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 - -------------------------------------------------------------------------------- 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