLC.... 26,877 480,322
------------
1,089,729
------------
Trading Companies & Distributors - 0.1%
Wolseley PLC.................. 17,741 196,218
------------
Transportation Infrastructure - 0.2%
Associated British Ports
Holdings PLC................ 5,600 36,686
BAA PLC....................... 38,222 309,368
BBA Group PLC................. 5,728 19,660
The Peninsular and Oriental
Steam Navigation Company.... 11,523 44,684
------------
410,398
------------
Water Utilities - 0.1%
Severn Trent PLC.............. 15,680 176,980
------------
Wireless Telecommunication Services - 2.2%
Vodafone Group PLC............ 1,943,571 3,800,510
Vodafone Group PLC (ADR)
(b)......................... 12,490 245,428
------------
4,045,938
------------
TOTAL COMMON STOCKS IN THE
UNITED KINGDOM
(COST - $50,970,539) - 26.9%.. 47,956,010
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
UNITED STATES
Computers & Peripherals - 0.0%
Datacraft Asia Limited........ 29,000 $ 29,000
------------
Diversified Financial Services - 0.1%
I Shares MSCI EAFE Index
Fund........................ 2,000 216,620
------------
TOTAL COMMON STOCKS IN THE
UNITED STATES
(COST - $300,860) - 0.1%.... ......... 245,620
------------
TOTAL INVESTMENTS IN COMMON
STOCKS
(COST - $184,062,372) - 97.8%.. 174,629,800
------------
PREFERRED STOCKS
AUSTRALIA
Media - 0.2%
The News Corporation Limited.. 55,904 344,552
The News Corporation Limited
(Convertible) (ADR) (b)..... 760 19,038
------------
TOTAL PREFERRED STOCKS IN
AUSTRALIA
(COST - $344,411) - 0.2%.... 363,590
------------
GERMANY
Automobiles - 0.1%
Porsche AG.................... 359 152,123
Volkswagen AG................. 2,741 82,185
------------
234,308
------------
Household Products - 0.1%
Henkel KGaA................... 1,908 118,120
------------
Media - 0.0%
ProSieben Sat. 1 Media AG..... 4,900 32,636
------------
Multi-Utilities & Unregulated Power - 0.0%
RWE AG........................ 2,033 54,723
------------
TOTAL PREFERRED STOCKS IN
GERMANY
(COST - $517,573) - 0.2%.... 439,787
------------
NEW ZEALAND
Paper & Forest Products - 0.0%
Fletcher Challenge Forests
Ltd. (a).................... 18,827 12,786
------------
TOTAL PREFERRED STOCKS IN NEW
ZEALAND
(COST - $12,820) - 0.0%..... 12,786
------------
TOTAL INVESTMENTS IN PREFERRED
STOCKS
(COST - $874,804) - 0.4%.... 816,163
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
92
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ------------
WARRANTS (C)
FRANCE
Food & Staples Retailing - 0.0%
Casino Guichard-Perrachon..... 133 $ 21
Casino Guichard-Perrachon..... 133 122
------------
TOTAL WARRANTS IN FRANCE
(COST - $1,580) - 0.0%...... 143
------------
HONG KONG
Electronic Equipment & Instruments - 0.0%
QPL International Holdings
Limited..................... 600 3
------------
TOTAL WARRANTS IN HONG KONG
(COST - $0) - 0.0%.......... 3
------------
TOTAL INVESTMENTS IN WARRANTS
(COST - $1,580) - 0.0%...... 146
------------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ------------
SHORT-TERM SECURITIES
UNITED STATES
Merrill Lynch Liquidity
Series, LLC Cash Sweep
Series I (e) US $ 126,669 $ 126,669
------------
TOTAL SHORT-TERM SECURITIES
(COST - $126,669) - 0.1%.... 126,669
------------
TOTAL INVESTMENTS
(COST - $185,065,425) - 98.3%.. 175,572,778
VARIATION MARGIN ON FINANCIAL
FUTURES
CONTRACTS*** - 0.3%......... 573,188
UNREALIZED DEPRECIATION ON
FORWARD FOREIGN EXCHANGE
CONTRACTS** - 0.0%.......... (45,335)
OTHER ASSETS LESS
LIABILITIES - 1.4%.......... 2,516,360
------------
NET ASSETS - 100.0%........... $178,616,991
============
</Table>
- ---------------
* For Series compliance purposes, "Industries" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Series management.
This definition may not apply for purposes of this report, which may combine
such industry sub-classifications for reporting ease.
** Forward foreign exchange contracts as of June 30, 2003 were as follows:
<Table>
<Caption>
FOREIGN UNREALIZED
CURRENCY EXPIRATION APPRECIATION
PURCHASED DATE (DEPRECIATION)
--------- ---------- --------------
A$ 450,000 July 2003 $ 3,330
CHF 575,000 July 2003 (8,343)
E 875,000 July 2003 (10,026)
L 525,000 July 2003 (14,744)
Y 85,000,000 July 2003 (15,423)
SEK 1,000,000 July 2003 (801)
--------
TOTAL UNREALIZED
DEPRECIATION ON FORWARD
FOREIGN EXCHANGE
CONTRACTS - NET (US$
COMMITMENT - $3,474,492) $(46,007)
========
</Table>
<Table>
<Caption>
FOREIGN UNREALIZED
CURRENCY EXPIRATION APPRECIATION
SOLD DATE (DEPRECIATION)
-------- ---------- --------------
CHF125,000 July 2003 $ 100
E 225,000 July 2003 (678)
L 150,000 July 2003 243
Y35,000,000 July 2003 1,007
--------
TOTAL UNREALIZED
APPRECIATION ON FORWARD
FOREIGN EXCHANGE
CONTRACTS - NET (US$
COMMITMENT - $890,011) $ 672
--------
TOTAL UNREALIZED
DEPRECIATION ON FORWARD
FOREIGN EXCHANGE
CONTRACTS - NET $(45,335)
========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
93
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
*** Financial futures contracts purchased as of June 30, 2003 were as follows:
<Table>
<Caption>
NUMBER OF
CONTRACTS ISSUE EXCHANGE EXPIRATION DATE VALUE
--------- ----- -------- --------------- ----------
54 EURO DJ EURO September 2003 $1,505,004
2 FTSE LIFFE September 2003 132,474
2 SPI 200 SFE September 2003 101,201
15 TOPIX Tokyo September 2003 1,128,669
----------
TOTAL FINANCIAL FUTURES CONTRACTS PURCHASED (TOTAL CONTRACT
PRICE - $2,858,989) $2,867,348
==========
</Table>
(a) Non-income producing security.
(b) American Depositary Receipts (ADR).
(c) Warrants entitle the Series to purchase a predetermined number of shares of
common stock and are non-income producing. The purchase price and number of
shares are subject to adjustment under certain conditions until the
expiration date.
(d) The rights may be exercised until 07/03/2003.
(e) Investments in companies considered to be an affiliate of the Series (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
<Table>
<Caption>
INTEREST
AFFILIATE NET ACTIVITY INCOME
--------- ------------ --------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I..... $(3,962,405) $24,085
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
94
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (including securities loaned of
$19,972,573) (identified cost - $185,065,425).......... $175,572,778
Cash held as collateral for loaned securities........... 21,102,830
Cash on deposit for financial futures contracts......... 846,990
Cash.................................................... 307,538
Foreign cash (cost - $1,476,824)........................ 1,498,784
Receivables:
Variation margin...................................... $573,188
Dividends............................................. 545,600
Contributions......................................... 285,047
Securities sold....................................... 75,647
Interest.............................................. 3,659 1,483,141
--------
Prepaid expenses........................................ 1,265
------------
TOTAL ASSETS........................................ 200,813,326
------------
LIABILITIES:
Collateral on securities loaned, at value............... 21,102,830
Unrealized depreciation on forward foreign exchange
contracts.............................................. 45,335
Payables:
Withdrawals........................................... 854,475
Securities purchased.................................. 83,634
Forward foreign exchange contracts.................... 81,307
Investment adviser.................................... 1,618
Other affiliates...................................... 950 1,021,984
--------
Accrued expenses and other liabilities.................. 26,186
------------
TOTAL LIABILITIES................................... 22,196,335
------------
NET ASSETS.................................................. $178,616,991
============
NET ASSETS CONSIST OF:
Investors' capital...................................... $188,092,903
Unrealized depreciation on investments and foreign
currency transactions - net............................ (9,475,912)
------------
NET ASSETS.................................................. $178,616,991
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
95
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $385,076 foreign withholding tax)..... $ 2,983,719
Interest................................................ 40,693
Securities lending - net................................ 46,521
-----------
TOTAL INCOME........................................ 3,070,933
-----------
EXPENSES:
Professional fees....................................... $ 48,644
Custodian fees.......................................... 39,133
Accounting services..................................... 17,100
Investment advisory fees................................ 8,420
Trustees' fees and expenses............................. 1,282
Printing and shareholder reports........................ 696
Other................................................... 6,513
-----------
TOTAL EXPENSES BEFORE REIMBURSEMENT................. 121,788
REIMBURSEMENT OF EXPENSES................................... (17,696)
-----------
TOTAL EXPENSES AFTER REIMBURSEMENT.................. 104,092
-----------
INVESTMENT INCOME - NET..................................... 2,966,841
-----------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS - NET:
Realized gain (loss) from:
Investments - net..................................... (2,775,543)
Foreign currency transactions - net................... 718,557 (2,056,986)
-----------
Change in unrealized appreciation/depreciation on:
Investments - net..................................... 16,509,484
Foreign currency transactions - net................... (246,717) 16,262,767
----------- -----------
TOTAL REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS - NET............. 14,205,781
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $17,172,622
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
96
MASTER INTERNATIONAL INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
2003 2002
-------------- --------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net................................. $ 2,966,841 $ 4,256,606
Realized loss on investments and foreign currency
transactions - net.................................... (2,056,986) (15,497,931)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions - net... 16,262,767 (23,022,788)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................ 17,172,622 (34,264,113)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 27,347,229 85,092,571
Fair value of withdrawals............................... (32,723,192) (79,519,958)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM NET
CAPITAL CONTRIBUTIONS................................. (5,375,963) 5,572,613
------------ ------------
NET ASSETS:
Total increase (decrease) in net assets................. 11,796,659 (28,691,500)
Beginning of period..................................... 166,820,332 195,511,832
------------ ------------
END OF PERIOD........................................... $178,616,991 $166,820,332
============ ============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
97
MASTER INTERNATIONAL INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE
PERIOD
FOR THE SIX FOR THE YEAR ENDED DECEMBER 30,
MONTHS ENDED DECEMBER 31, 1999+ TO
JUNE 30, ----------------------------- DECEMBER 31,
2003 2002 2001 2000 1999
------------ -------- -------- ------- ------------
(UNAUDITED)
TOTAL INVESTMENT RETURN................ 10.25%++ (15.81%) (21.77%) -- --
-------- -------- -------- ------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement..... .12%* .08% .08% .08% .08%*
-------- -------- -------- ------- -------
Expenses........................... .14%* .16% .39% 1.34% .63%*
-------- -------- -------- ------- -------
Investment income - net............ 3.52%* 2.21% 1.20% 1.55% 2.14%*
-------- -------- -------- ------- -------
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)....................... $178,617 $166,820 $195,512 $15,763 $10,054
-------- -------- -------- ------- -------
Portfolio turnover................. 10.11% 19.52% 30.19% 5.89% 0.00%
-------- -------- -------- ------- -------
</Table>
- ---------------
* Annualized.
+ Commencement of operations.
++ Aggregated total investment return.
See notes to financial statements.
- --------------------------------------------------------------------------------
98
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Master International Index Series (the "Series") is part of Quantitative
Master Series Trust (the "Trust"). The Trust is registered under the Investment
Company Act of 1940, as amended, and is organized as a Delaware statutory trust.
The Declaration of Trust permits the Trustees to issue nontransferable interests
in the Series, subject to certain limitations. The Series' financial statements
are prepared in conformity with accounting principles generally accepted in the
United States of America, which may require the use of management accruals and
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a normal,
recurring nature. The following is a summary of significant accounting policies
followed by the Series.
A. Valuation of Investments
Portfolio securities that are traded on stock exchanges or the Nasdaq
National Market are valued at the last sale price or official closing price on
the exchange on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at the closing
bid price for long positions, and at the last available ask price for short
positions. Securities traded in the over-the-counter market are valued at the
last quoted bid price at the close of trading on the New York Stock Exchange on
each day by brokers that make markets in the securities. Securities traded in
the Nasdaq National Market System are valued at the last sale price prior to the
time of valuation. Portfolio securities that are traded both in the
over-the-counter 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. In the case of
options traded in the over-the-counter market, valuation is the last asked price
(options written) or the last bid price (options purchased). Short-term
securities are valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are stated at
market value. Securities and assets for which market quotations are not readily
available are valued at fair market value, as determined in good faith by or
under the direction of 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.
Financial Futures Contracts
The Series may purchase or sell financial futures contracts and options on
such futures contracts. 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.
- --------------------------------------------------------------------------------
99
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
Options
The Series is authorized to purchase and write call and put options. When
the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
Forward Foreign Exchange Contracts
The Series is authorized to 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.
Foreign Currency Options and Futures
The Series may also purchase or sell listed or over-the-counter 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 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.
D. Income Taxes
The Series is classified as a "pass through" entity 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.
- --------------------------------------------------------------------------------
100
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
E. Security Transactions and Investment Income
Security transactions are accounted for on the date the securities are
purchased or sold (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend income is
recorded on the ex-dividend dates. Dividends from foreign securities where the
ex-dividend date may have passed are subsequently recorded when the Series has
determined the ex-dividend date. 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 Fund and any additional
required collateral is delivered to the Fund on the next business day. Where the
Series receives securities as collateral for the loaned securities, it collects
a fee from the borrower. The Series typically receives the income on the loaned
securities but does not receive the income on the collateral. Where the Series
receives cash collateral, it may invest such collateral and retain the amount
earned on such investment, net of any amount rebated to the borrower. Loans of
securities are terminable at any time and the borrower, after notice, is
required to return borrowed securities within five business days. The Series may
pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Series also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Series' portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Series. For such services, the Series pays a
monthly fee at an annual rate of .01% of the average daily value of the Series'
net assets. FAM has entered into a contractual arrangement with the Series under
which the expenses incurred by the Series will not exceed .12%. This arrangement
expires December 31, 2003 and is renewable. For the six months ended June 30,
2003, FAM reimbursed the Series in the amount of $17,696.
For the six months ended June 30, 2003, the Series reimbursed FAM $2,104
for certain accounting services.
Certain officers and/or trustees of the Series are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for
the six months ended June 30, 2003 were $18,603,180 and $14,949,064,
respectively.
- --------------------------------------------------------------------------------
101
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2003 (unaudited)
- --------------------------------------------------------------------------------
Net realized gains (losses) for the six months ended June 30, 2003 and
unrealized gains (losses) as of June 30, 2003 were as follows:
<Table>
<Caption>
REALIZED GAINS UNREALIZED
(LOSSES) GAINS (LOSSES)
-------------- --------------
Investments:
Long-term......................................... $(2,473,804) $(9,492,647)
Financial futures contracts....................... (301,739) 8,359
----------- -----------
Total investments...................................... (2,775,543) (9,484,288)
----------- -----------
Currency transactions:
Forward foreign exchange contracts................ (499,076) (45,335)
Foreign currency transactions..................... 1,217,633 53,711
----------- -----------
Total currency transactions............................ 718,557 8,376
----------- -----------
Total.................................................. $(2,056,986) $(9,475,912)
=========== ===========
</Table>
As of June 30, 2003, net unrealized depreciation for Federal income tax
purposes aggregated $12,200,476, of which $16,080,440 related to appreciated
securities and $28,280,916 related to depreciated securities. At June 30, 2003,
the aggregate cost of investments for Federal income tax purposes was
$187,773,254.
4. COMMITMENTS
At June 30, 2003, the Series had entered into foreign exchange contracts,
in addition to the contracts listed in the Schedule of Investments, under which
it had agreed to sell various foreign currencies with an approximate value of
$1,239,000.
5. SHORT-TERM BORROWINGS
The Series, along with certain other funds managed by FAM and its
affiliates, is a party to a $500,000,000 credit agreement with Bank One, N.A.
and certain other lenders. The Series may borrow under the credit agreement to
fund shareholders redemptions and for other lawful purposes other than for
leverage. The Series may borrow up to the maximum amount allowable under the
Series' current prospectus and statement of additional information, subject to
various other legal, regulatory or contractual limits. The Series pays a
commitment fee of .09% 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 fund's election, the Federal
Funds rate plus .50% or a base rate as determined by Bank One, N.A. On November
29, 2002, the credit agreement was renewed for one year at the same terms,
except that the commitment was reduced from $1,000,000,000 to $500,000,000. The
Series did not borrow under the credit agreement during the six months ended
June 30, 2003.
- --------------------------------------------------------------------------------
102
AMERICAN AADVANTAGE FUNDS
PRIVACY POLICY (unaudited)
- --------------------------------------------------------------------------------
The American AAdvantage Funds recognizes and respects the privacy of our
shareholders. We are providing this notice to you so you will understand how
shareholder information may be collected and used.
We may collect nonpublic personal information about you from one or more of
the following sources:
- information we receive from you on applications or other forms;
- information about your transactions with us or our service providers; and
- information we receive from third parties.
We do not disclose any nonpublic personal information about our
shareholders or former shareholders to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those
employees or service providers who need to know that information to provide
products or services to you. To ensure the confidentiality of your nonpublic
personal information, we maintain safeguards that comply with federal standards.
- --------------------------------------------------------------------------------
103
[AMERICAN EAGLE LOGO]
[AMERICAN AADVANTAGE FUNDS LOGO]
- --------------------------------------------------------------------------------
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report, and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. They will begin sending
you individual copies thirty days after receiving your request.
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS:
<Table>
[GRAPHIC] [GRAPHIC]
BY E-MAIL: ON THE INTERNET:
american_aadvantage.funds@aa.com Visit our website at www.aafunds.com
</Table>
- --------------------------------------------------------------------------------
<Table>
[GRAPHIC] [GRAPHIC]
BY TELEPHONE: BY MAIL:
Institutional Class American AAdvantage Funds
Call (800) 658-5811 P.O. Box 619003, MD 2450
PlanAhead Class(R) DFW Airport, TX 75261-9003
Call (800) 388-3344
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR
STATE STREET BANK AND TRUST NATIONAL FINANCIAL DATA SERVICES ERNST & YOUNG LLP SWS FINANCIAL SERVICES
Boston, Massachusetts Kansas City, Missouri Dallas, Texas Dallas, Texas
</Table>
This report is prepared for shareholders of the American AAdvantage Funds and
may be distributed to others only if preceded or accompanied by a current
prospectus.
- --------------------------------------------------------------------------------
American Airlines is not responsible for investments made in the American
AAdvantage Funds. American AAdvantage Funds is a registered service mark of AMR
Corporation. American AAdvantage Small Cap Index Fund and American AAdvantage
International Equity Index Fund are service marks of AMR Investment Services,
Inc.
[GRAPHIC]
527730
ITEM 2. CODE OF ETHICS.
Not Applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded
that the disclosure controls and procedures of the registrant are
effective.
(b) There have been no significant changes in the registrant's internal
control over financial reporting during the registrant's last fiscal
half-year that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
ITEM 10. EXHIBITS.
(a)(1) Not Applicable.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule
30a-2(a) under the Investment Company Act of 1940 is attached hereto
as EX-99.CERT.
(b) The certification required by Rule 30a-2(b) under the Investment
Company Act of 1940 is attached hereto as EX-99.906CERT.
SIGNATURES
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.
(Registrant): American AAdvantage Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 8, 2003
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/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 8, 2003
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: September 8, 2003