UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-04984 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, 2004 Date of reporting period: June 30, 2004 ITEM 1. REPORTS TO STOCKHOLDERS. [LOGO OF AMERICAN AADVANTAGE FUNDS] AMERICAN AADVANTAGE FUNDS(R) - -----------------------------------[GRAPHIC]------------------------------------ SEMI-ANNUAL REPORT JUNE 30, 2004 [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................................... 24 U.S. Government Money Market Portfolio................................... 26 Municipal Money Market Portfolio................................... 28 Additional Information...................................... Inside Back Cover --------------------------------------------------------------------------- Any opinions herein, including forecasts, reflect our judgement as of the end of the reporting period and are subject to change. Each adviser's strategies and each Fund's portfolio composition will change depending on economic and market conditions. This report is not a complete analysis of market conditions and therefore, should not be relied upon as investment advice. Although economic and market information has been compiled from reliable sources, AMR Investment Services, Inc. makes no representation as to the completeness or accuracy of the statements contained herein. --------------------------------------------------------------------------- American AAdvantage Funds June 30, 2004 [PHOTO OF WILLIAM F. QUINN] FELLOW SHAREHOLDERS: I am pleased to present you with the Semi-Annual Report for the American AAdvantage Funds for the six months ended June 30, 2004. During this time, the money market series of the American AAdvantage Funds performed well versus their peers. For the first half of 2004, economic fundamentals largely confirmed the strong growth momentum that became apparent late in the first quarter. Manufacturing expanded at a brisk pace, job creation and housing remained strong, and corporate profits grew by a staggering 24% year over year. As a result, the Federal Reserve raised overnight rates by 25 basis points at the June 30th Federal Open Market Committee (FOMC) meeting. The Cash Management Class of the American AAdvantage Funds produced strong relative returns for the six months ended June 30, 2004. The Money Market Fund-Cash Management Class returned 0.49% for the six-month period, outperforming the Lipper Institutional Money Market Average return of 0.34%. The U.S. Government Money Market Fund Cash Management Class out paced the Lipper Institutional U.S. Government Money Market Average with a return of 0.45% versus 0.34% for the Average. The question now is how rapidly and to what extent the Fed will need to raise overnight rates to bring monetary policy back to neutral. Citing that core inflationary pressures should remain in check, Federal Reserve officials are maintaining their "measured" policy adjustment posture. The money market series of the American AAdvantage Funds will continue to maintain lower than average maturities while emphasizing investments in high quality issues. 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 ================================================================================ At the outset of 2004, the financial markets were focused clearly on the labor market. While most sectors of the economy had shown improvement, the Federal Reserve made it clear that they would not raise the overnight lending rate until the jobs situation improved. The first two monthly employment reports came in well below expectations, indicating that corporations would be reluctant to hire additional workers as long as productivity remained robust. The Fed Funds futures contracts even pushed the initial rate hike probability out to 2005. The picture changed dramatically with the April release of March's employment data. The 353,000 jobs added in March were the most in four years and caused a significant steepening in the money market yield curve. The spread between 1-month LIBOR and 1-year LIBOR was 28 basis points before the employment release and widened to 42 basis points afterward. Furthermore, the Fed Funds futures contracts responded to the positive report by moving the possibility of the first tightening from 2005 into the latter part of the second quarter or early part of the third quarter of 2004. As evidence mounted of a recovery in the labor market, the focus of the FOMC shifted to inflation. Higher employment typically puts pressure on labor costs that lead to higher prices for consumers. Core prices rose rapidly in the first half of the year, elevated by the indirect effects of higher energy prices on business costs and increases in non-oil import prices that reflect past dollar depreciation and the surge in global prices for primary commodities. In response to the uptick in inflation and continued traction on the job front, the FOMC prepared the markets for a rate hike and ultimately raised the target Federal Funds rate from 1% to 1.25% at the June 30th meeting. In addition to reiterating their stance that the tightening cycle would occur at a "measured" pace, the policymakers signaled that they will respond to changes in economic conditions in order to maintain price stability. History indicates that the Federal Reserve is in the beginning stages of a tightening cycle and the current expectation is for the overnight lending rate to be greater than or equal to 2% by the end of 2004. 2 PERFORMANCE OVERVIEW AMERICAN AADVANTAGE MONEY MARKET FUND (R) ================================================================================ The American AAdvantage Money Market Fund implemented a change in strategy during the first half of 2004 due to an improving economic environment. While growth indicators have been robust, the labor market remained muted until the March employment report was released in April. In March, U.S. employers created 353,000 new non-farm jobs, thereby removing the critical missing link between a transitory cyclical rebound and the onset of a period of prolonged economic expansion. The strong employment data caused a sharp sell off in the fixed income market in anticipation that the FOMC would soon begin to raise the overnight Fed Funds rate. In response, the Fund began to buy more variable rate securities and shorter fixed rate securities to reduce interest rate risk. This strategy proved to work well as it became more evident that the FOMC could make a move as soon as their meeting on June 30th. By the end of June, the weighted-average maturity of the Fund was less than 30 days and the first rate hike of 25 basis points occurred, bringing the overnight Fed Funds rate to 1.25%. In anticipation of a prolonged rising interest rate environment, investments for the near term will likely be made in securities that allow the Fund to carry a relatively shorter weighted-average maturity. For the six months ended June 30, 2004, the total return of the Cash Management Class of the American AAdvantage Money Market Fund was 0.49%. The Fund outperformed the Lipper Institutional Money Market Average return of 0.34% by 15 basis points. Lipper Analytical Services ranked the Institutional Class of the Fund 89th among 289, 48th among 195, and 16th among 94 Institutional Money Market Funds for the one-year, five-years and ten-years ended June 30, 2004, respectively. CASH MANAGEMENT CLASS TOTAL RETURNS AS OF JUNE 30, 2004 [CHART OF CASH MANAGEMENT CLASS] American AAdvantage Lipper Institutional Money Money Market Fund Market Fund Average ------------------- -------------------------- 1 Year 0.99% 0.68% 3 Years* 1.62% 1.36% 5 Years* 3.30% 3.05% 10 Years* 4.41% 4.21% [END CHART] *Annualized ANNUALIZED TOTAL RETURNS =================================== AS OF 6/30/04 ----------------------------------- 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- Cash Management Class (1,3).......... 0.99% 3.30% 4.41% Institutional Class (1).............. 0.88% 3.26% 4.39% PlanAhead Class (1,2)................ 0.60% 2.96% 4.07% Platinum Class (1,2)................. 0.14% 2.53% 3.76% (1) Past performance is not indicative of future performance. An investment in the American AAdvantage Money Market Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in this Fund. (2) Fund performance for the ten-year period represents the total returns achieved by the Institutional Class from 7/1/94 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 7/1/94. (3) Fund performance for the five and ten-year periods represents the total returns achieved by the Institutional Class from 7/1/94 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 7/1/94. 3 PERFORMANCE OVERVIEW AMERICAN AADVANTAGE MONEY MARKET FUND (R) -- CONTINUED ================================================================================ PORTFOLIO STATISTICS AS OF JUNE 30, 2004 CASH MANAGEMENT INSTITUTIONAL PLANAHEAD PLATINUM CLASS CLASS CLASS CLASS ---------- ------------- ---------- --------- 7-day Current Yield* 1.02% 0.93% 0.67% 0.18% 7-day Effective Yield* 1.02% 0.93% 0.67% 0.18% 30-day Yield* 0.98% 0.90% 0.64% 0.14% Weighted Average Maturity 23 Days 23 Days 23 Days 23 Days Moody's Rating Aaa Aaa N/A N/A S&P Rating AAAm AAAm N/A N/A *Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day yield. TOP TEN HOLDINGS AS OF JUNE 30, 2004 % OF NET ASSETS ---------- Goldman Sachs Group 6.4% FCAR Owner Trust Series I 6.2% Citigroup, Incorporated 5.3% Bank of Scotland Treasury Services plc 4.2% Metropolitan Life Insurance Company 4.2% Bank of America Corporation 3.9% General Electric Capital Corporation 3.8% Merrill Lynch & Company, Incorporated 3.3% Wells Fargo and Company 3.2% American Honda Finance Corporation 3.1% 4 PERFORMANCE OVERVIEW AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND (SM) ================================================================================ The American AAdvantage U.S. Government Money Market Fund implemented a change in strategy during the first half of 2004 due to an improving economic environment. While growth indicators have been robust, the labor market remained muted until the March employment report was released in April. In March, U.S. employers created 353,000 new non-farm jobs, thereby removing the critical missing link between a transitory cyclical rebound and the onset of a period of prolonged economic expansion. The strong employment data caused a sharp sell off in the fixed income market in anticipation that the FOMC would soon begin to raise the overnight Fed Funds rate. In response, the Fund began to buy more variable rate securities and shorter fixed rate securities to reduce interest rate risk. This strategy proved to work well as it became more evident that the FOMC could make a move as soon as their meeting on June 30th. By the end of June, the weighted-average maturity of the fund was 30 days and the first rate hike of 25 basis points occurred, bringing the overnight Fed Funds rate to 1.25%. In anticipation of a prolonged rising interest rate environment, investments for the near term will likely be made in securities that allow the Fund to carry a relatively shorter weighted-average maturity. For the six months ended June 30, 2004, the total return of the Cash Management Class of the American AAdvantage U.S. Government Money Market Fund was 0.45%. The Fund outperformed the Lipper Institutional U.S. Government Money Market Average return of 0.34% by 11 basis points. Lipper Analytical Services ranked the Cash Management Class of the Fund 13th among 137, 11th among 99, and 13th among 52 Institutional U.S. Government Money Market Funds for the one-year, five-years and ten-years ended June 30, 2004, respectively. CASH MANAGEMENT CLASS TOTAL RETURNS AS OF JUNE 30, 2004 [CHART OF CASH MANAGEMENT CLASS] American AAdvantage Lipper Institutional U.S. Government U.S. Government Money Market Fund Money Market Fund Average ------------------- ------------------------- 1 Year 0.92% 0.69% 3 Years* 1.57% 1.32% 5 Years* 3.23% 2.99% 10 Years* 4.26% 4.12% [END CHART] *Annualized ANNUALIZED TOTAL RETURNS ================================= AS OF 6/30/04 --------------------------------- 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- Cash Management Class (1,3).......... 0.92% 3.23% 4.26% PlanAhead Class (1,2)................ 0.51% 2.85% 3.89% Platinum Class (1,2)................. 0.13% 2.45% 3.59% (1) Past performance is not indicative of future performance. An investment in the American AAdvantage U.S. Government Money Market Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in this Fund. (2) Fund performance for the ten-year period represents the total returns achieved by the Cash Management Class from 7/1/94 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 7/1/94. (3) Prior to December 1, 2001, the Cash Management Class of the Fund was known as the Institutional Class. PORTFOLIO STATISTICS AS OF JUNE 30, 2004 CASH MANAGEMENT PLANAHEAD PLATINUM CLASS CLASS CLASS ---------- --------- -------- 7-day Current Yield* 0.96% 0.61% 0.16% 7-day Effective Yield* 0.97% 0.62% 0.16% 30-day Yield* 0.90% 0.55% 0.12% Weighted Average Maturity 30 Days 30 Days 30 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 maintained a relatively short average maturity in the first half of 2004. The Variable Rate Demand Note (VRDN) market provided the most attractive investment option throughout the period. The VRDN market is driven primarily by supply and demand. Rates on these securities remained appealing because supply outweighed demand, particularly in the second quarter. The ratio between the BMA index (a weekly reset average of VRDNs) and 1-month LIBOR was 89.4% for the first half of the year, which is considerably higher than the historical average. This supports the Fund's strategy of being overweighted in VRDNs. In the current interest rate environment, the Fund will continue to focus on attractively priced VRDNs backed by letters of credit or bond insurance in anticipation of further "measured" rate hikes by the Federal Reserve. For the six months ended June 30, 2004, the total return of the PlanAhead Class of the American AAdvantage Municipal Money Market Fund was 0.07% as compared to the Lipper Tax-Exempt Money Market Average return of 0.19%. PLANAHEAD CLASS TOTAL RETURNS AS OF JUNE 30, 2004 [CHART OF PLANAHEAD CLASS] American AAdvantage Lipper Municipal Tax-Exempt Money Market Fund Money Market Fund Average ------------------- ------------------------- 1 Year 0.12% 0.37% 3 Years* 0.71% 0.77% 5 Years* 1.72% 1.75% 10 Years* 2.42% 2.40% [END CHART] *Annualized ANNUALIZED TOTAL RETURNS ================================= AS OF 6/30/04 --------------------------------- 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- PlanAhead Class (1,2)............. 0.12% 1.72% 2.42% Platinum Class (1,2).............. 0.12% 1.40% 2.15% (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 7/1/94 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 7/1/94. PORTFOLIO STATISTICS AS OF JUNE 30, 2004 PLANAHEAD PLATINUM CLASS CLASS --------- -------- 7-day Current Yield* 0.20% 0.14% 7-day Effective Yield* 0.20% 0.14% 30 day Yield* 0.26% 0.12% Weighted Average Maturity 6 Days 6 Days *Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day yield. TOP TEN HOLDINGS AS OF JUNE 30, 2004 % OF NET ASSETS ---------- Moffat County, Colorado Pollution Control 8.3% Gulf Coast Waste Disposal Authority (Texas) 7.0% Brazos Harbor Industrial Development Corporation 6.3% Claremore Industrial and Redevelopment Authority 6.0% Indiana County, Pennsylvania Industrial Development Authority 5.1% Michigan State Housing Development Authority 4.7% Alachua County, Florida Housing Financial Authority 4.6% New York City Municipal Water Finance Authority 4.5% Ohio Water Development Authority 4.3% Calcasieu Parish Public Trust Authority 4.0% 6 [GRAPHIC OF EAGLE] - -------------------------------------------------------------------------------- 7 AMERICAN AADVANTAGE FUNDS STATEMENTS OF ASSETS AND LIABILITIES June 30, 2004 (Unaudited) ================================================================================ U.S. GOVERNMENT MUNICIPAL MONEY MARKET MONEY MARKET MONEY MARKET ============ =============== ============ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS: Investment in Portfolio, at value............. $ 429,000 $ 42,210 $ 7,235 Receivable for fund shares sold............... 25 - - Receivable from Manager for expense reimbursement(Note 2)....................... 11 1 2 Other assets.................................. - - 3 ------------ ----------- ----------- TOTAL ASSETS............................... 429,036 42,211 7,240 ------------ ----------- ----------- LIABILITIES: Payable for fund shares redeemed.............. 346 - - Dividends payable............................. 13 23 - Administrative services fees payable (Note 2)................................... 57 4 3 Distribution fees payable (Note 2)............ 12 - 1 Other liabilities............................. 100 22 - ------------ ----------- ----------- TOTAL LIABILITIES.......................... 528 49 4 ------------ ----------- ----------- NET ASSETS....................................... $ 428,508 $ 42,162 $ 7,236 ============ =========== =========== ANALYSIS OF NET ASSETS: Paid-in-capital............................... 428,508 42,162 7,236 ------------ ----------- ----------- NET ASSETS....................................... $ 428,508 $ 42,162 $ 7,236 ============ =========== =========== Shares outstanding (no par value): Cash Management Class......................... 63,326,584 27,681,277 N/A ============ =========== =========== Institutional Class........................... 136,960,756 N/A N/A ============ =========== =========== PlanAhead Class............................... 179,434,486 7,469,035 3,131,201 ============ =========== =========== Platinum Class................................ 48,786,273 7,011,194 4,104,524 ============ =========== =========== 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 Six Months Ended June 30, 2004 (Unaudited) ================================================================================ U.S. GOVERNMENT MUNICIPAL MONEY MARKET MONEY MARKET MONEY MARKET ============ =============== ============ (IN THOUSANDS) INVESTMENT INCOME ALLOCATED FROM PORTFOLIO: Interest income................................ $ 2,526 $ 286 $ 43 Portfolio expenses............................. (250) (30) (5) -------- --------- ----- NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO................................. 2,276 256 38 -------- --------- ----- FUND EXPENSES: Administrative service fees (Note 2): Cash Management Class....................... 47 9 - Institutional Class......................... 60 - - PlanAhead Class............................. 73 10 2 Platinum Class.............................. 165 23 13 Transfer agent fees: Cash Management Class....................... 15 6 - Institutional Class......................... 3 - - PlanAhead Class............................. 23 4 1 Platinum Class.............................. 13 2 1 Professional fees.............................. 6 4 1 Registration fees and expenses................. 29 12 18 Distribution fees - Platinum Class (Note 2).... 64 9 5 Service Fees - PlanAhead Class (Note 2)........ 182 26 5 Other expenses................................. 6 4 2 -------- --------- ----- TOTAL FUND EXPENSES......................... 686 109 48 -------- --------- ----- LESS WAIVER AND REIMBURSEMENT OF EXPENSES (NOTE 2) 69 22 15 -------- --------- ----- NET FUND EXPENSES........................... 617 87 33 -------- --------- ----- NET INVESTMENT INCOME............................. 1,659 169 5 -------- --------- ----- REALIZED GAIN ALLOCATED FROM PORTFOLIO: Net realized gain on investments............ 10 2 - -------- --------- ----- NET GAIN ON INVESTMENTS..................... 10 2 - -------- --------- ----- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 1,669 $ 171 $ 5 ======== ========= ===== See accompanying notes - -------------------------------------------------------------------------------- 9 AMERICAN AADVANTAGE FUNDS STATEMENTS OF CHANGES IN NET ASSETS ================================================================================ MONEY MARKET ==================================== SIX MONTHS ENDED YEAR ENDED JUNE 30, 2004 DECEMBER 31, (UNAUDITED) 2003 ------------- ---------- (IN THOUSANDS) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income................................ $ 1,659 $ 4,684 Net realized gain on investments..................... 10 5 -------- ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... 1,669 4,689 -------- ---------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Cash Management Class............................. (650) (672) Institutional Class............................... (530) (2,597) PlanAhead Class................................... (445) (1,034) Platinum Class.................................... (34) (378) Net realized gain on investments: Cash Management Class............................. (3) - Institutional Class............................... (3) (3) PlanAhead Class................................... (3) (1) Platinum Class.................................... (1) (1) -------- ---------- DISTRIBUTIONS TO SHAREHOLDERS:................. (1,669) (4,686) -------- ---------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares........................ 834,337 3,048,924 Reinvestment of dividends and distributions.......... 1,565 3,467 Cost of shares redeemed.............................. (859,773) (4,150,353) -------- ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS.................. (23,871) (1,097,962) -------- ---------- NET INCREASE (DECREASE) IN NET ASSETS................... (23,871) (1,097,959) NET ASSETS: Beginning of period.................................. 452,379 1,550,338 -------- ---------- END OF PERIOD........................................ $428,508 $ 452,379 ======== ========== See accompanying notes - -------------------------------------------------------------------------------- 10 ==================================================================================================================================== U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET =============================== =============================== SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2004 DECEMBER 31, JUNE 30, 2004 DECEMBER 31, (UNAUDITED) 2003 (UNAUDITED) 2003 - ------------- ------------ ------------- ------------ (IN THOUSANDS) $ 169 $ 946 $ 5 $ 40 2 3 - - --------- --------- -------- -------- 171 949 5 40 --------- --------- -------- -------- (111) (227) - - - - - (6) (54) (675) (3) (17) (4) (44) (2) (17) (1) (1) - - - - - - (1) (2) - - - - - - --------- --------- -------- -------- (171) (949) (5) (40) --------- --------- -------- -------- 93,718 351,780 11,579 21,327 10 57 5 32 (107,163) (629,499) (10,691) (94,625) --------- --------- -------- -------- (13,435) (277,662) 893 (73,266) --------- --------- -------- -------- (13,435) (277,662) 893 (73,266) 55,597 333,259 6,343 79,609 --------- --------- -------- -------- $ 42,162 $ 55,597 $ 7,236 $ 6,343 ========= ========= ======== ======== See accompanying notes - -------------------------------------------------------------------------------- 11 AMERICAN AADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 2004 (Unaudited) ================================================================================ 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American AAdvantage Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940 (the "Act"), as amended, as a no-load, open-end management investment company with separate series. The following series are included in this report: American AAdvantage Money Market, American AAdvantage U.S. Government Money Market and American AAdvantage Municipal Money Market Funds (each a "Fund" and collectively, the "Funds"). Each Fund has multiple classes of shares designed to meet the needs of different groups of investors. Differences between the classes include the services offered to and the expenses borne by each class. 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 (9.15%, 15.47% and 18.22% at June 30, 2004 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 June 30, 2004 (Unaudited) ================================================================================ 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. Other In the normal course of business, the Funds enter into contracts that provide indemnification to the other party or parties against potential costs or liabilities. The Funds' maximum exposure under these arrangements is dependent on claims that may be made in the future and, therefore, cannot be estimated. The Funds have had no prior claims or losses pursuant to any such agreement. 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. - -------------------------------------------------------------------------------- 13 AMERICAN AADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2004 (Unaudited) ================================================================================ 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. 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 PlanAhead Class. Reimbursement and Waiver of Expenses The Manager contractually agreed to reimburse each Cash Management Class Fund for other expenses through December 31, 2004 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. The Manager contractually agreed to reimburse the Platinum Class of each Fund for other expenses through December 31, 2004 to the extent that total annual fund operating expenses exceed 0.99%. In addition, 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 six months ended June 30, 2004, the Manager waived or reimbursed expenses as follows: FUND AMOUNT - ---- -------- Money Market Fund Cash Management Class ............................................ $49,506 Platinum Class ................................................... 19,170 U.S. Government Money Market Fund Cash Management Class ............................................ 15,146 PlanAhead Class .................................................. 1,317 Platinum Class ................................................... 6,000 Municipal Money Market Fund PlanAhead Class .................................................. 2,293 Platinum Class ................................................... 12,296 - -------------------------------------------------------------------------------- 14 AMERICAN AADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2004 (Unaudited) ================================================================================ Expense Reimbursement Plan The Funds have 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 expiring in: U.S. GOVERNMENT MUNICIPAL YEAR MONEY MARKET MONEY MARKET MONEY MARKET - ---- ------------ --------------- ------------ 2006 $83,552 $77,375 $18,920 2007 68,676 22,463 14,589 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 six months ended June 30, 2004, the cost of air transportation was not material to any of the Funds. - -------------------------------------------------------------------------------- 15 AMERICAN AADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2004 (Unaudited) ================================================================================ 3. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares for each class of the Funds (in thousands). Each share is valued at $1.00: Six Months Ended June 30, 2004 - ------------------------------ CASH MANAGEMENT MONEY MARKET FUND CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS - ----------------- --------------- ------------------- --------------- -------------- Shares sold.................................. 235,360 358,812 196,736 43,429 Reinvestment of dividends.................... 653 470 406 36 Shares redeemed.............................. (290,082) (381,414) (144,679) (43,598) -------- -------- -------- ------- Netincrease (decrease) in shares outstanding............................... (54,069) (22,132) 52,463 (133) ======== ======== ======== ======= CASH MANAGEMENT U.S. GOVERNMENT MONEY MARKET FUND CLASS PLANAHEAD CLASS PLATINUM CLASS - --------------------------------- --------------- --------------- -------------- Shares sold.................................. 47,936 42,862 2,920 Reinvestment of dividends.................... - 6 4 Shares redeemed.............................. (42,315) (62,182) (2,666) -------- -------- ------- Net increase (decrease) in shares outstanding............................... 5,621 (19,314) 258 ======== ======== ======= MUNICIPAL MONEY MARKET FUND PLANAHEAD CLASS PLATINUM CLASS - --------------------------- --------------- -------------- Shares sold.................................. 4,906 6,673 Reinvestment of dividends.................... 3 2 Shares redeemed.............................. (4,850) (5,841) -------- ------- Net increase in shares outstanding........... 59 834 ======== ======= 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) ========== ======== ======== - -------------------------------------------------------------------------------- 16 [GRAPHIC OF EAGLE] - -------------------------------------------------------------------------------- 17 AMERICAN AADVANTAGE MONEY MARKET FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) ================================================================================ CASH MANAGEMENT CLASS ====================================================== SIX MONTHS YEAR ENDED ONE MONTH ENDED DECEMBER 31, ENDED JUNE 30, ===================== DECEMBER 31, 2004 2003 2002 2001(B) ------------ -------- ------ ------------ (UNAUDITED) Net asset value, beginning of period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- -------- ------ ------- Net investment income(A)...... -(D) 0.01 0.02 -(D) Less dividends from net investment income.......... -(D) (0.01) (0.02) -(D) ------- -------- ------ ------- Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======== ====== ======= Total return........................ 0.49%(C) 1.08% 1.73% 0.19%(C) ======= ======== ====== ======= Ratios and supplemental data: Net assets, end of period (in thousands)............. $63,327 $117,395 $6,641 $15,006 Ratios to average net assets (annualized)(A): Expenses................ 0.15% 0.16% 0.19% 0.19% Net investment income............... 0.98% 1.03% 1.73% 1.96% Decrease reflected in above expense ratio due to absorption of expenses by the Manager.......... 0.07% 0.08% 0.03% - INSTITUTIONAL CLASS =========================================================================================== SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 ------------- -------- -------- -------- -------- ------------ ----------- (UNAUDITED) Net asset value, beginning of period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- ---------- ----------- Net investment income(A)...... -(D) 0.01 0.02 0.04 0.06 0.01 0.05 Less dividends from net investment income.......... -(D) (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 $ 1.00 ======== ======== ======== ======== ======== ========== ========== Total return........................ 0.44%(C) 0.97% 1.67% 4.15% 6.45% 0.94%(C) 5.09% ======== ======== ======== ======== ======== ========== ========== Ratios and supplemental data: Net assets, end of period (in thousands)............. $136,961 $159,092 $474,922 $805,843 $886,608 $1,978,123 $1,652,323 Ratios to average net assets (annualized)(A): Expenses................ 0.24% 0.27% 0.24% 0.25% 0.24% 0.23% 0.24% Net investment income............... 0.89% 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 ============================================================================================= SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 - ------------- -------- -------- -------- -------- ------------ ------------ (UNAUDITED) $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- -------- -------- -(D) 0.01 0.01 0.04 0.06 0.01 0.05 -(D) (0.01) (0.01) (0.04) (0.06) (0.01) (0.05) -------- -------- -------- -------- -------- -------- -------- $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== ======== ======== 0.30%(C) 0.70% 1.37% 3.83% 6.14% 0.89%(C) 4.79% ======== ======== ======== ======== ======== ======== ======== $179,434 $126,972 $155,535 $163,825 $299,304 $262,748 $343,532 0.51% 0.54% 0.54% 0.55% 0.54% 0.55% 0.53% 0.61% 0.71% 1.36% 3.83% 5.95% 5.32% 4.69% - - - - - - - ============================================================================================= PLATINUM CLASS ============================================================================================= SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 - ------------- -------- -------- -------- -------- ------------ ------------ (UNAUDITED) $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- -------- -------- -------- -------- -------- -(D) -(D) 0.01 0.03 0.06 0.01 0.04 -(D) -(D) (0.01) (0.03) (0.06) (0.01) (0.04) ------- ------- -------- -------- -------- -------- -------- $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======== ======== ======== ======== ======== 0.07%(C) 0.25% 0.98% 3.45% 5.69% 0.82%(C) 4.33% ======= ======= ======== ======== ======== ======== ======== $48,786 $48,920 $913,240 $868,395 $800,196 $866,041 $841,653 0.99% 0.96% 0.93% 0.93% 0.97% 1.00% 0.97% 0.14% 0.38% 0.97% 3.36% 5.54% 4.87% 4.24% 0.07% 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 ============================================================================================ SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001(B) 2000 1999 1999 ------------- -------- -------- -------- -------- ------------ ------------ (UNAUDITED) Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- ------- ------- Net investment income(A)........... -(D) 0.01 0.02 0.04 0.06 0.01 0.05 Less dividends from net investment income............... -(D) (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 $ 1.00 ======= ======= ======= ======= ======= ======= ======= Total return 0.45%(C) 1.04% 1.67% 4.09% 6.31% 0.94%(C) 4.94% ======= ======= ======= ======= ======= ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands).................. $27,682 $22,060 $38,310 $66,302 $36,391 $37,385 $32,427 Ratios to average net assets (annualized)(A): Expenses........................ 0.19% 0.19% 0.19% 0.25% 0.26% 0.18% 0.19% Net investment income........... 0.89% 0.04% 1.69% 3.74% 6.16% 5.60% 4.83% Decrease reflected in above expense ratio due to absorption of expenses by the Manager............... 0.12% 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 ============================================================================================= PLANAHEAD CLASS ============================================================================================= SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 - ------------- -------- -------- -------- -------- ------------ ------------- (UNAUDITED) $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- ------- -------- ------- ------- -------- ------- -(D) 0.01 0.01 0.04 0.06 0.01 0.05 -(D) (0.01) (0.01) (0.04) (0.06) (0.01) (0.05) -------- ------- -------- ------- ------- -------- ------- $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======= ======== ======= ======= ======== ======= 0.27%(C) 0.61% 1.30% 3.79% 5.95% 0.86%(C) 4.56% ======== ======= ======== ======= ======= ======== ======= $ 7,469 $26,785 $175,115 $78,934 $65,795 $ 59,560 $59,960 0.56% 0.58% 0.55% 0.55% 0.60% 0.64% 0.56% 0.52% 0.72% 1.25% 3.59% 5.81% 5.15% 4.45% 0.02% 0.04% - - - - - ============================================================================================= PLATINUM CLASS ============================================================================================= SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 - ------------- -------- -------- -------- -------- ------------ ------------- (UNAUDITED) $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- ------- -------- -------- ------- -------- ------- -(D) -(D) 0.01 0.03 0.05 0.01 0.04 -(D) -(D) (0.01) (0.03) (0.05) (0.01) (0.04) -------- ------- -------- -------- ------- -------- ------- $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======= ======== ======== ======= ======== ======= 0.06%(C) 0.24% 0.90% 3.37% 5.53% 0.80%(C) 4.09% ======== ======= ======== ======== ======= ======== ======= $ 7,011 $ 6,752 $119,833 $112,670 $78,857 $ 78,585 $84,385 0.98% 1.00% 0.95% 0.95% 1.00% 1.02% 1.01% 0.11% 0.31% 0.88% 3.20% 5.40% 4.77% 4.01% 0.16% 0.20% 0.03% - - - - - -------------------------------------------------------------------------------- 21 AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) ================================================================================ PLANAHEAD CLASS ============================================================================================ SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 ------------- -------- -------- -------- -------- ------------ ------------ (UNAUDITED) Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------- ------ ------ ------ ------ Net investment income(A)........... -(C) -(C) 0.01 0.02 0.04 0.01 0.03 Less dividends from net investment income.......................... -(C) -(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 $ 1.00 ====== ====== ======= ====== ====== ====== ====== Total return.......................... 0.07%(B) 0.32% 0.93% 2.25% 3.61% 0.52%(B) 2.68% ====== ====== ======= ====== ====== ====== ====== Ratios and supplemental data: Net assets, end of period (in thousands).................. $3,131 $3,072 $ 7,346 $3,669 $5,175 $7,479 $9,795 Ratios to average net assets (annualized)(A): Expenses 0.91% 0.81% 0.57% 0.58% 0.63% 0.73% 0.65% Net investment income 0.15% 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.................. 0.11% 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 ============================================================================================= PLATINUM CLASS ============================================================================================= SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 - ------------- -------- -------- -------- -------- ------------ ------------- (UNAUDITED) $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------- ------- ------- ------- ------- -(C) -(C) -(C) 0.02 0.03 0.01 0.02 -(C) -(C) -(C) (0.02) (0.03) (0.01) (0.02) ------ ------ ------- ------- ------- ------- ------- $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ======= ======= ======= ======= ======= 0.06%(B) 0.20% 0.51% 1.82% 3.21% 0.47%(B) 2.27% ====== ====== ======= ======= ======= ======= ======= $4,105 $3,271 $71,132 $59,427 $89,602 $76,076 $81,118 0.95% 1.01% 0.99% 1.00% 1.02% 1.05% 1.04% 0.11% 0.21% 0.52% 1.87% 3.17% 2.77% 2.24% 0.63% 0.34% 0.02% - - 0.03% 0.01% - -------------------------------------------------------------------------------- 23 AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS June 30, 2004 (Unaudited) ================================================================================ PAR AMOUNT VALUE -------- ---------- (DOLLARS IN THOUSANDS) REPURCHASE AGREEMENTS (NOTE B) - 6.13% Banc of America Securities, LLC, 1.60%, Due 7/1/2004 .................... $280,000 $ 280,000 JP Morgan Chase Securities, 1.54%, Due 7/1/2004 ......................... 7,220 7,220 ---------- TOTAL REPURCHASE AGREEMENTS ......................................... 287,220 ---------- EURODOLLAR TIME DEPOSITS - 17.07% Canadian Imperial Bank of Commerce, 1.375%, Due 7/1/2004 ................ 200,000 200,000 Den Danske Bank, 1.50%, Due 7/1/2004 .................................... 200,000 200,000 Royal Bank of Canada, 1.50%, Due 7/1/2004 ............................... 200,000 200,000 Societe Generale, 1.375%, Due 7/1/2004 .................................. 200,000 200,000 ---------- TOTAL EURODOLLAR TIME DEPOSITS ...................................... 800,000 ---------- VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES (NOTE E) - 12.69% Bank of Scotland Treasury Services plc, 1.52%, Due 3/14/2005 ............ 196,450 196,580 Bank One, NA, 1.379%, Due 11/1/2004 ................................................. 15,000 15,012 1.19%, Due 1/27/2005 .................................................. 25,000 25,009 1.199%, Due 2/3/2005 .................................................. 10,000 10,004 1.38%, Due 2/10/2005 .................................................. 25,000 25,038 Bayerische Landesbank, 1.17%, Due 5/9/2005 .............................. 75,000 75,027 First Tennessee Bank, 1.179%, Due 7/21/2004 ................................................. 50,000 50,003 1.179%, Due 5/3/2005 .................................................. 50,000 50,019 Marshall and Ilsley Bank FSB, 1.14%, Due 4/25/2005 ...................... 50,000 50,005 National City Bank, 1.15%, Due 5/9/2005 ................................. 50,000 50,006 SouthTrust Bank, NA, 1.239%, Due 5/2/2005 ............................... 40,000 40,035 Wachovia Bank, NA, 1.21%, Due 10/19/2004 ................................ 8,000 8,002 ---------- TOTAL VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES .......... 594,740 ---------- VARIABLE RATE PROMISSORY NOTES (NOTE E) - 6.40% Goldman Sachs Group, 1.24%, Due 5/9/2005 ................................ 300,000 300,000 ---------- TOTAL VARIABLE RATE PROMISSORY NOTES ................................ 300,000 ---------- VARIABLE RATE FUNDING AGREEMENTS (NOTES A AND E) - 6.29% General Electric Capital Assurance Company, 1.19%, Due 12/15/2004 ....... 100,000 100,000 Metropolitan Life Insurance Company, 1.39%, Due 11/22/2004 .............. 195,000 195,000 ---------- TOTAL VARIABLE RATE FUNDING AGREEMENTS .............................. 295,000 ---------- ASSET-BACKED COMMERCIAL PAPER, 144A (NOTES C AND D) - 16.36% Atlantis One Funding Corporation, 1.07%, Due 9/3/2004 ................... 100,000 99,810 Edison Asset Securitization, 1.11%, Due 7/1/2004 ........................ 60,000 60,000 FCAR Owner Trust Series I, 1.10%, Due 7/2/2004 ................................................... 150,000 149,995 1.07%, Due 9/2/2004 ................................................... 142,000 141,734 K2 USA LLC, 1.10%, Due 7/12/2004 ........................................ 30,000 29,990 Moat Funding LLC, 1.09%, Due 7/6/2004 ................................... 59,150 59,141 Sigma Finance, Incorporated, 1.10%, Due 7/7/2004 ................................................... 63,700 63,688 1.09%, Due 7/12/2004 .................................................. 58,700 58,681 Scaldis Capital LLC, 1.095%, Due 7/9/2004 .................................................. 57,202 57,188 1.09%, Due 7/14/2004 .................................................. 20,188 20,180 1.10%, Due 8/23/2004 .................................................. 26,491 26,448 ---------- TOTAL ASSET-BACKED COMMERCIAL PAPER ................................. 766,855 ---------- See accompanying notes - -------------------------------------------------------------------------------- 24 AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS - CONTINUED June 30, 2004 (Unaudited) ================================================================================ PAR AMOUNT VALUE -------- ---------- (DOLLARS IN THOUSANDS) VARIABLE RATE MEDIUM-TERM NOTES (NOTE E) - 34.96% American General Finance Corporation, 1.35%, Due 8/6/2004................ $ 64,770 $ 64,782 American Honda Finance Corporation, 144A (Note C), 1.29%, Due 10/7/2004 ................................................ 50,000 50,024 1.27%, Due 1/13/2005 ................................................ 25,000 25,022 1.30%, Due 2/11/2005 ................................................ 10,000 10,010 1.22%, Due 4/11/2005 ................................................ 60,000 60,059 Bank of America Corporation, 1.21%, Due 7/2/2004 ................................................. 52,000 52,000 1.43%, Due 10/22/2004 ............................................... 130,140 130,269 Bank One, NA, 1.368%, Due 2/8/2005 ...................................... 20,000 20,028 Citigroup, Incorporated, 1.30%, Due 10/22/2004 ............................................... 77,700 77,747 1.25%, Due 2/7/2005 ................................................. 170,965 171,075 Credit Suisse First Boston Corporation, 1.36%, Due 4/5/2005 ............. 45,000 45,094 DLJ, Incorporated, 1.679%, Due 2/1/2005 ................................. 10,000 10,032 General Electric Capital Corporation, 1.359%, Due 7/18/2005 ............. 180,000 180,000 Merrill Lynch & Company, Incorporated, 1.46%, Due 1/13/2005 ................................................ 124,000 124,236 1.45%, Due 1/18/2005 ................................................ 20,000 20,038 1.429%, Due 2/3/2005 ................................................ 10,000 10,017 Morgan Stanley and Company, Incorporated, 1.42%, Due 1/24/2005 .......... 139,000 139,230 PACCAR Financial Corporation, 1.11%, Due 4/15/2005 ...................... 35,000 35,004 SLM Corporation, 1.32%, Due 7/26/2004 ................................... 56,670 56,677 Toyota Motor Credit Corporation, 1.14%, Due 1/14/2005 ................................................ 50,000 50,012 1.18%, Due 2/11/2005 ................................................ 50,000 50,011 USA Education, Incorporated, 1.50%, Due 10/25/2004 ...................... 78,500 78,586 Wachovia Corporation, 1.56%, Due 8/19/2004 .............................. 28,500 28,518 Wells Fargo and Company, 1.30%, Due 7/15/2005 ........................... 150,000 150,000 ---------- TOTAL VARIABLE RATE MEDIUM-TERM NOTES ............................... 1,638,471 ---------- TOTAL INVESTMENTS - 99.90% (COST $4,682,286) ............................ 4,682,286 ---------- OTHER ASSETS, NET OF LIABILITIES - 0.10% ................................ 4,535 ---------- TOTAL NET ASSETS - 100% ................................................. $4,686,821 ========== - -------------- Based on the cost of investments of $4,682,286 for federal income tax purpose at June 30, 2004, there was no unrealized appreciation or depreciation of investments. (A) Obligation is subject to an unconditional put back to the issuer with ninety calendar days notice. (B) Collateral held at Bank of New York for Banc of America Securities, LLC, 4.50% - 7.00%, Due 3/1/2009 - 6/1/2034, Total Value - $285,600; JP Morgan Chase Bank for JP Morgan Chase Securities, 5.00% - 6.50%, Due 2/15/2033 - 6/15/2034, Total Value - $7,366. (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 $911,970 or 19.46% 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 - -------------------------------------------------------------------------------- 25 AMR INVESTMENT SERVICES U.S. GOVERNMENT MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS June 30, 2004 (Unaudited) ================================================================================ PAR AMOUNT VALUE -------- ---------- (DOLLARS IN THOUSANDS) REPURCHASE AGREEMENTS (NOTE A) - 26.71% Banc of America Securities, LLC, 1.60%, Due 7/1/2004 .................... $ 22,887 $ 22,887 JP Morgan Chase Securities, 1.54%, Due 7/1/2004 ......................... 50,000 50,000 -------- TOTAL REPURCHASE AGREEMENTS ........................................ 72,887 -------- U.S. GOVERNMENT AGENCY INSTRUMENTS - 73.27% Federal Home Loan Bank, Discount Note, 1.16%, Due 7/6/2004 (Note B) ........................... 1,000 1,000 Variable Rate Note, 1.06%, Due 8/11/2004 (Note C) ..................... 5,000 5,000 Discount Note, 1.27%, Due 8/11/2004 (Note B) .......................... 765 764 Discount Note, 1.28%, Due 8/18/2004 (Note B) .......................... 3,000 2,995 Discount Note, 1.08%, Due 12/3/2004 (Note B) .......................... 1,082 1,077 Variable Rate Note, 1.23%, Due 7/26/2005 (Note C) ..................... 15,000 14,996 Variable Rate Note, 1.029%, Due 8/2/2005 (Note C) ..................... 15,000 14,997 Variable Rate Note, 0.993%, Due 10/5/2005 (Note C) .................... 5,000 4,997 Federal Home Loan Mortgage Corporation, Discount Note, 1.06%, Due 7/6/2004 (Note B) ........................... 1,713 1,713 Discount Note, 1.10%, Due 7/6/2004 (Note B) ........................... 15,000 14,998 Discount Note, 1.12%, Due 7/6/2004 (Note B) ........................... 2,004 2,004 Discount Note, 1.08%, Due 8/3/2004 (Note B) ........................... 5,000 4,994 Discount Note, 1.07%, Due 8/10/2004 (Note B) .......................... 1,810 1,808 Discount Note, 1.27%, Due 8/10/2004 (Note B) .......................... 600 599 Discount Note, 1.32%, Due 8/10/2004 (Note B) .......................... 2,000 1,997 Discount Note, 1.07%, Due 8/12/2004 (Note B) .......................... 5,000 4,994 Discount Note, 1.065%, Due 8/16/2004 (Note B) ......................... 10,000 9,986 Discount Note, 1.40%, Due 8/23/2004 (Note B) .......................... 1,600 1,597 Discount Note, 1.08%, Due 8/26/2004 (Note B) .......................... 2,740 2,735 Discount Note, 1.07%, Due 8/31/2004 (Note B) .......................... 2,000 1,996 Discount Note, 1.08%, Due 8/31/2004 (Note B) .......................... 3,000 2,995 Discount Note, 1.44%, Due 9/21/2004 (Note B) .......................... 6,500 6,479 Discount Note, 1.465%, Due 9/21/2004 (Note B) ......................... 17,906 17,846 Discount Note, 1.09%, Due 10/20/2004 (Note B) ......................... 1,000 997 Variable Rate Note, 1.365%, Due 9/9/2005 (Note C) ..................... 10,800 10,804 Federal National Mortgage Association, Discount Note, 1.06%, Due 7/1/2004 (Note B) ........................... 1,400 1,400 Discount Note, 1.05%, Due 7/7/2004 (Note B) ........................... 1,400 1,400 Discount Note, 1.14%, Due 7/7/2004 (Note B) ........................... 5,000 4,999 Discount Note, 1.20%, Due 7/21/2004 (Note B) .......................... 1,600 1,599 Discount Note, 1.09%, Due 8/4/2004 (Note B) ........................... 5,000 4,995 Discount Note, 1.35%, Due 8/4/2004 (Note B) ........................... 2,275 2,272 Discount Note, 1.06%, Due 8/6/2004 (Note B) ........................... 2,551 2,548 Discount Note, 1.07%, Due 8/11/2004 (Note B) .......................... 1,240 1,238 Discount Note, 1.08%, Due 8/11/2004 (Note B) .......................... 1,250 1,248 Discount Note, 1.28%, Due 8/18/2004 (Note B) .......................... 2,050 2,047 Discount Note, 1.36%, Due 8/20/2004 (Note B) .......................... 4,300 4,292 See accompanying notes - -------------------------------------------------------------------------------- 26 AMR INVESTMENT SERVICES U.S. GOVERNMENT MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS - CONTINUED June 30, 2004 (Unaudited) ================================================================================ PAR AMOUNT VALUE -------- ---------- (DOLLARS IN THOUSANDS) Discount Note, 1.48%, Due 9/15/2004 (Note B) .......................... $ 400 $ 399 Discount Note, 1.09%, Due 10/1/2004 (Note B) .......................... 5,000 4,986 Discount Note, 1.07%, Due 11/12/2004 (Note B) ......................... 2,944 2,932 Discount Note, 1.09%, Due 12/10/2004 (Note B) ......................... 3,000 2,985 Discount Note, 1.09%, Due 12/16/2004 (Note B) ......................... 1,275 1,269 Variable Rate Note, 0.98%, Due 10/3/2005 (Note C) ..................... 10,000 9,992 Variable Rate Note, 1.05%, Due 12/9/2005 (Note C) ..................... 15,000 14,987 -------- TOTAL U.S. GOVERNMENT AGENCY INSTRUMENTS ........................... 199,956 -------- TOTAL INVESTMENTS - 99.98% (COST $272,843) .............................. 272,843 -------- OTHER ASSETS, NET OF LIABILITIES - 0.02% ................................ 55 -------- TOTAL NET ASSETS - 100% ................................................. $272,898 ======== - -------------- Based on the cost of investments of $272,843 for federal income tax purposes at June 30, 2004, there was no unrealized appreciation or depreciation of investments. (A) Collateral held at Bank of New York for Banc of America Securities, LLC, 5.00%, Due 5/1/2019, Total Value - $23,345; and at JP Morgan Chase Bank for JP Morgan Chase Securities, 5.00% - 6.00%, Due 11/15/2032 - 6/15/2034, Total Value - $51,001. (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 - -------------------------------------------------------------------------------- 27 AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS June 30, 2004 (Unaudited) ================================================================================ PAR AMOUNT VALUE ---------- ---------- (DOLLARS IN THOUSANDS) MUNICIPAL OBLIGATIONS (NOTE A) - 91.16% COLORADO - 8.31% Moffat County, Colorado Pollution Control Revenue Bonds, Series 1984 (Ute Electric Company Project), Bond Insurance - Ambac Assurance Corporation, 1.30%, Due 7/1/2010, SPA Societe Generale............................................................... $3,300 $ 3,300 ------- TOTAL COLORADO................................................................................ 3,300 ------- FLORIDA - 4.62% Alachua County, Florida Housing Financial Authority, Multifamily Housing Revenue Bonds, Series 2001 (University Cove Apartment Project), 1.10%, Due 6/15/2034, LOC SouthTrust Bank, NA........................................................................... 1,835 1,835 ------- TOTAL FLORIDA.................................................................................. 1,835 ------- ILLINOIS - 2.69% Solid Waste Disposal Facility Revenue Bonds for the County of Lake, Illinois, Series 1996 (Countryside Landfill Inc. Project), 1.20%, Due 4/1/2021, LOC JP Morgan Chase Bank................ 1,070 1,070 ------- TOTAL ILLINOIS................................................................................. 1,070 ------- INDIANA - 4.56% Fort Wayne, Indiana Industrial Economic Development Revenue Bonds, Series 1989 (ND-Tech Corporation Project), 1.10%, Due 7/1/2009, LOC Societe Generale.............. 1,000 1,000 City of Garrett, Indiana, Variable Rate Economic Development Revenue Bonds, Series 1991 (Group Dekko Int'l Project), 1.13%, Due 12/1/2011, LOC Bank One....................... 810 810 ------- TOTAL INDIANA.................................................................................. 1,810 ------- KENTUCKY - 5.54% Carroll County, Kentucky Solid Waste Disposal Revenue Bonds, Series 2001 (North American Stainless, L.P.), 1.11%, Due 5/1/2031, LOC Fifth Third Bank....................... 1,100 1,100 County of Breckinridge Kentucky, Kentucky Association of Counties Leasing Trust, Lease Program Revenue Bonds, Series 2001, 1.06%, Due 2/1/2031, LOC Fifth Third Bank............... 1,100 1,100 ------- TOTAL KENTUCKY................................................................................. 2,200 ------- LOUISIANA - 4.00% Calcasieu Parish Public Trust Authority, Waste Disposal Revenue Bonds, Series 1997 (WPT Corporation Project), 1.10%, Due 12/1/2027, LOC JP Morgan Chase Bank......................... 1,589 1,589 ------- TOTAL LOUISIANA ............................................................................... 1,589 ------- MARYLAND - 3.52% Montgomery County, Maryland Variable Rate Housing Revenue Bonds, Series 1997, Issue I (The Grand), 1.06%, Due 6/1/2030, LOC Federal National Mortgage Association............... 1,400 1,400 ------- TOTAL MARYLAND................................................................................. 1,400 ------- MICHIGAN - 10.55% City of Detroit Michigan Sewage Disposal Revenue Bonds, Series 1998B, 0.98%, Due 7/1/2023, LOC MBIA/Morgan Guaranty.......................................................................... 10 10 Michigan Higher Education Student Loan Authority, Student Loan Revenue Bonds, Series XII-X, Bond Insurance - Ambac Assurance Corporation, 1.10%, Due 9/1/2031, SPA Lloyds TSB................. 1,000 1,000 Michigan State Hospital Finance Authority, Hospital Equipment Loan Program Bonds, Series A, 1.06%, Due 12/1/2023, LOC National City Bank NA......................................... 1,300 1,300 Michigan State Housing Development Authority Variable Rate Limited Obligation Multifamily Housing Revenue Refunding Bonds, 1.08%, Due 6/1/2018, LOC Bank of New York........................ 1,880 1,880 ------- TOTAL MICHIGAN................................................................................. 4,190 ------- See accompanying notes - -------------------------------------------------------------------------------- 28 AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS - CONTINUED June 30, 2004 (Unaudited) ================================================================================ PAR AMOUNT VALUE ---------- ---------- (DOLLARS IN THOUSANDS) NEW YORK - 4.53% New York City Municipal Water Finance Authority, Water and Sewer Revenue Bonds, Series 1993C Adjustable Rate Fiscal Bonds, 1.06%, Due 6/15/2022, LOC Financial Guaranty Insurance Company.......................................................... $1,800 $ 1,800 ------- TOTAL NEW YORK................................................................................. 1,800 ------- OHIO - 4.28% Ohio Water Development Authority, Environmental Improvement Revenue Bonds, Series 2000B (Waste Management, Incorporated, Project), 1.18%, Due 7/1/2020, LOC Fleet National Bank........................................................................... 1,700 1,700 ------- TOTAL OHIO..................................................................................... 1,700 ------- OKLAHOMA - 6.04% Claremore Industrial and Redevelopment Authority, Development Revenue Bonds, Series 2001 (Whirlwind Steel Buildings, Inc. Project), 1.13%, Due 9/1/2019, LOC JP Morgan Chase Bank.......................................................................... 2,400 2,400 ------- TOTAL OKLAHOMA................................................................................. 2,400 ------- PENNSYLVANIA - 10.78% Berks County Industrial Development Authority Manufacturing Facilities Revenue Bonds, Series 1995 (Grafika Commerial Printing Inc.), 1.19%, 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), 1.10%, Due 12/1/2016, LOC PNC Bank, NA.................................................................................. 1,000 1,000 Indiana County Pennsylvania Industrial Development Authority, Pollution Control Revenue Bonds, Series A (Exelon Generation), 1.06%, Due 6/1/2027, LOC Bank One...................................................................................... 2,015 2,015 ------- TOTAL PENNSYLVANIA............................................................................. 4,280 ------- TEXAS - 18.84% Brazos Harbor Industrial Development Corporation Solid Waste Disposal Revenue Bonds, Series 2002 (Republic Waste Services of Texas, Ltd. Project), 1.15%, Due 12/1/2024, LOC Bank of America Corporation................................................................... 2,500 2,500 City of Midlothian Texas Industrial Development Corporation, Environmental Facilities Revenue Bonds, Series 1999 (Holnam Texas Limited Partnership Project) 1.08%, Due 9/1/2031, LOC Bank One........................................................................ 1,200 1,200 Gulf Coast Waste Disposal Authority (Texas), Enviromental Facilities Revenue Bonds, Series 2002 (Waste Corporation of Texas, L.P. Project), 1.10%, Due 9/1/2022, LOC - Wells Fargo Texas........................................................................... 2,780 2,780 State of Texas Tax Revenue Anticipation Notes, 2.00%, Due 8/31/2004.................................. 1,000 1,001 ------- TOTAL TEXAS.................................................................................... 7,481 ------- UTAH - 2.90% Morgan County, Utah Solid Waste Disposal Revenue Bonds, Series 1996 (Holman, Inc. Project), 1.23%, Due 8/1/2031, LOC Wachovia Bank, NA.............................. 1,150 1,150 ------- TOTAL UTAH.................................................................................. 1,150 ------- TOTAL MUNICIPAL OBLIGATIONS................................................................. 36,205 ------- See accompanying notes - -------------------------------------------------------------------------------- 29 AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS - CONTINUED June 30, 2004 (Unaudited) ================================================================================ SHARES VALUE ---------- ---------- (DOLLARS IN THOUSANDS) OTHER INVESTMENTS - 2.58% Dreyfus Municipal Cash Management Plus............................................................... 5,254 $ 5 Federated Municipal Obligations Fund................................................................. 25,808 26 BlackRock Provident MuniCash Fund.................................................................... 994,677 995 ------- TOTAL OTHER INVESTMENTS........................................................................ 1,026 ------- TOTAL INVESTMENTS - 93.74% (COST $37,231)............................................................ 37,231 ------- OTHER ASSETS, NET OF LIABILITIES - 6.26%............................................................. 2,488 ------- TOTAL NET ASSETS - 100%.............................................................................. $39,719 ======= - ------------------------- Based on the cost of investments of $37,231 for federal income tax purposes at June 30, 2004, 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 - -------------------------------------------------------------------------------- 30 AMR INVESTMENT SERVICES TRUST PORTFOLIOS STATEMENTS OF ASSETS AND LIABILITIES June 30, 2004 (Unaudited) ================================================================================ U.S. GOVERNMENT MUNICIPAL MONEY MARKET MONEY MARKET MONEY MARKET ============ =============== ============ (IN THOUSANDS) ASSETS: Investments in securities at value (cost - $4,395,066; $199,956; $37,231, respectively)..................................... $4,395,066 $199,956 $37,231 Repurchase agreements (cost - $287,220; $72,887; $0, respectively).................................................... 287,220 72,887 - Receivable for investments sold......................................... - - 2,425 Dividends and interest receivable....................................... 5,513 81 71 ---------- -------- ------- TOTAL ASSETS...................................................... 4,687,799 272,924 39,727 ---------- -------- ------- LIABILITIES: Management and investment advisory fees payable (Note 2)................ 452 21 5 Other liabilities....................................................... 526 5 3 ---------- -------- ------- TOTAL LIABILITIES................................................. 978 26 8 ---------- -------- ------- NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS................... $4,686,821 $272,898 $39,719 ========== ======== ======= See accompanying notes - -------------------------------------------------------------------------------- 31 AMR INVESTMENT SERVICES TRUST PORTFOLIOS STATEMENTS OF OPERATIONS Six Months Ended June 30, 2004 (Unaudited) ================================================================================ U.S. GOVERNMENT MUNICIPAL MONEY MARKET MONEY MARKET MONEY MARKET ============ =============== ============ (IN THOUSANDS) INVESTMENT INCOME: Interest income.................................................... $33,999 $1,321 $238 ------- ------ ---- TOTAL INVESTMENT INCOME....................................... 33,999 1,321 238 ------- ------ ---- EXPENSES: Management and investment advisory fees (Note 2)................... 3,021 122 22 Custodian fees..................................................... 212 9 1 Professional fees.................................................. 52 3 1 Other expenses..................................................... 82 6 1 ------- ------ ---- TOTAL EXPENSES................................................ 3,367 140 25 ------- ------ ---- NET INVESTMENT INCOME...................................................... 30,632 1,181 213 ------- ------ ---- REALIZED GAIN ON INVESTMENTS: Net realized gain on investments................................... 149 11 - ------- ------ ---- NET GAIN ON INVESTMENTS....................................... 149 11 - ------- ------ ---- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $30,781 $1,192 $213 ======= ====== ==== See accompanying notes - -------------------------------------------------------------------------------- 32 AMR INVESTMENT SERVICES TRUST PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS ================================================================================ U.S. GOVERNMENT MUNICIPAL MONEY MARKET MONEY MARKET MONEY MARKET =========================== ========================= ========================= SIX MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED 2004 DECEMBER 31, 2004 DECEMBER 31, 2004 DECEMBER 31, (UNAUDITED) 2003 (UNAUDITED) 2003 (UNAUDITED) 2003 ----------- ----------- ----------- ----------- ---------- ------------ (IN THOUSANDS) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ..................... $ 30,632 $ 52,671 $ 1,181 $ 3,099 $ 213 $ 496 Net realized gain on investments .......... 149 42 11 9 - - ------------ ------------ --------- ----------- -------- --------- TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... 30,781 52,713 1,192 3,108 213 496 ------------ ------------ --------- ----------- -------- --------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Contributions ............................. 35,896,494 55,478,689 540,219 1,085,963 41,273 81,957 Withdrawals ............................... (36,190,071) (57,817,456) (503,583) (1,324,638) (41,554) (154,776) ------------ ------------ --------- ----------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS ...... (293,577) (2,338,767) 36,636 (238,675) (281) (72,819) ------------ ------------ --------- ----------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS .. (262,796) (2,286,054) 37,828 (235,567) (68) (72,323) ------------ ------------ --------- ----------- -------- --------- NET ASSETS: Beginning of period ....................... 4,949,617 7,235,671 235,070 470,637 39,787 112,110 ------------ ------------ --------- ----------- -------- --------- END OF PERIOD ............................. $ 4,686,821 $ 4,949,617 $ 272,898 $ 235,070 $ 39,719 $ 39,787 ============ ============ ========= =========== ======== ========= See accompanying notes - -------------------------------------------------------------------------------- 33 AMR INVESTMENT SERVICES TRUST PORTFOLIOS FINANCIAL HIGHLIGHTS ================================================================================ ========================================================================================== MONEY MARKET ========================================================================================== SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 ----------- ------- ------- ------- ------- ------------ ----------- (UNAUDITED) Total return ......................... 0.51%(A) 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% 0.11% Net investment income .............. 1.01% 1.14% 1.81% 3.95% 6.40% 5.77% 5.11% - -------------------- (A) Not annualized. - -------------------------------------------------------------------------------- 34 ========================================================================================== U.S. GOVERNMENT MONEY MARKET ========================================================================================== SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 - ----------- ------- ------- ------- ------- ------------ ----------- (UNAUDITED) 0.49%(A) 1.11% 1.74% 4.24% N/A N/A N/A 0.11% 0.12% 0.12% 0.11% 0.13% 0.12% 0.12% 0.97% 1.13% 1.71% 3.99% 6.27% 5.67% 4.89% ========================================================================================== MUNICIPAL MONEY MARKET ========================================================================================== SIX MONTHS TWO MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JUNE 30, =========================================== DECEMBER 31, OCTOBER 31, 2004 2003 2002 2001 2000 1999 1999 - ----------- ------- ------- ------- ------- ------------ ----------- (UNAUDITED) 0.49%(A) 1.08% 1.39% 2.71% N/A N/A N/A 0.11% 0.12% 0.12% 0.13% 0.13% 0.14% 0.15% 0.95% 1.05% 1.39% 2.71% 4.05% 3.69% 3.13% See accompanying notes - -------------------------------------------------------------------------------- 35 AMR INVESTMENT SERVICES TRUST NOTES TO FINANCIAL STATEMENTS June 30, 2004 (Unaudited) ================================================================================ 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES AMR Investment Services Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as a no load, open-end management investment company which was organized as a trust under the laws of the State of New York pursuant to a Declaration of Trust dated as of June 27, 1995 and amended on August 11, 1995. Beneficial interests in the Trust are divided into separate series, each having distinct investment objectives and policies. These financial statements relate to the AMR Investment Services Money Market Portfolio, AMR Investment Services U.S. Government Money Market Portfolio and AMR Investment Services Municipal Money Market Portfolio (each a "Portfolio" and collectively the "Portfolios"). The assets of each Portfolio belong only to that Portfolio, and the liabilities of each Portfolio are borne solely by that Portfolio and no other. AMR Investment Services, Inc. (the "Manager") is a wholly-owned subsidiary of AMR Corporation, the parent company of American Airlines, Inc. ("American"), and was organized in 1986 to provide business management, advisory, administrative and asset management consulting services. The following is a summary of the significant accounting policies followed by the Portfolios. Security Valuation Securities of the Portfolios are valued 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. - -------------------------------------------------------------------------------- 36 AMR INVESTMENT SERVICES TRUST NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2004 (Unaudited) ================================================================================ Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimated. Other In the normal course of business, the Portfolios enter into contracts that provide indemnification to the other party or parties against potential costs or liabilities. The Portfolios' maximum exposure under these arrangements is dependent on claims that may be made in the future-and, therefore, cannot be estimated. The Portfolios have had no prior claims or losses pursuant to any such agreement. 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 six months ended June 30, 2004, the cost of air transportation was not material to any of the Funds. - -------------------------------------------------------------------------------- 37 [GRAPHIC OF EAGLE] - -------------------------------------------------------------------------------- 38 [GRAPHIC OF EAGLE] - -------------------------------------------------------------------------------- 39 [GRAPHIC OF EAGLE] - -------------------------------------------------------------------------------- 40 [LOGO OF AMERICAN AADVANTAGE FUNDS] AMERICAN AADVANTAGE FUNDS(R) - -------------------------------------------------------------------------------- To reduce expenses, your financial institution may mail only one copy of the Prospectus, Annual Report, and Semi-Annual Report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please contact your financial institution. They will begin sending you individual copies thirty days after receiving your request. TO OBTAIN MORE INFORMATION ABOUT THE FUNDS: [GRAPHIC OF KEYBOARD] [GRAPHIC OF MOUSE] BY E-MAIL: ON THE INTERNET: American_AAdvantage.Funds@aa.com Visit our website at www.aafunds.com - -------------------------------------------------------------------------------- [GRAPHIC OF TELEPHONE] [GRAPHIC OF MAILBOX] BY TELEPHONE: BY MAIL: Cash Management Class PlanAhead Class(R) Cash Management Class Institutional Class ------------------ Institutional Class ------------------- Call (800) 388-3344 Platinum Class(SM) PlanAhead Class(R) Call (800) 658-5811 ------------------ ------------------ American AAdvantage Funds American AAdvantage Funds Platinum Class(SM) 4151 Amon Carter Blvd., MD 2450 P.O. Box 219643 ------------------ Fort Worth, TX 76155 Kansas City, MO 64121-9643 Call (800) 967-9009 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] 531394 [LOGO OF AMERICAN AADVANTAGE FUNDS] AMERICAN AADVANTAGE FUNDS(R) - -----------------------------------[GRAPHIC]------------------------------------ SEMI-ANNUAL REPORT JUNE 30, 2004 [GRAPHIC] TREASURY INFLATION PROTECTED SECURITIES FUND MANAGED BY AMR INVESTMENTS AMERICAN AADVANTAGE TREASURY INFLATION PROTECTED SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2004 (Unaudited) ================================================================================ (in thousands, except share and per share amounts) ASSETS: Cash................... $ 1 ------- TOTAL ASSETS.............. 1 ------- NET ASSETS................ $ 1 ======= ANALYSIS OF NET ASSETS: Paid-in-capital........ 1 ------- NET ASSETS................ $ 1 ======= Shares outstanding (no par value): Institutional Class.... 100 ======= Net asset value, offering and redemption price per share: Institutional Class.... $ 10.00 ======= See accompanying notes 1 AMERICAN AADVANTAGE TREASURY INFLATION PROTECTED SECURITIES FUND STATEMENT OF OPERATIONS One Day Ended June 30, 2004 (Unaudited) ================================================================================ (in thousands) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $ -- ===== See accompanying notes 2 AMERICAN AADVANTAGE TREASURY INFLATION PROTECTED SECURITIES FUND STATEMENT OF CHANGES IN NET ASSETS ================================================================================ (in thousands) ONE DAY ENDED JUNE 30, 2004 ------------- (UNAUDITED) INCREASE IN NET ASSETS: CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares................... $ 1 ------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS.............. 1 ------------- NET INCREASE IN NET ASSETS......................... 1 ------------- NET ASSETS: Beginning of period............................. -- ------------- END OF PERIOD................................... $ 1 ============= See accompanying notes 3 AMERICAN AADVANTAGE TREASURY INFLATION PROTECTED SECURITIES FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) ================================================================================ ONE DAY ENDED JUNE 30, 2004 (A) ------------- (UNAUDITED) Net asset value, beginning of period.. $ 10.00 ------------- Net investment income.............. --(B) Less dividends from net investment income.......................... --(B) ------------- Net asset value, end of period........ $ 10.00 ============= Total return.......................... N/A ============= Ratios and supplemental data: Net assets, end of period (in thousands).................. $ 1 Ratios to average net assets (annualized): Expenses 0.00% Net investment income 0.00% Decrease reflected in above expense ratio due to absorption of expenses by the Manager.................. 3952.80% <FN> A The American AAdvantage Treasury Inflation Protected Securities Fund commenced active operations on June 30, 2004. B Amount is less than $0.01 per share. </FN> 4 AMERICAN AADVANTAGE TREASURY INFLATION PROTECTED SECURITIES FUND NOTES TO FINANCIAL STATEMENTS June 30, 2004 (Unaudited) ================================================================================ Note 1-Organization and Significant Accounting Policies Organization American AAdvantage Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a no load, open-end management investment company. The American AAdvantage Treasury Inflation Protected Securities Fund (the "Fund") is a series of the Trust and commenced active operations on June 30, 2004. 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 Fund. Security Valuation Net asset value per share is calculated as of the close of business on the New York Stock Exchange, normally 4:00 pm Eastern Time. Debt securities (other than short-term securities) normally are valued on the basis of prices provided by a pricing service and may take into account appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. In some cases, the prices of debt securities may be determined using quotes obtained from brokers. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Investment grade short-term obligations with 60 days or less to maturity are valued using the amortized cost method. Securities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are valued at fair value, as determined in good faith and pursuant to procedures approved by the Board. Security Transactions and Investment Income Security transactions are recorded on the trade date of the security purchase or sale. Dividend income is recorded on the ex-dividend date. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. Dividends to Shareholders The Fund generally declares dividends from net investment income daily, payable monthly. Distributions, if any, of net realized capital gains are generally paid annually and recorded on the ex-dividend date. Federal Income and Excise Taxes It is the policy of the Fund 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. 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. Actual results may differ from those estimated. Other In the normal course of business, the Fund enters into contracts that provide indemnification to the other party or parties against potential costs or liabilities. The Fund's maximum exposure under these arrangements is dependent on claims that may be made in the future and, therefore, cannot be estimated. The Fund has had no prior claims or losses pursuant to any such agreement. Note 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, fund management and securities lending services. Investment assets of the Fund are managed by multiple investment advisers which have entered into separate investment advisory agreements with the Manager. As compensation for performing the duties required under the Management Agreement, the Manager receives from the Fund an annualized fee equal to 0.10% of the average daily net assets plus amounts paid by the Manager to the investment advisers hired by the Manager to direct investment activities of the Fund. 5 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 Fund. As compensation for performing the duties required under the Administrative Services Agreement, the Manager receives an annualized fee of .10% of the average daily net assets of the Fund. Investment in Affiliated Funds The Fund may invest in the American AAdvantage Money Market Select Fund (the "Select Fund"). Cash collateral received by the Fund in connection with securities lending may be invested in the Select Fund and the AMR Investments Enhanced Cash Business Trust (collectively, the "Affiliated Funds"). The Manager serves as Trustee and investment adviser to the Affiliated Funds and receives from the Affiliated Funds an annualized fee equal to 0.10% of the average daily net assets. 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 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 one day ended June 30, 2004, the cost of air transportation was not material to the Fund. Note 3-Capital Share Transactions The table below summarizes the activity in capital shares: FOR THE ONE DAY ENDED JUNE 30, 2004 (UNAUDITED) - ------------------------- SHARES AMOUNT -------- -------- Sold.................... 100 $ 1,000 Reinvested.............. -- -- Redeemed................ -- -- -------- -------- Net increase............ 100 $ 1,000 ======== ======== 6 [AMERICAN AADVANTAGE FUNDS LOGO] - ---------------------------------------o--------------------------------------- SEMI-ANNUAL REPORT June 30, 2004 [GRAPHIC] INDEX FUNDS 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................... 4 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................. 15 State Street Equity 500 Index Portfolio Portfolio of Investments............. 19 Statement of Assets and Liabilities.. 25 Statement of Operations.............. 26 Statements of Changes in Net Assets.. 27 Financial Highlights................. 28 Notes to Financial Statements........ 29 Master Small Cap Index Series Schedule of Investments.............. 32 Statement of Assets and Liabilities.. 63 Statement of Operations.............. 64 Statements of Changes in Net Assets.. 65 Financial Highlights................. 66 Notes to Financial Statements........ 67 Master International Index Series Schedule of Investments.............. 71 Statement of Assets and Liabilities.. 95 Statement of Operations.............. 96 Statements of Changes in Net Assets.. 97 Financial Highlights................. 98 Notes to Financial Statements........ 99 Additional Information.....Inside Back Cover </Table> American AAdvantage Funds June 30, 2004 [BILL QUINN PICTURE] FELLOW SHAREHOLDERS: I am pleased to present you with the Semi-Annual Report for the index series of the American AAdvantage Funds for the six months ended June 30, 2004. During the first half of 2004, investors were greeted by good economic news such as strong earnings growth, a surge in job figures, and a growing US economy. They also remained cautious about inflation, the situation in Iraq, and additional threats of terrorism. The major market indices reflected this with modest returns for the six-month period. The S&P 500 Index increased by 3.44%, the EAFE Index returned 4.56%, while the Dow Jones Industrial Average grew by just 0.81% for the six-months ended June 30, 2004. During the period, the Institutional Class of the American AAdvantage S&P 500 Index Fund posted an increase of 3.42%, the American AAdvantage Small Cap Index Fund was up 6.57%, and the American AAdvantage International Equity Index Fund returned 4.62%. For those investors seeking to reflect market returns in their portfolios, the index series of the American AAdvantage Funds 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 - -------------------------------------------------------------------------------- DOMESTIC MARKET UPDATE Through the first six months of 2004, the S&P 500 Index posted a return of 3.44%. March and April were the only two months that generated negative returns. Despite a lackluster second quarter return of 0.47%, small capitalization stocks maintained their out performance of large and mid caps. The Russell 2000(R) Index, a popular measure of the small cap segment of the market, posted a 6.76% return through June 2004. The S&P Midcap Index also posted a healthy return of 6.09% for the first six months. Large cap growth stocks performed better in the second quarter than large cap value. However, after the first six months, the large cap growth sector still lagged its value counterpart as the Russell 1000(R) Value Index returned 3.94% for the first half of the year and the Russell 1000 Growth Index generated a return of 2.74%. Consistent themes have weighed on the equity markets in 2004. Instability in Iraq, higher oil prices and the prospect of increased interest rates by the Fed all contributed to a cautious market. The Fed took the long anticipated action on June 30 of raising rates by 0.25%. Although rates remained at historical lows, the markets remained subdued as many expect more increases to follow as the Federal Reserve tries to keep inflation in check. By the end of April most equity markets were posting losses, while at April 30, the S&P 500 Index return year to date was a mere 0.10%. A strong showing in May and June as the economy's outlook brightened helped equities end in positive territory. INTERNATIONAL MARKET UPDATE The first half of 2004 showed flat to positive returns for the global equity markets influenced mainly by indecisive global investors. This behavior stemmed from continued political tension in the U.S., violence in Iraq, record high oil prices, and improving economic data over the quarter. European markets showed unimpressive returns with the FTSE 100 closing at 4,464.10, returning -0.29% in Sterling and the MSCI World Index up 2.53% in US dollars with a closing level of 1,062.51. While the Euro gradually lost strength, returning -3.54% for the first half of the year, the Asian economy gained financial power represented by the Japanese Yen up 1.81% compared to the USD for the six-month period. Real growth is anticipated to reach five-year highs and equity markets are expected to outperform cash and bonds for the rest of the year. Politics will be the main driver of future performance of international markets as the Iraqi hand-over took place at the end of June at the same time as the European Union and Canadian parliamentary elections. The U.S. Presidential campaigns will also affect global markets moving closer to the election date, as will the Federal Reserve's accommodative monetary policy. 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, Russel 1000 Value Index and Russell 1000 Growth Index are service marks of the Frank Russell Company. 3 PERFORMANCE OVERVIEW AMERICAN AADVANTAGE S&P 500 INDEX FUND+ - -------------------------------------------------------------------------------- For the six months ended June 30, 2004, the total return of the Institutional Class of the American AAdvantage S&P 500 Index Fund was 3.4%. The Fund performed in line with the S&P 500 Index return of 3.4% and exceeded the Lipper S&P 500 Objective Funds Index return of 3.3%. <Table> <Caption> ANNUALIZED TOTAL RETURNS ------------------------------------- PERIODS ENDED 6/30/04 ------------------------------------- SINCE INCEPTION 1 YEAR 3 YEAR 5 YEAR (12/31/96) ------ ------ ------ ---------- Institutional Class(1)... 18.89% -0.93% -2.39% 7.37% PlanAhead Class(1,2)..... 18.32% -1.39% -2.78% 7.02% Lipper S&P 500 Index..... 18.71% -1.01% -2.49% 7.23% S&P 500 Index............ 19.11% -0.69% -2.21% 7.53% </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. All ten sectors of the S&P 500 Index (the "Index") had positive returns year-to-date. Not surprisingly, rising oil prices helped make Energy the top- performing sector, gaining 13.1%. Industrials, led by GE, also performed very well and finished the period up 7.4%. Consumer Staples ranked third with a return of 6.1% for the period. Information Technology was the weakest performing sector for the six months, rising only 0.45%. The top contributors to the Index's return for the six-month period ended June 30, 2004 were Exxon Mobil (up 9.6%), General Electric (up 5.8%) and Yahoo (up 61.6%). The largest detractors for the first half of 2004 were Intel (down 13.6%), Viacom (down 19.2%) and Comcast (down 14.3%). As of June 30, 2004, the Fund's largest sector weightings were Financial Services (20.3% of assets), Information Technology (16.6% of assets), and Health Care (13.3% of assets), consistent with the top sector weightings in the Index. The investment manager continues to utilize a replication strategy, owning all 500 names in the S&P 500 Index. Therefore the Fund is expected to continue to meet its objective of closely tracking, before expenses, the return of its benchmark, the S&P 500 Index. TOP TEN HOLDINGS <Table> <Caption> % OF EQUITIES* -------------- General Electric Co. 3.2% Microsoft Corp. 2.9% Exxon Mobil Corp. 2.7% Pfizer, Inc. 2.5% Citigroup, Inc. 2.3% Wal Mart Stores, Inc. 2.1% American Int'l Group, Inc. 1.8% Intel Corp. 1.7% Bank of America Corp. 1.6% Johnson & Johnson Co. 1.6% </Table> EQUITY SECTOR ALLOCATION <Table> <Caption> % OF EQUITIES* -------------- Financials 20.3% Information Technology 16.6% Consumer Discretionary 13.3% Health Care 13.3% Industrials 12.1% Consumer Staples 8.8% Energy 6.4% Telecommunication Services 3.4% Materials 3.0% 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 six months ended June 30, 2004, the total return of the Institutional Class of the American AAdvantage Small Cap Index Fund was 6.6%. The Fund's performance tracked closely to the Russell 2000(R) Index return of 6.8%, and lagged the Lipper Small-Cap Core Funds Index return of 7.8%. <Table> <Caption> ANNUALIZED TOTAL RETURNS --------------------------- PERIODS ENDED 6/30/04 --------------------------- SINCE INCEPTION 1 YEAR 3 YEAR (7/31/00) ------ ------ --------- Institutional Class(1).............. 32.90% 6.18% 5.64% Lipper Small-Cap Core Index......... 32.79% 7.21% 7.66% Russell 2000 Index.................. 33.37% 6.24% 5.77% </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. Of the 12 Russell 2000 Index ("Index") sectors, 11 posted positive returns for the six-month period. The top-performing sector was Other Energy, returning an impressive 25.1%, followed by Integrated Oils and Other (which includes many conglomerates), up 22.7% and 19.3%, respectively. The worst-performing sector for the six-month period was Technology, with a return of -4.9%, followed by Financial Services, up 4.6%, and Utilities, up 5.1%. As of June 30, 2004, the Fund's largest sector weightings were Financial Services (22.6% of assets), Consumer Discretionary (18.5% of assets), Technology (13.6% of assets) and Health Care (12.6% of assets), consistent with the top sector weightings in the Index. The top Index performers for the first half of the year were Midway Games, Inc. (up 197%), PalmOne, Inc. (up 196%), W.R. Grace & Co. (up 141%) and Coldwater Creek, Inc. (also up 141%). The bottom individual Index performers were Oneida Ltd. (down 85%), Horizon Offshore, Inc. (down 81%) and aaiPharma, Inc. (down 79%). 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* -------------- Techne Corp. 0.18% Corn Products Int'l Inc. 0.18% Tesoro Petroleum Corp. 0.18% The Toro Co. 0.18% Kennametal, Inc. 0.17% Calpine Corp. 0.17% CarrAmerica Realty Corp. 0.17% AmerUs Group Co. 0.17% Hyperion Solutions Corp. 0.17% York International Corp. 0.17% </Table> EQUITY SECTOR ALLOCATION <Table> <Caption> % OF EQUITIES* -------------- Financial Services 22.6% Consumer Discretionary 18.5% Technology 13.6% Health Care 12.6% Materials & Processing 9.4% Producer Durables 8.0% Other Energy 4.4% Autos and Transportation 4.4% Utilities 4.0% Consumer Staples 2.0% Other 0.4% Integrated Oils 0.1% </Table> * Percent of equity portion of Master Small Cap Index Series 5 PERFORMANCE OVERVIEW AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND(SM) - -------------------------------------------------------------------------------- For the six months ended June 30, 2004, the Institutional Class of the American AAdvantage International Equity Index Fund posted a total return of 4.6%, closely tracking the MSCI EAFE Index return of 4.6% and outperforming the Lipper International Funds Index return of 3.9%. <Table> <Caption> ANNUALIZED TOTAL RETURNS --------------------------- PERIODS ENDED 6/30/04 --------------------------- SINCE INCEPTION 1 YEAR 3 YEAR (7/31/00) ------ ------ --------- Institutional Class(1).............. 32.20% 3.79% -3.01% Lipper Int'l. Funds Index........... 29.38% 3.92% -2.59% EAFE Index(2)....................... 32.37% 3.93% -2.79% </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. Of the 21 countries in the MSCI EAFE Index ("EAFE"), 18 posted positive returns for the six-month period. The top performer was Austria, up 24.7%, followed by Norway and Ireland, with respective returns of 16.6% and 13.8%, all in U.S. dollars. The worst performers for the first two quarters were Finland, Germany, and the Netherlands with respective returns of -7.4%, -0.9%, and -0.7%. Turning to sector performance, nine out of ten EAFE sectors posted positive returns for the first half of the year led by Energy (up 9.8%), Materials (up 9.0%), and Industrials (up 8.7%). Lagging performers were Utilities (down 3.2%), Telecommunication Services (up 0.4%), and Information Technology (up 2.4%). The top EAFE performers for the six-month period were Elan Corp. (up 258%), Aristocrat Leisure Ltd. (up 160%) and Leopalace21 Corp. (up 98%). The bottom Index performers were Seat Pagine Gialle SpA (down 56%), Intracom SA, Tiscali SpA and Business Objects SA (all down 36%). As of June 30, 2004, the Fund's largest country weightings were the United Kingdom (25%) and Japan (24%), while the largest sector weightings were Financials (26%) and Consumer Discretionary (14%). 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 2.5% HSBC Holdings plc 2.1% Vodafone Group plc 1.9% GlaxoSmithKline plc 1.6% Toyota Motor Corp. 1.5% Total SA 1.4% Nestle SA 1.4% Royal Dutch Petroleum Co. 1.4% Novartis AG 1.3% Royal Bank of Scotland Group 1.1% </Table> EQUITY SECTOR ALLOCATION <Table> <Caption> % OF EQUITIES* EAFE -------------- ----- Financials 26.3% 26.3% Consumer Discretionary 13.7% 13.7% Industrials 9.4% 9.5% Consumer Staples 8.6% 8.6% Energy 8.2% 8.1% Health Care 7.9% 7.9% Information Technology 7.2% 7.2% Telecommunication Services 7.1% 7.2% Materials 6.7% 6.7% Utilities 4.9% 4.8% </Table> COUNTRY ALLOCATION (COUNTRY WEIGHTINGS PIE CHART) <Table> <Caption> % OF EQUITIES* EAFE -------------- ----- United Kingdom 25.1% 25.1% Japan 24.2% 24.1% France 8.7% 8.8% Switzerland 7.1% 7.1% Germany 6.9% 6.9% Australia 4.9% 4.8% Netherlands 4.9% 4.9% Italy 3.8% 3.8% Spain 3.5% 3.6% Sweden 2.4% 2.4% Hong Kong 1.6% 1.6% Finland 1.4% 1.4% Belgium 1.2% 1.2% Denmark 0.8% 0.8% Ireland 0.8% 0.8% Singapore 0.8% 0.8% Greece 0.5% 0.5% Norway 0.5% 0.5% Portugal 0.4% 0.4% Austria 0.3% 0.3% 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 June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- (in thousands, except share and per share amounts) <Table> <Caption> S&P 500 SMALL CAP INTERNATIONAL INDEX INDEX EQUITY INDEX ----------- ---------- ------------- ASSETS: Investment in master portfolio, at value................ $ 278,819 $ 39,781 $ 17,917 Receivable for fund shares sold......................... 54 1,268 886 Other assets............................................ -- -- 1 ----------- ---------- ---------- TOTAL ASSETS........................................ 278,873 41,049 18,804 ----------- ---------- ---------- LIABILITIES: Payable for fund shares redeemed........................ 1,635 -- -- Administrative service fees payable (Note 2)............ 17 1 1 Other liabilities....................................... 38 3 -- ----------- ---------- ---------- TOTAL LIABILITIES................................... 1,690 4 1 ----------- ---------- ---------- NET ASSETS.................................................. $ 277,183 $ 41,045 $ 18,803 =========== ========== ========== ANALYSIS OF NET ASSETS: Paid-in capital......................................... $ 268,928 $ 32,425 $ 18,614 Undistributed net investment income..................... 1,126 187 258 Accumulated net realized gain (loss).................... (46,195) 984 (1,167) Unrealized net appreciation of investments and futures contracts............................................. 53,324 7,449 1,098 ----------- ---------- ---------- NET ASSETS.................................................. $ 277,183 $ 41,045 $ 18,803 =========== ========== ========== SHARES OUTSTANDING (NO PAR VALUE): Institutional Class..................................... 15,290,482 3,418,339 2,244,031 =========== ========== ========== PlanAhead Class......................................... 2,553,192 N/A N/A =========== ========== ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE: Institutional Class..................................... $ 15.56 $ 12.01 $ 8.38 =========== ========== ========== PlanAhead Class......................................... $ 15.39 N/A N/A =========== ========== ========== </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 8 AMERICAN AADVANTAGE FUNDS STATEMENTS OF OPERATIONS For the Six Months Ended June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- (in thousands) <Table> <Caption> S&P 500 SMALL CAP INTERNATIONAL INDEX INDEX EQUITY INDEX ------- --------- ------------- INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO: Portfolio income........................................ $2,263 $ 218 $260 Portfolio expenses...................................... (62) (19) (6) ------- ------ ---- NET INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO......................................... 2,201 199 254 ------- ------ ---- FUND EXPENSES: Administrative service fees (Note 2): Institutional Class................................. 60 12 4 PlanAhead Class..................................... 47 -- -- Transfer agency fees: Institutional Class................................. 37 4 2 PlanAhead Class..................................... 7 -- -- Custody and Accounting fees............................. 6 12 4 Professional fees....................................... 10 1 -- Registration fees....................................... 11 1 2 Service fees - PlanAhead Class (Note 2)................. 47 -- -- Printing................................................ 20 4 -- Other expenses.......................................... 13 -- -- ------- ------ ---- TOTAL FUND EXPENSES................................. 258 34 12 ------- ------ ---- NET INVESTMENT INCOME....................................... 1,943 165 242 ------- ------ ---- REALIZED AND UNREALIZED GAIN (LOSS) ALLOCATED FROM MASTER PORTFOLIO: Net realized gain (loss) from investment transactions... (1,623) 1,624 105 Net realized gain from futures transactions............. 414 -- -- Net change in unrealized appreciation of investments and futures contracts..................................... 8,401 1,814 127 ------- ------ ---- NET GAIN ON INVESTMENTS............................. 7,192 3,438 232 ------- ------ ---- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $9,135 $3,603 $474 ======= ====== ==== </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 9 AMERICAN AADVANTAGE FUNDS STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- (in thousands) <Table> <Caption> S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX -------------------------- -------------------------- -------------------------- SIX MONTHS SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 2004 2003 2004 2003 2004 2003 ----------- ------------ ----------- ------------ ----------- ------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income................ $ 1,943 $ 3,826 $ 165 $ 253 $ 242 $ 175 Net realized gain (loss) on investments and futures transactions....................... (1,209) (10,276) 1,624 264 105 (66) Change in net unrealized appreciation (depreciation) of investments and futures contracts.................. 8,401 69,056 1,814 8,677 127 2,328 -------- --------- -------- -------- -------- ------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... 9,135 62,606 3,603 9,194 474 2,437 -------- --------- -------- -------- -------- ------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional Class.............. (864) (3,602) -- (242) -- (148) PlanAhead Class.................. (100) (356) -- -- -- -- -------- --------- -------- -------- -------- ------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS.................... (964) (3,958) -- (242) -- (148) -------- --------- -------- -------- -------- ------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares........ 22,655 185,256 59,779 67,986 19,192 6,510 Reinvestments of dividends and distributions...................... 959 3,847 -- 242 -- 148 Cost of shares redeemed.............. (34,582) (188,024) (90,093) (20,651) (10,906) (3,816) -------- --------- -------- -------- -------- ------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS.................... (10,968) 1,079 (30,314) 47,577 8,286 2,842 -------- --------- -------- -------- -------- ------- NET INCREASE (DECREASE) IN NET ASSETS... (2,797) 59,727 (26,711) 56,529 8,760 5,131 -------- --------- -------- -------- -------- ------- NET ASSETS: Beginning of period.................. 279,980 220,253 67,756 11,227 10,043 4,912 -------- --------- -------- -------- -------- ------- END OF PERIOD*....................... $277,183 $ 279,980 $ 41,045 $ 67,756 $ 18,803 $10,043 ======== ========= ======== ======== ======== ======= * Includes undistributed net investment income of............... $ 1,126 $ 147 $ 187 $ 22 $ 258 $ 16 ======== ========= ======== ======== ======== ======= </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 10 AMERICAN AADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American AAdvantage Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940 (the "Act"), as amended, as a no load, open-end management investment company. These financial statements and notes to the financial statements relate to the American AAdvantage S&P 500 Index Fund, the American AAdvantage Small Cap Index Fund and the American AAdvantage International Equity Index Fund (each a "Fund" and collectively, the "Funds"), each a series of the Trust. The S&P 500 Index Fund commenced operations on December 31, 1996, and commenced sale of a second class of shares of the Fund, designated as "PlanAhead Class" shares, on March 2, 1998. The Institutional Classes of the Small Cap Index and the International Equity Index Funds commenced operations on July 31, 2000. Each Fund invests all of its investable assets in a corresponding portfolio. The State Street Equity 500 Index Portfolio, Master Small Cap Index Series and the Master International Index Series (each a "Portfolio" and collectively the "Portfolios") are open-ended management investment companies registered under the Act. The value of such investment reflects each Fund's proportionate interest in the net assets of the corresponding Portfolio. <Table> <Caption> % OF PORTFOLIO HELD BY FUND AT AMERICAN AADVANTAGE: PORTFOLIOS: JUNE 30, 2004 - -------------------- ----------- --------------- S&P 500 Index Fund State Street Equity 500 Index Portfolio 10.3% Small Cap Index Fund Master Small Cap Index Series 11.2% International Equity Index Fund Master International Index Series 3.7% </Table> The financial statements of the Portfolios are included elsewhere in this report and should be read in conjunction with the Funds' financial statements. AMR Investment Services, Inc. (the "Manager") is a wholly-owned subsidiary of AMR Corporation, the parent company of American Airlines, Inc. ("American"), and was organized in 1986 to provide business management, advisory, administrative and asset management consulting services to the Trust and other investors. The following is a summary of the significant accounting policies followed by the Funds. Valuation of Investments Valuation of securities by each Portfolio is discussed in the Portfolio's Notes to Financial Statements which are included elsewhere in this report. Investment Income Each Fund records its share of net investment income and realized and unrealized gains and losses from the security transactions of its corresponding Portfolio each day. All net investment income and realized and unrealized gains (losses) of the Portfolio are allocated pro rata among the investors in the Portfolio at the time of such determination. Dividends Dividends from net investment income of the Small Cap Index and International Equity Index Funds normally will be declared and paid annually. The S&P 500 Index Fund normally will declare and pay dividends quarterly. Distributions of net realized capital gains earned by the Funds, if any, - -------------------------------------------------------------------------------- 11 AMERICAN AADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- will be paid annually. Dividends are determined in accordance with income tax principles which may treat certain transactions differently than generally accepted accounting principles. The following percentages of fund dividends are eligible for the reduced rate attributed to qualified dividend income under the Jobs and Growth Tax Relief Reconciliation Act of 2003: S&P 500 Index (100%), Small Cap Index (75%), and International Equity Index (76%). The tax character of distributions during the six months ended June 30, 2004 and the fiscal year ended December 31, 2003 were as follows (in thousands): <Table> <Caption> S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX --------------------------- --------------------------- --------------------------- SIX MONTHS SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 2004 2003 2004 2003 2004 2003 ---------- ------------ ---------- ------------ ---------- ------------ DISTRIBUTIONS PAID FROM: ORDINARY INCOME Institutional Class... $864 $3,602 $ 0 $242 $ 0 $148 Plan Ahead Class...... 100 356 -- -- -- -- ---- ------ ----- ---- ---- ---- TOTAL DISTRIBUTIONS PAID..... $964 $3,958 $ 0 $242 $ 0 $148 ==== ====== ===== ==== ==== ==== </Table> Federal Income and Excise Taxes It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute substantially all net investment income as well as any net realized capital gains on the sale of investments. Therefore, no federal income or excise tax provision is required. At December 31, 2003, the Funds had, for federal income tax purposes, capital loss carryforwards available to offset future realized gains 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> 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. - -------------------------------------------------------------------------------- 12 AMERICAN AADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. Other In the normal course of business, the Funds enter into contracts that provide indemnification to the other party or parties against potential costs or liabilities. The Funds' maximum exposure under these arrangements is dependent on claims that may be made in the future and, therefore, cannot be estimated. The Funds have had no prior claims or losses pursuant to any such agreement. 2. FEES AND TRANSACTIONS WITH AFFILIATES Administrative Services Agreement The Manager and the Trust entered into an Administrative Services Agreement that obligates the Manager to provide or oversee administrative and management services to the Fund. As compensation for performing the duties required under the Administrative Services Agreement, the Manager receives an annualized fee of 0.05% of the average daily net assets of the Institutional Class of the S&P 500 Index Fund, International Equity Index Fund, and Small Cap Index Fund and an annualized fee of 0.25% of the average daily net assets of the PlanAhead Class of the S&P 500 Index Fund. Service Agreement The Manager and the Trust entered into a Service Agreement which obligates the Manager to oversee additional shareholder servicing of the PlanAhead Class of the S&P 500 Index Fund. As compensation for performing the duties required under the Service Agreement, the Manager receives 0.25% based on the daily net assets of the PlanAhead Class of the S&P 500 Index Fund. Other Certain officers or Trustees of the Trust are also officers of the Manager or American. The Trust makes no direct payments to its officers. Unaffiliated Trustees and their spouses are provided unlimited air transportation on American. However, the Trust compensates each Trustee with payments in an amount equal to the Trustee's income tax on the value of this free airline travel. For the six months ended June 30, 2004, the cost of air transportation for the Trustees was not material to any of the Funds. One Non-Interested Trustee, as a retiree of American, already receives flight benefits. This Trustee receives an annual retainer of $40,000 plus $1,250 for each Board meeting attended. At June 30, 2004, the employee benefit plans of AMR Corporation and its subsidiary companies owned 88.7% 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. - -------------------------------------------------------------------------------- 13 AMERICAN AADVANTAGE FUNDS NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 3. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares of the Funds: S&P 500 INDEX FUND <Table> <Caption> FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------------------- --------------------------- INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT - ------------------- ---------- ------------ ----------- ------------- Shares sold....................... 966,790 $ 14,858,244 14,142,227 $ 171,509,436 Reinvestment of dividends......... 56,086 862,606 260,652 3,501,218 Shares redeemed................... (1,970,755) (30,253,783) (14,504,514) (176,989,380) ---------- ------------ ----------- ------------- Net decrease in capital shares outstanding..................... (947,879) $(14,532,933) (101,635) $ (1,978,726) ========== ============ =========== ============= </Table> <Table> <Caption> FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------------------ ------------------------ PLANAHEAD CLASS SHARES AMOUNT SHARES AMOUNT - --------------- --------- ------------ --------- ------------ Shares sold............................. 510,425 $ 7,796,502 1,087,611 $ 13,747,224 Reinvestment of dividends............... 6,350 96,771 25,890 346,072 Shares redeemed......................... (284,889) (4,327,877) (891,739) (11,034,987) -------- ----------- --------- ------------ Net increase in capital shares outstanding........................... 231,886 $ 3,565,396 221,762 $ 3,058,309 ======== =========== ========= ============ </Table> SMALL CAP INDEX FUND <Table> <Caption> FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------------------- ------------------------- INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT - ------------------- ---------- ------------ ---------- ------------ Shares sold......................... 5,075,953 $ 59,779,096 6,641,904 $ 67,985,621 Reinvestment of dividends........... -- -- 21,770 241,866 Shares redeemed..................... (7,670,739) (90,092,831) (2,108,632) (20,651,424) ---------- ------------ ---------- ------------ Net increase (decrease) in capital shares outstanding................ (2,594,786) $(30,313,735) 4,555,042 $ 47,576,063 ========== ============ ========== ============ </Table> INTERNATIONAL EQUITY INDEX FUND <Table> <Caption> FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------------------- ---------------------- INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT - ------------------- ---------- ------------ -------- ----------- Shares sold............................ 2,315,920 $ 19,192,334 942,076 $ 6,510,253 Reinvestment of dividends.............. -- -- 19,104 148,248 Shares redeemed........................ (1,325,455) (10,906,427) (545,169) (3,816,176) ---------- ------------ -------- ----------- Net increase in capital shares outstanding.......................... 990,465 $ 8,285,907 416,011 $ 2,842,325 ========== ============ ======== =========== </Table> - -------------------------------------------------------------------------------- 14 AMERICAN AADVANTAGE S&P 500 INDEX FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period) - -------------------------------------------------------------------------------- <Table> <Caption> INSTITUTIONAL CLASS ------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------------- 2004 2003 2002 2001 2000(B) 1999 ----------- -------- -------- -------- -------- -------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD.... $ 15.10 $ 11.96 $ 15.62 $ 17.99 $ 20.05 $ 16.78 -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS:(A) Net investment income............... 0.11 0.21 0.20 0.20 0.23 0.19 Net gains (losses) on securities (both realized and unrealized).... 0.41 3.14 (3.66) (2.38) (2.05) 3.27 -------- -------- -------- -------- -------- -------- Total from investment operations........ 0.52 3.35 (3.46) (2.18) (1.82) 3.46 -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income............................ (0.06) (0.21) (0.20) (0.19)(C) (0.24)(C) (0.19) -------- -------- -------- -------- -------- -------- Total distributions..................... (0.06) (0.21) (0.20) (0.19) (0.24) (0.19) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD.......... $ 15.56 $ 15.10 $ 11.96 $ 15.62 $ 17.99 $ 20.05 ======== ======== ======== ======== ======== ======== TOTAL RETURN............................ 3.42%(D) 28.26% (22.27%) (12.12%) (9.15%) 20.70% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands)........................ $237,885 $245,251 $195,368 $254,289 $321,805 $568,645 Ratios to average net assets (annualized):(A) Net investment income.......... 1.46% 1.63% 1.47% 1.22% 1.09% 1.28% Expenses....................... 0.17% 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. (D) Not annualized. - -------------------------------------------------------------------------------- 15 AMERICAN AADVANTAGE S&P 500 INDEX FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period) - -------------------------------------------------------------------------------- <Table> <Caption> PLANAHEAD CLASS ---------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------- 2004 2003 2002 2001 2000(B) 1999 ----------- ------- -------- -------- ------- ------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 14.96 $ 11.85 $ 15.49 $ 17.99 $ 20.12 $ 16.83 ------- ------- -------- -------- ------- ------- INCOME FROM INVESTMENT OPERATIONS:(A) Net investment income....... 0.08 0.15 0.14 0.14 0.13 0.15 Net gains (losses) on securities (both realized and unrealized)........... 0.39 3.12 (3.64) (2.39) (2.00) 3.25 ------- ------- -------- -------- ------- ------- Total from investment operations.................... 0.47 3.27 (3.50) (2.25) (1.87) 3.40 ------- ------- -------- -------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income......... (0.04) (0.16) (0.14) (0.25)(C) (0.26)(C) (0.11) ------- ------- -------- -------- ------- ------- Total distributions............. (0.04) (0.16) (0.14) (0.25) (0.26) (0.11) ------- ------- -------- -------- ------- ------- NET ASSET VALUE, END OF PERIOD.. $ 15.39 $ 14.96 $ 11.85 $ 15.49 $ 17.99 $ 20.12 ======= ======= ======== ======== ======= ======= TOTAL RETURN.................... 3.14%(D) 27.65% (22.59%) (12.48%) (9.38%) 20.24% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands)............ $39,298 $34,729 $ 24,885 $ 32,284 $ 5,143 $ 6,173 Ratios to average net assets (annualized):(A) Net investment income.. 1.01% 1.16% 1.06% 0.89% 0.66% 0.91% Expenses............... 0.62% 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. (D) Not annualized. - -------------------------------------------------------------------------------- 16 AMERICAN AADVANTAGE SMALL CAP INDEX FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period) - -------------------------------------------------------------------------------- <Table> <Caption> INSTITUTIONAL CLASS ------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31 TO JUNE 30, ---------------------------- DECEMBER 31, 2004 2003 2002 2001 2000 ----------- ------- -------- ------- ------------ (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD.... $ 11.27 $ 7.70 $ 9.79 $ 9.69 $ 10.00 ------- ------- -------- ------- ------- INCOME FROM INVESTMENT OPERATIONS:(A) Net investment income............... 0.05 0.04 0.11 0.09 0.05 Net gains (losses) on securities (both realized and unrealized).... 0.69 3.57 (2.10) 0.11 (0.31) ------- ------- -------- ------- ------- Total from investment operations........ 0.74 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.......... $ 12.01 $ 11.27 $ 7.70 $ 9.79 $ 9.69 ======= ======= ======== ======= ======= TOTAL RETURN............................ 6.57%(B) 46.90% (20.37%) 2.07% (2.59%)(B) RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands)........................ $41,045 $67,756 $ 11,227 $11,803 $ 4,120 Ratios to average net assets (annualized):(A) Net investment income.......... 0.66% 1.04% 1.13% 1.36% 1.61% Expenses....................... 0.21% 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. - -------------------------------------------------------------------------------- 17 AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period) - -------------------------------------------------------------------------------- <Table> <Caption> INSTITUTIONAL CLASS ------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31 TO JUNE 30, ----------------------------- DECEMBER 31, 2004 2003 2002 2001 2000 ----------- ------- -------- -------- ------------ (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD.. $ 8.01 $ 5.86 $ 7.07 $ 9.21 $ 10.00 ------- ------- -------- -------- ------- INCOME FROM INVESTMENT OPERATIONS:(A) Net investment income............. 0.09 0.14 0.11 0.10 0.02 Net gains (losses) on securities (both realized and unrealized)..................... 0.28 2.13 (1.23) (2.12) (0.72) ------- ------- -------- -------- ------- Total from investment operations...... 0.37 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........ $ 8.38 $ 8.01 $ 5.86 $ 7.07 $ 9.21 ======= ======= ======== ======== ======= TOTAL RETURN.......................... 4.62%(B) 38.87% (15.65%) (22.14%) (7.03%)(B) RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands)...................... $18,803 $10,043 $ 4,912 $ 3,773 $ 3,542 Ratios to average net assets (annualized):(A) Net investment income........ 3.20% 2.71% 1.97% 1.49% 0.63% Expenses..................... 0.24% 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. - -------------------------------------------------------------------------------- 18 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) COMMON STOCKS - 97.6% CONSUMER DISCRETIONARY - 10.6% AutoNation, Inc. (a)(f)........ 69,000 $ 1,180 AutoZone, Inc. (a)............. 20,687 1,657 Bed Bath & Beyond, Inc. (a).... 73,414 2,823 Best Buy Co., Inc.............. 80,521 4,086 Big Lots, Inc. (a)............. 29,538 427 Black & Decker Corp............ 19,433 1,207 Brunswick Corp................. 22,629 923 Carnival Corp.................. 156,519 7,356 Centex Corp.................... 30,476 1,394 Circuit City Stores, Inc....... 49,439 640 Clear Channel Communications, Inc.......................... 152,865 5,648 Comcast Corp. (a).............. 556,867 15,648 Cooper Tire & Rubber Co........ 18,637 429 Dana Corp...................... 37,349 732 Darden Restaurants, Inc........ 41,710 857 Delphi Corp.................... 140,767 1,503 Dillard's, Inc. Class A (f).... 19,953 445 Dollar General Corp............ 82,315 1,610 Dow Jones & Co., Inc........... 20,626 930 Eastman Kodak Co. (f).......... 70,837 1,911 eBay, Inc. (a)................. 163,260 15,012 Family Dollar Stores, Inc...... 43,568 1,325 Federated Department Stores, Inc.......................... 45,376 2,228 Ford Motor Co.................. 454,955 7,120 Fortune Brands, Inc............ 36,266 2,736 Gannett Co., Inc............... 67,338 5,714 Gap, Inc....................... 222,430 5,394 General Motors Corp............ 139,573 6,503 Genuine Parts Co............... 42,493 1,686 Goodyear Tire & Rubber Co. (a)(f)....................... 44,442 404 Harley-Davidson, Inc........... 73,338 4,543 Harrah's Entertainment, Inc.... 27,933 1,511 Hasbro, Inc.................... 43,987 836 Hilton Hotels Corp............. 95,443 1,781 Home Depot, Inc................ 552,057 19,432 International Game Technology.. 85,952 3,318 Interpublic Group of Cos., Inc. (a).......................... 102,377 1,406 JC Penney & Co., Inc........... 70,188 2,650 Johnson Controls, Inc.......... 47,296 2,525 Jones Apparel Group, Inc....... 31,079 1,227 KB HOME........................ 11,631 798 Knight-Ridder, Inc............. 19,491 1,403 Kohl's Corp. (a)............... 84,310 3,565 Leggett & Platt, Inc........... 48,554 1,297 Limited Brands................. 115,356 2,157 Liz Claiborne, Inc............. 27,641 995 Lowe's Cos., Inc............... 195,423 10,270 </Table> <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) Marriot International, Inc. Class A...................... 56,939 $ 2,840 Mattel, Inc.................... 104,845 1,913 May Department Stores Co....... 72,467 1,992 Maytag Corp.................... 19,829 486 McDonald's Corp................ 313,553 8,152 McGraw-Hill, Inc............... 47,513 3,638 Meredith Corp.................. 12,647 695 New York Times Co. Class A..... 37,645 1,683 Newell Rubbermaid, Inc. (f).... 67,021 1,575 NIKE, Inc. Class B............. 65,313 4,947 Nordstrom, Inc................. 33,438 1,425 Office Depot, Inc. (a)......... 76,570 1,371 Omnicom Group, Inc............. 47,117 3,576 Pulte Homes, Inc............... 31,436 1,636 Radioshack Corp................ 41,453 1,187 Reebok International, Ltd...... 14,871 535 Sears Roebuck & Co. (f)........ 52,854 1,996 Sherwin-Williams Co............ 35,570 1,478 Snap-On, Inc................... 14,748 495 Stanley Works.................. 20,232 922 Staples, Inc................... 123,750 3,640 Starbucks Corp. (a)............ 98,226 4,272 Starwood Hotels & Resorts Worldwide, Inc. Class B...... 50,512 2,265 Target Corp.................... 226,557 9,622 Tiffany & Co................... 36,868 1,359 Time Warner, Inc. (a).......... 1,131,447.. 19,891 TJX Cos., Inc.................. 123,913 2,991 Toys "R" Us, Inc. (a).......... 54,169 863 Tribune Co..................... 81,955 3,732 Univision Communications, Inc. Class A (a).................. 80,118 2,558 V.F. Corp...................... 27,288 1,329 Viacom, Inc. Class B........... 430,289 15,370 Visteon Corp. (f).............. 31,253 365 Walt Disney Co................. 508,873 12,971 Wendy's International, Inc..... 28,567 995 Whirlpool Corp................. 17,566 1,205 Yum! Brands, Inc. (a).......... 72,422 2,696 ---------- 287,908 ---------- CONSUMER STAPLES - 10.9% Adolph Coors Co. Class B....... 9,244 669 Alberto Culver Co. Class B..... 22,258 1,116 Albertson's, Inc. (f).......... 92,013 2,442 Altria Group, Inc.............. 509,264 25,489 Anheuser-Busch Cos., Inc....... 199,667 10,782 Archer-Daniels-Midland Co...... 160,467 2,693 Avon Products, Inc............. 116,948 5,396 Brown-Forman Corp. Class B (f).......................... 30,482 1,471 Campbell Soup Co............... 101,183 2,720 Clorox Co...................... 52,110 2,802 Coca-Cola Co................... 604,835 30,532 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 19 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) Coca-Cola Enterprises, Inc..... 117,000 $ 3,392 Colgate-Palmolive Co........... 132,335 7,735 ConAgra Foods, Inc............. 131,246 3,554 Costco Wholesale Corp.......... 113,651 4,680 CVS Corp....................... 98,392 4,134 General Mills, Inc............. 93,064 4,423 Gillette Co.................... 250,244 10,610 H.J. Heinz Co.................. 87,320 3,423 Hershey Foods Corp............. 64,408 2,980 Kellogg Co..................... 102,329 4,282 Kimberly-Clark Corp............ 124,664 8,213 Kroger Co. (a)................. 184,722 3,362 McCormick & Co., Inc........... 33,800 1,149 Pepsi Bottling Group, Inc...... 65,153 1,990 PepsiCo, Inc................... 424,410 22,867 Procter & Gamble Co............ 638,322 34,750 R.J. Reynolds Tobacco Holdings, Inc. (f)..................... 21,240 1,436 Safeway, Inc. (a).............. 109,493 2,775 Sara Lee Corp.................. 196,417 4,516 SuperValu, Inc................. 33,960 1,040 Sysco Corp..................... 160,081 5,742 UST Corp....................... 40,947 1,474 Wal-Mart Stores, Inc. ......... 1,065,028 56,191 Walgreen Co.................... 254,710 9,223 Winn-Dixie Stores, Inc. (f).... 38,510 277 Wrigley Wm., Jr. Co............ 55,716 3,513 ---------- 293,843 ---------- ENERGY - 6.2% Amerada Hess Corp.............. 22,502 1,782 Anadarko Petroleum Corp........ 62,354 3,654 Apache Corp.................... 79,930 3,481 Ashland, Inc................... 17,080 902 Baker Hughes, Inc.............. 82,480 3,105 BJ Services Co. (a)............ 40,055 1,836 Burlington Resources, Inc...... 98,056 3,548 ChevronTexaco Corp............. 265,847 25,019 ConocoPhillips................. 170,041 12,972 Devon Energy Corp.............. 59,661 3,938 EOG Resources, Inc............. 28,984 1,731 ExxonMobil Corp. .............. 1,624,102 72,126 Halliburton Co................. 107,986 3,268 Kerr-McGee Corp................ 37,236 2,002 Marathon Oil Corp.............. 85,934 3,252 Nabors Industries, Ltd. (a).... 37,015 1,674 Noble Corp. (a)................ 33,823 1,281 Occidental Petroleum Corp...... 96,323 4,663 Rowan Cos., Inc. (a)........... 26,139 636 Schlumberger, Ltd.............. 146,307 9,292 Sunoco, Inc. (f)............... 19,028 1,211 Transocean, Inc. (a)........... 79,095 2,289 </Table> <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) Unocal Corp.................... 64,988 $ 2,469 Valero Energy Corp............. 32,000 2,360 ---------- 168,491 ---------- FINANCIALS - 19.8% ACE, Ltd....................... 70,455 2,979 AFLAC, Inc..................... 127,316 5,196 Allstate Corp.................. 174,807 8,137 Ambac Financial Group, Inc..... 26,447 1,942 American Express Co............ 317,373 16,307 American International Group, Inc.......................... 647,683 46,167 AmSouth Bancorp................ 86,819 2,211 AON Corp....................... 78,723 2,241 Apartment Investment & Management Co. Class A....... 23,800 741 Bank of America Corp........... 506,300 42,843 Bank of New York Co., Inc...... 192,179 5,665 Bank One Corp.................. 278,262 14,191 BB&T Corp...................... 139,318 5,151 Bear Stearns Cos., Inc......... 25,999 2,192 Capital One Financial Corp..... 59,515 4,070 Charles Schwab Corp............ 336,393 3,233 Charter One Financial, Inc..... 55,817 2,467 Chubb Corp..................... 47,239 3,221 Cincinnati Financial Corp. (f).......................... 41,600 1,810 Citigroup, Inc................. 1,284,271 59,719 Comerica, Inc.................. 43,432 2,384 Countrywide Financial Corp..... 69,543 4,885 E*Trade Financial Corp. (a).... 92,100 1,027 Equity Office Properties Trust........................ 100,441 2,732 Equity Residential............. 69,607 2,069 Fannie Mae..................... 240,629 17,171 Federal Home Loan Mortgage Corp......................... 171,146 10,834 Federated Investors, Inc. Class B (f)........................ 27,400 831 Fifth Third Bancorp............ 140,400 7,551 First Horizon National Corp.... 30,917 1,406 Franklin Resources, Inc........ 61,844 3,097 Golden West Financial Corp..... 37,711 4,011 Goldman Sachs Group, Inc....... 120,100 11,309 Hartford Financial Services Group, Inc................... 72,288 4,969 Huntington Bancshares, Inc..... 57,854 1,329 J.P. Morgan Chase & Co......... 517,114 20,049 Janus Capital Group, Inc....... 60,619 1,000 Jefferson-Pilot Corp. (f)...... 34,860 1,771 KeyCorp........................ 103,309 3,088 Lehman Brothers Holdings, Inc.......................... 68,818 5,179 Lincoln National Corp.......... 44,031 2,080 Loews Corp..................... 46,114 2,765 M & T Bank Corp................ 29,600 2,584 Marsh & McLennan Cos., Inc..... 129,936 5,896 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 20 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) Marshall & Ilsley Corp......... 55,192 $ 2,157 MBIA, Inc...................... 35,658 2,037 MBNA Corp...................... 317,502 8,188 Mellon Financial Corp.......... 106,623 3,127 Merrill Lynch & Co., Inc....... 238,627 12,881 MetLife, Inc................... 188,807 6,769 MGIC Investment Corp. (f)...... 24,362 1,848 Moody's Corp. (f).............. 36,865 2,384 Morgan Stanley................. 272,643 14,387 National City Corp............. 168,591 5,902 North Fork Bancorp, Inc. (f)... 42,290 1,609 Northern Trust Corp............ 55,240 2,336 Plum Creek Timber Co., Inc..... 46,180 1,505 PNC Financial Services Group, Inc.......................... 70,147 3,723 Principal Financial Group, Inc.......................... 79,450 2,763 Progressive Corp............... 53,847 4,593 ProLogis....................... 45,200 1,488 Providian Financial Corp. (a).......................... 73,473 1,078 Prudential Financial, Inc...... 130,600 6,069 Regions Financial Corp. (f).... 54,889 2,006 SAFECO Corp.................... 33,864 1,490 Simon Property Group, Inc...... 51,763 2,662 SLM Corp....................... 109,042 4,411 SouthTrust Corp................ 81,779 3,174 Sovereign Bancorp, Inc......... 76,000 1,679 St. Paul Travelers Cos., Inc.......................... 164,825 6,682 State Street Corp. (Note 4).... 83,225 4,081 SunTrust Banks, Inc............ 70,072 4,554 Synovus Financial Corp......... 74,604 1,889 T. Rowe Price Group, Inc....... 31,490 1,587 Torchmark Corp................. 27,876 1,500 U.S. Bancorp................... 470,661 12,971 Union Planters Corp............ 47,644 1,420 UnumProvident Corp. (f)........ 74,435 1,184 Wachovia Corp.................. 326,726 14,539 Washington Mutual, Inc......... 214,813 8,300 Wells Fargo Co................. 419,111 23,986 XLCapital, Ltd. Class A........ 34,132 2,576 Zions Bancorp.................. 22,719 1,396 ---------- 537,431 ---------- HEALTH CARE - 13.1% Abbott Laboratories............ 387,267 15,785 Aetna, Inc..................... 38,032 3,233 Allergan, Inc.................. 32,491 2,909 AmerisourceBergen Corp......... 28,216 1,687 Amgen, Inc. (a)................ 315,775 17,232 Anthem, Inc. (a)(f)............ 34,100 3,054 Applera Corp. -- Applied Biosystems Group............. 50,167 1,091 Bausch & Lomb, Inc............. 13,225 861 Baxter International, Inc...... 151,526 5,229 Becton, Dickinson & Co......... 62,629 3,244 </Table> <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) Biogen Idec, Inc. (a).......... 84,373 $ 5,337 Biomet, Inc.................... 62,941 2,797 Boston Scientific Corp. (a).... 207,396 8,877 Bristol-Myers Squibb Co........ 482,417 11,819 C.R. Bard, Inc................. 26,194 1,484 Cardinal Health, Inc........... 106,866 7,486 Caremark Rx, Inc. (a).......... 113,808 3,749 Chiron Corp. (a)............... 47,044 2,100 CIGNA Corp..................... 35,389 2,435 Eli Lilly & Co................. 280,997 19,644 Express Scripts, Inc. (a)...... 19,100 1,513 Forest Laboratories, Inc. (a).......................... 91,306 5,171 Genzyme Corp. (a).............. 56,205 2,660 Gilead Sciences, Inc. (a)...... 53,200 3,563 Guidant Corp................... 77,364 4,323 HCA, Inc....................... 120,559 5,014 Health Management Associates, Inc. Class A................. 60,598 1,359 Hospira, Inc. (a).............. 39,436 1,088 Humana, Inc. (a)............... 40,925 692 IMS Health, Inc................ 59,081 1,385 Johnson & Johnson.............. 737,146 41,059 King Pharmaceuticals, Inc. (a).......................... 60,932 698 Manor Care, Inc................ 21,851 714 McKesson Corp.................. 72,031 2,473 Medco Health Solutions, Inc. (a).......................... 67,772 2,541 MedImmune, Inc. (a)............ 62,265 1,457 Medtronic, Inc................. 301,202 14,675 Merck & Co., Inc............... 552,803 26,258 Millipore Corp. (a)............ 11,928 672 Mylan Laboratories Inc......... 65,600 1,328 Pfizer, Inc.................... 1,894,874 64,956 Quest Diagnostics Inc.......... 25,600 2,175 Schering-Plough Corp........... 365,424 6,753 St. Jude Medical, Inc. (a)..... 43,797 3,313 Stryker Corp................... 99,008 5,445 Tenet Healthcare Corp. (a)..... 117,509 1,576 UnitedHealth Group, Inc........ 152,884 9,517 Watson Pharmaceuticals, Inc. (a).......................... 26,503 713 WellPoint Health Networks, Inc. (a).......................... 38,489 4,311 Wyeth.......................... 330,931 11,966 Zimmer Holdings, Inc. (a)...... 60,720 5,355 ---------- 354,776 ---------- INDUSTRIALS - 11.2% 3M Co.......................... 194,184 17,478 Allied Waste Industries, Inc. (a).......................... 80,967 1,067 American Power Conversion Corp......................... 50,067 984 American Standard Cos., Inc. (a).......................... 54,321 2,190 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 21 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) Apollo Group, Inc. (a)......... 43,675 $ 3,856 Avery Dennison Corp............ 27,070 1,733 Boeing Co. (f)................. 209,345 10,695 Burlington Northern Santa Fe Corp......................... 91,650 3,214 Caterpillar, Inc............... 84,885 6,743 Cendant Corp................... 253,822 6,214 Cintas Corp.................... 42,882 2,044 Cooper Industries, Ltd......... 22,421 1,332 Crane Co....................... 15,002 471 CSX Corp....................... 52,824 1,731 Cummins, Inc. (f).............. 10,673 667 Danaher Corp................... 76,226 3,952 Deere & Co..................... 61,941 4,345 Delta Air Lines, Inc. (a)(f)... 31,293 223 Deluxe Corp.................... 12,720 553 Dover Corp..................... 50,213 2,114 Eaton Corp..................... 37,378 2,420 Emerson Electric Co............ 104,735 6,656 Equifax, Inc................... 34,069 843 FedEx Corp..................... 74,046 6,049 Fluor Corp. (f)................ 20,406 973 General Dynamics Corp.......... 49,206 4,886 General Electric Co. (e)....... 2,620,923 84,918 Goodrich Co.................... 29,755 962 H&R Block, Inc................. 44,110 2,103 Honeywell International, Inc.......................... 213,342 7,815 Illinois Tool Works, Inc....... 76,564 7,342 Ingersoll-Rand Co. Class A..... 43,450 2,968 ITT Industries, Inc............ 22,602 1,876 Lockheed Martin Corp........... 111,971 5,831 Masco Corp..................... 108,774 3,392 Monster Worldwide, Inc. (a).... 28,492 733 Navistar International Corp. (a)(f)....................... 17,380 674 Norfolk Southern Corp.......... 98,061 2,601 Northrop Grumman Corp.......... 89,278 4,794 PACCAR, Inc.................... 43,370 2,515 Pall Corp...................... 31,474 824 Parker-Hannifin Corp........... 29,023 1,726 Pitney Bowes, Inc.............. 57,439 2,542 Power-One, Inc. (a)(f)......... 21,100 232 R.R. Donnelley & Sons Co....... 53,260 1,759 Raytheon Co.................... 110,114 3,939 Robert Half International, Inc.......................... 43,214 1,286 Rockwell Automation, Inc....... 47,120 1,767 Rockwell Collins, Inc.......... 44,819 1,493 Ryder Systems, Inc............. 15,780 632 Southwest Airlines Co.......... 194,340 3,259 Textron, Inc................... 34,475 2,046 Thomas & Betts Corp............ 14,742 401 Tyco International, Ltd........ 498,948 16,535 Union Pacific Corp............. 64,240 3,819 </Table> <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) United Parcel Service, Inc. Class B...................... 279,900 $ 21,040 United Technologies Corp....... 128,157 11,724 W.W. Grainger, Inc............. 22,809 1,312 Waste Management, Inc.......... 143,179 4,388 ---------- 302,681 ---------- INFORMATION TECHNOLOGY - 16.8% ADC Telecommunications, Inc. (a)(f)....................... 211,127 600 Adobe Systems, Inc............. 59,571 2,770 Advanced Micro Devices, Inc. (a)(f)....................... 87,384 1,389 Affiliated Computer Services, Inc. (a)..................... 34,200 1,811 Agilent Technologies, Inc. (a).......................... 119,827 3,509 Altera Corp. (a)............... 94,978 2,105 Analog Devices, Inc............ 92,761 4,367 Andrew Corp. (a)(f)............ 38,827 777 Apple Computer, Inc. (a)....... 94,546 3,077 Applied Materials, Inc. (a).... 417,861 8,198 Applied Micro Circuits Corp. (a).......................... 77,142 410 Autodesk, Inc.................. 28,215 1,208 Automatic Data Processing, Inc.......................... 146,538 6,137 Avaya, Inc. (a)(f)............. 110,415 1,743 BMC Software, Inc. (a)......... 57,336 1,061 Broadcom Corp. (a)............. 78,046 3,650 CIENA Corp. (a)................ 142,888 529 Cisco Systems, Inc. (a)........ 1,679,059 39,794 Citrix Systems, Inc. (a)....... 41,653 848 Computer Associates International, Inc........... 144,344 4,050 Computer Sciences Corp. (a).... 46,382 2,154 Compuware Corp. (a)............ 95,257 629 Comverse Technology, Inc. (a).. 47,238 942 Convergys Corp. (a)............ 36,005 554 Corning, Inc. (a).............. 341,385 4,458 Dell, Inc. (a)................. 626,591 22,444 Electronic Arts, Inc. (a)...... 75,300 4,108 Electronic Data Systems Corp. (f).......................... 120,486 2,307 EMC Corp. (a).................. 608,041 6,932 First Data Corp................ 216,704 9,648 Fiserv, Inc. (a)............... 47,647 1,853 Gateway, Inc. (a).............. 93,965 423 Hewlett-Packard Co............. 758,119 15,996 Intel Corp. ................... 1,606,203 44,331 International Business Machines Corp......................... 418,518 36,892 Intuit, Inc. (a)............... 47,551 1,835 Jabil Circuit, Inc. (a)........ 49,313 1,242 JDS Uniphase Corp. (a)(f)...... 362,319 1,373 KLA-Tencor Corp. (a)........... 48,164 2,378 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 22 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) Lexmark International Group, Inc. Class A (a)............. 32,302 $ 3,118 Linear Technology Corp......... 76,975 3,038 LSI Logic Corp. (a)............ 96,135 733 Lucent Technologies, Inc. (a)(f)....................... 1,056,372 3,993 Maxim Integrated Products, Inc.......................... 80,056 4,197 Mercury Interactive Corp. (a).......................... 22,148 1,104 Micron Technology, Inc. (a).... 152,732 2,338 Microsoft Corp. (e)............ 2,680,604.. 76,558 Molex, Inc. (f)................ 48,110 1,543 Motorola, Inc.................. 581,698 10,616 National Semiconductor Corp. (a).......................... 89,418 1,966 NCR Corp. (a).................. 23,992 1,190 Network Appliance, Inc. (a).... 85,267 1,836 Novell, Inc. (a)............... 93,442 784 Novellus Systems, Inc. (a)..... 36,669 1,153 NVIDIA Corp. (a)............... 39,751 814 Oracle Corp. (a)............... 1,290,038.. 15,390 Parametric Technology Corp. (a).......................... 63,641 318 Paychex, Inc................... 93,627 3,172 PeopleSoft, Inc. (a)........... 91,223 1,688 PerkinElmer, Inc............... 32,157 644 PMC-Sierra, Inc. (a)........... 41,124 590 QLogic Corp. (a)............... 23,845 634 QUALCOMM, Inc.................. 201,539 14,708 Sabre Holdings Corp. Class A... 34,324 951 Sanmina-SCI Corp. (a).......... 127,858 1,164 Scientific-Atlanta, Inc........ 38,368 1,324 Siebel Systems, Inc. (a)....... 125,358 1,340 Solectron Corp. (a)............ 238,314 1,542 Sun Microsystems, Inc. (a)..... 827,588 3,592 SunGard Data Systems, Inc. (a).......................... 72,050 1,873 Symantec Corp. (a)............. 77,200 3,380 Symbol Technologies, Inc....... 58,485 862 Tektronix, Inc................. 21,029 715 Tellabs, Inc. (a)(f)........... 104,775 916 Teradyne, Inc. (a)............. 48,392 1,098 Texas Instruments, Inc......... 430,503 10,410 Thermo Electron Corp. (a)...... 41,129 1,264 Unisys Corp. (a)............... 83,479 1,159 VERITAS Software Corp. (a)..... 107,483 2,977 Waters Corp. (a)............... 29,957 1,431 Xerox Corp. (a)(f)............. 196,242 2,846 Xilinx, Inc.................... 85,504 2,848 Yahoo!, Inc. (a)............... 335,080 12,197 ---------- 454,546 ---------- MATERIALS - 2.9% Air Products & Chemicals, Inc.......................... 55,989 2,937 Alcoa, Inc..................... 216,146 7,139 Allegheny Technologies, Inc.... 22,329 403 </Table> <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) Ball Corp...................... 14,285 $ 1,029 Bemis Co., Inc................. 26,928 761 Boise Cascade Corp............. 21,519 810 Dow Chemical Co................ 232,899 9,479 E.I. Du Pont de Nemours & Co... 247,939 11,013 Eastman Chemical Co. (f)....... 18,962 877 Ecolab, Inc.................... 63,626 2,017 Engelhard Corp................. 31,730 1,025 Freeport-McMoRan Copper & Gold, Inc. Class B (f)....... 43,114 1,429 Georgia-Pacific Group.......... 62,740 2,320 Great Lakes Chemical Corp...... 12,803 346 Hercules, Inc. (a)............. 28,098 342 International Flavors & Fragrances, Inc.............. 23,704 886 International Paper Co......... 120,756 5,398 Louisiana-Pacific Corp. (f).... 26,459 626 MeadWestvaco Corp.............. 50,688 1,490 Monsanto Co.................... 66,646 2,566 Newmont Mining Corp............ 110,242 4,273 Nucor Corp. (f)................ 19,802 1,520 Pactiv Corp. (a)............... 39,764 992 Phelps Dodge Corp. (a)......... 23,305 1,806 PPG Industries, Inc............ 42,390 2,649 Praxair, Inc................... 80,120 3,198 Rohm & Haas Co................. 55,096 2,291 Sealed Air Corp. (a)........... 20,836 1,110 Sigma-Aldrich Corp............. 17,493 1,043 Temple-Inland, Inc............. 13,714 950 United States Steel Corp....... 28,902 1,015 Vulcan Materials Co............ 25,496 1,212 Weyerhaeuser Co................ 60,024 3,789 Worthington Industries, Inc. (f).......................... 21,829 448 ---------- 79,189 ---------- TELECOMMUNICATION SERVICES - 3.3% ALLTEL Corp.................... 77,398 3,918 AT&T Corp...................... 195,647 2,862 AT&T Wireless Services, Inc. (a).......................... 677,138 9,697 BellSouth Corp................. 455,128 11,933 CenturyTel, Inc................ 34,508 1,037 Citizens Communications Co. (a)(f)....................... 72,077 872 Nextel Communications, Inc. Class A (a).................. 276,136 7,362 Qwest Communications International, Inc. (a)...... 442,622 1,589 SBC Communications, Inc........ 822,004 19,933 Sprint Corp. (Fon Group) (f)... 353,023 6,213 Verizon Communications, Inc.... 689,298 24,946 ---------- 90,362 ---------- UTILITIES - 2.8% AES Corp. (a).................. 153,414 1,523 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 23 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE --------- ---------- (DOLLARS IN THOUSANDS) Allegheny Energy, Inc. (a)(f)....................... 31,899 $ 492 Ameren Corp.................... 45,642 1,961 American Electric Power Co., Inc.......................... 98,154 3,141 Calpine Corp. (a)(f)........... 104,452 451 CenterPoint Energy, Inc. (f)... 77,193 888 Cinergy Corp................... 43,558 1,655 CMS Energy Corp. (a)(f)........ 38,505 351 Consolidated Edison, Inc....... 59,622 2,371 Constellation Energy Group, Inc.......................... 40,903 1,550 Dominion Resources, Inc........ 80,587 5,083 DTE Energy Co.................. 42,546 1,725 Duke Energy Corp............... 225,277 4,571 Dynegy Inc. Class A (a)(f)..... 94,930 404 Edison International........... 80,562 2,060 El Paso Corp. (f).............. 160,894 1,268 Entergy Corp................... 56,343 3,156 Exelon Corp.................... 163,478 5,442 FirstEnergy Corp............... 81,312 3,042 FPL Group, Inc................. 45,389 2,903 KeySpan Corp. (f).............. 40,206 1,476 Kinder Morgan, Inc............. 30,938 1,834 Nicor, Inc. (f)................ 11,213 381 NiSource, Inc.................. 65,967 1,360 Peoples Energy Corp. (f)....... 9,331 393 PG&E Corp. (a)................. 103,823 2,901 Pinnacle West Capital Corp..... 23,081 932 PPL Corp....................... 44,468 2,041 Progress Energy, Inc........... 60,908 2,683 Public Service Enterprise Group, Inc................... 58,022 2,323 Sempra Energy.................. 56,189 1,935 Southern Co.................... 181,758 5,298 TECO Energy, Inc. (f).......... 47,476 569 TXU Corp....................... 79,748 3,231 Williams Cos., Inc............. 130,937 1,558 Xcel Energy, Inc............... 99,997 1,671 ---------- 74,623 ---------- TOTAL COMMON STOCKS (COST $2,195,921,918).......... 2,643,850 ---------- <Caption> PAR AMOUNT VALUE --------- ---------- (DOLLARS IN THOUSANDS) U. S. GOVERNMENT SECURITIES - 0.3% United States Treasury Bill 1.24% due 09/09/04 (b)(c).... $7,910.... $ 7,891 ---------- TOTAL U. S. GOVERNMENT SECURITIES (COST $7,890,928).............. 7,891 ---------- </Table> <Table> <Caption> SHARES -------------- (IN THOUSANDS) SHORT TERM INVESTMENTS - 4.0% AIM Short Term Investment Prime Portfolio.................... 54,533 54,533 Federated Money Market Obligations Trust............ 484 484 State Street Navigator Securities Lending Prime Portfolio (d) (Note 4)....... 53,666 53,666 ---------- TOTAL SHORT TERM INVESTMENTS (COST $108,682,911).......................... 108,683 ---------- TOTAL INVESTMENTS - 101.9% (COST $2,312,495,757).............................. 2,760,424 ---------- LIABILITIES IN EXCESS OF OTHER ASSETS - (1.9)%.............................. (51,853) ---------- NET ASSETS - 100%.............................. $2,708,571 ========== </Table> SCHEDULE OF FUTURES CONTRACTS <Table> <Caption> NUMBER OF UNREALIZED CONTRACTS APPRECIATION --------- ------------ (DOLLARS IN THOUSANDS) S&P 500 Financial Futures Contracts (long) Expiration date 09/2004............... 229 $438 ---- Total unrealized appreciation on open futures contracts purchased.................. $438 ==== </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 contracts. (f) All or a portion of these securities were on loan at June 30, 2004. See notes to financial statements. - -------------------------------------------------------------------------------- 24 STATE STREET EQUITY 500 INDEX PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- (amounts in thousands) <Table> ASSETS: Investments in unaffiliated issuers at market (identified cost $2,309,667) - including $52,114 of securities loaned (Note 2)............................. $2,756,343 Investments in non-controlled affiliates at market (identified cost $2,829) (Note 4)...................... 4,081 Receivables: Investment securities sold.......................... 5,004 Dividends and interest.............................. 3,017 Daily variation margin on futures contracts......... 263 ---------- TOTAL ASSETS........................................ 2,768,708 ---------- LIABILITIES: Payables: Investment securities purchased..................... 6,372 Due upon return of securities loaned................ 53,666 Management fees (Note 4)............................ 99 ---------- TOTAL LIABILITIES................................... 60,137 ---------- NET ASSETS:................................................. $2,708,571 ========== COMPOSITION OF NET ASSETS: Paid-in capital......................................... $2,260,205 Net unrealized appreciation on investments and futures contracts.............................................. 448,366 ---------- NET ASSETS.................................................. $2,708,571 ========== </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 25 STATE STREET EQUITY 500 INDEX PORTFOLIO STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- (amounts in thousands) <Table> INVESTMENT INCOME: Dividend income - unaffiliated issuers.................. $ 21,812 Dividend income - non-controlled affiliated issuers..... 26 Interest................................................ 35 Security lending income (Notes 2 and 4)................. 42 -------- TOTAL INVESTMENT INCOME............................. 21,915 EXPENSES: Management fees (Note 4)................................ $ 605 -------- TOTAL EXPENSES...................................... 605 -------- NET INVESTMENT INCOME....................................... 21,310 -------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments......................................... (15,718) Futures contracts................................... 3,972 -------- (11,746) -------- Net change in unrealized appreciation (depreciation) on: Investments......................................... 82,027 Futures contracts................................... (1,578) -------- 80,449 -------- Net realized and unrealized gain............................ 68,703 -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 90,013 ======== </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 26 STATE STREET EQUITY 500 INDEX PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- <Table> <Caption> FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, 2004 2003 ----------- ------------ (UNAUDITED) (AMOUNTS IN THOUSANDS) INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: OPERATIONS: Net investment income......................... $ 21,310 $ 39,264 Net realized loss on investments and futures contracts.................................... (11,746) (90,744) Net change in unrealized appreciation (depreciation)............................ 80,449 641,095 ---------- ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ 90,013 589,615 ---------- ---------- CAPITAL TRANSACTIONS: Proceeds from contributions................... 170,219 547,305 Contributions in-kind......................... -- 19,659 Fair value of withdrawals..................... (266,333) (434,455) ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL TRANSACTIONS...................... (96,114) 132,509 ---------- ---------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS....... (6,101) 722,124 NET ASSETS: Beginning of period........................... 2,714,672 1,992,548 ---------- ---------- END OF PERIOD................................. $2,708,571 $2,714,672 ========== ========== </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 27 STATE STREET EQUITY 500 INDEX PORTFOLIO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The following table includes selected supplemental data and ratios to average net assets: <Table> <Caption> FOR THE SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2004 2003 2002 2001 2000* ----------- ------------ ------------ ------------ ------------ (UNAUDITED) SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands)...... $2,708,571 $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% 0.045%+ Net investment income.................... 1.59%+ 1.74% 1.57% 1.34% 1.14%+ Portfolio turnover rate**..................... 5%++ 12% 13% 14% 18%++ Total return (a).............................. 3.45%++ 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. - -------------------------------------------------------------------------------- 28 STATE STREET EQUITY 500 INDEX PORTFOLIO NOTES TO FINANCIAL STATEMENTS June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION: The State Street Master Funds (the "Trust") is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a business trust under the laws of the Commonwealth of Massachusetts on July 27, 1999. The Trust comprises seven investment portfolios: the State Street Equity 500 Index Portfolio, the State Street Equity 400 Index Portfolio, the State Street Equity 2000 Index Portfolio, the State Street MSCI(R) EAFE(R) Index Portfolio, the State Street Aggregate Bond Index Portfolio, the State Street Money Market Portfolio, and the State Street U.S. Government Money Market Portfolio. Information presented in these financial statements pertains only to the State Street Equity 500 Index Portfolio (the "Portfolio"). At June 30, 2004, 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&P 500 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. - -------------------------------------------------------------------------------- 29 STATE STREET EQUITY 500 INDEX PORTFOLIO NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- All of the net investment income and realized and unrealized gains and losses from the security transactions of the Portfolio are allocated pro rata among the partners in the Portfolio based on each partner's daily ownership percentage. Federal Income Taxes The Portfolio is not required to pay federal income taxes on its net investment income and net capital gains because it is treated as a partnership for federal income tax purposes. All interest, dividends, gains and losses of the Portfolio are deemed to have been "passed through" to the Portfolio's partners in proportion to their holdings in the Portfolio, regardless of whether such items have been distributed by the Portfolio. Each partner is responsible for tax liability based on its distributive share; therefore, no provision has been made for federal income taxes. Futures The Portfolio may enter into financial futures contracts as part of its strategy to track the performance of the S&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, sovereign debt, 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 six months ended June 30, 2004, the earned income for the Portfolio and State Street was $42,216 and $14,072, respectively. The primary risk associated with securities lending is that if the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, the Portfolio could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. At June 30, 2004, the value of the securities loaned amounted to $52,114,053. The loans were collateralized with cash of $53,666,201, which the Portfolio then invested in the State Street Navigator Securities Lending Prime Portfolio (the "Prime Portfolio"), an affiliated investment company. - -------------------------------------------------------------------------------- 30 STATE STREET EQUITY 500 INDEX PORTFOLIO NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 3. SECURITIES TRANSACTIONS: For the period ended June 30, 2004, purchases and sales of investment securities, excluding short-term investments and futures contracts, aggregated to $126,860,440 and $157,484,871, respectively. At June 30, 2004, the book cost of investments was $2,312,495,757 which approximates cost computed on a federal tax basis. The aggregate gross unrealized appreciation and gross unrealized depreciation was $647,568,272 and $199,640,408, respectively, resulting in net appreciation of $447,927,864. 4. RELATED PARTY FEES AND TRANSACTIONS: The Portfolio has entered into an investment advisory agreement with SSgA Funds 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 June 30, 2004 is listed in the Portfolio of Investments. During the period, 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 period ended June 30, 2004, the Portfolio paid brokerage commissions to State Street Global Markets LLC of $52,740. - -------------------------------------------------------------------------------- 31 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- COMMON STOCKS Advertising Agencies - 0.6% +24/7 Real Media, Inc. ... 3,400 $ 18,768 ADVO Systems, Inc. ...... 10,535 346,812 +aQuantive, Inc. ......... 16,500 163,020 +Catalina Marketing Corporation............. 15,600 285,324 Grey Global Group Inc. .. 248 244,280 +R.H. Donnelley Corporation............. 7,433 325,119 +Valassis Communications, Inc. ................... 16,100 490,567 +ValueClick, Inc. ........ 27,100 324,658 +Ventiv Health, Inc. ..... 7,200 111,456 ------------ 2,310,004 ------------ Aerospace - 0.4% Curtiss-Wright Corporation............ 6,434 361,526 +Ducommun Incorporated.... 2,400 51,312 HEICO Corporation (Class A)..................... 6,426 117,275 +MTC Technologies, Inc. .. 1,700 43,894 +Moog Inc. (Class A)...... 9,209 341,746 +Orbital Sciences Corporation............. 16,335 225,586 +Teledyne Technologies Incorporated............ 12,334 246,927 United Industrial Corporation............ 5,000 116,750 ------------ 1,505,016 ------------ Agriculture, Fishing & Ranching - 0.1% Alico, Inc. ............. 1,200 48,180 Delta and Pine Land Company................ 13,978 306,817 ------------ 354,997 ------------ Air Transport - 0.9% +AAR Corp. ............... 12,168 138,107 +AirTran Holdings, Inc. ................... 27,620 390,547 +Alaska Air Group, Inc. ................... 8,899 212,419 +America West Holdings Corporation (Class B)... 11,600 105,328 +Atlantic Coast Airlines Holdings, Inc. ......... 15,023 86,232 +Aviall, Inc. ............ 7,800 148,278 +Continental Airlines, Inc. (Class B).......... 22,100 251,277 Delta Air Lines, Inc. ... 38,500 274,120 +EGL, Inc. ............... 12,995 345,667 +ExpressJet Holdings, Inc. ................... 9,600 116,544 +Frontier Airlines, Inc. ................... 11,755 127,894 +Mesa Air Group, Inc. .... 10,556 85,398 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Northwest Airlines Corporation............. 22,400 $ 249,088 +Offshore Logistics, Inc. ................... 7,785 218,914 +Pinnacle Airlines Corp. .................. 4,400 49,720 SkyWest, Inc. ........... 21,300 370,833 ------------ 3,170,366 ------------ Aluminum - 0.1% +Century Aluminum Company................. 5,502 136,395 +IMCO Recycling Inc. ..... 6,300 83,286 ------------ 219,681 ------------ Auto Parts - After Market - 0.2% +Aftermarket Technology Corp. .................. 1,843 30,410 +Keystone Automotive Industries, Inc. ....... 5,000 139,450 +Sports Resorts International, Inc. .... 3,200 12,160 Standard Motor Products, Inc. .................. 3,300 48,609 Superior Industries International, Inc. ... 7,399 247,497 +TBC Corporation.......... 6,600 157,080 ------------ 635,206 ------------ Auto Parts - Original Equipment - 0.5% ArvinMeritor, Inc. ...... 21,500 420,755 +Collins & Aikman Corporation............. 12,678 70,870 +Hayes Lemmerz International, Inc. .... 10,700 161,570 Noble International, Ltd. .................. 2,900 71,833 Sauer-Danfoss, Inc. ..... 2,273 38,800 +Stoneridge, Inc. ........ 3,787 64,379 +Strattec Security Corporation............. 800 54,744 +Tenneco Automotive Inc. ................... 13,900 183,897 +Tower Automotive, Inc. .. 17,771 64,686 Visteon Corporation...... 42,900 500,643 ------------ 1,632,177 ------------ Auto Trucks & Parts - 0.2% +A.S.V., Inc. ............ 2,600 81,406 Modine Manufacturing Co. ................... 8,194 260,979 +Wabash National Corporation............. 9,545 262,965 ------------ 605,350 ------------ Banks - New York City - 0.0% +Signature Bank........... 500 11,880 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 32 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Banks - Outside New York City - 7.3% 1st Source Corporation... 3,940 $ 98,421 ABC Bancorp.............. 3,100 63,054 AMCORE Financial, Inc. .. 8,318 250,871 Alabama National BanCorporation......... 3,621 200,857 +AmericanWest Bancorporation.......... 5,450 104,368 Arrow Financial Corporation............ 2,647 80,601 BancFirst Corporation.... 1,045 62,439 BancorpSouth, Inc. ...... 24,000 540,720 BancTrust Financial Group, Inc. ........... 1,200 20,964 +The Bankcorp Bank........ 4,000 70,840 Bank of Granite Corp. ... 4,086 85,438 Bank of the Ozarks, Inc. .................. 3,000 69,900 Banner Corporation....... 3,313 96,276 Boston Private Financial Holdings, Inc. ........ 10,493 243,018 Bryn Mawr Bank Corporation............ 2,300 52,325 CB Bancshares, Inc. ..... 1,450 135,140 CVB Financial Corp. ..... 12,128 264,148 Camden National Corporation............ 1,600 52,912 Capital City Bank Group, Inc. .................. 2,577 102,023 +Capital Corp of the West.................... 1,700 66,028 +Capital Crossing Bank.... 300 16,749 Capitol Bancorp Ltd. .... 2,300 59,823 Cascade Bancorp.......... 5,500 100,980 Cathay Bancorp, Inc. .... 7,222 481,707 Center Financial Corporation............ 3,200 48,480 +Central Coast Bancorp.... 2,886 52,814 Central Pacific Financial Corp. ................. 5,038 138,545 Century Bancorp, Inc. (Class A).............. 2,200 72,358 Chemical Financial Corporation............ 7,951 293,312 Chittenden Corporation... 12,226 429,744 Citizens Banking Corporation............ 15,500 481,275 City Holding Company..... 6,593 208,207 CityBank................. 2,299 73,637 Clifton Savings Bancorp, Inc. .................. 1,800 21,258 CoBiz Inc. .............. 4,126 57,063 Columbia Bancorp......... 1,900 55,518 Columbia Banking System, Inc. .................. 6,241 138,550 Community Bank System, Inc. .................. 8,300 189,157 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Community Banks, Inc. ... 3,177 $ 93,308 Community First Bankshares, Inc. ...... 13,240 426,196 Community Trust Bancorp, Inc. .................. 3,567 108,794 Corus Bankshares, Inc. .................. 5,152 211,799 East West Bancorp, Inc. .................. 17,796 546,337 FNB Corporation.......... 1,900 54,758 Farmers Capital Bank Corporation............ 1,885 67,106 Fifth Third Bancorp...... 1 53 Financial Institutions, Inc. .................. 1,700 41,990 First Bancorp............ 2,024 67,662 First Busey Corporation............ 2,676 78,246 First Charter Corporation............ 9,523 207,506 First Citizens BancShares, Inc. (Class A)..................... 2,047 249,734 First Commonwealth Financial Corporation............ 21,440 278,077 First Community Bancorp.. 4,400 169,136 First Community Bancshares, Inc. ...... 2,894 96,949 First Financial Bancorp................ 10,087 178,742 First Financial Bankshares, Inc. ...... 4,165 174,638 First Financial Corporation............ 4,444 141,764 First Merchants Corporation............ 5,546 143,919 First Midwest Bancorp, Inc. .................. 14,500 510,545 First Oak Brook Bancshares, Inc. ...... 1,150 34,845 The First of Long Island Corporation............ 600 27,468 First State Bancorporation......... 3,600 110,592 Firstbank Corp. ......... 10,500 427,875 +Franklin Bank Corporation............. 4,900 77,518 Frontier Financial Corporation............ 4,741 165,651 GB&T Bancshares, Inc. ... 1,000 23,900 German American Bancorp................ 2,035 34,188 Glacier Bancorp, Inc. ... 7,075 199,303 Gold Banc Corporation.... 15,422 239,041 Greater Bay Bancorp...... 18,200 525,980 Hancock Holding Company................ 9,054 263,109 Hanmi Financial Corporation............ 4,152 122,484 Harleysville National Corporation............ 8,248 211,149 Heartland Financial USA, Inc. .................. 3,000 55,050 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 33 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Humboldt Bancorp......... 6,880 $ 143,861 Independent Bank Corp.(Massachusetts)... 4,845 140,263 Independent Bank Corporation (Michigan)............. 7,281 184,937 Integra Bank Corporation............ 5,074 111,780 Interchange Financial Services Corporation... 3,400 84,592 International Bancshares Corporation............ 3,996 162,038 Irwin Financial Corporation............ 5,848 154,387 Lakeland Bancorp, Inc. .................. 3,998 64,528 Lakeland Financial Corporation............ 1,700 56,950 MB Financial, Inc. ...... 5,950 219,020 MBT Financial Corp. ..... 3,477 63,351 Macatawa Bank Corporation............ 2,677 73,591 Main Street Banks, Inc. .................. 4,256 119,594 MainSource Financial Group, Inc. ........... 3,016 61,225 Mercantile Bank Corporation............ 2,380 86,751 Mercantile Bankshares Corporation............ 1 47 Mid-State Bancshares..... 7,950 186,905 Midwest Banc Holdings, Inc. .................. 3,580 79,834 NBC Capital Corporation.. 2,129 57,462 NBT Bancorp Inc. ........ 10,913 243,796 Nara Bancorp, Inc. ...... 7,900 135,327 National Penn Bancshares, Inc. .................. 7,330 217,994 Old Second Bancorp, Inc. .................. 2,188 115,417 Omega Financial Corporation............ 2,541 87,487 Oriental Financial Group Inc. .................. 5,653 153,027 Pacific Capital Bancorp................ 15,063 423,713 Park National Corporation............ 4,300 549,153 Peapack-Gladstone Financial Corporation............ 2,180 70,022 PennRock Financial Services Corp. ........ 1,761 53,182 Peoples Bancorp Inc. .... 4,910 130,557 The Peoples Holding Company................ 2,432 84,050 +Piper Jaffray Companies, Inc. ................... 5,800 262,334 PrivateBancorp, Inc. .... 6,696 183,872 Prosperity Bancshares, Inc. .................. 5,200 126,620 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Provident Bancshares Corporation............ 12,024 $ 346,772 R & G Financial Corporation (Class B).. 10,311 340,882 Republic Bancorp Inc. ... 21,190 294,541 Republic Bancorp, Inc. (Class A).............. 2,684 54,190 Riggs National Corporation............ 6,701 141,525 Royal Bancshares of Pennsylvania, Inc. .... 1,416 35,117 SCBT Financial Corporation............ 2,330 70,250 S&T Bancorp, Inc. ....... 7,863 251,459 S.Y. Bancorp, Inc. ...... 2,800 65,548 Sandy Spring Bancorp, Inc. .................. 4,814 167,287 Santander BanCorp........ 1,458 36,042 Seacoast Banking Corporation of Florida................ 3,858 80,748 Security Bank Corporation............ 700 24,325 +Silicon Valley Bancshares.............. 11,700 463,905 Simmons First National Corporation (Class A).. 4,400 114,532 Smithtown Bancorp, Inc. .................. 900 36,189 Southern Community Financial Corporation............ 2,000 20,880 Southside Bancshares, Inc. .................. 2,985 62,685 Southwest Bancorp, Inc. .................. 5,400 98,550 Southwest Bancorporation of Texas, Inc. ........ 12,152 536,146 State Bancorp, Inc. ..... 2,168 52,970 State Financial Services Corporation............ 1,800 53,388 Sterling Bancshares, Inc. .................. 16,576 235,213 Sterling Financial Corporation............ 7,162 186,427 Suffolk Bancorp.......... 3,600 117,360 +Sun Bancorp, Inc. (New Jersey)................. 3,688 78,407 Susquehanna Bancshares, Inc. .................. 15,216 382,841 Taylor Capital Group, Inc. .................. 200 4,350 +Texas Capital Bancshares, Inc. ................... 5,300 87,980 Texas Regional Bancshares, Inc. (Class A)..................... 9,784 449,183 Tompkins Trustco, Inc. .................. 2,620 124,450 TriCo Bancshares......... 3,700 69,930 TrustCo Bank Corp NY..... 24,661 323,059 Trustmark Corporation.... 14,400 416,448 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 34 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- UMB Financial Corporation............ 4,976 $ 256,861 U.S.B. Holding Co., Inc. ............. 3,648 83,612 Umpqua Holdings Corporation............ 11,170 234,458 Union Bankshares Corporation............ 2,400 75,840 United Bankshares, Inc. ...... 11,300 367,250 United Community Banks, Inc. ........... 9,000 226,620 Univest Corporation of Pennsylvania........... 1,900 96,900 Unizan Financial Corp. ................. 7,219 188,416 +Virginia Commerce Bancorp, Inc. .......... 2,800 82,628 Virginia Financial Group, Inc. ........... 2,300 79,005 Washington Trust Bancorp, Inc. ......... 4,400 114,268 WesBanco, Inc. .......... 6,363 185,354 Westamerica Bancorporation......... 9,900 519,255 West Bancorporation...... 3,800 66,462 West Coast Bancorp....... 4,700 100,768 +Western Sierra Bancorp... 2,120 65,656 +Wilshire State Bank...... 3,300 80,916 Wintrust Financial Corporation............ 7,400 373,774 Yardville National Bancorp................ 4,200 105,000 ------------ 25,959,221 ------------ Beverage - Brewers (Wineries) - 0.1% +The Boston Beer Company, Inc.(Class A).. 2,500 50,350 +The Robert Mondavi Corporation (Class A)... 4,242 157,039 ------------ 207,389 ------------ Beverage - Soft Drinks - 0.1% Coca-Cola Bottling Co. Consolidated........... 987 57,137 Farmer Brothers Co. ..... 1,710 45,879 +Hansen Natural Corporation............. 2,100 52,857 National Beverage Corp. ................. 2,390 23,733 +Peets Coffee & Tea Inc. ................... 3,900 97,461 ------------ 277,067 ------------ Biotechnology Research & Production - 2.5% +ABIOMED, Inc. ........... 3,600 45,288 +ARIAD Pharmaceuticals, Inc. ... 18,019 134,962 +AVANT Immunotherapeutics, Inc. .. 24,600 65,436 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Abgenix, Inc. ........... 28,500 $ 334,020 +Accelry's Inc. .......... 8,285 81,690 +Aksys,Ltd. .............. 5,600 32,648 +Albany Molecular Research, Inc. ......... 9,787 126,546 +Alexion Pharmaceuticals, Inc. ... 7,280 135,408 +Antigenics Inc. ......... 10,713 91,703 +Applera Corporation - Celera Genomics Group... 24,200 278,542 +Array BioPharma Inc. .... 5,800 46,110 +ArthroCare Corporation... 8,020 233,222 +Axonyx Inc. ............. 20,300 105,357 +Barrier Therapeutics Inc. ................... 900 12,618 +Bioenvision, Inc. ....... 4,200 36,792 +CancerVax Corporation.... 3,400 25,874 +Cell Genesys, Inc. ...... 14,824 154,021 +Cell Therapeutics, Inc. ..... 16,731 123,307 +Ciphergen Biosystems, Inc. ....... 7,700 56,364 +Corixa Corporation....... 18,557 86,661 +Cubist Pharmaceuticals, Inc. ... 14,967 166,134 +CuraGen Corporation...... 13,600 81,736 +Curis, Inc. ............. 9,700 42,874 +Cypress Bioscience, Inc. ....... 8,300 113,046 +Cytokinetics, Incorporated............ 1,300 19,305 +DOV Pharmaceutical, Inc. ... 5,500 76,780 +deCODE GENETICS, Inc. ... 15,900 135,150 +Digene Corporation....... 4,424 161,609 +Discovery Laboratories, Inc. ..... 14,700 140,973 +Diversa Corporation...... 7,878 79,804 +Dyax Corp. .............. 10,200 119,850 +Encysive Pharmaceuticals Inc. ................... 17,496 148,716 +Enzon, Inc. ............. 15,100 192,676 +Exelixis, Inc. .......... 19,518 196,937 +Genencor International Inc. ................... 1,900 31,103 +Genta Incorporated....... 27,097 67,743 +Geron Corporation........ 16,129 130,484 +Human Genome Sciences, Inc. ......... 40,900 475,667 +Immunomedics, Inc. ...... 14,209 69,198 +Incyte Genomics, Inc. ... 22,924 175,139 +Inkine Pharmaceutical Company, Inc. .......... 11,200 43,456 +Integra LifeSciences Holdings................ 7,100 250,417 +InterMune Inc. .......... 9,514 146,706 +Isolagen Inc. ........... 9,300 95,604 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 35 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Kensey Nash Corporation.. 3,900 $ 134,550 +Keryx Biopharmaceuticals, Inc. .. 5,600 70,896 +Kosan Biosciences, Inc. ...... 5,700 45,030 +Lexicon Genetics Incorporated............ 18,605 145,863 +Marshall Edwards Inc. ... 300 2,259 +Maxim Pharmaceuticals, Inc. ... 11,400 110,010 +Maxygen Inc. ............ 7,301 77,172 +Myogen, Inc. ............ 2,300 17,848 +Myriad Genetics, Inc. ... 9,400 140,248 +NPS Pharmaceuticals, Inc. ... 11,423 239,883 +Nabi Biopharmaceuticals.. 19,054 270,948 +Nanogen, Inc. ........... 14,400 96,768 +Neurogen Corporation..... 5,600 41,888 +Northfield Laboratories Inc. ................... 7,900 112,654 +Nuvelo, Inc. ............ 11,200 107,744 +Oscient Pharmaceutical Corporation............. 16,200 82,782 +Palatin Technologies, Inc. ................... 13,000 54,730 +Peregrine Pharmaceuticals, Inc. ................... 40,555 58,805 +Pharmos Corporation...... 24,200 97,526 +Progenics Pharmaceuticals, Inc. ................... 3,900 65,676 +Regeneration Technologies, Inc. ..... 7,700 82,621 +Rigel Pharmaceuticals, Inc. ................... 2,178 30,949 +Seattle Genetics, Inc. ................... 7,800 54,834 +Serologicals Corporation............. 9,372 187,346 +Tanox, Inc. ............. 8,245 157,232 +Telik, Inc. ............. 15,432 368,362 +Third Wave Technologies.. 4,800 21,552 +Transkaryotic Therapies, Inc. ................... 10,940 163,662 +Trimeris, Inc. .......... 5,638 81,356 +VaxGen, Inc. ............ 6,500 92,040 +Vicuron Pharmaceuticals Inc. ................... 15,506 194,755 +Vion Pharmaceuticals, Inc. ................... 23,100 93,786 +Zymogenetics, Inc. ...... 5,000 95,000 ------------ 8,964,451 ------------ Building Materials - 0.4% Ameron International Corporation............ 2,600 88,738 Building Materials Holding Corporation.... 5,100 96,543 LSI industries Inc. ..... 6,512 74,888 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +NCI Building Systems, Inc. ................... 7,468 $ 243,083 Simpson Manufacturing Co., Inc. ............. 5,466 306,752 Texas Industries, Inc. .................. 7,845 322,979 +Trex Company, Inc. ...... 3,409 128,690 Watsco, Inc. ............ 6,165 173,052 ------------ 1,434,725 ------------ Building - Air Conditioning - 0.2% Lennox International Inc. .................. 14,635 264,894 York International Corporation............ 13,738 564,220 ------------ 829,114 ------------ Building - Cement - 0.1% +Eagle Materials Inc. .... 6,277 445,793 +U.S. Concrete, Inc. ..... 3,200 22,560 ------------ 468,353 ------------ Building - Heating & Plumbing - 0.1% +Aaon, Inc. .............. 1,800 36,342 +Jacuzzi Brands, Inc. .... 24,950 201,097 ------------ 237,439 ------------ Building - Miscellaneous - 0.1% +Comfort Systems USA, Inc. ................... 9,300 59,427 +Drew Industries Incorporated............ 3,100 126,170 +Griffon Corporation...... 8,447 188,199 ------------ 373,796 ------------ Building - Roofing & Wallboard - 0.1% ElkCorp.................. 6,651 159,225 +USG Corporation.......... 12,300 216,234 ------------ 375,459 ------------ Cable Television Services - 0.2% +Charter Communications, Inc. (Class A).......... 89,300 350,056 +Crown Media Holdings, Inc. (Class A).......... 5,898 50,251 +Insight Communications Company, Inc. .......... 17,500 162,050 +TiVo Inc. ............... 17,994 127,577 ------------ 689,934 ------------ Casinos & Gambling - 0.8% +Ameristar Casinos, Inc. ................... 4,600 154,468 +Argosy Gaming Company.... 7,825 294,220 +Aztar Corporation........ 11,491 321,748 Boyd Gaming Corporation............ 10,715 284,698 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 36 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Churchill Downs Incorporated........... 1,632 $ 66,422 Dover Downs Gaming & Entertainment, Inc. ... 3,178 35,753 +Empire Resorts, Inc. .... 1,400 19,572 +Isle of Capri Casinos, Inc. ................... 6,175 107,754 +Lakes Gaming Inc. ....... 6,700 77,653 +MTR Gaming Group, Inc. .. 9,000 98,550 +Magna Entertainment Corp. (Class A)............... 17,300 102,070 +Multimedia Games, Inc. .. 8,700 233,334 +Pinnacle Entertainment, Inc. ................... 11,764 148,344 +Scientific Games Corporation............. 18,400 352,176 +Shuffle Master, Inc. .... 8,400 305,004 +WMS Industries Inc. ..... 6,412 191,078 ------------ 2,792,844 ------------ Chemicals - 1.9% A. Schulman, Inc. ....... 11,706 251,562 Aceto Corporation........ 6,750 118,800 Airgas, Inc. ............ 18,500 442,335 Albemarle Corp. ......... 11,000 348,150 American Vanguard Corporation............ 1,200 40,476 Arch Chemicals, Inc. .... 6,456 186,062 +Cabot Microelectronics Corporation............. 7,400 226,514 Calgon Carbon Corporation............ 11,201 75,047 Cambrex Corporation...... 7,385 186,324 Crompton Corporation..... 37,960 239,148 Cytec Industries Inc. ... 12,100 549,945 +Energy Conversion Devices, Inc. .......... 5,464 61,525 +Exide Technologies....... 9,200 188,140 +FMC Corporation.......... 12,100 521,631 Georgia Gulf Corporation............ 9,937 356,341 Great Lakes Chemical Corporation............ 15,500 419,430 +Hercules Incorporated.... 35,700 435,183 MacDermid, Inc. ......... 8,967 303,533 +Medis Technologies Ltd. ................... 3,641 59,057 +Millennium Chemicals Inc. ................... 22,240 385,197 NL Industries, Inc. ..... 2,634 38,193 +NewMarket Corporation.... 4,400 94,468 +NuCo2 Inc. .............. 900 17,730 +OM Group, Inc. .......... 10,200 336,702 Octel Corp. ............. 3,900 102,687 +Omnova Solutions Inc. ... 10,595 64,630 +PolyOne Corporation...... 30,667 228,162 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Quaker Chemical Corporation............ 2,700 $ 74,574 Stepan Company........... 1,755 45,893 +Ultralife Batteries, Inc. ................... 3,600 69,696 +Valence Technology, Inc. ................... 15,300 50,643 +W.R. Grace & Co. ........ 25,300 156,860 ------------ 6,674,638 ------------ Commercial Information Services - 0.4% +Arbitron Inc. ........... 11,158 407,490 +CMGI Inc. ............... 124,900 243,555 +infoUSA Inc. ............ 8,561 86,809 +LECG Corporation......... 5,700 98,667 +LookSmart, Ltd. ......... 31,600 68,572 +MarketWatch.com, Inc. ... 1,600 18,768 +Neoforma, Inc. .......... 3,100 37,634 +ProQuest Company......... 7,974 217,292 +SOURCECORP, Incorporated............ 6,053 166,579 ------------ 1,345,366 ------------ Communications & Media - 0.0% +Entravision Communications Corporation (Class A)... 12,800 98,304 ------------ Communications Technology - 2.3% +Airspan Networks Inc. ... 13,800 76,452 +Anaren Microwave, Inc. ................... 7,522 122,909 Anixter International Inc. .................. 9,972 339,347 +Ariba, Inc. ............. 103,700 205,326 +Aspect Communications Corporation............. 13,500 191,700 +Atheros Communications... 1,400 14,756 +Avanex Corporation....... 19,278 74,991 Bel Fuse Inc. ........... 3,159 131,730 Black Box Corporation.... 5,388 254,637 +Brocade Communications Systems, Inc. .......... 82,100 490,958 +CSG Systems International, Inc. .... 18,600 385,020 +Captaris Inc. ........... 7,200 46,512 +Carrier Access Corporation............. 5,100 60,792 +Catapult Communications Corporation............. 1,672 38,456 +CommScope, Inc. ......... 18,788 403,003 +Comtech Telecommunications Corp. .................. 5,650 127,464 +Corvis Corporation....... 129,500 182,595 +Digi International Inc. ................... 5,000 53,600 +Ditech Communications Corporation............. 9,400 219,396 +Eagle Broadband, Inc. ... 44,300 43,857 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 37 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Echelon Corporation...... 9,313 $ 104,212 +Enterasys Networks, Inc. ................... 69,600 146,856 +Entrust Technologies Inc. ................... 20,200 90,900 +Extreme Networks, Inc. ................... 35,800 197,616 +Finisar Corporation...... 52,100 103,158 +FreeMarkets, Inc. ....... 10,925 71,231 +Harmonic Inc. ........... 25,496 217,226 +Inet Technologies, Inc. ................... 5,700 71,079 +Infonet Services Corporation (Class B)... 16,700 29,225 Inter-Tel Inc. .......... 7,977 199,186 +InterVoice-Brite, Inc. ................... 11,100 127,317 +Ixia..................... 6,629 65,229 +j2 Global Communications, Inc. ................... 5,400 150,120 +KVH Industries, Inc. .... 6,100 77,653 +Marimba, Inc. ........... 4,100 33,333 +NETGEAR, Inc. ........... 6,600 70,884 +NMS Communications Corporation............. 12,500 92,250 +Net2Phone, Inc. ......... 15,680 71,030 +Network Equipment Technologies, Inc. ..... 6,400 52,224 +Novatel Wireless, Inc. ................... 7,000 185,500 +Oplink Communications, Inc. ................... 35,419 68,004 +Optical Communication Products, Inc. ......... 6,083 14,843 +Paradyne Networks, Inc. ................... 9,400 51,700 +REMEC, Inc. ............. 22,740 143,717 +Redback Networks Inc. ... 10,300 66,023 +SeaChange International, Inc. ................... 8,908 150,367 +Secure Computing Corporation............. 13,588 158,300 +Sonus Networks, Inc. .... 75,200 359,456 +Standard Microsystems Corporation............. 6,110 142,485 +Stratex Networks, Inc. ................... 27,871 82,219 +Sycamore Networks, Inc. ................... 57,900 244,917 TALX Corporation......... 5,620 137,297 +Tekelec.................. 17,900 325,243 +Terremark Worldwide, Inc. ................... 80,300 68,255 +TippingPoint Technologies, Inc. ..... 400 10,156 +Ulticom, Inc. ........... 2,640 30,888 +Verso Technologies, Inc. ................... 35,500 60,350 +ViaSat, Inc. ............ 6,901 172,180 +WJ Communications, Inc. ................... 16,100 56,994 +WebEx Communications, Inc. ................... 10,031 218,275 +Westell Technologies, Inc. ................... 16,300 83,130 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Zhone Technologies, Inc. ................... 14,975 $ 57,804 ------------ 8,322,333 ------------ Computer Services Software & Systems - 4.8% +@Road, Inc. ............. 11,300 86,445 +ANSYS, Inc. ............. 5,216 245,152 +ActivCard Corp. ......... 14,000 101,640 +Actuate Corporation...... 11,800 46,610 +Agile Software Corporation............. 17,302 151,393 +Altiris, Inc. ........... 6,100 168,421 +Ansoft Corporation....... 600 9,156 +AnswerThink Consulting Group, Inc. ............ 11,900 68,187 +Anteon International Corporation............. 7,900 257,698 +Ascential Software Corporation............. 21,095 337,309 +AsianInfo Holdings, Inc. ................... 12,897 68,096 +Aspen Technology, Inc. .. 16,308 118,396 +Authentidate Holding Corp. .................. 7,900 86,347 +Blue Coat Systems, Inc. ................... 3,600 120,564 +Borland Software Corporation............. 27,667 234,893 +CACI International Inc. (Class A)............... 10,016 405,047 +CIBER, Inc. ............. 16,902 138,934 +Chordiant Software, Inc. ................... 27,800 126,768 +Clarus Corporation....... 2,800 32,396 +Concord Communications, Inc. ................... 6,100 69,601 +Concur Technologies, Inc. ................... 8,400 89,880 +Covansys Corporation..... 4,900 50,617 +Dendrite International, Inc. ................... 11,964 222,291 +Digimarc Corporation..... 5,137 68,579 +Digital River, Inc. ..... 10,000 326,300 +DigitalNet Holdings, Inc. ................... 1,000 20,330 +Digitas Inc. ............ 15,607 172,145 +eCollege.com............. 6,600 105,600 +EPIQ Systems, Inc. ...... 4,545 65,903 +E.piphany, Inc. ......... 25,180 121,619 +Electronics for Imaging, Inc. ................... 17,739 501,304 +Embarcadero Technologies, Inc. ................... 5,930 73,295 +Epicor Software Corporation............. 12,600 177,030 +Equinix, Inc. ........... 2,600 88,244 +F5 Networks, Inc. ....... 11,419 302,375 +Gartner Group, Inc. (Class A)............... 22,559 298,230 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 38 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Group 1 Software, Inc. ................... 4,100 $ 94,095 +Hyperion Solutions Corporation............. 13,106 572,994 +iGATE Capital Corporation............. 4,300 17,114 +Infocrossing, Inc. ...... 3,800 51,300 +Informatica Corporation............. 25,500 194,565 +Internet Capital Group, Inc. ................... 15,100 115,364 +Internet Security Systems, Inc. .......... 13,400 205,556 +InterVideo Inc. ......... 1,500 19,410 +Interwoven, Inc. ........ 14,425 145,693 +JDA Software Group, Inc. ................... 10,208 134,439 +Jupitermedia Corporation............. 6,700 94,872 +Keane, Inc. ............. 16,958 232,155 +Keynote Systems, Inc. ... 4,438 61,023 +Kintera Inc. ............ 300 3,129 +LTC StorageNetworks, Inc. ................... 1,600 0 +Lawson Software, Inc. ... 15,200 107,616 +Lionbridge Technologies, Inc. ................... 15,000 114,750 +MAPICS, Inc. ............ 7,400 78,144 +MRO Software, Inc. ...... 5,974 81,306 +MSC.Software Corp. ...... 7,600 68,020 +Macrovision Corporation.. 15,500 387,965 +Magma Design Automation, Inc. ................... 8,200 157,686 +Manhattan Associates, Inc. ................... 9,139 282,212 +ManTech International Corporation (Class A)... 5,600 105,112 +Manugistics Group, Inc. ................... 23,000 75,210 +MapInfo Corporation...... 8,200 86,920 +MatrixOne, Inc. ......... 16,097 111,230 +Mentor Graphics Corporation............. 24,100 372,827 +Mercury Computer Systems, Inc. ................... 8,156 202,269 +Merge Technologies Incorporated............ 2,400 35,256 +Micros Systems, Inc. .... 6,099 292,569 +Micromuse, Inc. ......... 25,900 173,271 +MicroStrategy Incorporated (Class A).. 4,500 192,150 +Netegrity, Inc. ......... 8,355 70,683 +NetIQ Corporation........ 18,874 249,137 +NetScout Systems, Inc. ................... 5,185 34,169 +OPNET Technologies, Inc. ................... 3,900 51,090 +Open Solutions Inc. ..... 4,800 119,904 +Openwave Systems Inc. ... 21,333 270,929 +Opsware, Inc. ........... 17,000 134,640 +PC-Tel, Inc. ............ 6,926 81,727 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +PDF Solutions, Inc. ..... 3,300 $ 27,951 +PEC Solutions, Inc. ..... 2,077 24,779 +Packeteer, Inc. ......... 10,907 176,148 +PalmSource, Inc. ........ 5,257 90,105 +Parametric Technology Corporation............. 84,200 421,000 +Pegasystems Inc. ........ 1,400 12,250 +Pinnacle Systems, Inc. ................... 21,791 155,806 +Progress Software Corporation............. 11,308 245,044 QAD Inc. ................ 3,500 37,135 +Quest Software, Inc. .... 14,900 192,210 +RealNetworks, Inc. ...... 33,200 227,088 +Retek Inc. .............. 19,400 119,116 +SERENA Software, Inc. ... 9,397 179,389 +SI International Inc. ... 600 12,234 +SPSS Inc. ............... 3,789 68,088 +SRA International, Inc. (Class A)............... 3,500 148,120 SS&C Technologies, Inc. .................. 5,500 102,850 +SYNNEX Corporation....... 800 12,560 +SafeNet, Inc. ........... 7,099 196,500 +Sapient Corporation...... 27,992 168,232 +ScanSoft, Inc. .......... 26,795 132,635 +SeeBeyond Technology Corporation............. 15,427 58,160 +SonicWALL, Inc. ......... 17,841 153,433 +Staktek Holdings Inc. ... 800 4,200 +Stellent, Inc. .......... 5,800 49,532 +Support.com, Inc. ....... 14,400 124,992 +Sykes Enterprises,Incorporated.. 8,261 62,453 Syntel, Inc. ............ 1,583 26,199 +Tier Technologies, Inc. (Class B)............... 5,500 53,570 +Transaction Systems Architects, Inc. (Class A)...................... 13,185 283,873 +The TriZetto Group, Inc. ................... 8,708 58,344 +Tumbleweed Communications Corporation............. 11,800 50,268 +Tyler Technologies, Inc. ................... 12,200 115,412 +The Ultimate Software Group, Inc. ............ 6,700 67,670 +Verint Systems Inc. ..... 3,100 106,082 +Verity, Inc. ............ 9,867 133,303 +Vignette Corporation..... 95,700 158,862 +WatchGuard Technologies, Inc. ................... 12,662 91,420 +webMethods, Inc. ........ 17,220 147,575 +Websense, Inc. .......... 7,651 284,847 +Wind River Systems, Inc. ................... 25,200 296,352 +Witness Systems, Inc. ... 8,300 100,845 +Xybernaut Corporation.... 46,200 77,616 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 39 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +ZixIt Corporation........ 9,100 $ 72,254 +Zoran Corporation........ 14,208 260,717 ------------ 17,022,515 ------------ Computer Technology - 1.8% +Adaptec, Inc. ........... 39,800 336,708 +Advanced Digital Information Corporation............. 23,034 223,430 +CompuCom Systems, Inc. .. 4,900 22,246 +Constellation 3D, Inc. ................... 2,000 0 +Cray, Inc. .............. 28,400 188,008 +CyberGuard Corporation... 4,300 35,088 +Dot Hill Systems Corp. .................. 14,400 161,424 +Emulex Corporation....... 25,900 370,629 +FalconStor Software, Inc. ................... 9,809 75,725 +FileNET Corporation...... 13,082 412,999 +Gateway Inc. ............ 73,800 332,100 +Hutchinson Technology Incorporated............ 8,417 206,974 Imation Corp. ........... 10,900 464,449 +InFocus Corporation...... 15,566 132,311 +Intergraph Corp. ........ 13,196 341,249 Iomega Corporation....... 19,703 109,943 +Komag,Incorporated....... 10,500 146,685 +Lexar Media, Inc. ....... 25,474 170,166 +McDATA Corporation (Class A)...................... 35,400 190,452 +Mobility Electronics, Inc. ................... 6,100 51,362 +Overland Storage, Inc. ................... 4,300 57,147 +PalmOne, Inc. ........... 13,894 483,094 +Perot Systems Corporation (Class A)............... 25,200 334,404 +Quantum Corporation - DLT & Storage Systems....... 53,000 164,300 +RSA Security Inc. ....... 19,200 393,024 +RadiSys Corporation...... 6,242 115,914 +Safeguard Scientifics, Inc. ................... 40,047 92,108 +Silicon Graphics, Inc. ................... 78,807 173,375 +SimpleTech, Inc. ........ 1,200 4,092 +Stratasys, Inc. ......... 3,700 91,612 +Synaptics Incorporated... 8,300 158,945 +Trident Microsystems, Inc. ................... 4,600 51,566 +UNOVA, Inc. ............. 16,909 342,407 ------------ 6,433,936 ------------ Construction - 0.2% Brookfield Homes Corporation............ 3,900 102,141 +EMCOR Group, Inc. ....... 5,018 220,692 Granite Construction Incorporated........... 11,071 201,824 +Perini Corporation....... 3,900 41,613 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Washington Group International, Inc. .... 8,400 $ 301,476 ------------ 867,746 ------------ Consumer Electronics - 1.1% +Alloy, Inc. ............. 14,567 89,587 +Atari, Inc. ............. 4,653 11,214 +CNET Networks, Inc. ..... 42,300 468,261 +Digital Theater Systems Inc. ................... 4,700 122,905 +DoubleClick Inc. ........ 37,300 289,821 +EarthLink, Inc. ......... 44,100 456,435 +FindWhat.com............. 5,500 127,270 +InfoSpace, Inc. ......... 10,600 403,224 +Internap Network Services Corporation............. 62,700 75,867 +iPass Inc. .............. 12,600 133,434 +iVillage Inc. ........... 5,800 36,830 +Lifeline Systems, Inc. ................... 2,400 56,784 +Midway Games Inc. ....... 12,374 142,548 +NIC Inc. ................ 10,300 73,851 +Navarre Corporation...... 8,300 119,437 +PLATO Learning, Inc. .... 7,300 72,343 +Sohu.com Inc. ........... 8,200 163,016 +THQ Inc. ................ 12,625 289,113 +Take-Two Interactive Software, Inc. ......... 14,314 438,581 +United Online, Inc. ..... 16,250 286,163 +Universal Electronics Inc. ................... 4,286 75,134 ------------ 3,931,818 ------------ Consumer Products - 1.1% +American Greetings Corporation (Class A)... 21,800 505,324 Blyth, Inc. ............. 9,600 331,104 CSS Industries, Inc. .... 2,312 81,012 +Jarden Corp. ............ 9,200 331,108 Mannatech, Incorporated.. 2,700 25,920 Matthews International Corporation (Class A).. 9,873 325,217 The Nautilus Group, Inc. .................. 9,463 184,623 Oakley, Inc. ............ 7,800 100,932 +Playtex Products, Inc. ................... 7,776 60,808 +RC2 Corporation.......... 5,500 195,250 The Topps Company, Inc. .................. 11,791 114,373 The Toro Company......... 8,498 595,455 Tupperware Corporation... 19,074 370,608 +USANA Health Sciences, Inc. ................... 4,200 130,536 +Water Pik Technologies, Inc. ................... 1,500 24,840 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 40 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +The Yankee Candle Company, Inc. .......... 15,383 $ 449,953 ------------ 3,827,063 ------------ Containers & Packaging - Metal & Glass - 0.4% Anchor Glass Container Corporation............ 1,600 21,648 AptarGroup, Inc. ........ 11,300 493,697 +Crown Holdings, Inc. .... 55,469 553,026 Greif Bros. Corporation (Class A).............. 4,075 172,169 +Mobile Mini, Inc. ....... 6,071 172,477 Silgan Holdings Inc. .... 3,600 145,116 ------------ 1,558,133 ------------ Containers & Packaging - Paper & Plastic - 0.1% +Graphic Packaging Corporation............. 19,100 165,215 Myers Industries, Inc. .................. 7,320 103,212 ------------ 268,427 ------------ Copper - 0.1% Mueller Industries, Inc. .................. 12,382 443,276 ------------ Cosmetics - 0.2% +Del Laboratories, Inc. ................... 771 23,916 +Elizabeth Arden, Inc. ... 8,293 174,485 Inter Parfums, Inc. ..... 1,700 35,445 Nu Skin Enterprises, Inc. (Class A).............. 17,426 441,226 +Revlon, Inc. (Class A)... 42,883 126,505 ------------ 801,577 ------------ Diversified Financial Services - 0.5% +The BISYS Group, Inc. ... 38,200 537,092 +Euronet Worldwide, Inc. ................... 8,500 196,605 F.N.B. Corporation....... 13,600 277,440 First National Bankshares of Florida............. 13,700 259,615 +Greenhill & Co., Inc. ... 3,200 66,912 +Intersections Inc. ...... 3,400 81,566 +Jones Lang Lasalle Inc. ................... 10,608 287,477 +Rewards Network Inc. .... 5,300 47,700 +U.S.I. Holdings Corporation............. 9,500 150,100 ------------ 1,904,507 ------------ Diversified Materials & Processing - 0.6% Acuity Brands, Inc. ..... 14,160 382,320 +Armor Holdings, Inc. .... 9,416 320,144 Barnes Group Inc. ....... 4,957 143,654 Brady Corporation........ 5,547 255,717 CLARCOR Inc. ............ 9,155 419,299 +Hexcel Corporation....... 6,962 80,620 Olin Corporation......... 21,914 386,125 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Tredegar Corporation..... 9,145 $ 147,509 Valhi, Inc. ............. 6,420 72,995 ------------ 2,208,383 ------------ Diversified Production - 0.1% Thomas & Betts Corporation............ 18,152 494,279 ------------ Drug & Grocery Store Chains - 0.5% Arden Group, Inc. (Class A)..................... 432 38,716 Casey's General Stores, Inc. .................. 17,807 325,868 +Duane Read Inc. ......... 5,528 90,272 +The Great Atlantic & Pacific Tea Company, Inc..................... 8,231 63,049 Ingles Markets, Incorporated (Class A)..................... 6,464 72,203 Longs Drug Stores Corporation............ 10,983 262,164 Nash-Finch Company....... 5,177 129,580 +Pathmark Stores, Inc. ... 13,642 103,952 Ruddick Corporation...... 11,869 266,459 +Smart & Final Inc. ...... 3,929 47,227 Weis Markets, Inc. ...... 3,700 129,685 +Wild Oats Markets, Inc. ................... 9,929 139,701 Winn-Dixie Stores, Inc. .................. 24,400 175,680 ------------ 1,844,556 ------------ Drugs & Pharmaceuticals - 2.8% +Able Laboratories, Inc. ................... 5,900 121,304 +Adolor Corporation....... 13,100 166,108 +Advancis Pharmaceutical Corporation............. 800 5,432 +Alkermes, Inc. .......... 27,900 379,440 Alpharma, Inc. (Class A)..................... 13,025 266,752 +AtheroGenics, Inc. ...... 13,400 255,002 +Atrix Laboratories, Inc. ................... 7,900 270,812 +Bentley Pharmaceuticals, Inc. ................... 4,000 54,960 +BioCryst Pharmaceuticals, Inc. ................... 7,700 53,130 +BioMarin Pharmaceutical Inc. ................... 24,648 147,888 +Bone Care International, Inc. ................... 6,010 140,754 +Bradley Pharmaceuticals, Inc. ................... 5,300 147,870 +CIMA Labs Inc. .......... 3,872 130,603 +CV Therapeutics, Inc. ... 11,700 196,092 +CYTOGEN Corporation...... 6,700 106,530 +Caraco Pharmaceutical Laboratories, Ltd. ..... 1,300 12,532 +Chattem, Inc. ........... 6,400 184,768 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 41 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Connetics Corporation.... 10,402 $ 210,120 +Corgentech Inc. ......... 700 11,284 +DUSA Pharmaceuticals, Inc. ................... 5,200 49,400 +Dendreon Corporation..... 17,500 214,375 +DepoMed, Inc. ........... 3,800 18,810 +Durect Corporation....... 10,100 35,249 +Enzo Biochem, Inc. ...... 7,615 114,225 +First Horizon Pharmaceutical Corporation............. 7,700 145,530 +GTx, Inc. ............... 300 3,123 +Genaera Corporation...... 12,400 51,832 +Genelabs Technologies, Inc. ................... 22,400 51,744 +Guilford Pharmaceuticals Inc. ................... 14,736 69,996 +Hollis-Eden Pharmaceuticals, Inc. ................... 6,100 73,505 +ILEX Oncology, Inc. ..... 13,924 347,961 +ImmunoGen, Inc. ......... 13,527 82,650 +Impax Laboratories, Inc. ................... 17,100 331,398 +Indevus Pharmaceuticals, Inc. ................... 16,388 100,786 +Inspire Pharmaceuticals, Inc. ................... 11,000 183,920 +Isis Pharmaceuticals, Inc. ................... 17,189 98,665 +Ista Pharmaceuticals, Inc. ................... 800 8,360 +K-V Pharmaceutical Company (Class A)....... 11,700 270,153 +Kos Pharmaceuticals, Inc. ................... 3,966 130,759 +Lannett Company, Inc. ... 1,900 28,538 +Ligand Pharmaceuticals Incorporated (Class B).. 24,516 426,088 +Medarex, Inc. ........... 26,400 192,456 +The Medicines Company.... 15,527 473,729 +NeoPharm, Inc. .......... 7,645 78,973 +NitroMed, Inc. .......... 100 601 +Noven Pharmaceuticals, Inc. ................... 8,731 192,257 +POZEN Inc. .............. 10,800 73,872 +PRAECIS Pharmaceuticals Incorporated............ 17,317 65,805 +Pain Therapeutics, Inc. ................... 10,600 85,436 +Par Pharmaceutical Cos Inc. ................... 10,700 376,747 +Penwest Pharmaceuticals Co. .................... 7,200 92,232 Perrigo Company.......... 22,415 425,213 +Pharmacyclics, Inc. ..... 4,700 47,799 +Pharmion Corp. .......... 4,500 220,140 +Priority Healthcare Corporation (Class B)... 10,200 234,090 +Quidel Corporation....... 13,700 80,693 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Regeneron Pharmaceuticals, Inc. ................... 12,319 $ 129,719 +Renovis, Inc. ........... 400 3,664 +SFBC International, Inc. ................... 2,050 64,227 +Salix Pharmaceuticals, Ltd. ................... 8,600 283,370 +Santarus Inc. ........... 1,000 14,750 +SciClone Pharmaceuticals, Inc. ................... 14,800 75,628 +SuperGen, Inc. .......... 14,682 94,699 +United Therapeutics Corporation............. 7,346 188,425 Valeant Pharmaceuticals International.......... 26,700 534,000 +Vertex Pharmaceuticals Incorporated............ 27,300 295,932 +Zila, Inc. .............. 16,600 81,506 ------------ 10,104,411 ------------ Education Services - 0.2% +Apollo Investment Corporation............. 21,900 301,563 +Bright Horizons Family Solutions, Inc. ........ 4,402 235,991 +Learning Tree International, Inc. .... 4,830 70,083 +The Princeton Review, Inc. ................... 2,700 20,439 Renaissance Learning, Inc. .................. 2,449 54,907 +Universal Technical Institute Inc. ......... 4,100 163,877 ------------ 846,860 ------------ Electrical & Electronics - 0.4% +Benchmark Electronics, Inc. ................... 14,586 424,453 +Cherokee International Corporation............. 700 7,987 +InVision Technologies, Inc. ................... 5,800 289,420 +LeCroy Corporation....... 1,400 25,214 +OSI Systems, Inc. ....... 4,200 83,706 +Plexus Corporation....... 14,298 193,023 +Power Integrations, Inc. ................... 9,132 227,387 +TTM Technologies, Inc. .. 11,900 141,015 +Universal Display Corporation............. 5,607 60,219 ------------ 1,452,424 ------------ Electrical Equipment & Components - 1.0% A.O. Smith Corporation... 6,781 215,568 +American Superconductor Corporation............. 6,700 87,636 Baldor Electric Company.. 10,771 251,503 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 42 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- CTS Corporation.......... 11,808 $ 142,404 +Cable Design Technology.. 13,984 148,230 Cohu, Inc. .............. 8,718 165,991 +DDi Corp. ............... 6,400 52,672 Franklin Electric Co., Inc. .................. 4,360 164,634 +General Cable Corporation............. 13,990 119,615 +The Genlyte Group Incorporated............ 4,073 256,110 +Littelfuse Inc. ......... 7,360 312,138 +MKS Instruments, Inc. ... 10,700 244,174 +Powell Industries, Inc. ................... 2,231 38,105 +Power-One, Inc. ......... 21,200 232,776 +Sonic Solutions.......... 6,600 140,250 +SpatiaLight, Inc. ....... 4,600 27,462 +Taser International, Inc. ................... 8,400 363,132 +Technitrol, Inc. ........ 13,361 292,606 +Triumph Group, Inc. ..... 4,279 136,628 ------------ 3,391,634 ------------ Electrical - Household Appliance - 0.0% +Applica Incorporated..... 6,496 57,814 National Presto Industries, Inc. ...... 1,550 63,907 ------------ 121,721 ------------ Electronics - 0.5% +II-VI Incorporated....... 3,686 113,013 +Aeroflex Incorporated.... 22,612 324,030 Agilysys, Inc. .......... 10,563 145,664 BEI Technologies, Inc. .................. 4,532 128,301 +California Micro Devices Corporation............. 5,300 61,109 +CyberOptics Corporation.. 3,200 83,136 +Daktronics, Inc. ........ 4,799 119,735 +Drexler Technology Corporation............. 4,900 65,317 +EMS Technologies, Inc. .. 3,700 71,891 +Kopin Corporation........ 23,200 118,552 +MRV Communications, Inc. ................... 35,566 97,451 Methode Electronics...... 11,780 152,787 Park Electrochemical Corp. ................. 6,649 167,887 +Supertex, Inc. .......... 2,067 33,775 ------------ 1,682,648 ------------ Electronics - Instruments Gauges & Meters - 0.2% +FARO Technologies, Inc. ................... 4,300 110,381 +Itron, Inc. ............. 6,982 160,167 Keithley Instruments, Inc. .................. 3,801 84,192 +Measurement Specialties, Inc. ................... 2,500 54,000 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Metrologic Instruments, Inc. ................... 3,300 $ 65,802 +Zygo Corporation......... 5,895 65,965 ------------ 540,507 ------------ Electronics - Medical Systems - 0.9% Analogic Corporation..... 3,772 160,046 +Aspect Medical Systems, Inc. ................... 4,900 90,503 +Bruker BioSciences Corporation............. 5,687 27,696 +CTI Molecular Imaging, Inc. ................... 10,300 146,054 +Candela Corporation...... 6,400 62,720 +CardioDynamics International Corporation............. 11,232 56,722 Datascope Corp. ......... 4,370 173,445 +EPIX Medical, Inc. ...... 7,600 160,360 E-Z-EM, Inc. ............ 1,000 18,380 +eResearch Technology, Inc. ................... 14,550 407,400 +Endocardial Solutions, Inc. ................... 5,500 56,925 +Haemonetics Corporation.. 6,472 191,895 +Hologic, Inc. ........... 6,800 158,100 +Illumina, Inc. .......... 6,900 43,815 +Intuitive Surgical, Inc. ................... 11,081 210,539 +Luminex Corporation...... 7,051 70,933 +Microvision, Inc. ....... 8,100 68,040 +Possis Medical, Inc. .... 5,988 204,490 +Quality Systems, Inc. ... 1,200 58,908 +TriPath Imaging, Inc. ... 7,132 67,112 +VISX, Incorporated....... 15,086 403,098 +Wilson Greatbatch Technologies, Inc. ..... 6,700 187,265 +Zoll Medical Corporation............. 2,961 103,872 ------------ 3,128,318 ------------ Electronics - Semi-Conductors/Components - 2.2% +AMIS Holdings, Inc. ..... 8,800 148,896 +Actel Corp. ............. 10,316 190,846 +Alliance Semiconductor Corporation............. 9,641 57,364 +Artisan Components, Inc. ................... 7,700 198,660 +ChipPAC, Inc. ........... 16,751 105,029 +Cirrus Logic, Inc. ...... 25,200 151,452 +DSP Group, Inc. ......... 10,283 280,109 +Diodes Incorporated...... 2,350 55,672 +ESS Technology, Inc. .... 12,329 132,044 +Exar Corporation......... 15,427 226,160 +Excel Technology, Inc. ................... 3,173 105,502 +FormFactor Inc. ......... 8,000 179,600 +Genesis Microchip Incorporated............ 10,200 140,454 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 43 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +IXYS Corporation......... 6,193 $ 48,801 +Integrated Device Technology, Inc. ....... 33,000 456,720 +Integrated Silicon Solution, Inc. ......... 11,838 144,542 +Lattice Semiconductor Corporation............. 37,500 262,875 +MIPS Technologies, Inc. (Class A)............... 10,500 64,260 +Merix Corporation........ 7,700 87,318 +Micrel, Inc. ............ 21,000 255,150 +Microsemi Corporation.... 21,190 301,110 +Microtune, Inc. ......... 11,700 54,639 +Mindspeed Technologies Inc. ................... 33,000 163,680 +Monolithic System Technology, Inc. ....... 5,800 43,674 +ON Semiconductor Corporation............. 43,600 218,872 +OmniVision Technologies, Inc. ................... 19,700 314,215 +PLX Technology, Inc. .... 7,700 132,902 +Pericom Semiconductor Corporation............. 7,693 82,392 +Pixelworks, Inc. ........ 12,164 186,352 +Planar Systems Inc. ..... 4,829 64,660 +RF Micro Devices, Inc. ................... 61,600 462,000 +SBS Technologies, Inc. ................... 6,788 109,083 +SIPEX Corporation........ 6,561 37,398 +SiRF Technology Holdings, Inc. ................... 2,300 30,061 +Sigmatel Incorporated.... 7,300 212,138 +Silicon Image, Inc. ..... 25,076 329,248 +Silicon Storage Technology, Inc. ....... 26,858 276,637 +Siliconix Incorporated... 1,900 94,278 +Skyworks Solutions, Inc. ................... 51,633 450,756 +Tessera Technologies Inc. ................... 6,800 122,536 +Transmeta Corporation.... 47,000 102,930 +Tripath Technology Inc. ................... 6,500 21,125 +TriQuint Semiconductor, Inc. ................... 45,136 246,443 +Vitesse Semiconductor Corporation............. 71,900 350,872 +Xicor, Inc. ............. 9,234 139,710 ------------ 7,839,165 ------------ Electronics - Technology - 1.0% +Checkpoint Systems, Inc. ................... 13,723 246,053 +Coherent, Inc. .......... 10,980 327,753 Cubic Corporation........ 5,152 107,831 +DRS Technologies, Inc. .. 7,874 251,181 EDO Corporation.......... 5,826 140,523 +Herley Industries, Inc. ................... 4,850 94,769 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Identix Incorporated..... 31,430 $ 234,782 +Innovative Solutions and Support, Inc. .......... 3,400 66,368 +Intermagnetics General Corporation............. 6,356 216,295 +Kemet Corp. ............. 28,900 353,158 +Maxwell Technologies, Inc. ................... 2,400 30,960 +ScanSource, Inc. ........ 3,700 219,854 Sypris Solutions, Inc. .................. 1,500 28,785 +The Titan Corporation.... 30,300 393,294 +Trimble Navigation Limited................. 17,606 489,271 ------------ 3,200,877 ------------ Energy Equipment - 0.1% +Capstone Turbine Corporation............. 19,500 42,440 +Global Power Equipment Group Inc. ............. 8,900 71,378 +Plug Power Inc. ......... 18,626 139,322 ------------ 253,140 ------------ Energy Miscellaneous - 0.7% +Calpine Corporation...... 133,500 576,720 +FuelCell Energy, Inc. ... 15,526 181,344 Holly Corporation........ 3,200 119,680 +KFx Inc. ................ 11,900 90,678 +Matrix Service Company... 7,400 67,710 Penn Virginia Corporation............ 5,058 182,644 +Syntroleum Corporation... 12,300 81,426 +TETRA Technologies, Inc. ................... 7,391 198,448 +Tesoro Petroleum Corporation............. 21,665 597,954 +Veritas DGC Inc. ........ 12,397 286,991 ------------ 2,383,595 ------------ Engineering & Contracting Services - 0.3% +Dycom Industries, Inc. ................... 16,102 450,856 +Infrasource Services Inc. ................... 600 7,356 +Integrated Electrical Services, Inc. ......... 9,497 76,451 +Layne Christensen Company................. 2,200 36,410 +Quanta Services, Inc. ... 25,600 159,232 +URS Corporation.......... 9,277 254,190 ------------ 984,495 ------------ Entertainment - 0.5% +AMC Entertainment Inc. .. 10,400 159,848 +Alliance Gaming Corporation............. 18,500 317,460 +Boca Resorts, Inc. (Class A)...................... 7,157 141,852 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 44 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Carmike Cinemas, Inc. ... 1,700 $ 67,065 Dover Motorsports, Inc. .................. 5,040 20,160 +Gaylord Entertainment Company................. 9,055 284,236 +Hollywood Entertainment Corporation............. 17,207 229,886 +LodgeNet Entertainment Corporation............. 3,372 55,638 Movie Gallery, Inc. ..... 10,015 195,793 Speedway Motorsports, Inc. .................. 4,155 138,943 ------------ 1,610,881 ------------ Fertilizers - 0.2% IMC Global Inc. ......... 38,400 514,560 +Terra Industries, Inc. ................... 9,700 54,611 ------------ 569,171 ------------ Finance Companies - 0.2% ASTA Funding, Inc. ...... 1,600 27,840 +Accredited Home Lenders Holding Company......... 6,200 174,530 +Circle Group Holdings, Inc. ................... 3,200 16,480 +Credit Acceptance Corporation............. 2,445 36,846 +Education Lending Group, Inc. ................... 3,400 60,350 +Saxon Capital, Inc. ..... 10,400 237,432 +United PanAm Financial Corp. .................. 1,500 25,575 +World Acceptance Corporation............. 6,900 126,477 ------------ 705,530 ------------ Finance - Small Loan - 0.0% +Encore Capital Group, Inc. ................... 2,700 35,667 +Nelnet, Inc. (Class A)... 1,200 21,300 ------------ 56,967 ------------ Financial Data Processing Services & Systems - 0.8% +Advent Software, Inc. ... 9,300 168,051 +CCC Information Services Group Inc. ............. 4,106 68,940 +Carreker Corporation..... 4,900 49,098 +CompuCredit Corporation.. 6,189 107,070 +Corillian Corporation.... 14,000 70,560 +CyberSource Corporation.. 11,300 94,468 +Digital Insight Corporation............. 11,630 241,090 +eFunds Corporation....... 17,388 304,290 +eSPEED, Inc. (Class A)... 9,523 168,081 +Hypercom Corporation..... 14,400 121,680 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +The InterCept Group, Inc. ................... 6,843 $ 112,088 +iPayment Holdings, Inc. ................... 4,000 164,000 John H. Harland Company................ 10,482 307,647 +Kronos, Inc. ............ 10,749 442,859 NDCHealth Corporation.... 12,564 291,485 +National Processing, Inc. ................... 2,000 57,500 +PRG-Schultz International, Inc. .... 15,813 86,497 +Portal Software, Inc. ... 15,440 56,047 +TNS Inc. ................ 300 6,540 +Tradestation Group Inc. ................... 6,200 44,578 ------------ 2,962,569 ------------ Financial Information Services - 0.0% FactSet Research Systems Inc. .................. 6,100 288,347 +HomeStore.com, Inc. ..... 31,600 126,084 +Interactive Data Corporation............. 10,300 179,426 +S1 Corporation........... 25,522 253,689 Value Line, Inc. ........ 400 14,204 ------------ 861,750 ------------ Financial Miscellaneous - 0.8% +ACE Cash Express, Inc. ................... 3,700 95,053 Advanta Corp. (Class B).. 6,500 148,980 +Asset Acceptance Capital Corp. .................. 900 15,300 Cash America International, Inc. ... 9,419 216,637 +The Enstar Group, Inc. ................... 300 15,984 +Federal Agricultural Mortgage Corporation.... 2,500 59,825 +Financial Federal Corporation............. 5,567 196,292 +First Cash Financial Services, Inc. ......... 5,000 106,400 +Harris & Harris Group, Inc. ................... 5,700 69,711 LandAmerica Financial Group, Inc. ........... 6,299 245,220 +Metris Companies Inc. ... 9,600 83,424 New Century Financial Corporation............ 9,650 451,813 +Portfolio Recovery Associates, Inc. ....... 5,200 143,364 Sanders Morris Harris Group Inc. ............ 3,900 57,525 +Sotheby's Holdings, Inc. (Class A)............... 15,136 241,571 Sterling Bancorp......... 3,910 107,994 Stewart Information Services Corporation... 5,622 189,855 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 45 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Stifel Financial Corp. .................. 700 $ 19,040 +Triad Guaranty Inc. ..... 2,676 155,743 WSFS Financial Corporation............ 2,291 111,503 ------------ 2,731,234 ------------ Foods - 0.8% American Italian Pasta Company (Class A)...... 4,934 150,388 Cal-Maine Foods, Inc. ... 3,700 51,800 +Chiquita Brands International, Inc. .... 13,500 282,420 Flowers Foods, Inc. ..... 11,756 307,419 +Hain Celestial Group, Inc. ................... 9,457 171,172 Interstate Bakeries Corporation............ 15,328 166,309 +J & J Snack Foods Corp. .................. 2,300 93,909 The J.M. Smucker Company................ 0 10 +John B. Sanfilippo & Son, Inc. ................... 2,000 53,440 Lance, Inc. ............. 10,500 161,700 +M&F Worldwide Corp. ..... 3,400 46,580 +Maui Land & Pineapple Company, Inc. .......... 1,063 36,142 Natures Sunshine Products, Inc. ........ 5,300 75,472 +Nutraceutical International Corporation............. 3,500 74,585 +Performance Food Group Company................. 14,300 379,522 +Provide Commerce......... 500 9,855 +Ralcorp Holdings, Inc. ................... 10,695 376,464 Riviana Foods Inc. ...... 1,787 46,766 Sanderson Farms, Inc. ... 3,350 179,627 Seaboard Corporation..... 12 5,975 Sensient Technologies Corporation............ 15,557 334,164 ------------ 3,003,719 ------------ Forest Products - 0.3% Deltic Timber Corporation............ 3,309 127,066 Longview Fibre Company... 16,921 249,246 Pope & Talbot, Inc. ..... 5,244 103,674 Potlatch Corporation..... 10,597 441,259 Universal Forest Products, Inc. ........ 6,334 204,272 ------------ 1,125,517 ------------ Forms & Bulk Printing Services - 0.0% Ennis Business Forms, Inc. .................. 4,500 87,750 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- The Standard Register Company................ 4,145 $ 49,326 ------------ 137,076 ------------ Funeral Parlors & Cemeteries - 0.1% +Alderwoods Group, Inc. .. 13,300 162,260 +Stewart Enterprises, Inc. (Class A)............... 34,424 280,211 ------------ 442,471 ------------ Glass - 0.0% Apogee Enterprises, Inc. .................. 11,200 116,480 ------------ Gold - 0.1% +Coeur d'Alene Mines Corporation............. 75,700 308,856 Royal Gold, Inc. ........ 7,500 106,275 ------------ 415,131 ------------ Health Care Facilities - 0.7% +American Healthways, Inc. ................... 10,500 279,510 +Beverly Enterprises, Inc. ................... 33,626 289,184 +Genesis HealthCare Corporation............. 5,700 165,528 +Kindred Healthcare, Inc. ................... 7,900 208,165 +LCA-Vision Inc. ......... 4,100 119,433 +LifePoint Hospitals, Inc. ................... 13,500 502,470 +MedCath Corporation...... 1,000 20,000 National Healthcare Corporation............ 2,100 58,821 +Psychiatric Solutions, Inc. ................... 4,000 99,720 +Res-Care, Inc. .......... 4,000 50,800 +Specialty Laboratories, Inc. ................... 1,824 16,343 +Sunrise Assisted Living, Inc. ................... 5,337 208,890 +United Surgical Partners International, Inc. .... 10,100 398,647 ------------ 2,417,511 ------------ Health Care Management Services - 1.1% +AMERIGROUP Corporation... 8,000 393,600 +Allscripts Healthcare Solutions, Inc. ........ 9,041 70,881 +American Medical Security Group, Inc. ............ 3,300 89,925 +AmSurg Corp. ............ 10,800 271,404 +Centene Corporation...... 7,200 277,560 +Cerner Corporation....... 9,400 419,052 Computer Programs and Systems, Inc. ......... 2,100 42,798 +CorVel Corporation....... 3,057 86,666 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 46 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Eclipsys Corporation..... 12,131 $ 185,119 +First Health Group Corp. .................. 30,000 468,300 Hooper Holmes, Inc. ..... 17,097 98,137 +Molina Healthcare Inc. ................... 2,800 106,904 +Omnicell, Inc. .......... 5,900 86,199 +Orthodontic Centers of America, Inc. .......... 16,900 138,411 +Per-Se Technologies, Inc. ................... 9,098 132,285 Select Medical Corporation............ 31,900 428,098 +Sierra Health Services, Inc. ................... 8,226 367,702 +US Oncology, Inc. ....... 24,423 359,507 ------------ 4,022,548 ------------ Health Care Services - 0.6% +Alliance Imaging, Inc. ................... 2,500 11,425 +Amedisys, Inc. .......... 4,300 142,072 +Apria Healthcare Group Inc. ................... 15,400 441,980 +Bio-Reference Laboratories, Inc. ..... 3,900 51,714 +Dynacq Healthcare, Inc. ................... 2 12 +Gentiva Health Services, Inc. ................... 8,390 136,421 Healthcare Services Group, Inc. ........... 4,950 75,735 +IDX Systems Corporation.. 6,027 192,201 +Inveresk Research Group, Inc. ................... 9,700 299,148 +LabOne, Inc. ............ 4,800 152,544 +Matria Healthcare, Inc. ................... 4,300 107,801 +Odyssey Healthcare, Inc. ................... 13,200 248,424 +Province Healthcare Company................. 16,336 280,162 +Symbion, Inc. ........... 1,300 22,698 +VistaCare, Inc. (Class A)...................... 3,900 72,345 ------------ 2,234,682 ------------ Homebuilding - 0.3% Beazer Homes USA, Inc. .. 4,317 433,038 +Dominion Homes, Inc. .... 1,300 30,030 +Levitt Corporation....... 5,060 130,346 M/I Schottenstein Homes, Inc. .................. 4,400 178,640 +Meritage Corporation..... 3,400 233,920 +Orleans Homebuilders, Inc. ................... 800 15,416 Technical Olympic USA, Inc. .................. 3,050 67,954 +William Lyon Homes, Inc. ................... 1,400 129,010 ------------ 1,218,354 ------------ </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Hotel/Motel - 0.1% Marcus Corporation....... 6,579 $ 113,488 +Orbitz, Inc. (Class A)... 4,900 105,938 +Prime Hospitality Corp. .................. 15,490 164,504 ------------ 383,930 ------------ Household Furnishings - 0.6% American Woodmark Corporation............ 1,700 101,745 Bassett Furniture Industries,Incorporated.. 3,400 73,984 +The Bombay Company, Inc. ................... 11,800 72,334 +Department 56, Inc. ..... 2,800 43,120 Ethan Allen Interiors Inc. .................. 10,000 359,100 Furniture Brands International, Inc. ... 16,200 405,810 Haverty Furniture Companies, Inc. ....... 5,036 88,029 Hooker Furniture Corporation............ 600 12,042 +Kirkland's, Inc. ........ 5,200 62,036 La-Z-Boy Inc. ........... 19,300 347,014 Libbey, Inc. ............ 4,488 124,587 Lifetime Hoan Corporation............ 3,700 84,323 +Select Comfort Corporation............. 12,900 366,360 Stanley Furniture Company, Inc. ......... 2,700 113,697 +Tempur-Pedic International Inc. ..... 4,000 56,040 ------------ 2,310,221 ------------ Identification Control & Filter Devices - 1.0% +Advanced Energy Industries, Inc. ....... 7,012 110,229 +Artesyn Technologies, Inc. ................... 13,767 123,903 +Asyst Technologies, Inc. ................... 17,541 181,374 C&D Technologies, Inc. .. 6,894 122,920 +CUNO Incorporated........ 6,131 327,089 +ESCO Technologies Inc. .. 4,866 259,650 +Flanders Corporation..... 7,000 57,890 +Flowserve Corporation.... 16,800 418,992 The Gorman-Rupp Company................ 1,500 40,755 IDEX Corporation......... 15,621 536,581 +Magnetek, Inc. .......... 7,500 62,550 Mine Safety Appliances Company................ 6,326 213,186 +Paxar Corporation........ 11,482 224,129 +RAE Systems Inc. ........ 8,300 44,820 Robbins & Myers, Inc. ... 3,612 81,089 +Veeco Instruments Inc. ................... 8,927 230,406 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 47 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Vicor Corporation........ 5,996 $ 109,547 +Viisage Technology, Inc. ................... 9,500 82,840 Watts Industries, Inc. (Class A).............. 7,936 213,875 X-Rite,Incorporated...... 6,917 100,573 ------------ 3,542,398 ------------ Insurance - Life - 0.5% American Equity Investment Life Holding Company................ 3,900 38,805 AmerUs Group Co. ........ 13,900 575,460 +Ceres Group, Inc. ....... 6,700 41,138 +Citizens, Inc. .......... 7,485 61,377 Delphi Financial Group, Inc. (Class A)......... 8,570 381,365 Great American Financial Resources, Inc. ....... 2,780 44,202 Kansas City Life Insurance Company...... 1,142 48,067 +National Western Life Insurance Company (Class A)...................... 662 101,650 The Phoenix Companies, Inc. .................. 31,400 384,650 Presidential Life Corporation............ 7,093 127,816 +Universal American Financial Corp. ........ 8,800 96,624 ------------ 1,901,154 ------------ Insurance - Multiline - 0.5% Alfa Corporation......... 10,740 150,360 +CNA Surety Corporation... 3,186 34,887 Crawford & Company (Class B)..................... 6,509 32,089 EMC Insurance Group, Inc. .................. 100 2,336 FBL Financial Group, Inc. (Class A).............. 3,425 96,791 +HealthExtras, Inc. ...... 6,900 114,333 Hilb,Rogal and Hamilton Company................ 10,206 364,150 Horace Mann Educators Corporation............ 15,268 266,885 Independence Holding Company................ 800 27,200 +PICO Holdings, Inc. ..... 2,597 49,652 Penn-America Group, Inc. .................. 3,200 44,800 +UICI..................... 12,539 298,554 Zenith National Insurance Corp. ................. 4,237 205,918 ------------ 1,687,955 ------------ </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Insurance - Property - Casualty - 1.1% 21st Century Insurance Group.................. 7,500 $ 97,050 +American Physicians Capital, Inc. .......... 3,571 82,669 +Argonaut Group, Inc. .... 9,566 176,301 Baldwin & Lyons, Inc. (Class B).............. 2,532 67,959 Bristol West Holdings, Inc. .................. 3,300 60,027 The Commerce Group, Inc. .................. 8,045 397,182 +Danielson Holding Corporation............. 4,600 31,786 Direct General Corporation............ 4,200 135,492 Donegal Group Inc. (Class A)..................... 2,100 42,084 +FPIC Insurance Group, Inc. ................... 2,000 49,380 Harleysville Group Inc. .................. 6,162 116,154 Infinity Property and Casualty Corporation... 6,300 207,900 The Midland Company...... 1,858 55,090 NYMAGIC, Inc. ........... 1,100 29,040 +The Navigators Group, Inc. ................... 2,800 80,892 +Ohio Casualty Corporation............. 21,815 439,136 PMA Capital Corporation (Class A).............. 8,906 80,154 +Philadelphia Consolidated Holding Corp. .......... 5,956 357,777 +ProAssurance Corporation............. 8,723 297,542 RLI Corp. ............... 6,454 235,571 Safety Insurance Group, Inc. .................. 1,500 32,130 Selective Insurance Group, Inc. ........... 10,054 400,954 State Auto Financial Corporation............ 3,312 101,745 United Fire & Casualty Company................ 3,000 173,250 Vesta Insurance Group, Inc. .................. 8,800 56,936 ------------ 3,804,201 ------------ Investment Management Companies - 0.3% +Affiliated Managers Group, Inc. ............ 8,750 440,738 Capital Southwest Corporation............ 500 39,515 Gabelli Asset Management Inc. (Class A)......... 2,196 93,330 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 48 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Gladstone Capital Corporation............ 3,600 $ 72,540 MCG Capital Corporation.. 10,300 158,414 National Financial Partners Corporation... 10,100 356,227 ------------ 1,160,764 ------------ Jewelry - Watches & Gemstones - 0.0% Movado Group, Inc. ...... 4,800 82,800 ------------ Leisure Time - 0.6% Action Performance Companies, Inc. ....... 5,700 85,899 Callaway Golf Company.... 23,800 269,892 Escalade,Incorporated.... 1,400 32,354 +K2 Inc. ................. 10,500 164,850 Penn National Gaming, Inc. .................. 11,778 391,030 SCP Pool Corporation..... 12,109 544,905 +Six Flags, Inc. ......... 30,800 223,608 +Steinway Musical Instruments, Inc. ...... 2,200 77,198 Sturm, Ruger & Company, Inc. .................. 6,978 84,504 +Vail Resorts, Inc. ...... 6,456 123,697 +West Marine, Inc. ....... 4,400 118,140 ------------ 2,116,077 ------------ Machine Tools - 0.1% Lincoln Electric Holdings, Inc. ........ 10,992 374,717 ------------ Machinery & Engineering - 0.1% Applied Industrial Technologies, Inc. .... 6,807 205,027 ------------ Machinery - Agricultural - 0.0% Lindsay Manufacturing Co. ................... 3,913 93,990 ------------ Machinery - Construction & Handling - 0.4% +Astec Industries, Inc. ................... 4,517 85,055 The Manitowoc Co., Inc. .................. 9,911 335,487 NACCO Industries, Inc. (Class A).............. 1,487 141,265 Stewart & Stevenson Services, Inc. ........ 11,124 199,342 +Terex Corporation........ 15,643 533,896 ------------ 1,295,045 ------------ Machinery - Industrial/Specialty - 0.9% +Actuant Corporation (Class A)............... 8,200 319,718 +EnPro Industries, Inc. ................... 6,900 158,562 +FSI International, Inc. ................... 12,600 98,406 +Gardner Denver Inc. ..... 7,057 196,890 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Joy Global Inc. ......... 16,200 $ 485,028 +Kadant Inc. ............. 3,270 75,635 Kennametal Inc. ......... 12,703 581,797 The Middleby Corporation............ 1,900 103,778 +Milacron Inc. ........... 17,172 68,688 Nordson Corporation...... 8,810 382,090 Tecumseh Products Company (Class A).............. 6,328 260,650 Tennant Company.......... 2,737 113,449 Thomas Industries Inc. .................. 3,799 126,127 Woodward Governor Company................ 3,093 223,036 ------------ 3,193,854 ------------ Machinery - Oil Well Equipment & Service - 1.1% CARBO Ceramics Inc. ..... 4,168 284,466 +Cal Dive International, Inc. ................... 13,837 419,538 +Dril-Quip, Inc. ......... 1,688 31,566 +Global Industries,Ltd. ........ 31,900 182,468 Gulf Island Fabrication, Inc. .................. 4,117 89,051 +Hanover Compressor Company................. 23,200 276,080 Helmerich & Payne, Inc. .................. 15,400 402,710 +Hornbeck Offshore Services, Inc. ......... 3,000 39,210 +Hydril Company........... 6,449 203,144 +Input/Output, Inc. ...... 14,846 123,073 +Key Energy Services, Inc. ................... 39,700 374,768 Lufkin Industries, Inc. .................. 2,200 70,356 +Newpark Resources, Inc. ................... 27,820 172,484 +Oceaneering International, Inc. .... 8,604 294,687 +Oil States International, Inc. ................... 7,400 113,220 +Parker Drilling Company.. 31,281 119,493 RPC, Inc. ............... 3,300 52,107 +SEACOR SMIT Inc. ........ 6,108 268,324 +Superior Energy Services, Inc. ................... 14,705 147,785 +Universal Compression Holdings, Inc. ......... 5,326 163,402 +W-H Energy Services, Inc. ................... 9,957 195,157 ------------ 4,023,089 ------------ Machinery - Specialty - 0.3% +Applied Films Corporation............. 4,900 142,198 Cascade Corporation...... 3,300 103,125 Engineered Support Systems, Inc. ......... 7,425 434,437 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 49 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Helix Technology Corporation............ 9,861 $ 210,335 JLG Industries, Inc. .... 15,098 209,711 +Semitool, Inc. .......... 5,441 61,592 ------------ 1,161,398 ------------ Manufactured Housing - 0.1% +Champion Enterprises, Inc. ................... 23,327 214,142 +Palm Harbor Homes, Inc. ................... 4,205 74,555 Skyline Corporation...... 1,501 61,016 ------------ 349,713 ------------ Manufacturing - 0.2% Federal Signal Corporation............ 17,859 332,356 +Rayovac Corporation...... 10,664 299,658 Standex International Corporation............ 4,031 109,643 ------------ 741,657 ------------ Medical & Dental Instruments & Supplies - 3.0% +Abaxis, Inc. ............ 4,700 89,206 +Advanced Medical Optics, Inc. ................... 10,400 442,728 +Advanced Neuromodulation Systems, Inc. .......... 6,650 218,120 +Align Technology, Inc. ................... 17,200 326,800 +American Medical Systems Holdings, Inc. ......... 8,400 283,080 +Animas Corporation....... 2,700 50,355 Arrow International, Inc. .................. 6,308 188,735 +BioLase Technology, Inc. ................... 8,400 113,064 +Bio-Rad Laboratories, Inc. (Class A).......... 5,200 306,072 +Biosite Diagnostics Incorporated............ 4,849 217,817 +CONMED Corporation....... 11,028 302,167 +Cardiac Science, Inc. ... 17,100 41,895 +Cepheid, Inc. ........... 13,800 159,252 +Closure Medical Corporation............. 2,313 58,079 +Conceptus, Inc. ......... 7,400 83,250 +Cyberonics, Inc. ........ 6,449 209,134 +DJ Orthopedics Incorporated............ 4,900 112,700 Diagnostic Products Corporation............ 7,300 320,762 +Encore Medical Corporation............. 7,400 46,620 +Exactech, Inc. .......... 1,600 34,720 +ICU Medical, Inc. ....... 4,450 149,209 +I-Flow Corporation....... 4,700 55,742 +Immucor, Inc. ........... 7,250 235,988 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Invacare Corp. .......... 9,422 $ 421,352 +Inverness Medical Innovations, Inc. ...... 3,940 86,286 +Kyphon Inc. ............. 6,900 194,442 Landauer, Inc. .......... 2,678 119,599 +Laserscope............... 6,600 181,830 +LifeCell Corporation..... 11,300 127,577 +Medical Action Industries Inc. ................... 4,200 77,280 Mentor Corporation....... 14,844 509,001 +Merit Medical Systems, Inc. ................... 7,810 124,413 +Microtek Medical Holdings, Inc. ......... 10,600 54,272 +Molecular Devices Corporation............. 4,637 82,446 +NuVasive, Inc. .......... 4,200 45,822 +Ocular Sciences, Inc. ... 6,414 243,732 +OraSure Technologies, Inc. ................... 12,459 121,226 +OrthoLogic Corp. ........ 14,000 121,380 +Orthovita, Inc. ......... 17,600 90,464 Owens & Minor, Inc. ..... 12,998 336,648 +PSS World Medical, Inc. ................... 22,373 250,578 +Palomar Medical Technologies, Inc. ..... 2,700 45,333 PolyMedica Corporation... 8,714 270,483 +STERIS Corporation....... 21,600 487,296 +Sola International Inc. ................... 10,600 182,638 +Sonic Innovations, Inc. ................... 9,000 51,120 +SonoSite, Inc. .......... 4,915 117,518 +SurModics, Inc. ......... 4,683 115,389 +Sybron Dental Specialties, Inc. ...... 12,900 385,065 +Techne Corporation....... 14,429 626,940 +ThermoGenesis Corp. ..... 10,700 49,434 +Thoratec Laboratories Corporation............. 16,747 179,695 +Urologix, Inc. .......... 5,900 91,096 +Ventana Medical Systems, Inc. ................... 4,580 217,687 +Viasys Healthcare Inc. ................... 10,200 213,282 Vital Signs, Inc. ....... 1,824 52,969 West Pharmaceutical Services, Inc. ........ 4,338 183,497 +Wright Medical Group, Inc. ................... 8,000 284,800 Young Innovations, Inc. .................. 600 15,240 ------------ 10,803,325 ------------ Medical Services - 0.3% +AMERICA SERVICE GROUP INC..................... 3,000 104,250 +Hanger Orthopedic Group, Inc. ................... 9,200 107,824 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 50 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Magellan Health Services, Inc. ................... 8,000 $ 267,600 Option Care, Inc. ....... 4,781 72,958 +PAREXEL International Corporation............. 10,197 201,901 +ProxyMed, Inc. .......... 700 11,802 +RehabCare Group, Inc. ... 6,195 164,973 ------------ 931,308 ------------ Metal Fabricating - 0.8% CIRCOR International, Inc. .................. 3,500 71,365 Commercial Metals Company................ 9,578 310,806 +Encore Wire Corporation.. 3,500 96,495 Kaydon Corp. ............ 9,726 300,825 +Lone Star Technology..... 9,558 263,418 +Maverick Tube Corporation............. 14,763 387,676 +Metals USA, Inc. ........ 5,400 96,552 NN, Inc. ................ 5,565 70,731 +NS Group, Inc. .......... 4,655 76,528 Penn Engineering & Manufacturing Corp. ... 2,556 54,801 Quanex Corporation....... 5,805 282,704 +RTI International Metals, Inc. ................... 7,013 111,857 Reliance Steel & Aluminum Co. ................... 8,447 340,583 Ryerson Tull, Inc. ...... 5,893 93,581 +The Shaw Group Inc. ..... 21,000 212,730 Valmont Industries, Inc. .................. 4,158 95,218 ------------ 2,865,870 ------------ Metals & Minerals - Miscellaneous - 0.5% AMCOL International Corporation............ 7,173 135,928 +Brush Engineered Materials Inc. ......... 5,511 104,158 +Cleveland-Cliffs Inc. ... 3,959 223,248 Compass Minerals International, Inc. ... 3,300 63,954 +GrafTech International Ltd. ................... 31,244 326,812 +Hecla Mining Company..... 42,100 239,970 Minerals Technologies, Inc. .................. 7,153 414,874 +Stillwater Mining Company................. 10,364 155,564 +Titanium Metals Corporation............. 200 18,510 ------------ 1,683,018 ------------ </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Milling - Fruit & Grain Processing - 0.2% Corn Products International, Inc. ... 12,889 $ 599,983 MGP Ingredients, Inc. ... 1,800 69,642 ------------ 669,625 ------------ Miscellaneous Health Care - 0.1% + NeighborCare, Inc. ..... 13,100 410,423 ------------ Miscellaneous Materials & Commodities - 0.2% +Ceradyne, Inc. .......... 5,900 211,043 +Symyx Technologies....... 9,779 235,869 WD-40 Company............ 6,789 203,263 ------------ 650,175 ------------ Miscellaneous Materials & Processing - 0.3% +Insituform Technologies, Inc.(Class A)........... 8,838 143,794 +Metal Management, Inc. .. 6,900 136,689 +Rogers Corporation....... 5,655 395,285 USEC Inc. ............... 27,759 243,446 ------------ 919,214 ------------ Miscellaneous Producer Durables - 0.0% +BE Aerospace, Inc. ...... 9,400 71,252 ------------ Multi-Sector Companies - 0.4% GenCorp Inc. ............ 14,971 200,462 Kaman Corp. (Class A).... 7,294 102,043 Lancaster Colony Corporation............ 8,199 341,406 Raven Industries, Inc. .................. 2,600 92,378 +Sequa Corporation (Class A)...................... 1,465 85,659 Trinity Industries, Inc. .................. 13,150 418,039 Walter Industries, Inc. .................. 7,802 106,263 ------------ 1,346,250 ------------ Office Furniture & Business Equipment - 0.1% +General Binding Corporation............. 1,000 15,490 +Imagistics International Inc. ................... 5,224 184,930 Kimball International (Class B).............. 7,574 111,717 +Presstek, Inc. .......... 10,640 111,826 +TransAct Technologies Incorporated............ 3,400 107,304 ------------ 531,267 ------------ Offshore Drilling - 0.0% +Atwood Oceanics, Inc. ... 3,227 134,727 ------------ Oil - Crude Producers - 2.3% +Atlas America, Inc. ..... 2,200 44,022 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 51 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Berry Petroleum Company (Class A).............. 4,901 $ 144,138 +Brigham Exploration Company................. 3,700 33,966 Cabot Oil & Gas Corporation (Class A).. 10,874 459,970 +Callon Petroleum Company................. 5,400 77,004 +Cheniere Energy, Inc. ... 7,400 144,818 +Cimarex Energy Co. ...... 13,700 414,151 +Clayton Williams Energy, Inc. ................... 2,400 57,360 +Comstock Resources, Inc. ................... 10,557 205,439 +Denbury Resources Inc. .. 16,470 345,047 +Edge Petroleum Corporation............. 5,700 96,900 +Encore Acquisition Company................. 6,200 172,980 +Energy Partners,Ltd. .... 8,000 122,400 +FX Energy, Inc. ......... 11,200 99,792 +Forest Oil Corporation... 15,000 409,800 Frontier Oil Corporation............ 10,315 218,575 +Grey Wolf, Inc. ......... 61,743 261,790 +Harvest Natural Resources, Inc. ........ 11,900 177,429 +The Houston Exploration Company................. 4,583 237,583 +Magnum Hunter Resources, Inc. ................... 25,872 268,551 +McMoRan Exploration Co. .................... 5,900 91,922 +The Meridian Resource Corporation............. 14,111 97,930 +PetroCorp Incorporated (Escrow Shares)......... 500 0 +Petroleum Development Corporation............. 6,300 172,746 +Plains Exploration & Production Company...... 25,490 467,742 +Plains Resources Inc. ... 8,950 151,703 +Prima Energy Corporation............. 3,943 156,025 +Quicksilver Resources Inc. ................... 4,910 329,314 Range Resources Corporation............ 24,537 358,240 +Remington Oil & Gas Corporation............. 7,420 175,112 Resource America, Inc.(Class A).......... 4,749 112,076 St. Mary Land & Exploration Company.... 9,826 350,297 +Spinnaker Exploration Company................. 7,687 302,714 +Stone Energy Corporation............. 7,678 350,731 +Swift Energy Company..... 9,217 203,327 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Todco.................... 4,500 $ 69,615 +Unit Corporation......... 12,508 393,377 Vintage Petroleum, Inc. .................. 18,883 320,445 +Whiting Petroleum Corporation............. 4,600 115,690 ------------ 8,210,721 ------------ Oil - Integrated Domestic - 0.1% +Delta Petroleum Corporation............. 6,900 92,805 +Giant Industries, Inc. ................... 4,600 101,200 +KCS Energy, Inc. ........ 14,200 189,144 +Mission Resources Corporation............. 16,600 94,620 ------------ 477,769 ------------ Paints & Coatings - 0.2% Ferro Corporation........ 14,176 378,216 H.B. Fuller Company...... 9,540 270,936 Kronos Worldwide, Inc. .. 2,052 70,175 ------------ 719,327 ------------ Paper - 0.3% Albany International Corp. (Class A)........ 8,726 292,845 +Buckeye Technologies Inc. ................... 7,398 85,077 +Caraustar Industries, Inc. ................... 11,274 159,076 Chesapeake Corporation... 5,092 135,855 P.H. Glatfelter Company.. 9,401 132,366 Rock-Tenn Company (Class A)..................... 7,580 128,481 Wausau-Mosinee Paper Corporation............ 15,142 261,957 ------------ 1,195,657 ------------ Plastics - 0.1% Spartech Corporation..... 8,354 216,703 ------------ Pollution Control & Environmental Services - 0.2% BHA Group Holdings, Inc. .................. 2,300 87,055 +Darling International Inc. ................... 16,300 68,460 +Duratek, Inc. ........... 3,400 51,374 +Headwaters Incorporated.. 12,046 312,353 +Ionics, Inc. ............ 6,867 193,993 +TRC Companies, Inc. ..... 3,000 50,040 ------------ 763,275 ------------ Power Transmission Equipment - 0.1% Regal-Beloit Corporation............ 8,151 181,441 Woodhead Industries, Inc. .................. 3,911 60,464 ------------ 241,905 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 52 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Printing & Copying Services - 0.1% Bowne & Co., Inc. ....... 12,482 $ 197,840 Schawk, Inc. ............ 2,400 33,528 ------------ 231,368 ------------ Production Technology Equipment - 1.7% +ADE Corporation.......... 2,200 47,542 +ATMI, Inc. .............. 10,357 282,850 +August Technology Corp. .................. 4,200 52,668 +Axcelis Technologies, Inc. ................... 33,800 420,472 +Brooks Automation, Inc. ................... 16,088 324,173 Cognex Corporation....... 13,256 510,091 +Credence Systems Corporation............. 30,168 416,318 +Cymer, Inc. ............. 12,200 456,768 +Dionex Corporation....... 6,131 338,247 +DuPont Photomasks, Inc. ................... 5,708 116,044 +Electro Scientific Industries, Inc. ....... 9,661 273,503 +Entegris Inc. ........... 14,400 166,608 +Esterline Technologies Corporation............. 6,990 206,415 +FEI Company.............. 7,855 187,813 +Intevac, Inc. ........... 3,200 28,384 +Kulicke and Soffa Industries.............. 18,156 198,990 +LTX Corporation.......... 19,503 210,827 MTS Systems Corporation.. 8,200 192,290 +Mattson Technology, Inc. ................... 11,099 133,410 +Mykrolis Corporation..... 12,100 210,782 +Photon Dynamics, Inc. ... 5,562 195,059 +Photronics, Inc. ........ 10,079 190,896 +Rofin-Sinar Technologies, Inc. ................... 5,900 149,801 +Rudolph Technologies, Inc. ................... 4,473 81,364 +Ultratech Stepper, Inc. ................... 6,990 113,797 +Varian Semiconductor Equipment Associates, Inc. ................... 11,242 433,492 ------------ 5,938,604 ------------ Publishing - Miscellaneous - 0.5% Advanced Marketing Services, Inc. ........ 4,681 60,432 Banta Corporation........ 8,994 399,424 +Consolidated Graphics, Inc. ................... 3,400 149,770 Courier Corporation...... 1,300 54,262 +Information Holdings Inc. ................... 4,018 109,973 +Martha Stewart Living Omnimedia, Inc. (Class A)...................... 5,882 52,938 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +PRIMEDIA Inc. ........... 44,600 $ 123,988 +Playboy Enterprises, Inc. ................... 4,207 48,843 The Reader's Digest Association, Inc. (Class A).............. 30,700 490,893 +Scholastic Corporation... 8,800 263,560 Thomas Nelson, Inc. ..... 3,300 75,042 ------------ 1,829,125 ------------ Publishing - Newspapers - 0.2% Hollinger International Inc. .................. 20,929 351,398 Journal Communications, Inc. .................. 4,900 92,267 +Journal Register Co. .... 12,233 244,660 Pulitzer Inc. ........... 2,755 134,720 ------------ 823,045 ------------ Radio & Television Broadcasters - 0.6% +Beasley Broadcast Group, Inc. (Class A).......... 1,833 27,422 +Cumulus Media Inc. (Class A)...................... 16,300 274,003 +Emmis Communications Corporation (Class A)... 16,200 339,876 +Fisher Communications, Inc. ................... 1,500 75,495 Gray Television, Inc. ... 13,100 181,959 The Liberty Corporation............ 5,254 246,675 +Lin TV Corp. (Class A)... 9,000 190,800 +Nexstar Broadcasting Group, Inc. ............ 5,400 59,292 +Paxson Communications Corporation............. 20,268 65,871 +Regent Communications, Inc. ................... 10,171 62,958 +Saga Communications, Inc. (Class A)............... 5,433 99,152 +Salem Communications Corporation (Class A)... 3,183 86,355 Sinclair Broadcast Group, Inc. (Class A)......... 17,164 176,274 +Spanish Broadcasting System, Inc. (Class A)...................... 14,584 135,777 World Wrestling Federation Entertainment, Inc..... 2,668 34,017 +Young Broadcasting Inc. (Class A)............... 7,108 93,470 ------------ 2,149,396 ------------ Railroad Equipment - 0.1% +The Greenbrier Companies, Inc. ................... 500 9,525 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 53 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Wabtec Corporation....... 12,739 $ 229,812 ------------ 239,337 ------------ Railroads - 0.2% Florida East Coast Industries, Inc. ...... 6,281 242,761 +Genesee & Wyoming Inc. (Class A)............... 5,150 122,055 +Kansas City Southern Industries, Inc. ....... 21,876 339,078 +RailAmerica, Inc. ....... 8,902 129,969 ------------ 833,863 ------------ Real Estate - 0.3% +Avatar Holdings Inc. .... 1,500 62,400 +Bluegreen Corporation.... 3,800 52,440 Consolidated-Tomoka Land Co. ................... 1,900 71,744 +First Acceptance Corporation............. 3,700 25,900 LNR Property Corp. ...... 5,700 309,225 +Reading International, Inc. (Class A).......... 1,300 11,310 +Sunterra Corporation..... 8,000 100,800 +Tarragon Realty Investors Inc. ................... 250 3,688 +Tejon Ranch Co. ......... 1,915 66,642 +Trammell Crow Company.... 9,278 130,820 +WCI Communities, Inc. ... 9,900 220,869 ------------ 1,055,838 ------------ Real Estate Investment Trusts (REIT) - 5.9% Acadia Realty Trust...... 10,601 145,658 Affordable Residential Communities............ 6,100 101,260 +Alexander's, Inc. ....... 567 95,109 Alexandria Real Estate Equities, Inc. ........ 7,056 400,640 American Financial Realty Trust.................. 33,900 484,431 American Home Mortgage Investment Corp. ...... 10,197 264,408 Amli Residential Properties Trust....... 8,340 244,696 Anthracite Capital, Inc. .................. 15,700 188,086 Anworth Mortgage Asset Corporation............ 14,800 175,824 Arbor Realty Trust, Inc. .................. 3,900 77,805 Ashford Hospitality Trust.................. 2,800 23,380 Bedford Property Investors, Inc. ....... 5,899 172,487 Brandywine Realty Trust.. 12,347 335,715 Capital Automotive....... 11,450 335,829 +Capital Lease Funding, Inc. ................... 10,800 112,320 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Capital Trust, Inc. ..... 700 $ 18,704 Capstead Mortgage Corporation............ 7,200 96,840 CarrAmerica Realty Corporation............ 19,100 577,393 Cedar Shopping Centers Inc. .................. 8,200 94,218 Colonial Properties Trust.................. 6,006 231,411 Commercial Net Lease Realty................. 17,075 293,690 Cornerstone Realty Income Trust, Inc. ........... 17,803 156,132 Corporate Office Properties Trust....... 9,900 246,015 Correctional Properties Trust.................. 3,500 102,375 Cousins Properties, Inc. .................. 10,800 355,860 EastGroup Properties, Inc. .................. 6,927 233,232 Entertainment Properties Trust.................. 8,680 310,223 Equity Inns Inc. ........ 15,040 139,722 Equity One, Inc. ........ 9,300 168,144 Essex Property Trust, Inc. .................. 8,095 553,293 +FelCor Lodging Trust Inc. ................... 16,370 198,077 First Industrial Realty Trust, Inc. ........... 14,600 538,448 Gables Residential Trust.................. 9,682 328,994 Getty Realty Corporation............ 5,700 143,412 Glenborough Realty Trust Incorporated........... 7,739 142,011 Glimcher Realty Trust.... 11,756 260,043 Government Properties Trust, Inc. ........... 9,500 99,275 Healthcare Realty Trust, Inc. .................. 13,400 502,232 Heritage Property Investment Trust....... 7,800 211,068 Highland Hospitality Corporation............ 8,200 82,410 Highwoods Properties, Inc. .................. 18,500 434,750 Home Properties of New York, Inc. ............ 10,820 421,764 Impac Mortgage Holdings, Inc. .................. 22,400 504,448 Innkeepers USA Trust..... 14,192 146,320 Investors Real Estate Trust.................. 13,600 141,168 Keystone Property Trust.................. 10,504 252,411 Kilroy Realty Corporation............ 8,878 302,740 +Koger Equity, Inc. ...... 8,848 204,566 Kramont Realty Trust..... 8,000 128,000 LTC Properties........... 4,500 74,700 +La Quinta Corporation.... 62,300 523,320 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 54 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- LaSalle Hotel Properties............. 9,220 $ 224,968 Lexington Corporate Properties Trust....... 14,642 291,522 Luminent Mortgage Capital, Inc. ......... 9,400 112,800 MFA Mortgage Investments, Inc. .................. 26,900 239,410 Maguire Properties, Inc. .................. 9,900 245,223 Manufactured Home Communities, Inc. ..... 6,194 205,579 +MeriStar Hospitality Corporation............. 24,458 167,293 Mid-America Apartment Communities, Inc. ..... 5,929 224,650 Mission West Properties Inc. .................. 4,500 54,495 National Health Investors, Inc. ....... 7,529 204,714 Nationwide Health Properties, Inc. ...... 22,059 416,915 Newcastle Investment Corporation............ 11,300 338,435 Novastar Financial, Inc. .................. 9,000 341,640 OMEGA Healthcare Investors, Inc. ....... 12,000 120,480 Origen Financial, Inc. .................. 6,000 47,700 PS Business Parks, Inc. .................. 4,308 173,354 Parkway Properties, Inc. .................. 4,404 195,758 Pennsylvania Real Estate Investment Trust....... 9,832 336,746 Post Properties, Inc. ... 13,086 381,457 Prentiss Properties Trust.................. 13,750 460,900 Price Legacy Corporation............ 6,675 123,221 RAIT Investment Trust.... 9,000 221,850 Ramco-Gershenson Properties Trust....... 4,700 113,881 Realty Income Corporation............ 12,300 513,234 Redwood Trust, Inc. ..... 5,995 333,802 Saul Centers, Inc. ...... 4,822 154,834 Senior Housing Properties Trust.................. 17,814 299,097 Sovran Self Storage, Inc. .................. 4,604 175,781 Summit Properties Inc. .................. 9,319 238,939 Sun Communities, Inc. ... 5,343 201,164 Tanger Factory Outlet Centers, Inc. ......... 5,361 209,615 Taubman Centers, Inc. ... 15,608 357,267 Town & Country Trust..... 7,163 180,794 U.S. Restaurant Properties, Inc. ...... 9,700 147,343 Universal Health Realty Income Trust........... 3,727 106,965 Urstadt Biddle Properties (Class A).............. 5,700 84,417 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Washington Real Estate Investment Trust....... 13,865 $ 407,354 Winston Hotels, Inc. .... 7,255 75,089 ------------ 21,103,743 ------------ Recreational Vehicles & Boats - 0.4% Arctic Cat Inc. ......... 5,843 160,858 Coachmen Industries, Inc. .................. 4,407 70,468 +Fleetwood Enterprises, Inc. ................... 17,799 258,975 Marine Products Corp. ... 1,450 26,898 Monaco Coach Corporation............ 9,224 259,840 Thor Industries, Inc. ... 12,884 431,099 Winnebago Industries, Inc. .................. 8,190 305,323 ------------ 1,513,461 ------------ Rental & Leasing Services - Commercial - 0.2% Electro Rent Corporation............ 3,753 39,294 GATX Corporation......... 15,700 427,040 +Marlin Business Services Inc. ................... 3,600 54,108 McGrath Rentcorp......... 2,205 81,475 +United Rentals, Inc. .... 14,700 262,983 ------------ 864,900 ------------ Rental & Leasing Services - Consumer - 0.2% Aaron Rents, Inc. ....... 7,862 260,547 +Amerco................... 2,200 52,250 +Dollar Thrifty Automotive Group, Inc. ............ 8,395 230,359 +Rent-Way, Inc. .......... 8,678 78,102 +WESCO International, Inc. ................... 4,558 83,867 ------------ 705,125 ------------ Restaurants - 1.5% Bob Evans Farms, Inc. ... 12,480 341,702 +Buffalo Wild Wings Inc. ................... 1,700 47,005 CBRL Group, Inc. ........ 15,400 475,090 +CEC Entertainment Inc. .. 12,350 364,449 +CKE Restaurants, Inc. ... 16,000 213,280 +California Pizza Kitchen, Inc. ................... 6,100 116,876 +Chicago Pizza & Brewery, Inc. ................... 3,600 54,756 +Cosi, Inc. .............. 4,100 24,477 +Dave & Buster's, Inc. ... 3,500 65,765 IHOP Corp. .............. 6,748 241,308 +Jack in the Box Inc. .... 12,118 359,905 +Krispy Kreme Doughnuts, Inc. ................... 17,300 330,257 Landry's Restaurants, Inc. .................. 7,096 212,099 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 55 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Lone Star Steakhouse & Saloon, Inc. .......... 6,554 $ 178,203 +O'Charley's Inc. ........ 8,884 152,716 +P.F. Chang's China Bistro, Inc. ........... 8,208 337,759 +Panera Bread Company (Class A)............... 9,000 322,920 +Papa John's International, Inc. .... 4,848 143,210 +RARE Hospitality International, Inc. .... 12,377 308,187 +Red Robin Gourmet Burgers................. 4,000 109,480 +Ryan's Restaurant Group Inc. ................... 15,400 243,320 +Sonic Corp. ............. 21,114 480,344 +The Steak 'n Shake Company................. 7,028 128,050 Triarc Companies, Inc. (Class B).............. 11,850 120,515 ------------ 5,371,673 ------------ Retail - 3.8% +1-800 CONTACTS, INC...... 1,700 25,220 +1-800-FLOWERS.COM, Inc. ................... 7,324 59,617 +99 Cents Only Stores..... 14,500 221,125 +A.C. Moore Arts & Crafts, Inc. ................... 4,600 126,546 +Aeropostale, Inc. ....... 17,450 469,580 +America's Car-Mart, Inc. ................... 1,900 57,057 +Asbury Automotive Group, Inc. ................... 2,600 39,000 +bebe stores, inc. ....... 3,310 66,200 +Big 5 Sporting Goods Corporation............. 5,600 146,664 Blair Corporation........ 1,900 54,910 +Blue Nile, Inc. ......... 2,000 75,220 The Bon-Ton Stores, Inc. .................. 3,300 48,378 +Brookstone, Inc. ........ 6,650 133,333 Brown Shoe Company, Inc. .................. 5,979 244,720 The Buckle, Inc. ........ 1,249 35,284 Burlington Coat Factory Warehouse Corporation.. 5,792 111,786 +CSK Auto Corporation..... 13,934 238,829 +Cache, Inc. ............. 4,650 62,822 +Casual Male Retail Group, Inc. ................... 9,800 71,540 The Cato Corporation (Class A).............. 6,497 145,858 +Central Garden & Pet Company................. 5,800 207,466 +Charlotte Russe Holding Inc. ................... 4,400 94,072 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Charming Shoppes, Inc. .. 38,140 $ 340,590 +The Children's Place Retail Stores, Inc. .... 5,485 129,007 Christopher & Banks Corporation............ 12,728 225,413 +Coldwater Creek Inc. .... 5,220 138,173 +Cole National Corporation (Class A)............... 4,500 105,075 +Conn's, Inc. ............ 600 9,456 +Cost Plus, Inc. ......... 7,976 258,821 Deb Shops, Inc. ......... 500 12,030 +Dick's Sporting Goods, Inc. ................... 10,000 333,500 +The Dress Barn, Inc. .... 6,845 117,186 +Drugstore.com, Inc. ..... 10,300 35,947 +Electronics Boutique Holdings Corp. ......... 3,931 103,543 Fred's, Inc. ............ 14,035 310,033 +GSI Commerce, Inc. ...... 5,000 48,150 +GameStop Corporation..... 6,600 100,452 +Gander Mountain Company................. 2,400 55,080 +Genesco Inc. ............ 7,238 171,034 +Global Imaging Systems, Inc. ................... 8,100 296,946 Goody's Family Clothing, Inc. .................. 6,200 64,294 +Group 1 Automotive, Inc. ................... 5,532 183,718 +Guitar Center, Inc. ..... 7,439 330,812 +The Gymboree Corporation............. 11,558 177,531 Hancock Fabrics, Inc. ... 8,200 104,550 Handleman Company........ 7,961 184,377 +Hibbett Sporting Goods, Inc. ................... 8,850 242,048 +Hot Topic, Inc. ......... 17,181 352,039 +Insight Enterprises, Inc. ................... 17,498 310,764 +J. Jill Group Inc. ...... 6,062 143,003 +Jo-Ann Stores, Inc. ..... 6,205 182,427 +Jos. A. Bank Clothiers, Inc. ................... 3,550 111,435 Lawson Products, Inc. ... 1,647 62,833 +Linens 'n Things, Inc. ................... 14,918 437,247 Lithia Motors, Inc. ..... 4,600 113,988 +MarineMax, Inc. ......... 3,000 86,040 +The Men's Wearhouse, Inc. ................... 11,361 299,817 +Overstock.com, Inc. ..... 3,400 132,872 +PC Connection, Inc. ..... 1,259 8,284 +PC Mall, Inc. ........... 3,600 67,968 +The Pantry, Inc. ........ 2,800 61,040 +Party City Corporation... 3,500 43,715 +Payless ShoeSource, Inc. ................... 23,800 354,858 +PetMed Express, Inc. .... 5,400 43,303 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 56 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Priceline.com Incorporated............ 7,916 $ 213,178 +Restoration Hardware, Inc. ................... 11,100 81,141 +Retail Ventures, Inc. ... 2,300 17,802 +Rush Enterprises, Inc. ................... 100 1,290 Russ Berrie and Company, Inc. .................. 3,047 59,203 +School Specialty, Inc. ................... 6,254 227,083 +Sharper Image Corporation............. 4,800 150,672 +ShopKo Stores, Inc. ..... 11,398 161,168 Sonic Automotive, Inc. .................. 9,200 203,780 +The Sports Authority, Inc. ................... 7,426 266,593 +Stage Stores, Inc. ...... 6,100 229,726 Stamps.com Inc. ......... 7,703 78,494 +Stein Mart, Inc. ........ 6,524 106,080 +Too Inc. ................ 11,366 189,812 +Tractor Supply Company... 11,000 460,020 +Trans World Entertainment Corporation............. 7,730 77,455 +Tuesday Morning Corporation............. 7,490 217,210 United Auto Group, Inc. .................. 5,531 169,525 +United Natural Foods, Inc. ................... 14,180 409,944 +ValueVision International, Inc. (Class A)............... 6,056 78,849 +Zale Corporation......... 18,800 512,488 ------------ 13,536,139 ------------ Savings & Loan - 2.4% Anchor Bancorp, Inc. .... 6,937 183,414 +BFC Financial Corporation............. 600 7,080 BSB Bancorp, Inc. ....... 3,741 132,993 Bank Mutual Corporation.. 23,038 251,114 BankAtlantic Bancorp, Inc. (Class A)......... 16,242 299,665 +BankUnited Financial Corporation (Class A)... 10,173 262,463 Berkshire Hills Bancorp, Inc. .................. 1,800 66,780 Brookline Bancorp, Inc. .................. 19,587 287,341 Charter Financial Corporation............ 500 17,000 Citizens First Bancorp, Inc. .................. 1,900 45,239 Coastal Financial Corporation............ 3,864 56,414 +Commercial Capital Bancorp, Inc. .......... 13,526 234,947 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Commercial Federal Corporation............ 14,727 $ 399,102 Dime Community Bancshares............. 12,249 214,113 Downey Financial Corp. .. 5,800 308,850 Fidelity Bankshares, Inc. .................. 4,348 154,137 First Federal Capital Corp. ................. 6,212 172,880 First Financial Holdings, Inc. .................. 4,226 121,751 First Indiana Corporation............ 3,488 66,446 First Niagara Financial Group, Inc. ........... 27,884 334,608 First Place Financial Corp. ................. 3,000 55,710 First Republic Bank...... 4,300 185,244 First Sentinel Bancorp Inc. .................. 7,667 157,557 +FirstFed Financial Corp. .................. 5,600 232,960 Flagstar Bancorp, Inc. .................. 10,050 199,794 Flushing Financial Corporation............ 5,575 98,399 Great Southern Bancorp, Inc. .................. 3,078 90,032 Harbor Florida Bancshares, Inc. ...... 7,117 195,789 Horizon Financial Corp. ................. 3,400 67,660 Hudson River Bancorp, Inc. .................. 10,000 170,700 IBERIABANK Corporation... 2,700 159,786 +ITLA Capital Corporation............. 1,800 73,026 KNBT Bancorp Inc. ....... 8,100 135,270 MAF Bancorp, Inc. ....... 10,060 429,361 NASB Financial Inc. ..... 300 12,162 Net.B@nk, Inc. .......... 18,411 201,232 Northwest Bancorp, Inc. .................. 4,667 106,874 OceanFirst Financial Corp. ................. 2,896 69,359 +Ocwen Financial Corporation............. 13,165 158,507 PFF Bancorp, Inc. ....... 5,041 187,727 Partners Trust Financial Group, Inc. ........... 1,800 35,280 PennFed Financial Services, Inc. ........ 1,500 51,000 Provident Bancorp, Inc. .................. 9,989 113,875 Provident Financial Holdings, Inc. ........ 1,650 39,023 Provident Financial Services, Inc. ........ 18,700 328,185 Quaker City Bancorp, Inc. .................. 2,300 126,362 Seacoast Financial Services Corporation... 9,992 345,723 +Sterling Financial Corporation............. 8,169 260,346 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 57 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- TierOne Corporation...... 8,100 $ 174,231 United Community Financial Corp. ....... 8,561 111,293 Waypoint Financial Corp. ................. 10,830 298,800 Westfield Financial, Inc. .................. 400 8,136 Wilshire Financial Services Group Inc. ... 1,900 17,651 ------------ 8,513,391 ------------ Scientific Equipment & Suppliers - 0.2% +Bioveris Corporation..... 7,176 59,704 +Newport Corporation...... 13,335 215,627 +Varian Inc. ............. 11,535 486,200 ------------ 761,531 ------------ Securities Brokerage & Services - 0.4% BKF Capital Group, Inc. .................. 900 26,145 Charter Municipal Mortgage Acceptance Company................ 14,745 289,887 +Investment Technology Group, Inc. ............ 16,500 211,035 +Knight Trading Group, Inc. ................... 35,900 359,718 LaBranche & Co. Inc. .... 15,200 127,984 +NCO Group, Inc. ......... 7,761 207,141 SWS Group, Inc. ......... 5,004 76,561 ------------ 1,298,471 ------------ Services - Commercial - 2.9% +4Kids Entertainment, Inc. ................... 4,563 109,147 ABM Industries, Inc. .... 12,470 242,791 +AMN Healthcare Services, Inc. ................... 4,005 61,236 +Administaff, Inc. ....... 7,161 118,873 +The Advisory Board Company................. 5,000 178,000 Ambassadors Group, Inc. .................. 3,800 89,338 Angelica Corporation..... 3,000 75,330 +autobytel.com inc. ...... 13,700 124,396 CDI Corp. ............... 5,001 173,035 +Casella Waste Systems, Inc. ................... 6,478 85,186 Central Parking Corporation............ 5,785 108,122 +Century Business Services, Inc. ......... 20,953 91,355 +Charles River Associates Incorporated............ 4,400 136,180 Chemed Corporation....... 3,886 188,471 +Clark, Inc. ............. 5,300 98,315 +Coinstar, Inc. .......... 8,392 184,372 +Cornell Companies, Inc. ................... 4,400 59,840 +Corrections Corporation of America.............. 11,694 461,796 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +CoStar Group Inc. ....... 5,850 $ 268,691 +Cross Country Healthcare, Inc. ................... 8,300 150,645 +DiamondCluster International, Inc. (Class A)............... 6,700 58,223 +Exponent, Inc. .......... 3,200 85,984 +Exult Inc. .............. 16,700 89,846 +FTI Consulting, Inc. .... 14,141 233,327 +First Advantage Corporation............. 2,100 39,690 +Forrester Research, Inc. ................... 4,481 83,571 G & K Services, Inc. (Class A).............. 6,677 268,349 +Gartner Group, Inc. (Class B)............... 2,600 33,514 +The Geo Group Inc. ...... 3,200 65,280 Gevity HR, Inc. ......... 7,000 183,330 +Greg Manning Auctions, Inc. ................... 2,800 42,840 +Harris Interactive Inc. ................... 16,200 108,864 +Heidrick & Struggles International, Inc. .... 6,358 188,705 +Hudson Highland Group, Inc. ................... 4,000 122,640 +Insurance Auto Auctions, Inc. ................... 2,865 48,705 Kelly Services, Inc. (Class A).............. 5,868 174,866 +kforce.com, Inc. ........ 5,800 54,752 +Korn/Ferry International........... 11,468 222,135 +Kroll Inc. .............. 12,500 461,000 +Labor Ready, Inc. ....... 15,122 234,391 +MAXIMUS, Inc. ........... 5,404 191,626 +MPS Group, Inc. ......... 34,005 412,141 +Medical Staffing Network Holdings, Inc. ......... 4,000 25,760 +MemberWorks Incorporated............ 2,854 84,535 +Midas Group, Inc. ....... 5,742 99,911 +Monro Muffler Brake, Inc. ................... 3,100 75,206 +Navigant Consulting, Inc. ................... 16,323 349,965 +Navigant International, Inc. ................... 4,811 85,588 +NetRatings, Inc. ........ 3,817 62,179 +PDI, Inc. ............... 2,821 85,561 +Pegasus Systems, Inc. ... 9,339 122,621 The Pep Boys - Manny, Moe & Jack................. 19,110 484,439 +Pre-Paid Legal Services, Inc. ................... 4,648 110,762 +Resources Connection, Inc. ................... 8,216 321,328 Rollins, Inc. ........... 6,468 148,829 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 58 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +SITEL Corporation........ 13,300 $ 56,126 +The Source Information Management Company...... 8,600 95,632 +Spherion Corporation..... 21,029 213,234 StarTek, Inc. ........... 3,340 119,572 +TeleTech Holdings, Inc. ................... 12,689 111,283 +Tetra Tech, Inc. ........ 18,531 302,426 UniFirst Corporation..... 3,000 87,270 +Volt Information Sciences, Inc. ......... 1,659 52,275 +Waste Connections, Inc. ................... 14,418 427,638 Watson Wyatt & Company Holdings............... 10,625 283,156 +Wireless Facilities, Inc. ................... 14,113 138,731 World Fuel Services Corporation............ 3,700 166,796 ------------ 10,519,721 ------------ Shipping - 0.4% Alexander & Baldwin, Inc. .................. 15,092 504,827 +GulfMark Offshore, Inc. ................... 4,300 67,854 +Kirby Corporation........ 7,230 281,247 Overseas Shipholding Group, Inc. ........... 8,898 392,669 +Seabulk International, Inc. ................... 1,800 14,850 ------------ 1,261,447 ------------ Shoes - 0.4% +Deckers Outdoor Corporation............. 3,800 112,062 +The Finish Line, Inc. ... 6,133 185,033 Kenneth Cole Productions, Inc. (Class A)......... 1,892 64,839 K-Swiss Inc. (Class A)... 7,896 159,578 +Shoe Carnival, Inc. ..... 2,300 34,523 +Skechers U.S.A., Inc. (Class A)............... 6,555 85,215 +Steve Madden,Ltd. ....... 4,012 80,120 The Stride Rite Corporation............ 12,935 142,673 Weyco Group, Inc. ....... 150 5,144 Wolverine World Wide, Inc. .................. 14,572 382,515 ------------ 1,251,702 ------------ Steel - 0.5% +AK Steel Holding Corporation............. 36,027 189,862 Allegheny Technologies Incorporated........... 27,700 499,985 Carpenter Technology Corporation............ 7,426 252,855 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Gibraltar Steel Corporation............ 5,223 $ 171,419 +Oregon Steel Mills, Inc. ................... 10,100 148,874 Schnitzer Steel Industries, Inc. (Class A)..................... 6,250 212,250 +Steel Dynamics, Inc. .... 13,597 389,282 Steel Technologies Inc. .................. 2,000 44,160 +Wheeling-Pittsburgh Corporation............. 1,100 22,946 ------------ 1,931,633 ------------ Synthetic Fibers - 0.0% Wellman, Inc. ........... 14,018 113,966 ------------ Telecommunications Equipment - 0.5% Applied Signal Technology, Inc. ...... 4,100 143,705 +Arris Group Inc. ........ 25,400 150,876 +Audiovox Corporation (Class A)............... 6,885 116,219 Belden Inc. ............. 8,569 183,634 +C-COR.net Corp. ......... 12,334 126,917 +CycleLogic, Inc. ........ 8 1 +INTAC International Inc. ................... 1,200 14,448 +InterDigital Communications Corporation............. 17,400 327,294 +MasTec, Inc. ............ 5,700 30,951 +Powerwave Technologies, Inc. ................... 21,077 162,293 +SBA Communications Corporation............. 17,800 79,210 SpectraLink Corporation.. 6,380 95,062 +SymmetriCom, Inc. ....... 14,900 132,610 +Terayon Communication Systems, Inc. .......... 22,176 51,892 +WilTel Communications Group, Inc. ............ 7,900 0 ------------ 1,615,112 ------------ Textile Products - 0.1% +DHB Capital Group Inc. .. 8,100 122,958 +Interface, Inc. ......... 14,621 127,641 ------------ 250,599 ------------ Textiles Apparel Manufacturers - 0.7% +Carter's, Inc. .......... 1,000 29,110 Cherokee Inc. ........... 2,200 55,198 +Guess?, Inc. ............ 3,585 57,719 +Hartmarx Corporation..... 3,500 22,050 Kellwood Co. ............ 9,082 395,521 +Maxwell Shoe Company Inc. (Class A)............... 6,400 148,736 OshKosh B'Gosh, Inc. (Class A).............. 3,702 92,439 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 59 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Oxford Industries, Inc. .................. 4,442 $ 193,494 +Perry Ellis International, Inc. .... 2,900 73,254 Phillips-Van Heusen Corporation............ 8,054 155,040 +Quiksilver, Inc. ........ 18,450 439,295 Russell Corporation...... 11,017 197,865 +Vans, Inc. .............. 9,187 188,793 +Warnaco Group, Inc. ..... 14,200 302,034 ------------ 2,350,548 ------------ Tires & Rubber - 0.3% Bandag,Incorporated...... 3,674 163,603 Cooper Tire & Rubber Company................ 23,400 538,200 +The Goodyear Tire & Rubber Company.......... 50,400 458,136 ------------ 1,159,939 ------------ Tobacco - 0.3% DIMON Incorporated....... 14,955 85,543 Schweitzer-Manduit International, Inc. ... 6,120 187,456 Standard Commercial Corporation............ 3,100 55,955 +Star Scientific, Inc. ... 13,700 54,252 Universal Corporation.... 8,656 440,937 Vector Group Ltd. ....... 9,709 152,917 ------------ 977,060 ------------ Toys - 0.1% +JAKKS Pacific, Inc. ..... 9,661 200,852 +Leapfrog Enterprises, Inc. ................... 8,000 159,120 ------------ 359,972 ------------ Transportation - Miscellaneous - 0.2% +Hub Group, Inc. (Class A)...................... 1,300 44,330 +Laidlaw International, Inc. ................... 31,900 413,424 +Pacer International, Inc. ................... 9,200 170,200 Quixote Corporation...... 2,900 58,145 +SCS Transportation, Inc. ................... 6,181 163,117 +U.S.Xpress Enterprises, Inc. (Class A).......... 1,900 29,887 ------------ 879,103 ------------ Truckers - 0.9% Arkansas Best Corporation............ 7,341 241,666 +Central Freight Lines, Inc. ................... 6,400 51,200 +Covenant Transport, Inc. (Class A)............... 2,900 49,561 +Forward Air Corporation.. 6,288 235,171 Heartland Express, Inc. .................. 11,320 309,715 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Knight Transportation, Inc. ................... 8,050 $ 231,277 +Landstar System, Inc. ... 9,908 523,836 +Marten Transport, Ltd. ................... 1,300 24,245 +Old Dominion Freight Line, Inc. ............. 5,450 160,666 Overnite Corporation..... 10,300 302,820 +P.A.M. Transportation Services, Inc. ......... 1,200 22,920 +Swift Transportation Co., Inc. ................... 14,700 263,865 USF Corporation.......... 10,202 358,396 Werner Enterprises, Inc. .................. 14,200 299,620 ------------ 3,074,958 ------------ Utilities - Cable Television & Radio - 0.0% +Mediacom Communications Corporation............. 18,700 146,234 ------------ Utilities - Electrical - 1.3% Avista Corporation....... 16,675 307,154 Black Hills Corporation............ 11,100 349,650 CH Energy Group, Inc. ... 5,189 240,977 +CMS Energy Corporation... 51,800 472,934 Central Vermont Public Service Corporation.... 3,903 79,972 Cleco Corporation........ 15,767 283,491 Duquesne Light Holdings Inc. .................. 23,500 453,785 +El Paso Electric Company................. 17,508 270,324 Empire District Electric Company................ 9,668 194,423 IDAcorp Inc. ............ 13,400 361,800 MGE Energy, Inc. ........ 5,645 184,196 Otter Tail Company....... 8,486 227,934 PNM Resources Inc. ...... 21,679 450,262 +Sierra Pacific Resources............... 38,877 299,742 UIL Holdings Corporation............ 4,900 238,581 UniSource Energy Corporation............ 11,283 280,383 ------------ 4,695,608 ------------ Utilities - Gas Distributors - 1.4% Atmos Energy Corporation............ 17,038 436,173 Cascade Natural Gas Corporation............ 5,322 117,457 EnergySouth, Inc. ....... 2,400 96,048 The Laclede Group, Inc. .................. 6,448 176,740 NICOR, Inc. ............. 13,600 461,992 NUI Corporation.......... 7,683 112,172 New Jersey Resources Corporation............ 9,974 414,719 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 60 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- Northwest Natural Gas Company................ 10,199 $ 311,070 Peoples Energy Corporation............ 11,600 488,940 Piedmont Natural Gas Company, Inc. ......... 11,800 503,860 South Jersey Industries, Inc. .................. 4,966 218,504 +Southern Union Company... 19,602 413,210 Southwest Gas Corporation............ 10,890 262,776 +Southwestern Energy Company................. 13,224 379,132 WGL Holdings Inc. ....... 14,900 427,928 ------------ 4,820,721 ------------ Utilities - Gas Pipelines - 0.0% +TransMontaigne Inc. ..... 5,631 30,295 ------------ Utilities - Miscellaneous - 0.1% +Aquila, Inc. ............ 64,800 230,688 ------------ Utilities - Telecommunications - 0.8% +Airgate PCS, Inc. ....... 3,700 67,710 +Alamosa Holdings, Inc. ................... 18,700 137,445 +Alaska Communications Systems Holdings, Inc..................... 400 2,440 +Arch Wireless, Inc. ..... 5,200 148,148 +Boston Communications Group, Inc. ............ 6,121 62,740 CT Communications, Inc. .................. 5,755 86,613 +Centennial Communications Corp. .................. 1,626 11,626 +Cincinnati Bell Inc. .... 76,000 337,440 +Commonwealth Telephone Enterprises, Inc. ...... 7,933 355,160 D&E Communications, Inc. .................. 4,300 57,706 +Dobson Communications Corporation (Class A)... 30,700 98,547 +General Communication, Inc. (Class A).......... 15,039 119,410 +Golden Telecom, Inc. .... 4,492 126,405 +Intrado Inc. ............ 5,700 91,713 +ITC()para.DeltaCom, Inc. ................... 900 5,013 +Metrocall Holdings Inc. ................... 1,500 100,455 North Pittsburgh Systems, Inc. .................. 4,421 88,641 +PTEK Holdings, Inc. ..... 17,000 196,010 +Price Communications Corporation............. 14,389 212,382 </Table> <Table> <Caption> SHARES VALUE INDUSTRY++ HELD (IN U.S. DOLLARS) - ---------- ----------- ----------------- +Primus Telecommunications Group, Incorporated..... 26,300 $ 133,604 Shenandoah Telecommunications Company................ 1,300 35,100 SureWest Communications......... 4,600 145,360 +TALK America Holdings, Inc. ................... 11,433 87,691 +Time Warner Telecom, Inc.(Class A)........... 17,500 73,325 +Triton PCS Holdings, Inc.(Class A)........... 8,200 35,752 +UbiquiTel Inc. .......... 27,300 115,206 ------------ 2,931,642 ------------ Utilities - Water - 0.2% American States Water Company................ 4,985 115,851 California Water Service Group.................. 5,296 145,905 Connecticut Water Service, Inc. ......... 2,589 66,434 Middlesex Water Company................ 3,282 63,605 SJW Corp. ............... 1,974 67,116 Southwest Water Company................ 8,126 101,738 ------------ 560,649 ------------ Wholesale & International Trade - 0.0% +Central European Distribution Corporation............. 5,250 136,028 Wholesalers - 0.2% +Brightpoint, Inc. ....... 7,100 97,625 +LKQ Corporation.......... 3,200 59,296 +United Stationers, Inc. ................... 11,269 447,605 ------------ 604,526 ------------ TOTAL COMMON STOCKS (COST - $289,360,491) - 95.2% 339,603,674 ------------ <Caption> FACE VALUE INDUSTRY++ AMOUNT (IN U.S. DOLLARS) - ---------- ----------- ----------------- FIXED INCOME SECURITIES Construction Brookfield Homes Corporation, 12% due 6/30/2020.............. $ 13,050 13,474 ------------ TOTAL FIXED INCOME SECURITIES (COST - $13,050) - 0.0% 13,474 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 61 MASTER SMALL CAP INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> FACE VALUE INDUSTRY++ AMOUNT (IN U.S. DOLLARS) - ---------- ----------- ----------------- <Caption> BENEFICIAL VALUE INDUSTRY++ INTEREST (IN U.S. DOLLARS) - ---------- ----------- ----------------- SHORT-TERM SECURITIES Merrill Lynch Liquidity Series, LLC Cash Sweep I (a).................. $14,258,375 $ 14,258,375 Merrill Lynch Liquidity Series, LLC Money Market Series (a)(b)... 8,999,450 8,999,450 ------------ TOTAL SHORT-TERM SECURITIES (COST - $23,257,825) - 6.5%.. 23,257,825 ------------ TOTAL INVESTMENTS (COST - $312,631,366) - 101.7%.. 362,874,973 LIABILITIES IN EXCESS OF OTHER ASSETS - (1.7%)... (6,119,674) ------------ NET ASSETS - 100.0%....... $356,755,299 ============ </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..... $(25,933,154) $100,163 Merrill Lynch Liquidity Series, LLC Money Market Series..... $ 2,161,324 $ 29,270 Merrill Lynch Premier Institutional Fund.................... (2,279,374) $ 8,136 </Table> (b) Security was purchased with the cash proceeds from securities loans. + 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. Financial futures contracts purchased as of June 30,2004 were as follows: <Table> <Caption> NUMBER OF UNREALIZED CONTRACTS ISSUE EXPIRATION DATE FACE VALUE GAINS --------- ------------------ --------------- ----------- ---------- 52 Russell 2000 Index September 2004 $14,917,839 $483,261 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 62 MASTER SMALL CAP INDEX SERIES STATEMENT OF ASSETS AND LIABILITIES As of June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> ASSETS: Investments in unaffiliated securities,at value (including securities loaned of $8,661,247) (identified cost - $289,373,541)................................... $339,617,148 Investments in affiliated securities, at value (identified cost - $23,257,825)........................ 23,257,825 Cash.................................................... 7,944,300 Cash on deposit for financial futures contracts......... 700,000 Receivables: Contributions......................................... $1,927,170 Securities sold....................................... 963,431 Dividends............................................. 317,620 Variation margin...................................... 100,091 Interest from affiliates.............................. 12,035 Securities lending - net.............................. 5,614 3,325,961 ---------- Prepaid expenses and other assets....................... 24,543 ------------ TOTAL ASSETS........................................ 374,869,777 ------------ LIABILITIES: Collateral on securities loaned,at value................ 8,999,450 Payables: Securities purchased.................................. 8,684,698 Withdrawals........................................... 336,709 Other affiliates...................................... 3,613 Investment adviser.................................... 480 9,025,500 ---------- Accrued expenses and other liabilities.................. 89,528 ------------ TOTAL LIABILITIES................................... 18,114,478 ------------ NET ASSETS.................................................. $356,755,299 ============ NET ASSETS CONSIST OF: Investors' capital...................................... $306,028,431 Unrealized appreciation on investments - net............ 50,726,868 ------------ NET ASSETS.................................................. $356,755,299 ============ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 63 MASTER SMALL CAP INDEX SERIES STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> INVESTMENT INCOME: Dividends (net of $623 foreign withholding tax)......... $ 1,414,715 Interest (including $100,163 from affiliates)........... 100,424 Securities lending - net................................ 37,406 ----------- TOTAL INCOME........................................ ........ 1,552,545 ----------- EXPENSES: Professional fees....................................... $ 53,217 Custodian fees.......................................... 35,717 Accounting services..................................... 25,283 Investment advisory fees................................ 17,354 Trustees' fees and expenses............................. 1,690 Printing and shareholder reports........................ 479 Other................................................... 3,760 -------- Total expenses before reimbursement................. 137,500 Reimbursement of expenses............................... (2,910) -------- TOTAL EXPENSES AFTER REIMBURSEMENT.................. 134,590 ----------- INVESTMENT INCOME - NET..................................... 1,417,955 ----------- REALIZED & UNREALIZED GAIN ON INVESTMENTS - NET: Realized gain on investments - net...................... 13,745,956 Change in unrealized appreciation on investments - net...................................... 6,500,865 ----------- TOTAL REALIZED AND UNREALIZED GAIN ON INVESTMENTS... 20,246,821 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $21,664,776 =========== </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 64 MASTER SMALL CAP INDEX SERIES STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- <Table> <Caption> FOR THE SIX MONTHS FOR THE ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2004 2003 -------------- -------------- (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Investment income - net................................. $ 1,417,955 $ 2,565,223 Realized gain on investments - net...................... 13,745,956 459,569 Change in unrealized appreciation on investments - net...................................... 6,500,865 85,865,588 ------------- ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 21,664,776 88,890,380 ------------- ------------ CAPITAL TRANSACTIONS: Proceeds from contributions............................. 188,873,587 87,919,756 Fair value of withdrawals............................... (189,442,529) (23,066,142) ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL TRANSACTIONS................................... (568,942) 64,853,614 ------------- ------------ NET ASSETS: Total increase in net assets............................ 21,095,834 153,743,994 Beginning of period..................................... 335,659,465 181,915,471 ------------- ------------ END OF PERIOD........................................... $356,755,299.. $335,659,465 ============= ============ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 65 MASTER SMALL CAP INDEX SERIES FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The following ratios have been derived from information provided in the financial statements. <Table> <Caption> FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED DECEMBER 31, JUNE 30, ----------------------------------------- 2004 2003 2002 2001 2000+ ----------- -------- -------- -------- -------- (UNAUDITED) TOTAL INVESTMENT RETURN...................... 6.65%++ 47.11% (20.19%) 2.37% -- -------- -------- -------- -------- -------- RATIOS TO AVERAGE NET ASSETS: Expenses, net of reimbursement........... .08%* .09% .08% .08% .09% -------- -------- -------- -------- -------- Expenses................................. .08%* .10% .14% .13% .13% -------- -------- -------- -------- -------- Investment income -- net................. .81%* 1.13% 1.26% 1.45% 1.90% -------- -------- -------- -------- -------- SUPPLEMENTAL DATA: Net assets, end of period (in thousands)............................. $356,755 $335,659 $181,915 $182,968 $169,244 -------- -------- -------- -------- -------- Portfolio turnover....................... 28.89% 28.57% 39.00% 48.50% 50.51% -------- -------- -------- -------- -------- </Table> - --------------- * Annualized. + Total return is required to be disclosed for fiscal years beginning after December 15, 2000. ++ Aggregate total investment return. See notes to financial statements. - -------------------------------------------------------------------------------- 66 MASTER SMALL CAP INDEX SERIES NOTES TO FINANCIAL STATEMENTS June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES: Master Small Cap Index Series (the "Series") is part of Quantitative Master Series Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, and is organized as a Delaware statutory trust. The Declaration of Trust permits the Trustees to issue nontransferable interests in the Trust,subject to certain limitations. The Series' financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. These unaudited financial statements reflect all adjustments,which are, in the opinion of management, necessary to present a fair statement of the results for the interim period. All such adjustments are of a normal, recurring nature. The following is a summary of significant accounting policies followed by the Series. A. Valuation of Investments 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 a revalued 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 - -------------------------------------------------------------------------------- 67 MASTER SMALL CAP INDEX SERIES NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 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 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 specified 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. - -------------------------------------------------------------------------------- 68 MASTER SMALL CAP INDEX SERIES NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- D. Security Transactions and Investment Income Security transactions are accounted for on the date the securities are purchased or sold (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Interest income is recognized on the accrual basis. E. Securities Lending The Series may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Series and any additional required collateral is delivered to the Series on the next business day. Where the Series receives securities as collateral for the loaned securities, it collects a fee from the borrower. The Series typically receives the income on the loaned securities but does not receive the income on the collateral. Where the Series receives cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Series may pay reasonable finders', 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. 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 other expenses incurred by the Series will not exceed .08%. This arrangement has a one-year term and is renewable. FAM reimbursed the Series for additional expenses of $2,910. Merrill Lynch Trust Company ("MLTC"), 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 June 30, 2004, the Series lent securities with a value of $550,755 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 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 - -------------------------------------------------------------------------------- 69 MASTER SMALL CAP INDEX SERIES NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- advised by FAM or its affiliates. For the six months ended June 30, 2004, MLIM, LLC received $16,059 in securities lending agent fees from the Series. For the six months ended June 30, 2004, the Series reimbursed FAM $3,620 for certain accounting services. Certain officers and/or trustees of the Trust are officers and/or directors of FAM, PSI, MLTC, and/or ML & Co. 3. INVESTMENTS: Purchases and sales of investments, excluding short-term securities, for the six months ended June 30, 2004 were $122,579,964 and $93,985,711, respectively. Net realized gains for the six months ended June 30, 2004 and net unrealized appreciation as of June 30, 2004 were as follows: <Table> <Caption> UNREALIZED REALIZED GAINS APPRECIATION -------------- ------------ Long-term investments................................... $10,674,865 $50,243,607 Financial futures contracts............................. 3,071,091 483,261 ----------- ----------- Total................................................... $13,745,956 $50,726,868 =========== =========== </Table> As of June 30, 2004, net unrealized appreciation for federal income tax purposes aggregated $47,039,355, of which $66,042,584 related to appreciated securities and $19,003,229 related to depreciated securities. At June 30, 2004, the aggregate cost of investments for federal income tax purposes was $315,835,618. 4. SHORT-TERM BORROWINGS: The Series, along with certain other Series managed by MLIM 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 six months ended June 30, 2004. - -------------------------------------------------------------------------------- 70 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- COMMON STOCKS AUSTRALIA Beverages - 0.1% Coca-Cola Amatil Limited.... 44,881 $ 216,660 Foster's Brewing Group Limited................... 144,072 473,702 Southcorp Limited........... 8,843 19,343 ------------ 709,705 ------------ Biotechnology - 0.0% CSL Limited................. 12,645 196,430 ------------ Capital Markets - 0.1% Macquarie Bank Limited...... 16,453 388,304 ------------ Chemicals - 0.0% Orica Limited............... 19,981 210,173 ------------ Commercial Banks - 1.3% Australia and New Zealand Banking Group Ltd. ....... 106,116 1,351,256 Commonwealth Bank of Australia................. 70,928 1,609,727 National Australia Bank Limited................... 85,033 1,767,542 Westpac Banking Corporation Limited................... 119,387 1,463,704 ------------ 6,192,229 ------------ Commercial Services & Supplies - 0.0% Brambles Industries Limited................... 50,842 212,499 ------------ Construction & Engineering - 0.0% Leighton Holdings Ltd. ..... 7,743 49,029 ------------ Construction Materials - 0.2% Boral Limited............... 19,286 86,788 CSR Limited................. 36,728 56,798 James Hardie Industries NV........................ 50,663 211,751 Rinker Group Limited........ 71,702 402,078 ------------ 757,415 ------------ Containers & Packaging - 0.1% Amcor Limited............... 69,097 335,487 ------------ Diversified Financial Services - 0.1% Australian Stock Exchange Limited................... 1,250 13,531 Suncorp - Metway Limited.... 28,841 285,287 ------------ 298,818 ------------ Diversified Telecommunication Services - 0.1% Telstra Corporation Limited................... 90,940 318,644 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Food & Staples Retailing - 0.2% Coles Myer Limited.......... 62,024 $ 371,139 Woolworths Limited.......... 70,626 560,858 ------------ 931,997 ------------ Gas Utilities - 0.0% Australian Gas Light Company Limited................... 20,590 173,981 ------------ Health Care Equipment & Supplies - 0.0% Cochlear Limited............ 8,175 129,384 Pacific Dunlop Limited...... 7,344 39,597 ------------ 168,981 ------------ Health Care Providers & Services - 0.0% Mayne Nickless Limited...... 77,176 183,324 ------------ Hotels, Restaurants & Leisure - 0.1% Aristocrat Leisure Limited................... 35,336 119,137 TAB Limited................. 51,958 178,074 TABCORP Holdings Limited.... 33,290 330,223 ------------ 627,434 ------------ IT Services - 0.0% Computershare Limited....... 11,639 25,783 ------------ Industrial Conglomerates - 0.1% Wesfarmers Limited.......... 24,616 504,137 ------------ Insurance - 0.3% AMP Limited................. 125,623 553,932 Insurance Australia Group Limited................... 91,298 317,991 National Mutual Holdings Limited................... 4,963 11,616 QBE Insurance Group Limited................... 48,925 436,239 ------------ 1,319,778 ------------ Media - 0.2% John Fairfax Holdings Limited................... 85,818 222,982 The News Corporation Limited................... 72,038 636,304 Publishing & Broadcasting Limited................... 6,114 54,728 ------------ 914,014 ------------ Metals & Mining - 0.6% Alumina Limited............. 60,157 221,260 BHP Billiton Limited........ 212,160 1,851,817 Blue Scope Steel Limited.... 60,165 282,480 Newcrest Mining Limited..... 20,298 194,844 OneSteel Limited............ 23,360 40,519 Rio Tinto Limited........... 14,953 374,465 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 71 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- WMC Resources Limited....... 46,774 $ 160,307 ------------ 3,125,692 ------------ Oil & Gas - 0.2% Origin Energy Limited....... 20,741 81,488 Santos Limited.............. 51,930 250,689 Woodside Petroleum Limited.. 34,991 406,327 ------------ 738,504 ------------ Paper & Forest Products - 0.0% Paperlinx Limited........... 377 1,274 ------------ Real Estate - 0.4% Centro Properties Group..... 13,606 37,722 Gandel Retail Trust......... 182,481 176,692 General Property Trust...... 155,360 377,701 Investa Property Group...... 31,118 42,270 Lend Lease Corporation Limited................... 33,768 241,814 Macquarie Goodman Industrial Trust..................... 23,063 26,990 Mirvac Group................ 69,814 209,119 Stockland Trust Group....... 104,858 378,368 Westfield Holdings Limited................... 17,062 183,035 Westfield Trust............. 141,405 434,397 ------------ 2,108,108 ------------ Road & Rail - 0.0% Toll Holdings Limited....... 25,968 193,917 ------------ Transportation Infrastructure - 0.1% Macquarie Infrastructure Group..................... 152,709 351,044 Patrick Corporation Limited................... 16,500 61,377 Transurban Group............ 3,758 12,749 ------------ 425,170 ------------ TOTAL COMMON STOCKS IN AUSTRALIA................. 21,110,827 ------------ AUSTRIA Building Products - 0.0% Wienerberger Baustoffindustrie AG...... 5,247 182,639 ------------ Commercial Banks - 0.1% Bank Austria Creditanstalt............. 1,063 62,337 Erste Bank der Oesterreichischen Sparkassen AG............. 2,624 412,150 ------------ 474,487 ------------ Construction Materials - 0.0% RHI AG (a).................. 53 1,194 ------------ Containers & Packaging - 0.0% Mayr-Melnhof Karton AG...... 911 117,487 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Diversified Telecommunication Services - 0.0% Telekom Austria AG.......... 14,012 $ 213,949 ------------ Electric Utilities - 0.0% Oesterreichische Elektrizitaetswirtschafts-AG "Verbund" 'A'............. 47 8,266 ------------ Machinery - 0.0% VA Technologie AG (a)....... 844 47,523 ------------ Metals & Mining - 0.0% Boehler-Uddeholm AG......... 1,606 133,259 ------------ Oil & Gas - 0.0% OMV AG...................... 447 87,020 ------------ Real Estate - 0.0% Immofinanz Immobilien Anlagen AG (a)............ 4,408 35,664 ------------ Transportation Infrastructure - 0.0% Flughafen Wien AG........... 1,446 83,390 ------------ TOTAL COMMON STOCKS IN AUSTRIA................... 1,384,878 ------------ BELGIUM Beverages - 0.0% Interbrew................... 7,496 238,488 ------------ Chemicals - 0.1% Solvay SA................... 3,522 287,526 ------------ Commercial Banks - 0.2% Dexia....................... 45,153 749,319 KBC Bancassurance Holding... 5,421 311,899 ------------ 1,061,218 ------------ Distributors - 0.0% D'leteren SA................ 222 46,835 ------------ Diversified Financial Services - 0.4% Fortis...................... 73,942 1,637,300 Groupe Bruxelles Lambert SA........................ 3,292 210,474 ------------ 1,847,774 ------------ Diversified Telecommunication Services - 0.1% Belgacom SA (a)............. 8,302 252,718 ------------ Electric Utilities - 0.1% Electrabel SA............... 1,917 614,566 ------------ Electrical Equipment - 0.0% Bekaert NV.................. 1,022 58,876 ------------ Electronic Equipment & Instruments - 0.0% Barco NV (New Shares)....... 520 46,880 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 72 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Food & Staples Retailing - 0.1% Colruyt NV.................. 1,868 $ 230,679 Delhaize Group.............. 2,055 105,134 Delhaize Group (ADR) (b).... 950 48,735 ------------ 384,548 ------------ Health Care Equipment & Supplies - 0.0% Omega Pharma SA............. 2,547 129,065 ------------ Leisure Equipment & Products - 0.0% Agfa Gevaert NV............. 5,023 124,608 ------------ Marine - 0.0% Compagnie Maritime Belge SA (CMB)..................... 628 76,215 ------------ Metals & Mining - 0.0% Umicore (a)................. 52 8 Union Miniere SA............ 2,965 186,681 ------------ 186,689 ------------ Pharmaceuticals - 0.1% UCB SA...................... 7,260 338,123 ------------ Wireless Telecommunication Services - 0.0% Mobistar SA (a)............. 900 56,063 ------------ TOTAL COMMON STOCKS IN BELGIUM................... 5,750,192 ------------ BERMUDA Oil & Gas - 0.0% Frontline Limited........... 4,253 146,338 ------------ TOTAL COMMON STOCKS IN BERMUDA................... 146,338 ------------ DENMARK Beverages - 0.0% Carlsberg A/S 'B'........... 356 18,822 ------------ Chemicals - 0.0% Novozymes A/S 'B'........... 2,267 102,232 ------------ Commercial Banks - 0.1% Danske Bank................. 30,811 730,023 ------------ Commercial Services & Supplies - 0.1% Group 4 Falck A/S........... 7,897 202,943 ISS A/S..................... 2,439 120,568 ------------ 323,511 ------------ Construction & Engineering - 0.0% FLS Industries A/S 'B' (a)....................... 1,417 19,947 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Diversified Telecommunication Services - 0.0% TDC A/S..................... 5,553 $ 180,426 ------------ Electrical Equipment - 0.0% NKT Holding A/S............. 820 16,644 Vestas Wind Systems A/S..... 12,828 188,454 ------------ 205,098 ------------ Food Products - 0.0% A/S Det Ostasiatiske Kompagni.................. 2,039 94,453 Danisco A/S................. 2,482 127,975 ------------ 222,428 ------------ Health Care Equipment & Supplies - 0.1% Coloplast A/S 'B'........... 93 8,768 GN Store Nord A/S........... 20,351 179,884 William Demant A/S (a)...... 1,530 57,852 ------------ 246,504 ------------ Household Durables - 0.0% Bang & Olufsen Holding A/S 'B'....................... 464 25,519 ------------ Insurance - 0.0% Topdanmark A/S (a).......... 907 53,595 ------------ Marine - 0.1% A P Moller - Maersk A/S..... 60 412,489 ------------ Pharmaceuticals - 0.2% H. Lundbeck A/S............. 3,519 76,610 Novo Nordisk A/S 'B'........ 17,505 901,145 ------------ 977,755 ------------ Road & Rail - 0.0% DSV, De Sammensluttede Vognmaend af 13-7-1976 A/S....................... 2,825 135,025 ------------ TOTAL COMMON STOCKS IN DENMARK................... 3,653,374 ------------ FINLAND Auto Components - 0.0% Nokian Renkaat Oyj.......... 671 65,367 ------------ Communications Equipment - 0.8% Nokia Oyj 'A'............... 275,493 3,975,218 Nokia Oyj 'A' (ADR) (b)..... 1,270 18,466 ------------ 3,993,684 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 73 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Diversified Telecommunication Services - 0.0% Elisa Oyj 'A' (a)........... 5,791 $ 77,502 ------------ Electric Utilities - 0.1% Fortum Corporation, the IVO - Neste Group......... 25,064 320,188 ------------ IT Services - 0.0% Tietoenator Oyj............. 7,181 217,982 ------------ Insurance - 0.1% Pohjola Group PLC 'D'....... 6,594 67,871 Sampo Insurance Company Ltd. 'A'....................... 21,176 205,595 ------------ 273,466 ------------ Leisure Equipment & Products - 0.0% Amer Group Ltd.............. 1,968 102,479 ------------ Machinery - 0.1% Kone Corporation 'B'........ 3,871 233,976 Metso Corporation........... 4,366 55,244 Wartsila Oyj 'B'............ 154 3,448 ------------ 292,668 ------------ Metals & Mining - 0.0% Outokumpu Oyj............... 447 7,152 Rautaruukki Oyj............. 16,038 129,369 ------------ 136,521 ------------ Paper & Forest Products - 0.3% Stora Enso Oyj 'R'.......... 43,649 592,127 UPM - Kymmene Oyj........... 33,403 635,606 ------------ 1,227,733 ------------ TOTAL COMMON STOCKS IN FINLAND................... 6,707,590 ------------ FRANCE Aerospace & Defense - 0.1% Thales SA................... 7,146 261,434 Zodiac SA................... 986 33,553 ------------ 294,987 ------------ Airlines - 0.0% Groupe Air France........... 3,419 58,278 ------------ Auto Components - 0.1% Compagnie Generale des Etablissements Michelin 'B'....................... 7,658 423,462 Valeo SA.................... 6,209 258,731 ------------ 682,193 ------------ Automobiles - 0.3% PSA Peugeot Citroen......... 10,542 587,043 </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Renault SA.................. 11,325 $ 862,538 ------------ 1,449,581 ------------ Beverages - 0.1% Pernod Ricard............... 3,882 496,391 ------------ Building Products - 0.2% Compagnie de Saint-Gobain... 19,561 975,041 ------------ Chemicals - 0.2% Air Liquide................. 6,468 1,069,437 ------------ Commercial Banks - 1.1% BNP Paribas SA.............. 46,398 2,853,554 Credit Agricole SA.......... 44,520 1,083,305 Societe Generale 'A'........ 17,943 1,524,850 ------------ 5,461,709 ------------ Commercial Services & Supplies - 0.0% Societe BIC SA.............. 1,954 86,963 ------------ Communications Equipment - 0.2% Alcatel (a)................. 67,899 1,047,486 Sagem SA (New Shares)....... 946 105,542 ------------ 1,153,028 ------------ Construction & Engineering - 0.1% Societe Generale d'Entreprises SA.......... 3,566 359,234 Suez Lyonnaise des Eaux SA (a)....................... 4,785 58 ------------ 359,292 ------------ Construction Materials - 0.2% IMERYS SA................... 1,192 69,467 Lafarge SA (Ordinary)....... 8,828 787,285 ------------ 856,752 ------------ Diversified Telecommunication Services - 0.3% France Telecom SA........... 65,252 1,700,509 ------------ Electrical Equipment - 0.2% Schneider SA................ 13,739 937,743 ------------ Energy Equipment & Services - 0.0% Compagnie Francaise d'Etudes et de Construction (Technip SA).............. 1,168 158,447 ------------ Food & Staples Retailing - 0.4% Carrefour SA................ 31,903 1,547,934 Casino Guichard - Perrachon SA........................ 2,737 246,917 ------------ 1,794,851 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 74 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Food Products - 0.3% Groupe Danone............... 14,110 $ 1,230,869 ------------ Health Care Equipment & Supplies - 0.1% Essilor International SA.... 7,188 469,184 ------------ Hotels, Restaurants & Leisure - 0.1% Accor SA.................... 9,815 414,248 Sodexho Alliance SA......... 8,928 235,276 ------------ 649,524 ------------ Household Durables - 0.1% Thomson Multimedia.......... 17,774 350,537 ------------ IT Services - 0.1% Atos Origin SA (a).......... 1,852 118,971 Cap Gemini SA (a)........... 6,201 248,891 ------------ 367,862 ------------ Insurance - 0.4% Axa......................... 81,880 1,803,109 CNP Assurances.............. 775 44,967 ------------ 1,848,076 ------------ Internet Software & Services - 0.0% Wanadoo (a)................. 19,771 0 ------------ Media - 0.5% Lagardere S.C.A. ........... 7,778 485,930 Publicis SA................. 4,855 143,713 Societe Television Francaise 1......................... 9,680 304,911 Vivendi Universal SA (a).... 50,862 1,410,893 Vivendi Universal SA (ADR) (a)(b).................... 6,053 168,879 ------------ 2,514,326 ------------ Multiline Retail - 0.1% Pinault-Printemps-Redoute SA........................ 5,010 514,758 ------------ Multi-Utilities & Unregulated Power - 0.3% Suez SA..................... 48,754 1,014,906 Veolia Environment.......... 19,594 552,827 ------------ 1,567,733 ------------ Oil & Gas - 1.3% TotalFinaElf SA............. 33,805 6,444,892 TotalFinaElf SA 'STRIP' (a)....................... 4,140 50 ------------ 6,444,942 ------------ Personal Products - 0.3% L'Oreal SA.................. 17,958 1,434,361 ------------ Pharmaceuticals - 1.0% Aventis SA.................. 44,948 3,393,266 </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Sanofi-Synthelabo SA........ 20,206 $ 1,280,807 ------------ 4,674,073 ------------ Real Estate - 0.1% Gecina...................... 880 69,164 Klepierre................... 2,142 146,461 Unibail (Union du Credit - Bail Immobilier).......... 3,493 361,229 ------------ 576,854 ------------ Software - 0.1% Business Objects SA (a)..... 6,540 146,646 Dassault Systemes SA........ 3,179 147,399 ------------ 294,045 ------------ Textiles, Apparel & Luxury Goods - 0.2% Hermes International........ 189 37,734 LVMH (Louis Vuitton Moet Hennessy)................. 15,623 1,130,009 ------------ 1,167,743 ------------ Transportation Infrastructure - 0.0% Autoroutes du Sud de la France.................... 2,314 91,892 ------------ Wireless Telecommunication Services - 0.1% Bouygues SA................. 14,758 494,130 ------------ TOTAL COMMON STOCKS IN FRANCE.................... 42,226,111 ------------ GERMANY Air Freight & Logistics - 0.1% Deutsche Post AG (Registered Shares)................... 28,404 613,400 ------------ Airlines - 0.1% Deutsche Lufthansa AG (Registered Shares)....... 18,097 246,158 ------------ Auto Components - 0.1% Continental AG.............. 9,469 456,671 ------------ Automobiles - 0.6% DaimlerChrysler AG.......... 48,893 2,284,250 Volkswagen AG............... 13,808 583,279 ------------ 2,867,529 ------------ Capital Markets - 0.5% Deutsche Bank AG (Registered Shares)................... 33,628 2,642,194 Marschollek, Lautenschlaeger und Partner AG............ 3,609 53,262 ------------ 2,695,456 ------------ Chemicals - 0.6% BASF AG..................... 29,384 1,572,645 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 75 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Bayer AG.................... 37,236 $ 1,073,685 Linde AG.................... 4,297 236,512 ------------ 2,882,842 ------------ Commercial Banks - 0.2% Bayerische Hypo- und Vereinsbank AG (a)........ 35,166 625,513 Commerzbank AG (a).......... 31,094 547,786 ------------ 1,173,299 ------------ Construction Materials - 0.0% Heidelberger Zement AG...... 2,446 121,864 ------------ Diversified Financial Services - 0.1% Deutsche Boerse AG.......... 8,194 416,415 ------------ Diversified Telecommunication Services - 0.5% Deutsche Telekom AG (Registered Shares) (a)... 145,552 2,557,120 ------------ Electric Utilities - 0.5% E.On AG..................... 35,280 2,545,359 ------------ Electronic Equipment & Instruments - 0.0% Epcos AG (a)................ 2,386 49,843 ------------ Food & Staples Retailing - 0.1% Metro AG.................... 8,744 414,472 ------------ Health Care Providers & Services - 0.1% Fresenius Medical Care AG... 2,906 215,635 Gehe AG..................... 1,654 98,806 ------------ 314,441 ------------ Hotels, Restaurants & Leisure - 0.0% TUI AG...................... 11,871 226,753 ------------ Industrial Conglomerates - 0.7% Siemens AG.................. 45,374 3,263,125 Siemens AG (ADR) (b)........ 860 62,367 ------------ 3,325,492 ------------ Insurance - 0.6% Allianz AG (Registered Shares)................... 17,225 1,865,784 Muenchener Rueckversicherungs- Gesellschaft AG (Registered Shares)....... 9,461 1,025,606 ------------ 2,891,390 ------------ Machinery - 0.1% MAN AG...................... 8,871 323,571 ------------ Metals & Mining - 0.1% Thyssen Krupp AG............ 25,036 426,745 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Multiline Retail - 0.0% Karstadt AG................. 1,640 $ 35,696 ------------ Multi-Utilities & Unregulated Power - 0.2% RWE AG...................... 23,725 1,115,633 ------------ Personal Products - 0.0% Beiersdorf AG............... 572 66,843 ------------ Pharmaceuticals - 0.2% Altana AG................... 5,521 332,027 Merck KGaA.................. 2,378 143,213 Schering AG................. 11,452 674,779 ------------ 1,150,019 ------------ Semiconductors & Semiconductor Equipment - 0.1% Infineon Technologies AG (a)....................... 32,869 441,090 ------------ Software - 0.4% SAP AG (Systeme, Anwendungen, Produkte in der Datenverarbeitung).... 12,376 2,051,702 ------------ Specialty Retail - 0.0% Douglas Holding AG.......... 1,160 33,194 ------------ Textiles, Apparel & Luxury Goods - 0.1% Adidas - Salomon AG......... 2,665 318,174 Puma AG Rudolf Dassler Sport..................... 1,281 325,530 ------------ 643,704 ------------ Thrifts & Mortgage Finance - 0.1% Hypo Real Estate Holding AG (a)....................... 10,251 300,697 ------------ TOTAL COMMON STOCKS IN GERMANY................... 30,387,398 ------------ GREECE Beverages - 0.0% Hellenic Bottling Co........ 8,833 205,691 ------------ Commercial Banks - 0.2% Alpha Credit Bank........... 13,336 339,432 Bank of Piraeus............. 3,787 44,324 Commercial Bank of Greece... 1,938 50,836 EFG Eurobank Ergasias....... 15,709 339,435 National Bank of Greece SA.. 19,305 423,713 ------------ 1,197,740 ------------ Communications Equipment - 0.0% Intracom SA................. 13,744 59,195 ------------ Construction & Engineering - 0.0% Technical Olympic SA........ 9,858 41,498 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 76 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Construction Materials - 0.0% Titan Cement Company........ 2,682 $ 63,303 ------------ Diversified Telecommunication Services - 0.0% Hellenic Telecommunications Organization SA (OTE)..... 14,796 191,537 ------------ Electric Utilities - 0.0% Public Power Corporation.... 10,016 237,626 ------------ Hotels,Restaurants & Leisure - 0.0% Greek Organization of Football Prognostics...... 6,153 115,435 ------------ Metals & Mining - 0.0% Viohalco, Hellenic Copper and Aluminum Industry SA.. 4,057 29,221 ------------ Wireless Telecommunication Services - 0.0% Cosmote Mobile Telecommunications SA..... 6,600 102,783 ------------ TOTAL COMMON STOCKS IN GREECE.................... 2,244,029 ------------ HONG KONG Airlines - 0.0% Cathay Pacific Airways...... 51,263 96,614 ------------ Commercial Banks - 0.2% BOC Hong Kong (Holdings) Limited................... 164,400 280,330 Bank of East Asia, Ltd. .... 109,139 312,034 Hang Seng Bank Limited...... 39,953 512,231 ------------ 1,104,595 ------------ Distributors - 0.0% Li & Fung Limited........... 138,719 202,748 ------------ Diversified Financial Services - 0.0% Hong Kong Exchanges & Clearing Ltd. ............ 104,000 213,339 ------------ Diversified Telecommunication Services - 0.0% PCCW Limited (a)............ 126,195 85,750 ------------ Electric Utilities - 0.2% CLP Holdings Limited........ 122,687 671,650 Hongkong Electric Holdings Limited................... 102,000 422,395 ------------ 1,094,045 ------------ Electrical Equipment - 0.0% Johnson Electric Holdings Limited................... 122,328 124,684 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Gas Utilities - 0.1% Hong Kong and China Gas Company Ltd. ............. 206,240 $ 339,776 ------------ Hotels, Restaurants & Leisure - 0.0% Shangri-La Asia Limited..... 24,734 24,100 ------------ Household Durables - 0.0% Techtronic Industries Company Limited........... 16,560 26,433 ------------ Industrial Conglomerates - 0.2% Hutchison Whampoa Limited... 109,989 750,906 ------------ Media - 0.0% South China Morning Post Holdings Ltd. ............ 34,025 13,523 Television Broadcasts Ltd. ..................... 5,646 24,177 ------------ 37,700 ------------ Real Estate - 0.4% Amoy Properties Limited..... 12,000 15,462 Cheung Kong (Holdings) Ltd. ..................... 98,735 727,873 Henderson Land Development Company Limited........... 43,491 187,351 New World Development Company Ltd. ............. 219,890 162,103 Sino Land Company Limited... 48,421 27,005 Sun Hung Kai Properties Ltd. ..................... 66,324 544,211 Swire Pacific Limited 'A'... 52,577 340,411 Wharf (Holdings) Ltd. ...... 56,107 161,132 ------------ 2,165,548 ------------ Road & Rail - 0.0% MTR Corporation Limited..... 24,500 37,065 ------------ Semiconductors & Semiconductor Equipment - 0.0% ASM Pacific Technology Limited................... 5,004 18,765 ------------ Specialty Retail - 0.0% Esprit Holdings Limited..... 24,000 107,387 Giordano International Limited................... 190,394 120,220 ------------ 227,607 ------------ Textiles, Apparel & Luxury Goods - 0.0% Texwinca Holdings Limited... 85,353 67,299 Yue Yuen Industrial (Holdings) Limited........ 21,785 52,928 ------------ 120,227 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 77 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Transportation Infrastructure - 0.0% Hopewell Holdings Limited... 18,465 $ 37,168 ------------ TOTAL COMMON STOCKS IN HONG KONG...................... 6,707,070 ------------ IRELAND Airlines - 0.0% Ryanair Holdings PLC (a).... 27,680 155,924 ------------ Commercial Banks - 0.4% Allied Irish Banks PLC...... 58,164 898,718 Bank of Ireland (Dublin).... 39,259 524,454 Bank of Ireland (London).... 26,151 348,710 ------------ 1,771,882 ------------ Construction Materials - 0.2% CRH PLC (Dublin)............ 35,942 759,133 CRH PLC (London)............ 936 19,815 ------------ 778,948 ------------ Distributors - 0.0% Grafton Group PLC........... 2,786 22,202 ------------ Diversified Financial Services - 0.1% Depfa Bank PLC.............. 19,286 280,164 ------------ Food Products - 0.0% Greencore Group PLC......... 31,825 123,129 Kerry Group PLC 'A'......... 4,710 99,881 ------------ 223,010 ------------ Household Durables - 0.0% Waterford Wedgwood PLC...... 32,474 6,954 ------------ Industrial Conglomerates - 0.0% DCC PLC..................... 3,189 58,004 ------------ Insurance - 0.0% Irish Life & Permanent PLC....................... 13,484 205,230 ------------ Media - 0.0% Independent News & Media PLC....................... 21,817 51,760 ------------ Pharmaceuticals - 0.1% Elan Corporation PLC (a).... 19,797 486,778 Elan Corporation PLC (ADR) (a)(b).................... 5,755 142,379 ------------ 629,157 ------------ TOTAL COMMON STOCKS IN IRELAND................... 4,183,235 ------------ ITALY Aerospace & Defense - 0.1% Finmeccanica SpA............ 312,371 248,094 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Automobiles - 0.0% Fiat SpA (a)................ 20,604 $ 172,868 ------------ Capital Markets - 0.1% Banca Fideuram SpA.......... 32,610 182,902 Mediobanca SpA.............. 25,358 308,518 Mediolanum SpA.............. 25,906 164,842 ------------ 656,262 ------------ Commercial Banks - 0.9% Banca Antonveneta SpA....... 15,000 308,238 Banca Intesa SpA............ 36,404 109,399 Banca Monte dei Paschi di Siena SpA................. 52,096 166,696 Banca Nazionale del Lavoro SpA (Ordinary)............ 31,814 73,968 Banca Popolare di Milano Scrl (BPM)................ 16,065 103,200 Banche Populari Unite Scrl...................... 17,934 297,398 Banco Popolare di Verona e Novara Scrl............... 27,638 474,796 Capitalia SpA............... 111,199 347,967 Intesa BCI SpA.............. 210,817 823,591 San Paolo - IMI SpA......... 45,931 553,231 Unicredito Italiano SpA..... 234,054 1,156,133 ------------ 4,414,617 ------------ Construction Materials - 0.0% Italcementi SpA............. 5,565 74,477 ------------ Diversified Financial Services - 0.0% FinecoGroup SpA (a)......... 4,347 27,396 ------------ Diversified Telecommunication Services - 0.4% Telecom Italia SpA.......... 446,136 1,386,832 Telecom Italia SpA - RNC.... 365,735 807,623 ------------ 2,194,455 ------------ Electric Utilities - 0.2% Enel SpA.................... 145,055 1,163,011 ------------ Gas Utilities - 0.2% Snam Rete Gas SpA........... 32,037 137,592 ------------ Hotels, Restaurants & Leisure - 0.0% Autogrill SpA (a)........... 4,473 63,400 ------------ Industrial Conglomerates - 0.0% Pirelli & C. SpA............ 198,300 204,831 ------------ Insurance - 0.4% Alleanza Assicurazioni SpA....................... 25,108 286,537 Assicurazioni Generali SpA....................... 51,264 1,382,751 Riunione Adriatica di Sicurta SpA............... 15,603 283,042 ------------ 1,952,330 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 78 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Internet Software & Services - 0.0% Telecom Italia Media SpA (a)....................... 225,866 $ 93,047 Tiscali SpA (a)............. 2,170 9,758 ------------ 102,805 ------------ Media - 0.1% Gruppo Editoriale L'Espresso SpA....................... 15,754 94,877 Mediaset SpA................ 34,370 391,818 Mondadori (Arnoldo) Editore SpA....................... 5,198 49,202 Seat Pagine Gialle SpA...... 171,874 72,143 ------------ 608,040 ------------ Multiline Retail - 0.0% La Rinascente SpA (a)....... 5,245 12,763 ------------ Multi-Utilities & Unregulated Power - 0.0% Edison SpA (a).............. 16,589 28,700 ------------ Oil & Gas - 0.7% ENI SpA..................... 159,790 3,172,553 ENI SpA (ADR) (b)........... 1,875 188,138 ------------ 3,360,691 ------------ Textiles, Apparel & Luxury Goods - 0.1% Benetton Group SpA.......... 5,296 60,568 Bulgari SpA................. 15,567 157,388 Luxottica Group SpA......... 4,858 80,974 ------------ 298,930 ------------ Transportation Infrastructure - 0.1% Autotrade SpA............... 14,521 285,322 ------------ Wireless Telecommunication Services - 0.3% Telecom Italia Mobile (TIM) SpA....................... 228,963 1,298,126 ------------ TOTAL COMMON STOCKS IN ITALY..................... 17,304,710 ------------ JAPAN Air Freight & Logistics - 0.1% Yamato Transport Co., Ltd. ..................... 29,000 473,345 ------------ Airlines - 0.0% Japan Airlines System Corporation............... 28,000 89,557 ------------ Auto Components - 0.4% Aisin Seiki Co. Ltd. ....... 4,900 102,163 Bridgestone Corp. .......... 39,000 732,713 Denso Corporation........... 29,600 689,035 NGK Spark Plug Co., Ltd. ... 9,000 86,358 Sanden Corporation.......... 20,000 124,639 Stanley Electric Co., Ltd. ..................... 7,000 117,014 </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- TOYOTA INDUSTRIES CORPORATION............... 8,000 $ 192,091 Toyoda Gosei Co., Ltd. ..... 1,000 23,599 ------------ 2,067,612 ------------ Automobiles - 2.2% Honda Motor Co., Ltd. ...... 44,400 2,140,347 Nissan Motor Co., Ltd. ..... 137,100 1,524,101 Toyota Motor Corporation.... 172,200 6,975,430 Yamaha Motor Co., Ltd. ..... 9,000 140,137 ------------ 10,780,015 ------------ Beverages - 0.2% Asahi Breweries Limited..... 31,000 341,777 Kirin Brewery Company, Ltd. ..................... 38,000 375,769 Sapporo Breweries Limited... 39,000 142,968 Takara Shuzo Co., Ltd. ..... 17,000 137,103 ------------ 997,617 ------------ Building Products - 0.3% Asahi Glass Company, Limited................... 45,000 468,084 Central Glass Co., Ltd. .... 2,000 16,936 Daikin Industries, Ltd. .... 9,000 241,672 Nippon Sheet Glass Company, Ltd. ..................... 36,000 142,529 Tostem Corporation.......... 13,000 280,576 Toto Limited................ 26,000 273,546 ------------ 1,423,343 ------------ Capital Markets - 0.5% Daiwa Securities Group Inc. ..................... 59,000 423,920 Jafco Co., Ltd. ............ 1,100 83,976 The Nikko Securities Co., Ltd. ..................... 96,000 465,417 The Nomura Securities Co., Ltd. ..................... 113,000 1,672,501 ------------ 2,645,814 ------------ Chemicals - 1.0% Asahi Chemical Industry Co., Ltd. ..................... 70,000 362,462 Daicel Chemical Industries, Ltd. ..................... 3,000 15,754 Dainippon Ink and Chemicals, Inc. ..................... 30,000 76,983 Denki Kagaku Kogyo Kabushiki Kaisha.................... 3,000 10,640 Hitachi Chemical Company, Ltd. ..................... 2,500 41,081 Ishihara Sangyo Kaisha, Ltd. ..................... 11,000 24,295 JSR Corporation............. 15,000 281,813 Kaneka Corporation.......... 13,000 123,072 Kuraray Co., Ltd. .......... 32,000 261,889 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 79 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Mitsubishi Chemical Corporation............... 82,000 $ 217,935 Mitsubishi Gas Chemical Company, Inc. ............ 18,000 74,564 Mitsubishi Rayon Company, Ltd. ..................... 51,000 198,176 Mitsui Chemicals Inc. ...... 24,000 120,093 Nissan Chemical Industries, Ltd. ..................... 18,000 144,673 Nitto Denko Corporation..... 11,510 588,607 Nok Corporation............. 4,000 148,467 Shin-Etsu Chemical Co., Ltd. ..................... 18,800 671,952 Showa Denko K.K. ........... 84,000 210,164 Sumitomo Bakelite Company Limited................... 21,000 147,038 Sumitomo Chemical Co., Ltd. ..................... 69,000 321,871 Teijin Limited.............. 67,000 250,525 Toray Industries, Inc. ..... 54,000 254,374 Tosoh Corporation........... 6,000 21,665 Ube Industries, Ltd. ....... 78,000 121,523 ------------ 4,689,616 ------------ Commercial Banks - 1.9% The 77 Bank, Ltd. .......... 12,000 81,822 The Bank of Fukuoka, Ltd. ..................... 47,000 278,688 The Bank of Yokohama, Ltd. (a)....................... 68,000 425,019 The Chiba Bank, Ltd. ....... 31,000 189,781 Daiwa Bank Holdings, Inc. ..................... 234,000 416,038 The Gunma Bank Ltd. ........ 13,000 65,527 Hokugin Financial Group, Inc. ..................... 17,000 43,624 The Joyo Bank, Ltd. ........ 23,000 102,232 Mitsubishi Tokyo Financial Group, Inc. .............. 255 2,360,354 Mitsui Trust Holdings, Inc. ..................... 26,000 190,625 Mizuho Financial Group, Inc. ..................... 429 1,946,158 Shinsei Bank, Ltd. ......... 23,000 146,708 The Shizuoka Bank, Ltd. .... 30,000 265,041 Sumitomo Mitsui Financial Group, Inc. .............. 229 1,569,830 The Sumitomo Trust and Banking Co., Ltd. ........ 55,000 391,651 The Suruga Bank, Ltd. ...... 4,000 30,647 UFJ Holdings, Inc. ......... 212 936,480 ------------ 9,440,225 ------------ Commercial Services & Supplies - 0.4% Benesse Corporation......... 2,000 65,619 Dai Nippon Printing Co., Ltd. ..................... 44,000 702,855 Kokuyo Co., Ltd. ........... 5,000 63,053 Meitec Corp. ............... 500 19,796 </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Secom Co., Ltd. ............ 14,500 $ 615,268 Toppan Printing Co., Ltd. ..................... 41,000 464,052 ------------ 1,930,643 ------------ Communications Equipment - 0.0% Uniden Corp. ............... 7,000 151,721 ------------ Computers & Peripherals - 0.4% Fujitsu Limited............. 90,000 634,285 Mitsumi Electric Company, Ltd. ..................... 11,000 127,224 NEC Corporation............. 95,000 668,652 Seiko Epson Corporation..... 3,900 141,896 Toshiba Corporation......... 153,000 615,562 ------------ 2,187,619 ------------ Construction & Engineering - 0.2% COMSYS Holdings Corporation............... 15,000 121,798 JGC Corporation............. 19,000 182,835 Kajima Corporation.......... 71,000 263,529 Kinden Corporation.......... 9,000 56,253 Nishimatsu Construction Co., Ltd. ..................... 14,000 48,884 Obayashi Corporation........ 25,000 134,491 Shimizu Corporation......... 16,000 72,437 Taisei Corporation.......... 28,000 105,723 Toda Corporation............ 3,000 12,290 ------------ 998,240 ------------ Construction Materials - 0.1% Sumitomo Osaka Cement Co., Ltd. ..................... 51,000 140,219 Taiheiyo Cement Corporation............... 76,000 189,451 ------------ 329,670 ------------ Consumer Finance - 0.4% Acom Co., Ltd. ............. 3,500 227,421 Aeon Credit Service Co, Ltd. ..................... 500 33,359 Aiful Corporation........... 2,000 208,771 Credit Saison Co., Ltd. .... 10,800 324,648 Orix Corporation............ 5,500 630,069 Promise Co., Ltd. .......... 4,700 313,577 Takefuji Corporation........ 3,520 255,173 ------------ 1,993,018 ------------ Containers & Packaging - 0.0% Toyo Seikan Kaisha, Ltd. ... 10,000 171,745 ------------ Diversified Telecommunication Services - 0.4% Nippon Telegraph & Telephone Corporation (NTT)......... 324 1,731,128 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 80 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Electric Utilities - 0.8% Chubu Electric Power Company, Incorporated..... 40,700 $ 859,767 Hokkaido Electric Power Company, Incorporated..... 6,000 106,621 Kansai Electric Power Company, Inc. ............ 43,000 783,824 Kyushu Electric Power Company, Incorporated..... 23,600 440,141 Tohoku Electric Power Co., Inc. ..................... 25,100 422,800 Tokyo Electric Power........ 64,600 1,465,289 ------------ 4,078,442 ------------ Electrical Equipment - 0.3% Fujikura Ltd. .............. 30,000 168,813 The Furukawa Electric Co., Ltd. (a).................. 48,000 204,995 Matsushita Electric Works, Ltd. ..................... 13,873 125,870 Mitsubishi Electric Corporation............... 103,000 505,962 Sumitomo Electric Industries................ 49,000 499,812 Ushio Inc. ................. 3,000 54,108 ------------ 1,559,560 ------------ Electronic Equipment & Instruments - 1.3% Alps Electric Co., Ltd. .... 14,000 199,129 Anritsu Corp. .............. 15,000 98,153 Citizen Watch Co. .......... 23,000 260,532 Dainippon Screen Mfg. Co., Ltd. ..................... 23,000 135,747 Hirose Electric Co., Ltd. ..................... 1,500 164,826 Hitachi Ltd. ............... 178,000 1,225,111 Hoya Corporation............ 6,700 701,223 Keyence Corporation......... 1,900 433,405 Kyocera Corporation......... 8,900 755,295 Mabuchi Motor Co., Ltd. .... 1,200 88,970 Murata Manufacturing Co., Ltd. ..................... 14,500 826,559 Nidec Corporation........... 2,000 204,921 Oki Electric Industry Company, Limited (a)...... 48,000 193,117 Omron Corporation........... 11,000 257,572 TDK Corporation............. 6,200 470,476 Taiyo Yuden Co., Ltd. ...... 9,000 126,774 Yokogawa Electric Corporation............... 19,000 253,357 ------------ 6,395,167 ------------ Food & Staples Retailing - 0.5% FamilyMart Co., Ltd. ....... 5,400 176,181 Ito-Yokado Co., Ltd. ....... 18,000 770,380 JUSCO Co., Ltd. ............ 16,000 642,258 Lawson Inc. ................ 2,400 98,978 </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Matsumotokiyoshi Co., Ltd. ..................... 4,200 $ 127,022 Seven-Eleven Japan Co., Ltd. ..................... 23,000 750,401 Uny Co., Ltd. .............. 4,000 51,212 ------------ 2,616,432 ------------ Food Products - 0.3% Ajinomoto Co., Inc. ........ 42,000 505,778 Kikkoman Corporation........ 19,000 162,984 Nichirei Corporation........ 1,000 3,519 Nippon Meat Packers, Inc. ..................... 10,000 123,173 Nisshin Seifun Group Inc. ..................... 13,000 132,008 Nissin Food Products Co., Ltd. ..................... 8,100 209,339 Snow Brand Milk Products Co., Ltd. (a)............. 27,000 91,307 Yakult Honsha Co., Ltd. .... 3,000 43,440 Yamazaki Baking Co., Ltd. ..................... 7,000 68,771 ------------ 1,340,319 ------------ Gas Utilities - 0.2% Osaka Gas Co. .............. 148,000 410,979 Tokyo Gas Co. .............. 174,000 617,129 ------------ 1,028,108 ------------ Health Care Equipment & Supplies - 0.1% Olympus Optical Co., Ltd. ..................... 12,000 226,550 Terumo Corporation.......... 12,800 320,836 ------------ 547,386 ------------ Health Care Providers & Services - 0.0% Nichii Gakkan Company....... 200 9,110 Suzuken Co., Ltd. .......... 1,000 31,068 ------------ 40,178 ------------ Hotels, Restaurants & Leisure - 0.0% Oriental Land Co., Ltd. .... 1,900 124,850 Skylark Co., Ltd. .......... 2,000 40,141 ------------ 164,991 ------------ Household Durables - 1.4% Casio Computer Co., Ltd. ... 16,000 242,240 Daito Trust Construction Co., Ltd. ................ 3,700 142,419 Daiwa House Industry Co., Ltd. ..................... 35,000 406,085 Makita Corporation.......... 1,000 14,993 Matsushita Electric Industrial Company, Ltd. ..................... 136,000 1,930,660 Pioneer Corporation......... 5,800 149,897 Sanyo Electric Co., Ltd. ... 106,000 436,182 Sekisui Chemical Co., Ltd. ..................... 25,000 211,016 Sekisui House, Ltd. ........ 26,000 288,558 Sharp Corporation........... 51,000 814,673 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 81 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Sony Corporation............ 53,500 $ 2,015,167 ------------ 6,651,890 ------------ Household Products - 0.2% Kao Corporation............. 36,000 867,708 Uni-Charm Corporation....... 3,800 189,451 ------------ 1,057,159 ------------ IT Services - 0.2% CSK Corporation............. 5,100 247,720 NTT Data Corporation........ 73 235,495 Net One Systems Co., Ltd. ..................... 36 140,219 Nomura Research Institute, Ltd. ..................... 2,100 223,828 OBIC Co., Ltd. ............. 100 21,308 Toyo Information Systems Co., Ltd. ................ 400 17,120 ------------ 885,690 ------------ Insurance - 0.6% Millea Holdings, Inc. ...... 82 1,217,431 Mitsui Sumitomo Insurance Company, Limited.......... 83,000 779,682 T&D Holdings, Inc. ......... 10,500 524,447 The Yasuda Fire & Marine Insurance Co. Ltd. ....... 42,000 429,180 ------------ 2,950,740 ------------ Internet & Catalog Retail - 0.0% Rakuten, Inc. .............. 18 137,415 ------------ Internet Software & Services - 0.2% Softbank Corp. ............. 12,000 527,883 Yahoo Japan Corporation (a)....................... 49 476,012 ------------ 1,003,895 ------------ Leisure Equipment & Products - 0.3% BANDAI CO., LTD. ........... 2,100 57,160 Fuji Photo Film............. 27,000 846,263 SANKYO COMPANY, LIMITED..... 1,400 57,096 Sammy Corporation........... 700 33,423 Shimano Inc. ............... 3,500 83,398 Yamaha Corporation.......... 13,200 216,542 ------------ 1,293,882 ------------ Machinery - 0.7% Amada Co., Ltd. ............ 29,000 191,358 Ebara Corporation........... 31,000 151,427 Fanuc Ltd. ................. 7,400 441,497 Hino Motors, Ltd. .......... 5,000 36,200 Ishikawajima - Harima Heavy Industries Co., Ltd....... 100,000 164,964 Kawasaki Heavy Industries Ltd. ..................... 108,000 174,202 </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Komatsu Ltd. ............... 44,000 $ 266,544 Koyo Seiko Co. ............. 12,000 142,419 Kubota Corporation.......... 47,000 249,828 Kurita Water Industries Ltd. ..................... 3,000 41,103 Minebea Company Ltd. ....... 37,000 172,259 Mitsubishi Heavy Industries, Ltd. (a).................. 196,000 531,696 Mitsui Engineering & Shipbuilding Co., Ltd. ... 70,000 122,531 NGK Insulators, Ltd. ....... 13,000 104,963 NSK Limited................. 14,000 69,670 NTN Corporation............. 15,000 75,883 SMC Corporation............. 3,100 335,243 Sumitomo Heavy Industries, Ltd. (a).................. 54,000 169,253 THK Co., Ltd. .............. 3,700 70,022 Takuma Co., Ltd. ........... 14,000 100,335 ------------ 3,611,397 ------------ Marine - 0.1% Kawasaki Kisen Kaisha, Ltd. ..................... 21,000 106,044 Mitsui O.S.K. Lines, Ltd. ..................... 41,000 215,681 Nippon Yusen Kabushiki Kaisha.................... 71,000 327,297 ------------ 649,022 ------------ Media - 0.1% Asatsu-Dk Inc. ............. 600 15,562 Dentsu Inc. ................ 63 162,242 Fuji Television Network, Incorporated.............. 26 59,570 Toho Co., Ltd. ............. 5,000 72,676 Tokyo Broadcasting System, Inc. ..................... 4,000 70,384 ------------ 380,434 ------------ Metals & Mining - 0.5% Dowa Mining Co., Ltd. ...... 7,000 41,507 JFE Holdings, Inc. ......... 30,700 752,623 Kobe Steel, Ltd. ........... 108,000 161,334 Mitsubishi Materials Corporation............... 59,000 132,475 Mitsui Mining & Smelting Co., Ltd. ................ 49,000 228,575 Nippon Steel Corporation.... 321,000 673,684 Nisshin Steel Co., Ltd. .... 71,000 143,802 Sumitomo Metal Industries, Ltd. ..................... 177,000 209,256 Sumitomo Metal Mining Co. .. 40,000 261,009 ------------ 2,604,265 ------------ Multiline Retail - 0.2% The Daimaru, Inc. .......... 9,000 81,822 Hankyu Department Stores, Inc. ..................... 6,000 52,348 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 82 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Isetan Company Ltd. ........ 15,000 $ 215,965 Marui Co., Ltd. ............ 23,000 309,857 Mitsukoshi, Ltd. ........... 16,000 88,860 Ryohin Keikaku Company Limited................... 2,700 139,312 Takashimaya Co., Ltd. ...... 22,000 254,447 ------------ 1,142,611 ------------ Office Electronics - 0.8% Canon, Inc. ................ 48,000 2,529,441 Konica Corporation.......... 30,000 414,059 Ricoh Co., Ltd. ............ 44,000 935,527 ------------ 3,879,027 ------------ Oil & Gas - 0.2% Nippon Mining Holdings, Inc. ..................... 33,500 165,481 Nippon Mitsubishi Oil Corp. .................... 86,000 541,465 Showa Shell Sekiyu K.K. .... 6,000 53,943 Teikoku Oil Co., Ltd. ...... 27,000 145,250 TonenGeneral Sekiyu K.K. ... 10,000 85,689 ------------ 991,828 ------------ Paper & Forest Products - 0.1% Nippon Unipac Holding....... 49 256,418 Oji Paper Co., Ltd. ........ 59,000 378,500 ------------ 634,918 ------------ Personal Products - 0.1% ADERANS Company Limited..... 1,700 36,613 Shiseido Company, Limited... 27,000 340,237 ------------ 376,850 ------------ Pharmaceuticals - 1.2% Chugai Pharmaceutical Co., Ltd. ..................... 13,000 203,968 Daiichi Pharmaceutical Co., Ltd. ..................... 19,000 338,679 Eisai Company, Ltd. ........ 17,000 489,209 Fujisawa Pharmaceutical Co., Ltd. ..................... 20,000 473,812 Kaken Pharmaceutical Co., Ltd. ..................... 17,000 99,400 Kyowa Hakko Kogyo Co., Ltd. ..................... 11,000 79,338 Sankyo Company, Ltd. ....... 25,900 561,366 Shionogi & Co., Ltd. ....... 22,000 378,243 Taisho Pharmaceutical Company, Ltd. ............ 7,000 155,249 Takeda Pharmaceutical Company Limited........... 51,000 2,238,831 Yamanouchi Pharmaceutical Co., Ltd. ................ 20,000 672,685 ------------ 5,690,780 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Real Estate - 0.5% Japan Real Estate Investment Corporation............... 28 $ 195,537 Japan Retail Fund Investment Corporation............... 25 172,524 Leopalace21 Corporation..... 9,000 168,263 Mitsubishi Estate Company, Limited................... 60,000 744,536 Mitsui Fudosan Co., Ltd. ... 48,000 575,393 Office Building Fund of Japan Incorporated........ 22 158,677 Sumitomo Realty & Development Co., Ltd. .... 17,000 210,640 Tokyu Land Corporation...... 41,000 131,513 ------------ 2,357,083 ------------ Road & Rail - 0.7% Central Japan Railway Company................... 51 434,212 East Japan Railway Company.. 187 1,048,838 Keihin Electric Express Railway Co., Ltd. ........ 15,000 93,892 Keio Electric Railway Co., Ltd. ..................... 19,000 108,482 Kinki Nippon Railway Co., Ltd. ..................... 72,000 273,840 Nippon Express Co., Ltd. ... 62,000 363,653 Odakyu Electric Railway Co., Ltd. ..................... 25,000 135,637 Seino Transportation Co., Ltd. ..................... 16,000 165,257 Tobu Railway Co., Ltd. ..... 42,000 183,989 Tokyu Corporation........... 70,000 358,612 West Japan Railway Company.. 121 487,926 ------------ 3,654,338 ------------ Semiconductors & Semiconductor Equipment - 0.4% Advantest Corporation....... 3,100 207,680 NEC Electronics Corporation............... 1,200 73,684 Nikon Corporation........... 14,000 157,559 Rohm Company Ltd. .......... 7,000 837,832 Sanken Electric Co., Ltd. ..................... 11,000 143,555 Tokyo Electron Limited...... 9,100 510,397 ------------ 1,930,707 ------------ Software - 0.3% Capcom Company, Ltd. ....... 7,300 80,349 Fuji Soft ABC Incorporated.............. 3,400 133,675 Konami Co., Ltd. ........... 3,600 91,390 Namco Ltd. ................. 4,500 126,197 Nintendo Company Ltd. ...... 6,200 718,783 Oracle Corporation Japan.... 900 49,901 Sega Enterprises Ltd. (a)... 10,900 139,852 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 83 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Trend Micro Incorporated.... 4,000 $ 177,427 ------------ 1,517,574 ------------ Specialty Retail - 0.1% Aoyamma Trading Co., Ltd. .. 2,800 75,828 Autobacs Seven Co., Ltd. ... 1,300 42,533 Fast Retailing Co., Ltd. ... 2,700 218,494 Shimachu Co., Ltd. ......... 600 16,304 Shimamura Co., Ltd. ........ 600 52,019 USS Co., Ltd. .............. 700 60,239 Yamada Denki Co. Ltd. ...... 6,500 242,451 ------------ 707,868 ------------ Textiles, Apparel & Luxury Goods - 0.1% Nisshinbo Industries Inc. ..................... 1,000 7,524 Onward Kashiyama Co., Ltd. ..................... 13,000 208,496 Toyobo Co., Ltd. ........... 2,000 5,022 Wacoal Corp. ............... 5,000 53,155 World Co., Ltd. ............ 1,600 48,683 ------------ 322,880 ------------ Tobacco - 0.1% Japan Tobacco, Inc. ........ 42 326,408 ------------ Trading Companies & Distributors - 0.4% ITOCHU Corporation.......... 76,000 341,291 Marubeni Corporation........ 71,000 174,385 Mitsubishi Corporation...... 56,000 544,013 Mitsui & Co., Ltd. ......... 82,000 613,976 Nissho Iwai - Nichimen Holdings Corporation...... 22,771 115,822 Sumitomo Corporation........ 39,000 283,077 ------------ 2,072,564 ------------ Transportation Infrastructure - 0.0% Kamigumi Co., Ltd. ......... 2,000 14,535 Mitsubishi Logistics Corp. .................... 8,000 75,810 ------------ 90,345 ------------ Wireless Telecommunication Services - 0.4% NTT DoCoMo, Inc. ........... 1,089 1,946,158 ------------ TOTAL COMMON STOCKS IN JAPAN..................... 108,739,239 ------------ LUXEMBOURG Metals & Mining - 0.1% Arcelor..................... 22,024 369,778 ------------ TOTAL COMMON STOCKS IN LUXEMBOURG................ 369,778 ------------ NETHERLANDS Aerospace & Defense - 0.1% European Aeronautic Defence and Space Company......... 17,485 486,729 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Air Freight & Logistics - 0.1% TNT Post Group NV........... 23,125 $ 528,376 ------------ Beverages - 0.1% Heineken NV................. 16,034 526,905 ------------ Biotechnology - 0.0% QIAGEN NV (a)............... 4,938 58,216 ------------ Chemicals - 0.2% Akzo Nobel NV............... 17,506 643,859 DSM NV...................... 6,433 315,651 ------------ 959,510 ------------ Commercial Banks - 0.4% ABN AMRO Holding NV......... 91,742 2,006,890 ------------ Commercial Services & Supplies - 0.0% Randstad Holding NV......... 737 20,202 Vedior NV 'A'............... 7,896 115,088 ------------ 135,290 ------------ Diversified Financial Services - 0.5% Euronext NV................. 6,783 188,983 ING Groep NV................ 99,467 2,347,721 ------------ 2,536,704 ------------ Diversified Telecommunication Services - 0.2% KPN NV...................... 131,633 1,002,547 ------------ Energy Equipment & Services - 0.0% IHC Caland NV............... 2,943 136,886 ------------ Food & Staples Retailing - 0.1% Koninklijke Ahold NV........ 89,004 698,449 ------------ Food Products - 0.5% Koninklijke Numico NV (a)... 8,682 278,968 Unilever NV 'A'............. 33,602 2,293,473 ------------ 2,572,441 ------------ Household Durables - 0.4% Koninklijke (Royal) Philips Electronics NV............ 77,649 2,090,658 ------------ IT Services - 0.0% Getronics NV (a)............ 40,212 110,079 ------------ Insurance - 0.2% Aegon NV.................... 82,314 992,460 ------------ Media - 0.3% Reed Elsevier NV............ 48,887 686,380 VNU NV...................... 13,773 399,988 Wolters Kluwer NV 'A'....... 21,088 382,798 ------------ 1,469,166 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 84 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Office Electronics - 0.0% Oce NV...................... 194 $ 3,139 ------------ Oil & Gas - 1.3% Royal Dutch Petroleum Company................... 121,275 6,223,627 ------------ Real Estate - 0.0% Corio NV.................... 1,655 70,474 Rodamco Europe NV........... 1,648 99,550 Wereldhave NV............... 169 13,899 ------------ 183,923 ------------ Semiconductors & Semiconductor Equipment - 0.1% ASM Lithography Holding NV.. 28,565 483,423 ------------ Trading Companies & Distributors - 0.1% Hagemeyer NV (a)............ 136,260 288,458 ------------ TOTAL COMMON STOCKS IN THE NETHERLANDS............... 23,493,876 ------------ NEW ZEALAND Construction Materials - 0.0% Fletcher Building Limited... 20,926 60,465 ------------ Diversified Telecommunication Services - 0.1% Telecom Corporation of New Zealand Limited........... 106,181 396,490 ------------ Electric Utilities - 0.0% Contact Energy Limited...... 31,055 115,568 ------------ Health Care Equipment & Supplies - 0.0% Fisher & Paykel Industries Limited................... 10,640 89,192 ------------ Household Durables - 0.0% Fisher & Paykel Appliances Holdings Limited.......... 48,724 141,096 ------------ Insurance - 0.0% Tower Limited (a)........... 65,328 70,942 ------------ Multiline Retail - 0.0% The Warehouse Group Limited................... 16,257 43,877 ------------ Paper & Forest Products - 0.0% Carter Holt Harvey Limited................... 7,526 9,893 Fletcher Challenge Forests................... 253 307 ------------ 10,200 ------------ Transportation Infrastructure - 0.0% Auckland International Airport Limited........... 16,200 69,340 ------------ TOTAL COMMON STOCKS IN NEW ZEALAND................... 997,170 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- NORWAY Beverages - 0.1% Orkla ASA 'A'............... 10,156 $ 254,211 ------------ Chemicals - 0.0% Yara International ASA (a)....................... 11,455 92,546 ------------ Commercial Banks - 0.1% DNB Holding ASA............. 53,372 364,206 ------------ Communications Equipment - 0.0% Tandberg ASA................ 13,682 144,587 ------------ Diversified Telecommunication Services - 0.1% Telenor A/S................. 14,530 101,038 Telenor A/S (ADR) (b)....... 8,900 185,120 ------------ 286,158 ------------ Energy Equipment & Services - 0.0% Aker Kvaerner ASA (a)....... 4,837 75,889 Smedvig ASA 'A'............. 3,691 40,603 ------------ 116,492 ------------ Insurance - 0.0% Storebrand ASA.............. 18,604 127,221 ------------ Machinery - 0.0% Tomra Systems ASA........... 2,598 12,256 ------------ Media - 0.0% Schibsted ASA............... 3,568 63,958 ------------ Oil & Gas - 0.2% Norsk Hydro ASA............. 8,962 582,469 Statoil ASA................. 23,291 295,695 ------------ 878,164 ------------ Paper & Forest Products - 0.0% Norske Skogindustrier ASA... 3,089 55,037 ------------ TOTAL COMMON STOCKS IN NORWAY.................... 2,394,836 ------------ PORTUGAL Commercial Banks - 0.1% BPI-SGPS, SA (Registered Shares)................... 41,741 152,353 Banco Comercial Portugues, SA (BCP) (Registered Shares)................... 106,725 249,306 Banco Espirito Santo, SA (Registered Shares)....... 8,484 140,690 ------------ 542,349 ------------ Construction Materials - 0.0% CIMPOR - Cimentos de Portugal, SGPS, SA........ 15,305 74,483 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 85 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Diversified Telecommunication Services - 0.1% Portugal Telecom SA (Registered Shares)....... 55,420 $ 598,075 ------------ Electric Utilities - 0.1% Eletricidade de Portugal, SA (EDP)..................... 96,727 270,671 ------------ Food & Staples Retailing - 0.0% Jeronimo Martins Demat...... 978 10,947 Jeronimo Martins, SGPS, SA (a)....................... 3,120 34,923 ------------ 45,870 ------------ Industrial Conglomerates - 0.0% Sonae, S.G.P.S., SA......... 124,863 136,723 ------------ Media - 0.0% PT Multimedia - Servicos de Telecomunicacoes e Multimedia, SGPS, SA...... 2,349 51,442 ------------ Transportation Infrastructure - 0.0% Brisa-Auto Estradas de Portugal, SA.............. 11,704 84,441 ------------ TOTAL COMMON STOCKS IN PORTUGAL.................. 1,804,054 ------------ SINGAPORE Aerospace & Defense - 0.0% Singapore Technologies Engineering Ltd. ......... 56,213 67,882 ------------ Air Freight & Logistics - 0.0% Singapore Post Limited...... 202,514 103,464 ------------ Airlines - 0.0% Singapore Airlines Limited................... 27,582 179,348 ------------ Beverages - 0.0% Fraser & Neave Limited...... 3,836 31,179 ------------ Commercial Banks - 0.3% DBS Group Holdings Limited.. 66,751 558,051 Oversea - Chinese Banking Corporation Ltd. ......... 58,598 411,644 United Overseas Bank Ltd. ..................... 64,572 502,345 ------------ 1,472,040 ------------ Computers & Peripherals - 0.0% Creative Technology Limited................... 5,907 62,072 ------------ Distributors - 0.0% Cycle & Carriage Ltd. ...... 3,331 12,377 ------------ Diversified Financial Services - 0.0% Singapore Exchange Limited.. 147,000 143,377 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Diversified Telecommunication Services - 0.1% Singapore Telecommunications, Ltd. ..................... 372,718 $ 484,710 ------------ Electronic Equipment & Instruments - 0.0% Venture Manufacturing (Singapore) Ltd. ......... 8,000 83,602 ------------ Health Care Providers & Services - 0.0% Parkway Holdings Limited.... 168,000 109,240 ------------ Hotels, Restaurants & Leisure - 0.0% Overseas Union Enterprise Ltd. ..................... 2,631 10,769 ------------ Industrial Conglomerates - 0.0% Haw Par Corporation Ltd. ... 1,766 5,229 Keppel Corporation Ltd. .... 33,914 138,810 SembCorp Industries Limited................... 24,154 18,791 ------------ 162,830 ------------ Machinery - 0.0% SembCorp Marine Limited..... 150,000 82,731 ------------ Marine - 0.0% Neptune Orient Lines Limited................... 31,873 43,671 ------------ Media - 0.1% Singapore Press Holdings Limited................... 118,116 285,270 ------------ Real Estate - 0.0% Capitaland Limited.......... 33,833 26,910 City Developments Limited... 59,535 186,646 ------------ 213,556 ------------ Road & Rail - 0.0% ComfortDelGro Corporation Limited................... 104,816 74,849 ------------ Semiconductors & Semiconductor Equipment - 0.0% Chartered Semiconductor Manufacturing Limited (a)....................... 127,000 103,225 Chartered Semiconductor Manufacturing Limited (ADR) (a)(b).............. 1,120 9,117 ST Assembly Test Services Limited (a)............... 74,000 61,006 ------------ 173,348 ------------ Transportation Infrastructure - 0.0% SembCorp Logistics Limited.. 84,000 89,733 ------------ TOTAL COMMON STOCKS IN SINGAPORE................. 3,886,048 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 86 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- SPAIN Airlines - 0.0% Iberia Lineas Aereas de Espana SA................. 53,216 $ 152,799 ------------ Biotechnology - 0.0% Zeltia, SA.................. 6,228 42,660 ------------ Commercial Banks - 1.0% Banco Bilbao Vizcaya, SA.... 177,943 2,377,108 Banco Popular Espanol SA.... 7,717 435,832 Banco Santander Central Hispano SA................ 219,956 2,282,709 ------------ 5,095,649 ------------ Construction & Engineering - 0.1% ACS, Actividades de Construccion y Servicios, SA........................ 9,527 160,536 Acciona SA.................. 662 41,157 Fomento de Construcciones y Contratas SA.............. 2,428 89,980 Grupo Ferrovial, SA......... 5,354 222,907 ------------ 514,580 ------------ Diversified Telecommunication Services - 0.8% Telefonica SA............... 247,538 3,659,181 Telefonica SA (ADR) (b)..... 1,081 48,245 ------------ 3,707,426 ------------ Electric Utilities - 0.4% Endesa SA................... 46,107 888,562 Iberdrola SA................ 38,065 803,509 Union Electrica Fenosa, SA........................ 9,594 204,620 ------------ 1,896,691 ------------ Energy Equipment & Services - 0.0% Gamesa Corporacion Technologica, SA.......... 738 10,873 ------------ Gas Utilities - 0.1% Gas Natural SDG, SA 'E'..... 10,404 249,237 ------------ Hotels, Restaurants & Leisure - 0.0% NH Hoteles, SA.............. 12,224 134,446 ------------ IT Services - 0.1% Amadeus Global Travel Distribution SA 'A'....... 16,892 110,773 Indra Sistemas, SA.......... 13,586 173,228 ------------ 284,001 ------------ Insurance - 0.0% Corporacion Mapfre SA....... 12,824 157,115 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Media - 0.0% Antena 3 Television, SA (a)....................... 2,769 $ 146,547 Sogecable, SA (a)........... 628 25,328 ------------ 171,875 ------------ Metals & Mining - 0.0% Acerinox SA................. 2,745 156,265 ------------ Oil & Gas - 0.2% Repsol - YPF, SA............ 43,472 952,024 ------------ Real Estate - 0.0% Metrovacesa, SA............. 1,680 64,303 Vallehermoso SA............. 4,963 67,930 ------------ 132,233 ------------ Specialty Retail - 0.1% Industria de Disenso Textil, SA........................ 11,949 274,182 ------------ Tobacco - 0.1% Altadis, SA................. 12,776 394,816 ------------ Transportation Infrastructure - 0.1% Autopistas, Concesionaria Espanola SA............... 16,075 280,066 ------------ Water Utilities - 0.0% Sociedad General de Aguas de Barcelona, SA............. 3,530 60,127 ------------ TOTAL COMMON STOCKS IN SPAIN..................... 14,667,065 ------------ SWEDEN Airlines - 0.0% SAS AB (Copenhagen) (a)..... 1,680 13,062 SAS AB (Oslo) (a)........... 2,392 18,635 ------------ 31,697 ------------ Auto Components - 0.0% Trelleborg AB (Class B)..... 10,126 174,750 ------------ Building Products - 0.1% Assa Abloy AB 'B'........... 24,256 309,924 ------------ Commercial Banks - 0.4% Nordbanken Holding AB....... 116,881 841,741 Skandinaviska Enskilda Banken (SEB) 'A'.......... 33,580 485,895 Svenska Handelsbanken AB.... 37,058 742,838 ------------ 2,070,474 ------------ Commercial Services & Supplies - 0.1% Securitas AB 'B'............ 24,147 301,319 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 87 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Communications Equipment - 0.5% Telefonaktiebolaget LM Ericsson AB 'B' (a)....... 865,988 $ 2,552,112 Telefonaktiebolaget LM Ericsson (Sponsored ADR) (a)(b).................... 1,407 42,097 ------------ 2,594,209 ------------ Construction & Engineering - 0.1% Skanska AB 'B'.............. 28,123 247,333 ------------ Diversified Financial Services - 0.0% Ainax AB (a)................ 1 40 OM Gruppen AB (a)........... 1,010 12,101 ------------ 12,141 ------------ Diversified Telecommunication Services - 0.1% Tele2 AB 'B'................ 5,553 243,263 Telia AB.................... 65,817 278,717 TeliaSonera AB.............. 36,201 151,952 ------------ 673,932 ------------ Health Care Equipment & Supplies - 0.0% Getinge AB 'B'.............. 2,151 25,414 ------------ Health Care Providers & Services - 0.0% Gambro AB 'A'............... 4,167 40,381 Gambro AB 'B'............... 3,981 38,315 ------------ 78,696 ------------ Household Durables - 0.1% Electrolux AB 'B'........... 21,116 405,055 ------------ IT Services - 0.0% WM - Data AB 'B'............ 4,275 9,591 ------------ Insurance - 0.0% Skandia Forsakrings AB...... 54,314 224,958 ------------ Machinery - 0.4% Alfa Laval AB............... 9,027 143,201 Atlas Copco AB 'A'.......... 8,777 325,659 Atlas Copco AB 'B'.......... 2,672 91,337 SKF AB 'B'.................. 7,178 263,471 Sandvik AB.................. 15,642 533,655 Scania AB 'B'............... 3,295 111,977 Volvo AB 'A'................ 3,880 130,055 Volvo AB 'B'................ 10,827 376,569 ------------ 1,975,924 ------------ Media - 0.0% Eniro AB.................... 5,496 41,952 Modern Times Group MTG AB 'B' (a)................... 2,810 54,462 ------------ 96,414 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Paper & Forest Products - 0.1% Billerud.................... 277 $ 4,523 Holmen AB 'B'............... 945 27,348 Svenska Cellulosa AB (SCA) 'B'....................... 13,904 527,887 ------------ 559,758 ------------ Specialty Retail - 0.2% Hennes & Mauritz AB 'B'..... 31,222 806,149 ------------ Tobacco - 0.1% Swedish Match AB............ 28,334 289,623 ------------ TOTAL COMMON STOCKS IN SWEDEN...................... 10,887,361 ------------ SWITZERLAND Biotechnology - 0.1% Serono SA 'B'............... 415 261,446 ------------ Building Products - 0.0% Geberit AG (Registered Shares)................... 90 60,005 ------------ Capital Markets - 1.5% Credit Suisse Group......... 67,979 2,415,415 UBS AG (Registered Shares).. 68,556 4,830,779 ------------ 7,246,194 ------------ Chemicals - 0.3% Ciba Specialty Chemicals AG (Registered Shares)....... 5,444 392,086 Clariant AG (Registered Shares)................... 10,389 151,803 Givaudan (Registered Shares)................... 597 345,596 Lonza Group AG (Registered Shares)................... 4,060 205,691 Syngenta AG................. 7,290 611,187 ------------ 1,706,363 ------------ Commercial Services & Supplies - 0.1% Adecco SA (Registered Shares)................... 8,387 417,877 SGS Societe Generale de Surveillance Holding SA 'R'....................... 401 219,007 ------------ 636,884 ------------ Computers & Peripherals - 0.0% Logitech International SA (Registered Shares) (a)... 3,927 178,728 ------------ Construction Materials - 0.1% Holderbank Finan Glaris Ltd. (Registered Shares)....... 13,021 708,025 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 88 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Diversified Telecommunication Services - 0.1% Swisscom AG (Registered Shares)................... 1,906 $ 630,057 ------------ Electrical Equipment - 0.1% ABB Ltd. ................... 123,461 675,270 ------------ Electronic Equipment & Instruments - 0.0% Kudelski SA (Bearer) (a).... 4,229 121,562 ------------ Food Products - 1.3% Nestle SA (Registered Shares)................... 24,727 6,594,393 ------------ Health Care Equipment & Supplies - 0.1% Nobel Biocare Holding AG.... 850 133,025 Phonak Holding AG (Registered Shares)....... 4,467 138,925 Straumann AG................ 207 41,569 Synthes, Inc. .............. 2,250 256,458 ------------ 569,977 ------------ Hotels, Restaurants & Leisure - 0.0% Kuoni Reisen Holding AG..... 35 15,063 ------------ Insurance - 0.6% Swiss Re (Registered Shares)................... 19,642 1,275,852 Zurich Financial Services AG........................ 9,019 1,424,072 ------------ 2,699,924 ------------ Machinery - 0.0% Schindler Holding AG........ 40 11,482 Sulzer AG (Registered Shares)................... 456 129,620 ------------ 141,102 ------------ Pharmaceuticals - 2.2% Novartis AG (Registered Shares)................... 146,597 6,467,170 Roche Holding AG............ 42,773 4,234,950 ------------ 10,702,120 ------------ Semiconductors & Semiconductor Equipment - 0.2% Micronas Semiconductor Holding AG (a)............ 1,719 78,168 STMicroelectronics NV....... 35,483 778,362 Unaxis Holding AG 'R'....... 444 49,987 ------------ 906,517 ------------ Textiles, Apparel & Luxury Goods - 0.3% Compagnie Financiere Richemont AG 'A'.......... 35,708 932,331 Swatch Group AG 'B'......... 2,715 353,358 </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Swatch Group AG (Registered Shares)................... 2,276 $ 60,698 ------------ 1,346,387 ------------ TOTAL COMMON STOCKS IN SWITZERLAND............... 35,200,017 ------------ UNITED KINGDOM Aerospace & Defense - 0.3% BAE Systems PLC............. 195,176 776,039 Cobham PLC.................. 3,528 89,380 Rolls-Royce Group PLC....... 89,102 406,794 ------------ 1,272,213 ------------ Air Freight & Logistics - 0.1% Ocean Group PLC............. 18,598 258,690 ------------ Airlines - 0.0% British Airways PLC (a)..... 30,639 153,078 ------------ Auto Components - 0.0% GKN PLC..................... 45,556 206,953 ------------ Automobiles - 0.0% TI Automotive Limited 'A' (a)....................... 1,025 0 ------------ Beverages - 0.7% Diageo PLC.................. 181,796 2,451,223 SABMiller PLC............... 46,883 606,634 Scottish & Newcastle PLC.... 53,098 418,153 ------------ 3,476,010 ------------ Biotechnology - 0.1% Celltech Group PLC (a)...... 24,694 245,856 ------------ Building Products - 0.0% Pilkington PLC.............. 53,235 94,128 ------------ Capital Markets - 0.3% 3i Group PLC................ 42,212 468,878 Amvescap PLC................ 55,253 376,757 Close Brothers Group PLC.... 2,797 39,412 Icap PLC.................... 12,596 62,133 Man Group PLC............... 16,492 427,090 Schroders PLC............... 4,105 45,634 ------------ 1,419,904 ------------ Chemicals - 0.2% BOC Group PLC............... 29,529 494,274 Imperial Chemical Industries PLC....................... 70,711 295,580 ------------ 789,854 ------------ Commercial Banks - 4.8% Barclays PLC................ 387,703 3,302,809 HBOS PLC.................... 228,782 2,831,666 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 89 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- HSBC Holdings PLC........... 652,783 $ 9,707,338 Lloyds TSB Group PLC........ 322,025 2,521,386 Lloyds TSB Group PLC (ADR) (b)....................... 2,530 80,656 Royal Bank of Scotland Group PLC....................... 175,796 5,062,639 ------------ 23,506,494 ------------ Commercial Services & Supplies - 0.3% Brambles Industries PLC..... 31,990 123,570 Bunzl PLC................... 36,750 306,406 Capita Group PLC............ 53,943 311,575 Hays PLC.................... 140,876 313,600 Rentokil Initial PLC........ 108,040 283,120 Serco Group PLC............. 2,405 9,290 ------------ 1,347,561 ------------ Communications Equipment - 0.0% Marconi Corporation PLC (a)....................... 5,298 65,670 ------------ Construction & Engineering - 0.0% AMEC PLC.................... 18,532 91,749 BICC PLC.................... 30,308 145,928 ------------ 237,677 ------------ Construction Materials - 0.2% BPB PLC..................... 24,591 182,285 Hanson PLC.................. 55,328 380,529 RMC Group PLC............... 22,796 250,937 ------------ 813,751 ------------ Consumer Finance - 0.1% Cattles PLC................. 7,713 44,340 Provident Financial PLC..... 23,234 253,020 ------------ 297,360 ------------ Containers & Packaging - 0.1% Rexam PLC................... 43,095 350,320 ------------ Distributors - 0.0% Inchcape PLC................ 1,845 58,654 ------------ Diversified Financial Services - 0.0% London Stock Exchange PLC... 6,883 45,685 ------------ Diversified Telecommunication Services - 0.5% BT Group PLC................ 502,200 1,807,818 BT Group PLC (ADR) (b)...... 900 32,940 Cable & Wireless PLC........ 159,760 375,918 ------------ 2,216,676 ------------ Electric Utilities - 0.3% Scottish and Southern Energy PLC....................... 48,895 604,293 ScottishPower PLC........... 114,922 831,039 </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- ScottishPower PLC (ADR) (b)....................... 993 $ 29,303 ------------ 1,464,635 ------------ Electrical Equipment - 0.0% Kidde PLC................... 21,146 45,826 ------------ Electronic Equipment & Instruments - 0.0% Electrocomponents PLC....... 18,858 122,090 Premier Farnell PLC......... 4,902 21,936 ------------ 144,026 ------------ Food & Staples Retailing - 0.7% Boots Group PLC............. 43,442 542,021 J Sainsbury PLC............. 89,263 460,949 Tesco PLC................... 473,217 2,284,901 ------------ 3,287,871 ------------ Food Products - 0.6% Cadbury Schweppes PLC....... 122,490 1,056,810 Tate & Lyle PLC............. 16,627 99,505 Unilever PLC................ 172,544 1,692,835 ------------ 2,849,150 ------------ Gas Utilities - 0.2% Centrica PLC................ 253,191 1,030,818 ------------ Health Care Equipment & Supplies - 0.1% Seton Scholl Healthcare Group PLC................. 3,902 19,743 Smith & Nephew PLC.......... 63,449 682,909 ------------ 702,652 ------------ Health Care Providers & Services - 0.0% Alliance Unichem PLC........ 6,950 82,240 ------------ Hotels, Restaurants & Leisure - 0.7% Carnival PLC................ 9,892 480,410 Compass Group PLC........... 129,922 792,839 Enterprise Inns PLC......... 13,810 144,005 Hilton Group PLC............ 93,735 469,168 InterContinental Hotels Group PLC................. 52,233 551,770 Mitchells & Butlers PLC..... 59,088 298,430 Punch Taverns PLC........... 6,594 60,867 Rank Group PLC.............. 42,815 232,935 Whitbread PLC............... 14,274 212,911 William Hill PLC............ 25,002 251,190 ------------ 3,494,525 ------------ Household Durables - 0.2% Barratt Developments PLC.... 23,839 254,853 Bellway PLC................. 788 10,861 The Berkeley Group PLC...... 1,852 41,563 George Wimpey PLC........... 37,828 253,138 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 90 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Persimmon PLC............... 23,491 $ 269,238 Taylor Woodrow PLC.......... 55,070 256,664 ------------ 1,086,317 ------------ Household Products - 0.2% Reckitt Benckiser PLC....... 36,260 1,026,475 ------------ IT Services - 0.0% Logica PLC.................. 68,362 226,873 ------------ Industrial Conglomerates - 0.2% Smiths Group PLC............ 38,047 515,072 Tomkins PLC................. 49,452 246,175 ------------ 761,247 ------------ Insurance - 0.7% AVIVA PLC................... 134,028 1,383,010 Friends Provident PLC....... 77,344 205,836 Legal & General Group PLC... 375,778 647,400 Prudential Corporation PLC....................... 119,156 1,025,344 Royal & Sun Alliance Insurance Group PLC....... 223,011 333,655 ------------ 3,595,245 ------------ Internet & Catalog Retail - 0.2% The Great Universal Stores PLC....................... 60,177 922,702 ------------ Machinery - 0.0% FKI PLC..................... 9,108 20,275 IMI PLC..................... 11,268 75,914 Invensys PLC (a)............ 206,804 67,507 ------------ 163,696 ------------ Media - 1.1% Aegis Group PLC............. 75,089 122,216 British Sky Broadcasting Group PLC ("BSkyB")....... 72,951 822,885 Daily Mail and General Trust 'A'....................... 13,386 176,847 EMAP PLC.................... 15,213 204,157 EMI Group PLC............... 69,973 309,309 ITV PLC..................... 274,857 575,713 Pearson PLC................. 47,615 578,544 Reed Elsevier PLC........... 74,753 726,626 Reuters Group PLC........... 86,053 578,192 Trinity Mirror PLC.......... 11,407 134,463 United Business Media PLC... 20,783 191,088 WPP Group PLC............... 62,580 635,537 Yell Group PLC.............. 54,953 343,568 ------------ 5,399,145 ------------ Metals & Mining - 0.7% Billiton PLC................ 146,495 1,271,224 Corus Group PLC (a)......... 370,300 266,937 </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Johnson Matthey PLC......... 10,644 $ 177,876 Rio Tinto PLC (Registered Shares)................... 63,325 1,522,777 ------------ 3,238,814 ------------ Multiline Retail - 0.3% Marks & Spence Group PLC.... 134,002 881,528 Next PLC.................... 15,830 408,511 ------------ 1,290,039 ------------ Multi-Utilities & Unregulated Power - 0.4% International Power PLC (a)....................... 101,349 258,234 National Grid Group PLC..... 182,744 1,410,133 United Utilities PLC........ 33,022 310,506 United Utilities PLC 'A'.... 8,249 49,778 ------------ 2,028,651 ------------ Oil & Gas - 3.5% BG Group PLC................ 209,568 1,291,225 BP Amoco PLC................ 1,285,043 11,349,170 BP Amoco PLC (ADR) (b)...... 3,849 206,191 Shell Transport & Trading Company PLC............... 573,688 4,208,349 ------------ 17,054,935 ------------ Pharmaceuticals - 2.4% AstraZeneca Group PLC....... 99,841 4,479,465 GlaxoSmithKline PLC......... 352,059 7,125,201 GlaxoSmithKline PLC (ADR) (b)....................... 800 33,168 ------------ 11,637,834 ------------ Real Estate - 0.3% The British Land Company PLC....................... 35,907 451,589 Hammerson PLC............... 11,899 150,297 Land Securities Group PLC... 31,624 664,688 Liberty International PLC... 9,912 136,793 Slough Estates PLC.......... 18,432 150,001 ------------ 1,553,368 ------------ Road & Rail - 0.1% FirstGroup PLC.............. 36,196 184,124 National Express Group PLC.. 2,119 25,901 Stagecoach Holdings PLC..... 94,282 153,027 ------------ 363,052 ------------ Semiconductors & Semiconductor Equipment - 0.0% ARM Holdings PLC............ 105,247 229,039 ------------ Software - 0.1% Misys PLC................... 27,041 97,097 The Sage Group PLC.......... 100,085 338,505 ------------ 435,602 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 91 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- Specialty Retail - 0.3% Dixons Group PLC............ 145,187 $ 435,098 HMV Group PLC............... 3,700 16,238 Kesa Electricals PLC........ 24,040 126,103 Kingfisher PLC.............. 138,329 718,086 MFI Furniture Group PLC..... 38,407 105,347 Signet Group PLC............ 79,661 165,413 ------------ 1,566,285 ------------ Tobacco - 0.5% British American Tobacco PLC....................... 90,827 1,407,487 Imperial Tobacco Group PLC.. 43,287 932,591 ------------ 2,340,078 ------------ Trading Companies & Distributors - 0.1% Wolseley PLC................ 40,171 622,868 ------------ Transportation Infrastructure - 0.2% Associated British Ports Holdings PLC.............. 11,911 87,320 BAA PLC..................... 63,507 637,466 BBA Group PLC............... 12,221 60,394 The Peninsular and Oriental Steam Navigation Company.. 35,201 140,441 ------------ 925,621 ------------ Water Utilities - 0.1% Kelda Group PLC............. 17,147 155,558 Severn Trent PLC............ 20,463 295,393 ------------ 450,951 ------------ Wireless Telecommunication Services - 1.8% Vodafone Group PLC.......... 3,892,276 8,523,309 Vodafone Group PLC (ADR) (b)....................... 12,490 276,029 ------------ 8,799,338 ------------ TOTAL COMMON STOCKS IN THE UNITED KINGDOM............ 115,676,452 ------------ UNITED STATES Communications Equipment - 0.0% Datacraft Asia Limited...... 70,000 70,700 ------------ TOTAL COMMON STOCKS IN THE UNITED STATES............. 70,700 ------------ TOTAL INVESTMENTS IN COMMON STOCKS (COST - $394,461,417) - 93.8%.. 459,992,348 ------------ </Table> <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- MUTUAL FUNDS Diversified Financial Services - 0.1% iShares MSCI EAFE Index Fund...................... 2,000 $ 286,080 ------------ TOTAL INVESTMENTS IN MUTUAL FUNDS (COST - $232,840) - 0.1%.. 286,080 ------------ PREFERRED STOCKS AUSTRALIA Media - 0.3% The News Corporation Limited................... 165,008 1,350,599 The News Corporation Limited (Convertible) (ADR) (b)... 760 24,989 ------------ TOTAL PREFERRED STOCKS IN AUSTRALIA................. 1,375,588 ------------ GERMANY Automobiles - 0.1% Porsche AG.................. 610 408,223 Volkswagen AG............... 5,476 158,298 ------------ 566,521 ------------ Health Care Providers & Services - 0.0% Fresenius Medical Care AG... 542 29,008 ------------ Household Products - 0.1% Henkel KGaA................. 3,170 270,669 ------------ Media - 0.0% ProSieben Sat. 1 Media AG... 5,512 99,587 ------------ Multi-Utilities & Unregulated Power - 0.0% RWE AG...................... 2,033 81,896 ------------ TOTAL PREFERRED STOCKS IN GERMANY................... 1,047,681 ------------ NEW ZEALAND Paper & Forest Products - 0.0% Tenon Limited............... 2,043 2,478 ------------ TOTAL PREFERRED STOCKS IN NEW ZEALAND............... 2,478 ------------ TOTAL INVESTMENTS IN PREFERRED STOCKS (COST - $2,011,778) - 0.5%.. 2,425,747 ------------ WARRANTS (C) FRANCE Food & Staples Retailing - 0.0% Casino Guichard - Perrach SA........................ 133 78 ------------ TOTAL WARRANTS IN FRANCE.... 78 ------------ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 92 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> <Caption> SHARES VALUE HELD (IN U.S. DOLLARS) --------- ----------------- SINGAPORE Real Estate - 0.0% City Developments Limited... 5,953 $ 10,161 ------------ TOTAL WARRANTS IN SINGAPORE................. 10,161 ------------ TOTAL INVESTMENTS IN WARRANTS (COST - $10,862) - 0.0%... 10,239 ------------ </Table> <Table> <Caption> BENEFICIAL INTEREST ------------ SHORT-TERM SECURITIES Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (d).......... US$8,577,133 $ 8,577,133 ------------ TOTAL INVESTMENTS IN SHORT-TERM SECURITIES (COST - $8,577,133) - 1.7%.......... 8,577,133 ------------ TOTAL INVESTMENTS (COST - $405,294,030) - 96.1%....... 471,291,547 OTHER ASSETS LESS LIABILITIES - 3.9%.................. 19,349,904 ------------ NET ASSETS - 100%..................... $490,641,451 ============ </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...... $(1,343,624) $52,133 </Table> * For Series compliance purposes, "Industry" means any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Series' management. This definition may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. Forward foreign exchange contracts as of June 30, 2004 were as follows: <Table> <Caption> FOREIGN CURRENCY SETTLEMENT UNREALIZED PURCHASED DATE DEPRECIATION ---------------- -------------------- ------------ A$ 585,000 July 2004 $ (372) CHF 1,245,000 July 2004 (6,488) E 2,600,000 July 2004 (741) L 680,000 July 2004 (5,754) SEK 875,000 July 2004 (147) Y 560,000,000 July 2004 (90,141) --------- TOTAL UNREALIZED DEPRECIATION ON FORWARD FOREIGN EXCHANGE CONTRACTS - NET (US$ COMMITMENT - $11,150,344) $(103,643) ========= </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 93 MASTER INTERNATIONAL INDEX SERIES SCHEDULE OF INVESTMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- Financial futures contracts purchased as of June 30, 2004: <Table> <Caption> UNREALIZED NUMBER OF APPRECIATION/ CONTRACTS ISSUE EXCHANGE EXPIRATION DATE FACE VALUE DEPRECIATION --------- ----- -------- --------------- ---------- ------------- 3 CAC40 10 EURO MATIF July 2004 $ 136,796 $ (233) 2 DAX INDEX 25 EURO DTB September 2004 $ 245,154 3,468 14 HANG SENG Hong Kong July 2004 $1,087,456 15,521 19 IBEX 35 PLUS MEFF July 2004 $1,852,303 126 3 MIB 30 MSE September 2004 $ 507,775 9,222 203 OMX Stockholm July 2004 $1,869,825 18,238 76 TOPIX Tokyo September 2004 $8,155,553 136,433 176 EURO DJ EURO STOXX 50 September 2004 $5,978,847 53,207 22 SPI 200 Sydney September 2004 $1,336,486 18,262 76 FTSE LIFFE September 2004 $6,189,122 (26,923) -------- TOTAL UNREALIZED APPRECIATION - NET $227,321 ======== </Table> Financial futures contracts sold as of June 30, 2004: <Table> <Caption> NUMBER OF UNREALIZED CONTRACTS ISSUE EXCHANGE EXPIRATION DATE FACE VALUE APPRECIATION --------- ----- -------- --------------- ---------- ------------- 140 OMX Stockholm July 2004 $1,302,811 $ 698 </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 94 MASTER INTERNATIONAL INDEX SERIES STATEMENT OF ASSETS AND LIABILITIES As of June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> ASSETS: Investments in unaffiliated securities, at value (including securities loaned of $28,002,766) (identified cost - $396,716,897)....................... $462,714,414 Investments in affiliated securities,at value (identified cost - $8,577,133)......................... 8,577,133 Cash held as collateral for loaned securities........... 29,506,974 Cash on deposit for financial futures contracts......... 2,447,670 Foreign cash (cost - $13,554,622)....................... 13,596,552 Receivables: Dividends............................................. $1,369,603 Contributions......................................... 1,241,389 Variation margin...................................... 781,935 Securities sold....................................... 164,823 Forward foreign exchange contracts.................... 38,764 Interest from affiliates.............................. 6,869 3,603,383 ---------- Prepaid expenses and other assets....................... 54,734 ------------ TOTAL ASSETS........................................ 520,500,860 ------------ LIABILITIES: Collateral on securities loaned, at value............... 29,506,974 Unrealized depreciation on forward foreign exchange contracts.............................................. 103,643 Payables: Withdrawals........................................... 142,835 Forward foreign exchange contracts.................... 73,488 Securities purchased.................................. 29,047 Other affiliates...................................... 2,719 Investment adviser.................................... 703 248,792 ---------- ------------ TOTAL LIABILITIES................................... 29,859,409 ------------ NET ASSETS.................................................. $490,641,451 ============ NET ASSETS CONSIST OF: Investors' capital...................................... $424,501,001 Unrealized appreciation on investments and foreign currency transactions - net............................ 66,140,450 ------------ NET ASSETS.................................................. $490,641,451 ============ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 95 MASTER INTERNATIONAL INDEX SERIES STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- <Table> INVESTMENT INCOME: Dividends (net of $1,047,841 foreign withholding tax)... $ 8,577,544 Securities lending - net................................ 147,785 Interest (including $52,133 from affiliates)............ 83,380 ----------- TOTAL INCOME........................................ 8,808,709 ----------- EXPENSES: Custodian fees.......................................... $ 85,163 Accounting services..................................... 34,565 Professional fees....................................... 29,656 Investment advisory fees................................ 27,200 Pricing fees............................................ 24,948 Trustees' fees and expenses............................. 1,620 Printing and shareholder reports........................ 468 Other................................................... 4,589 ----------- TOTAL EXPENSES...................................... 208,209 ----------- INVESTMENT INCOME - NET..................................... 8,600,500 ----------- REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN CURRENCY TRANSACTIONS - NET: Realized gain from: Investments - net..................................... 3,670,505 Foreign currency transactions - net................... 94,176 3,764,681 ----------- Change in unrealized appreciation/depreciation on: Investments - net..................................... 13,629,718 Foreign currency transactions - net................... (886,573) 12,743,145 ----------- ----------- TOTAL REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS - NET............. 16,507,826 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $25,108,326 =========== </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 96 MASTER INTERNATIONAL INDEX SERIES STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- <Table> <Caption> FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED JUNE 30, DECEMBER 31, 2004 2003 ------------- -------------- (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Investment income - net................................. $ 8,600,500 $ 4,732,220 Realized gain (loss) on investments and foreign currency transactions - net.................................... 3,764,681 (846,178) Change in unrealized appreciation/depreciation on investments and foreign currency transactions - net... 12,743,145 79,135,984 ------------- ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 25,108,326 83,022,026 ------------- ------------ CAPITAL TRANSACTIONS: Proceeds from contributions............................. 71,629,640 364,659,614 Fair value of withdrawals............................... (159,225,485) (61,373,002) ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL TRANSACTIONS.................................. (87,595,845) 303,286,612 ------------- ------------ NET ASSETS: Total increase (decrease) in net assets................. (62,487,519) 386,308,638 Beginning of period..................................... 553,128,970 166,820,332 ------------- ------------ END OF PERIOD........................................... $490,641,451 $553,128,970 ============= ============ </Table> See notes to financial statements. - -------------------------------------------------------------------------------- 97 MASTER INTERNATIONAL INDEX SERIES FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The following ratios have been derived from information provided in the financial statements. <Table> <Caption> FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------- 2004 2003 2002 2001 2000 ------------ -------- -------- -------- ------- (UNAUDITED) TOTAL INVESTMENT RETURN**.................. 4.69%+ 38.97% 15.81% (21.77%) -- -------- -------- -------- -------- ------- RATIOS TO AVERAGE NET ASSETS: Expenses, net of reimbursement......... .08%* .09% .08% .08% .08% -------- -------- -------- -------- ------- Expenses............................... .08%* .10% .16% .39% 1.34% -------- -------- -------- -------- ------- Investment income - net................ 3.15%* 2.23% 2.21% 1.20% 1.55% -------- -------- -------- -------- ------- SUPPLEMENTAL DATA: Net assets, end of period (in thousands)........................... $490,641 $553,129 $166,820 $195,512 $15,763 -------- -------- -------- -------- ------- Portfolio turnover..................... 6.44% 8.55% 19.52% 30.19% 5.89% -------- -------- -------- -------- ------- </Table> - --------------- * Annualized. ** Total return is required to be disclosed for fiscal years beginning after December 15, 2000. + Aggregated total investment return. See notes to financial statements. - -------------------------------------------------------------------------------- 98 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES: Master International Index Series (the "Series") is part of Quantitative Master Series Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, and is organized as a Delaware statutory trust. The Declaration of Trust permits the Trustees to issue nontransferable interests in the Series, subject to certain limitations. The Series' financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. These unaudited financial statements reflect all adjustments, which are, in the option of management, necessary to present a fair statement of the results for the interim period. All such adjustments are of a normal, recurring nature. The following is a summary of significant accounting policies followed by the Series. A. Valuation of Investments 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. Trust 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 Trust 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 - -------------------------------------------------------------------------------- 99 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 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 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 - -------------------------------------------------------------------------------- 100 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- securities owned by the Series, sold by the Series but not yet delivered, or committed or anticipated to be purchased by the Series. C. Foreign Currency Transactions Transactions denominated in foreign currencies are recorded at the exchange rate prevailing when recognized. Assets and liabilities denominated in foreign currencies are valued at the exchange rate at the end of the period. Foreign currency transactions are the result of settling (realized) or valuing (unrealized) assets or liabilities expressed in foreign currencies into U.S. dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange rates on investments. D. Income Taxes The Series is classified as a 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 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 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. - -------------------------------------------------------------------------------- 101 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 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 other expenses incurred by the Series will not exceed .12%. This arrangement has a one-year term and is renewable. For the six months ended June 30, 2004, the Series reimbursed FAM $5,170 for certain accounting services. Certain officers and/or trustees of the Series are officers and/or directors of FAM, PSI, and/or ML & Co. 3. INVESTMENTS: Purchases and sales of investments,excluding short-term securities, for the six months ended June 30, 2004 were $33,291,743 and $119,306,413, respectively. Net realized gains (losses) for the six months ended June 30, 2004 and unrealized appreciation/depreciation as of June 30, 2004 were as follows: <Table> <Caption> UNREALIZED REALIZED GAINS APPRECIATION/ (LOSSES) DEPRECIATION -------------- ------------- Investments: Long-term......................................... $2,349,704 $65,997,517 Financial futures contracts....................... 1,320,801 228,019 ---------- ----------- Total investments...................................... 3,670,505 66,225,536 ---------- ----------- Currency transactions: Forward foreign exchange contracts................ 209,081 (103,643) Foreign currency transactions..................... (114,905) 18,557 ---------- ----------- Total currency transactions............................ 94,176 (85,086) ---------- ----------- Total.................................................. $3,764,681 $66,140,450 ========== =========== </Table> As of June 30, 2004, net unrealized appreciation for federal income tax purposes aggregated $61,827,776, of which $72,712,785 related to appreciated securities and $10,885,009 related to depreciated securities. At June 30, 2004, the aggregate cost of investments for federal income tax purposes was $409,463,771. 4. COMMITMENTS: At June 30, 2004, the Series had entered into foreign exchange contracts,in addition to the contracts listed in the Schedule of Investments, under which it had agreed to sell a foreign currency with an approximate value of $64,000. - -------------------------------------------------------------------------------- 102 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS -- CONTINUED June 30, 2004 (unaudited) - -------------------------------------------------------------------------------- 5. SHORT-TERM BORROWINGS: The Series, along with certain other funds managed by FAM and its affiliates, is a party to a $500,000,000 credit agreement with Bank One, N.A. and certain other lenders. The Series may borrow under the credit agreement to fund shareholders redemptions and for other lawful purposes other than for leverage. The Series may borrow up to the maximum amount allowable under the Series' current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Series pays a commitment fee of .09% per annum based on the Series' pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each fund's election, the Federal Funds rate plus .50% or a base rate as determined by Bank One, N.A. On November 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 six months ended June 30, 2004. AMERICAN AADVANTAGE FUNDS PRIVACY POLICY (unaudited) - -------------------------------------------------------------------------------- The American AAdvantage Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used. We may collect nonpublic personal information about you from one or more of the following sources: - information we receive from you on applications or other forms; - information about your transactions with us or our service providers; and - information we receive from third parties. We do not disclose any nonpublic personal information about our shareholders or former shareholders to anyone, except as permitted by law. We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards. - -------------------------------------------------------------------------------- 103 (AMERICAN EAGLE LOGO) (AMERICAN AADVANTAGE FUNDS LOGO) - -------------------------------------------------------------------------------- To reduce expenses, your financial institution may mail only one copy of the Prospectus, Annual Report, and Semi-Annual Report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please contact your financial institution. They will begin sending you individual copies thirty days after receiving your request. TO OBTAIN MORE INFORMATION ABOUT THE FUNDS: <Table> (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] 531397 ITEM 2. CODE OF ETHICS. The Trust did not amend the code of ethics that applies to its principal executive and financial officers (the "Code") nor did it grant any waivers to the provisions of the Code during the period covered by the shareholder reports presented in Item 1. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not Applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not Applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not Applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Not Applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not Applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not Applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Trust has made no material changes to the procedures by which shareholders may recommend nominees to the Trust's Board of Trustees since the Trust last disclosed such procedures in Schedule 14A. ITEM 10. 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 11. EXHIBITS. (a)(1) Not Applicable. (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: September 3, 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: September 3, 2004 By /s/ Rebecca L. Harris --------------------- Rebecca L. Harris Treasurer Date: September 3, 2004