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