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: December 31, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
[AMERICAN AADVANTAGE FUNDS LOGO]
- ---------------------------------------o---------------------------------------
ANNUAL REPORT
December 31, 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. 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............. 23
Statement of Assets and Liabilities.. 29
Statement of Operations.............. 30
Statement of Changes in Net Assets... 31
Financial Highlights................. 32
Notes to Financial Statements........ 33
Master Small Cap Index Series
Schedule of Investments.............. 39
Statement of Assets and Liabilities.. 70
Statement of Operations.............. 71
Statement of Changes in Net Assets... 72
Financial Highlights................. 73
Notes to Financial Statements........ 74
Master International Index Series
Schedule of Investments.............. 82
Statement of Assets and Liabilities.. 105
Statement of Operations.............. 106
Statement of Changes in Net Assets... 107
Financial Highlights................. 108
Notes to Financial Statements........ 109
Additional Information.....Inside Back Cover
</Table>
American AAdvantage Funds December 31, 2003
[BILL QUINN PICTURE]
FELLOW SHAREHOLDERS:
I am pleased to present you with the Annual Report for the index series of the
American AAdvantage Funds for the twelve months ended December 31, 2003.
During this time, investors experienced both upward and downward market
trends while successfully avoiding a fourth consecutive annual decline in the
stock market (something that has not occurred since 1932). The reality seems to
be that the economic recovery has arrived. The economy had to overcome the war
with Iraq, the occupation of Afghanistan, and the SARS outbreak. However, the
lowest Fed Funds rate in 45 years at 1.0% improved corporate earnings growth,
and was reflected in the markets.
Investors welcomed an "upswing" in the market as the major market indices
posted significant gains for the fiscal year ended December 31, 2003. The S&P
500 Index reported a gain of 28.68%, the MSCI EAFE Index increased 38.59%, and
the Dow Jones Industrial Average was up 28.29%.
During the year, the American AAdvantage S&P 500 Index Fund realized an
increase of 28.26%, the American AAdvantage Small Cap Index Fund grew by 46.90%,
and the American AAdvantage International Equity Index Fund returned 38.87%.
As the economy rebounds, the index series of the American AAdvantage 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 year 2003 marked the end of the longest and deepest equity bear market since
the Great Depression. Punctuated by better-than-expected earnings due to
stunning productivity and modest revenue growth, the equity market recorded
better-than-consensus returns. After a setback related to the start of war with
Iraq, the market did not look back and never had more than a 5% pullback. As is
common after a major bear market low, the best performers featured low-quality,
high beta and small capitalization issues as well as those with earnings losses
and low prices.
At its June 25th meeting, the Federal Open Market Committee chose to lower
rates to 1.00% from the 1.25% target at which they began 2003. This was the only
rate change of the calendar year, as the Committee stated that an accommodative
stance of monetary policy, coupled with robust underlying growth in
productivity, is providing important ongoing support to economic activity.
The S&P 500(R) Index closed at 1,111.92 on December 31st, its high for the
year, and returned 28.7% for the twelve month period. While large cap stocks
performed very well this year, small cap stocks stole the show. The Russell
2000(R) Index gained a whopping 47.3% for the year due to the exceptional
performance of some of the lower quality companies.
Within the large caps, value stocks outperformed growth for the year. The
S&P 500/BARRA Value Index outperformed the S&P 500/BARRA Growth Index by over 6
percentage points in 2003, returning 31.8% and 25.7%, respectively. However, the
reverse was true for small caps as the Russell 2000 Growth Index returned 48.5%
while the Russell 2000 Value Index posted a return of 46.0% for the year.
Favorable liquidity conditions, stimulative fiscal policy and rising
earnings expectations have been responsible for the domestic equity bull market
that began in October 2002. The stimulus from falling interest rates and excess
liquidity is passing at the same time that the growth baton is being passed from
the U.S. consumer to the rest of the U.S. economy and the world. Higher
confidence levels regarding sustainability of growth, the waning of deflation
fears and a declining dollar are likely to cause rising interest rates. Earnings
growth is key for the equity bull market to continue.
The year turned out to be a great period for international investors. After
a difficult start with a negative first quarter, most investment markets rose
for the remainder of 2003. Equities broke their 3-year losing streak, bonds
produced another strong year, and commodity prices soared.
For the year ended December 31, 2003, the MSCI EAFE Index posted an
impressive total return of 38.6%, the first positive calendar year return since
1999. The European markets moved upward over the year with the price returns of
the Dow Jones STOXX 50 up 10.5% in Euros and the FTSE up 13.6% in Sterling. In
Japan, the Nikkei 225 Index price rose 24.5% in Yen.
Over the calendar year, the European Central Bank cut rates twice from
2.75% to 2.50% and from 2.50% to 2.00%, the lowest level since 1999. Low rate
levels reflected an effort to boost Europe's struggling economy and counter the
Euro's rise, as Euro strengthening negatively affects export competitiveness.
Despite decreasing rates, the Euro appreciated 20.2% versus the U.S. Dollar.
The starting point for 2004 is very different from a year ago. Rather than
struggling in the depths of depression, equity investors are optimistic and this
optimism has been reflected in valuations. European earnings remain cyclically
depressed and have the potential to surprise in 2004 as Europe lags the global
recovery. In addition, Europe has the greatest potential for a recovery in M&A
activity. The German financial system, so near to the brink a year ago, is
healthier although still wobbly. Japan has sidestepped a major banking crisis
and the economy is growing. In general the starting position is on the other
side of the track from 12 months ago.
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 twelve months ended December 31, 2003, the total return of the
Institutional Class of the American AAdvantage S&P 500 Index Fund was 28.3%,
lagging the S&P 500 Index return of 28.7% but exceeding the Lipper S&P 500
Objective Funds Index return of 28.2%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM
12/31/96* THROUGH 12/31/03
(PERFORMANCE GRAPH)
<Table>
<Caption>
INSTITUTIONAL PLANAHEAD S&P 500 LIPPER S&P 500
CLASS CLASS INDEX INDEX
------------- ---------- ---------- --------------
12/96................ $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/97................ $13,309.00 $13,309.00 $13,336.00 $13,308.00
12/98................ $17,151.00 $17,113.00 $17,147.00 $17,079.00
12/99................ $20,702.00 $20,576.00 $20,755.00 $20,601.00
12/00................ $18,807.00 $18,646.00 $18,867.00 $18,685.00
12/01................ $16,528.00 $16,319.00 $16,625.00 $16,404.00
12/02................ $12,847.00 $12,633.00 $12,951.00 $12,746.00
12/03................ $16,478.00 $16,126.00 $16,665.00 $16,345.00
</Table>
* Inception of S&P 500 Index Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-------------------------------------
PERIODS ENDED 12/31/03
-------------------------------------
SINCE
INCEPTION
1 YEAR 3 YEAR 5 YEAR (12/31/96)
------ ------ ------ ----------
Institutional Class(1)... 28.26% -4.31% -0.80% 7.40%
PlanAhead Class(1,2)..... 27.65% -4.72% -1.18% 7.07%
Lipper S&P 500 Index..... 28.24% -4.36% -0.87% 7.27%
S&P 500 Index............ 28.68% -4.05% -0.57% 7.57%
</Table>
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.
Nobody predicted such handsome equity returns in 2003, but we will take
them after three consecutive years of poor performance. A fourth down year would
have been an event not experienced since the equity market crash of 1929 and the
subsequent three years. Contributing to the good performance this year was ample
liquidity provided on the fiscal and monetary fronts, an improving economy, and
less geo-political risk, especially after the capture of Saddam Hussein.
All ten sectors of the S&P 500 had positive returns for the 2003 calendar
year. The sectors with the highest returns in 2003 were Information Technology
(up 46.1%) and Materials (up 38.2%). Strong performers in Information Technology
included Yahoo (up 175.4%), Intel (up 106.6%) and EMC Corp (up 110.4%). Notable
names in the Materials sector included Alcoa (up 70.9%), Newmont Mining (up
68.2%) and Dow Chemical (up 45.7%).
The prospects for continued economic growth in 2004 look promising. The
consumer continues to spend, monetary and fiscal policy remain stimulative,
capital spending has turned, job growth has begun and export markets are
awakening. With that in mind, the portfolio is expected to continue to meet 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. 3.0%
Microsoft Corp. 2.9%
Exxon Mobil Corp. 2.6%
Pfizer, Inc. 2.6%
Citigroup, Inc. 2.4%
Wal Mart Stores, Inc. 2.2%
Intel Corp. 2.0%
American Int'l Group, Inc. 1.7%
Cisco Systems, Inc. 1.6%
IBM 1.6%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financials 20.7%
Information Technology 17.1%
Consumer Discretionary 13.7%
Health Care 13.3%
Industrials 11.5%
Consumer Staples 8.6%
Energy 5.8%
Telecommunication Services 3.4%
Materials 3.1%
Utilities 2.8%
</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 twelve months ended December 31, 2003, the total return of the
Institutional Class of the American AAdvantage Small Cap Index Fund was 46.9%.
The Fund's performance tracked closely to the Russell 2000(R) Index return of
47.3%, and exceeded the Lipper Small-Cap Core Funds Index return of 40.9%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM
7/31/00+ THROUGH 12/31/03
(PERFORMANCE GRAPH)
+ Inception of Small Cap Index Fund
<Table>
<Caption>
INSTITUTIONAL LIPPER SMALL-CAP RUSSELL 2000
CLASS CORE INDEX INDEX
------------- ---------------- ------------
7/31/00.............. $10,000.00 $10,000.00 $10,000.00
12/00.............. $ 9,741.00 $10,166.00 $ 9,725.00
12/01.............. $ 9,943.00 $10,890.00 $ 9,967.00
12/02.............. $ 7,917.00 $ 8,795.00 $ 7,926.00
12/03.............. $11,631.00 $12,391.00 $11,671.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
----------------------------
PERIODS ENDED 12/31/03
----------------------------
SINCE
INCEPTION
1 YEAR 3 YEAR (7/31/00)
------- ------ ---------
Institutional Class(1)............. 46.90% 6.09% 4.52%
Lipper Small-Cap Core Index........ 40.89% 6.82% 6.48%
Russell 2000 Index................. 47.25% 6.27% 4.62%
</Table>
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.
All 12 Russell 2000 sectors posted positive returns for the year. The
top-performing sector was Technology, returning an impressive 65.6%, followed by
Health Care and Producer Durables, up 59.6% and 59.0%, respectively. The worst
performing sector for the year was Consumer Staples, with a return of 28.2%,
followed by Utilities, up 32.7%, and Other (which includes many conglomerates),
up 38.7%. The largest individual contributors to the Fund's return for 2003 were
Sonus Networks, MGI Pharma and Akamai Technologies. The largest individual
detractors from performance were Vertex Pharmaceuticals, AK Steel Holding and
Too Inc.
The Fund will continue to strive to meet its objective of closely
replicating, before expenses, the return of its benchmark, the Russell 2000
Index.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF EQUITIES*
--------------
AMR Corp. 0.24%
Louisiana-Pacific Corp. 0.23%
Gen-Probe, Inc. 0.21%
South Financial Group, Inc. 0.21%
Health Care REIT, Inc. 0.21%
RF Micro Devices, Inc. 0.21%
Sybase, Inc. 0.20%
Andrew Corp. 0.20%
The Titan Corp. 0.20%
Sonus Networks, Inc. 0.20%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financial Services 22.5%
Consumer Discretionary 18.3%
Technology 14.6%
Health Care 13.2%
Materials & Processing 8.4%
Producer Durables 8.2%
Autos and Transportation 4.3%
Utilities 4.1%
Other Energy 3.9%
Consumer Staples 2.0%
Other 0.5%
</Table>
* Percent of equity portion of Master Small Cap Index Series
5
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND(SM)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2003, the Institutional Class of
the American AAdvantage International Equity Index Fund posted an impressive
total return of 38.9%, closely tracking the MSCI EAFE Index return of 38.6% and
outperforming the Lipper International Funds Index return of 36.0%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 12/31/03
(PERFORMANCE GRAPH)
* Inception of International Equity Index Fund
<Table>
<Caption>
EAFE INDEX LIPPER
INSTITUTIONAL ---------- INTERNATIONAL
CLASS INDEX
------------- -------------
7/31/00.............. $10,000.00 $10,000.00 $10,000.00
12/00................ $ 9,297.00 $ 9,338.00 $ 9,191.00
12/01................ $ 7,239.00 $ 7,321.00 $ 7,413.00
12/02................ $ 6,106.00 $ 6,177.00 $ 6,387.00
$ 8,479.00 $ 8,560.00 $ 8,687.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
PERIODS ENDED 12/31/03
---------------------------
SINCE
INCEPTION
1 YEAR 3 YEAR (7/31/00)
------ ------ ---------
Institutional Class(1).............. 38.87% -3.02% -4.71%
Lipper Int'l. Funds Index........... 36.00% -1.86% -4.04%
EAFE Index(2)....................... 38.59% -2.85% -4.44%
</Table>
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.
All 21 countries in the MSCI EAFE Index ("EAFE") posted positive returns
for the year. The top performer was Greece, up 69.5%, followed by Sweden and
Germany, with respective returns of 64.5% and 63.8%, all in U.S. dollars. The
worst performers for the year were Finland, the Netherlands, and the United
Kingdom with respective returns of 19.4%, 28.1%, and 32.1%.
Turning to sector performance, all 10 EAFE sectors posted positive returns
for the year, led by Industrials (up 48.7%), Information Technology (up 48.6%),
and Materials (up 48.4%). Lagging performers were Consumer Staples (up 22.8%),
Energy (up 26.3%), and Health Care (up 28.1%). Although they lagged in
comparison with other sectors, all broke the 20% mark for the year.
The largest individual contributors to the Fund's return for 2003 were HSBC
Holdings, UFJ Holdings and Vodafone Group. The largest detractors to performance
were Sony, Koninklijke Ahold and AMP Limited.
The American AAdvantage International Equity Index 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 plc 2.4%
HSBC Holdings plc 2.3%
Vodafone Group plc 2.3%
GlaxoSmithKline plc 1.8%
Total SA 1.6%
Royal Dutch Petroleum Co. 1.5%
Novartis AG 1.5%
Nestle SA 1.4%
Toyota Motor Corp. 1.2%
Nokia Oyj 1.1%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES* EAFE
-------------- -----
Financials 26.4% 26.5%
Consumer Discretionary 12.7% 12.7%
Health Care 9.0% 9.0%
Industrials 8.7% 8.9%
Consumer Staples 8.5% 8.5%
Energy 8.3% 8.3%
Telecommunication Services 7.8% 7.8%
Materials 6.9% 6.8%
Information Technology 6.9% 6.8%
Utilities 4.8% 4.7%
</Table>
COUNTRY ALLOCATION
(COUNTRY WEIGHTINGS PIE CHART)
<Table>
<Caption>
% OF EQUITIES* EAFE
-------------- -----
United Kingdom 25.9% 25.8%
Japan 21.4% 21.4%
France 9.9% 9.8%
Switzerland 7.3% 7.4%
Germany 7.2% 7.2%
Netherlands 5.2% 5.2%
Australia 5.1% 5.1%
Italy 3.9% 3.9%
Spain 3.7% 3.7%
Sweden 2.3% 2.3%
Finland 1.7% 1.7%
Hong Kong 1.6% 1.6%
Belgium 1.0% 1.0%
Singapore 0.8% 0.8%
Denmark 0.7% 0.7%
Ireland 0.7% 0.7%
Norway 0.5% 0.5%
Greece 0.4% 0.4%
Portugal 0.3% 0.4%
Austria 0.2% 0.2%
New Zealand 0.2% 0.2%
</Table>
* Percent of equity portion of Master International Index
Series
7
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2003
- --------------------------------------------------------------------------------
(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................ $ 279,987 $ 67,762 $ 10,043
Receivable for fund shares sold......................... 74 -- --
Other assets............................................ -- -- --
----------- ---------- ----------
TOTAL ASSETS........................................ 280,061 67,762 10,043
----------- ---------- ----------
LIABILITIES:
Payable for fund shares redeemed........................ 16 -- --
Administrative service fees payable (Note 2)............ 19 2 --
Other liabilities....................................... 46 4 --
----------- ---------- ----------
TOTAL LIABILITIES................................... 81 6 --
----------- ---------- ----------
NET ASSETS.................................................. $ 279,980 $ 67,756 $ 10,043
=========== ========== ==========
ANALYSIS OF NET ASSETS:
Paid-in capital......................................... $ 279,896 $ 62,739 $ 10,328
Undistributed net investment income..................... 147 22 16
Accumulated net realized loss........................... (44,986) (640) (1,272)
Unrealized net appreciation of investments and futures
contracts............................................. 44,923 5,635 971
----------- ---------- ----------
NET ASSETS.................................................. $ 279,980 $ 67,756 $ 10,043
=========== ========== ==========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class..................................... 16,238,361 6,013,125 1,253,566
=========== ========== ==========
PlanAhead Class......................................... 2,321,307 N/A N/A
=========== ========== ==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class..................................... $ 15.10 $ 11.27 $ 8.01
=========== ========== ==========
PlanAhead Class......................................... $ 14.96 N/A N/A
=========== ========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
8
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
(in thousands)
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INDEX INDEX EQUITY INDEX
-------- --------- -------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO:
Portfolio income........................................ $ 4,306 $ 311 $ 195
Portfolio expenses**.................................... (109) (21) (6)
-------- ------ ------
NET INVESTMENT INCOME ALLOCATED FROM MASTER
PORTFOLIO......................................... 4,197 290 189
-------- ------ ------
FUND EXPENSES:
Administrative service fees (Note 2):
Institutional Class................................. 107 12 3
PlanAhead Class..................................... 73 -- --
Transfer agency fees:
Institutional Class................................. 35 6 1
PlanAhead Class..................................... 21 -- --
Custody and Accounting fees............................. 11 11 3
Professional fees....................................... 9 1 1
Registration fees....................................... 25 2 3
Service fees - PlanAhead Class (Note 2)................. 73 -- --
Printing................................................ 22 5 2
Other expenses.......................................... -- -- 1
-------- ------ ------
TOTAL FUND EXPENSES................................. 376 37 14
Less reimbursement of fund expenses (Note 2)...... (5) -- --
-------- ------ ------
NET FUND EXPENSES................................... 371 37 14
-------- ------ ------
NET INVESTMENT INCOME....................................... 3,826 253 175
-------- ------ ------
REALIZED AND UNREALIZED GAIN (LOSS) ALLOCATED FROM MASTER
PORTFOLIO:
Net realized gain (loss) from investment transactions... (12,058) 264 (66)
Net realized gain from futures transactions............. 1,782 -- --
Net change in unrealized appreciation of investments and
futures contracts..................................... 69,056 8,677 2,328
-------- ------ ------
NET GAIN ON INVESTMENTS............................. 58,780 8,941 2,262
-------- ------ ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 62,606 $9,194 $2,437
======== ====== ======
</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
--------------------------- --------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003 2002 2003 2002
------------ ------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............. $ 3,826 $ 3,604 $ 253 $ 150 $ 175 $ 89
Net realized gain (loss) on
investments and futures
transactions.................... (10,276) (8,115) 264 (889) (66) (413)
Change in net unrealized
appreciation (depreciation) of
investments and futures
contracts....................... 69,056 (59,391) 8,677 (2,815) 2,328 (569)
--------- -------- -------- ------- ------- -------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................... 62,606 (63,902) 9,194 (3,554) 2,437 (893)
--------- -------- -------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class........... (3,602) (3,240) (242) (140) (148) (71)
PlanAhead Class............... (356) (297) -- -- -- --
--------- -------- -------- ------- ------- -------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS................. (3,958) (3,537) (242) (140) (148) (71)
--------- -------- -------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares..... 185,256 111,986 67,986 9,040 6,510 5,088
Reinvestments of dividends and
distributions................... 3,847 3,518 242 140 148 71
Cost of shares redeemed........... (188,024) (114,385) (20,651) (6,062) (3,816) (3,056)
--------- -------- -------- ------- ------- -------
NET INCREASE IN NET ASSETS
FROM CAPITAL SHARE
TRANSACTIONS................. 1,079 1,119 47,577 3,118 2,842 2,103
--------- -------- -------- ------- ------- -------
NET INCREASE (DECREASE) IN NET
ASSETS.............................. 59,727 (66,320) 56,529 (576) 5,131 1,139
--------- -------- -------- ------- ------- -------
NET ASSETS:
Beginning of period............... 220,253 286,573 11,227 11,803 4,912 3,773
--------- -------- -------- ------- ------- -------
END OF PERIOD*.................... $ 279,980 $220,253 $ 67,756 $11,227 $10,043 $ 4,912
========= ======== ======== ======= ======= =======
* Includes undistributed net
investment income of............ $ 147 $ 67 $ 22 $ 10 $ 16 $ 18
========= ======== ======== ======= ======= =======
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
10
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
- --------------------------------------------------------------------------------
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: DECEMBER 31, 2003
- -------------------- ----------- -----------------
S&P 500 Index Fund State Street Equity 500 Index Portfolio 10.3%
Small Cap Index Fund Master Small Cap Index Series 20.2%
International Equity Index Fund Master International Index Series 1.8%
</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
December 31, 2003
- --------------------------------------------------------------------------------
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 year ended December 31, 2003
and the fiscal year ended December 31, 2002 were as follows (in thousands):
<Table>
<Caption>
SMALL CAP INTERNATIONAL
S&P 500 INDEX INDEX EQUITY INDEX
----------------- ------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------- ------------- -------------
2003 2002 2003 2002 2003 2002
------ ------ ---- ---- ---- ----
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class.................................. $3,602 $3,240 $242 $140 $148 $71
Plan Ahead Class..................................... 356 297 -- --
------ ------ ---- ---- ---- ---
TOTAL DISTRIBUTIONS PAID.................................... $3,958 $3,537 $242 $140 $148 $71
====== ====== ==== ==== ==== ===
</Table>
As of December 31, 2003 the components of distributable earnings were as
follows (in thousands):
<Table>
<Caption>
INTERNATIONAL
S&P 500 INDEX SMALL CAP INDEX EQUITY INDEX
------------- --------------- -------------
COST BASIS OF INVESTMENTS FOR FEDERAL INCOME
TAX........................................... $257,562 $60,918 $ 9,320
Gross tax unrealized appreciation.......... 80,293 8,415 920
Gross tax unrealized depreciation.......... (57,868) (3,168) (196)
-------- ------- -------
Net tax unrealized appreciation of
investments.............................. 22,425 5,247 724
Undistributed ordinary income.............. 145 20 36
Undistributed long-term loss............... (23,182) (245) (1,111)
-------- ------- -------
TOTAL UNDISTRIBUTED EARNINGS.................... $ (612) $ 5,022 $ (351)
======== ======= =======
</Table>
The temporary 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.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax reporting have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. S&P 500 Index and
International Equity Index Funds reclassified $244 and $10, respectively, of
undistributed net investment income to paid-in capital. S&P 500 Index Fund
reclassed $17 of undistributed net investment income to accumulated net realized
loss. International Equity Index Fund reclassified $2 of undistributed net
investment income to unrealized net appreciation of investments and futures
contracts. S&P 500 Index, Small Cap Index and International Equity Index Fund
reclassified $768, $126 and $60, respectively, of accumulated net realized loss
to paid-in capital. S&P 500 Index Fund reclassed $4 of paid-in capital to
unrealized net appreciation of investments and futures contracts.
- --------------------------------------------------------------------------------
12
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
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 tax
provision is required. At December 31, 2003, capital loss carryforward positions
for federal income tax purposes were as follows (in thousands):
<Table>
<Caption>
CAPITAL LOSS
CARRYOVER
FUND AMOUNT EXPIRES
- ---- ------------ ---------
S&P 500 Index............................................... $23,182 2005-2011
Small Cap Index............................................. 245 2008-2010
International Equity Index.................................. 1,111 2009-2011
</Table>
Net capital loss carryovers utilized for the period ended December 31, 2003
by the Small Cap Index Fund amounted to $401.
Allocation of Income, Expenses, Gains and Losses
Income, expenses (other than those attributable to a specific class), gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class.
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.
- --------------------------------------------------------------------------------
13
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
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.
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 year ended December 31, 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 December 31, 2003, the employee benefit plans of AMR Corporation and its
subsidiary companies owned 89.7% 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 December 31, 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 YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
--------------------------- -------------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ----------- ------------- ---------- ------------
Shares sold....................... 14,142,227 $ 171,509,436 7,200,563 $ 92,333,428
Reinvestment of dividends......... 260,652 3,501,218 249,102 3,229,100
Shares redeemed................... (14,504,514) (176,989,380) (7,388,124) (94,764,097)
----------- ------------- ---------- ------------
Net increase (decrease) in capital
shares outstanding.............. (101,635) $ (1,978,726) 61,541 $ 798,431
=========== ============= ========== ============
</Table>
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------ -------------------------
PLANAHEAD CLASS SHARES AMOUNT SHARES AMOUNT
- --------------- --------- ------------ ---------- ------------
Shares sold.......................... 1,087,611 $ 13,747,224 1,397,297 $ 19,652,433
Reinvestment of dividends............ 25,890 346,072 22,392 289,205
Shares redeemed...................... (891,739) (11,034,987) (1,404,639) (19,621,383)
--------- ------------ ---------- ------------
Net increase in capital shares
outstanding........................ 221,762 $ 3,058,309 15,050 $ 320,256
========= ============ ========== ============
</Table>
- --------------------------------------------------------------------------------
14
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
SMALL CAP INDEX FUND
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------- ----------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ---------- ------------ -------- -----------
Shares sold............................ 6,641,904 $ 67,985,621 955,743 $ 9,039,698
Reinvestment of dividends.............. 21,770 241,866 17,853 139,614
Shares redeemed........................ (2,108,632) (20,651,424) (721,156) (6,061,590)
---------- ------------ -------- -----------
Net increase in capital shares
outstanding.......................... 4,555,042 $ 47,576,063 252,440 $ 3,117,722
========== ============ ======== ===========
</Table>
INTERNATIONAL EQUITY INDEX FUND
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
---------------------- ----------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- -------- ----------- -------- -----------
Shares sold.............................. 942,076 $ 6,510,253 775,200 $ 5,087,960
Reinvestment of dividends................ 19,104 148,248 12,273 71,181
Shares redeemed.......................... (545,169) (3,816,176) (483,575) (3,055,729)
-------- ----------- -------- -----------
Net increase in capital shares
outstanding............................ 416,011 $ 2,842,325 303,898 $ 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
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2003 2002 2001 2000(B) 1999
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 11.96 $ 15.62 $ 17.99 $ 20.05 $ 16.78
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income............... 0.21 0.20 0.20 0.23 0.19
Net gains (losses) on securities
(both realized and unrealized).... 3.14 (3.66) (2.38) (2.05) 3.27
-------- -------- -------- -------- --------
Total from investment operations........ 3.35 (3.46) (2.18) (1.82) 3.46
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................ (0.21) (0.20) (0.19)(C) (0.24)(C) (0.19)
-------- -------- -------- -------- --------
Total distributions..................... (0.21) (0.20) (0.19) (0.24) (0.19)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......... $ 15.10 $ 11.96 $ 15.62 $ 17.99 $ 20.05
======== ======== ======== ======== ========
TOTAL RETURN............................ 28.26% (22.27%) (12.12%) (9.15%) 20.70%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................ $245,251 $195,368 $254,289 $321,805 $568,645
Ratios to average net assets
(annualized):(A)
Net investment income.......... 1.63% 1.47% 1.22% 1.09% 1.28%
Expenses....................... 0.14% 0.14% 0.15% 0.16% 0.17%
</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.
- --------------------------------------------------------------------------------
16
AMERICAN AADVANTAGE S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2003 2002 2001 2000(B) 1999
------- -------- -------- ------- -------
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 11.85 $ 15.49 $ 17.99 $ 20.12 $ 16.83
------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income.................... 0.15 0.14 0.14 0.13 0.15
Net gains (losses) on securities (both
realized and unrealized)............... 3.12 (3.64) (2.39) (2.00) 3.25
------- -------- -------- ------- -------
Total from investment operations............. 3.27 (3.50) (2.25) (1.87) 3.40
------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income..... (0.16) (0.14) (0.25)(C) (0.26)(C) (0.11)
------- -------- -------- ------- -------
Total distributions.......................... (0.16) (0.14) (0.25) (0.26) (0.11)
------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD............... $ 14.96 $ 11.85 $ 15.49 $ 17.99 $ 20.12
======= ======== ======== ======= =======
TOTAL RETURN................................. 27.65% (22.59%) (12.48%) (9.38%) 20.24%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)............................. $34,729 $ 24,885 $ 32,284 $ 5,143 $ 6,173
Ratios to average net assets
(annualized):(A)
Net investment income............... 1.16% 1.06% 0.89% 0.66% 0.91%
Expenses............................ 0.63% 0.55% 0.56% 0.54% 0.55%
Decrease reflected in above expense
ratio due to absorption of
expenses by State Street Bank, BT
and AMR Investment Services,
Inc............................... 0.01% 0.08% 0.05% 0.16% 0.17%
</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.
- --------------------------------------------------------------------------------
17
AMERICAN AADVANTAGE SMALL CAP INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------------------
YEAR ENDED DECEMBER 31, JULY 31 TO
---------------------------- DECEMBER 31,
2003 2002 2001 2000
------- -------- ------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 7.70 $ 9.79 $ 9.69 $ 10.00
------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income............................. 0.04 0.11 0.09 0.05
Net gains (losses) on securities (both realized
and unrealized)................................. 3.57 (2.10) 0.11 (0.31)
------- -------- ------- -------
Total from investment operations...................... 3.61 (1.99) 0.20 (0.26)
------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income.............. (0.04) (0.10) (0.09) (0.05)
Tax return of capital............................. -- -- (0.01) --
------- -------- ------- -------
Total distributions................................... (0.04) (0.10) (0.10) (0.05)
------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD........................ $ 11.27 $ 7.70 $ 9.79 $ 9.69
======= ======== ======= =======
TOTAL RETURN.......................................... 46.90% (20.37%) 2.07% (2.59%)(B)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......... $67,756 $ 11,227 $11,803 $ 4,120
Ratios to average net assets (annualized):(A)
Net investment income........................ 1.04% 1.13% 1.36% 1.61%
Expenses..................................... 0.24% 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
--------------------------------------------
YEAR ENDED DECEMBER 31, JULY 31 TO
----------------------------- DECEMBER 31,
2003 2002 2001 2000
------- -------- -------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 5.86 $ 7.07 $ 9.21 $ 10.00
------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income........................... 0.14 0.11 0.10 0.02
Net gains (losses) on securities (both realized
and unrealized)............................... 2.13 (1.23) (2.12) (0.72)
------- -------- -------- -------
Total from investment operations.................... 2.27 (1.12) (2.02) (0.70)
------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income............ (0.12) (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................................. (0.12) (0.09) (0.12) (0.09)
------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD...................... $ 8.01 $ 5.86 $ 7.07 $ 9.21
======= ======== ======== =======
TOTAL RETURN........................................ 38.87% (15.65%) (22.14%) (7.03%)(B)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $10,043 $ 4,912 $ 3,773 $ 3,542
Ratios to average net assets (annualized):(A)
Net investment income...................... 2.71% 1.97% 1.49% 0.63%
Expenses................................... 0.31% 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
AMERICAN AADVANTAGE INDEX FUNDS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Shareholders and Board of Trustees
American AAdvantage S&P 500 Index Fund
American AAdvantage Small Cap Index Fund
American AAdvantage International Equity Index Fund
We have audited the accompanying statements of assets and liabilities of
the American AAdvantage S&P 500 Index Fund, the American AAdvantage Small Cap
Index Fund, and the American AAdvantage International Equity Index Fund
(collectively, "the Funds") (separate funds comprising the American AAdvantage
Funds), as of December 31, 2003, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years then ended and the financial highlights for each of the fiscal periods
since December 31, 2000. These financial statements and financial highlights are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights of the American AAdvantage S&P 500 Index Fund
for each of the three years in the period ended December 31, 1999 were audited
by other auditors whose report dated February 11, 2000 expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned as of December 31, 2003, by correspondence
with the custodian or other audit procedures. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective American AAdvantage Funds at December 31, 2003, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years then ended and the financial highlights for
each of the fiscal periods since December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
-s-
ERNST & YOUNG LLP
Chicago, Illinois
February 13, 2004
- --------------------------------------------------------------------------------
20
AMERICAN AADVANTAGE FUNDS
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with
their principal occupations during the past five years. Unless otherwise
indicated, the address of each person listed below is 4151 Amon Carter
Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees twenty-five
funds in the fund complex that includes the AMR Investment Services Trust, the
American AAdvantage Funds, the American AAdvantage Mileage Funds, and the
American AAdvantage Select Funds. The Trust's Statement of Additional
Information contains additional information about the Trustees and is available
without charge by calling 1-800-658-5811.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (56) Trustee and President, AMR Investment Services, Inc. (1986-Present);
President since Chairman (1989-2003) and Director (2003-Present), American
1987 Airlines Federal Credit Union; Director, Crescent Real
Estate Equities, Inc. (1994-Present); Director, Pritchard,
Hubble & Herr, LLC (investment adviser) (2001-Present);
Director of Investment Committee, Southern Methodist
University Endowment Fund (1996-Present); Member of Advisory
Board, Southern Methodist University Cox School of Business
(1999-2002); Member of Pension Manager Committee, New York
Stock Exchange (1997-1998, 2000-2002); Trustee, American
AAdvantage Mileage Funds (1995-Present); Trustee, American
AAdvantage Select Funds (1999-Present).
Alan D. Feld** (67) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties
(1994-Present); Trustee, American AAdvantage Mileage Funds
(1996-Present); Trustee, American AAdvantage Select Funds
(1999-Present).
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
Stephen D. O'Sullivan (68) Trustee since 1987 Consultant (1994-Present); Trustee, American AAdvantage
Mileage Funds (1995-Present); Trustee, American AAdvantage
Select Funds (1999-Present).
</Table>
- --------------------------------------------------------------------------------
21
AMERICAN AADVANTAGE FUNDS
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
R. Gerald Turner (58) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996- Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (2001- 2003); Director, Kronus
Worldwide Inc. (chemical manufacturing) (2003-Present);
Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Member, Knight Commission on Intercollegiate Athletics;
Trustee, American AAdvantage Mileage Funds (2001-Present);
Trustee, American AAdvantage Select Funds (2001-Present).
Kneeland Youngblood (48) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court equity firm) (1998-Present); Trustee, The Hockaday School
Suite 1740 (1997-Present); Director, Starwood Hotels and Resorts
Dallas, Texas 75201 (2001-Present); Member, Council on Foreign Relations
(1995-Present); Director, Just For the Kids (1995-2001);
Director, L&B Realty Advisors (1998-2000); Trustee, Teachers
Retirement System of Texas (1993-1999); Director, Starwood
Financial Trust (1998-2001); Trustee, St. Mark's School of
Texas (2002-Present); Trustee, American AAdvantage Mileage
Funds (1996-Present); Trustee, American AAdvantage Select
Funds (1999-Present).
OFFICERS
TERM
------------------
One Year
Nancy A. Eckl (41) VP since 1990 Vice President, Trust Investments, AMR Investment Services,
Inc. (1990-Present).
Michael W. Fields (50) VP since 1989 Vice President, Fixed Income Investments, AMR Investment
Services, Inc. (1988-Present).
Barry Y. Greenberg (40) VP since 1995 and Vice President, Legal and Compliance, AMR Investment
Secretary since Services, Inc. (1995-Present).
2004
Rebecca L. Harris (37) Treasurer since Vice President, Finance, AMR Investment Services, Inc.
1995 (1995- Present).
John B. Roberson (45) VP since 1989 Vice President, Director of Sales, AMR Investment Services,
Inc. (1991-Present).
</Table>
- ---------------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
70, with the exception of Mr. Quinn.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust, as
defined by the 1940 Act. Mr. Quinn is President of the Manager. Mr. Feld's
law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services
within the past two years to one or more of the Trust's sub-advisers.
- --------------------------------------------------------------------------------
22
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 96.1%
CONSUMER DISCRETIONARY - 10.8%
American Greetings Corp. Class
A (a)........................ 16,714 $ 366
AutoNation, Inc. (a)........... 69,000 1,268
AutoZone, Inc. (a)............. 22,887 1,950
Bed Bath & Beyond, Inc. (a).... 74,814 3,243
Best Buy Co.................... 81,821 4,274
Big Lots, Inc. (a)............. 32,038 455
Black & Decker Corp............ 19,433 958
Brunswick Corp................. 22,929 730
Carnival Corp.................. 159,419 6,334
Centex Corp.................... 15,788 1,700
Circuit City Stores - Circuit
City Group................... 52,939 536
Clear Channel Communications,
Inc.......................... 155,765 7,294
Comcast Corp. (a).............. 570,367 18,748
Cooper Tire & Rubber Co........ 18,637 398
Dana Corp...................... 40,449 742
Darden Restaurants, Inc........ 43,710 920
Delphi Corp.................... 140,767 1,437
Dillard's, Inc. Class A........ 19,253 317
Dollar General Corp............ 86,615 1,818
Dow Jones & Co., Inc........... 21,526 1,073
Eastman Kodak Co............... 72,637 1,865
eBay, Inc. (a)................. 163,560 10,564
Family Dollar Stores, Inc...... 43,568 1,563
Federated Department Stores,
Inc.......................... 45,576 2,148
Ford Motor Co.................. 463,455 7,415
Fortune Brands, Inc............ 37,566 2,686
Gannett Co., Inc............... 68,538 6,111
Gap, Inc....................... 228,630 5,307
General Motors Corp............ 141,973 7,581
Genuine Parts Co............... 45,093 1,497
Goodyear Tire & Rubber Co...... 44,442 349
Harley-Davidson, Inc........... 76,538 3,638
Harrah's Entertainment, Inc.... 27,933 1,390
Hasbro, Inc.................... 43,987 936
Hilton Hotels Corp............. 95,443 1,635
Home Depot, Inc................ 576,557 20,462
International Game Technology.. 87,452 3,122
Interpublic Group Cos., Inc.... 99,277 1,549
JC Penney & Co., Inc........... 68,788 1,808
Johnson Controls, Inc.......... 22,698 2,636
Jones Apparel Group, Inc....... 32,379 1,141
KB HOME........................ 11,631 844
Knight-Ridder, Inc............. 20,191 1,562
Kohl's Corp. (a)............... 86,910 3,906
Leggett & Platt, Inc........... 50,754 1,098
Limited Brands................. 130,278 2,349
Liz Claiborne, Inc............. 27,641 980
Lowe's Cos., Inc............... 199,123 11,029
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Marriot International, Inc.
Class A...................... 58,339 $ 2,695
Mattel, Inc.................... 108,345 2,088
May Department Stores Co....... 73,867 2,147
Maytag Corp.................... 20,729 577
McDonald's Corp................ 321,253 7,977
McGraw-Hill, Inc............... 48,413 3,385
Meredith Corp.................. 13,347 651
New York Times Co. Class A..... 38,745 1,852
Newell Rubbermaid, Inc......... 70,821 1,613
NIKE, Inc. Class B............. 66,313 4,540
Nordstrom, Inc................. 34,938 1,198
Office Depot, Inc. (a)......... 81,670 1,365
Omnicom Group, Inc............. 48,017 4,193
Pulte Homes, Inc............... 16,218 1,518
Radioshack Corp................ 42,553 1,306
Reebok International, Ltd...... 15,571 612
Sears Roebuck & Co............. 64,554 2,937
Sherwin-Williams Co............ 36,770 1,277
Snap-On, Inc................... 14,748 475
Stanley Works.................. 20,232 766
Staples, Inc. (a).............. 127,150 3,471
Starbucks Corp. (a)............ 98,726 3,264
Starwood Hotels & Resorts
Worldwide, Inc. Class B...... 50,612 1,821
Target Corp.................... 230,757 8,861
Tiffany & Co................... 36,868 1,666
Time Warner, Inc. (a).......... 1,145,847 20,614
TJX Cos., Inc.................. 129,713 2,860
Toys "R" Us, Inc. (a).......... 54,169 685
Tribune Co..................... 78,955 4,074
Tupperware Corp................ 13,036 226
Univision Communications, Inc.
Class A (a).................. 81,418 3,232
V.F. Corp...................... 27,888 1,206
Viacom, Inc. Class B........... 443,289 19,673
Visteon Corp................... 29,453 307
Walt Disney Co................. 518,073 12,087
Wendy's International, Inc..... 28,567 1,121
Whirlpool Corp................. 18,266 1,327
Yum! Brands, Inc. (a).......... 74,222 2,553
----------
293,952
----------
CONSUMER STAPLES - 10.6%
Adolph Coors Co. Class B....... 9,244 519
Alberto Culver Co. Class B..... 15,639 987
Albertson's, Inc............... 92,413 2,093
Altria Group, Inc.............. 514,764 28,013
Anheuser-Busch Cos., Inc....... 206,367 10,871
Archer-Daniels-Midland Co...... 164,367 2,502
Avon Products, Inc............. 60,474 4,081
Brown-Forman Corp. Class B..... 15,241 1,424
Campbell Soup Co............... 104,683 2,805
Clorox Co...................... 54,410 2,642
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
23
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Coca-Cola Co................... 621,335 $ 31,533
Coca-Cola Enterprises, Inc..... 115,700 2,530
Colgate-Palmolive Co........... 135,935 6,804
ConAgra Foods, Inc............. 135,646 3,580
Costco Wholesale Corp. (a)..... 115,751 4,304
CVS Corp....................... 99,792 3,604
General Mills, Inc............. 94,364 4,275
Gillette Co.................... 256,144 9,408
H.J. Heinz Co.................. 88,820 3,236
Hershey Foods Corp............. 33,504 2,579
Kellogg Co..................... 103,129 3,927
Kimberly-Clark Corp............ 127,664 7,544
Kroger Co. (a)................. 188,222 3,484
McCormick & Co., Inc........... 36,800 1,108
Pepsi Bottling Group, Inc...... 66,053 1,597
PepsiCo, Inc................... 435,010 20,280
Procter & Gamble Co............ 328,711 32,832
R.J. Reynolds Tobacco Holdings,
Inc.......................... 21,240 1,235
Safeway, Inc. (a).............. 111,793 2,449
Sara Lee Corp.................. 201,217 4,368
SuperValu, Inc................. 33,960 971
SYSCO Corp..................... 163,781 6,098
UST Corp....................... 41,647 1,486
Wal-Mart Stores, Inc........... 1,097,128 58,203
Walgreen Co.................... 259,610 9,445
Winn-Dixie Stores, Inc......... 31,710 316
Wrigley Wm., Jr. Co............ 56,716 3,188
----------
286,321
----------
ENERGY - 5.6%
Amerada Hess Corp.............. 22,502 1,196
Anadarko Petroleum Corp........ 63,554 3,242
Apache Corp.................... 40,965 3,322
Ashland, Inc................... 17,080 753
Baker Hughes, Inc.............. 84,480 2,717
BJ Services Co. (a)............ 40,055 1,438
Burlington Resources, Inc...... 51,128 2,831
ChevronTexaco Corp............. 270,947 23,407
ConocoPhillips................. 172,441 11,307
Devon Energy Corp.............. 58,761 3,365
EOG Resources, Inc............. 28,984 1,338
ExxonMobil Corp................ 1,675,702 68,704
Halliburton Co................. 111,386 2,896
Kerr-McGee Corp................ 26,136 1,215
Marathon Oil Corp.............. 78,234 2,589
Nabors Industries, Ltd. (a).... 38,215 1,586
Noble Corp. (a)................ 34,523 1,235
Occidental Petroleum Corp...... 98,123 4,145
Rowan Cos., Inc. (a)........... 23,639 548
Schlumberger, Ltd.............. 148,207 8,110
Sunoco, Inc.................... 19,228 983
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Transocean, Inc. (a)........... 82,295 $ 1,976
Unocal Corp.................... 66,788 2,460
----------
151,363
----------
FINANCIALS - 19.8%
ACE, Ltd....................... 70,455 2,918
AFLAC, Inc..................... 129,716 4,693
Allstate Corp.................. 178,107 7,662
Ambac Financial Group, Inc..... 27,047 1,877
American Express Co............ 325,873 15,717
American International Group,
Inc.......................... 661,083 43,817
AmSouth Bancorp................ 88,819 2,176
AON Corp....................... 81,323 1,947
Apartment Investment &
Management Co. Class A....... 25,000 862
Bank of America Corp........... 376,578 30,288
Bank of New York Co., Inc...... 195,779 6,484
Bank One Corp.................. 283,162 12,909
BB&T Corp...................... 138,618 5,356
Bear Stearns Cos., Inc......... 25,399 2,031
Capital One Financial Corp..... 58,315 3,574
Charles Schwab Corp............ 342,893 4,060
Charter One Financial, Inc..... 56,017 1,935
Chubb Corp..................... 48,039 3,271
Cincinnati Financial Corp...... 40,667 1,703
Citigroup, Inc................. 1,307,771 63,479
Comerica, Inc.................. 45,132 2,530
Countrywide Credit Industries,
Inc.......................... 46,363 3,517
Equity Office Properties
Trust........................ 102,541 2,938
Equity Residential............. 69,607 2,054
Fannie Mae..................... 246,229 18,482
Federal Home Loan Mortgage
Corp......................... 176,146 10,273
Federated Investors, Inc. Class
B............................ 27,400 804
Fifth Third Bancorp............ 144,100 8,516
First Tennessee National
Corp......................... 31,917 1,408
FleetBoston Financial Corp..... 267,085 11,658
Franklin Resources, Inc........ 64,244 3,345
Golden West Financial Corp..... 38,411 3,964
Goldman Sachs Group, Inc....... 119,900 11,838
Hartford Financial Services
Group, Inc................... 71,488 4,220
Huntington Bancshares, Inc..... 59,354 1,335
J.P. Morgan Chase & Co......... 517,014 18,990
Janus Capital Group, Inc....... 60,619 995
Jefferson-Pilot Corp........... 35,760 1,811
John Hancock Financial
Services, Inc................ 72,978 2,737
KeyCorp........................ 105,809 3,102
Lehman Brothers Holdings,
Inc.......................... 68,718 5,306
Lincoln National Corp.......... 45,731 1,846
Loews Corp..................... 47,514 2,350
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
24
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Marsh & McLennan Cos., Inc..... 134,136 $ 6,424
Marshall & Ilsley Corp......... 57,992 2,218
MBIA, Inc...................... 36,758 2,177
MBNA Corp...................... 323,402 8,037
Mellon Financial Corp.......... 108,723 3,491
Merrill Lynch & Co., Inc....... 239,427 14,042
MetLife, Inc................... 192,407 6,478
MGIC Investment Corp........... 24,962 1,421
Moody's Corp................... 37,865 2,293
Morgan Stanley................. 274,443 15,882
National City Corp............. 153,791 5,220
North Fork Bancorp, Inc........ 38,090 1,541
Northern Trust Corp............ 55,540 2,578
Plum Creek Timber Co., Inc..... 46,180 1,406
PNC Financial Services Group,
Inc.......................... 70,047 3,834
Principal Financial Group,
Inc.......................... 81,550 2,697
Progressive Corp............... 54,647 4,568
ProLogis....................... 45,200 1,450
Providian Financial Corp.
(a).......................... 73,473 855
Prudential Financial, Inc...... 136,700 5,710
Regions Financial Corp......... 56,389 2,098
SAFECO Corp.................... 36,364 1,416
Simon Property Group, Inc...... 48,263 2,237
SLM Corp....................... 113,942 4,293
SouthTrust Corp................ 83,779 2,742
St. Paul Cos., Inc............. 58,828 2,333
State Street Corp. (Note 4).... 84,525 4,402
SunTrust Banks, Inc............ 71,172 5,089
Synovus Financial Corp......... 77,604 2,244
T. Rowe Price Group, Inc....... 31,490 1,493
Torchmark Corp................. 28,776 1,310
Travelers Property Casualty
Corp. Class B................ 253,956 4,310
U.S. Bancorp................... 488,661 14,552
Union Planters Corp............ 49,344 1,554
UnumProvident Corp............. 74,435 1,174
Wachovia Corp.................. 335,326 15,623
Washington Mutual, Inc......... 227,713 9,136
Wells Fargo Co................. 428,811 25,253
XL Capital, Ltd. Class A....... 34,632 2,686
Zions Bancorp.................. 23,219 1,424
----------
538,469
----------
HEALTH CARE - 12.8%
Abbott Laboratories............ 396,167 18,461
Aetna, Inc..................... 38,532 2,604
Allergan, Inc.................. 33,191 2,549
AmerisourceBergen Corp......... 28,216 1,584
Amgen, Inc. (a)................ 326,875 20,201
Anthem, Inc. (a)............... 35,700 2,677
Applera Corp. - Applied
Biosystems Group............. 52,567 1,089
Bausch & Lomb, Inc............. 13,825 718
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Baxter International, Inc...... 155,626 $ 4,750
Becton, Dickinson & Co......... 64,929 2,671
Biogen Idec, Inc. (a).......... 82,673 3,041
Biomet, Inc.................... 64,441 2,346
Boston Scientific Corp. (a).... 207,396 7,624
Bristol-Myers Squibb Co........ 491,317 14,052
C.R. Bard, Inc................. 13,097 1,064
Cardinal Health, Inc........... 109,566 6,701
Chiron Corp. (a)............... 47,844 2,727
CIGNA Corp..................... 36,289 2,087
Eli Lilly & Co................. 284,497 20,009
Express Scripts, Inc (a)....... 19,900 1,322
Forest Laboratories, Inc.
(a).......................... 92,506 5,717
Genzyme Corp. (a).............. 57,105 2,818
Guidant Corp................... 77,964 4,693
HCA, Inc....................... 125,359 5,385
Health Management Associates,
Inc. Class A................. 62,198 1,493
Humana, Inc. (a)............... 40,925 935
IMS Health, Inc................ 60,181 1,496
Johnson & Johnson.............. 752,346 38,866
King Pharmaceuticals, Inc.
(a).......................... 63,532 969
Manor Care, Inc................ 23,151 800
McKesson Corp.................. 73,831 2,374
Medco Health Solutions, Inc.
(a).......................... 68,172 2,317
MedImmune, Inc. (a)............ 62,265 1,582
Medtronic, Inc................. 307,102 14,928
Merck & Co., Inc............... 563,903 26,052
Millipore Corp. (a)............ 11,728 505
Pfizer, Inc.................... 1,934,674 68,352
Quest Diagnostics, Inc. (a).... 27,000 1,974
Schering-Plough Corp........... 371,824 6,466
St. Jude Medical, Inc. (a)..... 43,597 2,675
Stryker Corp................... 50,404 4,285
Tenet Healthcare Corp. (a)..... 119,909 1,925
UnitedHealth Group, Inc........ 148,484 8,639
Watson Pharmaceuticals, Inc.
(a).......................... 27,003 1,242
WellPoint Health Networks, Inc.
(a).......................... 38,389 3,723
Wyeth.......................... 337,431 14,324
Zimmer Holdings, Inc. (a)...... 61,120 4,303
----------
347,115
----------
INDUSTRIALS - 10.5%
3M Co.......................... 198,884 16,911
Allied Waste Industries, Inc.
(a).......................... 82,667 1,147
American Power Conversion Corp.
(a).......................... 50,067 1,224
American Standard Cos., Inc.
(a).......................... 18,307 1,844
Apollo Group, Inc. (a)......... 44,875 3,051
Avery Dennison Corp............ 28,670 1,606
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
25
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Boeing Co...................... 213,045 $ 8,978
Burlington Northern Santa Fe
Corp......................... 94,750 3,065
Caterpillar, Inc............... 87,885 7,296
Cendant Corp. (a).............. 256,322 5,708
Cintas Corp.................... 43,082 2,160
Cooper Industries, Ltd......... 23,421 1,357
Crane Co....................... 15,002 461
CSX Corp....................... 54,724 1,967
Cummins, Inc................... 11,273 552
Danaher Corp................... 38,813 3,561
Deere & Co..................... 60,641 3,945
Delta Air Lines, Inc........... 31,293 370
Deluxe Corp.................... 12,720 526
Dover Corp..................... 51,413 2,044
Eaton Corp..................... 19,039 2,056
Emerson Electric Co............ 106,535 6,898
Equifax, Inc................... 35,969 881
FedEx Corp..................... 75,446 5,093
Fluor Corp..................... 20,406 809
General Dynamics Corp.......... 50,006 4,520
General Electric Co. (e)....... 2,545,623 78,863
Goodrich Co.................... 30,855 916
H&R Block, Inc................. 45,910 2,542
Honeywell International,
Inc.......................... 218,242 7,296
Illinois Tool Works, Inc....... 77,964 6,542
Ingersoll-Rand Co. Class A..... 44,550 3,024
ITT Industries, Inc............ 23,902 1,774
Lockheed Martin Corp........... 114,071 5,863
Masco Corp..................... 116,974 3,206
Monster Worldwide, Inc. (a).... 28,492 626
Navistar International Corp.
(a).......................... 17,880 856
Norfolk Southern Corp.......... 99,661 2,357
Northrop Grumman Corp.......... 46,339 4,430
PACCAR, Inc.................... 29,647 2,524
Pall Corp...................... 31,474 844
Parker-Hannifin Corp........... 30,023 1,786
Pitney Bowes, Inc.............. 59,839 2,431
Power-One, Inc. (a)............ 21,100 229
R.R. Donnelley & Sons Co....... 28,360 855
Raytheon Co.................... 106,314 3,194
Robert Half International, Inc.
(a).......................... 43,214 1,009
Rockwell Automation, Inc....... 47,820 1,702
Rockwell Collins, Inc.......... 44,819 1,346
Ryder Systems, Inc............. 15,680 535
Southwest Airlines Co.......... 202,140 3,263
Textron, Inc................... 34,275 1,956
Thomas & Betts Corp. (a)....... 16,142 369
Tyco International, Ltd........ 506,448 13,421
Union Pacific Corp............. 64,540 4,484
United Parcel Service, Inc.
Class B...................... 284,900 21,239
United Technologies Corp....... 119,157 11,292
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
W.W. Grainger, Inc............. 22,809 $ 1,081
Waste Management, Inc.......... 147,279 4,359
----------
284,244
----------
INFORMATION TECHNOLOGY - 17.0%
ADC Telecommunications, Inc.
(a).......................... 211,127 627
Adobe Systems, Inc............. 59,571 2,341
Advanced Micro Devices, Inc.
(a).......................... 87,384 1,302
Agilent Technologies, Inc.
(a).......................... 120,127 3,513
Altera Corp. (a)............... 96,878 2,199
Analog Devices, Inc............ 93,561 4,271
Andrew Corp. (a)............... 41,127 473
Apple Computer, Inc. (a)....... 91,346 1,952
Applied Materials, Inc. (a).... 421,161 9,455
Applied Micro Circuits Corp.
(a).......................... 77,142 461
Autodesk, Inc.................. 30,015 738
Automatic Data Processing,
Inc.......................... 150,438 5,959
Avaya, Inc. (a)................ 105,615 1,367
BMC Software, Inc. (a)......... 57,336 1,069
Broadcom Corp. (a)............. 75,746 2,582
CIENACorp. (a)................. 119,488 793
Cisco Systems, Inc. (a)........ 1,749,859 42,504
Citrix Systems, Inc. (a)....... 41,653 884
Computer Associates
International, Inc........... 148,144 4,050
Computer Sciences Corp. (a).... 47,982 2,122
Compuware Corp. (a)............ 95,257 575
Comverse Technology, Inc. (a).. 47,738 840
Concord EFS, Inc. (a).......... 120,040 1,781
Convergys Corp. (a)............ 36,005 629
Corning, Inc. (a).............. 340,285 3,549
Dell, Inc. (a)................. 648,891 22,036
Electronic Arts, Inc. (a)...... 76,400 3,650
Electronic Data Systems
Corp......................... 121,786 2,989
EMC Corp. (a).................. 608,341 7,860
First Data Corp................ 184,502 7,581
Fiserv, Inc. (a)............... 49,147 1,942
Gateway, Inc. (a).............. 82,065 378
Hewlett-Packard Co............. 772,619 17,747
Intel Corp..................... 1,655,903 53,320
International Business Machines
Corp......................... 436,118 40,419
Intuit, Inc. (a)............... 50,051 2,648
Jabil Circuit, Inc. (a)........ 49,813 1,410
JDS Uniphase Corp. (a)......... 362,319 1,323
KLA Tencor Corp. (a)........... 49,464 2,902
Lexmark International Group,
Inc. Class A (a)............. 32,602 2,564
Linear Technology Corp......... 78,875 3,318
LSI Logic Corp. (a)............ 96,135 853
Lucent Technologies, Inc.
(a).......................... 1,060,672 3,012
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
26
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Maxim Integrated Products,
Inc.......................... 84,056 $ 4,186
Mercury Interactive Corp.
(a).......................... 21,548 1,048
Micron Technology, Inc. (a).... 155,632 2,096
Microsoft Corp. (e)............ 2,741,204 75,493
Molex, Inc..................... 48,110 1,679
Motorola, Inc.................. 589,298 8,292
National Semiconductor Corp.
(a).......................... 46,609 1,837
NCR Corp. (a).................. 23,992 931
Network Appliance, Inc. (a).... 87,867 1,804
Novell, Inc. (a)............... 93,442 983
Novellus Systems, Inc. (a)..... 39,469 1,660
NVIDIA Corp. (a)............... 40,351 938
Oracle Corp. (a)............... 1,324,338 17,481
Parametric Technology Corp.
(a).......................... 59,341 234
Paychex, Inc................... 95,227 3,543
PeopleSoft, Inc. (a)........... 92,323 2,105
PerkinElmer, Inc............... 32,157 549
PMC-Sierra, Inc. (a)........... 44,724 901
QLogic Corp. (a)............... 23,845 1,230
QUALCOMM, Inc.................. 202,639 10,928
Sabre Holdings Corp. Class A... 38,324 827
Sanmina-SCI Corp. (a).......... 128,958 1,626
Scientific-Atlanta, Inc........ 39,868 1,088
Siebel Systems, Inc. (a)....... 128,558 1,783
Solectron Corp. (a)............ 210,214 1,242
Sun Microsystems, Inc. (a)..... 825,388 3,706
SunGard Data Systems, Inc.
(a).......................... 72,350 2,005
Symantec Corp. (a)............. 77,700 2,692
Symbol Technologies, Inc....... 58,485 988
Tektronix, Inc. (a)............ 21,029 665
Tellabs, Inc. (a).............. 104,775 883
Teradyne, Inc. (a)............. 50,292 1,280
Texas Instruments, Inc......... 438,403 12,880
Thermo Electron Corp. (a)...... 41,129 1,037
Unisys Corp. (a)............... 85,779 1,274
VERITAS Software Corp. (a)..... 109,083 4,054
Waters Corp. (a)............... 31,157 1,033
Xerox Corp. (a)................ 199,842 2,758
Xilinx, Inc. (a)............... 86,704 3,359
Yahoo!, Inc. (a)............... 166,390 7,516
----------
462,602
----------
MATERIALS - 3.0%
Air Products & Chemicals,
Inc.......................... 58,189 3,074
Alcoa, Inc..................... 219,046 8,324
Allegheny Technologies, Inc.... 17,729 234
Ball Corp...................... 14,285 851
Bemis Co., Inc................. 13,464 673
Boise Cascade Corp............. 21,519 707
Dow Chemical Co................ 233,099 9,690
E.I. Du Pont de Nemours & Co... 252,439 11,584
Eastman Chemical Co............ 20,062 793
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Ecolab, Inc.................... 65,426 $ 1,791
Engelhard Corp................. 33,330 998
Freeport-McMoRan Copper & Gold,
Inc. Class B................. 43,114 1,816
Georgia-Pacific Group.......... 64,340 1,973
Great Lakes Chemical Corp...... 12,803 348
Hercules, Inc. (a)............. 28,098 343
International Flavors &
Fragrances, Inc.............. 24,704 863
International Paper Co......... 122,756 5,292
Louisiana Pacific Corp. (a).... 26,459 473
MeadWestvaco Corp.............. 52,488 1,562
Monsanto Co.................... 65,946 1,898
Newmont Mining Corp............ 109,342 5,315
Nucor Corp..................... 20,202 1,131
Pactiv Corp. (a)............... 40,964 979
Phelps Dodge Corp. (a)......... 23,005 1,750
PPG Industries, Inc............ 43,290 2,771
Praxair, Inc................... 82,120 3,137
Rohm & Haas Co................. 56,696 2,422
Sealed Air Corp. (a)........... 21,136 1,144
Sigma Aldrich Corp............. 17,993 1,029
Temple-Inland, Inc............. 14,314 897
United States Steel Corp....... 26,002 911
Vulcan Materials Co............ 25,496 1,213
Weyerhaeuser Co................ 55,524 3,554
Worthington Industries, Inc.... 21,829 394
----------
79,934
----------
TELECOMMUNICATION SERVICES - 3.3%
Alltel Corp.................... 78,798 3,670
AT&T Corp...................... 199,647 4,053
AT&T Wireless Services, Inc.
(a).......................... 694,238 5,547
BellSouth Corp................. 468,128 13,248
CenturyTel, Inc................ 36,608 1,194
Citizens Communications Co.
(a).......................... 72,077 895
Nextel Communications, Inc.
Class A (a).................. 278,336 7,810
Qwest Communications
International, Inc. (a)...... 434,922 1,879
SBC Communications, Inc........ 839,004 21,873
Sprint Corp. (Fon Group)....... 228,384 3,750
Sprint Corp. (PCS Group) (a)... 267,678 1,504
Verizon Communications, Inc.... 699,898 24,553
----------
89,976
----------
UTILITIES - 2.7%
AES Corp. (a).................. 155,914 1,472
Allegheny Energy, Inc. (a)..... 31,899 407
Ameren Corp.................... 41,442 1,906
American Electric Power Co.,
Inc.......................... 100,554 3,068
Calpine Corp. (a).............. 114,452 550
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
27
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
CenterPoint Energy, Inc........ 77,193 $ 748
Cinergy Corp................... 45,958 1,784
CMS Energy Corp................ 36,505 311
Consolidated Edison, Inc....... 57,022 2,452
Constellation Energy Group,
Inc.......................... 42,303 1,657
Dominion Resources, Inc........ 82,987 5,297
DTE Energy Co.................. 43,746 1,724
Duke Energy Corp............... 229,477 4,693
Dynegy, Inc. Class A........... 94,930 406
Edison International (a)....... 82,662 1,813
El Paso Corp................... 153,494 1,257
Entergy Corp................... 58,843 3,362
Exelon Corp.................... 82,689 5,487
FirstEnergy Corp............... 83,512 2,940
FPL Group, Inc................. 46,489 3,041
KeySpan Corp................... 40,206 1,480
Kinder Morgan, Inc............. 31,038 1,834
NICOR, Inc..................... 11,213 382
NiSource, Inc.................. 65,967 1,447
Peoples Energy Corp............ 9,331 392
PG&E Corp. (a)................. 106,123 2,947
Pinnacle West Capital Corp..... 23,081 924
PPL Corp....................... 45,768 2,002
Progress Energy, Inc........... 61,808 2,797
Public Service Enterprise
Group, Inc................... 60,722 2,660
Sempra Energy.................. 56,689 1,704
Southern Co.................... 185,258 5,604
TECO Energy, Inc............... 50,776 732
TXU Corp....................... 81,548 1,934
Williams Cos., Inc............. 135,837 1,334
Xcel Energy, Inc............... 100,397 1,705
----------
74,253
----------
TOTAL COMMON STOCKS (COST
$2,242,328,348).......... 2,608,229
----------
<Caption>
PAR
AMOUNT VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
GOVERNMENT AND AGENCY SECURITIES - 0.2%
United States Treasury Bill
0.87% due 03/11/04 (b)(c).... $ 5,910 $ 5,900
----------
TOTAL GOVERNMENT AND AGENCY
SECURITIES (COST
$5,900,002).............. 5,900
----------
</Table>
<Table>
<Caption>
SHARES
--------------
(IN THOUSANDS)
SHORT TERM INVESTMENTS - 4.6%
AIM Short Term Investment Prime
Portfolio.................... 53,762 53,762
Federated Money Market
Obligations Trust............ 482 482
State Street Navigator
Securities Lending Prime
Portfolio (d)................ 71,147 71,147
----------
TOTAL SHORT TERM INVESTMENTS
(COST $134,458,153).......................... 125,391
----------
TOTAL INVESTMENTS - 100.9% (IDENTIFIED COST
$2,382,686,503).............................. 2,739,520
----------
OTHER ASSETS AND LIABILITIES NET - (0.9)%......
(24,848)
----------
NET ASSETS - 100%.............................. $2,714,672
==========
</Table>
SCHEDULE OF FUTURES CONTRACTS
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS APPRECIATION
--------- ------------
(DOLLARS IN THOUSANDS)
S&P 500 Financial Futures
Contracts (long) Expiration
date 03/2004............... 387 $2,016
------
Total unrealized appreciation
on open futures contracts
purchased.................. $2,016
======
</Table>
- ---------------
(a) Non-income producing security.
(b) Security held as collateral in relation to initial margin requirements on
futures contracts.
(c) Rate represents annualized yield at date of purchase.
(d) Security represents investment made with cash collateral received from
securities loaned.
(e) All or a portion of these securities have been pledged to cover collateral
requirements for open futures con-tracts.
See notes to financial statements.
- --------------------------------------------------------------------------------
28
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
- --------------------------------------------------------------------------------
(amounts in thousands)
<Table>
ASSETS:
Unaffiliated investments at market (identified cost
$2,299,614) - including $78,107 of securities loaned
(Note 2)............................................... $2,663,971
Affiliated investments at market (identified cost
$74,005) (Note 4)...................................... 75,549
Receivables:
Investment securities sold.......................... 42,495
Dividends and interest.............................. 3,624
Daily variation margin on futures contracts......... 281
----------
TOTAL ASSETS........................................ 2,785,920
----------
LIABILITIES:
Payables:
Due upon return of securities loaned................ 71,147
Management fees (Note 4)............................ 101
----------
TOTAL LIABILITIES................................... 71,248
----------
NET ASSETS.................................................. $2,714,672
==========
COMPOSITION OF NET ASSETS
Paid-in capital......................................... $2,346,755
Net unrealized appreciation on investments and futures
contracts.............................................. 367,917
----------
NET ASSETS.................................................. $2,714,672
==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
29
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
(amounts in thousands)
<Table>
INVESTMENT INCOME:
Dividend income - unaffiliated issuers.................. $ 39,328
Dividend income - non-controlled affiliated issuers..... 44
Interest................................................ 827
Security lending income (Notes 2 and 4)................. 82
--------
TOTAL INVESTMENT INCOME............................. 40,281
EXPENSES:
Management fees (Note 4)................................ $ 1,017
---------
TOTAL EXPENSES...................................... 1,017
--------
NET INVESTMENT INCOME....................................... 39,264
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments......................................... (107,517)
Futures contracts................................... 16,773
---------
(90,744)
--------
Net change in unrealized appreciation (depreciation) on:
Investments......................................... 638,263*
Futures contracts................................... 2,832
---------
641,095
--------
Net realized and unrealized gain............................ 550,351
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $589,615
========
</Table>
- ---------------
* Excludes unrealized depreciation of $1,680 on contributed securities.
See notes to financial statements.
- --------------------------------------------------------------------------------
30
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
(AMOUNTS IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income......................... $ 39,264 $ 34,956
Net realized loss on investments, futures
contracts, and withdrawals in-kind........... (90,744) (70,428)
Net change in unrealized appreciation
(depreciation)............................ 641,095 (532,213)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. 589,615 (567,685)
---------- ----------
CAPITAL TRANSACTIONS:
Proceeds from contributions................... 547,305 557,561
Contributions in-kind......................... 19,659 41,343
Fair value of withdrawals..................... (434,455) (520,988)
Withdrawals in-kind........................... -- (209,981)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL TRANSACTIONS...................... 132,509 (132,065)
---------- ----------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS....... 722,124 (699,750)
NET ASSETS
Beginning of year............................. 1,992,548 2,692,298
---------- ----------
END OF YEAR................................... $2,714,672 $1,992,548
========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
31
STATE STREET EQUITY 500 INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected supplemental data and ratios to
average net assets:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000*
------------ ------------ ------------ ------------
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (in thousands)........ $2,714,672 $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.................... 1.74% 1.57% 1.34% 1.14%+
Portfolio turnover rate**..................... 12% 13% 14% 18%++
Total return (a).............................. 28.62% (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.
- --------------------------------------------------------------------------------
32
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
- --------------------------------------------------------------------------------
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 December 31, 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&P 500 Index"). The Portfolio uses a passive
management strategy designed to track the performance of the S&P 500 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, Investment Income and Expenses
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.
- --------------------------------------------------------------------------------
33
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
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&P 500 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 contracts 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 domestic 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 year ended December 31, 2003, the earned income for the Portfolio and
State Street was $81,642 and $27,214, 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 December 31,
2003, the value of the securities loaned amounted to $78,107,395. The loans were
collateralized with cash of $71,146,646, which the Portfolio then invested in
the State Street Navigator Securities Lending Prime Portfolio (the "Prime
Portfolio"), an affiliated investment company, and letters of credit from
JPMorgan Chase Bank and BNP Paribas in the amounts of $3,321,220 and $5,646,074,
respectively.
- --------------------------------------------------------------------------------
34
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
3. SECURITIES TRANSACTIONS:
For the year ended December 31, 2003, purchases and sales of investment
securities, excluding short-term investments, futures contracts, and in-kind
contributions and withdrawals, aggregated to $406,389,749 and $259,097,959,
respectively. The aggregate value of in-kind contributions and withdrawals were
$19,659,189 and $0, respectively.
At December 31, 2003, the cost of investments computed on a federal income
tax basis was $2,575,543,868. The aggregate gross unrealized appreciation and
gross unrealized depreciation was $587,116,576 and $423,141,026, respectively,
resulting in net appreciation of $163,975,550. The differences between book and
tax cost amounts are primarily due to wash sales loss deferrals.
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, audit and trustees fees
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&P 500 Index. The market value of each of these investments at
December 31, 2003 is listed in the Portfolio of Investments.
During the year, the Portfolio had investment transactions executed through
State Street Global Markets LLC, a wholly owned subsidiary of State Street
Corp., and an affiliated broker-dealer of SSgA. For the year ended December 31,
2003, the Portfolio paid brokerage commissions to State Street Global Markets
LLC of $366,175.
- --------------------------------------------------------------------------------
35
STATE STREET EQUITY 500 INDEX PORTFOLIO
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Trustees of State Street Master Funds and
Owners of Beneficial Interest of State Street Equity 500 Index Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the State Street Equity 500 Index
Portfolio (one of the portfolios constituting State Street Master Funds) (the
"Portfolio") as of December 31, 2003, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
State Street Equity 500 Index Portfolio of State Street Master Funds at December
31, 2003, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein, in conformity
with accounting principles generally accepted in the United States.
-s-
ERNST & YOUNG LLP
Boston, Massachusetts
February 6, 2004
- --------------------------------------------------------------------------------
36
STATE STREET EQUITY 500 INDEX PORTFOLIO
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
STATE STREET MASTER FUNDS
<Table>
<Caption>
NUMBER OF
FUNDS IN FUND OTHER
POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS
NAME, ADDRESS, AND HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY HELD BY
AGE TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE TRUSTEE
- ------------------ ----------- ---------------- -------------------------- ------------- ---------------
INDEPENDENT TRUSTEES
Michael F. Holland Trustee and Term: Indefinite Chairman, Holland & 14 Trustee, State
Holland & Company, LLC Chairman of Elected: 7/99 Company L.L.C. (investment Street
375 Park Avenue the Board adviser) (1995-present). Institutional
New York, NY 10152 Investment
Age: 59 Trust; Director
of the Holland
Series Fund,
Inc.; and
Director, The
China Fund,
Inc.
William L. Boyan Trustee Term: Indefinite Trustee of Old Mutual 14 Trustee, State
State Street Master Elected: 7/99 South Africa Master Trust Street
Funds (investments) (1995- Institutional
P.O. Box 5049 present); Chairman Investment
Boston, MA 02206 emeritus, Children's Trust; and
Age: 67 Hospital (1984-present);
Rina K. Spence Trustee Term: Indefinite Director, Boston Plan For 14 Trustee, Old
7 Acacia Street Elected: 7/99 Excellence (non-profit) Mutual South
Cambridge, MA 02138 (1994-present); President Africa Master
Age: 55 and Chief Operations Trust Trustee,
Officer, John Hancock State Street
Mutual Life Insurance Institutional
Company (1959-1999). Mr. Investment
Boyan retired in 1999. Trust; Director
President of SpenceCare of Berkshire
International LLC (1998- Life Insurance
present); Member of the Company of
Advisory Board, Ingenium America; and
Corp., (technology Director,
company) (2001-present); IEmily.com
Chief Executive Officer,
IEmily.com, (internet
company (2000-2001); Chief
Executive Officer of
Consensus Pharmaceutical,
Inc., (1998-1999);
Founder, President, and
Chief Executive Officer of
Spence Center for Woman's
Health (1994-1998);
Trustee, Eastern
Enterprise, (utilities)
(1988-2000).
</Table>
- --------------------------------------------------------------------------------
37
STATE STREET EQUITY 500 INDEX PORTFOLIO
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
FUNDS IN FUND OTHER
POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS
NAME, ADDRESS, AND HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY HELD BY
AGE TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE TRUSTEE
- ------------------ ----------- ---------------- -------------------------- ------------- ---------------
Douglas T. Williams Trustee Term: Indefinite Executive Vice President 14 Trustee, State
State Street Master Elected: 7/99 of Chase Manhattan Bank, Street
Funds (1987-1999). Mr. Williams Institutional
P.O. Box 5049 retired in 1999. Investment
Boston, MA 02206 Trust
Age: 63
OFFICERS
Donald A. Gignac President Term: Indefinite Senior Vice President of -- --
State Street Bank and Elected: 8/03 State Street Bank and
Trust Company Trust Company
2 Avenue de Lafayette (2002-present); Vice
Boston, MA 02111 President of State Street
Age: 38 Bank and Trust Company
(1993 to 2002).
Karen Gillogly Treasurer Term: Indefinite Vice President of State -- --
State Street Bank and Elected: 9/03 Street Bank and Trust
Trust Company Company (1999-present);
One Federal Street Audit Senior Manager,
Boston, MA 02110 Ernst & Young LLP (1998 -
Age: 37 1999).
Julie A. Tedesco Secretary Term: Indefinite Vice President and Counsel -- --
State Street Bank and Elected: 5/00 of State Street Bank &
Trust Company Trust Company
One Federal Street (2000-present); Counsel of
Boston, MA 02110 First Data Investor
Age: 46 Services Group, Inc.,
(1994-2000).
</Table>
- --------------------------------------------------------------------------------
38
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
COMMON STOCKS
Advertising Agencies - 0.45%
ADVO Systems, Inc. ...... 9,135 $ 290,128
+aQuantive, Inc. ......... 12,800 131,200
+Catalina Marketing
Corporation............. 11,200 225,792
Grey Global Group Inc. .. 328 224,040
+R.H. Donnelley
Corporation............. 6,133 244,339
+ValueClick, Inc. ........ 23,200 210,656
------------
1,326,155
------------
Aerospace - 0.3%
Curtiss-Wright
Corporation............ 5,934 267,089
+Ducommun Incorporated.... 2,100 46,935
HEICO Corporation (Class
A)..................... 2,826 51,433
+MTC Technologies, Inc. .. 1,600 51,552
+Moog Inc. (Class A)...... 4,706 232,476
+Orbital Sciences
Corporation............. 15,335 184,327
+Teledyne Technologies
Incorporated............ 11,434 215,531
United Industrial
Corporation............ 5,100 92,055
------------
1,141,398
------------
Agriculture,Fishing & Ranching - 0.1%
Alico, Inc. ............. 900 31,284
Delta and Pine Land
Company................ 11,778 299,161
+Virbac Corporation....... 2,700 13,500
------------
343,945
------------
Air Transport - 1.0%
+AAR Corp. ............... 11,568 172,942
+AMR Corporation.......... 54,800 709,660
+AirTran Holdings,
Inc. ................... 23,420 278,698
+Alaska Air Group,
Inc. ................... 6,699 182,816
+America West Holdings
Corporation (Class B)... 12,000 148,800
+Atlantic Coast Airlines
Holdings, Inc. ......... 11,523 114,078
+Aviall, Inc. ............ 8,700 134,937
+Continental Airlines,
Inc. (Class B).......... 22,500 366,075
+EGL, Inc. ............... 11,095 194,828
+ExpressJet Holdings,
Inc. ................... 7,700 115,500
+Frontier Airlines,
Inc. ................... 10,255 146,236
+MAIR Holdings, Inc. ..... 2,944 21,432
+Mesa Air Group, Inc. .... 9,656 120,893
+Northwest Airlines
Corporation............. 21,200 267,544
+Offshore Logistics,
Inc. ................... 8,785 215,408
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Petroleum Helicopters,
Inc. (Voting Shares).... 1,100 $ 26,070
SkyWest, Inc. ........... 16,700 302,604
------------
3,518,521
------------
Aluminum - 0.0%
+Century Aluminum
Company................. 3,802 72,276
------------
Auto Parts - After Market - 0.2%
+Aftermarket Technology
Corp. .................. 4,100 56,252
+Keystone Automotive
Industries, Inc. ....... 3,000 76,080
+Raytech Corporation...... 5,900 19,588
+Sports Resorts
International, Inc. .... 3,500 16,100
Standard Motor Products,
Inc. .................. 3,100 37,665
Superior Industries
International, Inc. ... 7,899 343,764
+TBC Corporation.......... 5,300 136,793
------------
686,242
------------
Auto Parts - Original Equipment - 0.3%
+Collins & Aikman
Corporation............. 9,678 41,906
+Dura Automotive Systems,
Inc. ................... 6,053 77,297
Sauer-Danfoss, Inc. ..... 2,273 36,823
+Stoneridge, Inc. ........ 3,687 55,489
+Strattec Security
Corporation............. 800 48,728
+Tenneco Automotive
Inc. ................... 11,300 75,597
+Tower Automotive, Inc. .. 16,771 114,546
Visteon Corporation...... 45,400 472,614
------------
923,000
------------
Auto Trucks & Parts - 0.3%
+A.S.V., Inc. ............ 3,000 112,080
Modine Manufacturing
Co. ................... 7,794 210,282
Oshkosh Truck
Corporation............ 9,526 486,112
+Wabash National
Corporation............. 9,045 265,019
------------
1,073,493
------------
Banks - Outside New York City - 6.9%
1st Source Corporation... 3,840 82,598
ABC Bancorp.............. 2,900 46,313
AMCORE Financial, Inc. .. 9,118 246,368
Alabama National
BanCorporation......... 2,421 127,224
Allegiant Bancorp,
Inc. .................. 5,300 148,665
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
39
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
American National
Bankshares Inc. ....... 1,300 $ 34,424
+AmericanWest
Bancorporation.......... 1,500 34,200
Arrow Financial
Corporation............ 2,447 67,953
BancFirst Corporation.... 1,045 61,344
BancTrust Financial
Group, Inc. ........... 500 8,005
Bank of Granite Corp. ... 3,986 86,815
Bank of the Ozarks,
Inc. .................. 1,600 36,016
Banner Corporation....... 4,013 100,927
Boston Private Financial
Holdings, Inc. ........ 7,593 188,610
Bryn Mawr Bank
Corporation............ 2,200 53,878
C&F Financial
Corporation............ 1,500 59,550
CB Bancshares, Inc. ..... 1,550 97,030
CCBT Financial Companies
Inc. .................. 2,500 87,375
CNB Financial
Corporation............ 600 25,248
CVB Financial Corp. ..... 9,829 189,592
Camden National
Corporation............ 1,500 45,540
Capital City Bank Group,
Inc. .................. 2,477 113,917
+Capital Corp of the
West.................... 2,300 91,172
Capitol Bancorp Ltd. .... 1,700 48,280
Cascade Bancorp.......... 5,700 109,725
Cathay Bancorp, Inc. .... 7,022 390,985
Cavalry Bancorp, Inc. ... 300 5,271
Center Bancorp, Inc. .... 3,800 74,708
Center Financial
Corporation............ 600 16,350
+Central Coast Bancorp.... 2,533 45,949
Central Pacific Financial
Corp. ................. 4,338 130,314
Century Bancorp, Inc.
(Class A).............. 1,700 60,282
Chemical Financial
Corporation............ 6,851 249,308
Chittenden Corporation... 11,626 391,099
Citizens Banking
Corporation............ 15,800 516,976
City Holding Company..... 6,193 216,755
CityBank................. 2,199 71,467
CoBiz Inc. .............. 2,184 40,229
Columbia Bancorp......... 4,000 127,800
Columbia Bancorp
(Oregon)............... 4,300 74,175
Columbia Banking System,
Inc. .................. 5,735 124,220
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Commercial Bankshares,
Inc. .................. 300 $ 10,068
Community Bank System,
Inc. .................. 3,600 176,400
Community Banks, Inc. ... 2,200 86,482
Community First
Bankshares, Inc. ...... 12,740 368,696
Community Trust Bancorp,
Inc. .................. 3,267 98,663
Corus Bankshares,
Inc. .................. 4,752 149,973
East West Bancorp,
Inc. .................. 7,898 423,965
Eastern Virginia
Bankshares, Inc. ...... 500 14,010
Exchange National
Bancshares, Inc. ...... 600 21,690
FLAG Financial
Corporation............ 400 5,160
FNB Corporation (North
Carolina).............. 2,300 48,714
FNB Corporation
(Virginia)............. 1,800 53,460
Farmers Capital Bank
Corporation............ 1,785 60,690
Financial Institutions,
Inc. .................. 1,600 45,168
First Bancorp............ 1,924 60,433
First Busey
Corporation............ 2,576 69,552
First Charter
Corporation............ 8,023 156,850
First Citizens Banc
Corp................... 2,100 59,325
First Citizens
BancShares, Inc. (Class
A)..................... 1,747 212,313
First Commonwealth
Financial
Corporation............ 16,534 235,775
First Community Bancorp.. 4,800 173,472
First Community
Bancshares, Inc. ...... 2,794 92,649
First Essex Bancorp,
Inc. .................. 2,416 140,466
First Financial
Bancorp................ 9,587 152,913
First Financial
Bankshares, Inc. ...... 3,965 165,340
First Financial
Corporation............ 4,244 127,362
The First of Long Island
Corporation............ 600 25,794
First M&F Corporation.... 400 15,160
First Merchants
Corporation............ 4,546 116,014
First National
Corporation............ 2,230 66,922
First Oak Brook
Bancshares, Inc. ...... 1,050 31,510
First South Bancorp,
Inc. .................. 1,000 36,500
First State
Bancorporation......... 3,300 114,675
First United
Corporation............ 900 21,933
Firstbank Corporation.... 2,835 88,339
Foothill Independent
Bancorp................ 200 4,732
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
40
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Franklin Financial
Corporation............ 300 $ 9,216
Frontier Financial
Corporation............ 4,041 134,000
GB&T Bancshares, Inc. ... 400 9,452
German American
Bancorp................ 1,935 33,862
Glacier Bancorp, Inc. ... 4,760 154,224
Gold Banc Corporation.... 13,622 191,525
Greater Bay Bancorp...... 18,000 512,640
Greater Community
Bancorp................ 205 3,479
Greene County Bancshares,
Inc. .................. 1,100 25,608
Hancock Holding
Company................ 3,927 214,296
Hanmi Financial
Corporation............ 1,500 29,655
Harleysville National
Corporation............ 7,448 224,185
Heartland Financial USA,
Inc. .................. 3,300 61,380
+Heritage Commerce
Corp. .................. 5,200 63,700
Humboldt Bancorp......... 5,180 90,754
IBT Bancorp, Inc. ....... 300 17,769
Independent Bank
Corporation
(Massachusetts)........ 3,745 107,931
Independent Bank
Corporation
(Michigan)............. 6,281 178,129
Integra Bank
Corporation............ 4,874 107,115
Interchange Financial
Services Corporation... 3,300 83,490
International Bancshares
Corporation............ 1 47
Irwin Financial
Corporation............ 6,048 189,907
LNB Bancorp, Inc. ....... 400 8,120
LSB Bancshares, Inc. .... 2,700 46,980
Lakeland Bancorp,
Inc. .................. 3,598 57,784
Lakeland Financial
Corporation............ 1,600 56,512
MASSBANK Corp. .......... 1,700 72,420
MB Financial, Inc. ...... 8,250 300,300
MBT Financial Corp. ..... 3,377 55,754
Macatawa Bank
Corporation............ 2,450 69,360
Main Street Banks,
Inc. .................. 3,100 82,150
MainSource Financial
Group, Inc. ........... 1,911 58,610
Mercantile Bank
Corporation............ 2,900 105,850
Mercantile Bankshares
Corporation............ 1 46
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Merchants Bancshares,
Inc. .................. 2,000 $ 61,100
Mid-State Bancshares..... 7,450 189,528
Midwest Banc Holdings,
Inc. .................. 4,280 95,230
NBC Capital Corporation.. 2,029 54,113
NBT Bancorp Inc. ........ 8,613 184,663
Nara Bancorp, Inc. ...... 3,800 103,740
National Bankshares,
Inc. .................. 500 25,120
National Penn Bancshares,
Inc. .................. 6,130 196,896
Northern States Financial
Corporation............ 100 2,890
Oak Hill Financial,
Inc. .................. 1,800 55,458
Old Second Bancorp,
Inc. .................. 1,988 98,406
Omega Financial
Corporation............ 2,541 97,803
Oriental Financial Group
Inc. .................. 3,653 93,885
PAB Bankshares, Inc. .... 400 6,216
Pacific Capital
Bancorp................ 12,733 468,829
Pacific Union Bank....... 2,100 53,613
Patriot Bank Corp. ...... 4,500 128,745
Peapack-Gladstone
Financial
Corporation............ 2,080 64,480
PennRock Financial
Services Corp. ........ 1,661 51,624
Penns Woods Bancorp,
Inc. .................. 1,540 71,918
Peoples Bancorp Inc. .... 2,310 68,168
The Peoples Holding
Company................ 2,332 76,956
PrivateBancorp, Inc. .... 2,850 129,732
Prosperity Bancshares,
Inc. .................. 5,600 126,112
Provident Bancshares
Corporation............ 8,414 247,708
R & G Financial
Corporation (Class B).. 6,741 268,292
Republic Bancorp,
Inc. .................. 20,390 275,061
Republic Bancorp, Inc.
(Class A).............. 3,409 66,612
Republic Bancshares,
Inc. .................. 3,034 95,480
Resource Bankshares
Corporation............ 2,250 70,943
Riggs National
Corporation............ 6,801 112,421
Royal Bancshares of
Pennsylvania, Inc. .... 1,389 35,420
S&T Bancorp, Inc. ....... 8,163 244,074
S.Y. Bancorp, Inc. ...... 2,700 55,512
Sandy Spring Bancorp,
Inc. .................. 7,114 266,064
Santander BanCorp........ 1,458 35,502
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
41
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Seacoast Banking
Corporation of
Florida................ 3,555 $ 61,715
Second Bancorp,
Incorporated........... 2,317 61,169
Security Bank
Corporation............ 700 22,050
Shore Bancshares,
Inc. .................. 900 33,579
Sierra Bancorp........... 100 1,568
+Silicon Valley
Bancshares.............. 10,400 375,128
Simmons First National
Corporation (Class A).. 4,200 117,180
The South Financial
Group, Inc. ........... 22,338 622,337
Southern Financial
Bancorp, Inc. ......... 2,730 117,581
Southside Bancshares,
Inc. .................. 3,885 71,873
Southwest Bancorp,
Inc. .................. 3,400 60,792
Southwest Bancorporation
of Texas, Inc. ........ 10,024 389,432
State Bancorp, Inc. ..... 1,965 47,671
State Financial Services
Corporation............ 500 13,280
Sterling Bancshares,
Inc. .................. 15,276 203,629
Sterling Financial
Corporation............ 5,250 145,688
Suffolk Bancorp.......... 3,400 117,402
Summit Bancshares,
Inc. .................. 2,500 69,650
Sun Bancorp, Inc. ....... 1,600 30,336
+Sun Bancorp, Inc. (New
Jersey)................. 3,070 81,048
Susquehanna Bancshares,
Inc. .................. 13,904 347,739
Taylor Capital Group,
Inc. .................. 100 2,663
Texas Regional
Bancshares, Inc. (Class
A)..................... 8,384 310,208
Tompkins Trustco,
Inc. .................. 2,520 116,046
TriCo Bancshares......... 1,700 53,652
Troy Financial
Corporation............ 2,845 99,575
The Trust Company of New
Jersey................. 5,880 233,318
TrustCo Bank Corp. NY.... 26,116 343,425
UCBH Holdings, Inc. ..... 14,398 561,090
UMB Financial
Corporation............ 4,976 236,559
U.S.B. Holding Co.,
Inc. .................. 3,448 66,857
Umpqua Holdings
Corporation............ 10,470 217,671
Union Bankshares
Corporation............ 2,300 70,150
United Community Banks,
Inc. .................. 5,000 164,500
United National Bancorp.. 7,691 274,799
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
United Security
Bancshares, Inc. ...... 1,000 $ 27,090
United Security
Bancshares, Inc.
(California)........... 100 2,728
Unizan Financial
Corp. ................. 6,519 132,010
+Virginia Commerce
Bancorp, Inc. .......... 4,400 140,932
Virginia Financial Group,
Inc. .................. 2,200 78,144
Washington Trust Bancorp,
Inc. .................. 3,800 99,560
Wayne Bancorp, Inc. ..... 2,205 56,779
WesBanco, Inc. .......... 6,063 167,884
West Bancorporation...... 3,500 60,550
West Coast Bancorp....... 3,400 72,556
+Western Sierra Bancorp... 1,980 93,060
Wintrust Financial
Corporation............ 7,600 342,760
Yadkin Valley Bank &
Trust Company.......... 1,000 17,100
Yardville National
Bancorp................ 3,600 92,664
------------
23,217,566
------------
Beverage - Brewers (Wineries) - 0.1%
+The Boston Beer Company,
Inc. (Class A).......... 2,200 39,908
+The Robert Mondavi
Corporation (Class A)... 3,542 137,571
------------
177,479
------------
Beverage - Soft Drinks - 0.1%
Coca-Cola Bottling Co.
Consolidated........... 687 36,748
Farmer Brothers Co. ..... 171 53,224
+Green Mountain Coffee,
Inc. ................... 1,011 23,273
+National Beverage
Corp. .................. 1,895 30,889
+Peets Coffee & Tea
Inc. ................... 4,600 80,086
------------
224,220
------------
Biotechnology - Research & Production - 2.4%
+ARIAD Pharmaceuticals,
Inc. ................... 17,419 129,772
+AVANT Immunotherapeutics,
Inc. ................... 27,900 76,446
+AVI BioPharma, Inc. ..... 8,000 32,560
+Abgenix, Inc. ........... 29,000 361,340
+Aclara Biosciences
Inc. ................... 4,200 15,330
+Aksys,Ltd. .............. 9,500 83,885
+Albany Molecular
Research, Inc. ......... 6,687 100,439
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
42
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Alexion Pharmaceuticals,
Inc. ................... 5,580 $ 94,972
+Alteon Inc. ............. 10,600 16,642
+Antigenics Inc. ......... 7,113 80,519
+Applera Corporation -
Celera Genomics Group... 22,000 306,020
+Arena Pharmaceuticals,
Inc. ................... 5,800 35,960
+ArthroCare Corporation... 7,420 181,790
+BioReliance Corporation.. 2,100 100,422
+Cell Genesys, Inc. ...... 10,624 137,475
+Cell Therapeutics,
Inc. ................... 9,831 85,530
+Ciphergen Biosystems,
Inc. ................... 6,100 68,564
+Corixa Corporation....... 17,557 106,044
+Cubist Pharmaceuticals,
Inc. ................... 11,367 138,223
+CuraGen Corporation...... 12,900 94,557
+DOV Pharmaceutical,
Inc. ................... 4,100 55,227
+deCODE GENETICS, Inc. ... 16,800 137,592
+Digene Corporation....... 3,924 157,352
+Discovery Laboratories,
Inc. ................... 13,900 145,811
+Diversa Corporation...... 10,478 96,921
+Encysive Pharmaceuticals
Inc. ................... 19,696 176,279
+Enzon, Inc. ............. 13,500 162,000
+Exact Sciences
Corporation............. 6,500 65,780
+Exelixis, Inc. .......... 13,418 94,999
+GTC Biotherapeutics,
Inc. ................... 2,500 7,975
+Gene Logic Inc. ......... 9,539 49,507
+Genencor International
Inc. ................... 1,800 28,350
+Genta Incorporated....... 13,597 141,545
+Geron Corporation........ 16,129 160,806
+Immunomedics, Inc. ...... 13,109 59,777
+Incyte Genomics, Inc. ... 22,224 152,012
+Integra LifeSciences
Holdings................ 6,600 188,958
+InterMune Inc. .......... 10,214 236,556
+Interpore International,
Inc. ................... 7,100 92,300
+Kensey Nash Corporation.. 3,100 72,075
+Kosan Biosciences,
Inc. ................... 3,500 34,510
+Lexicon Genetics
Incorporated............ 7,605 44,793
+Martek Biosciences
Corporation............. 7,712 501,049
+Maxygen Inc. ............ 7,001 74,421
+Myriad Genetics, Inc. ... 8,300 106,738
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+NPS Pharmaceuticals,
Inc. ................... 10,123 $ 311,181
+Nabi Biopharmaceuticals.. 12,854 163,374
+Nuvelo, Inc. ............ 17,400 60,378
+OSI Pharmaceuticals,
Inc. ................... 13,000 418,730
+Palatin Technologies,
Inc. ................... 8,500 21,250
+Peregrine
Pharmaceuticals,
Inc. ................... 39,055 86,312
+Pharmacopeia, Inc. ...... 7,885 112,046
+Progenics
Pharmaceuticals,
Inc. ................... 6,200 116,932
+Regeneration
Technologies, Inc. ..... 8,200 89,872
+Repligen Corporation..... 13,300 58,121
+Savient Pharmaceuticals
Inc. ................... 17,667 81,445
+Seattle Genetics,
Inc. ................... 3,900 33,462
+Serologicals
Corporation............. 8,372 155,719
+Sirna Therapeutics,
Inc. ................... 966 5,023
+Tanox, Inc. ............. 7,845 116,498
+Telik, Inc. ............. 15,532 357,391
+Third Wave Technologies.. 4,600 20,930
+Transkaryotic Therapies,
Inc. ................... 9,740 152,041
+Trimeris, Inc. .......... 3,738 78,423
+Vicuron Pharmaceuticals
Inc. ................... 13,806 257,482
+Zymogentics, Inc. ....... 2,600 40,300
------------
8,026,733
------------
Building Materials - 0.5%
Ameron International
Corporation............ 2,000 69,380
Building Materials
Holding Corporation.... 6,000 93,180
Hughes Supply, Inc. ..... 9,690 480,818
LSI Industries Inc. ..... 5,312 71,712
+Mestek, Inc. ............ 1,000 19,260
+NCI Building Systems,
Inc. ................... 5,868 140,245
Noland Company........... 100 3,900
+Simpson Manufacturing
Co., Inc. .............. 4,166 211,883
Texas Industries,
Inc. .................. 6,645 245,865
+Trex Company, Inc. ...... 1,709 64,908
Watsco, Inc. ............ 5,265 119,673
------------
1,520,824
------------
Building - Air Conditioning - 0.2%
Lennox International
Inc. .................. 12,335 205,995
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
43
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
York International
Corporation............ 12,038 $ 442,998
------------
648,993
------------
Building - Cement - 0.0%
Centex Construction
Products, Inc. ........ 1,577 95,046
------------
Building - Heating & Plumbing - 0.0%
+Aaon, Inc. .............. 1,700 32,997
------------
Building - Miscellaneous - 0.1%
+Drew Industries
Incorporated............ 3,000 83,400
+Griffon Corporation...... 8,047 163,032
------------
246,432
------------
Building - Roofing & Wallboard - 0.1%
ElkCorp.................. 6,351 169,572
+USG Corporation.......... 11,700 193,869
------------
363,441
------------
Cable Television Services - 0.2%
+Charter Communications,
Inc. (Class A).......... 85,900 345,318
+Crown Media Holdings,
Inc. (Class A).......... 6,698 55,392
+Insight Communications
Company, Inc. .......... 16,500 170,115
+TiVo Inc. ............... 12,894 95,416
------------
666,241
------------
Casinos & Gambling - 0.6%
+Ameristar Casinos,
Inc. ................... 4,100 100,327
+Argosy Gaming Company.... 7,425 192,976
+Aztar Corporation........ 10,491 236,047
Boyd Gaming
Corporation............ 12,315 198,764
Churchill Downs
Incorporated........... 1,432 51,840
Dover Downs Gaming &
Entertainment, Inc. ... 2,378 22,496
+Isle of Capri Casinos,
Inc. ................... 4,775 102,519
+MTR Gaming Group, Inc. .. 8,400 86,520
+Magna Entertainment Corp.
(Class A)............... 14,800 75,036
+Multimedia Games, Inc. .. 3,900 160,290
+Pinnacle Entertainment,
Inc. ................... 6,964 64,904
+Scientific Games
Corporation............. 17,200 292,572
+Shuffle Master, Inc. .... 4,500 155,790
+WMS Industries Inc. ..... 6,312 165,374
------------
1,905,455
------------
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Chemicals - 1.3%
A. Schulman, Inc. ....... 11,006 $ 234,648
Aceto Corporation........ 4,300 109,822
Albemarle Corp. ......... 11,400 341,658
Arch Chemicals, Inc. .... 5,556 142,567
+Cabot Microelectronics
Corporation............. 6,400 313,600
Calgon Carbon
Corporation............ 10,701 66,453
Cambrex Corporation...... 6,085 153,707
Crompton Corporation..... 35,360 253,531
+Energy Conversion
Devices, Inc. .......... 4,264 38,504
+Ethyl Corporation........ 3,400 74,358
Georgia Gulf
Corporation............ 7,937 229,221
Great Lakes Chemical
Corporation............ 13,200 358,908
+Hercules Incorporated.... 29,100 355,020
MacDermid, Inc. ......... 9,267 317,302
+Medis Technologies
Ltd. ................... 3,541 37,889
Millennium Chemicals
Inc. .................. 22,840 289,611
NL Industries, Inc. ..... 2,434 28,478
+OM Group, Inc. .......... 10,100 264,519
Octel Corp. ............. 2,000 39,380
+Omnova Solutions Inc. ... 10,195 48,936
+PolyOne Corporation...... 25,167 160,817
Quaker Chemical
Corporation............ 1,800 55,350
Stepan Company........... 1,655 42,451
+Valence Technology,
Inc. ................... 10,700 40,125
+W.R. Grace & Co. ........ 23,000 59,110
+Wilson Greatbatch
Technologies, Inc. ..... 5,700 240,939
------------
4,296,904
------------
Coal - 0.3%
Arch Coal, Inc. ......... 17,000 529,890
Massey Energy Company.... 19,300 401,440
+Westmoreland Coal
Company................. 1,000 17,500
------------
948,830
------------
Commercial Information Services - 0.4%
+Arbitron Inc. ........... 10,958 457,168
+Ask Jeeves, Inc. ........ 12,200 221,064
+CMGI Inc. ............... 152,400 271,272
+infoUSA Inc. ............ 6,561 48,683
+LookSmart, Ltd. ......... 35,400 54,870
+MarketWatch.com, Inc. ... 400 3,444
+Neoforma, Inc. .......... 1,200 12,768
+ProQuest Company......... 6,674 196,549
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
44
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+SOURCECORP,
Incorporated............ 5,853 $ 150,012
------------
1,415,830
------------
Communications Technology - 2.0%
+Aether Systems, Inc. .... 11,300 53,675
+Anaren Microwave,
Inc. ................... 7,022 99,151
+Anixter International
Inc. ................... 9,272 239,959
+Aspect Communications
Corporation............. 9,500 149,720
+Avanex Corporation....... 18,178 90,708
Bel Fuse Inc. (Class
B)..................... 2,359 76,973
Black Box Corporation.... 4,588 211,369
+CSG Systems
International, Inc. .... 15,400 192,346
+Catapult Communications
Corporation............. 1,572 22,793
+Centillium
Communications, Inc. ... 12,509 70,426
+CommScope, Inc. ......... 15,288 249,653
+Comtech
Telecommunications
Corp. .................. 5,050 145,794
+Corvis Corporation....... 118,600 201,620
+CycleLogic, Inc. ........ 8 1
+Ditech Communications
Corporation............. 9,400 179,540
+Echelon Corporation...... 8,713 97,063
+Enterasys Networks,
Inc. ................... 60,000 225,000
+Entrust Technologies
Inc. ................... 12,300 50,184
+Extreme Networks,
Inc. ................... 36,600 263,886
+Finisar Corporation...... 42,300 132,399
+Harmonic Inc. ........... 23,396 169,621
+Ixia..................... 6,329 74,049
+Inet Technologies,
Inc. ................... 2,600 31,200
+Infonet Services
Corporation (Class B)... 12,600 21,420
Inter-Tel Inc. .......... 6,877 171,787
+InterVoice-Brite,
Inc. ................... 9,500 112,765
+j2 Global Communications,
Inc. ................... 6,000 148,620
+KVH Industries, Inc. .... 3,700 101,639
+LTC Storage Networks,
Inc. ................... 1,600 0
+Net2Phone, Inc. ......... 15,680 106,624
+Network Equipment
Technologies, Inc. ..... 5,100 56,100
+New Focus, Inc. ......... 14,768 74,135
+Nuance Communications
Inc. ................... 4,234 32,348
+Oplink Communications,
Inc. ................... 30,719 73,418
+Optical Communication
Products, Inc. ......... 16,183 59,877
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Packeteer, Inc. ......... 7,107 $ 120,677
+REMEC, Inc. ............. 18,040 151,716
+SeaChange International,
Inc. ................... 8,908 137,183
+Secure Computing
Corporation............. 9,988 178,885
+Sonus Networks, Inc. .... 76,000 574,560
+Standard Microsystems
Corporation............. 3,560 90,068
+Stratex Networks,
Inc. ................... 25,671 109,102
+Sycamore Networks,
Inc. ................... 66,300 347,412
TALX Corporation......... 4,620 106,399
+TIBCO Software Inc. ..... 23,000 155,710
+Tekelec.................. 15,700 244,135
Turnstone Systems,
Inc. .................. 17,886 2,057
+USinternetworking,
Inc. ................... 4,300 0
+Ulticom, Inc. ........... 2,540 24,511
+Verso Technologies,
Inc. ................... 33,600 104,160
+ViaSat, Inc. ............ 7,601 145,483
+WebEx Communications,
Inc. ................... 7,631 153,383
+Westell Technologies,
Inc. ................... 14,300 90,233
+Zhone Technologies,
Inc. ................... 19,575 96,309
------------
6,817,846
------------
Computer Services - Software & Systems - 4.7%
+@Road, Inc. ............. 7,900 105,070
+ANSYS, Inc. ............. 4,916 195,165
+ActivCard Corp. ......... 13,400 105,592
+Agile Software
Corporation............. 13,402 132,680
+Akamai Technologies,
Inc. ................... 34,300 368,725
+Altiris, Inc. ........... 3,200 116,736
+American Management
Systems, Incorporated... 13,095 197,342
+Ansoft Corporation....... 600 7,698
+Anteon International
Corporation............. 5,300 191,065
+Ariba, Inc. ............. 79,500 238,500
+Ascential Software
Corporation............. 20,795 539,214
+AsianInfo Holdings,
Inc. ................... 10,697 71,456
+Aspen Technology, Inc. .. 12,808 131,410
+Borland Software
Corporation............. 21,967 213,739
+BroadVision, Inc. ....... 5,700 24,282
+CACI International Inc.
(Class A)............... 8,716 423,772
+CIBER, Inc. ............. 15,902 137,711
+Computer Horizons
Corp. .................. 15,300 60,129
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
45
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Concord Communications,
Inc. ................... 6,100 $ 121,817
+Concur Technologies,
Inc. ................... 7,900 76,472
+Convera Corporation...... 700 2,387
+Datastream Systems,
Inc. ................... 4,711 36,981
+Dendrite International,
Inc. ................... 13,164 206,280
+Digimarc Corporation..... 2,937 39,062
+Digital River, Inc. ..... 8,300 183,430
+Digitas Inc. ............ 3,407 31,753
+eCollege.com............. 6,100 112,606
+EPIQ Systems, Inc. ...... 4,645 79,569
+E.piphany, Inc. ......... 18,980 136,846
+Electronics for Imaging,
Inc. ................... 15,339 399,121
+Embarcadero Technologies,
Inc. ................... 5,630 89,798
+Epicor Software
Corporation............. 16,300 207,988
+F5 Networks, Inc. ....... 9,219 231,397
+Gartner Group, Inc.
(Class A)............... 24,659 278,893
+Group 1 Software,
Inc. ................... 1,900 33,478
+Hyperion Solutions
Corporation............. 13,706 413,099
+iGATE Capital
Corporation............. 4,100 32,185
+Informatica
Corporation............. 19,200 197,760
Integral Systems,
Inc. .................. 2,100 45,192
+Interland, Inc. ......... 6,800 44,404
+Internet Security
Systems, Inc. .......... 11,500 216,545
+Interwoven, Inc. ........ 6,925 87,532
+JDA Software Group,
Inc. ................... 11,708 193,299
+Kana Software, Inc. ..... 4,100 13,817
+Keane, Inc. ............. 15,658 229,233
+Keynote Systems, Inc. ... 4,238 50,432
+Lawson Software, Inc. ... 14,400 118,512
+Lionbridge Technologies,
Inc. ................... 14,400 138,384
+MAPICS, Inc. ............ 3,100 40,579
+MRO Software, Inc. ...... 5,030 67,704
+MSC.Software Corp. ...... 7,300 68,985
+Macrovision Corporation.. 12,400 280,116
+Magma Design Automation,
Inc. ................... 8,900 207,726
+Manhattan Associates,
Inc. ................... 7,739 213,906
+ManTech International
Corporation (Class A)... 5,800 144,710
+Manugistics Group,
Inc. ................... 18,800 117,500
+MatrixOne, Inc. ......... 13,597 83,758
+Mentor Graphics
Corporation............. 22,900 332,966
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Mercury Computer Systems,
Inc. ................... 8,956 $ 223,004
+Micros Systems, Inc. .... 5,899 255,781
+Micromuse, Inc. ......... 17,500 120,750
+MicroStrategy
Incorporated (Class A).. 3,800 199,424
+Mobius Management
Systems, Inc. .......... 3,600 45,540
+NYFIX, Inc. ............. 8,453 67,201
+Nassda Corporation....... 2,600 18,850
+Netegrity, Inc. ......... 7,855 80,985
+NetIQ Corporation........ 15,874 210,331
+NetScout Systems,
Inc. ................... 3,685 28,006
+OPNET Technologies,
Inc. ................... 4,500 74,070
+Openwave Systems Inc. ... 17,933 197,263
+Opsware, Inc. ........... 13,300 98,420
+PC-Tel, Inc. ............ 8,226 87,278
+PDF Solutions, Inc. ..... 3,200 47,680
+PEC Solutions, Inc. ..... 1,877 31,815
+PalmSource, Inc. ........ 5,257 114,550
+Parametric Technology
Corporation............. 67,500 265,950
+Pegasystems Inc. ........ 1,400 12,068
+Pinnacle Systems,
Inc. ................... 20,491 174,788
Pomeroy Computer
Resources, Inc. ....... 4,300 63,382
+Progress Software
Corporation............. 8,608 176,120
+Puma Technology, Inc. ... 9,800 39,004
+QAD Inc. ................ 1,700 20,842
+Quest Software, Inc. .... 12,000 170,400
+Rainbow Technologies,
Inc. ................... 11,223 126,371
+Retek Inc. .............. 15,800 146,624
+Roxio, Inc. ............. 15,796 75,663
+SAFLINK Corporation...... 9,400 25,286
+SERENA Software, Inc. ... 7,197 132,065
+SPSS Inc. ............... 2,689 48,079
+SRA International, Inc.
(Class A)............... 2,000 86,200
SS&C Technologies,
Inc. .................. 3,200 89,440
+SafeNet, Inc. ........... 4,000 123,080
+Sanchez Computer
Associates, Inc. ....... 2,099 8,711
+Sapient Corporation...... 26,692 149,475
+ScanSoft, Inc. .......... 21,995 117,013
+SeeBeyond Technology
Corporation............. 14,927 64,037
+Sigma Designs, Inc. ..... 10,900 82,077
+SonicWALL, Inc. ......... 16,041 125,120
+Stellent, Inc. .......... 2,900 28,536
+Support.com, Inc. ....... 12,400 163,060
+Sybase, Inc. ............ 28,400 584,472
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
46
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Sykes Enterprises,
Incorporated............ 7,561 $ 64,722
+Synplicity, Inc. ........ 3,700 28,971
Syntel, Inc. ............ 883 21,819
+Systems & Computer
Technology Corporation.. 11,692 191,164
+Tier Technologies, Inc.
(Class B)............... 6,900 56,373
+Transaction Systems
Architects, Inc. (Class
A)...................... 10,585 239,539
+The TriZetto Group,
Inc. ................... 7,208 46,492
+Tyler Technologies,
Inc. ................... 10,500 101,115
+Vastera, Inc. ........... 8,100 32,400
+Verint Systems Inc. ..... 2,100 47,376
+Verity, Inc. ............ 7,767 129,631
+Vignette Corporation..... 65,100 147,777
+Vitria Technology,
Inc. ................... 5,500 39,050
+WatchGuard Technologies,
Inc. ................... 12,162 70,783
+webMethods, Inc. ........ 14,420 131,943
+Websense, Inc. .......... 6,551 191,551
+Wind River Systems,
Inc. ................... 21,700 190,092
+Zoran Corporation........ 14,108 245,338
------------
15,841,455
------------
Computer Technology - 1.6%
+Adaptec, Inc. ........... 34,500 304,635
+Advanced Digital
Information
Corporation............. 19,534 273,476
Analogic Corporation..... 3,272 134,152
+CompuCom Systems, Inc. .. 4,700 24,628
+Computer Network
Technology Corporation.. 8,554 81,605
+Concurrent Computer
Corporation............. 19,579 85,560
+Constellation 3D,
Inc. ................... 2,000 0
+Cray, Inc. .............. 20,700 205,551
+CyberGuard Corporation... 1,400 12,208
+Dot Hill Systems
Corp. .................. 10,600 160,590
+FalconStor Software,
Inc. ................... 10,209 89,227
+Fargo Electronics........ 5,000 63,600
+FileNET Corporation...... 11,882 321,765
+Gateway Inc. ............ 71,600 329,360
+Hutchinson Technology
Incorporated............ 8,017 246,443
+InFocus Corporation...... 14,166 137,127
+Innovex, Inc. ........... 7,600 64,068
+Intergraph Corp. ........ 14,596 349,136
Iomega Corporation....... 15,003 89,718
+Komag, Incorporated...... 5,800 84,854
+Lexar Media, Inc. ....... 18,674 325,488
+Neoware Systems, Inc. ... 4,900 67,130
+Overland Storage,
Inc. ................... 3,900 73,320
+PalmOne, Inc. ........... 13,094 153,855
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Perot Systems Corporation
(Class A)............... 31,000 $ 417,880
+Quantum Corporation - DLT
& Storage Systems....... 40,000 124,800
+RSA Security Inc. ....... 15,600 221,520
+Radiant Systems, Inc. ... 4,457 37,483
+RadiSys Corporation...... 6,442 108,612
+Safeguard Scientifics,
Inc. ................... 31,347 126,642
+Silicon Graphics,
Inc. ................... 55,207 75,634
+SimpleTech, Inc. ........ 100 601
+Stratasys, Inc. ......... 3,300 89,958
+Synaptics Incorporated... 3,700 55,426
+UNOVA, Inc. ............. 15,609 358,227
------------
5,294,279
------------
Construction - 0.3%
+EMCOR Group, Inc. ....... 4,318 189,560
Granite Construction
Incorporated........... 13,571 318,783
+Modtech Holdings, Inc. .. 1,400 11,774
+Perini Corporation....... 3,000 27,450
+Washington Group
International, Inc. .... 9,100 309,127
------------
856,694
------------
Consumer Electronics - 0.9%
+Activision, Inc. ........ 29,900 544,180
+Alloy, Inc. ............. 14,567 75,894
+Atari, Inc. ............. 4,453 18,703
+CNET Networks, Inc. ..... 32,200 219,604
+eUniverse, Inc. ......... 5,500 8,800
+EarthLink, Inc. ......... 39,900 399,000
+FindWhat.com............. 4,900 91,875
+InfoSpace, Inc. ......... 7,500 172,875
+Lifeline Systems,
Inc. ................... 2,200 41,800
+Midway Games Inc. ....... 17,074 66,247
+NIC Inc. ................ 16,100 129,283
+NetFlix Inc. ............ 3,800 207,822
+Register.com, Inc. ...... 5,382 28,256
+Sohu.com Inc. ........... 5,900 177,059
+THQ Inc. ................ 13,625 230,399
+Take-Two Interactive
Software, Inc. ......... 14,014 403,743
+United Online, Inc. ..... 14,650 245,974
+Universal Electronics
Inc. ................... 4,086 52,056
------------
3,113,570
------------
Consumer Products - 0.8%
+American Greetings
Corporation (Class A)... 18,400 402,408
+The Boyds Collection,
Ltd. ................... 5,329 22,648
CSS Industries, Inc. .... 1,612 49,988
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
47
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Jarden Corp. ............ 7,500 $ 205,050
Matthews International
Corporation (Class A).. 8,173 241,839
The Nautilus Group,
Inc. .................. 8,963 125,930
Oakley, Inc. ............ 13,600 188,224
+Playtex Products,
Inc. ................... 6,376 49,286
+RC2 Corporation.......... 4,000 83,000
The Topps Company,
Inc. .................. 10,391 106,612
The Toro Company......... 7,598 352,547
Tupperware Corporation... 17,474 302,999
+USANA Health Sciences,
Inc. ................... 3,400 104,040
+The Yankee Candle
Company, Inc. .......... 10,983 300,165
------------
2,534,736
------------
Containers & Packaging - Metal & Glass - 0.3%
+Crown Holdings, Inc. .... 53,869 488,053
Greif Bros. Corporation
(Class A).............. 3,775 134,050
+Mobile Mini, Inc. ....... 4,871 96,056
+Silgan Holdings Inc. .... 3,400 144,806
------------
862,965
------------
Containers & Packaging - Paper & Plastic - 0.0%
Myers Industries,
Inc. .................. 6,020 72,962
------------
Copper - 0.1%
+Mueller Industries,
Inc. ................... 10,082 346,418
------------
Cosmetics - 0.1%
+Del Laboratories,
Inc. ................... 772 19,294
+Elizabeth Arden, Inc. ... 5,993 119,381
Inter Parfums, Inc. ..... 2,000 45,180
Nu Skin Enterprises, Inc.
(Class A).............. 11,826 202,106
+Revlon, Inc. (Class A)... 6,560 14,694
------------
400,655
------------
Diversified Financial Services - 0.1%
+Euronet Worldwide,
Inc. ................... 6,300 113,400
+Rewards Network Inc. .... 8,800 93,808
+U.S.I. Holdings
Corporation............. 5,000 65,250
------------
272,458
------------
Diversified Materials & Processing - 0.5%
Acuity Brands, Inc. ..... 12,060 311,148
+Armor Holdings, Inc. .... 6,516 171,436
Barnes Group Inc. ....... 4,657 150,468
CLARCOR Inc. ............ 7,755 341,995
+Hexcel Corporation....... 6,662 49,365
Olin Corporation......... 19,014 381,421
Tredegar Corporation..... 7,745 120,280
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Valhi, Inc. ............. 8,520 $ 127,459
------------
1,653,572
------------
Diversified Production - 0.1%
Thomas & Betts
Corporation............ 15,152 346,829
------------
Drug & Grocery Store Chains - 0.5%
+7-Eleven, Inc. .......... 7,179 115,223
Arden Group, Inc. (Class
A)..................... 432 33,480
Casey's General Stores,
Inc. .................. 14,007 247,364
+Duane Read Inc. ......... 6,528 110,454
+The Great Atlantic &
Pacific Tea Company,
Inc. ................... 5,931 49,820
Ingles Markets,
Incorporated (Class
A)..................... 4,664 47,899
Longs Drug Stores
Corporation............ 10,783 266,771
Nash-Finch Company....... 4,177 93,314
+Pathmark Stores, Inc. ... 13,942 105,959
Ruddick Corporation...... 12,069 216,035
+Smart & Final Inc. ...... 2,629 26,500
Weis Markets, Inc. ...... 3,400 123,420
+Wild Oats Markets,
Inc. ................... 10,029 129,675
------------
1,565,914
------------
Drugs & Pharmaceuticals - 2.7%
+aaiPharma Inc. .......... 4,400 110,528
+Able Laboratories,
Inc. ................... 4,400 79,508
+Adolor Corporation....... 15,300 306,306
+Alkermes, Inc. .......... 19,600 264,600
Alpharma, Inc. (Class
A)..................... 11,225 225,622
+Aphton Corporation....... 13,424 80,544
+AtheroGenics, Inc. ...... 13,000 194,350
+Atrix Laboratories,
Inc. ................... 7,400 177,896
+Bentley Pharmaceuticals,
Inc. ................... 2,600 34,580
+BioMarin Pharmaceutical
Inc. ................... 19,648 152,645
+Biopure Corporation...... 16,372 38,965
+Bone Care International,
Inc. ................... 1,910 24,333
+Bradley Pharmaceuticals,
Inc. ................... 3,400 86,462
+CIMA Labs Inc. .......... 5,272 171,973
+CV Therapeutics, Inc. ... 10,200 149,532
+Chattem, Inc. ........... 5,700 102,030
+CollaGenex
Pharmaceuticals,
Inc. ................... 3,700 41,477
+Columbia Laboratories,
Inc. ................... 9,104 57,355
+Connetics Corporation.... 11,802 214,324
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
48
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
D & K Healthcare
Resources, Inc. ....... 4,100 $ 55,596
+Dendreon Corporation..... 1,100 8,866
+Durect Corporation....... 25,900 66,822
+Enzo Biochem, Inc. ...... 6,315 113,102
+Esperion Therapeutics,
Inc. ................... 11,517 398,603
+First Horizon
Pharmaceutical
Corporation............. 6,400 71,680
+Guilford Pharmaceuticals
Inc. ................... 10,036 68,044
+Hi-Tech Pharmacal Co.,
Inc. ................... 2,500 58,750
+Hollis-Eden
Pharmaceuticals,
Inc. ................... 3,000 33,030
+ILEX Oncology, Inc. ..... 11,524 244,885
+ImmunoGen, Inc. ......... 13,027 65,786
+Impax Laboratories,
Inc. ................... 9,500 136,705
+Indevus Pharmaceuticals,
Inc. ................... 11,888 70,020
+Inspire Pharmaceuticals,
Inc. ................... 8,100 114,696
+Isis Pharmaceuticals,
Inc. ................... 14,289 92,878
+K-V Pharmaceutical
Company (Class A)....... 9,600 244,800
+Kos Pharmaceuticals,
Inc. ................... 5,866 252,473
+La Jolla Pharmaceutical
Company................. 11,900 51,051
+Lannett Company, Inc. ... 1,800 30,258
+Ligand Pharmaceuticals
Incorporated (Class B).. 18,016 264,655
+MGI Pharma, Inc. ........ 10,702 440,387
+Medarex, Inc. ........... 23,200 144,536
+The Medicines Company.... 14,227 419,127
+Nektar Therapeutics...... 13,900 189,179
+NeoPharm, Inc. .......... 4,045 74,104
+Neose Technologies,
Inc. ................... 6,463 59,460
+Noven Pharmaceuticals,
Inc. ................... 7,831 119,110
+Onyx Pharmaceuticals,
Inc. ................... 10,000 282,300
+POZEN Inc. .............. 7,800 79,560
+PRAECIS Pharmaceuticals
Incorporated............ 20,017 128,909
+Pain Therapeutics,
Inc. ................... 4,800 33,360
+Penwest Pharmaceuticals
Co. .................... 6,400 110,592
Perrigo Company.......... 23,015 361,796
+Priority Healthcare
Corporation (Class B)... 12,200 294,142
+Quidel Corporation....... 5,600 60,592
+Regeneron
Pharmaceuticals,
Inc. ................... 10,419 153,263
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Rigel Pharmaceuticals,
Inc. ................... 78 $ 1,490
+SFBC International,
Inc. ................... 3,700 98,272
+Salix Pharmaceuticals,
Ltd. ................... 5,100 115,617
+SciClone Pharmaceuticals,
Inc. ................... 11,900 80,682
+SuperGen, Inc. .......... 10,682 117,502
+Tularik Inc. ............ 18,995 306,769
+United Therapeutics
Corporation............. 6,746 154,821
+VIVUS, Inc. ............. 7,500 28,425
+Vertex Pharmaceuticals
Incorporated............ 26,800 274,164
------------
9,083,889
------------
Education Services - 0.3%
+Bright Horizons Family
Solutions, Inc. ........ 4,602 193,284
+DigitalThink, Inc. ...... 19,700 55,357
+Learning Tree
International, Inc. .... 2,830 49,214
+The Princeton Review,
Inc. ................... 2,500 24,375
+Renaissance Learning,
Inc. ................... 2,349 56,564
Strayer Education,
Inc. .................. 3,692 401,800
+Sylvan Learning System,
Inc. ................... 12,028 346,286
------------
1,126,880
------------
Electrical & Electronics - 0.4%
+Benchmark Electronics,
Inc. ................... 11,286 392,866
+InVision Technologies,
Inc. ................... 6,400 214,848
+OSI Systems, Inc. ....... 3,200 61,472
+Pemstar Inc. ............ 6,700 22,043
+Plexus Corporation....... 12,261 210,521
+Power Integrations,
Inc. ................... 8,032 268,751
+TTM Technologies, Inc. .. 5,300 89,464
+Universal Display
Corporation............. 4,607 62,978
------------
1,322,943
------------
Electrical Equipment & Components - 0.7%
A.O. Smith Corporation... 6,981 244,684
Baldor Electric Company.. 8,371 191,277
CTS Corporation.......... 10,508 120,842
+Cable Design Technology.. 12,884 115,827
Cohu, Inc. .............. 7,818 149,715
Franklin Electric Co.,
Inc. .................. 1,830 110,697
+General Cable
Corporation............. 16,390 133,578
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
49
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+The Genlyte Group
Incorporated............ 3,673 $ 214,430
+Littelfuse Inc. ......... 8,960 258,227
+MKS Instruments, Inc. ... 7,800 226,200
+Powell Industries,
Inc. ................... 2,031 38,894
+Power-One, Inc. ......... 19,400 210,102
+Sonic Solutions.......... 4,900 74,970
+Technitrol, Inc. ........ 11,761 243,923
+Triumph Group, Inc. ..... 4,079 148,476
------------
2,481,842
------------
Electrical - Household Appliance - 0.0%
Applica Incorporated..... 5,996 45,570
+Emerson Radio Corp. ..... 2,900 10,904
National Presto
Industries, Inc. ...... 1,350 48,803
+REX Stores Corporation... 1,500 21,240
------------
126,517
------------
Electronics - 0.8%
+II-VI Incorporated....... 3,986 102,839
+Aeroflex Incorporated.... 23,812 278,362
Agilysys, Inc. .......... 9,863 109,972
+Avid Technology, Inc. ... 10,094 484,512
BEI Technologies,
Inc. .................. 2,532 50,640
+Daktronics, Inc. ........ 5,299 133,323
+Drexler Technology
Corporation............. 3,600 49,212
+EMS Technologies, Inc. .. 4,100 84,214
+FLIR Systems, Inc. ...... 11,266 411,209
+Kopin Corporation........ 21,500 144,265
+MRV Communications,
Inc. ................... 30,279 113,849
+Manufacturers' Services
Limited................. 2,400 14,592
Methode Electronics...... 10,380 126,947
Park Electrochemical
Corp. ................. 5,349 141,695
+Read-Rite Corporation.... 7,058 35
+Research Frontiers
Incorporated............ 3,304 30,694
Richardson Electronics,
Ltd. .................. 4,400 54,076
+Semtech Corporation...... 18,000 409,140
+Supertex, Inc. .......... 1,967 37,570
------------
2,777,146
------------
Electronics - Instruments Gauges & Meters - 0.1%
+Itron, Inc. ............. 7,682 141,042
Keithley Instruments,
Inc. .................. 2,701 49,428
+Metrologic Instruments,
Inc. ................... 2,700 72,900
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Zygo Corporation......... 6,095 $ 100,507
------------
363,877
------------
Electronics - Medical Systems - 0.6%
+Aspect Medical Systems,
Inc. ................... 1,100 12,551
+Bruker BioSciences
Corporation............. 5,387 24,511
+CTI Molecular Imaging,
Inc. ................... 9,300 157,263
+Candela Corporation...... 3,600 65,448
+CardioDynamics
International
Corporation............. 9,632 57,503
Datascope Corp. ......... 3,470 124,399
+EPIX Medical, Inc. ...... 5,200 84,656
+eResearch Technology,
Inc. ................... 9,300 236,406
+Haemonetics Corporation.. 5,472 130,726
+Hologic, Inc. ........... 9,000 155,970
+I-STAT Corporation....... 3,100 47,430
+Intuitive Surgical,
Inc. ................... 11,681 199,628
+Luminex Corporation...... 4,451 41,750
+Possis Medical, Inc. .... 6,088 120,238
+Quality Systems, Inc. ... 1,500 66,885
+TriPath Imaging, Inc. ... 6,832 53,290
+VISX,Incorporated........ 11,486 265,901
+Zoll Medical
Corporation............. 3,061 108,604
------------
1,953,159
------------
Electronics - Semiconductors/Components - 2.2%
+Actel Corp. ............. 6,916 166,676
+Alliance Semiconductor
Corporation............. 9,241 65,704
+Artisan Components,
Inc. ................... 6,600 135,300
+CEVA, Inc. .............. 10,300 107,120
+ChipPAC, Inc. ........... 14,151 107,406
+Cirrus Logic, Inc. ...... 21,100 161,837
+Conexant Systems,
Inc. ................... 89,000 442,330
+DSP Group, Inc. ......... 9,683 241,204
+Diodes Incorporated...... 3,150 59,850
+ESS Technology, Inc. .... 11,029 187,603
+Exar Corporation......... 14,327 244,705
+Excel Technology,
Inc. ................... 1,973 64,833
+Genesis Microchip
Incorporated............ 11,000 198,440
+GlobespanVirata, Inc. ... 47,916 281,746
+Integrated Silicon
Solution, Inc. ......... 8,738 136,924
+IXYS Corporation......... 3,593 33,595
+Lattice Semiconductor
Corporation............. 35,200 340,736
+Micrel, Inc. ............ 16,700 260,186
+Microsemi Corporation.... 9,245 227,242
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
50
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Mindspeed Technologies
Inc. ................... 27,300 $ 187,005
+Monolithic System
Technology, Inc. ....... 5,300 45,315
+ON Semiconductor
Corporation............. 12,100 78,045
+OmniVision Technologies,
Inc. ................... 7,400 408,850
+Pericom Semiconductor
Corporation............. 4,993 53,225
+Pixelworks, Inc. ........ 10,864 119,939
+Planar Systems Inc. ..... 5,329 129,601
+RF Micro Devices,
Inc. ................... 60,300 606,015
+SBS Technologies,
Inc. ................... 4,088 60,134
+SIPEX Corporation........ 7,561 58,295
+Silicon Image, Inc. ..... 21,476 155,271
+Silicon Storage
Technology, Inc. ....... 24,458 269,038
+Siliconix Incorporated... 1,800 82,260
+Skyworks Solutions,
Inc. ................... 49,833 433,547
+Superconductor
Technologies Inc. ...... 24,600 137,268
+Three-Five Systems,
Inc. ................... 5,356 28,065
+Transmeta Corporation.... 32,100 109,140
+TriQuint Semiconductor,
Inc. ................... 41,236 291,539
+Virage Logic
Corporation............. 2,700 27,459
+Vitesse Semiconductor
Corporation............. 63,800 374,506
+White Electronic Designs
Corporation............. 8,700 76,560
+Xicor, Inc. ............. 6,634 75,230
------------
7,269,744
------------
Electronics - Technology - 0.9%
+Checkpoint Systems,
Inc. ................... 13,923 263,284
+Coherent, Inc. .......... 9,180 218,484
Cubic Corporation........ 4,652 106,996
+DRS Technologies, Inc. .. 8,774 243,742
EDO Corporation.......... 5,626 138,681
+Gerber Scientific,
Inc. ................... 4,700 37,412
+Herley Industries,
Inc. ................... 5,100 105,570
+Identix Incorporated..... 26,930 119,838
+Intermagnetics General
Corporation............. 5,656 125,337
+Kemet Corp. ............. 28,100 384,689
+ScanSource, Inc. ........ 3,400 155,108
Sypris Solutions,
Inc. .................. 600 10,086
+The Titan Corporation.... 26,300 573,603
+Trimble Navigation
Limited................. 10,804 402,341
------------
2,885,171
------------
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Energy - 0.0%
Pacific Gulf Resources... 4,517 $ 226
------------
Energy Equipment - 0.0%
+Global Power Equipment
Group Inc. ............. 8,500 56,780
+Plug Power Inc. ......... 10,900 79,025
------------
135,805
------------
Energy - Miscellaneous - 0.3%
+FuelCell Energy, Inc. ... 9,726 126,438
Holly Corporation........ 2,800 77,000
+KFx Inc. ................ 11,100 83,805
+Matrix Service Company... 6,600 119,790
Penn Virginia
Corporation............ 2,279 126,826
+TETRA Technologies,
Inc. ................... 6,991 169,462
+Tesoro Petroleum
Corporation............. 18,665 271,949
+Veritas DGC Inc. ........ 7,297 76,473
------------
1,051,743
------------
Engineering & Contracting Services - 0.2%
+Dycom Industries,
Inc. ................... 14,602 391,626
+Integrated Electrical
Services, Inc. ......... 7,297 67,497
+Quanta Services, Inc. ... 20,700 151,110
+URS Corporation.......... 4,877 121,974
------------
732,207
------------
Entertainment - 0.4%
+AMC Entertainment Inc. .. 9,600 146,016
+Alliance Gaming
Corporation............. 15,600 384,540
+Boca Resorts, Inc. (Class
A)...................... 6,957 104,077
+Carmike Cinemas, Inc. ... 300 10,455
Dover Motorsports,
Inc. .................. 4,340 15,190
+Gaylord Entertainment
Company................. 4,755 141,937
+Hollywood Entertainment
Corporation............. 18,707 257,221
+LodgeNet Entertainment
Corporation............. 3,272 59,812
Movie Gallery, Inc. ..... 7,415 138,512
Speedway Motorsports,
Inc. .................. 3,355 97,027
------------
1,354,787
------------
Fertilizers - 0.1%
IMC Global Inc. ......... 38,300 380,319
------------
Finance Companies - 0.1%
+Accredited Home Lenders
Holding Company......... 3,700 113,220
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
51
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Credit Acceptance
Corporation............. 2,849 $ 43,590
+Saxon Capital, Inc. ..... 8,200 171,790
+United PanAm Financial
Corp. .................. 2,500 41,775
+World Acceptance
Corporation............. 5,700 113,487
------------
483,862
------------
Financial Data Processing Services & Systems - 0.7%
+Advent Software, Inc. ... 10,300 179,529
+CCC Information Services
Group Inc. ............. 3,906 66,011
+CompuCredit Corporation.. 6,189 131,702
+Digital Insight
Corporation............. 10,330 257,217
+E-LOAN, Inc. ............ 20,100 59,898
+eFunds Corporation....... 16,388 284,332
+eSPEED, Inc. (Class A)... 7,423 173,772
+Hypercom Corporation..... 8,000 38,080
+InteliData Technologies
Corporation............. 10,400 17,160
+The InterCept Group,
Inc. ................... 6,743 76,128
+iPayment Holdings,
Inc. ................... 2,200 74,800
John H. Harland
Company................ 8,582 234,289
+Kronos, Inc. ............ 9,249 366,353
NDCHealth Corporation.... 10,264 262,964
+National Processing,
Inc. ................... 1,100 25,905
+PRG-Schultz
International, Inc. .... 15,013 73,564
+Portal Software, Inc. ... 6,240 41,995
+Tradestation Group
Inc. ................... 6,300 55,818
------------
2,419,517
------------
Financial Information Services - 0.1%
+Bankrate, Inc. .......... 1,100 13,618
+HomeStore.com, Inc. ..... 32,400 153,252
+S1 Corporation........... 30,022 241,677
+TheStreet.com, Inc. ..... 5,700 23,484
Value Line, Inc. ........ 400 19,960
------------
451,991
------------
Financial Miscellaneous - 0.7%
Advanta Corp. (Class B).. 6,400 81,408
BARRA, Inc. ............. 4,559 161,799
Cash America
International, Inc. ... 10,319 218,556
+DVI, Inc. ............... 6,207 248
+The Enstar Group,
Inc. ................... 300 14,115
+Federal Agricultural
Mortgage Corporation.... 2,400 76,704
+Financial Federal
Corporation............. 3,867 118,137
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
LandAmerica Financial
Group, Inc. ........... 6,599 $ 344,864
Medallion Financial
Corp. ................. 1,700 16,133
+Metris Companies Inc. ... 10,300 45,732
New Century Financial
Corporation............ 9,750 386,783
+Portfolio Recovery
Associates, Inc. ....... 4,800 127,440
Sanders Morris Harris
Group Inc. ............ 1,000 12,400
+Sotheby's Holdings, Inc.
(Class A)............... 14,336 195,830
Sterling Bancorp......... 3,010 85,785
Stewart Information
Services Corporation... 6,222 252,302
+Triad Guaranty Inc. ..... 2,376 119,632
+WFS Financial Inc. ...... 3,347 142,114
WSFS Financial
Corporation............ 2,291 102,751
------------
2,502,733
------------
Foods - 0.9%
+American Italian Pasta
Company (Class A)....... 5,634 236,065
+Aurora Food Inc. ........ 300 2
+Chiquita Brands
International, Inc. .... 14,800 333,444
Flowers Foods, Inc. ..... 9,956 256,865
+Hain Celestial Group,
Inc. ................... 8,157 189,324
+Horizon Organic Holding
Corporation............. 2,800 67,060
+International
Multifoods.............. 8,344 150,192
Interstate Bakeries
Corporation............ 13,228 188,234
+J & J Snack Foods
Corp. .................. 1,900 71,744
+John B. Sanfilippo & Son,
Inc. ................... 2,500 127,600
Lance, Inc. ............. 9,900 148,797
+M&F Worldwide Corp. ..... 5,300 70,808
+Maui Land & Pineapple
Company, Inc. .......... 1,063 36,759
+NBTY Inc. ............... 16,714 448,938
Natures Sunshine
Products, Inc. ........ 2,700 22,815
+The Penn Traffic
Company................. 300 9
Pilgrim's Pride
Corporation............ 3,069 50,117
+Ralcorp Holdings,
Inc. ................... 8,895 278,947
Riviana Foods Inc. ...... 1,787 48,946
Sanderson Farms, Inc. ... 1,600 64,480
Seaboard Corporation..... 12 3,384
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
52
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Sensient Technologies
Corporation............ 14,557 $ 287,792
------------
3,082,322
------------
Forest Products - 0.5%
Deltic Timber
Corporation............ 3,109 94,514
Longview Fibre Company... 15,821 195,389
+Louisiana-Pacific
Corporation............. 37,109 663,509
Pope & Talbot, Inc. ..... 6,844 120,523
Potlatch Corporation..... 9,497 330,211
Universal Forest
Products, Inc. ........ 7,734 248,880
------------
1,653,026
------------
Forms & Bulk Printing Services - 0.1%
Ennis Business Forms,
Inc. .................. 3,500 53,550
New England Business
Services, Inc. ........ 2,707 79,857
The Standard Register
Company................ 3,945 66,394
------------
199,801
------------
Funeral Parlors & Cemeteries - 0.1%
+Alderwoods Group, Inc. .. 9,900 93,258
+Stewart Enterprises, Inc.
(Class A)............... 27,024 153,496
------------
246,754
------------
Glass - 0.0%
Apogee Enterprises,
Inc. .................. 8,700 98,745
------------
Gold - 0.2%
+Coeur d'Alene Mines
Corporation............. 71,100 410,958
Royal Gold, Inc. ........ 6,600 138,138
------------
549,096
------------
Health Care Facilities - 0.5%
+American Healthways,
Inc. ................... 9,300 221,991
+Beverly Enterprises,
Inc. ................... 30,826 264,795
+Genesis HealthCare
Corporation............. 4,400 100,232
+Kindred Healthcare,
Inc. ................... 4,200 218,316
+LifePoint Hospitals,
Inc. ................... 12,900 379,905
+National Healthcare
Corporation............. 2,000 39,800
+Specialty Laboratories,
Inc. ................... 1,824 30,625
+Sunrise Assisted Living,
Inc. ................... 6,237 241,621
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+United Surgical Partners
International, Inc. .... 6,400 $ 214,272
------------
1,711,557
------------
Health Care Management Services - 1.0%
+AMERIGROUP Corporation... 8,400 358,260
+Allscripts Healthcare
Solutions, Inc. ........ 7,641 40,650
+American Medical Security
Group, Inc. ............ 2,600 58,292
+AmSurg Corp. ............ 6,400 242,496
+Centene Corporation...... 7,700 215,677
+Cerner Corporation....... 9,600 363,360
Computer Programs and
Systems, Inc. ......... 3,100 62,372
+CorVel Corporation....... 1,257 47,263
+Eclipsys Corporation..... 12,831 149,353
Hooper Holmes, Inc. ..... 14,497 89,591
+IMPAC Medical Systems,
Inc. ................... 2,500 63,900
+MIM Corporation.......... 8,500 59,755
+MedQuist Inc. ........... 2,196 35,268
+Omnicell, Inc. .......... 3,000 48,600
+Orthodontic Centers of
America, Inc. .......... 13,200 106,260
+Pediatrix Medical Group,
Inc. ................... 7,100 391,139
+Per-Se Technologies,
Inc. ................... 9,998 152,569
Select Medical
Corporation............ 18,200 296,296
+Sierra Health Services,
Inc. ................... 6,726 184,629
+US Oncology, Inc. ....... 22,623 243,423
+Vital Images, Inc. ...... 3,400 60,656
+VitalWorks Inc. ......... 11,800 52,156
------------
3,321,965
------------
Health Care Services - 0.6%
+Accredo
Health,Incorporated..... 15,900 502,599
+Alliance Imaging,
Inc. ................... 2,400 8,880
+CHRONIMED Inc. .......... 5,100 43,248
+Dynacq Healthcare,
Inc. ................... 1,752 13,455
+Gentiva Health Services,
Inc. ................... 9,590 121,218
Healthcare Services
Group, Inc. ........... 4,600 88,734
+IDX Systems Corporation.. 5,127 137,506
+Inveresk Research Group,
Inc. ................... 10,700 264,611
+LabOne, Inc. ............ 4,100 133,127
+Matria Healthcare,
Inc. ................... 3,600 76,068
+Odyssey Healthcare,
Inc. ................... 10,900 318,934
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
53
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
v+Province Healthcare
Company................. 13,636 $ 218,176
+VistaCare, Inc. (Class
A)...................... 4,100 144,115
------------
2,070,671
------------
Homebuilding - 0.5%
Beazer Homes USA, Inc. .. 4,517 441,130
+Dominion Homes, Inc. .... 1,900 57,627
M/I Schottenstein Homes,
Inc. .................. 4,100 160,105
+Meritage Corporation..... 2,300 152,513
+Orleans Homebuilders,
Inc. ................... 1,300 36,829
Standard Pacific
Corp. ................. 11,030 535,507
+Technical Olympic USA,
Inc. ................... 3,100 85,343
+William Lyon Homes,
Inc. ................... 1,800 112,986
------------
1,582,040
------------
Hotel/Motel - 0.2%
Choice Hotels
International, Inc. ... 5,979 210,760
Extended Stay America,
Inc. .................. 23,200 335,936
Marcus Corporation....... 5,179 84,936
+Prime Hospitality
Corp. .................. 13,090 133,518
------------
765,150
------------
Household Furnishings - 0.3%
American Woodmark
Corporation............ 1,600 88,080
Bassett Furniture
Industries,Incorporated.. 2,400 39,600
+The Bombay Company,
Inc. ................... 10,300 83,842
+Department 56, Inc. ..... 2,300 30,130
Haverty Furniture
Companies, Inc. ....... 4,736 94,057
Hooker Furniture
Corporation............ 300 12,240
+Kirkland's, Inc. ........ 2,300 40,618
Libbey, Inc. ............ 4,588 130,666
Oneida Ltd. ............. 8,300 48,887
+Select Comfort
Corporation............. 7,500 185,700
Stanley Furniture
Company, Inc. ......... 3,200 100,800
------------
854,620
------------
Identification Control & Filter Devices - 0.9%
+Advanced Energy
Industries, Inc. ....... 6,112 159,218
+Artesyn Technologies,
Inc. ................... 11,367 96,847
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Asyst Technologies,
Inc. ................... 16,141 $ 280,046
C&D Technologies, Inc. .. 6,394 122,573
+CUNO Incorporated........ 4,631 208,534
+ESCO Technologies Inc. .. 4,566 199,306
+Flowserve Corporation.... 15,100 315,288
The Gorman-Rupp
Company................ 1,400 36,960
IDEX Corporation......... 9,681 402,633
Mine Safety Appliances
Company................ 1,842 146,457
+Paxar Corporation........ 11,182 149,839
Robbins & Myers, Inc. ... 3,212 60,996
Roper Industries,
Inc. .................. 8,621 424,670
+Veeco Instruments
Inc. ................... 8,127 229,181
+Vicor Corporation........ 5,796 66,132
Watts Industries, Inc.
(Class A).............. 4,336 96,259
X-Rite,Incorporated...... 6,117 69,244
------------
3,064,183
------------
Insurance - Life - 0.5%
AmerUs Group Co. ........ 13,500 472,095
+Citizens, Inc. .......... 6,586 62,105
Delphi Financial Group,
Inc. (Class A)......... 7,170 258,120
Financial Industries
Corporation............ 3,800 53,580
Great American Financial
Resources, Inc. ....... 4,480 72,666
Kansas City Life
Insurance Company...... 1,142 54,234
+National Western Life
Insurance Company (Class
A)...................... 662 102,511
The Phoenix Companies,
Inc. .................. 32,400 390,096
Presidential Life
Corporation............ 7,293 95,976
+Universal American
Financial Corp. ........ 10,100 100,091
------------
1,661,474
------------
Insurance - Multiline - 0.5%
Alfa Corporation......... 10,240 131,686
+Allmerica Financial
Corporation............. 16,000 492,320
+CNA Surety Corporation... 3,086 29,348
Crawford & Company (Class
B)..................... 6,309 44,542
EMC Insurance Group,
Inc. .................. 100 2,114
FBL Financial Group, Inc.
(Class A).............. 2,425 62,565
+HealthExtras, Inc. ...... 4,400 58,960
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
54
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Hilb,Rogal and Hamilton
Company................ 9,206 $ 295,236
Horace Mann Educators
Corporation............ 17,868 249,616
Independence Holding
Company................ 1,000 23,750
+PICO Holdings, Inc. ..... 3,297 51,664
Penn-America Group,
Inc. .................. 4,700 62,369
+UICI..................... 11,339 150,582
Zenith National Insurance
Corp. ................. 4,437 144,424
------------
1,799,176
------------
Insurance - Property Casualty - 0.9%
21st Century Insurance
Group.................. 7,200 99,000
+American Physicians
Capital, Inc. .......... 4,471 82,266
+Argonaut Group, Inc. .... 11,666 181,290
Baldwin & Lyons, Inc.
(Class B).............. 2,432 68,242
The Commerce Group,
Inc. .................. 6,845 270,377
Donegal Group Inc. (Class
A)..................... 4,500 99,090
Fremont General
Corporation............ 20,961 354,451
Harleysville Group
Inc. .................. 9,462 188,199
Infinity Property &
Casualty Corporation... 4,900 161,945
The Midland Company...... 1,858 43,886
NYMAGIC, Inc. ........... 1,400 38,388
+The Navigators Group,
Inc. ................... 1,100 33,957
+Ohio Casualty
Corporation............. 19,815 343,988
PMA Capital Corporation
(Class A).............. 13,606 69,663
+Philadelphia Consolidated
Holding Corp. .......... 4,956 242,001
+ProAssurance
Corporation............. 7,123 229,004
RLI Corp. ............... 4,954 185,577
Safety Insurance Group,
Inc. .................. 1,300 22,243
Selective Insurance
Group, Inc. ........... 9,711 314,248
State Auto Financial
Corporation............ 2,812 65,773
United Fire & Casualty
Company................ 1,500 60,540
------------
3,154,128
------------
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Investment Management Companies - 0.3%
+Affiliated Managers
Group, Inc. ............ 7,700 $ 535,843
Gabelli Asset Management
Inc. (Class A)......... 2,796 111,281
Gladstone Capital
Corporation............ 5,100 113,985
MCG Capital Corporation.. 7,300 142,350
------------
903,459
------------
Jewelry - Watches & Gemstones - 0.1%
+Fossil,Inc. ............. 7,655 214,417
Friedman's Inc. (Class
A)..................... 9,800 65,758
Movado Group, Inc. ...... 1,800 50,814
------------
330,989
------------
Leisure Time - 0.5%
Action Performance
Companies, Inc. ....... 6,000 117,600
+Bally Total Fitness
Holding Corporation..... 9,341 65,387
Callaway Golf Company.... 19,400 326,890
+K2 Inc. ................. 8,300 126,243
+Penn National Gaming,
Inc. ................... 12,278 283,376
+SCP Pool Corporation..... 10,409 340,166
+Six Flags, Inc. ......... 28,500 214,320
+Steinway Musical
Instruments, Inc. ...... 2,600 64,220
Sturm, Ruger & Company,
Inc. .................. 6,578 74,792
+Vail Resorts, Inc. ...... 7,656 130,152
+West Marine, Inc. ....... 2,900 80,649
------------
1,823,795
------------
Machine Tools - 0.1%
Lincoln Electric
Holdings, Inc. ........ 9,392 232,358
------------
Machinery & Engineering - 0.0%
Applied Industrial
Technologies, Inc. .... 6,707 160,029
------------
Machinery - Agricultural - 0.0%
Alamo Group Inc. ........ 500 7,630
Lindsay Manufacturing
Co. ................... 3,613 91,228
------------
98,858
------------
Machinery - Construction & Handling - 0.3%
+Astec Industries,
Inc. ................... 4,717 57,878
The Manitowoc Co.,
Inc. .................. 9,511 296,743
NACCO Industries, Inc.
(Class A).............. 1,387 124,109
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
55
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Stewart & Stevenson
Services, Inc. ........ 9,424 $ 132,407
+Terex Corporation........ 13,343 380,009
------------
991,146
------------
Machinery - Engines - 0.1%
Briggs & Stratton
Corporation............ 7,459 502,737
------------
Machinery - Industrial/Specialty - 0.8%
+Actuant Corporation
(Class A)............... 7,800 282,360
+EnPro Industries,
Inc. ................... 4,300 59,985
+Gardner Denver Inc. ..... 8,957 213,804
Joy Global Inc. ......... 16,900 441,935
+Kadant Inc. ............. 2,770 59,970
Kennametal Inc. ......... 11,503 457,244
Milacron Inc. ........... 10,672 44,502
Nordson Corporation...... 9,210 318,021
Tecumseh Products Company
(Class A).............. 5,928 287,093
Tennant Company.......... 2,637 114,182
Thomas Industries
Inc. .................. 2,999 103,945
Woodward Governor
Company................ 2,793 158,726
------------
2,541,767
------------
Machinery - Oil Well Equipment & Service - 0.7%
CARBO Ceramics Inc. ..... 4,068 208,485
+Cal Dive International,
Inc. ................... 12,837 309,500
+Dril-Quip, Inc. ......... 1,688 27,514
+Global Industries,
Ltd. ................... 24,300 125,145
+Gulf Island Fabrication,
Inc. ................... 4,217 71,816
+Hanover Compressor
Company................. 14,300 159,445
+Horizon Offshore,
Inc. ................... 10,685 47,014
+Hydril Company........... 4,300 102,899
+Input/Output, Inc. ...... 13,646 61,543
Lufkin Industries,
Inc. .................. 2,600 74,854
+Newpark Resources,
Inc. ................... 22,420 107,392
+Oceaneering
International, Inc. .... 7,004 196,112
+Oil States International,
Inc. ................... 5,700 79,458
+Parker Drilling Company.. 29,181 74,412
RPC, Inc. ............... 3,200 35,168
+SEACOR SMIT Inc. ........ 5,208 218,892
+Superior Energy Services,
Inc. ................... 12,305 115,667
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Universal Compression
Holdings, Inc. ......... 4,726 $ 123,632
+W-H Energy Services,
Inc. ................... 10,457 169,403
------------
2,308,351
------------
Machinery - Specialty - 0.3%
+Applied Films
Corporation............. 4,200 138,684
Cascade Corporation...... 1,900 42,370
Engineered Support
Systems,Inc. .......... 6,225 342,748
Helix Technology
Corporation............ 9,461 194,707
JLG Industries, Inc. .... 12,498 190,345
+Semitool, Inc. .......... 3,441 36,891
------------
945,745
------------
Manufactured Housing - 0.1%
+Champion Enterprises,
Inc. ................... 16,227 113,589
+Palm Harbor Homes,
Inc. ................... 4,105 73,356
Skyline Corporation...... 1,501 52,340
------------
239,285
------------
Manufacturing - 0.2%
Federal Signal
Corporation............ 17,359 304,130
+Rayovac Corporation...... 12,064 252,741
Standex International
Corporation............ 3,331 93,268
------------
650,139
------------
Medical & Dental Instruments & Supplies - 3.3%
+ALARIS Medical, Inc. .... 4,000 60,840
+Advanced Medical Optics,
Inc. ................... 8,200 161,130
+Advanced Neuromodulation
Systems, Inc. .......... 7,550 347,149
+Align Technology,
Inc. ................... 13,300 219,716
+American Medical Systems
Holdings, Inc. ......... 6,500 141,700
Arrow International,
Inc. .................. 6,008 150,080
+BioLase Technology,
Inc. ................... 6,600 109,560
+Biosite Diagnostics
Incorporated............ 4,049 117,219
+CONMED Corporation....... 12,028 286,266
+Cantel Medical Corp. .... 900 14,571
+Cardiac Science, Inc. ... 16,200 64,638
+Cepheid, Inc. ........... 10,900 104,422
+Cerus Corporation........ 5,825 26,445
+Cholestech Corporation... 2,900 22,127
+Closure Medical
Corporation............. 2,713 92,052
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
56
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Conceptus, Inc. ......... 6,800 $ 72,216
+Cooper Companies, Inc. .. 9,384 442,268
+CryoLife, Inc. .......... 6,028 34,842
+Cyberonics, Inc. ........ 7,069 226,279
+Cytyc Corporation........ 37,600 517,376
+DJ Orthopedics
Incorporated............ 1,500 40,200
+Dade Behring Holdings
Inc. ................... 14,700 525,378
Diagnostic Products
Corporation............ 6,400 293,824
+Exactech, Inc. .......... 1,500 22,125
+Gen-Probe Incorporated... 16,900 616,343
+ICU Medical, Inc. ....... 4,150 142,262
+IGEN International,
Inc. ................... 6,176 363,828
+INAMED Corporation....... 9,040 434,462
+Immucor, Inc. ........... 6,750 137,632
Invacare Corp. .......... 8,122 327,885
+Inverness Medical
Innovations, Inc. ...... 3,740 81,457
+Kyphon Inc. ............. 5,500 136,565
Landauer, Inc. .......... 1,978 80,663
+Laserscope............... 5,000 77,950
+Medical Action Industries
Inc. ................... 3,600 67,356
Mentor Corporation....... 14,144 340,305
Meridian Bioscience,
Inc. .................. 4,600 47,978
+Merit Medical Systems,
Inc. ................... 8,310 184,981
+Molecular Devices
Corporation............. 4,437 84,259
+Novoste Corporation...... 3,000 14,370
+Ocular Sciences, Inc. ... 5,914 169,791
+OraSure Technologies,
Inc. ................... 9,459 75,294
+OrthoLogic Corp. ........ 13,600 83,368
+Osteotech, Inc. ......... 7,000 61,600
Owens & Minor, Inc. ..... 11,998 262,876
+PSS World Medical,
Inc. ................... 25,973 313,494
PolyMedica Corporation... 5,114 134,549
+Retractable Technologies,
Inc. ................... 500 3,010
+STAAR Surgical Company... 7,500 84,450
+Sola International
Inc. ................... 12,700 238,760
+SonoSite, Inc. .......... 4,915 105,378
+SurModics, Inc. ......... 5,363 128,176
+Sybron Dental
Specialties, Inc. ...... 15,500 435,550
+Synovis Life
Technologies, Inc. ..... 4,000 81,360
+Techne Corporation....... 12,829 484,680
+Theragenics Corporation.. 6,932 37,918
+Therasense, Inc. ........ 7,200 146,160
+Thoratec Laboratories
Corporation............. 14,847 193,159
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Ventana Medical Systems,
Inc. ................... 3,080 $ 121,352
+Viasys Healthcare
Inc. ................... 8,500 175,100
Vital Signs, Inc. ....... 2,424 79,265
West Pharmaceutical
Services, Inc. ........ 3,638 123,328
+Wright Medical Group,
Inc. ................... 5,000 152,200
Young Innovations,
Inc. .................. 600 21,600
------------
10,943,137
------------
Medical Services - 0.4%
+Covance Inc. ............ 19,291 516,999
+Curative Health
Services,Inc. .......... 5,100 70,380
+Deltagen, Inc. .......... 100 2
+Hanger Orthopedic Group,
Inc. ................... 4,800 74,736
+Option Care, Inc. ....... 5,181 55,333
+PAREXEL International
Corporation............. 8,097 131,657
+RehabCare Group, Inc. ... 5,795 123,202
+U.S. Physical Therapy,
Inc. ................... 3,750 58,988
+VCA Antech, Inc. ........ 8,800 272,624
------------
1,303,921
------------
Metal Fabricating - 0.6%
CIRCOR International,
Inc. .................. 2,400 57,840
Commercial Metals
Company................ 7,778 236,451
+Encore Wire Corporation.. 2,600 46,046
Kaydon Corp. ............ 9,226 238,400
+Lone Star Technology..... 7,958 127,169
Material Sciences
Corporation............ 4,000 40,440
+Maverick Tube
Corporation............. 12,363 237,988
NN, Inc. ................ 5,065 63,768
+NS Group, Inc. .......... 4,055 39,334
Penn Engineering &
Manufacturing Corp. ... 2,456 46,738
Precision Castparts
Corp. ................. 15 681
Quanex Corporation....... 5,005 230,731
+RTI International Metals,
Inc. ................... 4,813 81,195
Reliance Steel & Aluminum
Co. ................... 7,047 234,031
Ryerson Tull, Inc. ...... 5,093 58,315
+The Shaw Group Inc. ..... 17,500 238,350
Valmont Industries,
Inc. .................. 3,658 84,683
------------
2,062,160
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
57
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Metals & Minerals - Miscellaneous - 0.5%
AMCOL International
Corporation............ 7,673 $ 155,762
+Brush Engineered
Materials Inc. ......... 5,711 87,435
+Cleveland-Cliffs Inc. ... 3,659 186,426
+GrafTech International
Ltd. ................... 25,644 346,194
+Hecla Mining Company..... 37,300 309,217
+Liquidmetal
Technologies............ 13,600 38,624
Minerals Technologies,
Inc. .................. 6,853 406,040
+Stillwater Mining
Company................. 9,864 94,398
+SureBeam Corporation
(Class A)............... 19,886 4,773
------------
1,628,869
------------
Milling - Fruit & Grain Processing - 0.1%
Corn Products
International, Inc. ... 11,289 388,906
------------
Miscellaneous Health Care - 0.1%
+NeighborCare, Inc. ...... 8,800 173,800
------------
Miscellaneous Materials & Commodities - 0.2%
+Ceradyne, Inc. .......... 2,900 98,774
+Lydall, Inc. ............ 3,000 30,570
+Symyx Technologies....... 7,279 149,583
USEC Inc. ............... 37,759 317,176
WD-40 Company............ 5,689 201,163
------------
797,266
------------
Miscellaneous Materials & Processing - 0.1%
+Insituform Technologies,
Inc.(Class A)........... 8,738 144,177
+Rogers Corporation....... 4,555 200,967
------------
345,144
------------
Multi-Sector Companies - 0.4%
+FMC Corporation.......... 10,300 351,539
GenCorp Inc. ............ 9,771 105,234
+Jacuzzi Brands, Inc. .... 24,450 173,351
Kaman Corp.(Class A)..... 6,794 86,488
Raven Industries,
Inc. .................. 2,900 85,550
+Sequa Corporation (Class
A)...................... 1,165 57,085
Trinity Industries,
Inc. .................. 11,050 340,782
United Capital Corp. .... 1,800 37,296
Walter Industries,
Inc. .................. 7,402 98,817
------------
1,336,142
------------
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Office Furniture & Business Equipment - 0.1%
+General Binding
Corporation............. 900 $ 16,200
+Imagistics International
Inc. ................... 4,924 184,650
Kimball International
(Class B).............. 7,974 123,996
+Presstek, Inc. .......... 11,340 82,442
------------
407,288
------------
Offshore Drilling - 0.0%
+Atwood Oceanics, Inc. ... 3,827 122,234
------------
Oil - Crude Producers - 2.0%
Berry Petroleum Company
(Class A).............. 3,701 74,945
Cabot Oil & Gas
Corporation (Class A).. 7,974 234,037
+Cimarex Energy Co. ...... 13,100 349,639
+Clayton Williams Energy,
Inc. ................... 1,900 55,233
+Comstock Resources,
Inc. ................... 10,057 194,100
+Denbury Resources Inc. .. 13,470 187,368
+Encore Acquisition
Company................. 4,400 108,460
+Energy Partners, Ltd. ... 9,300 129,270
+Evergreen Resources,
Inc. ................... 11,392 370,354
+Forest Oil Corporation... 13,200 377,124
Frontier Oil
Corporation............ 8,715 150,072
+Grey Wolf, Inc. ......... 62,943 235,407
+Harvest Natural
Resources, Inc. ........ 15,000 149,250
+The Houston Exploration
Company................. 3,383 123,547
+Magnum Hunter Resources,
Inc. ................... 20,772 197,542
+McMoRan Exploration
Co. .................... 5,000 93,750
+The Meridian Resource
Corporation............. 13,311 79,067
+Nuevo Energy Company..... 6,411 154,954
Patina Oil & Gas
Corporation............ 10,357 507,389
+Petroleum Development
Corporation............. 7,000 165,900
+Plains Exploration &
Production Company...... 10,687 164,473
+Plains Resources Inc. ... 8,450 135,623
+Prima Energy
Corporation............. 2,843 99,960
+Quicksilver Resources
Inc. ................... 6,010 194,123
Range Resources
Corporation............ 20,637 195,020
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
58
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Remington Oil & Gas
Corporation............. 6,920 $ 136,255
Resource America, Inc.
(Class A).............. 4,349 65,235
St. Mary Land &
Exploration Company.... 8,926 254,391
+Spinnaker Exploration
Company................. 11,387 367,458
+Stone Energy
Corporation............. 8,178 347,156
+Swift Energy Company..... 8,117 136,771
+Tom Brown, Inc. ......... 12,915 416,509
+Unit Corporation......... 11,408 268,658
Vintage Petroleum,
Inc. .................. 15,183 182,651
------------
6,901,691
------------
Oil - Integrated Domestic - 0.0%
+KCS Energy, Inc. ........ 9,200 97,060
------------
Oil - Integrated International - 0.0%
+PetroCorp Incorporated... 500 6,730
------------
Paints & Coatings - 0.2%
Ferro Corporation........ 12,776 347,635
H.B. Fuller Company...... 8,940 265,876
+Kronos Worldwide, Inc. .. 1,217 27,017
------------
640,528
------------
Paper - 0.3%
Albany International
Corp. (Class A)........ 7,326 248,351
+Buckeye Technologies
Inc. ................... 6,998 70,330
+Caraustar Industries,
Inc. ................... 10,974 151,441
Chesapeake Corporation... 4,192 111,004
P.H. Glatfelter Company.. 7,801 97,122
Rock-Tenn Company (Class
A)..................... 5,880 101,489
Wausau-Mosinee Paper
Corporation............ 11,442 154,696
------------
934,433
------------
Photography - 0.0%
CPI Corp. ............... 3,698 74,737
+Concord Camera Corp. .... 9,274 85,785
------------
160,521
------------
Plastics - 0.1%
Brady Corporation........ 5,247 213,815
Spartech Corporation..... 5,854 144,243
------------
358,058
------------
Pollution Control & Environmental Services - 0.2%
BHA Group Holdings,
Inc. .................. 2,100 52,815
+Darling International
Inc. ................... 13,600 37,536
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Duratek, Inc. ........... 300 $ 3,912
+Gundle/SLT Environmental,
Inc. ................... 1,000 20,760
+Headwaters Incorporated.. 9,546 187,293
+Ionics, Inc. ............ 6,567 209,159
+TRC Companies, Inc. ..... 2,500 52,650
------------
564,125
------------
Power Transmission Equipment - 0.1%
Regal-Beloit
Corporation............ 7,251 159,522
Woodhead Industries,
Inc. .................. 2,611 44,126
------------
203,648
------------
Printing & Copying Services - 0.1%
Bowne & Co., Inc. ....... 10,482 142,136
+Mail-Well, Inc. ......... 8,960 41,306
Schawk, Inc. ............ 2,300 31,349
------------
214,791
------------
Production Technology Equipment - 1.6%
+ATMI, Inc. .............. 11,357 262,801
+Axcelis Technologies,
Inc. ................... 37,900 387,338
+Brooks Automation,
Inc. ................... 11,188 270,414
Cognex Corporation....... 10,656 300,925
+Credence Systems
Corporation............. 19,168 252,251
+Cymer, Inc. ............. 11,700 540,423
+Dionex Corporation....... 5,531 254,537
+DuPont Photomasks,
Inc. ................... 4,808 116,065
+Electro Scientific
Industries, Inc. ....... 8,761 208,512
+Entegris Inc. ........... 14,900 191,465
+Esterline Technologies
Corporation............. 5,290 141,084
+FEI Company.............. 8,655 194,737
+Kulicke and Soffa
Industries.............. 17,156 246,703
+LTX Corporation.......... 17,203 258,561
MTS Systems Corporation.. 7,500 144,225
+Mattson Technology,
Inc. ................... 7,899 96,526
+Mykrolis Corporation..... 11,000 176,880
+Photon Dynamics, Inc. ... 5,062 203,695
+Photronics, Inc. ........ 8,979 178,862
+Rofin-Sinar Technologies,
Inc. ................... 4,300 148,608
+Rudolph Technologies,
Inc. ................... 4,173 102,405
+Ultratech Stepper,
Inc. ................... 7,290 214,107
+Varian Semiconductor
Equipment Associates,
Inc. ................... 8,942 390,676
------------
5,281,800
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
59
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Publishing - Miscellaneous - 0.3%
Advanced Marketing
Services, Inc. ........ 4,381 $ 49,943
Banta Corporation........ 8,394 339,957
+Cross Media Marketing
Corporation............. 1,000 1
+Consolidated Graphics,
Inc. ................... 2,600 82,108
Courier Corporation...... 1,200 46,165
+Information Holdings
Inc. ................... 4,818 106,478
+Martha Stewart Living
Omnimedia, Inc. (Class
A)...................... 5,182 51,043
Thomas Nelson, Inc. ..... 4,300 83,119
+PRIMEDIA Inc. ........... 40,200 113,766
+Playboy Enterprises,
Inc. ................... 3,707 59,905
------------
932,485
------------
Publishing - Newspapers - 0.2%
Hollinger International
Inc. .................. 19,729 308,167
+Journal Register Co. .... 9,233 191,123
Pulitzer Inc. ........... 1,855 100,170
------------
599,460
------------
Radio & TV Broadcasters - 0.6%
+Acme Communications,
Inc. ................... 1,200 10,548
+Beasley Broadcast Group,
Inc.(Class A)........... 2,733 44,903
+Cumulus Media Inc.(Class
A)...................... 15,300 336,600
+Digital Generation
Systems, Inc. .......... 3,600 8,064
+Emmis Communications
Corporation (Class A)... 14,000 378,700
+Fisher Communications,
Inc. ................... 1,100 56,100
Gray Television, Inc. ... 10,300 155,736
The Liberty
Corporation............ 4,554 205,795
+Lin TV Corp.(Class A).... 7,200 185,832
+Paxson Communications
Corporation............. 9,368 36,067
+Pegasus Communications
Corporation............. 1,300 36,504
+Regent Communications,
Inc. ................... 7,771 49,346
+Saga Communications,
Inc.(Class A)........... 8,033 148,851
+Salem Communications
Corporation (Class A)... 2,683 72,763
+Sinclair Broadcast Group,
Inc. (Class A).......... 12,464 185,963
+Spanish Broadcasting
System, Inc. (Class
A)...................... 11,184 117,432
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Shop At Home, Inc. ...... 6,300 $ 24,696
World Wrestling
Federation
Entertainment, Inc. ... 2,568 33,641
+Young Broadcasting Inc.
(Class A)............... 4,408 88,336
------------
2,175,877
------------
Railroad Equipment - 0.1%
+The Greenbrier Companies,
Inc. ................... 500 8,375
Wabtec Corporation....... 12,139 206,849
------------
215,224
------------
Railroads - 0.2%
Florida East Coast
Industries, Inc. ...... 5,181 171,491
+Genesee & Wyoming Inc.
(Class A)............... 2,600 81,900
+Kansas City Southern
Industries, Inc. ....... 19,476 278,896
+RailAmerica, Inc. ....... 7,802 92,064
------------
624,351
------------
Real Estate - 0.2%
Brookfield Homes
Corporation............ 2,800 72,156
Consolidated-Tomoka Land
Co. ................... 2,100 68,670
+Jones Lang Lasalle
Inc. ................... 9,608 199,174
+Reading International,
Inc. (Class A).......... 900 5,328
+Tarragon Realty Investors
Inc. ................... 200 3,302
+Tejon Ranch Co. ......... 1,315 53,928
+Trammell Crow Company.... 7,178 95,109
+WCI Communities, Inc. ... 5,800 119,538
------------
617,205
------------
Real Estate Investment Trusts - 5.1%
Acadia Realty Trust...... 6,601 82,512
+Alexander's, Inc. ....... 367 45,750
Alexandria Real Estate
Equities, Inc. ........ 6,656 385,382
American Home Mortgage
Investment Corp. ...... 7,597 171,008
American Land Lease,
Inc. .................. 2,800 55,860
American Mortgage
Acceptance Company..... 3,600 58,680
Amli Residential
Properties Trust....... 6,440 172,592
Anthracite Capital,
Inc. .................. 14,600 161,622
Anworth Mortgage Asset
Corporation............ 14,200 197,806
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
60
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Associated Estates Realty
Corporation............ 9,800 $ 71,638
+Avatar Holdings Inc. .... 1,300 48,022
Bedford Property
Investors, Inc. ....... 6,599 188,929
Boykin Lodging Company... 7,832 71,663
Brandywine Realty Trust.. 11,247 301,082
+CRIIMI MAE, Inc. ........ 4,900 51,107
+Capital Automotive....... 8,950 286,400
Capstead Mortgage
Corporation............ 5,400 90,612
Colonial Properties
Trust.................. 5,406 214,078
Commercial Net Lease
Realty................. 11,575 206,035
Cornerstone Realty Income
Trust, Inc. ........... 16,903 148,070
Corporate Office
Properties Trust....... 8,600 180,600
Correctional Properties
Trust.................. 3,300 95,040
EastGroup Properties,
Inc. .................. 8,327 269,628
Entertainment Properties
Trust.................. 5,580 193,682
Equity Inns Inc. ........ 12,740 115,297
Equity One, Inc. ........ 7,400 124,912
Essex Property Trust,
Inc. .................. 6,395 410,687
FelCor Lodging Trust
Inc. .................. 16,970 188,028
First Industrial Realty
Trust, Inc. ........... 13,700 462,375
Gables Residential
Trust.................. 9,282 322,457
Getty Realty
Corporation............ 5,400 141,210
Glenborough Realty Trust
Incorporated........... 7,239 144,418
Glimcher Realty Trust.... 9,856 220,577
Great Lakes REIT,
Inc. .................. 8,427 132,304
Health Care REIT,
Inc. .................. 16,869 607,284
Heritage Property
Investment Trust....... 4,600 130,870
Highwoods Properties,
Inc. .................. 16,000 406,400
Home Properties of New
York, Inc. ............ 12,120 489,527
Impac Mortgage Holdings,
Inc. .................. 15,500 282,255
Innkeepers USA Trust..... 7,692 64,382
Investors Real Estate
Trust.................. 8,400 83,160
Keystone Property
Trust.................. 10,004 220,988
Kilroy Realty
Corporation............ 7,278 238,355
Koger Equity, Inc. ...... 5,948 124,492
Kramont Realty Trust..... 5,300 95,930
LTC Properties........... 3,700 54,538
+La Quinta Corporation.... 38,800 248,708
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
LaSalle Hotel
Properties............. 9,820 $ 182,161
Lexington Corporate
Properties Trust....... 15,342 309,755
MFA Mortgage Investments,
Inc. .................. 16,000 156,000
Manufactured Home
Communities, Inc. ..... 5,294 199,319
+Meristar Hospitality
Corp. .................. 15,258 99,330
Mid-America Apartment
Communities, Inc. ..... 4,229 142,010
Mission West Properties
Inc. .................. 4,200 54,390
National Health
Investors, Inc. ....... 8,429 209,714
National Health Realty,
Inc. .................. 1,800 35,460
Nationwide Health
Properties, Inc. ...... 20,659 403,883
Newcastle Investment
Corporation............ 7,300 197,830
Novastar Financial,
Inc. .................. 8,600 369,456
OMEGA Healthcare
Investors, Inc. ....... 2,200 20,526
PS Business Parks,
Inc. .................. 3,208 132,362
Parkway Properties,
Inc. .................. 5,304 220,646
Pennsylvania Real Estate
Investment Trust....... 10,232 371,422
Post Properties, Inc. ... 11,186 312,313
Prentiss Properties
Trust.................. 9,950 328,251
+Price Legacy
Corporation............. 6,100 23,241
RAIT Investment Trust.... 9,300 238,080
Ramco-Gershenson
Properties Trust....... 4,700 133,010
Reckson Associates Realty
Corporation............ 17,600 427,680
Redwood Trust, Inc. ..... 4,595 233,656
SL Green Realty Corp. ... 13,632 559,594
Saul Centers, Inc. ...... 2,422 69,439
Senior Housing Properties
Trust.................. 12,814 220,785
Sizeler Property
Investors, Inc. ....... 5,600 59,976
Sovran Self Storage,
Inc. .................. 3,904 145,034
Summit Properties
Inc. .................. 7,719 185,410
Sun Communities, Inc. ... 5,243 202,904
Tanger Factory Outlet
Centers, Inc. ......... 1,861 75,743
Taubman Centers, Inc. ... 12,708 261,785
Town & Country Trust..... 4,063 102,997
U.S. Restaurant
Properties, Inc. ...... 9,200 156,768
United Mobile Homes,
Inc. .................. 300 5,103
Universal Health Realty
Income Trust........... 2,427 73,053
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
61
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Urstadt Biddle Properties
(Class A).............. 5,500 $ 77,825
Ventas, Inc. ............ 23,405 514,910
Washington Real Estate
Investment Trust....... 11,565 337,698
Winston Hotels, Inc. .... 5,455 55,641
------------
16,962,112
------------
Recreational Vehicles & Boats - 0.3%
Arctic Cat Inc. ......... 5,643 139,382
Coachmen Industries,
Inc. .................. 3,107 56,268
+Fleetwood Enterprises,
Inc. ................... 11,699 120,032
Marine Products Corp. ... 500 9,400
+Monaco Coach
Corporation............. 7,924 188,591
Thor Industries, Inc. ... 5,442 305,949
Winnebago Industries,
Inc. .................. 3,595 247,156
------------
1,066,778
------------
Rental & Leasing Services - Commercial - 0.3%
+Electro Rent
Corporation............. 3,353 44,729
GATX Corporation......... 16,600 464,468
McGrath Rentcorp......... 2,105 57,361
+United Rentals, Inc. .... 20,300 390,978
------------
957,536
------------
Rental & Leasing Services - Consumer - 0.1%
Aaron Rents, Inc. ....... 7,462 150,210
+Dollar Thrifty Automotive
Group, Inc. ............ 7,195 186,638
+Rent-Way, Inc. .......... 12,478 102,195
+WESCO International,
Inc. ................... 4,258 37,683
------------
476,726
------------
Restaurants - 1.2%
Bob Evans Farms, Inc. ... 11,080 359,657
+CEC Entertainment Inc. .. 6,900 326,991
+CKE Restaurants, Inc. ... 12,900 82,431
+California Pizza Kitchen,
Inc. ................... 7,000 140,910
+Chicago Pizza & Brewery,
Inc. ................... 4,200 62,664
+Dave & Buster's, Inc. ... 2,000 25,360
IHOP Corp. .............. 5,348 205,791
+Jack in the Box Inc. .... 9,518 203,304
Landry's Restaurants,
Inc. .................. 6,696 172,221
Lone Star Steakhouse &
Saloon, Inc. .......... 7,154 165,830
+O'Charley's Inc. ........ 8,084 145,108
+P.F. Chang's China
Bistro, Inc. ........... 9,208 468,503
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Panera Bread Company
(Class A)............... 9,700 $ 383,441
+Papa John's
International, Inc. .... 4,748 158,488
+RARE Hospitality
International, Inc. .... 10,877 265,834
+Red Robin Gourmet
Burgers................. 3,600 109,584
+Ryan's Family Steak
Houses, Inc. ........... 13,300 201,362
+Sonic Corp. ............. 14,576 446,317
+The Steak 'n Shake
Company................. 5,428 96,890
Triarc Companies,
Inc.(Class B).......... 10,450 112,651
------------
4,133,337
------------
Retail - 4.2%
+1-800 CONTACTS, INC...... 1,600 33,600
+1-800-FLOWERS.COM,
Inc. ................... 7,824 86,533
+A.C. Moore Arts & Crafts,
Inc. ................... 4,000 77,040
+Aeropostale, Inc. ....... 7,900 216,618
+American Eagle
Outfitters, Inc. ....... 17,900 293,560
+America's Car-Mart,
Inc. ................... 2,100 56,532
+AnnTaylor Stores
Corporation............. 14,541 567,099
+Asbury Automotive Group
Inc. ................... 2,300 41,193
+BJ's Wholesale Club,
Inc. ................... 22,700 521,192
+bebe stores, inc......... 2,240 58,218
+Big 5 Sporting Goods
Corporation............. 5,300 111,035
Blair Corporation........ 1,700 41,378
+Blue Rhino Corporation... 5,300 73,617
+Brookstone, Inc. ........ 5,100 108,681
Brown Shoe Company,
Inc. .................. 5,579 211,611
The Buckle, Inc. ........ 1,249 27,665
Burlington Coat Factory
Warehouse Corporation.. 5,592 118,327
+CSK Auto Corporation..... 10,434 195,846
+Casual Male Retail Group,
Inc. ................... 12,200 84,668
The Cato Corporation
(Class A).............. 5,197 106,538
+Central Garden & Pet
Company................. 4,800 134,544
+Charlotte Russe Holding
Inc. ................... 5,000 69,300
+Charming Shoppes, Inc. .. 33,040 178,416
+The Children's Place
Retail Stores, Inc. .... 4,485 119,884
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
62
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Christopher & Banks
Corporation............ 10,928 $ 213,424
+Coldwater Creek Inc. .... 2,020 22,220
+Cole National Corporation
(Class A)............... 3,100 62,000
+Cost Plus, Inc. ......... 7,476 306,516
Deb Shops, Inc. ......... 500 10,750
+Dick's Sporting Goods,
Inc. ................... 4,500 218,970
Dillard's, Inc. (Class
A)..................... 21,700 357,182
+The Dress Barn, Inc. .... 5,945 89,116
+Drugstore.com, Inc. ..... 9,700 53,447
+Electronics Boutique
Holdings Corp. ......... 5,131 117,449
+Finlay Enterprises,
Inc. ................... 800 11,304
Fred's, Inc. ............ 14,235 441,000
+FreeMarkets, Inc. ....... 11,769 78,735
+GSI Commerce, Inc. ...... 4,800 46,853
+Galyan's Trading
Company................. 3,600 43,344
+GameStop Corporation..... 8,000 123,280
+Genesco Inc. ............ 8,338 126,154
+GenesisIntermedia,
Inc. ................... 3,300 0
+Global Imaging Systems,
Inc. ................... 5,300 168,275
Goody's Family Clothing,
Inc. .................. 7,100 66,456
+Group 1 Automotive,
Inc. ................... 5,032 182,108
+Guitar Center, Inc. ..... 5,139 167,429
+The Gymboree
Corporation............. 8,858 152,623
Hancock Fabrics, Inc. ... 6,500 94,120
Handleman Company........ 7,561 155,227
+Hibbett Sporting Goods,
Inc. ................... 4,200 125,160
+Hot Topic, Inc. ......... 14,381 423,664
+Insight Enterprises,
Inc. ................... 13,898 261,282
+InterTAN, Inc. .......... 6,779 68,603
+J. Jill Group Inc. ...... 5,662 71,964
+Jo-Ann Stores, Inc. ..... 5,405 110,262
+Jos. A. Bank Clothiers,
Inc. ................... 2,100 72,849
Lawson Products, Inc. ... 1,547 51,329
+Linens 'n Things,
Inc. ................... 16,518 496,861
Lithia Motors, Inc. ..... 3,200 80,672
+MarineMax, Inc. ......... 1,000 19,430
+The Men's Wearhouse,
Inc. ................... 10,361 259,129
+Mothers Work, Inc. ...... 2,100 51,240
+Overstock.com, Inc. ..... 4,000 79,440
+PC Connection, Inc. ..... 1,059 8,864
+PETCO Animal Supplies,
Inc. ................... 10,800 328,860
+Pacific Sunwear of
California, Inc. ....... 23,928 505,359
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+The Pantry, Inc. ........ 2,500 $ 56,750
+Party City Corporation... 2,900 36,801
+Payless ShoeSource,
Inc. ................... 20,000 268,000
+Priceline.com
Incorporated............ 7,516 134,536
+Restoration Hardware,
Inc. ................... 6,000 28,500
Russ Berrie and Company,
Inc. .................. 2,847 96,513
+School Specialty,
Inc. ................... 6,054 205,897
+Sharper Image
Corporation............. 3,600 117,540
+ShopKo Stores, Inc. ..... 8,898 135,695
Sonic Automotive,
Inc. .................. 7,900 181,068
+The Sports Authority,
Inc. ................... 5,926 227,558
+Stage Stores, Inc. ...... 5,700 159,030
+Stamps.com Inc. ......... 11,407 70,723
+Stein Mart, Inc. ........ 5,824 47,990
+Too Inc. ................ 14,666 247,562
+Tractor Supply Company... 10,000 388,900
+Trans World Entertainment
Corporation............. 5,030 35,814
+Tuesday Morning
Corporation............. 5,190 156,998
+Tweeter Home
Entertainment Group,
Inc. ................... 10,530 99,509
+Ultimate Electronics,
Inc. ................... 4,219 32,191
United Auto Group,
Inc. .................. 4,131 129,300
+United Natural Foods,
Inc. ................... 6,890 247,420
+Urban Outfitters,
Inc. ................... 9,200 340,860
+ValueVision
International, Inc.
(Class A)............... 5,856 97,795
+The Wet Seal, Inc. (Class
A)...................... 7,075 69,972
+Whitehall Jewelers,
Inc. ................... 3,400 33,558
+Wilsons The Leather
Experts Inc. ........... 5,199 18,145
+Zale Corporation......... 8,300 441,560
------------
13,962,230
------------
Savings & Loan - 2.9%
Anchor Bancorp, Inc. .... 6,537 162,771
BSB Bancorp, Inc. ....... 3,241 128,019
Bank Mutual Corporation.. 14,738 167,866
BankAtlantic Bancorp,
Inc.(Class A).......... 17,442 331,398
+BankUnited Financial
Corporation (Class A)... 9,573 246,888
Bay View Capital
Corporation............ 19,714 42,188
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
63
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Berkshire Hills Bancorp,
Inc. .................. 2,400 $ 86,880
Brookline Bancorp,
Inc. .................. 20,787 318,873
CFS Bancorp, Inc. ....... 3,000 44,520
Camco Financial
Corporation............ 2,600 45,058
Charter Financial
Corporation............ 500 18,635
Citizens First Bancorp,
Inc. .................. 1,800 41,040
Citizens South Banking
Corporation............ 4,300 59,985
Coastal Bancorp, Inc. ... 1,232 50,648
Coastal Financial
Corporation............ 3,213 56,677
+Commercial Capital
Bancorp, Inc. .......... 4,000 85,640
Commercial Federal
Corporation............ 13,127 350,622
Connecticut Bancshares,
Inc. .................. 4,100 211,314
Dime Community
Bancshares............. 5,266 161,982
ESB Financial
Corporation............ 600 9,834
EverTrust Financial Group
Inc. .................. 2,400 76,416
FFLC Bancorp, Inc. ...... 400 11,500
FMS Financial
Corporation............ 400 7,200
Fidelity Bankshares,
Inc. .................. 4,148 130,247
First Defiance Financial
Corp. ................. 1,600 42,640
First Federal Capital
Corp. ................. 5,212 117,374
First Federal Financial
Corporation of
Kentucky............... 300 7,545
First Financial Holdings,
Inc. .................. 4,026 125,853
First Indiana
Corporation............ 3,388 63,525
First Niagara Financial
Group, Inc. ........... 25,118 374,509
First Place Financial
Corp. ................. 2,900 56,637
First Republic Bank...... 4,200 150,360
First Sentinel Bancorp
Inc. .................. 5,967 125,665
FirstFed America Bancorp,
Inc. .................. 6,000 156,180
+FirstFed Financial
Corp. .................. 4,800 208,800
Flagstar Bancorp,
Inc. .................. 9,550 204,561
FloridaFirst Bancorp,
Inc. .................. 1,400 46,340
Flushing Financial
Corporation............ 5,775 105,567
GA Financial, Inc. ...... 2,100 72,933
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Great Southern Bancorp,
Inc. .................. 1,539 $ 71,363
Harbor Florida
Bancshares, Inc. ...... 6,817 202,533
+Hawthorne Financial
Corporation............. 2,400 67,152
Heritage Financial
Corporation............ 600 13,128
Horizon Financial
Corp. ................. 4,600 80,546
Hudson River Bancorp,
Inc. .................. 4,000 156,120
IBERIABANK Corporation... 2,700 159,300
+ITLA Capital
Corporation............. 1,400 70,140
Klamath First Bancorp,
Inc. .................. 3,100 82,274
+Local Financial Corp. ... 6,630 138,169
MAF Bancorp, Inc. ....... 11,060 463,414
MutualFirst Financial
Inc. .................. 2,300 58,282
NASB Financial Inc. ..... 300 12,393
Net.B@nk, Inc. .......... 15,411 205,737
Northwest Bancorp,
Inc. .................. 3,467 74,055
OceanFirst Financial
Corp. ................. 2,796 75,939
+Ocwen Financial
Corporation............. 7,965 70,570
PFF Bancorp, Inc. ....... 4,541 164,747
Parkvale Financial
Corporation............ 1,300 34,905
Partners Trust Financial
Group, Inc. ........... 900 30,600
PennFed Financial
Services, Inc. ........ 1,900 63,650
Provident Bancorp,
Inc. .................. 900 42,300
Provident Financial
Holdings, Inc. ........ 700 25,389
Provident Financial
Services, Inc. ........ 16,700 315,630
Quaker City Bancorp,
Inc. .................. 1,600 74,480
Seacoast Financial
Services Corporation... 9,602 263,191
Sound Federal Bancorp,
Inc. .................. 2,300 35,857
Staten Island Bancorp,
Inc. .................. 20,184 454,140
+Sterling Financial
Corporation............. 4,640 158,827
+TierOne Corporation...... 8,500 195,160
United Community
Financial Corp. ....... 9,273 105,805
W Holding Company,
Inc. .................. 26,809 498,912
Warwick Community
Bancorp, Inc. ......... 1,600 55,040
Waypoint Financial
Corp. ................. 11,230 243,579
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
64
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Westcorp................. 7,836 $ 286,406
Westfield Financial,
Inc. .................. 400 9,504
Willow Grove Bankcorp,
Inc. .................. 4,600 81,696
------------
9,845,623
------------
Scientific Equipment & Suppliers - 0.2%
+Newport Corporation...... 14,035 231,999
+Varian Inc. ............. 10,135 422,934
------------
654,933
------------
Securities Brokerage & Services - 0.4%
Charter Municipal
Mortgage Acceptance
Company................ 14,845 313,675
First Albany Companies
Inc. .................. 3,600 50,544
+Investment Technology
Group, Inc. ............ 14,900 240,635
+Knight Trading Group,
Inc. ................... 24,700 361,608
+NCO Group, Inc. ......... 8,361 190,380
SWS Group, Inc. ......... 4,304 76,611
+SoundView Technology
Group, Inc. ............ 6,328 98,021
------------
1,331,474
------------
Services - Commercial - 2.9%
+4Kids Entertainment,
Inc. ................... 4,863 126,535
ABM Industries, Inc. .... 11,670 203,175
+AMN Healthcare Services,
Inc. ................... 3,805 65,294
+APAC Customer Services
Inc. ................... 7,738 20,119
+Administaff, Inc. ....... 6,661 115,768
+The Advisory Board
Company................. 3,700 129,167
Ambassadors Group,
Inc. .................. 600 14,094
Ambassadors
International, Inc. ... 200 2,500
Angelica Corporation..... 4,400 96,800
+autobytel.com inc. ...... 10,400 94,432
The Brink's Company...... 16,200 366,282
CDI Corp. ............... 6,201 203,083
+Casella Waste Systems,
Inc. ................... 3,978 54,459
Central Parking
Corporation............ 5,285 78,905
+Century Business
Services, Inc. ......... 19,533 87,313
+Charles River Associates
Incorporated............ 2,800 89,572
+Clark, Inc. ............. 5,600 107,744
+Clean Harbors, Inc. ..... 3,600 32,076
+Coinstar, Inc. .......... 8,092 146,142
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Copart, Inc. ............ 19,900 $ 328,350
+Cornell Companies,
Inc. ................... 5,800 79,170
+Corrections Corporation
of America.............. 12,094 348,670
+CoStar Group Inc. ....... 5,950 247,996
+Cross Country Healthcare,
Inc. ................... 8,000 119,360
+Exult Inc. .............. 10,500 74,760
+FTD, Inc. (Class A)...... 100 2,464
+FTI Consulting, Inc. .... 12,341 288,409
+First Consulting Group,
Inc. ................... 4,874 27,441
+Forrester Research,
Inc. ................... 4,181 74,714
G & K Services, Inc.
(Class A).............. 5,577 204,955
Gevity HR, Inc. ......... 4,900 108,976
+Harris Interactive
Inc. ................... 16,100 133,630
+Heidrick & Struggles
International, Inc. .... 6,058 132,064
+Hudson Highland Group,
Inc. ................... 3,600 85,860
+ICT Group, Inc. ......... 1,600 18,800
+Insurance Auto Auctions,
Inc. ................... 2,665 34,778
Kelly Services, Inc.
(Class A).............. 5,268 150,349
+Korn/Ferry
International........... 9,868 131,639
+Kroll Inc. .............. 12,600 327,600
+Labor Ready, Inc. ....... 14,822 194,168
+Lightbridge, Inc. ....... 9,691 88,188
+MAXIMUS, Inc. ........... 4,904 191,894
+MPS Group, Inc. ......... 28,305 264,652
+Medical Staffing Network
Holdings, Inc. ......... 5,200 56,940
+MemberWorks
Incorporated............ 3,054 82,977
+Metro One
Telecommunications,
Inc. ................... 14,892 38,719
+Midas Group, Inc. ....... 5,342 76,391
+Monro Muffler Brake,
Inc. ................... 3,900 78,039
+Navigant Consulting,
Inc. ................... 13,623 256,930
+Navigant International,
Inc. ................... 5,111 70,787
+NetRatings, Inc. ........ 1,417 16,196
+PDI, Inc. ............... 2,421 64,907
+Pegasus Systems, Inc. ... 9,439 98,826
The Pep Boys - Manny, Moe
& Jack................. 14,410 329,557
+Pre-Paid Legal Services,
Inc. ................... 4,948 129,242
+Raindance Communications,
Inc. ................... 21,700 59,675
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
65
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Resources Connection,
Inc. ................... 6,516 $ 177,952
+Right Management
Consultants, Inc. ...... 3,915 73,054
Rollins, Inc. ........... 6,168 139,088
Roto-Rooter, Inc. ....... 2,986 137,655
+SM&A..................... 4,700 54,990
+The Source Information
Management Company...... 5,500 58,410
+Spherion Corporation..... 18,329 179,441
StarTek, Inc. ........... 2,640 107,686
+TeleTech Holdings,
Inc. ................... 13,089 147,906
+Tetra Tech, Inc. ........ 15,831 393,559
UniFirst Corporation..... 1,600 37,936
+Volt Information
Sciences, Inc. ......... 1,559 35,233
+Wackenhut Corrections
Corporation............. 2,700 61,560
+Waste Connections,
Inc. ................... 10,012 378,153
+Watson Wyatt & Company
Holdings................ 9,025 217,954
+Wireless Facilities,
Inc. ................... 13,413 199,317
World Fuel Services
Corporation............ 4,800 162,960
------------
9,614,387
------------
Shipping - 0.3%
Alexander & Baldwin,
Inc. .................. 13,092 441,069
+GulfMark Offshore,
Inc. ................... 4,100 57,400
+Kirby Corporation........ 5,730 199,862
Maritrans Inc. .......... 600 10,026
Overseas Shipholding
Group, Inc. ........... 5,598 190,612
+Seabulk International,
Inc. ................... 1,700 13,804
------------
912,773
------------
Shoes - 0.3%
Kenneth Cole Productions,
Inc. (Class A)......... 1,792 52,685
+The Finish Line, Inc. ... 4,833 144,845
K-Swiss Inc. (Class A)... 8,896 214,038
+Maxwell Shoe Company Inc.
(Class A)............... 5,000 84,850
+Shoe Carnival, Inc. ..... 1,200 21,360
+Skechers U.S.A., Inc.
(Class A)............... 5,855 47,718
+Steve Madden,Ltd. ....... 4,412 90,005
The Stride Rite
Corporation............ 11,635 132,406
+Vans, Inc. .............. 7,183 81,958
Weyco Group, Inc. ....... 150 5,047
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Wolverine World Wide,
Inc. .................. 12,572 $ 256,217
------------
1,131,129
------------
Steel - 0.4%
+AK Steel Holding
Corporation............. 37,727 192,408
Allegheny Technologies
Incorporated........... 26,300 347,686
Carpenter Technology
Corporation............ 6,326 187,060
Gibraltar Steel
Corporation............ 2,623 65,968
Schnitzer Steel
Industries, Inc. (Class
A)..................... 3,400 205,700
+Steel Dynamics, Inc. .... 13,697 321,743
------------
1,320,565
------------
Synthetic Fibers - 0.0%
Wellman, Inc. ........... 13,218 134,956
------------
Telecommunications Equipment - 0.7%
+Andrew Corporation....... 50,004 575,546
Applied Signal
Technology, Inc. ...... 3,500 80,535
+Arris Group Inc. ........ 18,000 130,320
+Audiovox Corporation
(Class A)............... 4,085 52,451
Belden Inc. ............. 7,069 149,085
+C-COR.net Corp. ......... 11,634 129,486
+MasTec, Inc. ............ 5,400 79,974
+OmniSky Corporation...... 300 0
+Plantronics, Inc. ....... 11,910 388,862
+Powerwave Technologies,
Inc. ................... 23,777 181,894
+Proxim Corporation (Class
A)...................... 43,534 72,702
+SBA Communications
Corporation............. 8,700 32,886
SpectraLink Corporation.. 6,080 116,554
+SymmetriCom, Inc. ....... 8,300 60,424
+Terayon Communication
Systems, Inc. .......... 20,576 92,592
+Tollgrade Communications,
Inc. ................... 4,241 74,345
+WilTel Communications
Group, Inc. ............ 7,900 0
------------
2,217,656
------------
Textile Products - 0.1%
+DHB Capital Group Inc. .. 8,900 62,300
+Interface, Inc. ......... 13,421 74,218
+Unifi, Inc. ............. 13,672 88,184
------------
224,702
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
66
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
v
Textiles Apparel Manufacturers - 0.5%
Cherokee Inc. ........... 2,900 $ 65,946
+Perry Ellis
International, Inc. .... 1,600 41,248
+Guess?, Inc. ............ 1,185 14,303
+Hampshire Group,
Limited................. 1,700 53,329
Kellwood Co. ............ 9,282 380,562
OshKosh B'Gosh, Inc.
(Class A).............. 3,502 75,153
Oxford Industries,
Inc. .................. 5,042 170,823
Phillips-Van Heusen
Corporation............ 7,754 137,556
+Quiksilver, Inc. ........ 15,950 282,794
Russell Corporation...... 7,017 123,219
+Warnaco Group, Inc. ..... 13,100 208,945
------------
1,553,878
------------
Tires & Rubber - 0.3%
Bandag,Incorporated...... 6,074 250,249
Cooper Tire & Rubber
Company................ 23,800 508,844
+The Goodyear Tire &
Rubber Company.......... 45,700 359,202
------------
1,118,295
------------
Tobacco - 0.2%
DIMON Incorporated....... 13,055 88,121
Schweitzer-Manduit
International, Inc. ... 4,620 137,584
Standard Commercial
Corporation............ 3,000 60,210
+Star Scientific, Inc. ... 10,300 18,952
Universal Corporation.... 8,756 386,753
Vector Group Ltd. ....... 7,809 127,443
------------
819,063
------------
Toys - 0.0%
+JAKKS Pacific, Inc. ..... 8,561 112,663
------------
Transportation - Miscellaneous - 0.1%
+Pacer International,
Inc. ................... 6,500 131,430
Quixote Corporation...... 2,300 56,143
+SCS Transportation,
Inc. ................... 5,581 98,114
+U.S. Xpress Enterprises,
Inc.(Class A)........... 1,800 22,050
------------
307,737
------------
Truckers - 0.7%
Arkansas Best
Corporation............ 6,941 217,878
+Covenant Transport, Inc.
(Class A)............... 3,800 72,238
+Forward Air Corporation.. 4,588 126,170
Heartland Express,
Inc. .................. 9,528 230,482
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+Knight Transportation,
Inc. ................... 6,850 $ 175,703
+Landstar System, Inc. ... 10,408 395,920
+Old Dominion Freight
Line, Inc. ............. 3,700 126,096
+P.A.M. Transportation
Services, Inc. ......... 1,000 21,330
USF Corporation.......... 9,602 328,292
+Yellow Roadway
Corporation............. 14,977 541,718
------------
2,235,827
------------
Utilities - Cable Television & Radio - 0.0%
+Mediacom Communications
Corporation............. 15,800 136,986
------------
Utilities - Electrical - 1.5%
+Allegheny Energy,
Inc. ................... 43,600 556,336
Avista Corporation....... 15,175 274,971
Black Hills
Corporation............ 9,300 277,419
CH Energy Group, Inc. ... 4,689 219,914
+CMS Energy Corporation... 52,900 450,708
Central Vermont Public
Service Corporation.... 3,603 84,670
Cleco Corporation........ 14,267 256,521
+El Paso Electric
Company................. 18,208 243,077
Empire District Electric
Company................ 7,668 168,159
IDAcorp Inc. ............ 13,500 403,920
MGE Energy, Inc. ........ 4,545 143,213
Otter Tail Company....... 6,986 186,736
PNM Resources Inc. ...... 13,819 388,314
+Sierra Pacific
Resources............... 44,977 330,131
UIL Holdings
Corporation............ 4,600 207,460
UniSource Energy
Corporation............ 10,383 256,045
Westar Energy, Inc. ..... 23,200 469,800
------------
4,917,394
------------
Utilities - Gas Distributors - 0.9%
Atmos Energy
Corporation............ 17,338 421,313
Cascade Natural Gas
Corporation............ 3,522 74,279
Chesapeake Utilities
Corporation............ 2,600 67,730
Energen Corporation...... 12,792 524,856
EnergySouth, Inc. ....... 2,000 70,000
The Laclede Group,
Inc. .................. 4,948 141,265
NUI Corporation.......... 7,283 117,402
New Jersey Resources
Corporation............ 8,574 330,185
Northwest Natural Gas
Company................ 9,299 285,944
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
67
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
vSEMCO Energy, Inc. ..... 8,387 $ 41,096
South Jersey Industries,
Inc. .................. 4,766 193,023
+Southern Union Company... 17,802 327,557
Southwest Gas
Corporation............ 8,490 190,601
+Southwestern Energy
Company................. 9,924 237,184
------------
3,022,435
------------
Utilities - Gas Pipelines - 0.0%
+TransMontaigne Inc. ..... 5,431 35,030
------------
Utilities - Miscellaneous - 0.1%
+Aquila, Inc. ............ 54,900 186,111
------------
Utilities - Telecommunications - 0.9%
+Boston Communications
Group, Inc. ............ 6,921 64,296
CT Communications,
Inc. .................. 3,955 53,392
+Centennial Communications
Corp. .................. 1,526 8,027
+Cincinnati Bell Inc. .... 65,200 329,260
+Commonwealth Telephone
Enterprises, Inc. ...... 7,933 299,471
D&E Communications,
Inc. .................. 5,200 75,452
+Dobson Communications
Corporation (Class A)... 6,800 44,676
+General Communication,
Inc. (Class A).......... 11,339 98,649
+Golden Telecom, Inc. .... 3,992 110,778
Hickory Tech
Corporation............ 3,599 41,209
+Hungarian Telephone and
Cable Corp. ............ 400 3,944
+Intrado Inc. ............ 6,600 144,870
+McLeod USA Incorporated
(Class A)............... 26,100 38,628
+NII Holdings Inc. (Class
B)...................... 4,600 343,298
North Pittsburgh Systems,
Inc. .................. 4,321 81,710
+PTEK Holdings, Inc. ..... 16,100 141,841
+Price Communications
Corporation............. 13,104 179,918
+Primus Telecommunications
Group, Incorporated..... 17,500 178,150
+RCN Corporation.......... 22,100 17,680
Shenandoah
Telecommunications
Company................ 600 30,756
SureWest
Communications......... 3,800 153,596
</Table>
<Table>
<Caption>
SHARES VALUE
INDUSTRY++ HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
+TALK America Holdings,
Inc. ................... 10,033 $ 115,580
+Time Warner Telecom Inc.
(Class A)............... 13,700 138,781
+Triton PCS Holdings, Inc.
(Class A)............... 4,400 24,552
Warwick Valley Telephone
Company................ 900 26,631
+Western Wireless
Corporation (Class A)... 23,100 424,116
------------
3,169,261
------------
Utilities - Water - 0.2%
American States Water
Company................ 3,785 94,625
California Water Service
Group.................. 8,096 221,830
Connecticut Water
Service, Inc. ......... 2,489 68,821
Middlesex Water
Company................ 3,182 64,595
SJW Corp. ............... 658 58,727
Southwest Water
Company................ 5,495 88,195
------------
596,793
------------
Wholesale & International Trade - 0.0%
+Central European
Distribution
Corporation............. 2,800 88,480
------------
Wholesalers - 0.1%
+United Stationers,
Inc. ................... 9,649 394,837
------------
TOTAL COMMON STOCKS
(COST - $250,557,213) - 87.3% 292,978,660
------------
WARRANTS (C)
Telephone - 0.0%
Focal Communications
Corporation............ 221 0
------------
TOTAL WARRANTS
(COST - $0) - 0.0% ........... 0
------------
<Caption>
BENEFICIAL
INTEREST/ VALUE
INDUSTRY++ SHARES HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
V
SHORT-TERM SECURITIES
Merrill Lynch Liquidity
Series, LLC Cash Sweep
Series I (a)........... $40,191,529 40,191,529
Merrill Lynch Liquidity
Series,LLC Money Market
Series (a)(b).......... 6,838,126 6,838,126
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
68
MASTER SMALL CAP INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
BENEFICIAL
INTEREST/ VALUE
INDUSTRY++ SHARES HELD (IN U.S. DOLLARS)
- ---------- ----------- -----------------
Merrill Lynch Premier
Institutional Fund
(a)(b)................. 2,279,374 $ 2,279,374
------------
TOTAL SHORT-TERM
SECURITIES
(COST - $49,309,029) - 14.7%.. 49,309,029
------------
TOTAL INVESTMENTS
(COST - $299,866,242) - 102.0%.. 342,287,689
VARIATION MARGIN ON
FINANCIAL FUTURES
CONTRACTS - (0.2%) (D).. (518,714)
LIABILITIES IN EXCESS OF
OTHER ASSETS - (1.8%)... (6,109,510)
------------
NET ASSETS - 100.0%....... $335,659,465
============
</Table>
- ---------------
(a) 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/
DIVIDEND
AFFILIATE NET ACTIVITY INCOME
--------- ------------ ---------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I..... $37,274,469 $170,348
Merrill Lynch Liquidity Series, LLC Money Market Series..... $ 4,053,691 $ 34,641
Merrill Lynch Premier Institutional Fund.................... (189,841) $ 19,286
</Table>
(b) Security was purchased with the cash proceeds from securities loans.
(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) Financial futures contracts purchased as of December 31,2003 were as
follows:
<Table>
<Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE DATE FACE VALUE GAINS
--------- ------------ ---------- ----------- ----------
153 Russell March 2004 $40,821,244 $1,804,556
2000........
----------
Total Unrealized Gains - Net $1,804,556
==========
</Table>
+ 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. These industry
classifications are unaudited.
See notes to financial statements.
- --------------------------------------------------------------------------------
69
MASTER SMALL CAP INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2003
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (including securities loaned of
$8,501,179) (identified cost - $299,866,242)........... $342,287,689
Cash on deposit for financial futures contracts......... 2,086,000
Receivables:
Contributions......................................... $2,346,439
Securities sold....................................... 452,437
Dividends............................................. 317,639
Interest.............................................. 31,778
Securities lending - net.............................. 5,377 3,153,670
----------
Prepaid expenses and other assets....................... 1,228
------------
TOTAL ASSETS........................................ 347,528,587
------------
LIABILITIES:
Collateral on securities loaned, at value............... 9,117,500
Payables:
Withdrawals........................................... 1,797,393
Variation margin...................................... 518,714
Custodian bank........................................ 418,315
Securities purchased.................................. 6,183
Other affiliates...................................... 2,573 2,743,178
----------
Accrued expenses........................................ 8,444
------------
TOTAL LIABILITIES................................... 11,869,122
------------
NET ASSETS.................................................. $335,659,465
============
NET ASSETS CONSIST OF:
Investors' capital...................................... $291,433,462
Unrealized appreciation on investments - net............ 44,226,003
------------
NET ASSETS.................................................. $335,659,465
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
70
MASTER SMALL CAP INDEX SERIES
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $1,168 foreign withholding tax)....... $ 2,538,493
Interest................................................ 170,468
Securities lending - net................................ 53,927
-----------
TOTAL INCOME........................................ 2,762,888
-----------
EXPENSES:
Professional fees....................................... $116,519
Accounting services..................................... 38,444
Custodian fees.......................................... 34,720
Investment advisory fees................................ 22,670
Trustees' fees and expenses............................. 3,016
Printing and shareholder reports........................ 2,381
Other................................................... 6,007
--------
Total expenses before waiver and reimbursement...... 223,757
Waiver and reimbursement of expenses.................... (26,092)
--------
TOTAL EXPENSES AFTER WAIVER AND REIMBURSEMENT....... 197,665
-----------
INVESTMENT INCOME - NET..................................... 2,565,223
-----------
REALIZED & UNREALIZED GAIN ON INVESTMENTS - NET
Realized gain on investments - net...................... 459,569
Change in unrealized appreciation/depreciation on
investments - net...................................... 85,865,588
-----------
TOTAL REALIZED AND UNREALIZED GAIN ON
INVESTMENTS - NET................................... 86,325,157
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $88,890,380
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
71
MASTER SMALL CAP INDEX SERIES
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
2003 2002
------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net................................. $ 2,565,223 $ 2,405,288
Realized gain (loss) on investments - net............... 459,569 (12,560,901)
Change in unrealized appreciation/depreciation on
investments - net...................................... 85,865,588 (35,615,150)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. 88,890,380 (45,770,763)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 87,919,756 105,968,467
Fair value of withdrawals............................... (23,066,142) (61,250,024)
------------ ------------
NET INCREASE IN NET ASSETS DERIVED FROM CAPITAL
TRANSACTIONS........................................... 64,853,614 44,718,443
------------ ------------
NET ASSETS:
Total increase (decrease) in net assets................. 153,743,994 (1,052,320)
Beginning of year....................................... 181,915,471 182,967,791
------------ ------------
END OF YEAR............................................. $335,659,465 $181,915,471
============ ============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
72
MASTER SMALL CAP INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000+ 1999+
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN....... 47.11% (20.19%) 2.37% -- --
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of waiver
and reimbursement....... .09% .08% .08% .09% .14%
-------- -------- -------- -------- --------
Expenses.................. .10% .14% .13% .13% .17%
-------- -------- -------- -------- --------
Investment income - net... 1.13% 1.26% 1.45% 1.90% 1.83%
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands).......... $335,659 $181,915 $182,968 $169,244 $114,799
-------- -------- -------- -------- --------
Portfolio turnover........ 28.57% 39.00% 48.50% 50.51% 51.20%
-------- -------- -------- -------- --------
</Table>
- ---------------
+ Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
See notes to financial statements.
- --------------------------------------------------------------------------------
73
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
- --------------------------------------------------------------------------------
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. The following is a summary of significant accounting policies
followed by the Series.
A. Valuation of investments
Equity securities that are held by the Series that are traded on stock
exchanges or the Nasdaq National Market are valued at the last sale price or
official close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available ask price for short
positions. In cases where equity securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Trustees of the Trust. Long
positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap or
Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Trustees of the Trust. Short positions traded in the OTC market are valued at
the last available ask price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last ask price. Options purchased are valued at their last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued daily based upon
quotations from market makers. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their last sale price as of the
close of such exchanges. Obligations with remaining maturities of 60 days or
less are valued at amortized cost unless the Investment Adviser believes that
this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the Series.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Series, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Series under the general supervision by the Board of
Trustees of the Trust. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of the
Series are determined as of such times. Foreign currency exchange rates also are
generally determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of
- --------------------------------------------------------------------------------
74
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
- --------------------------------------------------------------------------------
the Series' net assets. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may be valued
at their fair value as determined in good faith by the Board of Trustees of the
Trust 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 movements 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. Futures
contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Series deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Series agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Series as unrealized gains or losses. When the contract
is closed, the Series records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened
and the value at the time it was closed.
- Options - The Series may purchase and write call and put options. When
the Series writes an option, an amount equal to the premium received by
the Series is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security
sold. When an option expires (or the Series enters into a closing
transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
C. Income taxes
The Series is classified as a partnership for Federal income tax purposes.
As such, each investor in the Series is treated as owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Series. Therefore, no Federal income tax provision is required.
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
- --------------------------------------------------------------------------------
75
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
- --------------------------------------------------------------------------------
basis. Dividend income is recorded on the ex-dividend dates. Interest income is
recognized on the accrual basis.
E. Securities lending
The Series may lend securities to financial institutions that provide cash
or securities issued or guaranteed by the U.S. government as collateral, which
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The market value of the loaned
securities is determined at the close of business of the Series and any
additional required collateral is delivered to the Series on the next business
day. Where the Series receives securities as collateral for the loaned
securities, it collects a fee from the borrower. The Series typically receives
the income on the loaned securities but does not receive the income on the
collateral. Where the Series receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Series may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Series could experience
delays and costs in gaining access to the collateral. The Series also could
suffer a loss where the value of the collateral falls below the market value of
the borrowed securities, in the event of borrower default or in the event of
losses on investments made with cash collateral.
F. Custodian bank
The Series recorded an amount payable to the custodian bank reflecting an
overnight overdraft, which resulted from management estimates of available cash.
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%. Effective
January 1, 2003, the limit increased from .08% to .09%. This arrangement expires
December 31, 2004 and is renewable. FAM earned fees of $22,670, all of which
were waived. In addition, FAM reimbursed the Series for additional expenses of
$3,422.
Merrill Lynch Trust Company, an indirect, wholly-owned Subsidiary of ML &
Co., is the Series' Custodian.
The Trust has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") or its affiliates. As of December 31,
2003, the Series lent securities with a value of$397, 133 to MLPF&S or its
affiliates. Pursuant to that order, the Trust also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities
lending agent for a
- --------------------------------------------------------------------------------
76
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
- --------------------------------------------------------------------------------
fee based on a share of the returns on investment of cash collateral. MLIM, LLC
may, on behalf of the Trust and the Series, invest cash collateral received by
the Series for such loans, among other things, in a private investment company
managed by MLIM, LLC or in registered money market Series advised by FAM or its
affiliates. For the year ended December 31, 2003, MLIM, LLC received $20,831 in
securities lending agent fees from the Series.
For the year ended December 31, 2003, the Series reimbursed FAM $4,577 for
certain accounting services.
Certain officers and/or trustees of the Trust 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 year ended December 31, 2003 were $100,145,506 and $60,224,191,
respectively.
Net realized gains (losses) for the year ended December 31, 2003 and net
unrealized gains as of December 31, 2003 were as follows:
<Table>
<Caption>
REALIZED GAINS UNREALIZED
(LOSSES) GAINS
-------------- -----------
Long-term investments.................................. $(3,404,071) $42,421,447
Financial futures contracts............................ 3,863,640 1,804,556
----------- -----------
Total.................................................. $ 459,569 $44,226,003
=========== ===========
</Table>
As of December 31, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $39,217,195, of which $62,897,826 related to appreciated
securities and $23,680,631 related to depreciated securities. At December 31,
2003, the aggregate cost of investments for Federal income tax purposes was
$303,070,494.
4. SHORT-TERM BORROWINGS:
The Series, along with certain other Series 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
Series 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
28, 2003, the credit agreement was renewed for one year under the same terms.
The Series did not borrow under the credit agreement during the year ended
December 31, 2003.
- --------------------------------------------------------------------------------
77
MASTER SMALL CAP INDEX SERIES
INDEPENDENT AUDITORS' REPORT
December 31, 2003
- --------------------------------------------------------------------------------
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Master Small Cap Index Series one of
the portfolios constituting the Quantitative Master Series Trust (the "Trust")
as of December 31, 2003, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material mis-statement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Master Small Cap Index Series of the Quantitative Master Series Trust as of
December 31, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 13, 2004
- --------------------------------------------------------------------------------
78
MASTER SMALL CAP INDEX SERIES
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- -------- ----------------------- -------------- -------------
INTERESTED TRUSTEE
Terry K. Glenn* President 2000 to President and Chairman of the 123 Funds None
P.O. Box 9011 and present Merrill Lynch Investment 160 Portfolios
Princeton, NJ 08543-9011 Trustee and Managers, L.P. ("MLIM")/Fund
Age: 63 1997 to Asset Management, L.P.
present ("FAM") - Advised Funds since
1999; Chairman (Americas
Region) of MLIM from 2000 to
2002; Executive Vice President
of FAM and MLIM (which terms as
used herein include their
corporate predecessors) from
1983 to 2002; President of FAM
Distributors, Inc. ("FAMD")
from 1986 to 2002 and Director
thereof from 1991 to 2002;
Executive Vice President and
Director of Princeton Services,
Inc. ("Princeton Services")
from 1993 to 2002; President of
Princeton Administrators, L.P.
from 1989 to 2002; Director of
Financial Data Services, Inc.
since 1985.
</Table>
* Mr. Glenn is a director, trustee or member of an advisory board of certain
other investment companies for which FAM or MLIM acts as investment adviser.
Mr. Glenn is an "interested person" as described in the Investment Company
Act, of the Trust based on his former positions with FAM, MLIM, FAMD,
Princeton Services and Princeton Administrators, L.P. The Trustee's term is
unlimited. Trustees serve until their resignation, removal, or death, or
until December 31 of the year in which they turn 72. As Trust President, Mr.
Glenn serves at the pleasure of the Board of Trustees.
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- -------- ------------------------------- -------------- -------------
INDEPENDENT TRUSTEES*
Donald W. Burton Trustee 2002 to Manager of The Burton 23 Funds ITC Delta-Com,
P.O. Box 9095 present Partnership, Limited 36 Portfolios Inc., ITC
Princeton, NJ 08543-9095 Partnership since 1979; Financial
Age: 59 Managing General Partner of the Services,
South Atlantic Venture Funds, Knology, Inc.,
Limited Partnerships and PriCare, Inc.,
Chairman of South Atlantic Symbion, Inc.
Private Equity Fund IV, Limited
Partnership since 1983; Member
of the Investment Advisory
Council of the Florida State
Board of Administration since
2001.
</Table>
- --------------------------------------------------------------------------------
79
MASTER SMALL CAP INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- -------- ------------------------------- -------------- -------------
M. Colyer Crum Trustee 2000 to James R. Williston Professor of 24 Funds Cambridge
P.O. Box 9095 present Investment Management Emeritus, 37 Portfolios Bancorp
Princeton, NJ 08543-9095 Harvard Business School since
Age: 71 1996; Chairman and Director of
Phaeton International, Ltd.
from 1985 to present; Director
of Cambridge Bancorp since
1969.
Laurie Simon Hodrick Trustee 2000 to Professor of Finance and 23 Funds None
P.O. Box 9095 present Economics, Graduate School of 36 Portfolios
Princeton, NJ 08543-9095 Business, Columbia University
Age: 41 since 1998; Associate Professor
of Finance and Economics,
Graduate School of Business,
Columbia University from 1996
to 1998.
David H. Walsh Trustee 2003 to Consultant with Putnam 23 Funds None
P.O. Box 9095 present Investments since 1993 and 36 Portfolios
Princeton, NJ 08543-9095 employed in various capacities
Age: 62 therewith from 1971 to 1992;
Director of the National
Audubon Society since 2000;
Director of the American Museum
of Fly Fishing since 1998.
Fred G. Weiss Trustee 2000 to Managing Director of FGW 23 Funds Watson
P.O. Box 9095 present Associates since 1997; Vice 36 Portfolios Pharmaceuticals,
Princeton, NJ 08543-9095 President, Planning, Investment Inc.
Age: 62 and Development of Warner
Lambert Co. from 1979 to 1997;
Director of BTG International
PLC since 2001; Director of
KIMC Investments, Inc. since
2003; Director of Osmotica
Holding Corp. AVV since 2003.
</Table>
* The Trustee's term is unlimited. Trustees serve until their resignation,
removal or death, or until December 31 of the year in which they turn 72.
<Table>
<Caption>
POSITION(S)
NAME, ADDRESS, AND HELD WITH LENGTH OF
AGE TRUST TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------ ----------- ------------ -------------------------------------------
TRUST OFFICERS
Donald C. Burke Vice 1997 to First Vice President of FAM and MLIM since 1997 and
P.O. Box 9011 President present and Treasurer thereof since 1999; Senior Vice President and
Princeton, NJ 08543-901 and 1999 to Treasurer of Princeton Services since 1999; Vice President
Age: 43 Treasurer present of FAMD since 1999; Director of MLIM Taxation since 1990.
Robert C. Doll, Jr. Senior 1999 to President of MLIM and member of the Executive Management
P.O. Box 9011 Vice present Committee of ML &Co., Inc. since 2001; Global Chief
Princeton, NJ 08543-9011 President Investment Officer and Senior Portfolio Manager of MLIM
Age: 49 since 1999; Chief Investment Officer of Equities at
Oppenheimer Funds, Inc. from 1990 to 1999 and Chief
Investment Officer thereof from 1998 to 1999; Executive Vice
President of Oppenheimer Funds, Inc. from 1991 to 1999.
</Table>
- --------------------------------------------------------------------------------
80
MASTER SMALL CAP INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION(S)
NAME, ADDRESS, AND HELD WITH LENGTH OF
AGE TRUST TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------ ----------- ------------ -------------------------------------------
Richard J. Vella Vice 1999 to Managing Director and Head of Global Index and Enhanced
P.O. Box 9011 President present Index products for Merrill Lynch Quantitative Advisors since
Princeton, NJ 08543-9011 1999; Managing Director and Head of the Global Index and
Age: 46 Enhanced Index business at Bankers Trust from 1984 to 1999.
Brian D. Stewart Secretary 2003 to Vice President (Legal Advisory) of MLIM since 2002; Attorney
P.O. Box 9011 present with Reed Smith from 2001 to 2002; Attorney with Saul Ewing
Princeton, NJ 08543-9011 from 1999 to 2001.
Age:34
</Table>
* Officers of the Trust serve at the pleasure of the Board of Trustees.
<Table>
<Caption>
CUSTODIAN TRANSFER AGENT
J.P. Morgan Chase Bank Financial Data Services, Inc.
4 Chase MetroTech Center, 18th Floor 4800 Deer Lake Drive East
Brooklyn, NY 11245 Jacksonville, FL 32246-6484
800-637-3863
</Table>
- --------------------------------------------------------------------------------
81
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
COMMON STOCKS
AUSTRALIA
Beverages - 0.2%
Coca-Cola Amatil Limited.... 53,424 $ 250,772
Foster's Brewing Group
Limited................... 187,558 635,920
Southcorp Limited........... 8,843 17,989
------------
904,681
------------
Biotechnology - 0.0%
CSL Limited................. 12,578 169,163
------------
Capital Markets - 0.1%
Macquarie Bank Limited...... 19,088 511,419
------------
Chemicals - 0.1%
Orica Limited............... 19,981 210,163
------------
Commercial Banks - 1.4%
Australia and New Zealand
Banking Group Ltd. ....... 138,812 1,849,117
Commonwealth Bank of
Australia................. 85,936 1,906,843
National Australia Bank
Limited................... 105,512 2,380,966
Westpac Banking Corporation
Limited................... 137,398 1,655,325
------------
7,792,251
------------
Commercial Services & Supplies - 0.1%
Brambles Industries
Limited................... 95,823 381,205
------------
Construction & Engineering - 0.0%
Leighton Holdings Ltd. ..... 9,752 86,776
------------
Construction Materials - 0.2%
Boral Limited............... 19,286 73,818
CSR Limited................. 36,728 51,195
James Hardie Industries
NV........................ 50,663 262,624
Rinker Group Limited........ 74,568 68,000
------------
755,637
------------
Containers & Packaging - 0.1%
Amcor Limited............... 76,674 477,180
------------
Diversified Financial Services - 0.1%
Australian Stock Exchange
Limited................... 1,250 16,086
Suncorp - Metway Limited.... 28,223 263,469
------------
279,555
------------
Diversified Telecommunication Services - 0.1%
Telstra Corporation
Limited................... 148,136 537,975
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Food & Staples Retailing - 0.2%
Coles Myer Limited.......... 61,835 $ 352,217
Woolworths Limited.......... 85,069 756,324
------------
1,108,541
------------
Gas Utilities - 0.0%
Australian Gas Light Company
Limited................... 20,590 174,217
------------
Health Care Equipment & Supplies - 0.0%
Cochlear Limited............ 8,175 132,182
Pacific Dunlop Limited...... 7,344 35,690
------------
167,872
------------
Health Care Providers & Services - 0.0%
Mayne Nickless Limited...... 86,923 213,504
------------
Hotels, Restaurants & Leisure - 0.1%
Aristocrat Leisure
Limited................... 77,973 101,048
TAB Limited................. 63,104 219,661
TABCORP Holdings Limited.... 41,236 348,908
------------
669,617
------------
IT Services - 0.0%
Computershare Limited....... 11,639 29,027
------------
Industrial Conglomerates - 0.1%
Wesfarmers Limited.......... 24,616 491,308
------------
Insurance - 0.2%
AMP Limited................. 125,623 474,200
Insurance Australia Group
Limited................... 91,298 292,351
QBE Insurance Group
Limited................... 50,043 399,672
------------
1,166,223
------------
Media - 0.2%
John Fairfax Holdings
Limited................... 99,578 264,095
The News Corporation
Limited................... 96,116 868,299
Publishing & Broadcasting
Limited................... 6,114 57,675
------------
1,190,069
------------
Metals & Mining - 0.8%
Alumina Limited............. 60,157 297,787
BHP Billiton Limited........ 271,919 2,497,455
BHP Steel Limited........... 80,506 339,681
Newcrest Mining Limited..... 28,549 278,558
OneSteel Limited............ 23,360 35,553
Rio Tinto Limited........... 26,086 731,147
WMC Resources Limited (a)... 107,289 455,112
------------
4,635,293
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
82
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Oil & Gas - 0.1%
Origin Energy Limited....... 20,509 $ 73,399
Santos Limited.............. 57,885 299,624
Woodside Petroleum Limited.. 42,915 478,548
------------
851,571
------------
Paper & Forest Products - 0.0%
Paperlinx Limited........... 377 1,415
------------
Real Estate - 0.4%
Centro Properties Group..... 13,119 39,340
Gandel Retail Trust......... 186,267 188,059
General Property Trust...... 164,540 370,678
Investa Property Group...... 31,118 45,954
Lend Lease Corporation
Limited................... 39,556 299,525
Macquarie Goodman Industrial
Trust..................... 22,601 28,779
Mirvac Group................ 77,774 253,147
Stockland Trust Group....... 111,052 436,769
Westfield Holdings
Limited................... 21,901 230,523
Westfield Trust............. 118,758 318,542
Westfield Trust (New)....... 3,441 9,100
------------
2,220,416
------------
Road & Rail - 0.0%
Toll Holdings Limited....... 30,522 189,724
------------
Transportation Infrastructure - 0.1%
Macquarie Infrastructure
Group..................... 177,670 455,143
Patrick Corporation
Limited................... 5,500 60,626
Transurban Group............ 3,659 12,296
------------
528,065
------------
TOTAL COMMON STOCKS IN
AUSTRALIA................. 25,742,867
------------
AUSTRIA
Building Products - 0.1%
Wienerberger
Baustoffindustrie AG...... 5,247 140,176
------------
Commercial Banks - 0.1%
Bank Austria Creditanstalt
(a)....................... 719 36,730
Erste Bank der
Oesterreichischen
Sparkassen AG............. 3,028 374,184
------------
410,914
------------
Construction Materials - 0.0%
RHI AG (a).................. 53 1,009
------------
Containers & Packaging - 0.0%
Mayr - Melnhof Karton AG.... 911 109,508
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Diversified Telecommunication Services - 0.0%
Telekom Austria AG (a)...... 8,012 $ 99,038
------------
Electric Utilities - 0.0%
Oesterreichische
Elektrizitaetswirtschafts - AG
"Verbund" 'A'............. 47 5,490
------------
Machinery - 0.0%
VA Technologie AG (a)....... 458 14,795
------------
Metals & Mining - 0.0%
Boehler - Uddeholm AG....... 1,992 134,525
------------
Oil & Gas - 0.0%
OMV AG...................... 329 49,001
------------
Real Estate - 0.0%
Immofinanz Immobilien
Anlagen AG (a)............ 2,066 16,417
------------
Transportation Infrastructure - 0.0%
Flughafen Wien AG........... 1,446 67,850
------------
TOTAL COMMON STOCKS IN
AUSTRIA................... 1,048,723
------------
BELGIUM
Beverages - 0.0%
Interbrew................... 7,496 200,070
------------
Chemicals - 0.1%
Solvay SA................... 3,522 305,420
------------
Commercial Banks - 0.2%
Dexia....................... 53,179 916,277
KBC Bancassurance Holding... 4,631 216,245
------------
1,132,522
------------
Construction & Engineering - 0.0%
Suez Lyonnaise des Eaux SA.. 4,785 60
------------
Distributors - 0.0%
D'leteren SA................ 222 45,531
------------
Diversified Financial Services - 0.3%
Fortis...................... 81,269 1,633,989
Groupe Bruxelles Lambert
SA........................ 3,292 185,486
------------
1,819,475
------------
Electric Utilities - 0.1%
Electrabel SA............... 1,917 602,568
------------
Electrical Equipment - 0.0%
Bekaert NV.................. 1,022 65,100
------------
Electronic Equipment & Instruments - 0.0%
Barco NV (New Shares)....... 520 45,585
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
83
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Food & Staples Retailing - 0.1%
Colruyt NV.................. 2,214 $ 213,357
Delhaize Group.............. 6,033 310,325
Delhaize Group (ADR) (b).... 950 48,488
------------
572,170
------------
Leisure Equipment & Products - 0.0%
Agfa Gevaert NV............. 5,023 143,188
------------
Marine - 0.0%
Compagnie Maritime Belge SA
(CMB)..................... 628 50,696
------------
Metals & Mining - 0.1%
Umicore (a)................. 52 12
Union Miniere SA............ 2,965 208,126
------------
208,138
------------
Oil & Gas - 0.0%
Exmar NV (a)................ 628 26,687
------------
Pharmaceuticals - 0.1%
UCB SA...................... 9,333 351,871
------------
Wireless Telecommunication Services - 0.0%
Mobistar SA (a)............. 457 25,651
------------
TOTAL COMMON STOCKS IN
BELGIUM................... 5,594,732
------------
BERMUDA
Textiles, Apparel & Luxury Goods - 0.0%
Yue Yuen Industrial
(Holdings) Limited........ 21,785 59,909
------------
TOTAL COMMON STOCKS IN
BERMUDA................... 59,909
------------
DENMARK
Beverages - 0.0%
Carlsberg A/S 'B'........... 285 13,132
------------
Chemicals - 0.0%
Novozymes A/S 'B'........... 2,267 82,759
------------
Commercial Banks - 0.2%
Danske Bank................. 41,200 966,636
------------
Commercial Services & Supplies - 0.1%
Group 4 Falck A/S........... 10,216 209,403
ISS A/S..................... 2,439 120,232
------------
329,635
------------
Construction & Engineering - 0.0%
FLS Industries A/S 'B'
(a)....................... 1,417 16,323
------------
Diversified Telecommunication Services - 0.1%
TDC A/S..................... 12,104 436,742
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Electrical Equipment - 0.0%
NKT Holding A/S............. 820 $ 14,898
Vestas Wind Systems A/S..... 9,621 156,462
------------
171,360
------------
Food Products - 0.0%
A/S Det Ostasiatiske
Kompagni.................. 555 24,257
Danisco A/S................. 2,482 110,369
------------
134,626
------------
Health Care Equipment & Supplies - 0.0%
Coloplast A/S 'B'........... 93 7,956
GN Store Nord A/S (a)....... 25,856 167,755
William Demant A/S (a)...... 1,530 51,707
------------
227,418
------------
Household Durables - 0.0%
Bang & Olufsen Holding A/ S
'B'....................... 464 19,415
------------
Insurance - 0.0%
Topdanmark A/S (a).......... 907 48,552
------------
Marine - 0.1%
A/S Dampskibsselskabet
Svendborg 'B'............. 69 497,938
------------
Pharmaceuticals - 0.2%
H. Lundbeck A/S............. 1,278 21,216
Novo Nordisk A/S 'B'........ 21,291 867,416
------------
888,632
------------
Road & Rail - 0.0%
DSV, De Sammensluttede
Vognmaend af 13-7-1976
A/S....................... 3,291 145,507
------------
TOTAL COMMON STOCKS IN
DENMARK................... 3,978,675
------------
FINLAND
Auto Components - 0.0%
Nokian Renkaat Oyj.......... 671 50,697
------------
Communications Equipment - 1.1%
Nokia Oyj 'A'............... 342,747 5,927,164
Nokia Oyj 'A' (ADR) (b)..... 1,270 21,590
------------
5,948,754
------------
Diversified Telecommunication Services - 0.0%
HPY Holding - HTF Holding
Oyj Abp (a)............... 5,791 77,427
TeliaSonera AB.............. 36,201 189,041
------------
266,468
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
84
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Electric Utilities - 0.0%
Fortum Corporation,the
IVO - Neste Group......... 25,064 $ 258,607
------------
IT Services - 0.0%
Tietoenator Oyj............. 8,327 227,921
------------
Insurance - 0.1%
Pohjola Group PLC 'D'....... 2,198 58,776
Sampo Insurance Company Ltd.
'A'....................... 29,012 300,073
------------
358,849
------------
Leisure Equipment & Products - 0.0%
Amer Group Ltd. ............ 1,968 85,268
------------
Machinery - 0.1%
Kone Corporation 'B'........ 4,290 246,209
Metso Oyj................... 4,366 53,308
Wartsila Oyj 'B'............ 154 2,953
------------
302,470
------------
Metals & Mining - 0.0%
Outokumpu Oyj............... 447 6,072
Rautaruukki Oyj (a)......... 3,289 24,228
------------
30,300
------------
Paper & Forest Products - 0.3%
Stora Enso Oyj 'R'.......... 50,521 680,580
UPM - Kymmene Oyj........... 43,379 827,308
------------
1,507,888
------------
TOTAL COMMON STOCKS IN
FINLAND................... 9,037,222
------------
FRANCE
Aerospace & Defense - 0.2%
European Aeronautic Defence
and Space Company......... 20,878 496,405
Thomson CSF................. 8,645 290,602
------------
787,007
------------
Airlines - 0.0%
Groupe Air France......... 1,033 15,831
------------
Auto Components - 0.1%
Compagnie Generale des
Etablissements Michelin
'B'....................... 8,751 401,565
Valeo SA.................... 7,245 290,147
------------
691,712
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Automobiles - 0.3%
PSA Peugeot Citroen......... 15,373 $ 783,386
Renault SA.................. 11,657 804,285
------------
1,587,671
------------
Beverages - 0.1%
Pernod Ricard............... 4,774 530,812
------------
Building Products - 0.2%
Compagnie de Saint-Gobain... 24,042 1,176,928
------------
Chemicals - 0.2%
Air Liquide................. 7,106 1,254,842
------------
Commercial Banks - 1.2%
BNP Paribas SA.............. 56,094 3,532,050
Credit Agricole SA.......... 26,773 639,269
Societe Generale 'A'........ 24,167 2,133,814
------------
6,305,133
------------
Commercial Services & Supplies - 0.0%
Societe BIC SA.............. 1,954 90,306
------------
Communications Equipment - 0.2%
Alcatel (a)................. 90,146 1,160,935
Sagem SA (New Shares)....... 946 101,383
------------
1,262,318
------------
Construction & Engineering - 0.1%
Societe Generale
d'Entreprises SA.......... 6,092 504,464
------------
Construction Materials - 0.2%
Imetal SA................... 298 62,735
Lafarge SA (Ordinary)....... 13,032 1,160,517
------------
1,223,252
------------
Diversified Telecommunication Services - 0.4%
France Telecom SA (a)....... 75,017 2,144,151
------------
Electrical Equipment - 0.2%
Alstom (a).................. 13,495 21,277
Schneider SA................ 16,430 1,075,575
------------
1,096,852
------------
Energy Equipment & Service - 0.0%
Compagnie Francaise d'Etudes
et de Construction de
Construction (Technip
SA)....................... 1,407 152,271
------------
Food & Staples Retailing - 0.5%
Carrefour SA................ 39,066 2,144,488
Casino Guichard - Perrachon
SA........................ 2,737 266,174
------------
2,410,662
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
85
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Food Products - 0.3%
Groupe Danone............... 9,323 $ 1,521,689
------------
Health Care Equipment & Supplies - 0.1%
Essilor International SA.... 7,188 371,730
------------
Hotels,Restaurants & Leisure - 0.2%
Accor SA.................... 16,195 733,350
Sodexho Alliance SA......... 9,880 297,970
------------
1,031,320
------------
Household Durables - 0.1%
Thomson Multimedia.......... 20,538 437,028
------------
IT Services - 0.1%
Atos Origin SA (a).......... 845 54,038
Cap Gemini SA (a)........... 9,515 422,582
------------
476,620
------------
Insurance - 0.4%
Axa......................... 104,135 2,229,022
CNP Assurances.............. 582 30,304
------------
2,259,326
------------
Internet Software & Services - 0.0%
Wanadoo (a)................. 19,771 162,098
------------
Media - 0.5%
Lagardere SCA............... 9,300 536,908
Publicis SA................. 4,855 157,383
Societe Television Francaise
1......................... 11,154 389,433
Vivendi Universal SA (a).... 54,852 1,333,245
Vivendi Universal SA (ADR)
(a)(b).................... 6,053 146,967
------------
2,563,936
------------
Metals & Mining - 0.1%
Arcelor..................... 30,042 523,688
------------
Multi-Utilities & Unregulated Power - 0.3%
Suez SA (a)................. 61,721 1,240,179
Veolia Environment.......... 21,582 579,839
------------
1,820,018
------------
Multiline Retail - 0.1%
Pinault-Printemps-Redoute
SA........................ 5,916 571,974
------------
Oil & Gas - 1.5%
TotalFinaElf SA............. 43,865 8,155,516
TotalFinaElf SA 'B'......... 939 174,582
TotalFinaElf SA 'STRIP'..... 4,140 52
------------
8,330,150
------------
Personal Products - 0.3%
L'Oreal SA.................. 22,889 1,876,618
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Pharmaceuticals - 0.9%
Aventis SA.................. 49,882 $ 3,296,939
Sanofi-Synthelabo SA........ 24,706 1,860,427
------------
5,157,366
------------
Real Estate - 0.1%
Gecina (a).................. 440 64,712
Klepierre................... 2,142 128,876
Unibail (Union du
Credit - Bail
Immobilier)............... 3,754 352,055
------------
545,643
------------
Semiconductors & Semiconductor Equipment - 0.2%
STMicroelectronics NV....... 40,849 1,107,786
------------
Software - 0.1%
Business Objects SA (a)..... 6,540 228,091
Dassault Systemes SA........ 3,179 144,996
------------
373,087
------------
Textiles, Apparel & Luxury Goods - 0.2%
Hermes International........ 189 36,570
LVMH (Louis Vuitton Moet
Hennessy)................. 17,690 1,287,477
------------
1,324,047
------------
Transportation Infrastructure - 0.0%
Autoroutes du Sud de la
France.................... 2,314 77,639
------------
Wireless Telecommunication Services - 0.1%
Bouygues SA................. 17,461 610,518
------------
TOTAL COMMON STOCKS IN
FRANCE.................... 52,376,493
------------
GERMANY
Air Freight & Logistics - 0.1%
Deutsche Post AG (Registered
Shares)................... 24,004 495,036
------------
Airlines - 0.1%
Deutsche Lufthansa AG
(Registered Shares)....... 19,873 332,135
------------
Auto Components - 0.1%
Continental AG.............. 11,586 439,443
------------
Automobiles - 0.7%
DaimlerChrysler AG.......... 58,964 2,751,848
Volkswagen AG............... 17,729 987,304
------------
3,739,152
------------
Biotechnology - 0.0%
QIAGEN NV (a)............... 4,938 60,604
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
86
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Capital Markets - 0.5%
Deutsche Bank AG (Registered
Shares)................... 35,994 $ 2,982,849
Marschollek,Lautenschlaeger
und Partner AG (a)........ 3,609 70,559
------------
3,053,408
------------
Chemicals - 0.6%
BASF AG..................... 38,454 2,162,307
Bayer AG.................... 50,053 1,465,980
Linde AG.................... 4,297 231,435
------------
3,859,722
------------
Commercial Banks - 0.2%
Bayerische Hypo- und
Vereinsbank AG (a)........ 29,865 690,872
Commerzbank AG.............. 36,482 715,558
------------
1,406,430
------------
Construction Materials - 0.0%
HeidelbergCement AG (a)..... 1,777 68,789
HeidelbergCement AG VVPR
(a)....................... 1,901 24
HeidelbergCement AG (Xetra)
(a)....................... 51 2,156
------------
70,969
------------
Diversified Financial Services - 0.1%
Deutsche Boerse AG.......... 9,680 529,298
------------
Diversified Telecommunication Services - 0.6%
Deutsche Telekom AG
(Registered Shares) (a)... 178,959 3,275,343
------------
Electric Utilities - 0.6%
E.On AG..................... 46,826 3,055,971
------------
Electronic Equipment & Instruments - 0.0%
Epcos AG (a)................ 2,386 53,872
------------
Food & Staples Retailing - 0.1%
Metro AG.................... 8,744 385,472
------------
Health Care Providers & Services - 0.1%
Fresenius Medical Care AG... 3,542 251,978
Gehe AG..................... 1,654 80,217
------------
332,195
------------
Hotels,Restaurants & Leisure - 0.1%
Preussag AG................. 13,366 278,683
------------
Industrial Conglomerates - 0.8%
Siemens AG.................. 54,809 4,389,969
Siemens AG (ADR) (b)........ 860 68,748
------------
4,458,717
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Insurance - 0.7%
Allianz AG (Registered
Shares)................... 19,585 $ 2,472,331
Muenchener
Rueckversicherungs-
Gesellschaft AG
(Registered Shares)....... 11,211 1,359,233
------------
3,831,564
------------
Machinery - 0.1%
MAN AG...................... 10,959 332,447
------------
Metals & Mining - 0.1%
Thyssen Krupp AG............ 25,036 494,846
------------
Multi-Utilities & Unregulated Power - 0.2%
RWE AG...................... 34,181 1,352,493
------------
Multiline Retail - 0.0%
Karstadt AG................. 1,640 40,545
------------
Personal Products - 0.0%
Beiersdorf AG............... 1,419 172,184
------------
Pharmaceuticals - 0.2%
Altana AG................... 6,471 388,929
Merck KGaA.................. 2,378 99,073
Schering AG................. 14,186 718,425
------------
1,206,427
------------
Semiconductors & Semiconductor Equipment - 0.1%
Infineon Technologies AG
(a)....................... 38,848 539,990
------------
Software - 0.5%
SAP AG (Systeme,
Anwendungen, Produkte in
der Datenverarbeitung).... 14,756 2,478,253
------------
Specialty Retail - 0.0%
Douglas Holding AG.......... 1,160 32,248
------------
Textiles,Apparel & Luxury Goods - 0.1%
Adidas - Salomon AG......... 4,075 464,142
Puma AG Rudolf Dassler
Sport..................... 1,610 284,308
------------
748,450
------------
Thrifts & Mortgage Finance - 0.1%
Hypo Real Estate Holding AG
(a)....................... 12,658 315,971
------------
TOTAL COMMON STOCKS IN
GERMANY................... 37,371,868
------------
GREECE
Beverages - 0.0%
Hellenic Bottling Co. ...... 9,437 196,882
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
87
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Commercial Banks - 0.3%
Alpha Credit Bank........... 11,114 $ 335,887
Bank of Piraeus............. 1,959 23,573
Commercial Bank of Greece... 1,938 48,597
EFG Eurobank Ergasias....... 19,429 376,424
National Bank of Greece SA.. 18,240 476,246
------------
1,260,727
------------
Communications Equipment - 0.0%
Intracom SA................. 8,070 54,764
------------
Construction Materials - 0.0%
Titan Cement Company........ 1,341 54,973
------------
Diversified Telecommunication Services - 0.0%
Hellenic Telecommunications
Organization SA (OTE)..... 14,796 195,961
------------
Electric Utilities - 0.1%
Public Power Corporation.... 11,496 284,210
------------
Hotels,Restaurants & Leisure - 0.0%
Greek Organization of
Football Prognostics...... 4,693 67,956
------------
Metals & Mining - 0.0%
Viohalco, Hellenic Copper
and Aluminum Industry SA.. 4,057 26,405
------------
Wireless Telecommunication Services - 0.0%
Panafon Hellenic Telecom
Co. ...................... 24,465 190,708
------------
TOTAL COMMON STOCKS IN
GREECE.................... 2,332,586
------------
HONG KONG
Airlines - 0.0%
Cathay Pacific Airways...... 51,263 97,394
------------
Commercial Banks - 0.3%
BOC Hong Kong (Holdings)
Limited................... 224,500 422,188
Bank of East Asia, Ltd. .... 129,939 399,176
Hang Seng Bank Limited...... 47,953 630,018
------------
1,451,382
------------
Distributors - 0.1%
Li & Fung Limited........... 158,719 271,905
------------
Diversified Financial Services - 0.2%
Hong Kong Exchanges &
Clearing Ltd. ............ 114,000 247,424
Swire Pacific Limited 'A'... 52,577 324,391
Wharf (Holdings) Ltd. ...... 56,107 155,379
------------
727,194
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Diversified Telecommunication Services - 0.0%
PCCW Limited (a)............ 324,195 $ 210,880
------------
Electric Utilities - 0.2%
CLP Holdings Limited........ 131,687 627,598
Hongkong Electric Holdings
Limited................... 124,000 490,340
------------
1,117,938
------------
Electrical Equipment - 0.0%
Johnson Electric Holdings
Limited................... 122,328 155,990
------------
Gas Utilities - 0.1%
Hong Kong and China Gas
Company Ltd. ............. 206,240 314,795
------------
Hotels,Restaurants & Leisure - 0.0%
Shangri-La Asia Limited..... 24,734 23,257
------------
Household Durables - 0.0%
Techtronic Industries
Company Limited........... 8,280 22,983
------------
Industrial Conglomerates - 0.2%
Hutchison Whampoa Limited... 153,989 1,135,539
------------
Media - 0.0%
i-CABLE Communications
Limited................... 3,610 925
South China Morning Post
Holdings Ltd. ............ 34,025 15,011
Television Broadcasts
Ltd. ..................... 5,646 28,508
------------
44,444
------------
Real Estate - 0.4%
Amoy Properties Limited..... 12,000 15,379
Cheung Kong (Holdings)
Ltd. ..................... 120,735 960,300
Henderson Land Development
Company Limited........... 43,491 192,146
New World Development
Company Ltd. ............. 225,636 181,646
Sino Land Company Limited... 48,421 27,598
Sun Hung Kai Properties
Ltd. ..................... 107,324 888,192
------------
2,265,261
------------
Road & Rail - 0.0%
MTR Corporation Limited..... 24,500 32,346
------------
Semiconductors & Semiconductor Equipment - 0.0%
ASM Pacific Technology
Limited................... 5,004 21,915
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
88
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Specialty Retail - 0.0%
Esprit Holdings Limited..... 24,000 $ 79,911
Giordano International
Limited................... 243,575 112,946
------------
192,857
------------
Textiles, Apparel & Luxury Goods - 0.0%
Texwinca Holdings Limited... 85,353 62,116
------------
Transportation Infrastructure - 0.0%
Hopewell Holdings Limited... 18,465 28,422
------------
TOTAL COMMON STOCKS IN HONG
KONG...................... 8,176,618
------------
IRELAND
Airlines - 0.0%
Ryanair Holdings PLC (a).... 27,680 230,084
------------
Commercial Banks - 0.4%
Allied Irish Banks PLC...... 68,954 1,104,585
Bank of Ireland (Dublin).... 53,626 731,878
Bank of Ireland (London).... 26,151 356,244
------------
2,192,707
------------
Construction Materials - 0.2%
CRH PLC (Dublin)............ 42,944 881,846
CRH PLC (London)............ 936 19,185
------------
901,031
------------
Food Products - 0.1%
Greencore Group PLC......... 35,829 160,435
Kerry Group PLC 'A'......... 4,710 88,520
------------
248,955
------------
Household Durables - 0.0%
Waterford Wedgwood PLC...... 25,516 7,081
Waterford Wedgwood PLC
(Fully Paid Rights)....... 6,958 1,931
------------
9,012
------------
Industrial Conglomerates - 0.0%
DCC PLC..................... 3,189 43,523
------------
Insurance - 0.0%
Irish Life & Permanent
PLC....................... 13,484 217,703
------------
Media - 0.0%
Independent News & Media
PLC....................... 21,817 51,735
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Pharmaceuticals - 0.0%
Elan Corporation PLC (a).... 11,519 $ 79,331
Elan Corporation PLC (ADR)
(a)(b).................... 5,755 39,652
------------
118,983
------------
TOTAL COMMON STOCKS IN
IRELAND................... 4,013,733
------------
ITALY
Aerospace & Defense - 0.0%
Finmeccanica SpA............ 312,371 244,680
------------
Automobiles - 0.1%
Fiat SpA (a)................ 43,688 335,154
------------
Capital Markets - 0.1%
Banca Fideuram SpA.......... 32,610 193,735
Mediobanca SpA.............. 25,358 275,234
Mediolanum SpA.............. 27,974 220,673
------------
689,642
------------
Commercial Banks - 1.0%
Banca Intesa SpA............ 36,404 104,234
Banca Monte dei Paschi di
Siena SpA................. 52,096 164,607
Banca Nazionale del Lavoro
(Ordinary) (a)............ 150,302 359,261
Banca Popolare di Milano
(BPM)..................... 16,065 105,411
Banche Populari Unite Scrl
(a)....................... 17,934 324,838
Banco Popolare di Verona e
Novara Scrl............... 32,677 553,258
Capitalia SpA (a)........... 111,199 327,229
Intesa BCI SpA.............. 234,445 916,724
San Paolo - IMI SpA......... 77,657 1,012,831
Unicredito Italiano SpA..... 279,196 1,507,262
------------
5,375,655
------------
Construction Materials - 0.0%
Italcementi SpA............. 5,565 69,422
------------
Diversified Financial Services - 0.0%
Fineco Group SpA (a)........ 48,440 34,124
------------
Diversified Telecommunication Services - 0.5%
Telecom Italia SpA (a)...... 683,210 2,025,153
Telecom Italia SpA - RNC
(a)....................... 381,540 777,228
------------
2,802,381
------------
Electric Utilities - 0.2%
Enel SpA.................... 173,905 1,182,324
------------
Food Products - 0.0%
Parmalat Finanziaria SpA.... 58,944 1
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
89
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Gas Utilities - 0.1%
Snam Rete Gas SpA........... 86,966 $ 368,574
------------
Health Care Equipment & Supplies - 0.0%
Snia SpA.................... 62,868 156,298
------------
Hotels, Restaurants & Leisure - 0.0%
Autogrill SpA (a)........... 4,473 64,065
------------
Industrial Conglomerates - 0.0%
Pirelli & C. SpA............ 218,669 222,475
------------
Insurance - 0.4%
Alleanza Assicurazioni...... 25,108 274,896
Assicurazioni Generali...... 63,087 1,671,071
Riunione Adriatica di
Sicurta SpA............... 17,689 301,212
------------
2,247,179
------------
Internet Software & Services - 0.1%
Tiscali SpA (a)............. 21,154 147,902
Seat Pagine Gialle SpA
(a)....................... 171,874 163,679
------------
311,581
------------
Media - 0.1%
Gruppo Editoriale L'Espresso
SpA....................... 15,754 98,105
Mediaset SpA................ 44,545 529,280
Mondadori (Arnoldo) Editore
SpA....................... 5,198 46,590
Telecom Italia Media SpA
(a)....................... 225,866 112,306
------------
786,281
------------
Multiline Retail - 0.0%
La Rinascente SpA (a)....... 5,245 20,034
------------
Oil & Gas - 0.6%
ENI SpA..................... 172,908 3,262,740
ENI SpA (ADR) (b)........... 1,875 178,087
------------
3,440,827
------------
Textiles, Apparel & Luxury Goods - 0.1%
Benetton Group SpA.......... 5,296 60,856
Bulgari SpA................. 17,735 164,398
Luxottica Group SpA......... 4,858 83,949
------------
309,203
------------
Transportation Infrastructure - 0.1%
Autotrade Spa (a)........... 20,029 351,998
------------
Wireless Telecommunication Services - 0.3%
Telecom Italia Mobile (TIM)
SpA....................... 257,136 1,399,846
------------
TOTAL COMMON STOCKS IN
ITALY..................... 20,411,744
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
JAPAN
Air Freight & Logistics - 0.1%
Yamato Transport Co.,
Ltd. ..................... 37,000 $ 435,700
------------
Airlines - 0.0%
Japan Airlines System
Corporation............... 28,000 73,939
------------
Auto Components - 0.3%
Bridgestone Corp. .......... 51,000 685,742
Denso Corporation........... 29,600 582,775
NGK Spark Plug Co., Ltd. ... 9,000 72,978
Sanden Corporation.......... 20,000 123,169
Stanley Electric Co.,
Ltd. ..................... 7,000 135,532
TOYOTA INDUSTRIES
CORPORATION............... 6,000 127,368
Toyoda Gosei Co., Ltd. ..... 1,000 28,833
------------
1,756,397
------------
Automobiles - 2.0%
Honda Motor Co., Ltd. ...... 55,400 2,460,614
Nissan Motor Co., Ltd. ..... 171,400 1,957,578
Toyota Motor Corporation.... 192,000 6,485,397
Yamaha Motor Co., Ltd. ..... 9,000 98,171
------------
11,001,760
------------
Beverages - 0.2%
Asahi Breweries Limited..... 31,000 282,607
Kirin Brewery Company,
Ltd. ..................... 38,000 324,083
Sapporo Breweries Limited... 43,000 118,363
Takara Shuzo Co., Ltd. ..... 20,000 187,366
------------
912,419
------------
Building Products - 0.3%
Asahi Glass
Company,Limited........... 47,000 385,929
Central Glass Co., Ltd. .... 2,000 12,615
Daikin Industries, Ltd. .... 9,000 207,847
Nippon Sheet Glass Company,
Ltd. ..................... 47,000 137,268
Tostem Corporation.......... 13,000 251,096
Toto Limited................ 33,000 279,593
------------
1,274,348
------------
Capital Markets - 0.6%
Daiwa Securities Group
Inc. ..................... 101,000 687,030
Jafco Co., Ltd. ............ 1,100 86,423
The Nikko Securities Co.,
Ltd. ..................... 108,000 601,624
The Nomura Securities Co.,
Ltd. ..................... 125,000 2,128,627
------------
3,503,704
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
90
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Chemicals - 1.0%
Asahi Chemical Industry Co.,
Ltd. ..................... 70,000 $ 380,144
Daicel Chemical Industries,
Ltd. ..................... 3,000 12,373
Dainippon Ink and Chemicals,
Inc. ..................... 30,000 57,106
Denki Kagaku Kogyo Kabushiki
Kaisha.................... 3,000 9,658
Hitachi Chemical Company,
Ltd. ..................... 2,500 41,989
Ishihara Sangyo Kaisha,
Ltd. ..................... 11,000 21,965
JSR Corporation............. 16,000 357,563
Kaneka Corporation.......... 13,000 97,042
Kuraray Co., Ltd. .......... 38,000 320,537
Mitsubishi Chemical
Corporation............... 82,000 213,474
Mitsubishi Gas Chemical
Company, Inc. ............ 18,000 61,304
Mitsubishi Rayon Company,
Ltd. ..................... 61,000 228,814
Mitsui Chemicals Inc. ...... 24,000 139,965
Nissan Chemical Industries,
Ltd. ..................... 18,000 160,399
Nitto Denko Corporation..... 12,810 681,319
Shin-Etsu Chemical Co.,
Ltd. ..................... 27,200 1,111,654
Showa Denko K.K............. 102,000 229,374
Sumitomo Bakelite Company
Limited................... 24,000 156,536
Sumitomo Chemical Co.,
Ltd. ..................... 62,000 255,706
Teijin Limited.............. 86,000 252,776
Toray Industries, Inc. ..... 107,000 447,289
Tosoh Corporation........... 3,000 10,021
Ube Industries, Ltd. ....... 78,000 156,480
------------
5,403,488
------------
Commercial Banks - 1.6%
The 77 Bank, Ltd. .......... 12,000 67,631
Ashikaga Financial Group,
Inc. (a).................. 168,000 4,703
The Bank of Fukuoka,
Ltd. ..................... 61,000 256,135
The Bank of Yokohama,
Ltd. ..................... 87,000 404,274
The Chiba Bank, Ltd. ....... 24,000 98,311
Daiwa Bank Holdings, Inc.
(a)....................... 279,000 351,451
The Gunma Bank Ltd. ........ 13,000 58,104
Hokugin Financial Group,
Inc. ..................... 5,000 6,765
The Joyo Bank, Ltd. ........ 23,000 75,114
Mitsubishi Tokyo Financial
Group, Inc. .............. 278 2,168,592
Mitsui Trust Holdings,
Inc. ..................... 26,000 145,321
Mizuho Financial Group,
Inc. ..................... 457 1,385,882
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
The Shizuoka Bank, Ltd. .... 30,000 $ 221,704
Sumitomo Mitsui Financial
Group, Inc. .............. 283 1,507,819
The Sumitomo Trust and
Banking Co., Ltd. ........ 80,000 470,281
The Suruga Bank, Ltd. ...... 4,000 25,716
UFJ Holdings, Inc. ......... 268 1,287,860
------------
8,535,663
------------
Commercial Services & Supplies - 0.4%
Benesse Corporation......... 2,000 48,801
Dai Nippon Printing Co.,
Ltd. ..................... 50,000 702,155
Kokuyo Co., Ltd. ........... 5,000 54,353
Meitec Corp. ............... 500 19,222
Secom Co., Ltd. ............ 17,000 634,506
Toppan Printing Co.,
Ltd. ..................... 50,000 520,202
------------
1,979,239
------------
Computers & Peripherals - 0.5%
Fujitsu Limited (a)......... 117,000 689,969
Mitsumi Electric Company,
Ltd. ..................... 12,000 132,127
NEC Corporation............. 113,000 831,921
Seiko Epson Corporation..... 5,700 265,933
Toshiba Corporation......... 220,000 833,442
------------
2,753,392
------------
Construction & Engineering - 0.2%
COMSYS Holdings
Corporation............... 15,000 96,016
JGC Corporation............. 23,000 239,937
Kajima Corporation.......... 88,000 285,752
Kinden Corporation.......... 9,000 42,409
Nishimatsu Construction Co.,
Ltd. ..................... 14,000 46,375
Obayashi Corporation........ 25,000 111,738
Shimizu Corporation......... 16,000 60,913
Taisei Corporation.......... 76,000 277,988
Toda Corporation............ 3,000 8,482
------------
1,169,610
------------
Construction Materials - 0.1%
Sumitomo Osaka Cement Co.,
Ltd. ..................... 67,000 131,287
Taiheiyo Cement
Corporation............... 83,000 234,665
------------
365,952
------------
Consumer Finance - 0.3%
Acom Co., Ltd. ............. 3,500 158,720
Aiful Corporation........... 2,000 146,310
Credit Saison Co., Ltd. .... 14,000 316,133
Orix Corporation............ 7,000 578,707
Promise Co., Ltd. .......... 4,700 204,805
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
91
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Takefuji Corporation........ 3,520 $ 164,554
------------
1,569,229
------------
Containers & Packaging - 0.0%
Toyo Seikan Kaisha, Ltd. ... 10,000 139,778
------------
Diversified Telecommunication Services - 0.3%
Nippon Telegraph & Telephone
Corporation (NTT)......... 395 1,905,524
------------
Electric Utilities - 0.8%
Chubu Electric Power
Company,Incorporated...... 40,700 848,787
Kansai Electric Power
Company, Inc. ............ 43,000 753,513
Kyushu Electric Power
Company, Incorporated..... 23,600 405,849
Tohoku Electric Power Co.,
Inc. ..................... 25,100 416,186
Tokyo Electric Power........ 87,500 1,918,681
------------
4,343,016
------------
Electrical Equipment - 0.3%
The Furukawa Electric Co.,
Ltd. ..................... 59,000 195,988
Fujikura Ltd. .............. 35,000 206,401
Matsushita Electric Works,
Ltd. ..................... 16,000 143,772
Mitsubishi Electric
Corporation............... 103,000 427,685
Sumitomo Electric
Industries................ 51,000 455,893
Ushio Inc. ................. 3,000 49,799
------------
1,479,538
------------
Electronic Equipment & Instruments - 1.2%
Alps Electric Co., Ltd. .... 15,000 219,464
Anritsu Corp. (a)........... 15,000 100,075
Citizen Watch Co. .......... 29,000 266,539
Dainippon Screen Mfg. Co.,
Ltd. ..................... 8,000 54,717
Hirose Electric Co.,
Ltd. ..................... 1,500 172,156
Hitachi Ltd. ............... 191,000 1,151,311
Hoya Corporation............ 9,000 826,351
Keyence Corporation......... 1,900 400,495
Kyocera Corporation......... 10,700 712,867
Mabuchi Motor Co., Ltd. .... 1,200 92,377
Murata Manufacturing Co.,
Ltd. ..................... 14,800 799,589
Nidec Corporation........... 1,800 171,820
Oki Electric Industry
Company, Limited (a)...... 56,000 218,942
Omron Corporation........... 11,000 223,243
TDK Corporation............. 9,200 662,723
Taiyo Yuden Co., Ltd. ...... 13,000 169,945
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Yokogawa Electric
Corporation............... 22,000 $ 317,775
------------
6,560,389
------------
Food & Staples Retailing - 0.5%
FamilyMart Co., Ltd. ....... 5,400 122,945
Ito-Yokado Co., Ltd. ....... 24,000 754,689
JUSCO Co., Ltd. ............ 19,000 636,465
Lawson Inc. ................ 2,400 81,963
Matsumotokiyoshi Co.,
Ltd. ..................... 5,600 125,669
Seven-Eleven Japan Co.,
Ltd. ..................... 27,000 818,793
Uny Co., Ltd. .............. 4,000 41,056
------------
2,581,580
------------
Food Products - 0.2%
Ajinomoto Co., Inc. ........ 48,000 552,244
Kikkoman Corporation........ 24,000 170,645
Nichirei Corporation........ 1,000 3,238
Nippon Meat Packers,
Inc. ..................... 10,000 97,789
Nisshin Seifun Group
Inc. ..................... 13,000 115,723
Nissin Food Products Co.,
Ltd. ..................... 9,800 244,154
Snow Brand Milk Products
Co., Ltd. (a)............. 500 1,442
Yakult Honsha Co., Ltd. .... 3,000 46,888
Yamazaki Baking Co.,
Ltd. ..................... 7,000 58,067
------------
1,290,190
------------
Gas Utilities - 0.2%
Osaka Gas Co. .............. 177,000 478,959
Tokyo Gas Co. .............. 210,000 748,530
------------
1,227,489
------------
Health Care Equipment & Supplies - 0.1%
Olympus Optical Co.,
Ltd. ..................... 19,000 412,196
Terumo Corporation.......... 14,400 273,435
------------
685,631
------------
Health Care Providers & Services - 0.0%
Nichii Gakkan Company....... 200 11,346
Suzuken Co., Ltd. .......... 500 16,236
------------
27,582
------------
Hotels, Restaurants & Leisure - 0.0%
Oriental Land Co., Ltd...... 1,900 117,188
Skylark Co., Ltd. .......... 2,000 33,032
------------
150,220
------------
Household Durables - 1.3%
Casio Computer Co., Ltd. ... 22,000 232,789
Daito Trust Construction
Co., Ltd. ................ 3,700 109,788
Daiwa House Industry Co.,
Ltd. ..................... 41,000 436,130
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
92
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Matsushita Electric
Industrial Company,
Ltd. ..................... 144,000 $ 1,991,304
Pioneer Corporation......... 13,800 381,151
Sanyo Electric Co., Ltd. ... 122,000 637,492
Sekisui Chemical Co.,
Ltd. ..................... 25,000 127,368
Sekisui House, Ltd. ........ 26,000 268,564
Sharp Corporation........... 69,000 1,088,728
Sony Corporation............ 61,500 2,129,001
------------
7,402,315
------------
Household Products - 0.2%
Kao Corporation............. 44,000 895,027
Uni-Charm Corporation....... 4,600 226,201
------------
1,121,228
------------
IT Services - 0.2%
CSK Corporation............. 6,500 234,721
NTT Data Corporation........ 73 275,870
Net One Systems Co.,
Ltd. ..................... 20 153,961
Nomura Research Institute,
Ltd. ..................... 2,600 253,522
OBIC Co., Ltd. ............. 100 20,118
Toyo Information Systems
Co., Ltd. ................ 400 13,511
------------
951,703
------------
Insurance - 0.5%
Daido Life Insurance
Company................... 54 160,735
Millea Holdings, Inc. ...... 113 1,476,159
Mitsui Sumitomo Insurance
Company, Limited.......... 103,000 845,759
The Yasuda Fire & Marine
Insurance Co. Ltd. ....... 42,000 345,265
------------
2,827,918
------------
Internet Software & Services - 0.1%
Softbank Corp. ............. 16,100 492,750
------------
Leisure Equipment & Products - 0.3%
BANDAI CO., LTD. ........... 2,100 52,907
Fuji Photo Film............. 37,000 1,194,551
SANKYO CO., LTD. ........... 1,400 44,415
Shimano Inc. ............... 3,500 72,502
Yamaha Corporation.......... 14,600 286,769
------------
1,651,144
------------
Machinery - 0.7%
Amada Co., Ltd. ............ 35,000 182,234
Ebara Corporation........... 13,000 56,527
Fanuc Ltd. ................. 10,000 599,048
Hino Motors, Ltd. .......... 5,000 35,644
Ishikawajima - Harima Heavy
Industries Co., Ltd. ..... 27,000 38,546
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Kawasaki Heavy Industries
Ltd. ..................... 146,000 $ 179,826
Komatsu Ltd. ............... 82,000 520,295
Koyo Seiko Co. ............. 12,000 123,281
Kubota Corporation.......... 47,000 193,842
Kurita Water Industries
Ltd. ..................... 3,000 36,195
Minebea Company Ltd. ....... 41,000 208,118
Mitsubishi Heavy Industries,
Ltd. (a).................. 236,000 656,228
Mitsui Engineering &
Shipbuilding Co., Ltd. ... 96,000 158,552
NGK Insulators, Ltd. ....... 13,000 97,042
NSK Limited................. 14,000 51,078
NTN Corporation............. 15,000 71,522
SMC Corporation............. 3,100 385,873
Sumitomo Heavy Industries,
Ltd. ..................... 68,000 154,185
THK Co., Ltd. .............. 3,700 75,264
Takuma Co., Ltd. ........... 8,000 43,669
------------
3,866,969
------------
Marine - 0.2%
Kawasaki Kisen Kaisha,
Ltd. ..................... 52,000 258,617
Mitsui O.S.K. Lines,
Ltd. ..................... 38,000 185,444
Nippon Yusen Kabushiki
Kaisha.................... 87,000 393,720
------------
837,781
------------
Media - 0.0%
Asatsu-Dk Inc. ............. 600 15,452
Dentsu Inc. ................ 9 45,349
Fuji Television Network,
Incorporated.............. 13 70,356
Toho Co., Ltd. ............. 5,000 63,637
Tokyo Broadcasting System,
Inc. ..................... 4,000 63,712
------------
258,506
------------
Metals & Mining - 0.5%
Dowa Mining Co., Ltd. ...... 7,000 37,622
JFE Holdings, Inc. ......... 29,900 816,063
Mitsubishi Materials
Corporation............... 35,000 53,886
Mitsui Mining & Smelting
Co., Ltd. ................ 61,000 253,289
Nippon Steel Corporation.... 440,000 944,294
Sumitomo Metal Industries,
Ltd. ..................... 296,000 292,768
Sumitomo Metal Mining Co. .. 47,000 348,652
------------
2,746,574
------------
Multiline Retail - 0.2%
The Daimaru, Inc. .......... 9,000 49,967
Hankyu Department Stores,
Inc. ..................... 6,000 40,198
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
93
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Isetan Company Ltd. ........ 20,000 $ 220,211
Marui Co., Ltd. ............ 31,000 390,501
Mitsukoshi, Ltd. (a)........ 16,000 65,093
Takashimaya Co., Ltd. ...... 30,000 214,146
------------
980,116
------------
Office Electronics - 0.8%
Canon,Inc. ................. 59,000 2,747,131
Konica Corporation.......... 35,000 470,607
Ricoh Co., Ltd. ............ 51,000 1,006,485
------------
4,224,223
------------
Oil & Gas - 0.2%
Nippon Mining
Holdings,Inc. ............ 33,500 116,908
Nippon Mitsubishi Oil
Corp. .................... 99,000 504,376
Showa Shell Sekiyu K.K...... 6,000 48,764
Teikoku Oil Co., Ltd. ...... 35,000 176,029
TonenGeneral Sekiyu K.K..... 10,000 82,766
------------
928,843
------------
Paper & Forest Products - 0.1%
Nippon Unipac Holding....... 49 252,841
Oji Paper Co., Ltd. ........ 72,000 464,906
------------
717,747
------------
Personal Products - 0.1%
ADERANS Company Limited..... 1,700 27,427
Kanebo, Ltd. (a)............ 96,000 96,743
Shiseido Company, Limited... 33,000 401,222
------------
525,392
------------
Pharmaceuticals - 1.1%
Chugai Pharmaceutical Co.,
Ltd. ..................... 13,000 186,927
Daiichi Pharmaceutical Co.,
Ltd. ..................... 23,000 414,416
Eisai Company, Ltd. ........ 19,000 512,364
Fujisawa Pharmaceutical Co.,
Ltd. ..................... 23,000 490,389
Kaken Pharmaceutical Co.,
Ltd. ..................... 8,000 40,160
Kyowa Hakko Kogyo Co.,
Ltd. ..................... 11,000 70,001
Sankyo Company, Ltd. ....... 30,800 579,099
Shionogi & Co., Ltd. ....... 26,000 484,240
Taisho Pharmaceutical
Company, Ltd. ............ 7,000 125,147
Takeda Chemical Industries,
Ltd. ..................... 64,000 2,538,024
Yamanouchi Pharmaceutical
Co., Ltd. ................ 25,000 776,803
------------
6,217,570
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Real Estate - 0.3%
Japan Real Estate Investment
Corporation............... 31 $ 196,118
Mitsubishi Estate Company,
Limited................... 80,000 758,421
Mitsui Fudosan Co., Ltd. ... 60,000 541,943
Office Building Fund of
Japan Incorporated........ 22 141,234
Sumitomo Realty &
Development Co., Ltd. .... 32,000 281,870
------------
1,919,586
------------
Road & Rail - 0.6%
Central Japan Railway
Company................... 51 440,664
East Japan Railway Company.. 266 1,253,429
Keihin Electric Express
Railway Co., Ltd. ........ 15,000 88,038
Keio Electric Railway Co.,
Ltd. ..................... 19,000 98,750
Kinki Nippon Railway Co.,
Ltd. ..................... 72,000 216,329
Nippon Express Co., Ltd. ... 78,000 368,275
Seino Transportation Co.,
Ltd. ..................... 13,000 107,474
Tobu Railway Co., Ltd. ..... 26,000 92,918
Tokyu Corporation........... 86,000 441,355
West Japan Railway Company.. 55 216,059
------------
3,323,291
------------
Semiconductors & Semiconductor Equipment - 0.4%
Advantest Corporation....... 5,500 436,223
Nikon Corporation........... 14,000 211,104
Rohm Company Ltd. .......... 7,000 820,379
Tokyo Electron Limited...... 9,900 751,946
------------
2,219,652
------------
Software - 0.2%
Konami Co., Ltd. ........... 3,600 104,805
Namco Ltd. ................. 5,200 144,107
Nintendo Company Ltd. ...... 8,000 746,478
Oracle Corporation Japan.... 900 46,608
Sega Enterprises Ltd. (a)... 14,800 140,860
Trend Micro Incorporated
(a)....................... 4,000 107,306
------------
1,290,164
------------
Specialty Retail - 0.1%
Aoyamma Trading Co., Ltd. .. 2,800 55,389
Autobacs Seven Co., Ltd. ... 1,300 29,901
Fast Retailing Co., Ltd. ... 2,700 164,010
Shimamura Co., Ltd. ........ 600 40,758
USS Co., Ltd. .............. 500 35,364
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
94
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Yamada Denki Co., Ltd. ..... 8,000 $ 268,732
------------
594,154
------------
Textiles, Apparel & Luxury Goods - 0.0%
Nisshinbo Industries
Inc. ..................... 1,000 5,571
Onward Kashiyama Co.,
Ltd. ..................... 13,000 157,693
Toyobo Co., Ltd. ........... 2,000 4,367
Wacoal Corp. ............... 5,000 41,196
World Co., Ltd. ............ 1,600 50,910
------------
259,737
------------
Tobacco - 0.1%
Japan Tobacco, Inc. ........ 64 468,788
------------
Trading Companies & Distributors - 0.4%
ITOCHU Corporation.......... 76,000 251,040
Marubeni Corporation........ 132,000 252,496
Mitsubishi Corporation...... 83,000 879,798
Mitsui & Co., Ltd. ......... 82,000 660,315
Sumitomo Corporation........ 35,000 260,941
------------
2,304,590
------------
Transportation Infrastructure - 0.0%
Mitsubishi Logistics
Corp. .................... 8,000 66,511
------------
Wireless Telecommunication Services - 0.5%
NTT DoCoMo, Inc. ........... 1,191 2,700,504
------------
TOTAL COMMON STOCKS IN
JAPAN..................... 112,023,533
------------
NETHERLANDS
Air Freight & Logistics - 0.1%
TNT Post Group NV........... 29,130 682,320
------------
Beverages - 0.1%
Heineken NV................. 14,233 541,995
------------
Chemicals - 0.2%
Akzo Nobel NV............... 17,506 675,685
DSM NV...................... 7,963 392,023
------------
1,067,708
------------
Commercial Banks - 0.5%
ABN AMRO Holding NV......... 109,324 2,557,969
------------
Commercial Services & Supplies - 0.0%
Vedior NV 'A'............... 7,896 123,499
------------
Diversified Financial Services - 0.6%
Euronext NV................. 6,783 171,714
ING Groep NV................ 125,433 2,925,395
------------
3,097,109
------------
Diversified Telecommunication Services - 0.2%
KPN NV (a).................. 149,083 1,150,841
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Energy Equipment & Service - 0.0%
IHC Caland NV............... 2,943 $ 159,623
------------
Food & Staples Retailing - 0.1%
Koninklijke Ahold NV (a).... 86,704 660,559
------------
Food Products - 0.5%
Koninklijke Numico NV (a)... 8,682 239,937
Unilever NV 'A'............. 42,182 2,758,746
------------
2,998,683
------------
Household Durables - 0.5%
Koninklijke (Royal) Philips
Electronics NV............ 93,743 2,737,321
------------
Insurance - 0.3%
Aegon NV.................... 96,204 1,423,400
------------
Media - 0.3%
Reed Elsevier NV............ 54,034 671,335
VNU NV...................... 13,773 435,183
Wolters Kluwer NV 'A'....... 24,904 389,517
------------
1,496,035
------------
Office Electronics - 0.0%
Oce NV...................... 194 2,973
------------
Oil & Gas - 1.5%
Royal Dutch Petroleum
Company................... 150,203 7,919,371
------------
Real Estate - 0.0%
Corio NV.................... 1,655 64,087
Rodamco Europe NV........... 1,648 95,974
Wereldhave NV............... 169 12,652
------------
172,713
------------
Semiconductors & Semiconductor Equipment - 0.1%
ASM Lithography Holding NV
(a)....................... 37,151 736,646
------------
Specialty Retail - 0.0%
Vendex KBB NV............... 1,228 17,116
------------
Trading Companies & Distributors - 0.0%
Hagemeyer NV................ 30,280 68,367
------------
TOTAL COMMON STOCKS IN THE
NETHERLANDS............... 27,614,248
------------
NEW ZEALAND
Construction Materials - 0.0%
Fletcher Building Limited... 20,926 58,253
------------
Diversified Telecommunication Services - 0.1%
Telecom Corporation of New
Zealand Limited........... 149,502 527,095
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
95
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Electric Utilities - 0.0%
Contact Energy Limited...... 31,055 $ 109,694
------------
Health Care Equipment & Supplies - 0.0%
Fisher & Paykel Industries
Limited................... 1,054 8,754
------------
Household Durables - 0.1%
Fisher & Paykel Appliances
Holdings Limited.......... 48,724 122,841
------------
Insurance - 0.0%
Tower Limited (a)........... 93,688 76,889
------------
Multiline Retail - 0.0%
The Warehouse Group
Limited................... 16,257 54,648
------------
Paper & Forest Products - 0.0%
Carter Holt Harvey
Limited................... 7,526 9,289
Fletcher Challenge Forests
(a)....................... 9,927 8,864
------------
18,153
------------
Transportation Infrastructure - 0.0%
Auckland International
Airport Limited........... 16,200 74,559
------------
TOTAL COMMON STOCKS IN NEW
ZEALAND................... 1,050,886
------------
NORWAY
Airlines - 0.0%
SAS AB (a).................. 2,392 22,831
------------
Beverages - 0.1%
Orkla ASA 'A'............... 10,156 227,460
------------
Commercial Banks - 0.1%
DNB Holding ASA............. 56,656 378,115
------------
Communications Equipment - 0.0%
Tandberg ASA (a)............ 17,657 130,049
------------
Diversified Telecommunication Services - 0.1%
Telenor A/S................. 41,889 273,895
Telenor A/S (ADR) (b)....... 8,900 164,650
------------
438,545
------------
Energy Equipment & Service - 0.0%
Aker Kvaerner ASA (a)....... 5,494 93,937
Smedvig ASA 'A'............. 3,691 28,018
------------
121,955
------------
Insurance - 0.0%
Storebrand ASA (a).......... 18,604 121,085
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Machinery - 0.0%
Tomra Systems ASA........... 2,598 $ 15,660
------------
Media - 0.0%
Schibsted ASA............... 3,568 61,408
------------
Oil & Gas - 0.2%
Frontline Limited........... 5,880 152,462
Norsk Hydro ASA............. 11,455 706,812
Statoil ASA................. 23,291 261,695
------------
1,120,969
------------
Paper & Forest Products - 0.0%
Norske Skogindustrier ASA... 3,089 58,968
------------
TOTAL COMMON STOCKS IN
NORWAY.................... 2,697,045
------------
PORTUGAL
Commercial Banks - 0.1%
BPI-SGPS, SA (Registered
Shares)................... 41,741 153,738
Banco Comercial Portugues,
SA (BCP) (Registered
Shares)................... 100,250 223,817
Banco Espirito Santo, SA
(Registered Shares)....... 8,484 139,117
------------
516,672
------------
Construction Materials - 0.0%
CIMPOR - Cimentos de
Portugal, SGPS, SA........ 15,305 79,150
------------
Diversified Telecommunication Services - 0.1%
Portugal Telecom SA
(Registered Shares)....... 67,126 675,662
------------
Electric Utilities - 0.1%
Eletricidade de Portugal, SA
(EDP)..................... 96,727 254,994
------------
Food & Staples Retailing - 0.0%
Jeronimo Martins SGPS, SA
(a)....................... 3,120 41,164
------------
Industrial Conglomerates - 0.0%
Sonae, S.G.P.S., SA (a)..... 167,439 139,392
------------
Media - 0.0%
PT Multimedia - Servicos de
Telecomunicacoes e
Multimedia,............... 2,349
SGPS, SA (a)................ 45,629
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
96
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Transportation Infrastructure - 0.0%
Brisa-Auto Estradas de
Portugal, SA.............. 11,704 $ 78,243
------------
TOTAL COMMON STOCKS IN
PORTUGAL.................. 1,830,906
------------
SINGAPORE
Aerospace & Defense - 0.0%
Singapore Technologies
Engineering Ltd. ......... 56,213 67,523
------------
Air Freight & Logistics - 0.0%
Singapore Post Limited...... 258,308 105,708
------------
Airlines - 0.0%
Singapore Airlines
Limited................... 27,582 181,899
------------
Beverages - 0.0%
Fraser & Neave Limited...... 3,836 28,460
------------
Commercial Banks - 0.3%
DBS Group Holdings Limited.. 70,751 612,400
Oversea - Chinese Banking
Corporation Ltd. ......... 58,598 417,497
United Overseas Bank
Ltd. ..................... 99,204 771,061
------------
1,800,958
------------
Computers & Peripherals - 0.0%
Creative Technology
Limited................... 5,907 62,259
------------
Distributors - 0.0%
Cycle & Carriage Ltd. ...... 3,281 11,205
------------
Diversified Financial Services - 0.0%
Singapore Exchange Limited.. 147,000 146,282
------------
Diversified Telecommunication Services - 0.1%
Singapore
Telecommunications,
Ltd. ..................... 373,718 431,306
------------
Electronic Equipment & Instruments - 0.1%
Venture Manufacturing
(Singapore) Ltd. ......... 17,000 200,200
------------
Hotels,Restaurants & Leisure - 0.0%
Overseas Union Enterprise
Ltd. ..................... 2,631 10,767
------------
Industrial Conglomerates - 0.0%
Haw Par Corporation Ltd. ... 1,766 4,638
Keppel Corporation Ltd. .... 33,914 121,813
Sembcorp Industries
Limited................... 24,154 17,920
------------
144,371
------------
Marine - 0.0%
Neptune Orient Lines Limited
(a)....................... 128,873 163,908
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Media - 0.1%
Singapore Press Holdings
Ltd. ..................... 32,792 $ 364,935
------------
Real Estate - 0.1%
Capitaland Limited.......... 33,833 30,879
City Developments Limited... 59,535 212,087
------------
242,966
------------
Road & Rail - 0.0%
ComfortDelGro Corporation
Limited................... 104,816 50,300
------------
Semiconductors & Semiconductor Equipment - 0.1%
Chartered Semiconductor
Manufacturing Limited
(a)....................... 127,000 129,371
Chartered Semiconductor
Manufacturing Limited
(ADR) (a)(b).............. 1,120 11,278
ST Assembly Test Services
Limited (a)............... 74,000 92,375
------------
233,024
------------
TOTAL COMMON STOCKS IN
SINGAPORE................. 4,246,071
------------
SOUTH AFRICA
Beverages - 0.1%
SABMiller PLC............... 66,696 691,302
------------
TOTAL COMMON STOCKS IN SOUTH
AFRICA.................... 691,302
------------
SPAIN
Airlines - 0.0%
Iberia Lineas Aereas de
Espana SA................. 61,946 178,149
------------
Biotechnology - 0.0%
Zeltia, SA.................. 6,228 43,992
------------
Commercial Banks - 1.3%
Banco Bilbao Vizcaya, SA.... 217,285 3,001,095
Banco Popular Espanol SA.... 13,467 803,467
Banco Santander Central
Hispano SA................ 293,793 3,479,708
------------
7,284,270
------------
Construction & Engineering - 0.1%
ACS, Actividades de
Construccion y Servicios,
SA........................ 4,896 239,000
Acciona SA.................. 662 40,289
Fomento de Construcciones y
Contratas SA.............. 2,428 89,549
Grupo Ferrovial, SA......... 7,548 264,484
------------
633,322
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
97
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Diversified Telecommunication Services - 0.9%
Telefonica SA............... 323,337 $ 4,747,273
Telefonica SA (ADR) (b)..... 1,081 47,769
------------
4,795,042
------------
Electric Utilities - 0.5%
Endesa SA................... 69,128 1,329,718
Iberdrola SA................ 59,526 1,176,553
Union Electrica Fenosa,
SA........................ 9,594 180,190
------------
2,686,461
------------
Gas Utilities - 0.1%
Gas Natural SDG, SA 'E'..... 10,404 243,433
------------
Hotels, Restaurants & Leisure - 0.0%
NH Hoteles, SA (a).......... 14,152 162,619
------------
IT Services - 0.0%
Amadeus Global Travel
Distribution SA 'A'....... 16,892 109,730
Indra Sistemas, SA.......... 15,720 201,655
------------
311,385
------------
Insurance - 0.1%
Corporacion Mapfre SA....... 12,979 183,847
------------
Media - 0.0%
Antena 3 Television, SA
(a)....................... 3,173 139,839
------------
Metals & Mining - 0.0%
Acerinox SA................. 2,745 129,425
------------
Oil & Gas - 0.2%
Repsol - YPF, SA............ 69,964 1,364,332
------------
Real Estate - 0.0%
Vallehermoso SA............. 4,963 75,121
------------
Specialty Retail - 0.1%
Industria de Disenso Textil,
SA........................ 11,949 242,657
------------
Tobacco - 0.1%
Altadis (a)................. 23,779 674,857
------------
Transportation Infrastructure - 0.1%
Autopistas, Concesionaria
Espanola SA............... 16,075 243,112
------------
Water Utilities - 0.0%
Sociedad General de Aguas de
Barcelona, SA............. 34 496
Sociedad General de Aguas de
Barcelona, SA (a)......... 3,496 52,167
------------
52,663
------------
TOTAL COMMON STOCKS IN
SPAIN..................... 19,444,526
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
SWEDEN
Airlines - 0.0%
SAS AB (a).................. 1,680 $ 15,937
------------
Auto Components - 0.0%
Trelleborg AB 'B'........... 11,597 188,574
------------
Building Products - 0.1%
Assa Abloy AB 'B'........... 29,631 352,098
------------
Commercial Banks - 0.5%
Nordbanken Holding AB....... 158,820 1,191,928
Skandinaviska Enskilda
Banken (SEB) 'A'.......... 41,519 611,651
Svenska Handelsbanken AB.... 45,462 928,789
------------
2,732,368
------------
Commercial Services & Supplies - 0.1%
Securitas AB 'B'............ 28,878 389,305
------------
Communications Equipment - 0.4%
Telefonaktiebolaget LM
Ericsson AB 'B' (a)....... 1,082,901 1,941,465
Telefonaktiebolaget LM
Ericsson (Sponsored ADR)
(a)(b).................... 1,407 24,904
------------
1,966,369
------------
Construction & Engineering - 0.0%
Skanska AB 'B'.............. 28,123 248,191
------------
Diversified Financial Services - 0.0%
OM Gruppen AB............... 1,010 12,563
------------
Diversified Telecommunication Services - 0.1%
Tele2 AB 'B' (a)............ 5,553 296,353
Telia AB.................... 65,817 343,936
------------
640,289
------------
Health Care Equipment & Supplies - 0.0%
Getinge AB 'B'.............. 2,151 20,627
Nobel Biocare Holding AG.... 850 82,929
------------
103,556
------------
Health Care Providers & Services - 0.0%
Gambro AB 'A'............... 4,167 34,458
Gambro AB 'B'............... 3,981 32,920
------------
67,378
------------
Household Durables - 0.1%
Electrolux AB 'B'........... 25,494 559,817
------------
IT Services - 0.0%
WM - Data AB 'B' (a)........ 4,275 9,209
------------
Insurance - 0.1%
Skandia Forsakrings AB...... 80,836 294,345
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
98
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Machinery - 0.4%
Alfa Laval AB............... 11,276 $ 171,601
Atlas Copco AB 'A'.......... 10,541 377,233
Atlas Copco AB 'B'.......... 2,672 87,082
SKF AB 'B'.................. 8,620 333,045
Sandvik AB.................. 18,995 654,700
Volvo AB 'A'................ 3,880 113,780
Volvo AB 'B'................ 19,796 605,273
------------
2,342,714
------------
Media - 0.0%
Eniro AB.................... 5,819 55,802
Modern Times Group MTG AB
'B' (a)................... 2,810 59,166
------------
114,968
------------
Paper & Forest Products - 0.1%
Billerud.................... 277 4,177
Holmen AB 'B'............... 945 33,556
Svenska Cellulosa AB (SCA)
'B'....................... 16,415 670,717
------------
708,450
------------
Real Estate - 0.0%
Drott AB 'B'................ 11,038 209,399
------------
Specialty Retail - 0.2%
Hennes & Mauritz AB 'B'..... 38,616 917,729
------------
Tobacco - 0.1%
Swedish Match AB............ 34,658 354,032
------------
TOTAL COMMON STOCKS IN
SWEDEN.................... 12,227,291
------------
SWITZERLAND
Biotechnology - 0.1%
Serono SA 'B'............... 415 295,961
------------
Building Products - 0.0%
Geberit AG (Registered
Shares)................... 53 26,055
------------
Capital Markets - 1.7%
Credit Suisse Group......... 89,468 3,273,440
UBS AG (Registered Shares).. 88,833 6,083,812
------------
9,357,252
------------
Chemicals - 0.4%
Ciba Specialty Chemicals AG
(Registered Shares)....... 6,377 493,454
Clariant AG (Registered
Shares) (a)............... 5,516 81,396
Givaudan (Registered
Shares)................... 632 328,073
Lonza Group AG (Registered
Shares)................... 5,078 291,931
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Syngenta AG................. 9,410 $ 633,801
------------
1,828,655
------------
Commercial Services & Supplies - 0.1%
Adecco SA (Registered
Shares)................... 9,197 591,196
SGS Societe Generale de
Surveillance Holding SA
'R'....................... 211 132,392
------------
723,588
------------
Computers & Peripherals - 0.0%
Logitech International SA
(Registered Shares) (a)... 4,597 198,860
------------
Construction Materials - 0.1%
Holcim Ltd. (Registered
Shares)................... 13,268 617,940
------------
Diversified Telecommunication Services - 0.1%
Swisscom AG (Registered
Shares)................... 1,961 646,928
------------
Electrical Equipment - 0.1%
ABB Ltd. (a)................ 140,822 713,931
------------
Electronic Equipment & Instruments - 0.0%
Kudelski SA (Bearer) (a).... 1,763 58,232
------------
Food Products - 1.4%
Nestle SA (Registered
Shares)................... 30,278 7,564,910
------------
Health Care Equipment & Supplies - 0.0%
Synthes - Stratec Inc. ..... 225 222,680
------------
Hotels, Restaurants & Leisure - 0.0%
Kuoni Reisen Holding AG..... 35 11,716
------------
Insurance - 0.6%
Swiss Re (Registered
Shares)................... 25,321 1,709,564
Zurich Financial Services
AG........................ 9,957 1,433,067
------------
3,142,631
------------
Machinery - 0.0%
Sulzer AG (Registered
Shares)................... 133 35,811
------------
Pharmaceuticals - 2.5%
Novartis AG (Registered
Shares)................... 178,523 8,105,168
Roche Holding AG............ 53,046 5,350,708
Roche Holding AG (Bearer)... 1,683 233,381
------------
13,689,257
------------
Semiconductors & Semiconductor Equipment - 0.0%
Unaxis Holding AG 'R'....... 444 62,916
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
99
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Textiles, Apparel & Luxury Goods - 0.2%
Compagnie Financiere
Richemont AG 'A'.......... 38,662 $ 928,451
Swatch Group AG 'B'......... 2,838 340,767
Swatch Group AG (Registered
Shares)................... 2,276 54,289
------------
1,323,507
------------
TOTAL COMMON STOCKS IN
SWITZERLAND............... 40,520,830
------------
UNITED KINGDOM
Aerospace & Defense - 0.2%
BAE Systems PLC............. 247,638 745,868
Cobham PLC.................. 3,528 73,704
Rolls-Royce Group PLC....... 130,020 412,559
------------
1,232,131
------------
Air Freight & Logistics - 0.1%
Ocean Group PLC............. 28,554 377,491
------------
Airlines - 0.0%
British Airways PLC (a)..... 56,417 234,813
------------
Auto Components - 0.0%
GKN PLC..................... 53,109 253,845
------------
Automobiles - 0.0%
TI Automotive Limited 'A'
(a)....................... 1,025 0
------------
Beverages - 0.6%
Diageo PLC.................. 217,167 2,857,399
Scottish & Newcastle PLC.... 53,098 359,540
------------
3,216,939
------------
Biotechnology - 0.0%
Celltech Group PLC (a)...... 22,849 154,614
------------
Building Products - 0.0%
Pilkington PLC.............. 53,235 91,249
------------
Capital Markets - 0.3%
3i Group PLC................ 42,212 466,619
Amvescap PLC................ 59,627 433,103
Close Brothers Group PLC.... 2,797 36,752
Man Group PLC............... 23,228 607,508
Schroders PLC............... 4,105 46,443
------------
1,590,425
------------
Chemicals - 0.2%
BOC Group PLC............... 42,591 650,745
Imperial Chemical Industries
PLC....................... 77,044 274,462
------------
925,207
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Commercial Banks - 5.2%
Barclays PLC................ 464,282 $ 4,141,130
HBOS PLC.................... 270,818 3,507,566
HSBC Holdings PLC........... 757,122 11,900,087
HSBC Holdings PLC (ADR)
(b)....................... 4,900 386,218
Lloyds TSB Group PLC........ 381,951 3,063,200
Lloyds TSB Group PLC (ADR)
(b)....................... 2,530 82,351
Royal Bank of Scotland Group
PLC....................... 198,926 5,861,532
------------
28,942,084
------------
Commercial Services & Supplies - 0.3%
Brambles Industries PLC..... 31,990 116,538
Bunzl PLC................... 45,055 344,196
Capita Group PLC............ 64,682 281,371
Hays PLC.................... 153,608 329,978
Rentokil Initial PLC........ 112,491 382,614
Serco Group PLC............. 2,405 7,405
------------
1,462,102
------------
Construction & Engineering - 0.0%
AMEC PLC.................... 18,532 86,255
BICC PLC.................... 30,308 118,549
------------
204,804
------------
Construction Materials - 0.2%
BPB PLC..................... 24,591 152,755
Hanson PLC.................. 65,536 481,303
RMC Group PLC............... 27,241 340,139
------------
974,197
------------
Consumer Finance - 0.1%
Cattles PLC................. 7,713 46,151
Provident Financial PLC..... 27,106 315,648
------------
361,799
------------
Containers & Packaging - 0.1%
Rexam PLC................... 51,551 394,745
------------
Distributors - 0.0%
Grafton Group PLC (Units)... 2,786 19,152
------------
Diversified Telecommunication Services - 0.5%
BT Group PLC................ 619,292 2,086,989
BT Group PLC (ADR) (b)...... 900 30,798
Cable & Wireless PLC........ 199,338 476,388
------------
2,594,175
------------
Electric Utilities - 0.3%
Scottish and Southern Energy
PLC....................... 70,358 847,653
ScottishPower PLC........... 145,245 967,889
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
100
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
ScottishPower PLC (ADR)
(b)....................... 993 $ 26,990
------------
1,842,532
------------
Electrical Equipment - 0.0%
Kidde PLC................... 21,146 40,315
------------
Electronic Equipment & Instruments - 0.0%
Electrocomponents PLC....... 18,858 109,716
------------
Food & Staples Retailing - 0.8%
Boots Group PLC............. 64,828 801,919
J Sainsbury PLC............. 121,991 682,991
Safeway PLC................. 61,840 314,396
Tesco PLC................... 508,579 2,346,642
------------
4,145,948
------------
Food Products - 0.6%
Cadbury Schweppes PLC....... 163,625 1,201,678
Tate & Lyle PLC............. 16,627 92,718
Unilever PLC................ 206,940 1,929,139
------------
3,223,535
------------
Gas Utilities - 0.2%
Centrica PLC................ 280,287 1,058,705
------------
Health Care Equipment & Supplies - 0.2%
Nycomed Amersham PLC........ 57,488 787,793
Seton Scholl Healthcare
Group PLC................. 3,902 23,051
Smith & Nephew PLC.......... 76,015 638,548
------------
1,449,392
------------
Health Care Providers & Services - 0.0%
Alliance Unichem PLC........ 6,950 64,572
------------
Hotels, Restaurants & Leisure - 0.7%
Carnival PLC................ 10,260 413,440
Compass Group PLC........... 143,144 973,748
Enterprise Inns PLC......... 6,905 125,340
Hilton Group PLC............ 139,555 561,481
InterContinental Hotels
Group PLC................. 54,538 516,469
Mitchells & Butlers PLC..... 59,088 237,997
Rank Group PLC.............. 61,262 306,249
Whitbread PLC............... 14,274 183,723
William Hill PLC............ 41,924 320,465
------------
3,638,912
------------
Household Durables - 0.3%
Barratt Developments PLC.... 25,956 252,306
The Berkeley Group PLC...... 1,852 29,175
George Wimpey PLC........... 41,012 274,032
MFI Furniture Group PLC..... 70,475 190,503
Persimmon PLC............... 30,369 291,941
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Taylor Woodrow PLC.......... 64,362 $ 307,631
------------
1,345,588
------------
Household Products - 0.2%
Reckitt Benckiser PLC....... 39,375 890,958
------------
IT Services - 0.1%
Logica PLC.................. 68,362 313,594
------------
Industrial Conglomerates - 0.1%
FKI PLC..................... 9,108 17,446
Smiths Industries PLC....... 48,442 573,209
Tomkins PLC................. 49,452 236,809
------------
827,464
------------
Insurance - 0.7%
AVIVA PLC................... 166,073 1,457,493
Friends Provident PLC....... 77,344 182,764
Legal & General Group PLC... 417,796 749,788
Prudential Corporation
PLC....................... 157,248 1,329,373
Royal & Sun Alliance
Insurance Group PLC....... 250,361 395,522
------------
4,114,940
------------
Internet & Catalog Retail - 0.2%
The Great Universal Stores
PLC....................... 79,508 1,100,933
------------
Machinery - 0.0%
IMI PLC..................... 11,268 68,028
Invensys PLC (a)............ 127,264 41,577
------------
109,605
------------
Media - 1.1%
Aegis Group PLC............. 75,089 132,740
British Sky Broadcasting
Group PLC ("BSkyB") (a)... 84,368 1,061,751
Carlton Communications PLC.. 38,415 158,168
Daily Mail and General Trust
'A'....................... 13,386 157,916
EMAP PLC.................... 23,009 352,995
EMI Group PLC............... 79,366 225,547
Granada PLC................. 231,571 505,747
Pearson PLC................. 61,367 683,306
Reed Elsevier NV............ 102,968 861,274
Reuters Group PLC........... 118,189 497,204
United Business Media PLC... 32,987 289,353
WPP Group PLC............... 92,877 911,957
Yell Group PLC.............. 44,342 242,106
------------
6,080,064
------------
Metals & Mining - 0.7%
Billiton PLC................ 189,602 1,656,351
Johnson Matthey PLC......... 10,644 186,923
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
101
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Rio Tinto PLC (Registered
Shares)................... 73,401 $ 2,027,485
------------
3,870,759
------------
Multi-Utilities & Unregulated Power - 0.4%
International Power PLC
(a)....................... 120,985 267,478
National Grid Group PLC..... 223,473 1,601,202
United Utilities PLC........ 51,067 452,975
United Utilities PLC 'A'
(a)....................... 8,249 44,965
------------
2,366,620
------------
Multiline Retail - 0.3%
Marks & Spence Group PLC.... 183,509 949,391
Next PLC.................... 24,093 484,351
------------
1,433,742
------------
Oil & Gas - 3.5%
BG Group PLC................ 258,589 1,327,404
BP Amoco PLC................ 1,564,903 12,690,402
BP Amoco PLC (ADR) (b)...... 3,849 189,948
Shell Transport & Trading
Company................... 685,809 5,101,101
------------
19,308,855
------------
Pharmaceuticals - 2.8%
AstraZeneca Group PLC....... 121,778 5,842,428
Glaxo Wellcome PLC (ADR)
(b)....................... 800 37,296
GlaxoSmithKline PLC (a)..... 426,044 9,762,345
------------
15,642,069
------------
Real Estate - 0.3%
The British Land Company
PLC....................... 44,958 470,013
Canary Wharf Group PLC (a).. 50,795 243,467
Hammerson PLC............... 11,899 137,924
Land Securities Group PLC... 39,255 697,102
Liberty International PLC... 9,912 121,103
Slough Estates PLC.......... 18,432 144,935
------------
1,814,544
------------
Road & Rail - 0.0%
FirstGroup PLC.............. 36,196 177,218
Stagecoach Holdings PLC..... 34,620 48,650
------------
225,868
------------
Semiconductors & Semiconductor Equipment - 0.0%
ARM Holdings PLC (a)........ 105,247 242,104
------------
Software - 0.1%
Misys PLC................... 27,041 102,503
The Sage Group PLC.......... 107,224 337,347
------------
439,850
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
Specialty Retail - 0.3%
Dixons Group PLC............ 169,820 $ 422,565
Kingfisher PLC.............. 185,732 925,980
Kesa Electricals PLC........ 24,040 110,708
Signet Group PLC............ 79,661 146,883
------------
1,606,136
------------
Tobacco - 0.5%
British American Tobacco
PLC....................... 107,342 1,479,620
Imperial Tobacco Group PLC.. 57,489 1,132,054
------------
2,611,674
------------
Trading Companies & Distributors - 0.1%
Wolseley PLC................ 46,322 655,095
------------
Transportation Infrastructure - 0.2%
Associated British Ports
Holdings PLC.............. 11,911 95,738
BAA PLC..................... 88,730 788,244
BBA Group PLC............... 12,221 54,584
The Peninsular and Oriental
Steam Navigation Company.. 35,201 144,935
------------
1,083,501
------------
Water Utilities - 0.1%
Kelda Group PLC............. 17,147 143,963
Severn Trent PLC............ 32,272 432,710
------------
576,673
------------
Wireless Telecommunication Services - 2.2%
Vodafone Group PLC.......... 4,779,923 11,851,148
Vodafone Group PLC (ADR)
(b)....................... 12,490 312,750
------------
12,163,898
------------
TOTAL COMMON STOCKS IN THE
UNITED KINGDOM............ 137,427,933
------------
UNITED STATES
Capital Markets - 0.1%
I Shares MSCI EAFE Index
Fund...................... 2,000 273,020
------------
Computers & Peripherals - 0.0%
Datacraft Asia Limited...... 70,000 88,200
------------
TOTAL COMMON STOCKS IN THE
UNITED STATES............. 361,220
------------
TOTAL INVESTMENTS IN COMMON
STOCKS
(COST - $478,561,797) - 95.8%.. 530,280,961
------------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
102
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
PREFERRED STOCKS
AUSTRALIA
Media - 0.2%
The News Corporation
Limited................... 128,437 $ 967,709
The News Corporation Limited
(Convertible) (ADR) (b)... 760 22,990
------------
990,699
------------
TOTAL PREFERRED STOCKS IN
AUSTRALIA................. 990,699
------------
GERMANY
Automobiles - 0.1%
Porsche AG.................. 760 451,053
Volkswagen AG............... 5,476 198,581
------------
649,634
------------
Health Care Providers & Services - 0.0%
Fresenius Medical Care AG... 542 27,312
------------
Household Products - 0.1%
Henkel KGaA................. 3,170 247,906
------------
Media - 0.0%
ProSieben Sat.1 Media AG.... 4,900 81,893
------------
Multi-Utilities & Unregulated Power - 0.0%
RWE AG...................... 2,033 71,673
------------
TOTAL PREFERRED STOCKS IN
GERMANY................... 1,078,418
------------
NEW ZEALAND
Paper & Forest Products - 0.0%
Fletcher Challenge Forests
Ltd. (a).................. 18,827 16,811
------------
TOTAL PREFERRED STOCKS IN
NEW ZEALAND............... 16,811
------------
TOTAL INVESTMENTS IN
PREFERRED STOCKS
(COST - $1,816,921) - 0.4%.. 2,085,928
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HELD (IN U.S. DOLLARS)
--------- -----------------
WARRANTS (C)
FRANCE
Electrical Equipment - 0.0%
Alstom...................... 13,495 $ 511
------------
Food & Staples Retailing - 0.0%
Casino Guichard - Perrach
SA........................ 133 91
------------
TOTAL WARRANTS IN FRANCE.... 602
------------
HONG KONG
Electronic Equipment & Instruments - 0.0%
QPL International Holdings
Limited................... 600 1
------------
TOTAL WARRANTS IN HONG
KONG...................... 1
------------
TOTAL INVESTMENTS IN
WARRANTS (COST -
$19,521) - 0.0%........... 603
------------
</Table>
<Table>
<Caption>
BENEFICIAL
INTEREST
------------
SHORT-TERM SECURITIES
Merrill Lynch Liquidity
Series, LLC Cash Sweep
Series I (d).......... US$9,920,757 $ 9,920,757
------------
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES
(COST - $9,920,757) - 1.8%.......... 9,920,757
------------
TOTAL INVESTMENTS
(COST - $490,318,996) - 98.0%....... 542,288,249
VARIATION MARGIN ON FINANCIAL FUTURES
CONTRACTS*** - 0.2%................. 875,496
UNREALIZED APPRECIATION ON FORWARD
FOREIGN EXCHANGE
CONTRACTS** - 0.1%.................. 532,884
OTHER ASSETS LESS
LIABILITIES - 1.7%.................. 9,432,341
------------
NET ASSETS - 100%..................... $553,128,970
============
</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) 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>
NET INTEREST
AFFILIATE ACTIVITY INCOME
--------- ---------- --------
Merrill Lynch Liquidity Series,LLC Cash Sweep Series I...... $5,831,683 $68,538
</Table>
* 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
See notes to financial statements.
- --------------------------------------------------------------------------------
103
MASTER INTERNATIONAL INDEX SERIES
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
definition may not apply for purposes of this report, which may combine such
industry sub-classifications for reporting ease. These industry
classifications are unaudited.
** Forward foreign exchange contracts as of December 31, 2003 were as follows:
<Table>
<Caption>
UNREALIZED
FOREIGN CURRENCY SETTLEMENT APPRECIATION
PURCHASED DATE (DEPRECIATION)
---------------- -------------------- --------------
CHF 1,500,000 January 2004 $ 54,669
E 4,290,000 January 2004 296,574
HK$ 40,000 January 2004 (2)
L 1,940,000 January 2004 127,011
SEK 1,000,000 January 2004 3,370
Y 415,000,000 January 2004 51,262
--------
TOTAL UNREALIZED APPRECIATION ON FORWARD
FOREIGN EXCHANGE CONTRACTS - NET (US$
COMMITMENT - $13,578,596) $532,884
========
</Table>
*** Financial futures contracts purchased as of December 31,2003 were as
follows:
<Table>
<Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE EXCHANGE DATE FACE VALUE GAINS (LOSSES)
--------- ----- -------- ---------- ---------- --------------
221 EURO DJ EURO STOXX 50 March 2004 $7,530,992 $159,954
67 FTSE LIFFE March 2004 $5,233,890 123,236
10 HANG SENG Hong Kong January 2004 $ 804,073 9,725
1 IBEX 35 PLUS MEFF January 2004 $ 94,644 2,385
2 MIB 30 MSE March 2004 $ 345,807 (7,424)
34 OMX Stockholm January 2004 $ 293,631 7,903
24 SPI 200 Sydney March 2004 $1,469,545 23,190
68 TOPIX Tokyo March 2004 $6,322,991 307,596
--------
TOTAL UNREALIZED GAINS - NET $626,565
========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
104
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2003
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments,at value (including securities loaned of
$38,710,300) (identified cost - $490,318,996).......... $542,288,249
Cash held as collateral for loaned securities........... 40,553,857
Cash on deposit for financial futures contracts......... 1,980,200
Foreign cash (cost - $6,820,303)........................ 7,028,256
Unrealized appreciation on forward foreign exchange
contracts.............................................. 533,016
Receivables:
Variation margin...................................... $ 875,496
Contributions......................................... 868,854
Dividends............................................. 495,009
Securities sold....................................... 92,492
Forward foreign exchange contracts.................... 74,070
Interest.............................................. 17,791 2,423,712
----------
Prepaid expenses and other assets....................... 940
------------
TOTAL ASSETS........................................ 594,808,230
------------
LIABILITIES:
Collateral on securities loaned, at value............... 40,553,857
Unrealized depreciation on forward foreign exchange
contracts.............................................. 132
Payables:
Withdrawals........................................... 1,095,007
Other affiliates...................................... 2,054
Investment adviser.................................... 745
Forward foreign exchange contracts.................... 301 1,098,107
----------
Accrued expenses and other liabilities.................. 27,164
------------
TOTAL LIABILITIES................................... 41,679,260
------------
NET ASSETS.................................................. $553,128,970
============
NET ASSETS CONSIST OF:
Investors' capital...................................... $499,731,665
Unrealized appreciation on investments and foreign
currency transactions - net............................ 53,397,305
------------
NET ASSETS.................................................. $553,128,970
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
105
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $523,812 foreign withholding tax)..... $ 4,743,131
Interest................................................ 102,643
Securities lending - net................................ 84,428
-----------
TOTAL INCOME........................................ 4,930,202
-----------
EXPENSES:
Professional fees....................................... $ 88,300
Custodian fees.......................................... 54,755
Accounting services..................................... 31,856
Investment advisory fees................................ 21,203
Trustees' fees and expenses............................. 2,763
Printing and shareholder reports........................ 2,175
Other................................................... 14,626
-----------
Total expenses before waiver........................ 215,678
Waiver of expenses...................................... (17,696)
-----------
TOTAL EXPENSES AFTER WAIVER......................... 197,982
-----------
INVESTMENT INCOME - NET..................................... 4,732,220
-----------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS - NET:
Realized gain (loss) from:
Investments - net..................................... (2,237,884)
Foreign currency transactions - net................... 1,391,706 (846,178)
-----------
Change in unrealized appreciation/depreciation on:
Investments - net..................................... 78,574,573
Foreign currency transactions - net................... 561,411 79,135,984
----------- -----------
TOTAL REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS - NET............. 78,289,806
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $83,022,026
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
106
MASTER INTERNATIONAL INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
2003 2002
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net................................. $ 4,732,220 $ 4,256,606
Realized loss on investments and foreign currency
transactions - net.................................... (846,178) (15,497,931)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions - net... 79,135,984 (23,022,788)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................ 83,022,026 (34,264,113)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 364,659,614 85,092,571
Fair value of withdrawals............................... (61,373,002) (79,519,958)
------------ ------------
NET INCREASE IN NET ASSETS DERIVED FROM CAPITAL
TRANSACTIONS.......................................... 303,286,612 5,572,613
------------ ------------
NET ASSETS:
Total increase (decrease) in net assets................. 386,308,638 (28,691,500)
Beginning of year....................................... 166,820,332 195,511,832
------------ ------------
END OF YEAR............................................. $553,128,970 $166,820,332
============ ============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
107
MASTER INTERNATIONAL INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE
PERIOD
DECEMBER 30,
FOR THE YEAR ENDED DECEMBER 31, 1999+ TO
-------------------------------------------- DECEMBER 31,
2003 2002 2001 2000 1999
------------ -------- -------- ------- ------------
TOTAL INVESTMENT RETURN**.............. 38.97% (15.81%) (21.77%) -- --
-------- -------- -------- ------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of waiver............ .09% .08% .08% .08% .08%*
-------- -------- -------- ------- -------
Expenses........................... .10% .16% .39% 1.34% .63%*
-------- -------- -------- ------- -------
Investment income - net............ 2.23% 2.21% 1.20% 1.55% 2.14%*
-------- -------- -------- ------- -------
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)....................... $553,129 $166,820 $195,512 $15,763 $10,054
-------- -------- -------- ------- -------
Portfolio turnover................. 8.55% 19.52% 30.19% 5.89% .00%
-------- -------- -------- ------- -------
</Table>
- ---------------
* Annualized.
** Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
+ Commencement of operations.
See notes to financial statements.
- --------------------------------------------------------------------------------
108
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
- --------------------------------------------------------------------------------
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 non-transferable
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. The following is a summary of significant accounting
policies followed by the Series.
A. Valuation of investments
Equity securities that are held by the Series that are traded on stock
exchanges or the Nasdaq National Market are valued at the last sale price or
official close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available ask price for short
positions. In cases where equity securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Trustees of the Trust. Long
positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap or
Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Trustees of the Trust. Short positions traded in the OTC market are valued at
the last available ask price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market,the
last ask price. Options purchased are valued at their last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued daily based upon
quotations from market makers. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their last sale price as of the
close of such exchanges. Obligations with remaining maturities of 60 days or
less are valued at amortized cost unless the Investment Adviser believes that
this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the Series.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Series, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Series under the general supervision of the Trust's Board
of Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees of the Trust.
Generally, trading in foreign securities,as well as U.S. government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of the
Series are determined as of such times. Foreign currency exchange rates also are
generally determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of
- --------------------------------------------------------------------------------
109
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
the Series' net assets. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may be valued
at their fair value as determined in good faith by the Trust's Board of Trustees
or by the Investment Adviser using a pricing service and/or procedures approved
by the Trust's Board of Trustees.
B. Derivative financial instruments
The Series may engage in various portfolio investment strategies to provide
liquidity or as a proxy for a direct investment in securities underlying the
Series' index. Losses may arise due to changes in the value of the contract or
if the counterparty does not perform under the contract.
- Financial futures contracts - The Series may purchase or sell financial
futures contracts and options on such futures contracts. Futures
contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Series deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Series agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Series as unrealized gains or losses. When the contract
is closed, the Series records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened
and the value at the time it was closed.
- Options - The Series may purchase and write call and put options. When
the Series writes an option, an amount equal to the premium received by
the Series is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to(or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security
sold. When an option expires (or the Series enters into a closing
transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
- Forward foreign exchange contracts - The Series may enter into forward
foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. The contract is marked-to-market
daily and the change in market value is recorded by the Series as an
unrealized gain or loss. When the contract is closed, the Series records
a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed.
- 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.
- --------------------------------------------------------------------------------
110
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
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 partnership for Federal income tax purposes.
As such, each investor in the Series is treated as owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Series. Therefore, no Federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be imposed on
interest, dividends and capital gains at various rates. It is intended that the
Series' assets will be managed so an investor in the Series can satisfy the
requirements of subchapter M of the Internal Revenue Code.
E. Security transactions and investment income
Security transactions are 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 amount equal to at least 100% of the current
market value of the loaned securities. The market value of the loaned securities
is determined at the close of business of the Series and any additional required
collateral is delivered to the Series on the next business day. Where the Series
receives securities as collateral for the loaned securities, it collects a fee
from the borrower. The Series typically receives the income on the loaned
securities but does not receive the income on the collateral. Where the Series
receives cash collateral, it may invest such collateral and retain the amount
earned on such investment, net of any amount rebated to the borrower. Loans of
securities are terminable at any time and the borrower, after notice, is
required to return borrowed securities within five business days. The Series may
pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Series 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.
- --------------------------------------------------------------------------------
111
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2003
- --------------------------------------------------------------------------------
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%. Effective
January 1, 2003, the limit was increased from .08% to .12%. This arrangement
expires December 31, 2004 and is renewable. For the year ended December 31,
2003, FAM earned fees of $21,203, of which $17,696 was waived.
For the year ended December 31, 2003, the Series reimbursed FAM $3,886 for
certain accounting services.
Certain officers and/or trustees of the Trust 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 year ended December 31, 2003 were $315,970,788 and $16,650,300,
respectively.
Net realized gains (losses) for the year ended December 31, 2003 and
unrealized gains as of December 31, 2003 were as follows:
<Table>
<Caption>
REALIZED GAINS UNREALIZED
(LOSSES) GAINS
-------------- -----------
Investments:
Long-term......................................... $(2,680,681) $51,969,253
Financial futures contracts....................... 442,797 626,565
----------- -----------
Total investments...................................... (2,237,884) 52,595,818
----------- -----------
Currency transactions:
Forward foreign exchange contracts................ 913,418 532,884
Foreign currency transactions..................... 478,288 268,603
----------- -----------
Total currency transactions............................ 1,391,706 801,487
----------- -----------
Total.................................................. $ (846,178) $53,397,305
=========== ===========
</Table>
As of December 31, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $47,799,512, of which $60,757,052 related to appreciated
securities and $12,957,540 related to depreciated securities. At December 31,
2003, the aggregate cost of investments for Federal income tax purposes was
$494,488,737.
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 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
28, 2003, the credit agreement was renewed for one year at the same terms. The
Series did not borrow under the credit agreement during the year ended December
31,2003.
- --------------------------------------------------------------------------------
112
MASTER INTERNATIONAL INDEX SERIES
INDEPENDENT AUDITORS' REPORT
December 31, 2003
- --------------------------------------------------------------------------------
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Master International Index Series, one
of the portfolios constituting the Quantitative Master Series Trust (the
"Trust") as of December 31, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
respective periods then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion,the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Master International Index Series of the Quantitative Master Series Trust as of
December 31, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the respective periods then ended, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
February 13, 2004
- --------------------------------------------------------------------------------
113
MASTER INTERNATIONAL INDEX SERIES
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- ------- ----------------------- -------------- -------------
INTERESTED TRUSTEE
Terry K. Glenn* President 2000 President and Chairman of the 123 Funds None
P.O. Box 9011 and to Merrill Lynch Investment 160 Portfolios
Princeton, NJ 08543-9011 Trustee Managers, L.P. ("MLIM")/Fund
Age: 63 present Asset Management, L.P.
and ("FAM") - Advised Funds since
1997 1999; Chairman (Americas
to Region) of MLIM from 2000 to
2002; Executive Vice President
present of FAM and MLIM (which terms as
used herein include their
corporate predecessors) from
1983 to 2002; President of FAM
Distributors, Inc. ("FAMD")
from 1986 to 2002 and Director
thereof from 1991 to 2002;
Executive Vice President and
Director of Princeton Services,
Inc. ("Princeton Services")
from 1993 to 2002; President of
Princeton Administrators, L.P.
from 1989 to 2002; Director of
Financial Data Services, Inc.
since 1985.
</Table>
* Mr. Glenn is a director, trustee or member of an advisory board of certain
other investment companies for which FAM or MLIM acts as investment adviser.
Mr. Glenn is an "interested person" as described in the Investment Company
Act, of the Trust based on his former positions with FAM, MLIM, FAMD,
Princeton Services and Princeton Administrators, L.P. The Trustee's term is
unlimited. Trustees serve until their resignation, removal, or death, or
until December 31 of the year in which they turn 72. As Trust President, Mr.
Glenn serves at the pleasure of the Board of Trustees.
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- ------- ------------------------------- -------------- -------------
INDEPENDENT TRUSTEES*
Donald W. Burton Trustee 2002 Manager of The Burton 23 Funds ITC Delta-Com,
P.O. Box 9095 to Partnership, Limited 36 Portfolios Inc., ITC
Princeton, NJ 08543-9095 Partnership since 1979; Financial
Age: 59 present Managing General Partner of the Services,
South Atlantic Venture Funds, Knology, Inc.,
Limited Partnerships and PriCare, Inc.,
Chairman of South Atlantic Symbion, Inc.
Private Equity Fund IV, Limited
Partnership since 1983; Member
of the Investment Advisory
Council of the Florida State
Board of Administration since
2001.
</Table>
- --------------------------------------------------------------------------------
114
MASTER INTERNATIONAL INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- ------- ------------------------------- -------------- -------------
M. Colyer Crum Trustee 2000 James R. Williston Professor of 24 Funds Cambridge
P.O. Box 9095 to Investment Management Emeritus, 37 Portfolios Bancorp
Princeton, NJ 08543-9095 Harvard Business School since
Age: 71 present 1996; Chairman and Director of
Phaeton International, Ltd.
from 1985 to present; Director
of Cambridge Bancorp since
1969.
Laurie Simon Hodrick Trustee 2000 Professor of Finance and 23 Funds None
P.O. Box 9095 to Economics, Graduate School of 36 Portfolios
Princeton, NJ 08543-9095 Business, Columbia University
Age: 41 present since 1998; Associate Professor
of Finance and Economics,
Graduate School of Business,
Columbia University from 1996
to 1998.
David H. Walsh Trustee 2003 Consultant with Putnam 23 Funds None
P.O. Box 9095 to Investments since 1993 and 36 Portfolios
Princeton, NJ 08543-9095 employed in various capacities
Age: 62 present therewith from 1971 to 1992;
Director of the National
Audubon Society since 2000;
Director of the American Museum
of Fly Fishing since 1998.
Fred G. Weiss Trustee 2000 Managing Director of FGW 23 Funds Watson
P.O. Box 9095 to Associates since 1997; Vice 36 Portfolios Pharmaceuticals,
Princeton, NJ 08543-9095 President, Planning, Investment Inc.
Age: 62 present and Development of Warner
Lambert Co. from 1979 to 1997;
Director of BTG International
PLC since 2001; Director of
KIMC Investments, Inc. since
2003; Director of Osmotica
Holding Corp. AVV since 2003.
</Table>
* The Trustee's term is unlimited. Trustees serve until their resignation,
removal or death, or until December 31 of the year in which they turn 72.
<Table>
<Caption>
POSITION(S)
NAME, ADDRESS, AND HELD WITH LENGTH OF
AGE TRUST TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------ ----------- ------------ -------------------------------------------
TRUST OFFICERS
Donald C. Burke Vice 1997 to First Vice President of FAM and MLIM since 1997 and
P.O. Box 9011 President present and Treasurer thereof since 1999; Senior Vice President and
Princeton, NJ 08543-901 and 1999 to Treasurer of Princeton Services since 1999; Vice President
Age: 43 Treasurer present of FAMD since 1999; Director of MLIM Taxation since 1990.
Robert C. Doll, Jr. Senior 1999 to President of MLIM and member of the Executive Management
P.O. Box 9011 Vice present Committee of ML &Co., Inc. since 2001; Global Chief
Princeton, NJ 08543-9011 President Investment Officer and Senior Portfolio Manager of MLIM
Age: 49 since 1999; Chief Investment Officer of Equities at
Oppenheimer Funds, Inc. from 1990 to 1999 and Chief
Investment Officer thereof from 1998 to 1999; Executive Vice
President of Oppenheimer Funds, Inc. from 1991 to 1999.
</Table>
- --------------------------------------------------------------------------------
115
MASTER INTERNATIONAL INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION(S)
NAME, ADDRESS, AND HELD WITH LENGTH OF
AGE TRUST TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------ ----------- ------------ -------------------------------------------
Richard J. Vella Vice 1999 to Managing Director and Head of Global Index and Enhanced
P.O. Box 9011 President present Index products for Merrill Lynch Quantitative Advisors since
Princeton, NJ 08543-9011 1999; Managing Director and Head of the Global Index and
Age: 46 Enhanced Index business at Bankers Trust from 1984 to 1999.
Brian D. Stewart Secretary 2003 to Vice President (Legal Advisory) of MLIM since 2002; Attorney
P.O. Box 9011 present with Reed Smith from 2001 to 2002; Attorney with Saul Ewing
Princeton, NJ 08543-9011 from 1999 to 2001.
Age:34
</Table>
* Officers of the Trust serve at the pleasure of the Board of Trustees.
<Table>
<Caption>
CUSTODIAN TRANSFER AGENT
J.P. Morgan Chase Bank Financial Data Services, Inc.
4 Chase MetroTech Center, 18th Floor 4800 Deer Lake Drive East
Brooklyn, NY 11245 Jacksonville, FL 32246-6484
800-637-3863
</Table>
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.
- --------------------------------------------------------------------------------
116
(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>
(EMAIL GRAPHIC) (INTERNET GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_aadvantage.funds@aa.com Visit our website at www.aafunds.com
</Table>
- --------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAIL GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American AAdvantage Funds
Call (800) 658-5811 4151 Amon Carter Blvd., MD 2450
PlanAhead Class(R) Fort Worth, TX 76155
Call (800) 388-3344
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES ERNST & YOUNG LLP SWS FINANCIAL SERVICES
Boston, Massachusetts Kansas City, Missouri Chicago, Illinois 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]
530091
[LOGO OF AMERICAN AADVANTAGE FUNDS]
AMERICAN AADVANTAGE FUNDS(R)
- -----------------------------------[GRAPHIC]------------------------------------
ANNUAL REPORT
DECEMBER 31, 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. 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......................................... 18
U.S. Government
Money Market Fund......................................... 20
Municipal
Money Market Fund......................................... 22
Schedule of Investments
Money Market Portfolio.................................... 25
U.S. Government
Money Market Portfolio.................................... 28
Municipal
Money Market Portfolio.................................... 30
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 December 31, 2003
[GRAPHIC OF AMR INVESTMENTS]
FELLOW SHAREHOLDERS:
I am pleased to present you with the Annual Report for the American AAdvantage
Funds for the twelve months ended December 31, 2003. During this time, the money
market series of the American AAdvantage Funds performed well versus their
peers.
During the past year, investors experienced both upward and downward market
trends while hoping to avoid a fourth consecutive annual decline in the stock
market (something that has not occurred since 1932). Fortunately, the up
markets outpaced downward periods by a larger margin. The reality seems to be
that the economic recovery has arrived. The economy had to overcome the war with
Iraq, the occupation of Afghanistan, and the SARS outbreak. However, the lowest
Fed Funds rate in 45 years at 1.0% improved corporate earnings growth, and was
reflected in the markets.
The Cash Management Class of the American AAdvantage Funds produced strong
relative returns for the period. The Money Market Fund Cash Management Class
returned 1.08% for the year, outperforming the Lipper Institutional Money Market
Average return of 0.80%. The U.S. Government Money Market Fund Cash Management
Class outpaced the Lipper Institutional U.S. Government Money Market Average
with a return of 1.04% versus 0.80% for the Average.
As the Fed intends to remain accommodative and "patient" with monetary
policy, thereby, keeping short-term interest rates at historical lows, the money
market series of the American AAdvantage Funds continue to emphasize fundamental
investing on behalf of our shareholders. We believe our disciplined investment
process, credit analysis, and low costs will produce value-added results over
the long term.
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
ECONOMIC OVERVIEW
================================================================================
The year began with the uncertainty of a war with Iraq, unemployment on the rise
and a bounce in the stock market's average indices. After a successful campaign
in Iraq, the Bush Administration shifted its focus to stimulating economic
growth through tax cuts. A great deal of uncertainty surrounded monetary policy,
as the world and U.S. economic recovery appeared tentative. Excess capacity
hindered pricing power and productivity increases hindered the labor market.
Inflation posed no threat during the year; in fact, Federal Reserve Chairman
Alan Greenspan expressed concern over deflation, indicating the Fed would be
diligent in monitoring the potential threat of falling prices. Indeed, with the
Fed's apparent conviction to utilize all means necessary to avoid deflation and
stimulate the economy, the overnight Fed Funds rate was lowered by 25 basis
points to 1% at the June FOMC meeting. This is the lowest overnight level in
over forty years.
As the year progressed, the economy appeared to be heading down the path of
an economic growth recovery. The third quarter GDP growth rate of 8.2% was the
highest since 1983 and economists have been forecasting 4% GDP growth for the
fourth quarter of 2003 and throughout 2004. The stock market's extraordinary
returns, the continued robust housing market, and the capture of Saddam Hussein
all helped improve consumer confidence. The recent drop in the dollar should
make U.S. exports more appealing. The only remaining area of concern from a
recovery viewpoint is jobs creation. Although the jobless rate has edged its way
down to 5.7% from a high of 6.3% in May, we have yet to see strong increases in
the number of new non-farm payrolls that many economists have been anticipating.
Productivity has enabled companies to produce more without having to hire
additional workers. The third quarter productivity pace was the fastest in 20
years. With inflation still benign, productivity increasing, and lackluster jobs
creation, there is little reason to doubt Fed Chairman Greenspan's repeated
assertions that monetary policy could remain accommodative for a "considerable
period", or at least through the first half of 2004.
2
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MONEY MARKET FUND (R)
================================================================================
As evidence mounted that money market interest rates would head lower, the
weighted-average maturity of the American AAdvantage Money Market Fund was
extended close to the 60 day maximum for "AAA" rated funds. This strategy
enabled the Fund to lock in higher rates. The extension became even more
beneficial when the Fed lowered the Fed Funds rate 25 basis points from 1.25% to
1.00% at the June FOMC meeting. After thirteen consecutive easings by the Fed
since January 2001, a positively sloped money market yield curve emerged in the
second half of 2003. The market began to anticipate in July that the next move
by the Fed would be to increase interest rates. That notion gained momentum
after third quarter GDP growth came in at a surprising 8.2%. Since then, the
economic growth recovery has remained on track, but with disappointing jobs
creation. The encouraging news on productivity coupled with the disappointing
news on jobs creation led us to concur with Chairman Greenspan's repeated
assertions that monetary policy could remain accommodative and money market
interest rates will remain at historically low levels for a "considerable
period". The Fund's large position in variable rate securities will likely be
maintained and the weighted-average maturity of the Fund will likely be in the
50 to 60 day range until evidence of a recovery in jobs creation emerges and the
likelihood of a Fed rate hike increases.
For the twelve months ended December 31, 2003, the total return of the Cash
Management Class of the American AAdvantage Money Market Fund was 1.08%. The
Fund outperformed the Lipper Institutional Money Market Average return of 0.80%
by 28 basis points. Lipper Analytical Services ranked the Institutional Class of
the Fund 96th among 279, 42nd among 184, and 14th among 83 Institutional Money
Market Funds for the one-year, five-years and ten-years ended December 31, 2003,
respectively.
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF DECEMBER 31, 2003
[CHART OF CASH MANAGEMENT CLASS]
American AAdvantage Lipper Institutional Money
Money Market Fund Market Fund Average
------------------- --------------------------
1 Year 1.08% 0.80%
3 Years 2.31% 2.07%
5 Years* 3.70% 3.46%
10 Years* 4.54% 4.35%
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
===================================
AS OF 12/31/03
-----------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,3).......... 1.08% 3.70% 4.54%
Institutional Class (1).............. 0.97% 3.67% 4.52%
PlanAhead Class (1,2)................ 0.70% 3.36% 4.22%
Platinum Class (1,2)................. 0.25% 2.94% 3.93%
(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 1/1/94 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 1/1/94.
(3) Fund performance for the five and ten-year periods represents the total
returns achieved by the Institutional Class from 1/1/94 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 1/1/94.
3
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MONEY MARKET FUND (R) -- Continued
================================================================================
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2003
CASH
MANAGEMENT INSTITUTIONAL PLANAHEAD PLATINUM
CLASS CLASS CLASS CLASS
---------- ------------- ---------- ---------
7-day Current Yield* 0.99% 0.90% 0.59% 0.15%
7-day Effective Yield* 0.99% 0.90% 0.60% 0.15%
30-day Yield* 0.99% 0.89% 0.59% 0.15%
Weighted Average Maturity 50 Days 50 Days 50 Days 50 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 DECEMBER 31, 2003
% OF
NET ASSETS
----------
General Electric Capital Corporation 4.7%
Edison Asset Securitization 4.5%
Metropolitan Life Insurance Company 3.9%
Bank of America Corporation 3.8%
Bayerische Landesbank 3.5%
Federal Home Loan Mortgage Corporation 3.3%
Wells Fargo Financial, Incorporated 3.2%
Southtrust Bank, NA 3.2%
American Honda Finance Corporation 3.0%
First Tennessee Bank 3.0%
4
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND (SM)
================================================================================
The American AAdvantage U.S. Government Money Market Fund maintained a
weighted-average maturity toward the longer end of the maximum maturity of 60
days allowed for "AAA" rated funds. This was accomplished primarily by
purchasing fixed rate agencies with maturities of six months to one year. This
strategy worked well during the first half of the year, especially in light of
the Fed lowering the Fed Funds rate in June to 1% from 1.25%. After thirteen
consecutive easings by the Fed since January 2001, a positively sloped money
market yield curve emerged in the second half of 2003. The market began to
anticipate in July that the next move by the Fed would be to increase interest
rates. That notion gained momentum after third quarter GDP growth came in at a
surprising 8.2%. Since then, the economic growth recovery has remained on track
but with disappointing jobs creation. The encouraging news on productivity
coupled with the disappointing news on jobs creation led us to concur with
Chairman Greenspan's repeated assertions that monetary policy could remain
accommodative and money market interest rates would remain at historically low
levels for a "considerable period". The weighted-average maturity of the Fund
will likely remain in the 50 to 60 day range until evidence of a recovery in
jobs creation emerges and the likelihood of a Fed rate hike increases.
For the twelve months ended December 31, 2003, the total return of the Cash
Management Class of the American AAdvantage U.S. Government Money Market Fund
was 1.04%. The Fund outperformed the Lipper Institutional U.S. Government Money
Market Average return of 0.80% by 24 basis points. Lipper Analytical Services
ranked the Cash Management Class of the Fund 15th among 139, 11th among 96, and
14th among 49 Institutional U.S. Government Money Market Funds for the one-year,
five-years and ten-years ended December 31, 2003, respectively.
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF DECEMBER 31, 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 1.04% 0.80%
3 Years* 2.26% 2.03%
5 Years* 3.61% 3.39%
10 Years* 4.39% 4.25%
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
=================================
AS OF 12/31/03
---------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,3).......... 1.04% 3.61% 4.39%
PlanAhead Class (1,2)................ 0.61% 3.24% 4.04%
Platinum Class (1,2)................. 0.24% 2.83% 3.76%
(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 1/1/94 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 1/1/94.
(3) Prior to December 1, 2001, the Cash Management Class of the Fund was known
as the Institutional Class.
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2003
CASH
MANAGEMENT PLANAHEAD PLATINUM
CLASS CLASS CLASS
---------- --------- --------
7-day Current Yield* 0.92% 0.46% 0.12%
7-day Effective Yield* 0.92% 0.46% 0.12%
30-day Yield* 0.92% 0.46% 0.12%
Weighted Average Maturity 48 Days 48 Days 48 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.
5
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND (SM)
================================================================================
The American AAdvantage Municipal Money Market Fund targeted a neutral
weighted-average maturity in the first half of the year, focusing on variable
rate demand notes backed by either bond insurance or a bank letter of credit. As
it became apparent the Fed would lower interest rates at least 25 basis points
at the June FOMC meeting, the Fund locked in higher yields by purchasing
commercial paper. During the second half of the year, the focus returned to the
variable rate demand note market, as that proved to be the most attractive
investment alternative. If interest rates remain low, as anticipated, the Fund
will look for opportunities in the fixed rate market.
For the twelve months ended December 31, 2003, the total return of the
PlanAhead Class of the American AAdvantage Municipal Money Market Fund was 0.32%
as compared to the Lipper Tax-Exempt Money Market Average return of 0.45%.
PLANAHEAD CLASS TOTAL RETURNS AS OF DECEMBER 31, 2003
[CHART OF PLANAHEAD CLASS]
American AAdvantage Lipper
MunicipaL Tax-Exempt
Money Market Fund Money Market Fund Average
------------------- -------------------------
1 Year 0.32% 0.45%
3 Years* 1.16% 1.17%
5 Years* 1.96% 1.95%
10 Years* 2.53% 2.47%
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
=================================
AS OF 12/31/03
---------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
PlanAhead Class (1,2)............. 0.32% 1.96% 2.53%
Platinum Class (1,2).............. 0.20% 1.61% 2.26%
(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 ten-year period represents the total returns
achieved by the Institutional Class, a former Class of the Fund, 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 DECEMBER 31, 2003
PLANAHEAD PLATINUM
CLASS CLASS
--------- --------
7-day Current Yield* 0.05% 0.30%
7-day Effective Yield* 0.05% 0.30%
30 day Yield* 0.05% 0.17%
Weighted Average Maturity 12 Days 12 Days
*Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day
yield.
TOP TEN HOLDINGS AS OF DECEMBER 31, 2003
% OF
NET ASSETS
----------
Moffat County, Colorado Pollution Control 8.3%
Gulf Coast Waste Disposal
Authority (Texas) 7.2%
Pierce County, Washington Economic
Development Corporation 6.5%
Brazos Harbor Industrial Development
Corporation 6.3%
Claremore Industrial and Redevelopment
Authority 6.0%
Michigan State Housing Development
Authority 4.9%
Montogomery County, Maryland Variable
Rate Housing Revenue Bonds 4.8%
Alachua County, Florida Housing
Financial Authority 4.6%
Mesa Arizona Industrial Development
Authority 4.4%
Ohio Water Development Authority 4.3%
South Carolina JOBS Economic
Development Authority 4.3%
6
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
American AAdvantage Money Market Fund
American AAdvantage U.S. Government Money Market Fund
American AAdvantage Municipal Money Market Fund
We have audited the accompanying statements of assets and liabilities of the
American AAdvantage Money Market Fund, the American AAdvantage U.S. Government
Money Market Fund, and the American AAdvantage Municipal Money Market Fund,
(collectively, "the Funds") (separate funds comprising the American AAdvantage
Funds) as of December 31, 2003, and the related statements of operations, the
statements of changes in net assets and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned as of December 31, 2003, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective American AAdvantage Funds at December 31, 2003, the results of
their operations, the changes in their net assets, and the financial highlights
for each of the periods indicated therein, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLp
Chicago, Illinois
February 13, 2004
7
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2003
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS:
Investment in Portfolio, at value............. $ 448,641 $ 55,656 $ 6,332
Receivable for fund shares sold............... 4,049 - -
Receivable from Manager for expense
reimbursement(Note 2)....................... 12 8 9
Other assets.................................. - - 5
------------ ----------- -----------
TOTAL ASSETS............................... 452,702 55,664 6,346
------------ ----------- -----------
LIABILITIES:
Payable for fund shares redeemed.............. 80 - -
Dividends payable............................. 17 26 -
Administrative services fees payable
(Note 2)................................... 60 6 2
Distribution fees payable..................... 12 - 1
Other liabilities............................. 154 35 -
------------ ----------- -----------
TOTAL LIABILITIES.......................... 323 67 3
------------ ----------- -----------
NET ASSETS....................................... $ 452,379 $ 55,597 $ 6,343
============ =========== ===========
ANALYSIS OF NET ASSETS:
Paid-in-capital............................... 452,379 55,597 6,343
------------ ----------- -----------
NET ASSETS....................................... $ 452,379 $ 55,597 $ 6,343
============ =========== ===========
Shares outstanding (no par value):
Cash Management Class......................... 117,395,420 22,060,011 N/A
============ =========== ===========
Institutional Class........................... 159,091,863 N/A N/A
============ =========== ===========
PlanAhead Class............................... 126,972,434 26,784,887 3,072,239
============ =========== ===========
Platinum Class................................ 48,919,553 6,752,583 3,270,679
============ =========== ===========
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 N/A
============ =========== ===========
PlanAhead Class............................... $ 1.00 $ 1.00 $ 1.00
============ =========== ===========
Platinum Class................................ $ 1.00 $ 1.00 $ 1.00
============ =========== ===========
See accompanying notes
- --------------------------------------------------------------------------------
8
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
Year Ended December 31, 2003
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS)
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income................................ $ 7,223 $ 1,674 $ 164
Portfolio expenses............................. (650) (161) (17)
-------- --------- -----
NET INVESTMENT INCOME ALLOCATED FROM
PORTFOLIO................................. 6,573 1,513 147
-------- --------- -----
FUND EXPENSES:
Administrative service fees (Note 2):
Cash Management Class....................... 46 15 -
Institutional Class......................... 259 - 1
PlanAhead Class............................. 146 94 5
Platinum Class.............................. 657 96 55
Transfer agent fees:
Cash Management Class....................... 14 17 -
Institutional Class......................... 50 - -
PlanAhead Class............................. 58 91 5
Platinum Class.............................. 20 6 1
Professional fees.............................. 35 13 4
Registration fees and expenses................. 68 30 25
Distribution fees - Platinum Class (Note 2).... 253 37 21
Service Fees - PlanAhead Class (Note 2)........ 364 235 11
Other expenses................................. 109 43 13
-------- --------- -----
TOTAL FUND EXPENSES......................... 2,079 677 141
-------- --------- -----
LESS WAIVER AND REIMBURSEMENT OF EXPENSES (NOTE 2) 190 110 34
-------- --------- -----
NET FUND EXPENSES........................... 1,889 567 107
-------- --------- -----
NET INVESTMENT INCOME............................. 4,684 946 40
-------- --------- -----
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments............ 5 3 -
-------- --------- -----
NET GAIN ON INVESTMENTS..................... 5 3 -
-------- --------- -----
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................................ $ 4,689 $ 949 $ 40
======== ========= =====
See accompanying notes
- --------------------------------------------------------------------------------
9
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
MONEY MARKET
==================================
YEAR ENDED DECEMBER 31,
==================================
2003 2002
---------- ----------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 4,684 $ 2 2,479
Net realized gain on investments..................... 5 11
---------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................... 4,689 22,490
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Cash Management Class............................. (672) (847)
Institutional Class............................... (2,597) (10,046)
PlanAhead Class................................... (1,034) (2,284)
Platinum Class.................................... (378) (9,305)
Net realized gain on investments:
Cash Management Class............................. - (1)
Institutional Class............................... (3) (1)
PlanAhead Class................................... (1) -
Platinum Class.................................... (1) (9)
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:................. (4,686) (22,493)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........................ 3,048,924 6,690,114
Reinvestment of dividends and distributions.......... 3,467 20,382
Cost of shares redeemed.............................. (4,150,353) (7,013,224)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS.................. (1,097,962) (302,728)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS................... (1,097,959) (302,731)
NET ASSETS:
Beginning of period.................................. 1,550,338 1,853,069
---------- ----------
END OF PERIOD........................................ $ 452,379 $1,550,338
========== ==========
See accompanying notes
- --------------------------------------------------------------------------------
10
U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
============================== ==============================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
============================== ==============================
2003 2002 2003 2002
-------- ---------- ---------- --------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 946 $ 3,655 $ 40 $ 486
Net realized gain on investments..................... 3 26 - -
--------- --------- -------- ---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................... 949 3,681 40 486
--------- --------- -------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Cash Management Class............................. (227) (763) - -
Institutional Class............................... - - (6) (9)
PlanAhead Class................................... (675) (1,617) (17) (61)
Platinum Class.................................... (44) (1,275) (17) (416)
Net realized gain on investments:
Cash Management Class............................. (1) (4) - -
Institutional Class............................... - - - -
PlanAhead Class................................... (2) (10) - -
Platinum Class.................................... - (12) - -
--------- --------- -------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:................. (949) (3,681) (40) (486)
--------- --------- -------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........................ 351,780 833,690 21,327 168,645
Reinvestment of dividends and distributions.......... 57 1,710 32 484
Cost of shares redeemed.............................. (629,499) (760,047) (94,625) (153,415)
--------- --------- -------- ---------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS.................. (277,662) 75,353 (73,266) 15,714
--------- --------- -------- ---------
NET INCREASE (DECREASE) IN NET ASSETS................... (277,662) 75,353 (73,266) 15,714
NET ASSETS:
Beginning of period.................................. 333,259 257,906 79,609 63,895
--------- --------- -------- ---------
END OF PERIOD........................................ $ 55,597 $ 333,259 $ 6,343 $ 79,609
========= ========= ======== =========
See accompanying notes
- --------------------------------------------------------------------------------
11
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
================================================================================
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 has multiple classes of shares. Differences between the classes
include the services offered to and the expenses borne by each class and certain
voting rights. Investment income, net capital gains (losses)and all expenses
incurred by the Funds are allocated based on relative net assets of each class,
except for service fees and certain other fees and expenses related solely to
one class of shares. Effective October 9, 2003, the Institutional Class of the
Municipal Money Market Fund was no longer offered.
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
(9.06%, 23.68% and 15.91% at December 31, 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
The Funds record their investment in the Portfolios at fair value. 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.
- --------------------------------------------------------------------------------
12
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
================================================================================
Federal Income and Excise Taxes
It is the policy of each of the Funds to comply with the requirements of
subchapter M 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.
All dividends paid by the Municipal Money Market Fund were "exempt interest
dividends" and therefore are 100% free of any regular federal income tax.
Approximately 23% of interest earned was derived from investments in certain
private activity bonds for purposes of the federal alternative minimum tax
calculation.
Allocation of Income, Expenses, Gains and Losses
Income, expenses (other than those attributable to a specific class), gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class.
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 average daily 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 Class of the Funds. As compensation for providing administrative
services, the Manager receives an annualized fee of 0.55% of the average daily
net assets of the Platinum Class of each Fund.
A separate Administrative Services Plan has been adopted for the Cash
Management Class 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 the Cash Management Class of each Fund.
- --------------------------------------------------------------------------------
13
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
================================================================================
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 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.
A separate Distribution Plan (the "Distribution Plan") has been adopted
pursuant to Rule 12b-1 under the Act for the Platinum Class of the Funds. Under
the Distribution Plan, as compensation for distribution assistance, the Manager
receives an annualized fee of 0.25% of the average daily net assets of each
class. 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.
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 Plan-Ahead
Class.
Reimbursement and Waiver of Expenses
Effective March 1, 2003 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
March 1, 2003, 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%.
The Manager contractually agreed to reimburse the Platinum Class of each
Fund for other expenses through December 31, 2003 to the extent that total
annual fund operating expenses exceed 0.99%. In addition, effective June 25,
2003, 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. During the year ended December 31, 2003, the Manager waived or
reimbursed expenses as follows:
FUND AMOUNT
- ---- --------
Money Market Fund
Cash Management Class ............................................ $ 54,801
Platinum Class ................................................... 135,366
U.S. Government Money Market Fund
Cash Management Class ............................................ 37,812
PlanAhead Class .................................................. 42,856
Platinum Class ................................................... 28,982
Municipal Money Market Fund
PlanAhead Class .................................................. 5,799
Platinum Class ................................................... 28,374
- --------------------------------------------------------------------------------
14
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
================================================================================
Expense Reimbursement Plan
Effective July 10, 2003, the Funds adopted an Expense Reimbursement Plan
whereby the Manager may seek repayment of fees waived or expenses reimbursed for
a period of up to three years. However, reimbursement will occur only if the
Class' 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 limit. The following waived fees or reimbursed
expenses are subject to potential recovery:
FUND AMOUNT EXPIRING IN
- ---- ------ -----------
Money Market Fund .................................. $83,552 2006
U.S. Government Money Market Fund .................. 77,375 2006
Municipal Money Market Fund ...................... 18,920 2006
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. In addition, 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 year ended December 31, 2003, the cost of air
transportation was not material to any of the Funds.
- --------------------------------------------------------------------------------
15
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
================================================================================
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:
Year Ended December 31, 2003
- ----------------------------
CASH MANAGEMENT
MONEY MARKET FUND CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- ----------------- --------------- ------------------- --------------- --------------
Shares sold.......................... 1,008,426 1,783,321 190,773 66,404
Reinvestment of dividends............ 641 1,880 801 145
Shares redeemed...................... (898,314) (2,101,032) (220,137) (930,870)
--------- ---------- -------- --------
Net increase (decrease) in shares
outstanding......................... 110,753 (315,831) (28,563) (864,321)
========= ========== ======== ========
CASH MANAGEMENT
U.S. GOVERNMENT MONEY MARKET FUND CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------------- --------------- --------------- --------------
Shares sold.......................... 96,111 247,807 7,862
Reinvestment of dividends............ 18 17 22
Shares redeemed...................... (112,380) (396,154) (120,965)
--------- -------- --------
Net decrease in shares outstanding... (16,251) (148,330) (113,081)
========= ======== ========
MUNICIPAL MONEY MARKET FUND INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------- ------------------- --------------- --------------
Shares sold.......................... 3,638 4,262 13,427
Reinvestment of dividends............ 5 17 10
Shares redeemed...................... (4,774) (8,552) (81,299)
---------- -------- --------
Net decrease in shares outstanding... (1,131) (4,273) (67,862)
========== ======== ========
Year Ended December 31, 2002
- ----------------------------
CASH MANAGEMENT
MONEY MARKET FUND CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- ----------------- --------------- ------------------- --------------- --------------
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
========= ========== ======== ========
CASH MANAGEMENT
U.S. GOVERNMENT MONEY MARKET FUND CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------------- --------------- --------------- --------------
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 INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------- ------------------- --------------- --------------
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
========== ======== ========
- --------------------------------------------------------------------------------
16
[GRAPHIC OF EAGLE]
- --------------------------------------------------------------------------------
17
AMERICAN AADVANTAGE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
CASH MANAGEMENT CLASS
==========================================
ONE MONTH
YEAR ENDED DECEMBER 31, ENDED
======================= DECEMBER 31,
2003 2002 2001(B)
-------- -------- ------------
Net asset value,
beginning of period........... $ 1.00 $ 1.00 $ 1.00
-------- ------ -------
Net investment income (A).. 0.01 0.02 -(D)
Less dividends from net
investment income......... (0.01) (0.02) -(D)
-------- ------ -------
Net asset value,
end of period................. $ 1.00 $ 1.00 $ 1.00
======== ====== =======
Total return................... 1.08% 1.73% 0.19%(C)
======== ====== =======
Ratios and supplemental data:
Net assets, end of period
(in thousands).............. $117,395 $6,641 $15,006
Ratios to average net assets
(annualized) (A):
Expenses................. 0.16% 0.19% 0.19%
Net investment
income.................. 1.03% 1.73% 1.96%
Decrease reflected in
above expense ratio
due to absorption
of expenses by
the Manager............. 0.08% 0.03% -
INSTITUTIONAL CLASS
======================================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
========================================= DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
-------- -------- -------- -------- ------------ -----------
Net asset value,
beginning of period............ $ 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
Less dividends from net
investment income.......... (0.01) (0.02) (0.04) (0.06) (0.01) (0.05)
-------- -------- -------- -------- ---------- ----------
Net asset value,
end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========== ==========
Total return.................... 0.97% 1.67% 4.15% 6.45% 0.94%(C) 5.09%
======== ======== ======== ======== ========== ==========
Ratios and supplemental data:
Net assets, end of period
(in thousands)............. $159,092 $474,922 $805,843 $886,608 $1,978,123 $1,652,323
Ratios to average net assets
(annualized) (A):
Expenses................ 0.27% 0.24% 0.25% 0.24% 0.23% 0.24%
Net investment
income................. 1.00% 1.68% 4.13% 6.17% 5.65% 4.99%
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 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.
(D) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
18
======================================================================
PLANAHEAD CLASS
======================================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
========================================= DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
-------- -------- -------- -------- ------------ -----------
Net asset value,
beginning of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Net investment income (A)... 0.01 0.01 0.04 0.06 0.01 0.05
Less dividends from net
investment income.......... (0.01) (0.01) (0.04) (0.06) (0.01) (0.05)
-------- -------- -------- -------- -------- --------
Net asset value,
end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return.................... 0.70% 1.37% 3.83% 6.14% 0.89%(C) 4.79%
======== ======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period
(in thousands)............. $126,972 $155,535 $163,825 $299,304 $262,748 $343,532
Ratios to average net assets
(annualized) (A):
Expenses................ 0.54% 0.54% 0.55% 0.54% 0.55% 0.53%
Net investment
income................. 0.71% 1.36% 3.83% 5.95% 5.32% 4.69%
Decrease reflected in
above expense ratio
due to absorption
of expenses by
the Manager............ - - - - - -
======================================================================
PLATINUM CLASS
======================================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
=========================================== DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
-------- -------- -------- -------- ------------ -----------
Net asset value,
beginning of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- -------- --------
Net investment income (A)... -(D) 0.01 0.03 0.06 0.01 0.04
Less dividends from net
investment income.......... -(D) (0.01) (0.03) (0.06) (0.01) (0.04)
------- -------- -------- -------- -------- --------
Net asset value,
end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ======== ========
Total return.................... 0.25% 0.98% 3.45% 5.69% 0.82%(C) 4.33%
======= ======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period
(in thousands)............. $48,920 $913,240 $868,395 $800,196 $866,041 $841,653
Ratios to average net assets
(annualized) (A):
Expenses................ 0.96% 0.93% 0.93% 0.97% 1.00% 0.97%
Net investment
income................. 0.38% 0.97% 3.36% 5.54% 4.87% 4.24%
Decrease reflected in
above expense ratio
due to absorption
of expenses by
the Manager............ 0.13% 0.01% - - - -
- --------------------------------------------------------------------------------
19
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
CASH MANAGEMENT CLASS
=========================================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
============================================ DECEMBER 31, OCTOBER 31,
2003 2002 2001(B) 2000 1999 1999
-------- -------- -------- -------- ------------ -----------
Net asset value, beginning of period.................. $ 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
Less dividends from net investment income.......... (0.01) (0.02) (0.04) (0.06) (0.01) (0.05)
-------- -------- -------- -------- -------- -------
Net asset value, end of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== =======
Total return.......................................... 1.04% 1.67% 4.09% 6.31% 0.94%(C) 4.94%
======== ======== ======== ======== ======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)........... $ 22,060 $ 38,310 $ 66,302 $ 36,391 $ 37,385 $32,427
Ratios to average net assets (annualized)(A):
Expenses......................................... 0.19% 0.19% 0.25% 0.26% 0.18% 0.19%
Net investment income............................ 1.04% 1.69% 3.74% 6.16% 5.60% 4.83%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager........... 0.18% 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.
(D) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
20
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
PLANAHEAD CLASS
=========================================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
============================================ DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
-------- -------- -------- -------- ------------ -----------
Net asset value, beginning of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------
Net investment income(A)........................... 0.01 0.01 0.04 0.06 0.01 0.05
Less dividends from net investment income.......... (0.01) (0.01) (0.04) (0.06) (0.01) (0.05)
-------- -------- -------- -------- -------- -------
Net asset value, end of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== =======
Total return.......................................... 0.61% 1.30% 3.79% 5.95% 0.86%(C) 4.56%
======== ======== ======== ======== ======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)........... $ 26,785 $175,115 $ 78,934 $ 65,795 $ 59,560 $59,960
Ratios to average net assets (annualized)(A):
Expenses......................................... 0.58% 0.55% 0.55% 0.60% 0.64% 0.56%
Net investment income............................ 0.72% 1.25% 3.59% 5.81% 5.15% 4.45%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager........... 0.04% - - - - -
PLATINUM CLASS
=========================================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
============================================ DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
-------- -------- -------- -------- ------------ -----------
Net asset value, beginning of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------
Net investment income(A)........................... -(D) 0.01 0.03 0.05 0.01 0.04
Less dividends from net investment income.......... -(D) (0.01) (0.03) (0.05) (0.01) (0.04)
-------- -------- -------- -------- -------- -------
Net asset value, end of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== =======
Total return.......................................... 0.24% 0.90% 3.37% 5.53% 0.80%(C) 4.09%
======== ======== ======== ======== ======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)........... $ 6,752 $119,833 $112,670 $ 78,857 $ 78,585 $84,385
Ratios to average net assets (annualized)(A):
Expenses......................................... 1.00% 0.95% 0.95% 1.00% 1.02% 1.01%
Net investment income............................ 0.31% 0.88% 3.20% 5.40% 1.77% 4.01%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager........... 0.20% 0.03% - - - -
- ------------------
(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.
(D) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
21
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
PLANAHEAD CLASS
=========================================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
============================================ DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
-------- -------- -------- -------- ------------ -----------
Net asset value, beginning of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------
Net investment income(A)........................... -(C) 0.01 0.02 0.04 0.01 0.03
Less dividends from net investment income.......... -(C) (0.01) (0.02) (0.04) (0.01) (0.03)
-------- -------- -------- -------- -------- -------
Net asset value, end of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== =======
Total return.......................................... 0.32% 0.93% 2.25% 3.61% 0.52%(B) 2.68%
======== ======== ======== ======== ======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)........... $ 3,072 $ 7,346 $ 3,669 $ 5,175 $ 7,479 $ 9,795
Ratios to average net assets (annualized)(A):
Expenses......................................... 0.81% 0.57% 0.58% 0.63% 0.73% 0.65%
Net investment income............................ 0.36% 0.94% 2.30% 3.48% 3.09% 2.61%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager........... 0.12% - - - - -
- ------------------
(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.
(C) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
22
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
PLATINUM CLASS
=========================================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
============================================ DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
-------- -------- -------- -------- ------------ -----------
Net asset value, beginning of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------
Net investment income(A)........................... -(C) -(C) 0.02 0.03 0.01 0.02
Less dividends from net investment income.......... -(C) -(C) (0.02) (0.03) (0.01) (0.02)
-------- -------- -------- -------- -------- -------
Net asset value, end of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== =======
Total return.......................................... 0.20% 0.51% 1.82% 3.21% 0.47%(B) 2.27%
======== ======== ======== ======== ======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)........... $ 3,271 $ 71,132 $ 59,427 $ 89,602 $ 76,076 $81,118
Ratios to average net assets (annualized)(A):
Expenses......................................... 1.01% 0.99% 1.00% 1.02% 1.05% 1.04%
Net investment income............................ 0.21% 0.52% 1.87% 3.17% 2.77% 2.24%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager........... 0.34% 0.02% - - 0.03% 0.01%
- ------------------
(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.
(C) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
AMR Investment Services Money Market Portfolio
AMR Investment Services U.S. Government Money Market Portfolio
AMR Investment Services Municipal Money Market Portfolio
We have audited the accompanying statements of assets and liabilities
of the AMR Investment Services Money Market Portfolio, the AMR
Investment Services U.S. Government Money Market Portfolio, and the
AMR Investment Services Municipal Money Market Portfolio
(collectively, "the Portfolios") (separate portfolios comprising the
AMR Investment Services Trust), including the schedules of
investments, as of December 31, 2003, and the related statements of
operations, the statements of changes in net assets, and the
financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility
of the Portfolios' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements and financial highlights. Our procedures
included confirmation of investments owned as of December 31, 2003,
by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of each of the Portfolios of the AMR Investment
Services Trust at December 31, 2003, the results of their operations,
the changes in their net assets, and the financial highlights for
each of the periods indicated therein, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
February 13, 2004
24
AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2003
================================================================================
PAR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE B) - 5.05%
Goldman Sachs, 1.00%, Due 1/2/2004..................................... $ 200,000 $ 200,000
JP Morgan Chase Securities, 1.00%, Due 1/2/2004........................ 50,000 50,000
----------
TOTAL REPURCHASE AGREEMENTS....................................... 250,000
----------
TIME DEPOSITS - 11.89%
Deutsche Bank Cash Reserves, 0.938%, Due 1/2/2004...................... 188,648 188,648
Societe Generale, 0.938%, Due 1/2/2004................................. 200,000 200,000
UBS Securities, LLC, 0.938%, Due 1/2/2004.............................. 200,000 200,000
----------
TOTAL TIME DEPOSITS............................................... 588,648
----------
VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES (NOTE E) - 23.03%
Bank One, NA, 1.181%, Due 1/27/2005.................................... 25,000 25,017
Bayerische Landesbank, 1.17%, Due 12/17/2004........................... 171,140 171,210
Canadian Imperial Bank of Commerce, 1.11%, Due 3/12/2004............... 100,000 99,999
Credit Suisse First Boston Corporation, 1.12%, Due 7/7/2004............ 150,000 150,000
First Tennessee Bank,
1.20%, Due 7/21/2004................................................. 50,000 50,027
1.25%, Due 11/26/2004................................................ 100,000 100,102
First Union National Bank,
1.358%, Due 6/3/2004................................................. 96,500 96,590
1.338%, Due 6/16/2004................................................ 5,000 5,005
Marshall & Ilsley Bank, 1.20%, Due 12/20/2004.......................... 125,500 125,588
Southtrust Bank, NA,
1.27%, Due 3/19/2004................................................. 50,700 50,713
1.25%, Due 5/24/2004................................................. 85,382 85,417
1.25%, Due 6/21/2004................................................. 22,000 22,010
Suntrust Bank, NA,
1.24%, Due 4/12/2004................................................. 125,000 125,056
1.27%, Due 6/21/2004................................................. 25,000 25,015
Wachovia Bank, NA, 1.22%, Due 10/19/2004............................... 8,000 8,006
----------
TOTAL VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES........ 1,139,755
----------
VARIABLE RATE FUNDING AGREEMENTS (NOTES A AND E) - 5.96%
General Electric Capital Assurance Company, 1.253%, Due 12/15/2004..... 100,000 100,000
Metropolitan Life Insurance Company, 1.253%, Due 11/22/2004............ 195,000 195,000
----------
TOTAL VARIABLE RATE FUNDING AGREEMENTS............................ 295,000
----------
ASSET-BACKED COMMERCIAL PAPER (NOTES C AND D) - 11.41%
Atlantis One Funding Corporation, 144A,
1.12%, Due 3/15/2004................................................. 45,022 44,918
1.15%, Due 6/10/2004................................................. 73,682 73,303
Edison Asset Securitization, 144A,
1.12%, Due 3/25/2004................................................. 71,101 70,915
1.12%, Due 4/1/2004.................................................. 150,000 149,575
Moat Funding LLC, 144A,
1.15%, Due 3/15/2004................................................. 70,000 69,835
1.15%, Due 4/6/2004.................................................. 17,500 17,446
Sigma Financial, Incorporated, 144A,
1.13%, Due 3/15/2004................................................. 100,000 99,768
1.16%, Due 3/15/2004................................................. 5,000 4,988
1.145%, Due 4/13/2004................................................ 34,000 33,889
----------
TOTAL ASSET-BACKED COMMERCIAL PAPER............................... 564,637
----------
See accompanying notes
- --------------------------------------------------------------------------------
25
AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2003
================================================================================
PAR
AMOUNT VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
VARIABLE RATE COMMERCIAL PAPER - 2.02%
Goldman Sachs Group, LP, 1.14%, Due 1/18/2005.......................... $100,000 $ 100,000
----------
TOTAL VARIABLE RATE COMMERCIAL PAPER.............................. 100,000
----------
VARIABLE RATE MEDIUM-TERM NOTES (NOTE E) - 36.60%
American General Finance Corporation, 1.34%, Due 8/6/2004.............. 49,270 49,324
American Honda Finance Corporation, 144A (Note C)
1.32%, Due 6/11/2004................................................. 15,000 15,013
1.30%, Due 10/7/2004................................................. 50,000 50,069
1.33%, Due 12/9/2004................................................. 60,000 60,108
1.28%, Due 1/13/2005................................................. 25,000 25,042
Bank of America Corporation,
1.41%, Due 5/3/2004.................................................. 5,500 5,505
1.26%, Due 7/2/2004.................................................. 52,000 52,030
1.45%, Due 10/22/2004................................................ 128,890 129,224
Citigroup, Incorporated,
1.26%, Due 7/26/2004................................................. 63,500 63,559
1.32%, Due 10/22/2004................................................ 77,700 77,822
General Electric Capital Corporation,
1.13%, Due 5/4/2004.................................................. 55,000 54,786
1.23%, Due 1/19/2005................................................. 180,000 180,000
Goldman Sachs Group, LP, 1.40%, Due 11/16/2004......................... 143,000 143,330
HSBC USA, Incorporated, 1.32%, Due 9/24/2004........................... 60,000 60,072
Merrill Lynch & Company, Incorporated,
1.33%, Due 1/14/2004................................................. 50,000 50,003
1.47%, Due 1/13/2005................................................. 59,000 59,217
1.47%, Due 1/18/2005................................................. 20,000 20,073
Morgan Stanley & Company, Incorporated, 1.42%, Due 1/24/2005 70,000 70,220
Paccar Financial Corporation,
1.20%, Due 4/26/2004................................................. 15,000 15,004
1.21%, Due 9/20/2004................................................. 100,000 100,057
Salomon Smith Barney Holdings,
1.288%, Due 1/28/2004................................................ 10,000 10,001
1.50%, Due 5/21/2004................................................. 14,750 14,772
1.271%, Due 8/18/2004................................................ 50,000 50,046
1.34%, Due 9/20/2004................................................. 50,000 50,074
1.321%, Due 11/18/2004............................................... 22,400 22,438
SLM Corporation, 1.31%, Due 7/26/2004.................................. 40,670 40,712
Toyota Motor Credit Corporation, 1.15%, Due 1/14/2005.................. 50,000 50,024
USA Education, Incorporated,
1.448%, Due 6/16/2004................................................ 24,000 24,032
1.49%, Due 10/25/2004................................................ 73,500 73,706
US Bank, NA, 1.30%, Due 4/13/2004...................................... 9,000 9,005
Wachovia Bank, NA, 1.57%, Due 8/19/2004................................ 28,000 28,082
Wells Fargo Financial, Incorporated,
1.21%, Due 3/26/2004................................................. 61,000 61,013
1.23%, Due 10/1/2004................................................. 97,090 97,156
----------
TOTAL VARIABLE RATE MEDIUM-TERM NOTES............................. 1,811,519
----------
See accompanying notes
- --------------------------------------------------------------------------------
26
AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2003
================================================================================
PAR
AMOUNT VALUE
---------- -----------
(DOLLARS IN THOUSANDS)
U.S. GOVERNMENT AGENCY INSTRUMENTS (NOTE D) - 3.95%
Federal Home Loan Mortgage Corporation,
Discount Note, 1.14%, Due 5/10/2004..................................... $115,650 $ 115,174
Discount Note, 1.14%, Due 5/12/2004..................................... 50,000 49,791
Federal National Mortgage Association, Discount Note, 1.13%, Due 5/5/2004. 30,850 30,729
----------
TOTAL U.S. GOVERNMENT AGENCY INSTRUMENTS............................. 195,694
----------
TOTAL INVESTMENTS - 99.91% (COST $4,945,253).............................. 4,945,253
----------
OTHER ASSETS, NET OF LIABILITIES - 0.09%.................................. 4,364
----------
TOTAL NET ASSETS - 100%................................................... $4,949,617
==========
- --------------
Based on the cost of investments of $4,945,253 for federal income tax
purposes at December 31, 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 Goldman Sachs, 4.50% - 5.00%,
Due 10/1/2033 - 12/1/2033, Total Value - $204,000,000; and at JP Morgan
Chase Bank for JP Morgan Chase Securities, 5.00%, Due 11/1/2018 - 12/1/2018,
Total Value - $51,000,456.
(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 $714,869 or 14.44% of net
assets.
(D) Rates associated with money market securities 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.
See accompanying notes
- --------------------------------------------------------------------------------
27
AMR INVESTMENT SERVICES U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2003
================================================================================
PAR
AMOUNT VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE A) - 40.13%
Bank of America Securities, LLC, 1.00%, Due 1/2/2004................... $ 50,000 $ 50,000
Goldman Sachs, 1.00%, Due 1/2/2004..................................... 44,343 44,343
---------
TOTAL REPURCHASE AGREEMENTS....................................... 94,343
---------
U.S. GOVERNMENT AGENCY INSTRUMENTS - 59.70%
Federal Home Loan Bank,
Discount Note, 1.065%, Due 1/21/2004 (Note B)........................ 1,600 1,599
Discount Note, 1.06%, Due 2/25/2004 (Note B)......................... 4,000 3,993
Discount Note, 1.11%, Due 3/10/2004 (Note B)......................... 1,000 998
Discount Note, 1.09%, Due 3/15/2004 (Note B)......................... 1,000 998
Agency Note, 3.75%, Due 4/15/2004.................................... 4,595 4,630
Agency Note, 4.875%, Due 4/16/2004................................... 4,000 4,041
Floating Rate Note, 1.041%, Due 8/11/2004 (Note C)................... 5,000 4,999
Federal Home Loan Mortgage Corporation,
Discount Note, 1.08%, Due 1/15/2004 (Note B)......................... 4,842 4,840
Agency Note, 1.20%, Due 8/6/2004, Callable 1/16/2004................. 5,000 5,000
Discount Note, 1.08%, Due 2/2/2004 (Note B).......................... 1,100 1,099
Discount Note, 1.13%, Due 2/5/2004 (Note B).......................... 5,000 4,994
Discount Note, 1.09%, Due 2/19/2004 (Note B)......................... 2,900 2,896
Discount Note, 1.12%, Due 3/1/2004 (Note B).......................... 3,150 3,144
Discount Note, 1.06%, Due 3/4/2004 (Note B).......................... 4,400 4,392
Discount Note, 1.10%, Due 3/5/2004 (Note B).......................... 3,000 2,994
Agency Note, 3.75%, Due 4/15/2004.................................... 2,000 2,015
Discount Note, 1.18%, Due 4/22/2004 (Note B)......................... 749 746
Discount Note, 1.09%, Due 5/12/2004 (Note B)......................... 5,731 5,708
Discount Note, 1.11%, Due 5/12/2004 (Note B)......................... 2,131 2,122
Discount Note, 1.09%, Due 5/13/2004 (Note B)......................... 5,000 4,980
Discount Note, 1.10%, Due 5/13/2004 (Note B)......................... 2,000 1,992
Discount Note, 1.09%, Due 6/16/2004 (Note B)......................... 3,000 2,985
Federal National Mortgage Association,
Discount Note, 1.08%, Due 1/20/2004 (Note B)......................... 2,000 1,999
Discount Note, 1.23%, Due 1/29/2004 (Note B)......................... 1,000 999
Discount Note, 1.25%, Due 1/29/2004 (Note B)......................... 2,650 2,647
Discount Note, 1.09%, Due 2/2/2004 (Note B).......................... 1,000 999
Discount Note, 1.10%, Due 2/4/2004 (Note B).......................... 1,200 1,199
Discount Note, 1.12%, Due 2/4/2004 (Note B).......................... 5,000 4,995
Discount Note, 1.13%, Due 2/11/2004 (Note B)......................... 1,353 1,351
Agency Note, 5.13%, Due 2/13/2004.................................... 15,000 15,067
Discount Note, 1.07%, Due 2/18/2004 (Note B)......................... 5,000 4,993
Discount Note, 1.09%, Due 2/18/2004 (Note B)......................... 2,800 2,796
Discount Note, 1.10%, Due 2/19/2004 (Note B)......................... 1,568 1,566
Discount Note, 1.12%, Due 3/3/2004 (Note B).......................... 2,403 2,398
Discount Note, 1.14%, Due 3/3/2004 (Note B).......................... 900 898
Discount Note, 1.10%, Due 3/5/2004 (Note B).......................... 1,150 1,148
See accompanying notes
- --------------------------------------------------------------------------------
28
AMR INVESTMENT SERVICES U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2003
================================================================================
PAR
AMOUNT VALUE
---------- -----------
(DOLLARS IN THOUSANDS)
Discount Note, 1.11%, Due 3/10/2004 (Note B)......................... $ 2,700 $ 2,694
Discount Note, 1.12%, Due 3/10/2004 (Note B)......................... 5,000 4,989
Discount Note, 1.13%, Due 3/31/2004 (Note B)......................... 2,500 2,493
Discount Note, 1.12%, Due 4/7/2004 (Note B).......................... 5,000 4,985
Discount Note, 1.12%, Due 5/4/2004 (Note B).......................... 5,000 4,981
Discount Note, 1.13%, Due 5/5/2004 (Note B).......................... 1,000 996
Discount Note, 1.10%, Due 5/26/2004 (Note B)......................... 5,000 4,978
TOTAL U.S. GOVERNMENT AGENCY INSTRUMENTS.......................... 140,336
--------
TOTAL INVESTMENTS - 99.83% (COST $234,679)............................. 234,679
--------
OTHER ASSETS, NET OF LIABILITIES - 0.17%............................... 391
--------
TOTAL NET ASSETS - 100%................................................ $235,070
========
- -------------
Based on the cost of investments of $234,679 for federal income tax
purposes at December 31, 2003, there was no unrealized appreciation
or depreciation of investments.
(A) Collateral held at Bank of New York for Bank of America Securities, LLC,
4.50 - 5.00%, Due 6/1/2033 - 11/1/2033, Total Value - $51,000,001; and
Goldman Sachs, 4.50 - 7.00%, Due 11/1/2010 - 12/1/2033, Total
Value - $45,230,092.
(B) Rates represent discount rate.
(C) 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.
See accompanying notes
- --------------------------------------------------------------------------------
29
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2003
================================================================================
PAR
AMOUNT VALUE
---------- -----------
(DOLLARS IN THOUSANDS)
MUNICIPAL OBLIGATIONS - 96.33%
COMMERCIAL PAPER (NOTE A) - 3.77%
Sarasota County Public Hospital District, Variable Rate Demand Hospital
Revenue Bonds, Series A (Sarasota Memorial Hospital Project), 1.01%,
Due 2/13/2004, LOC SunTrust Bank....................................... $ 1,500 $ 1,500
----------
TOTAL COMMERCIAL PAPER.............................................. 1,500
----------
DEMAND OBLIGATIONS (NOTE A) - 92.56%
ARIZONA - 4.42%
Mesa Arizona Industrial Development Authority, Variable Rate Revenue
Bonds, Series 1999B (Discovery Health Systems), 1.12%, Due 1/1/2029,
LOC MBIA/JP Morgan Chase Bank.......................................... 1,760 1,760
----------
TOTAL ARIZONA....................................................... 1,760
----------
COLORADO - 8.29%
Moffat County, Colorado Pollution Control Revenue Bonds, Series 1984
(Ute Electric Company Project), Bond Insurance - Ambac Assurance
Corporation, 1.45%, Due 7/1/2010, SPA Societe Generale................. 3,300 3,300
----------
TOTAL COLORADO...................................................... 3,300
----------
FLORIDA - 8.04%
Alachua County, Florida Housing Financial Authority, Multifamily Housing
Revenue Bonds, Series 2001 (University Cove Apartment Project), 1.13%,
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 - 2.69%
Solid Waste Disposal Facility Revenue Bonds for the County of Lake,
Illinois, Series 1996 (Countryside Landfill Inc. Project), 1.40%,
Due 4/1/2021, LOC JP Morgan Chase Bank................................. 1,070 1,070
----------
TOTAL ILLINOIS...................................................... 1,070
----------
INDIANA - 4.55%
Fort Wayne, Indiana Industrial Economic Development Revenue Bonds,
Series1989 (ND-Tech Corporation Project), 1.25%, 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........................................................... 810 810
----------
TOTAL INDIANA....................................................... 1,810
----------
KENTUCKY - 2.76%
Carroll County, Kentucky Solid Waste Disposal Revenue Bonds,
Series 2001 (North American Stainless, L.P.), 1.15%, Due 5/1/2031,
LOC Fifth Third Bank 1,100 1,100
----------
TOTAL KENTUCKY...................................................... 1,100
----------
LOUISIANA - 3.99%
Calcasieu Parish Public Trust Authority, Waste Disposal Revenue Bonds,
Series 1997 (WPT Corporation Project), 1.18%, Due 12/1/2027, LOC JP
Morgan Chase Bank 1,589 1,589
----------
TOTAL LOUISIANA..................................................... 1,589
----------
See accompanying notes
- --------------------------------------------------------------------------------
30
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2003
================================================================================
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
MARYLAND - 4.78%
Montgomery County, Maryland Variable Rate Housing Revenue Bonds,
Series 1997, Issue I (The Grand), 1.13%, Due 6/1/2030,
LOC Federal National Mortgage Association............................ $ 1,900 $ 1,900
----------
TOTAL MARYLAND.................................................... 1,900
----------
MICHIGAN - 7.39%
Michigan Higher Education Student Loan Authority, Student Loan Revenue
Bonds, Series XII-X, Bond Insurance - Ambac Assurance Corporation,
1.15%, Due 9/1/2031, SPA Lloyds TSB.................................... 1,000 1,000
Michigan State Housing Development Authority Variable Rate Limited
Obligation Multifamily Housing Revenue Refunding Bonds, 1.16%,
Due 6/1/2028, LOC Bank of New York .................................... 1,940 1,940
----------
TOTAL MICHIGAN...................................................... 2,940
----------
OHIO - 4.27%
Ohio Water Development Authority, Environmental Improvement
Revenue Bonds, Series 2000B (Waste Management, Incorporated, Project),
1.27%, Due 7/1/2020, LOC Fleet National Bank........................... 1,700 1,700
----------
TOTAL OHIO.......................................................... 1,700
----------
OKLAHOMA - 6.03%
Claremore Industrial and Redevelopment Authority, Development Revenue
Bonds, Series 2001 (Whirlwind Steel Buildings, Inc. Project), 1.35%,
Due 9/1/2019, LOC JP Morgan Chase Bank................................. 2,400 2,400
----------
TOTAL OKLAHOMA...................................................... 2,400
----------
PENNSYLVANIA - 5.69%
Berks County Industrial Development Authority Manufacturing Facilities
Revenue Bonds, Series 1995 (Grafika Commerial Printing Inc.), 1.30%,
Due 9/1/2010, LOC First Union National Bank............................ 1,265 1,265
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.................................................. 2,265
----------
SOUTH CAROLINA - 4.27%
South Carolina JOBS Economic Development Authority Revenue Bonds,
Series 1998 (Klockner Namasco Corporation Project), 1.35%, Due
4/1/2008, LOC Bayerische Landesbank.................................... 1,700 1,700
----------
TOTAL SOUTH CAROLINA................................................ 1,700
----------
TEXAS - 16.00%
Brazos Harbor Industrial Development Corporation Solid Waste Disposal
Revenue Bonds, Series 2002 (Republic Waste Services of Texas, Ltd.
Project), 1.35%, 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),
1.30%, Due 9/1/2022, LOC - Wells Fargo Texas........................... 2,860 2,860
State of Texas TRANs, 1.18%, Due 8/31/2004............................... 1,000 1,005
----------
TOTAL TEXAS......................................................... 6,365
----------
UTAH - 2.89%
Morgan County UT Solid Waste Disposal Revenue Bonds,
Series 1996 (Holman, Inc. Project), 1.15%, Due 8/1/2031, LOC Wachovia
Bank, NA............................................................... 1,150 1,150
----------
TOTAL UTAH.......................................................... 1,150
----------
See accompanying notes
- --------------------------------------------------------------------------------
31
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2003
================================================================================
PAR
AMOUNT VALUE
---------- -----------
(DOLLARS IN THOUSANDS)
WASHINGTON - 6.50%
Pierce County, Washington Economic Development Corporation Dock &
Wharf Facilities Revenue Bonds, Series 1995 (SCS Industries Project),
1.25%, Due 7/1/2030, LOC Bank of Nova Scotia........................... $ 2,585 $ 2,585
-------
TOTAL WASHINGTON.................................................... 2,585
-------
TOTAL DEMAND OBLIGATIONS............................................ 36,834
-------
TOTAL MUNICIPAL OBLIGATIONS......................................... 38,334
-------
SHARES
----------
OTHER INVESTMENTS - 3.53%
Dreyfus Municipal Cash Management Plus................................... 4,974 5
Federated Municipal Obligations Fund..................................... 1,295,949 1,296
BlackRock Provident MuniCash Fund........................................ 95,629 96
-------
TOTAL OTHER INVESTMENTS......................................... 1,397
-------
TOTAL INVESTMENTS - 99.86% (COST $39,731)................................ 39,731
-------
OTHER ASSETS, NET OF LIABILITIES - 0.14%................................. 56
-------
TOTAL NET ASSETS - 100%.................................................. $39,787
=======
- --------------
Based on the cost of investments of $39,731 for federal income tax
purposes at December 31, 2003, there was no unrealized appreciation
or depreciation of investments.
(A) Rates associated with money market securities represent yield to maturity
or yield to next reset date.
See accompanying notes
- --------------------------------------------------------------------------------
32
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2003
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS)
ASSETS:
Investments in securities at value
(cost - $4,695,253; $140,336; $39,731,
respectively)................................. $4,695,253 $ 140,336 $ 39,731
Repurchase agreements (cost - $250,000;
$94,343; $0, respectively).................... 250,000 94,343 -
Dividends and interest receivable............. 4,976 422 64
---------- --------- --------
TOTAL ASSETS............................ 4,950,229 235,101 39,795
---------- --------- --------
LIABILITIES:
Management and investment advisory fees
payable (Note 2)........................... 396 17 4
Other liabilities............................. 216 14 4
---------- --------- --------
TOTAL LIABILITIES....................... 612 31 8
---------- --------- --------
NET ASSETS APPLICABLE TO INVESTORS'
BENEFICIAL INTERESTS.......................... $4,949,617 $ 235,070 $ 39,787
========== ========= ========
See accompanying notes
- --------------------------------------------------------------------------------
33
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
Year Ended December 31,2003
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS)
INVESTMENT INCOME:
Interest income...................................... $57,947 $3,439 $553
------- ------ ----
TOTAL INVESTMENT INCOME........................ 57,947 3,439 553
------- ------ ----
EXPENSES:
Management and investment advisory fees (Note 2)..... 4,629 276 47
Custodian fees....................................... 295 26 6
Professional fees.................................... 104 9 3
Other expenses....................................... 248 29 1
------- ------ ----
TOTAL EXPENSES................................. 5,276 340 57
------- ------ ----
NET INVESTMENT INCOME.................................. 52,671 3,099 496
------- ------ ----
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments..................... 42 9 -
------- ------ ----
NET GAIN ON INVESTMENTS........................... 42 9 -
------- ------ ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $52,713 $3,108 $496
======= ====== ====
See accompanying notes
- --------------------------------------------------------------------------------
34
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============================ ========================= ==========================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
============================ ========================= ==========================
2003 2002 2003 2002 2003 2002
------------ ------------ ----------- ----------- ------------ -----------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................... $ 52,671 $ 165,857 $ 3,099 $ 6,840 $ 496 $ 1,656
Net realized gain on investments......... 42 6 9 34 - -
------------ ------------ ----------- ----------- ----------- ---------
TOTAL INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................... 52,713 165,863 3,108 6,874 496 1,656
------------ ------------ ----------- ----------- ----------- ---------
TRANSACTIONS IN INVESTORS'BENEFICIAL
INTERESTS:
Contributions............................ 55,478,689 106,944,248 1,085,963 2,200,353 81,957 204,033
Withdrawals.............................. (57,817,456) (108,139,347) (1,324,638) (2,032,412) (154,776) (191,801)
------------ ------------ ----------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM TRANSACTIONS IN
INVESTORS' BENEFICIAL INTERESTS...... (2,338,767) (1,195,099) (238,675) 167,941 (72,819) 12,232
------------ ------------ ----------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS. (2,286,054) (1,029,236) (235,567) 174,815 (72,323) 13,888
------------ ------------ ----------- ----------- ----------- ---------
NET ASSETS:
Beginning of period...................... 7,235,671 8,264,907 470,637 295,822 112,110 98,222
------------ ------------ ----------- ----------- ----------- ---------
END OF PERIOD............................ $ 4,949,617 $ 7,235,671 $ 235,070 $ 470,637 $ 39,787 $ 112,110
============ ============ =========== =========== =========== =========
See accompanying notes
- --------------------------------------------------------------------------------
35
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
================================================================================
MONEY MARKET
==============================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
=============================== DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
---- ---- ---- ---- ------------- -----------
Total Return.................................. 1.13% 1.81% 4.30% 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%
Net investment income................... 1.14% 1.81% 3.95% 6.40% 5.77% 5.11%
- --------------------------------------------------------------------------------
36
U.S. GOVERNMENT MONEY MARKET
==============================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
=============================== DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
---- ---- ---- ---- ------------- -----------
Total Return.................................. 1.11% 1.74% 4.24% N/A N/A N/A
Ratios to average net assets (annualized):
Expenses................................ 0.12% 0.12% 0.11% 0.13% 0.12% 0.12%
Net investment income................... 1.13% 1.71% 3.99% 6.27% 5.67% 4.89%
MUNICIPAL MONEY MARKET
==============================================================
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
=============================== DECEMBER 31, OCTOBER 31,
2003 2002 2001 2000 1999 1999
---- ---- ---- ---- ------------- -----------
Total Return.................................. 1.08% 1.39% 2.71% N/A N/A N/A
Ratios to average net assets (annualized):
Expenses................................ 0.12% 0.12% 0.13% 0.13% 0.14% 0.15%
Net investment income................... 1.05% 1.39% 2.71% 4.05% 3.69% 3.13%
- --------------------------------------------------------------------------------
37
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
================================================================================
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 at fair value, which approximates
amortized cost. 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.
- --------------------------------------------------------------------------------
38
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
================================================================================
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. In addition, 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 year ended December 31, 2003, the cost of
air transportation was not material to any of the Funds.
- --------------------------------------------------------------------------------
39
TRUSTEES AND OFFICERS OF THE TRUST
AND THE AMR INVESTMENT SERVICES TRUST
(Unaudited)
================================================================================
The Trustees and officers of the Trust and AMR Trust are listed below,
together with their principal occupations during the past five years. Unless
otherwise indicated, the address of each person listed below is 4151 Amon
Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees
twenty-five funds in the fund complex that includes the AMR Trust, the American
AAdvantage Funds, the American AAdvantage Mileage Funds, and the American
AAdvantage Select Funds. The Trust's Statement of Additional Information
contains additional information about the Trustees and is available without
charge by calling 1-800-658-5811.
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ------------------ -------------------------------------------
INTERESTED TRUSTEES
TERM
----
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (55) Trustee and President, AMR Investment Services, Inc. (1986-Present); Chairman (1989-
President of 2003) and Director (2003-Present) American Airlines Federal Credit Union;
AAdvantage Trust Director, Crescent Real Estate Equities, Inc. (1994-Present); Director,
since 1987 Pritchard, Hubble & Herr, LLC (2001-Present); Director, Southern Methodist
and AMR Trust University Endowment Fund Investment Committee (1996-Present);
since 1995 Member, Southern Methodist University Cox School of Business Advisory
Board (1999-2002); Member, New York Stock Exchange Pension Manager
Committee (1997-1998, 2000-2002); Chairman, Committee for the
Investment of Employee Benefits Defined Benefit Sub-Committee (1982-
Present); Trustee, American AAdvantage Mileage Funds (1995-Present);
Trustee, American AAdvantage Select Funds (1999-Present).
Alan D. Feld** (67) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present);
Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint
Properties (1994-Present); Trustee, American AAdvantage Mileage Funds
(1996-Present); Trustee, American AAdvantage Select Funds (1999-Present).
NON-INTERESTED TRUSTEES
TERM
----
Lifetime of Trust
until removal,
resignation or
retirement*
Stephen D. O'Sullivan (68) Trustee of Consultant (1994-Present); Trustee, American AAdvantage Mileage Funds
AAdvantage Trust (1995-Present); Trustee, American AAdvantage Select Funds (1999-Present).
since 1987
and AMR Trust
since 1995
R. Gerald Turner (58) Trustee since 2001 President, Southern Methodist University (1995-Present); Director,
225 Perkins Admin. Bldg. ChemFirst (1986-2002); Director, J.C. Penney Company, Inc. (1996-Present);
Southern Methodist Univ. Director, California Federal Preferred Capital Corp. (2001-2003); Director,
Dallas, Texas 75275 Kronus Worldwide, Inc. (chemical manufacturing) (2003-Present); Director,
First Broadcasting Investment Partners, LLC (2003-Present); Member, United
Way of Dallas Board of Directors; Member, Salvation Army of Dallas
- --------------------------------------------------------------------------------
40
TRUSTEES AND OFFICERS OF THE TRUST
AND THE AMR INVESTMENT SERVICES TRUST -- CONTINUED
(Unaudited)
================================================================================
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Board of Directors; Member, Methodist Hospital Advisory Board; Member,
Knight Commission on Intercollegiate Athletics; Trustee, American
AAdvantage Mileage Funds (2001-Present); Trustee, American AAdvantage
Select Funds (2001-Present).
Kneeland Youngblood (48) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private equity firm)
100 Crescent Court (1998-Present); Trustee, The Hockaday School (1997-Present); Director,
Suite 1740 Starwood Hotels and Resorts (2001-Present); Member, Council on Foreign
Dallas, Texas 75201 Relations (1995-Present); Director, Just For the Kids (1995-2001); Director,
L&B Realty Advisors (1998-2000); Trustee, Teachers Retirement System of
Texas (1993-1999); Director, Starwood Financial Trust (1998-2001);
Trustee, St. Mark's School of Texas (2002-Present); Trustee, American
AAdvantage Mileage Funds (1996-Present); Trustee, American AAdvantage
Select Funds (1999-Present).
OFFICERS
TERM
----
One Year
Nancy A. Eckl (41) VP of AAdvantage Vice President, Trust Investments, AMR Investment Services, Inc.
Trust since 1990 (1990-Present).
and AMR Trust
since 1995
Michael W. Fields (49) VP of AAdvantage Vice President, Fixed Income Investments, AMR Investment Services, Inc.
Trust since 1989 (1988-Present).
and AMR Trust
since 1995
Barry Y. Greenberg (40) VP and Assistant Vice President, Legal and Compliance, AMR Investment Services, Inc.
Secretary since (1995-Present).
1995
Rebecca L. Harris (37) Treasurer since Vice President, Finance, AMR Investment Services, Inc. (1995-Present).
1995
John B. Roberson (45) VP of AAdvantage Vice President, Director of Sales, AMR Investment Services, Inc. (1991-
Trust since 1989 Present).
and AMR Trust
since 1995
Robert J. Zutz (50) Secretary since Partner, Kirkpatrick & Lockhart LLP (law firm).
1800 Massachusetts Ave. NW 1998
2nd Floor
Washington, D.C. 20036
- ----------------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
70, with the exception of Mr. Quinn.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust
and AMR Trust, as defined by the 1940 Act. Mr. Quinn is President of the
Manager. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has
provided legal services within the past two years to one or more of the
Trust's and AMR Trust's sub-advisers.
- --------------------------------------------------------------------------------
41
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:
o information we receive from you on applications or other forms;
o information about your transactions with us or our service providers; and
o 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 information,
we maintain safeguards that comply with federal standards.
42
[GRAPHIC OF EAGLE]
- --------------------------------------------------------------------------------
43
[GRAPHIC OF EAGLE]
- --------------------------------------------------------------------------------
44
[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
- --------------------------------------------------------------------------------
<Table>
<Caption>
[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 --------------------- ------------------
Platinum Class(sm) American AAdvantage Funds American AAdvantage Funds
------------------ 4151 Amon Carter Blvd., MD 2450 P.O. Box 219643
Call (800)967-9009 Fort Worth, TX 76155 Kansas City, MO 64121-9643
</Table>
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES ERNST & YOUNG LLP SWS FINANCIAL SERVICES
Boston, Massachusetts Kansas City, Missouri Chicago, Illinois 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 OF GLOBE]
530096
ITEM 2. CODE OF ETHICS.
The Trust has adopted a code of ethics that applies to its principal
executive and financial officers (the "Code"). The Trust did not amend the
Code nor did it grant any waivers to the provisions of the Code during the
period covered by the shareholder report presented in Item 1. The Code is
filed herewith as Exhibit 99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Trust's Board of Trustees has determined that Stephen O'Sullivan, a
member of the Trust's audit committee, is an "audit committee financial
expert" as defined in Form N-CSR. Mr. O'Sullivan is "independent" as defined
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)
<Table>
<Caption>
Audit Fees Fiscal Year Ended
- ---------- -----------------
$36,295 12/31/2002
$27,001 12/31/2003
</Table>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$0 12/31/2002
$0 12/31/2003
</Table>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$6,119* 12/31/2002
$4,821** 12/31/2003
</Table>
<FN>
* For review of 2001 tax returns
** For review of 2002 tax returns
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 12/31/2002
$0 12/31/2003
</Table>
(e)(1) Pursuant to its charter, the Trust's audit committee shall have the
following duties and powers pertaining to pre-approval of audit and
non-audit services provided by the Trust's principal accountant:
- to approve, prior to appointment, the engagement of auditors to
annually audit and provide their opinion on the Trust's financial
statements, and, in connection therewith, to review and evaluate
matters potentially affecting the independence and capabilities of
the auditors;
- to approve, prior to appointment, the engagement of the auditors to
provide non-audit services to the Trust, an investment adviser to
any series of the Trust or any entity controlling, controlled by,
or under common control with an investment adviser that provides
ongoing services to the Trust, if the engagement relates directly
to the operations and financial reporting of the Trust;
- to review the arrangements for and scope of the annual audit and
any special audits; and
- to review and approve the fees proposed to be charged to the Trust
by the auditors for each audit and non-audit service.
The audit committee may delegate any portion of its authority, including the
authority to grant pre-approvals of audit and permitted non-audit services,
to a subcommittee of one or more members. Any decisions of the subcommittee
to grant pre-approvals shall be presented to the full audit committee at its
next regularly scheduled meeting.
(e)(2) None of the fees disclosed in paragraphs (b) through (d) above were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.
(f) Not Applicable.
(g)
<Table>
<Caption>
Aggregate Non-Audit Fees for Services Rendered to the:
- ------------------------------------------------------
Adviser's Affiliates Providing
Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended
- ---------- ------- ------------------------------ -----------------
$6,119 $0 N/A 12/31/2002
$4,821 $0 N/A 12/31/2003
</Table>
(h) 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. PUCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 9. CONTROLS AND PROCEDURES.
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 Trust are effective. There were no changes in
the Trust's internal control over financial reporting during the Trust's last
fiscal half-year that materially affected, or were reasonably likely to
materially affect, the Trust's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Filed herewith as EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule 30a-2(a)
under the Investment Company Act of 1940 is attached hereto as EX-
99.CERT.
(a)(3) Not Applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are 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: March 9, 2004
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: March 9, 2004
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: March 9, 2004