UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR/A Amendment to Form N-CSR Filed on March 10, 2004 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 - ---------- ----------------- $163,350 10/31/2002 $36,295 12/31/2002 $180,713 10/31/2003 $27,001 12/31/2003 </Table> (b) <Table> <Caption> Audit-Related Fees Fiscal Year Ended - ------------------ ----------------- $0 10/31/2002 $0 12/31/2002 $0 10/31/2003 $0 12/31/2003 </Table> (c) <Table> <Caption> Tax Fees Fiscal Year Ended - -------- ----------------- $13,206* 10/31/2002 $6,119* 12/31/2002 $39,417** 10/31/2003 $4,821*** 12/31/2003 </Table> <FN> * For review of 2001 tax returns ** For review of 2002 tax returns and professional services related to the collectibility of tax reclaims in Switzerland *** For review of 2002 tax returns </FN> (d) <Table> <Caption> All Other Fees Fiscal Year Ended - -------------- ----------------- $6,000* 10/31/2002 $0 12/31/2002 $0 10/31/2003 $0 12/31/2003 </Table> <FN> * For review of after-tax total return calculations. </FN> (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 - ---------- ------- ------------------------------ ----------------- $19,206 $0 N/A 10/31/2002 $6,119 $0 N/A 12/31/2002 $39,417 $0 N/A 10/31/2003 $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 12, 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 12, 2004 By /s/ Rebecca L. Harris --------------------- Rebecca L. Harris Treasurer Date: March 12, 2004