UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4984
AMERICAN BEACON 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: December 31, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
[LOGO OF AMERICAN AADVANTAGE FUNDS]
AMERICAN
AADVANTAGE FUNDS(R)
- ----------------------------------[LOGO]----------------------------------------
ANNUAL REPORT
DECEMBER 31, 2004
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 ........ 22
U.S. GOVERNMENT MONEY MARKET FUND ........... 24
MUNICIPAL MONEY MARKET FUND ................. 26
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO ...................... 29
U.S. GOVERNMENT MONEY MARKET PORTFOLIO ...... 31
MUNICIPAL MONEY MARKET PORTFOLIO ............ 32
ADDITIONAL INFORMATION ...........INSIDE BACK COVER
- --------------------------------------------------------------------------------
Any opinions herein, including forecasts, reflect our judgement as of the end of
the reporting period and are subject to change. Each adviser's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, AMR Investment
Services, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
- --------------------------------------------------------------------------------
American AAdvantage Funds December 31, 2004
AMR INVESTMEMTS
[PHOTO OF WILLIAM F. QUINN]
FELLOW SHAREHOLDERS:
Enclosed please find the Annual Report for the American AAdvantage Funds for
the twelve months ended December 31, 2004. During this time, the money market
series of the American AAdvantage Funds performed well versus their peers.
The year began with the lowest Fed Funds rate in 45 years at 1.0%. The U.S.
economy in 2004 can best be characterized as experiencing modest inflation with
a benign outlook. As a result, the Federal Reserve Board felt comfortable
increasing the short-term interest rate by 125 basis points to 2.25%. Even at
this level, the "real" interest rate is below historical levels.
The Cash Management Class of the American AAdvantage Funds produced strong
relative returns for the period. The Money Market Fund-Cash Management Class
returned 1.30% for the year, outperforming the Lipper Institutional Money Market
Average return of 1.00%. The U.S. Government Money Market - Management Class
outpaced the Lipper Institutional U.S. Government Money Market Average with a
return of 1.22% versus 0.99% for the Average. Despite rising rates, the Money
Market Fund-Cash Management Class continued to surpass its Lipper peer group
over all time periods.
Looking forward, record trade deficits caused by a combination of the lower
value of the dollar and higher crude prices will have to be watched closely.
Although we expect continued increases in the Fed Funds rate, continued
unfettered trade deficit increases could cause the Fed to tighten more
aggressively. Thus, we will continue to actively manage the duration and quality
of the money market portfolios as we evaluate economic growth, inflation, and
the direction of interest rates.
Please review the enclosed portfolio listings and detailed financial data. As
always, we welcome the opportunity to serve your financial needs. Should you
have any questions about the enclosed information, please do not hesitate to
contact us at 800-967-9009. You may also access Fund and account information at
www.aafunds.com. Thank you for your continued confidence in the American
AAdvantage Funds.
Sincerely,
/s/ William F. Quinn
William F. Quinn
President
American AAdvantage Funds
1
ECONOMIC OVERVIEW
================================================================================
The year began with an improving economic environment. However, while growth
indicators were 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 Federal Open Market Committee (FOMC)
would soon begin to raise the overnight Fed Funds rate. The first rate hike of
25 basis points occurred at the June 30th FOMC meeting, bringing the overnight
Fed Funds target to 1.25%. The FOMC continued its tightening policy of 25 basis
points at each of the remaining Fed meetings, bringing the Fed Funds target to
2.25% by the end of 2004.
Toward the end of the year, the U.S. economy gathered momentum, buoyed by a
decisive result of the November Presidential election. Monthly non-farm payroll
growth averaged over 200K, crude prices fell from their record highs, broad
equity indexes rallied, and most retailers reported a strong holiday shopping
season. Going forward, as long as productivity keeps pace with wage growth in a
gradually tightening labor market, it appears the Fed has no incentive of
abandoning its "measured" (25 basis point rate increases) policy adjustment
stance absent a sharp rise in commodity prices or a sharp fall in the U.S.
dollar.
2
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MONEY MARKET FUND(R)
================================================================================
As evidence mounted that money market interest rates would head higher in
the second half of the year, the weighted-average maturity of the American
AAdvantage Money Market Fund was allowed to roll down from above 50 days to
about 30 days. This strategy enabled the Fund to take advantage of higher
overnight rates. The rolldown became even more beneficial when the Fed raised
the overnight rate 25 basis points to 1.25% from 1.00% at the JuneFOMC meeting.
A shorter average maturity was maintained as the market began to anticipate
further interest rate increases by the Fed. A large position in variable rate
securities will likely be maintained in conjunction with a concentration in
overnight investments as the weighted-average maturity of the Fund will likely
remain in the 30 to 40 day range until evidence emerges that the Fed has
completed its current tightening cycle.
For the twelve months ended December 31, 2004, the total return of the Cash
Management Class of the American AAdvantage Money Market Fund was 1.30%. The
Fund outperformed the Lipper Institutional Money Market Average return of 1.00%
by 30 basis points. Lipper Analytical Services ranked the Cash Management Class
of the Fund 22nd among 304 and 37th among 260 Institutional Money Market Funds
for the one-year and three-years ended December 31, 2004, respectively.
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF DECEMBER 31, 2004
[CHART OF CASH MANAGEMENT CLASS]
AMERICAN AADVANTAGE LIPPER INSTITUTIONAL
MONEY MARKET FUND MONEY MARKET FUND AVERAGE
1 YEAR 1.30 1.00
3 YEARS* 1.37 1.13
5 YEARS* 2.92 2.67
10 YEARS* 4.24 4.03
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
==============================
AS OF 12/31/04
------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,3).................. 1.30% 2.92% 4.24%
Institutional Class (1)...................... 1.20% 2.87% 4.22%
PlanAhead Class (1).......................... 0.93% 2.57% 3.91%
Platinum Class (1,2)......................... 0.46% 2.14% 3.54%
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. 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 ten-year period represents the total returns
achieved by the Institutional Class from 1/1/95 up to 11/8/95, the inception
date of the Platinum Class, and the returns of the Platinum Class since
inception of the Class. Expenses of the Platinum Class are higher than those
of the Institutional Class. Therefore, total returns shown are higher than
they would have been had the Platinum Class been in place since 1/1/95.
3 Fund performance for the five and ten-year periods represents the total
returns achieved by the Institutional Class from 1/1/95 up to 12/1/01, the
inception date of the Cash Management Class and the returns of the Cash
Management Class since its inception. Expenses of the Cash Management Class
are lower than those of the Institutional Class. Therefore, total returns
shown are lower than they would have been had the Cash Management Class been
in place since 1/1/95.
3
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MONEY MARKET FUND(R) -- CONTINUED
================================================================================
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2004
CASH
MANAGEMENT INSTITUTIONAL PLANAHEAD PLATINUM
CLASS CLASS CLASS CLASS
----------- ------------- ----------- -----------
7-day Current Yield* 2.15% 2.01% 1.79% 1.39%
7-day Effective Yield* 2.18% 2.03% 1.80% 1.40%
30-day Yield* 2.04% 1.90% 1.67% 1.22%
Weighted
Average
Maturity 35 Days 35 Days 35 Days 35 Days
Moody's Rating Aaa N/A N/A N/A
S&P Rating AAAm N/A N/A N/A
*Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day
yield.
TOP TEN HOLDINGS AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
------------
Goldman Sachs Group 5.5%
Bank of Scotland Treasury Services plc 5.4%
Toyota Motor Credit Corporation 4.8%
SouthTrust Bank 4.7%
National City Bank 4.6%
ABN AMRO Bank 4.6%
Wells Fargo and Company 4.5%
Royal Bank of Canada 3.7%
Societe Generale 3.7%
Fifth Third Bank 3.6%
*Percent of net assets portion of AMR Investment Services Money Market
Portfolio.
ASSET ALLOCATION AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
------------
Bank CDs, TDs, and Notes 45.5%
Corporate Notes 41.8%
Repurchase Agreements 9.7%
Funding Agreements 2.8%
Net Other Assets 0.2%
*Percent of net assets portion of AMR Investment Services Money Market
Portfolio.
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period in each Class and held for the entire period from July 1, 2004
through December 31, 2004.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the Fund's
actual return). You may compare the ongoing costs of investing in the Fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be
4
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MONEY MARKET FUND(R) -- CONTINUED
================================================================================
subject to a custodial IRA fee of $12 that is typically deducted each December.
If your account was subject to a custodial IRA fee during the period, your costs
would have been $12 higher.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs charged by the Fund.
Similarly, the expense examples for other funds do not reflect any transaction
costs charged by those funds, such as sales charges (loads), redemption fees or
exchange fees. Therefore, the "Hypothetical" lines of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. If you were subject to any transaction costs
during the period, your costs would have been higher.
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
---------- ---------- ---------------
CASH MANAGEMENT CLASS
Actual $1,000.00 $1,008.08 $0.76
Hypothetical (5% return before expenses) $1,000.00 $1,024.38 $0.76
INSTITUTIONAL CLASS
Actual $1,000.00 $1,007.51 $1.31
Hypothetical (5% return before expenses) $1,000.00 $1,023.83 $1.32
PLANAHEAD CLASS
Actual $1,000.00 $1,006.26 $2.56
Hypothetical (5% return before expenses) $1,000.00 $1,022.58 $2.58
PLATINUM CLASS
Actual $1,000.00 $1,003.85 $4.97
Hypothetical (5% return before expenses) $1,000.00 $1,020.18 $5.01
*Expenses are equal to the Fund's annualized expense ratios for the six-month
period of 0.08%, 0.13%, 0.26%, and 0.50% for the Cash Management,
Institutional, PlanAhead, and Platinum Classes, respectively, multiplied by
the average account value over the period, multiplied by the number derived
by dividing the number of days in the most recent fiscal half-year (184) by
days in the year (366) to reflect the half-year period.
5
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND(SM)
================================================================================
At the beginning of the year, the investment manager to the American
AAdvantage U.S. Government Money Market Fund maintained the Fund's
weighted-average maturity between 50 and 60 days. This strategy was accomplished
primarily by purchasing fixed rate agencies with maturities of six to nine
months. In April, the fixed income market began to sell off sharply after the
release of the strong March employment data and in anticipation of a Fed rate
hike. In response, the weighted-average maturity of the Fund was shortened by
investing the proceeds of maturing securities in overnight repurchase agreements
or short dated agencies. This strategy proved to be a good move as the FOMC
implemented its first rate hike of 25 basis points at the June 30th meeting.
This increase took the overnight Fed Funds target to 1.25%. As the FOMC
continued its monetary tightening policy of 25 basis points at each of the
remaining Fed meetings, the Fund continued to buy variable rate and short dated
fixed rate agencies. The year ended with the Fed Funds target at 2.25%, 125
basis points higher than at the start of 2004. In response to monetary policy,
the weighted-average maturity of the Fund was shortened to around 15 days by
year-end.
For the twelve months ended December 31, 2004, the total return of the Cash
Management Class of the American AAdvantage U.S. Government Money Market Fund
was 1.22%. The Fund outperformed the Lipper Institutional U.S. Government Money
Market Average return of 0.99% by 23 basis points. Lipper Analytical Services
ranked the Cash Management Class of the Fund 15th among 142, 11th among 104, and
13th among 56 Institutional U.S. Government Money Market Funds for the one-year,
five-years and ten-years ended December 31, 2004, respectively.
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF DECEMBER 31, 2004
[CHART OF CASH MANAGEMENT CLASS]
AMERICAN AADVANTAGE U.S. LIPPER INSTITUTIONAL U.S.
GOVERNMENT MONEY MARKET FUND GOVERNMENT MONEY MARKET FUND AVERAGE
1 YEAR 1.22 0.99
3 YEARS* 1.31 1.08
5 YEARS* 2.85 2.61
10 YEARS* 4.10 3.95
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
==============================
AS OF 12/31/04
------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,3).............. 1.22% 2.85% 4.10%
PlanAhead Class (1)...................... 0.85% 2.48% 3.73%
Platinum Class (1,2)..................... 0.42% 2.07% 3.39%
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. 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 ten-year period represents the total returns
achieved by the Cash Management Class from 1/1/95 up to 11/8/95, the inception
date of the Platinum Class, and the returns of the Platinum Class since
inception of the Class. Expenses of the Platinum Class are higher than those
of the Cash Management Class. Therefore, total returns shown are higher than
they would have been had the Platinum Class been in existence since 1/1/95.
3 Prior to December 1, 2001, the Cash Management Class of the Fund was known as
the Institutional Class.
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2004
CASH
MANAGEMENT PLANAHEAD PLATINUM
CLASS CLASS CLASS
----------- ----------- -----------
7-day Current Yield* 2.08% 1.68% 1.29%
7-day Effective Yield* 2.10% 1.69% 1.29%
30-day Yield* 2.00% 1.61% 1.21%
Weighted Average Maturity 15 Days 15 Days 15 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.
ASSET ALLOCATION AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
-----------
Government Securities 53.5%
Repurchase Agreements 52.4%
Net Other Liabilities -5.9%
*Percent of net assets portion of AMR Investment Services U.S. Government Money
Market Portfolio.
6
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND(SM) -- CONTINUED
================================================================================
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs:(1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period in each Class and held for the entire period from July 1, 2004
through December 31, 2004.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's
actual expense ratio and an assumed 5% per year rate of return before expenses
(not the Fund's actual return). You may compare the ongoing costs of investing
in the Fund with other funds by contrasting this 5% hypothetical example and the
5% hypothetical examples that appear in the shareholder reports of the other
funds. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period.
Shareholders of the PlanAhead Class that invest in the Fund through an IRA may
be subject to a custodial IRA fee of $12 that is typically deducted each
December. If your account was subject to a custodial IRA fee during the period,
your costs would have been $12 higher.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs charged by the Fund.
Similarly, the expense examples for other funds do not reflect any transaction
costs charged by those funds, such as sales charges (loads), redemption fees or
exchange fees. Therefore, the "Hypothetical" lines of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. If you were subject to any transaction costs
during the period, your costs would have been higher.
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
---------- ---------- ---------------
CASH MANAGEMENT CLASS
Actual $1,000.00 $1,007.70 $0.96
Hypothetical (5% return before expenses) $1,000.00 $1,024.18 $0.97
PLANAHEAD CLASS
Actual $1,000.00 $1,005.85 $2.80
Hypothetical (5% return before expenses) $1,000.00 $1,022.34 $2.83
PLATINUM CLASS
Actual $1,000.00 $1,003.66 $4.99
Hypothetical (5% return before expenses) $1,000.00 $1,020.16 $5.03
*Expenses are equal to the Fund's annualized expense ratios for the six-month
period of 0.10%, 0.28%, and 0.50% for the Cash Management, PlanAhead, and
Platinum Classes, respectively, multiplied by the average account value over
the period, multiplied by the number derived by dividing the number of days
in the most recent fiscal half-year (184) by days in the year (366) to
reflect the half-year period.
7
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM)
================================================================================
The investment manager to the American AAdvantage Municipal Money Market
Fund targeted a neutral weighted-average maturity in the first half of the year,
focusing on variable rate demand notes (VRDNs) backed by either bond insurance
or a bank letter of credit. As it became apparent the Fed would raise interest
rates 25 basis points at the June FOMC meeting, the Fund maintained a high
concentration in VRDNs and the investment manager allowed the average maturity
to roll down. The investment manager will continue to focus purchases on the
VRDN market and buy selective fixed rate instruments when opportunites surface
in this rising interest rate environment.
For the twelve months ended December 31, 2004, the total return of the
PlanAhead Class of the American AAdvantage Municipal Money Market Fund was 0.31%
as compared to the Lipper Tax-Exempt Money Market Average return of 0.56%.
PLANAHEAD CLASS TOTAL RETURNS AS OF DECEMBER 31, 2004
[CHART OF PLANAHEAD CLASS]
AMERICAN AADVANTAGE LIPPER TAX-EXEMPT
MUNICIPAL MONEY MARKET FUND MONEY MARKET FUND AVERAGE
1 YEAR $0.31 $0.56
3 YEARS* 0.52 0.63
5 YEARS* 1.48 1.52
10 YEARS* 2.31 2.30
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
============================
AS OF 12/31/04
----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
PlanAhead Class (1)...................... 0.31% 1.48% 2.31%
Platinum Class (1,2)..................... 0.31% 1.20% 2.03%
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. 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 ten-year period represents the total returns
achieved by the Institutional Class, a former Class of the Fund, from
1/1/95 up to 11/8/95, the inception date of the Platinum Class, and the
returns of the Platinum Class since inception of the Class. Expenses of the
Platinum Class are higher than those of the Institutional Class. Therefore,
total returns shown are higher than they would have been had the Platinum
Class been in place since 1/1/95.
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2004
PLANAHEAD PLATINUM
CLASS CLASS
----------- ----------
7-day Current Yield* 0.98% 0.98%
7-day Effective Yield* 0.98% 0.98%
30 day Yield* 0.73% 0.73%
Weighted Average Maturity 5 Days 5 Days
*Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day
yield.
TOP TEN HOLDINGS AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
-----------
Moffat County, Colorado Pollution Control 9.4%
Michigan State Housing Development Authority 5.2%
Alachua County, Florida Housing Financial Authority 5.2%
Village of Richton Park, Illinois-Industrial Development Revenue Bonds 5.1%
Gulf Coast Waste Disposal Authority (Texas) 4.8%
Industrial Development Authority of the City of Mesa, Arizona 4.8%
Ohio Water Development Authority 4.8%
Montgomery County, Maryland Variable Rate Housing Revenue Bonds 4.8%
Calcasieu Parish Public Trust Authority 4.5%
Brazos Harbor Industrial Development Corporation 4.3%
*Percent of net assets portion of AMR Investment Services Municipal Money Market
Portfolio.
8
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM) -- CONTINUED
================================================================================
ASSET ALLOCATION AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
------------
Municipal Obligations 92.3%
Other Investments 7.5%
Net Other Assets 0.2%
*Percent of net assets portion of AMR Investment Services Municipal Money
Market Portfolio.
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period in each Class and held for the entire period from July 1, 2004
through December 31, 2004.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the Fund's
actual return). You may compare the ongoing costs of investing in the Fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs charged by the Fund.
Similarly, the expense examples for other funds do not reflect any transaction
costs charged by those funds, such as sales charges (loads), redemption fees or
exchange fees. Therefore, the "Hypothetical" lines of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. If you were subject to any transaction costs
during the period, your costs would have been higher.
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
----------- ---------- ---------------
PLANAHEAD CLASS
Actual $1,000.00 $1,002.43 $5.06
Hypothetical (5% return before expenses) $1,000.00 $1,020.08 $5.11
PLATINUM CLASS
Actual $1,000.00 $1,002.53 $4.97
Hypothetical (5% return before expenses) $1,000.00 $1,020.17 $5.02
*Expenses are equal to the Fund's annualized expense ratios for the six-month
period of 0.51% and 0.50% for the PlanAhead and Platinum Classes,
respectively, multiplied by the average account value over the period,
multiplied by the number derived by dividing the number of days in the most
recent fiscal half-year (184) by days in the year (366) to reflect the
half-year period.
9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Trustees
American AAdvantage Money Market Fund
American AAdvantage U.S. Government Money Market Fund
American AAdvantage Municipal Money Market Fund
We have audited the accompanying statements of assets and liabilities of the
American AAdvantage Money Market Fund, the American AAdvantage U.S. Government
Money Market Fund, and the American AAdvantage Municipal Money Market Fund,
(collectively, "the Funds") (separate funds comprising the American AAdvantage
Funds) as of December 31, 2004, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for purposes of expressing an opinion on the effectiveness of the Funds'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective American AAdvantage Funds at December 31, 2004, the results of
their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 18, 2005
10
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2004
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS:
Investment in Portfolio, at value .......................... $ 646,212 $ 40,639 $ 5,176
Receivable for fund shares sold ............................ 90 - -
Receivable from Manager for expense ........................
reimbursement (Note 2) ..................................... 15 2 3
Prepaid expenses ..................................... 31 13 8
Other assets ............................................... - - 2
------------ ----------- ----------
TOTAL ASSETS .......................................... 646,348 40,654 5,189
------------ ----------- ----------
LIABILITIES:
Payable for fund shares redeemed ........................... 2 - -
Dividends payable .......................................... 42 46 -
Administrative service and service fees payable
(Note 2) ................................................. 80 3 2
Distribution fees payable (Note 2) ......................... 11 - 1
Other liabilities .......................................... 84 29 8
------------ ----------- ----------
TOTAL LIABILITIES ...................................... 219 78 11
------------ ----------- ----------
NET ASSETS ..................................................... $ 646,129 $ 40,576 $ 5,178
============ =========== ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital ............................................ 646,129 40,576 5,178
------------ ----------- ----------
NET ASSETS ..................................................... $ 646,129 $ 40,576 $ 5,178
============ =========== ==========
Shares outstanding (no par value):
Cash Management Class ...................................... 434,586,902 28,591,053 N/A
============ =========== ==========
Institutional Class ........................................ 34,145,844 N/A N/A
============ =========== ==========
PlanAhead Class ............................................ 132,438,353 5,370,156 1,706,173
============ =========== ==========
Platinum Class ............................................. 44,958,356 6,615,365 3,471,946
============ =========== ==========
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
- --------------------------------------------------------------------------------
11
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
Year Ended December 31, 2004
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS)
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income ............................................ $6,074 $610 $87
Portfolio expenses ......................................... (475) (51) (8)
------ ---- ---
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO ......... 5,599 559 79
------ ---- ---
FUND EXPENSES:
Administrative service fees (Note 2):
Cash Management Class .................................. 89 17 -
Institutional Class .................................... 84 - -
PlanAhead Class ........................................ 165 14 3
Platinum Class ......................................... 316 45 26
Transfer agent fees:
Cash Management Class .................................. 32 7 -
Institutional Class .................................... 8 - -
PlanAhead Class ........................................ 38 4 3
Platinum Class ......................................... 18 3 3
Professional fees ......................................... 8 4 -
Registration fees and expenses ............................ 47 28 31
Distribution fees - Platinum Class (Note 2) ............... 122 17 10
Service Fees - PlanAhead Class (Note 2) ................... 414 34 8
Other expenses ............................................ 46 6 4
------ ---- ---
TOTAL FUND EXPENSES ................................. 1,387 179 88
------ ---- ---
LESS WAIVER AND REIMBURSEMENT OF EXPENSES (NOTE 2) ............. 140 38 28
------ ---- ---
NET FUND EXPENSES ................................... 1,247 141 60
------ ---- ---
NET INVESTMENT INCOME .......................................... 4,352 418 19
------ ---- ---
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments .......................... 15 3 -
------ ---- ---
NET GAIN ON INVESTMENTS ............................. 15 3 -
------ ---- ---
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $4,367 $421 $19
====== ==== ===
See accompanying notes
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
13
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
MONEY MARKET
=========================
YEAR ENDED DECEMBER 31,
=========================
2004 2003
-------- --------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ...................................... $ 4,352 $ 4,684
Net realized gain on investments ........................... 15 5
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 4,367 4,689
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Cash Management Class ..................................... (1,707) (672)
Institutional Class ....................................... (883) (2,597)
PlanAhead Class ........................................... (1,553) (1,034)
Platinum Class ............................................ (209) (378)
Net realized gain on investments:
Cash Management Class ..................................... (5) -
Institutional Class ....................................... (3) (3)
PlanAhead Class ........................................... (5) (1)
Platinum Class ............................................ (2) (1)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS: ......................... (4,367) (4,686)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares .............................. 2,055,052 3,048,924
Reinvestment of dividends and distributions ................ 4,040 3,467
Cost of shares redeemed .................................... (1,865,342) (4,150,353)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS ......................................... 193,750 (1,097,962)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ......................... 193,750 (1,097,959)
NET ASSETS:
Beginning of period ........................................ 452,379 1,550,338
----------- -----------
END OF PERIOD .............................................. $ 646,129 $ 452,379
=========== ===========
See accompanying notes
- --------------------------------------------------------------------------------
14
================================================================================
U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
============================= ==========================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
============================= ==========================
2004 2003 2004 2003
- --------- --------- -------- ---------
(IN THOUSANDS)
$ 418 $ 946 $ 19 $ 40
3 3 - -
- --------- --------- -------- ---------
421 949 19 40
- --------- --------- -------- ---------
(297) (227) - -
- - - (6)
(93) (675) (7) (17)
(28) (44) (12) (17)
(2) (1) - -
- - - -
(1) (2) - -
- - - -
- --------- --------- -------- ---------
(421) (949) (19) (40)
- --------- --------- -------- ---------
163,517 351,780 16,442 21,327
48 57 19 32
(178,586) (629,499) (17,626) (94,625)
- --------- --------- -------- ---------
(15,021) (277,662) (1,165) (73,266)
- --------- --------- -------- ---------
(15,021) (277,662) (1,165) (73,266)
55,597 333,259 6,343 79,609
- --------- --------- -------- ---------
$ 40,576 $ 55,597 $ 5,178 $ 6,343
========= ========= ======== =========
See accompanying notes
- --------------------------------------------------------------------------------
15
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
================================================================================
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
(11.95%, 16.29% and 14.67% at December 31, 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.
- --------------------------------------------------------------------------------
16
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
Dividends to shareholders are determined in accordance with federal income
tax principles that may treat certain transactions differently than U.S.
generally accepted accounting principles.
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 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 22% 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 U.S. generally
accepted accounting principles 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
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has 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
that 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
- --------------------------------------------------------------------------------
17
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
annualized fee of 0.10% of the average daily net assets of each of the
Institutional, PlanAhead and Platinum Classes of the Funds.
The Trust has adopted an Administrative Services Plan with respect to the
Platinum Class of the Funds. As compensation for providing administrative
services, the Manager receives an annualized fee of 0.55% of the average daily
net assets of the Platinum Class of each Fund.
A separate Administrative Services Plan has been adopted for the Cash
Management Class of the Funds. As compensation for providing administrative
services, the Manager receives an annualized fee of 0.07% of the average daily
net assets of the Cash Management Class of each Fund.
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
- --------------------------------------------------------------------------------
18
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
minimum level of returns for PlanAhead and Platinum Class Fund shareholders.
During the year ended December 31, 2004, the Manager waived or reimbursed
expenses as follows:
FUND AMOUNT
- ---- --------
Money Market Fund
Cash Management Class ........................................ $103,320
Platinum Class ............................................... 36,932
U.S. Government Money Market Fund
Cash Management Class ........................................ 25,824
PlanAhead Class .............................................. 1,317
Platinum Class ............................................... 11,270
Municipal Money Market Fund
PlanAhead Class .............................................. 3,180
Platinum Class ............................................... 24,416
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 140,252 38,411 27,596
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.
3. SUBSEQUENT EVENT
Subsequent to December 31, 2004, AMR Investment Services, Inc. will become
American Beacon Advisors, Inc. and the American AAdvantage Funds will be known
as the American Beacon Funds. The name change becomes effective March 1, 2005.
- --------------------------------------------------------------------------------
19
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each class of
the Funds (in thousands). Each share is valued at $1.00:
Year Ended December 31, 2004
- ----------------------------
CASH MANAGEMENT
MONEY MARKET FUND CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- ----------------- --------------- ------------------- --------------- --------------
Shares sold ............................... 1,085,469 466,560 437,252 65,771
Reinvestment of dividends ................. 1,712 710 1,407 211
Shares redeemed ........................... (769,990) (592,216) (433,193) (69,943)
--------- -------- -------- -------
Net increase (decrease) in shares
outstanding ............................ 317,191 (124,946) 5,466 (3,961)
========= ======== ======== =======
CASH MANAGEMENT
U.S. GOVERNMENT MONEY MARKET FUND CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------------- --------------- --------------- --------------
Shares sold ............................... 90,815 68,510 4,192
Reinvestment of dividends ................. - 20 28
Shares redeemed ........................... (84,284) (89,944) (4,358)
--------- --------- ------
Net increase (decrease) in shares
outstanding ............................ 6,531 (21,414) (138)
========= ========= ======
MUNICIPAL MONEY MARKET FUND PLANAHEAD CLASS PLATINUM CLASS
- --------------------------- --------------- --------------
Shares sold ............................... 5,961 10,481
Reinvestment of dividends ................. 7 12
Shares redeemed ........................... (7,335) (10,291)
------ -------
Net increase (decrease) in shares
outstanding ............................ (1,367) 202
====== =======
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)
======= ======= ========
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
21
AMERICAN AADVANTAGE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
CASH MANAGEMENT CLASS
====================================================
YEAR ENDED DECEMBER 31, ONE MONTH
================================= ENDED
DECEMBER 31,
2004 2003 2002 2001(B)
-------- -------- ------ ------------
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------ -------
Net investment income (A)...................... 0.01 0.01 0.02 -(D)
Less dividends from net investment income (0.01) (0.01) (0.02) -(D)
-------- -------- ------ -------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ====== =======
Total return...................................... 1.30% 1.08% 1.73% 0.19%(C)
======== ======== ====== =======
Ratios and supplemental data:
Net assets, end of period (in thousands) $434,587 $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 ....................... 1.34% 1.03% 1.73% 1.96%
Decrease reflected in above expense ratio
due to absorption of expenses by the
Manager.................................... 0.08% 0.08% 0.03% -
INSTITUTIONAL CLASS
============================================================
YEAR ENDED DECEMBER 31,
============================================================
2004 2003 2002 2001 2000
------- -------- -------- -------- --------
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- --------
Net investment income (A)...................... 0.01 0.01 0.02 0.04 0.06
Less dividends from net investment income (0.01) (0.01) (0.02) (0.04) (0.06)
------- -------- -------- -------- --------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ========
Total return ..................................... 1.20% 0.97% 1.67% 4.15% 6.45%
======= ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) $34,146 $159,092 $474,922 $805,843 $886,608
Ratios to average net assets (annualized)(A):
Expenses..................................... 0.24% 0.27% 0.24% 0.25% 0.24%
Net investment income ....................... 1.05% 1.00% 1.68% 4.13% 6.17%
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.
- --------------------------------------------------------------------------------
22
======================================================== ===========================================================
PLANAHEAD CLASS PLATINUM CLASS
======================================================== ===========================================================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
======================================================== ===========================================================
2004 2003 2002 2001 2000 2004 2003 2002 2001 2000
- -------- -------- -------- -------- -------- ------- ------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- -------- -------- ------- ------- -------- -------- --------
0.01 0.01 0.01 0.04 0.06 -(D) -(D) 0.01 0.03 0.06
(0.01) (0.01) (0.01) (0.04) (0.06) -(D) -(D) (0.01) (0.03) (0.06)
- -------- -------- -------- -------- -------- ------- ------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======= ======= ======== ======== ========
0.93% 0.70% 1.37% 3.83% 6.14% 0.46% 0.25% 0.98% 3.45% 5.69%
======== ======== ======== ======== ======== ======= ======= ======== ======== ========
$132,438 $126,972 $155,535 $163,825 $299,304 $44,958 $48,920 $913,240 $868,395 $800,196
0.51% 0.54% 0.54% 0.55% 0.54% 0.99% 0.96% 0.93% 0.93% 0.97%
0.94% 0.71% 1.36% 3.83% 5.95% 0.43% 0.38% 0.97% 3.36% 5.54%
- - - - - 0.07% 0.13% 0.01% - -
- --------------------------------------------------------------------------------
23
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
CASH MANAGEMENT CLASS
===========================================================
YEAR ENDED DECEMBER 31,
===========================================================
2004 2003 2002 2001(B) 2000
------- ------- ------- ------- -------
Net asset value, beginning of period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Net investment income (A) ......................... 0.01 0.01 0.02 0.04 0.06
Less dividends from net investment income.......... (0.01) (0.01) (0.02) (0.04) (0.06)
------- ------- ------- ------- -------
Net asset value, end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return......................................... 1.22% 1.04% 1.67% 4.09% 6.31%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)........... $28,591 $22,060 $38,310 $66,302 $36,391
Ratios to average net assets (annualized) (A):
Expenses ....................................... 0.19% 0.19% 0.19% 0.25% 0.26%
Net investment income .......................... 1.21% 1.04% 1.69% 3.74% 6.16%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager........ 0.10% 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) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
24
========================================================= =========================================================
PLANAHEAD CLASS PLATINUM CLASS
========================================================= =========================================================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
========================================================= =========================================================
2004 2003 2002 2001 2000 2004 2003 2002 2001 2000
- ------ -------- -------- ------- ------- ------ ------ -------- ------- ------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------ -------- -------- ------- ------- ------ ------ -------- -------- -------
-(C) 0.01 0.01 0.04 0.06 -(C) -(C) 0.01 0.03 0.05
-(C) (0.01) (0.01) (0.04) (0.06) -(C) -(C) (0.01) (0.03) (0.05)
- ------ -------- -------- ------- ------- ------ ------ -------- -------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======== ======== ======= ======= ====== ====== ======== ======== =======
0.85% 0.61% 1.30% 3.79% 5.95% 0.42% 0.24% 0.90% 3.37% 5.53%
====== ======== ======== ======= ======= ====== ====== ======== ======== =======
$5,370 $26,785 $175,115 $78,934 $65,795 $6,615 $6,752 $119,833 $112,670 $78,857
0.56% 0.58% 0.55% 0.55% 0.60% 0.98% 1.00% 0.95% 0.95% 1.00%
0.68% 0.72% 1.25% 3.59% 5.81% 0.40% 0.31% 0.88% 3.20% 5.40%
0.01% 0.04% - - - 0.17% 0.20% 0.03% - -
- --------------------------------------------------------------------------------
25
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
PLANAHEAD CLASS
==========================================================
YEAR ENDED DECEMBER 31,
==========================================================
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
Net asset value, beginning of period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Net investment income (A):........................... -(B) -(B) 0.01 0.02 0.04
Less dividends from net investment income............ -(B) -(B) (0.01) (0.02) (0.04)
------ ------ ------ ------ ------
Net asset value, end of period ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total return .......................................... 0.31% 0.32% 0.93% 2.25% 3.61%
====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands):............ $1,706 $3,072 $7,346 $3,669 $5,175
Ratios to average net assets (annualized) (A):
Expenses ......................................... 0.94% 0.81% 0.57% 0.58% 0.63%
Net investment income ............................ 0.24% 0.36% 0.94% 2.30% 3.48%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager ........... 0.10% 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) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
26
=====================================================================
PLATINUM CLASS
=====================================================================
YEAR ENDED DECEMBER 31,
=====================================================================
2004 2003 2002 2001 2000
- ------ ------ ------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------ ------ ------- ------- -------
-(B) -(B) -(B) 0.02 0.03
-(B) -(B) -(B) (0.02) (0.03)
- ------ ------ ------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ======= ======= =======
0.31% 0.20% 0.51% 1.82% 3.21%
====== ====== ======= ======= =======
$3,472 $3,271 $71,132 $59,427 $89,602
0.97% 1.01% 0.99% 1.00% 1.02%
0.29% 0.21% 0.52% 1.87% 3.17%
0.61% 0.34% 0.02% - -
- --------------------------------------------------------------------------------
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Trustees
AMR Investment Services Money Market Portfolio
AMR Investment Services U.S. Government Money Market Portfolio
AMR Investment Services Municipal Money Market Portfolio
We have audited the accompanying statements of assets and liabilities of the
AMR Investment Services Money Market Portfolio, the AMR Investment Services
U.S. Government Money Market Portfolio, and the AMR Investment Services
Municipal Money Market Portfolio (collectively, "the Portfolios") (separate
portfolios comprising the AMR Investment Services Trust), including the
schedules of investments, as of December 31, 2004, and the related statements
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Portfolios'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for purposes of expressing an opinion
on the effectiveness of the Portfolios' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2004, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
each of the Portfolios of the AMR Investment Services Trust at December 31,
2004, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernest & Young LLP
Chicago, Illinois
February 18, 2005
- --------------------------------------------------------------------------------
28
AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE B) - 9.74%
Goldman Sachs, 2.29%, Due 1/3/2005 .............................................. $526,451 $ 526,451
----------
TOTAL REPURCHASE AGREEMENTS ............................................... 526,451
----------
EURODOLLAR TIME DEPOSITS - 12.02%
ABN AMRO Bank, 2.18%, Due 1/3/2005 .............................................. 250,000 250,000
Royal Bank of Canada, 2.125%, Due 1/3/2005 ...................................... 200,000 200,000
Societe Generale, 2.25%, Due 1/3/2005 ........................................... 200,000 200,000
----------
TOTAL EURODOLLAR TIME DEPOSITS ............................................ 650,000
----------
VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES (NOTE D) - 33.46%
Bank One, NA, 2.46%, Due 2/10/2005 .............................................. 25,000 25,007
Barclays Bank, 2.449%, Due 9/29/2005 ............................................ 50,000 49,968
Bayerische Landesbank, 2.21%, Due 5/9/2005 ...................................... 75,000 75,011
BNP Paribas, 2.265%, Due 8/23/2005 .............................................. 65,000 64,976
Canadian Imperial Bank, 2.42%, Due 6/15/2005 .................................... 100,000 99,985
Credit Lyonnais, 2.385%, Due 9/12/2005 .......................................... 97,000 96,956
Credit Suisse First Boston Corporation, 2.559%, Due 9/26/2005 ................... 150,000 150,034
Fifth Third Bank, 2.21%, Due 11/14/2005 ......................................... 197,000 196,906
National City Bank,
2.13%, Due 1/3/2005 .......................................................... 200,000 200,000
2.19%, Due 5/9/2005 .......................................................... 50,000 50,002
Societe Generale, 2.045%, Due 1/30/2006 ......................................... 50,000 49,954
SouthTrust Bank,
2.216%, Due 8/12/2005 ........................................................ 150,000 149,976
2.549%, Due 9/29/2005 ........................................................ 64,000 64,017
2.43%, 12/14/2005 ............................................................ 40,000 39,989
SunTrust Bank, 2.02%, Due 10/3/2005 ............................................. 55,500 55,514
Toronto Dominion Bank, 2.38%, 9/12/2005 ......................................... 100,000 99,952
UBS AG, 2.03%, Due 1/30/2006 .................................................... 50,000 49,954
Unicredito Italiano, 2.439%, 12/19/2005 ......................................... 166,000 165,916
US Bank, NA, 2.485%, Due 12/29/2005 ............................................. 125,000 124,970
----------
TOTAL VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES ................ 1,809,087
----------
VARIABLE RATE PROMISSORY NOTES (NOTE D) - 5.55%
Goldman Sachs Group, 2.28%, Due 8/9/2005 ........................................ 300,000 300,000
----------
TOTAL VARIABLE RATE PROMISSORY NOTES ...................................... 300,000
----------
VARIABLE RATE FUNDING AGREEMENTS (NOTES A AND D) - 2.77%
Metropolitan Life Insurance Company,
2.48%, Due 11/21/2005 ........................................................ 100,000 100,000
2.56%, Due 12/1/2005 ......................................................... 50,000 50,000
----------
TOTAL VARIABLE RATE FUNDING AGREEMENTS .................................... 150,000
----------
MEDIUM-TERM NOTES - 36.28%
FIXED RATE - 5.41%
Bank of Scotland Treasury Services plc, 2.53%, Due 3/14/2005 .................... 292,360 292,403
----------
TOTAL FIXED RATE .......................................................... 292,403
----------
VARIABLE RATE (NOTE D) - 30.87%
American Honda Finance Corporation,
2.183%, Due 1/13/2005 ........................................................ 25,000 25,001
2.386%, Due 2/11/2005 ........................................................ 10,000 10,002
2.14%, Due 4/11/2005, 144A (Note C) .......................................... 60,000 60,021
2.11%, Due 10/7/2005 ......................................................... 25,000 25,018
Caterpillar Financial Services, 2.35%, Due 8/15/2005 ............................ 71,000 71,038
Citigroup, Incorporated, 2.28%, Due 2/7/2005 .................................... 170,965 170,983
Credit Suisse First Boston Corporation, 2.278%, Due 4/5/2005 .................... 45,000 45,032
See accompanying notes
- --------------------------------------------------------------------------------
29
AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
General Electric Capital Corporation, 2.51%, Due 1/17/2006 ...................... $180,000 $ 180,000
General Electric Company, 2.15%, Due 10/24/2005 ................................. 43,975 44,002
Merrill Lynch & Company, Incorporated,
2.37%, Due 1/13/2005 .......................................................... 124,000 124,014
2.37%, Due 1/18/2005 .......................................................... 20,000 20,003
Monumental Global Funding II, 144A (Note C)
2.146%, Due 7/1/2005 .......................................................... 87,000 87,069
2.06%, Due 7/6/2005 ........................................................... 55,000 55,015
Paccar Financial Corporation,
2.04%, Due 4/15/2005 .......................................................... 35,000 35,001
2.00%, Due 7/11/2005 .......................................................... 50,000 49,996
2.44%, Due 9/16/2005 .......................................................... 40,000 39,993
Salomon Smith Barney Holdings, Incorporated, 2.086%, Due 4/1/2005 ............... 100,000 100,030
Toyota Motor Credit Corporation,
2.058%, Due 1/14/2005 ......................................................... 50,000 50,001
2.266%, Due 2/11/2005 ......................................................... 50,000 50,002
2.451%, Due 6/22/2005 ......................................................... 41,500 41,494
2.02%, Due 10/7/2005 .......................................................... 70,000 70,007
2.28%, Due 11/18/2005 ......................................................... 50,000 50,003
US Bancorp, 2.65%, Due 9/16/2005 ................................................ 20,000 20,025
Wells Fargo and Company,
2.57%, Due 3/24/2005 .......................................................... 80,000 80,015
2.379%, Due 9/29/2005 ......................................................... 15,000 15,008
2.373%, Due 1/13/2006, 144A (Note C) .......................................... 150,000 150,000
----------
TOTAL VARIABLE RATE ........................................................ 1,668,773
----------
TOTAL MEDIUM-TERM NOTES .................................................... 1,961,176
----------
TOTAL INVESTMENTS - 99.82% (Cost $5,396,714) .................................... 5,396,714
----------
OTHER ASSETS, NET OF LIABILITIES - 0.18% ........................................ 9,707
----------
TOTAL NET ASSETS - 100%.......................................................... $5,406,421
==========
- --------------
Based on the cost of investments of $5,396,714 for federal
income tax purposes at December 31, 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 Goldman Sachs, 4.50% -6.50%, Due
11/1/2009 - 12/1/2034, Total Value - $536,980.
(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 $352,105 or 6.51% of net assets.
(D) The coupon rate shown on floating or adjustable rate securities represents
the rate at period end. The due date on these types of securities reflects
the final maturity date.
See accompanying notes
- --------------------------------------------------------------------------------
30
AMR INVESTMENT SERVICES U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE A) - 52.40%
Banc of America Securities, LLC, 2.23%, Due 1/4/2005 ...................... $ 15,000 $ 15,000
Goldman Sachs, 2.29%, Due 1/3/2005 ........................................ 50,737 50,737
UBS Tri Party,
2.20%, Due 1/3/2005 ..................................................... 45,000 45,000
2.25%, Due 1/3/2005 ..................................................... 20,000 20,000
--------
TOTAL REPURCHASE AGREEMENTS .......................................... 130,737
--------
U.S. GOVERNMENT AGENCY INSTRUMENTS - 53.45%
Federal Home Loan Bank,
Discount Note, 2.15%, Due 1/21/2005 (Note B) ............................ 4,000 3,995
Variable Rate Note, 1.11%, Due 7/26/2005 (Note C)........................ 15,000 14,998
Variable Rate Note, 1.10%, Due 8/2/2005 (Note C)......................... 15,000 14,999
Variable Rate Note, 0.993%, Due 10/5/2005 (Note C)....................... 5,000 4,998
Federal Home Loan Mortgage Corporation,
Discount Note, 2.29%, Due 1/24/2005 (Note B) ............................ 3,600 3,595
Discount Note, 2.29%, Due 2/1/2005 (Note B) ............................. 5,000 4,990
Agency Note, 3.875%, Due 2/15/2005 ...................................... 10,000 10,020
Discount Note, 2.395%, Due 3/15/2005 (Note B)............................ 10,000 9,951
Variable Rate Note, 1.085%, Due 9/9/2005 (Note C) ....................... 5,000 5,001
Federal National Mortgage Association,
Discount Note, 2.30%, Due 2/4/2005 (Note B) ............................. 3,100 3,093
Agency Note, 1.375%, Due 2/11/2005 ...................................... 20,000 19,980
Discount Note, 2.40%, Due 2/23/2005 (Note B)............................. 1,495 1,490
Discount Note, 2.39%, Due 3/4/2005 (Note B) ............................. 5,000 4,979
Variable Rate Note, 0.98%, Due 10/3/2005 (Note C)........................ 10,000 9,995
Variable Rate Note, 1.47%, Due 10/3/2005 (Note C)........................ 6,300 6,297
Variable Rate Note, 1.05%, Due 12/9/2005 (Note C)........................ 15,000 14,992
--------
TOTAL U.S. GOVERNMENT AGENCY INSTRUMENTS ............................. 133,373
--------
TOTAL INVESTMENTS - 105.85% (COST $264,110) ............................... 264,110
--------
LIABILITIES, NET OF OTHER ASSETS - (5.85%)................................. (14,591)
--------
TOTAL NET ASSETS - 100% ................................................... $249,519
========
- -------------
Based on the cost of investments of $264,110 for federal income tax purposes at
December 31, 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 4/1/2034, Total Value - $15,300; and Goldman Sachs, 5.50%, Due
2/1/2019 - 11/1/2034, Total Value - $51,751; and at JP Morgan Chase Bank for
UBS Securities, LLC, 2.851 - 4.102%, Due 11/1/2033 - 12/1/2034, Total
Value - $66,103.
(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
- --------------------------------------------------------------------------------
31
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- --------
(DOLLARS IN THOUSANDS)
MUNICIPAL OBLIGATIONS (NOTE A) - 92.27%
ARIZONA - 4.82%
Industrial Development Authority of the City of Mesa, Arizona-Variable Rate Revenue
Bonds-Series 199B (Discovery Health Systems), 1.99%, Due 1/1/2029, LOC MBIA ................ $1,700 $ 1,700
-------
TOTAL ARIZONA ........................................................................... 1,700
-------
COLORADO - 9.35%
Moffat County, Colorado Pollution Control Revenue Bonds, Series 1984 (Ute Electric
Company Project), Bond Insurance - Ambac Assurance Corporation, 1.95%,
Due 7/1/2010, SPA Societe Generale ......................................................... 3,300 3,300
-------
TOTAL COLORADO .......................................................................... 3,300
-------
FLORIDA - 5.19%
Alachua County, Florida Housing Financial Authority, Multifamily Housing Revenue Bonds,
Series 2001 (University Cove Apartment Project), 2.02%, Due 6/15/2034,
LOC SouthTrust Bank, NA .................................................................... 1,830 1,830
-------
TOTAL FLORIDA............................................................................ 1,830
-------
ILLINOIS - 8.13%
Solid Waste Disposal Facility Revenue Bonds for the County of Lake, Illinois, Series 1996
(Countryside Landfill Inc. Project), 2.07%, Due 4/1/2021, LOC JP Morgan Chase Bank ......... 1,070 1,070
Village of Richton Park, Illinois-Industrial Development Revenue Bonds-Series 1997
(Avatar Corporation Project), 2.19%, Due 4/1/2027, LOC Fifth Third Bank .................... 1,800 1,800
-------
TOTAL ILLINOIS .......................................................................... 2,870
-------
INDIANA - 4.76%
Fort Wayne, Indiana Industrial Economic Development Revenue Bonds, Series 1989
(ND-Tech Corporation Project), 2.03%, 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), 2.05%, Due 12/1/2011, LOC Bank One ............................ 680 680
-------
TOTAL INDIANA ........................................................................... 1,680
-------
KENTUCKY - 5.99%
Carroll County, Kentucky Solid Waste Disposal Revenue Bonds, Series 2001
(North American Stainless, L.P.), 2.01%, Due 5/1/2031, LOC Fifth Third Bank ................ 1,100 1,100
County of Breckinridge, Kentucky Association of Counties Leasing Trust, Lease Program
Revenue Bonds, Series 2001A, 2.00%, Due 2/1/2031, LOC US Bank .............................. 1,015 1,015
-------
TOTAL KENTUCKY .......................................................................... 2,115
-------
LOUISIANA - 4.50%
Calcasieu Parish Public Trust Authority, Waste Disposal Revenue Bonds, Series 1997
(WPT Corporation Project), 2.05%, Due 12/1/2027, LOC JP Morgan Chase Bank .................. 1,589 1,589
-------
TOTAL LOUISIANA ......................................................................... 1,589
-------
MARYLAND - 4.76%
Montgomery County, Maryland Variable Rate Housing Revenue Bonds, Series 1997, Issue I
(The Grand), 2.01%, Due 6/1/2030, LOC Federal National Mortgage Association ................ 1,680 1,680
-------
TOTAL MARYLAND .......................................................................... 1,680
-------
MICHIGAN - 10.23%
Michigan Higher Education Student Loan Authority, Student Loan Revenue Bonds, Series XII-X,
Bond Insurance - Ambac Assurance Corporation, 2.03%, Due 9/1/2031, SPA Lloyds TSB........... 1,000 1,000
Michigan State Hospital Finance Authority, Hospital Equipment Loan Program Bonds, Series A,
2.01%, Due 12/1/2023, LOC National City Bank NA ............................................ 775 775
See accompanying notes
- --------------------------------------------------------------------------------
32
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- ------
(DOLLARS IN THOUSANDS)
Michigan State Housing Development Authority Variable Rate Limited Obligation Multifamily
Housing Revenue Refunding Bonds, 2.03%, Due 6/1/2018, LOC Bank of New York ................... $1,835 $ 1,835
-------
TOTAL MICHIGAN ............................................................................ 3,610
-------
NEVADA - 2.83%
Nevada Housing Divison-Variable Rate Demand Multi-Unit Housing Revenue Bonds-Series 2004
(Sundance Village Apartments), 2.00%, Due 10/1/2035, LOC Citibank ............................ 1,000 1,000
-------
TOTAL NEVADA .............................................................................. 1,000
-------
NEW YORK - 2.83%
New York City Municipal Water Finance Authority, Water and Sewer Revenue Bonds, Series 1993C
Adjustable Rate Fiscal Bonds, 2.10%, Due 6/15/2022, Bond Insurance - Financial
Guaranty Insurance Company ................................................................... 1,000 1,000
-------
TOTAL NEW YORK ............................................................................ 1,000
-------
OHIO - 4.82%
Ohio Water Development Authority, Environmental Improvement Revenue Bonds, Series 2000B
(Waste Management, Incorporated Project), 2.09%, Due 7/1/2020, LOC Fleet National Bank ....... 1,700 1,700
-------
TOTAL OHIO ................................................................................ 1,700
-------
PENNSYLVANIA - 8.32%
Berks County Industrial Development Authority Manufacturing Facilities Revenue Bonds,
Series 1995 (Grafika Commerial Printing Inc.), 2.09%, Due 9/1/2010,
LOC First Union National Bank ................................................................ 1,035 1,035
Chartiers Valley, Pennsylvania Industrial and Commercial Development Authority
Commercial Development Bonds (William Penn Plaza Project), 2.05%,
Due 12/1/2016, LOC PNC Bank, NA .............................................................. 900 900
Delaware Valley, Pennsylvania Regional Finance Authority
(Bucks, Chester, Delaware and Montgomery Counties)-Local Government Revenue Bonds-
Series 1986 (Bi-Modal Multi-Term Format/Mode 1 Bonds), 1.98%, Due 8/1/2016,
LOC Toronto Domion ........................................................................... 1,000 1,000
-------
TOTAL PENNSYLVANIA ........................................................................ 2,935
-------
TEXAS - 12.48%
Brazos Harbor Industrial Development Corporation Solid Waste Disposal Revenue Bonds,
Series 2002 (Republic Waste Services of Texas, Ltd. Project), 2.05%, Due 12/1/2024,
LOC Bank of America Corporation............................................................... 1,500 1,500
City of Midlothian, Texas Industrial Development Corporation, Environmental Facilities
Revenue Bonds, Series 1999 (Holnam Texas Limited Partnership Project) 2.03%,
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), 2.04%, Due 9/1/2022,
LOC - Wells Fargo Texas ...................................................................... 1,705 1,705
-------
TOTAL TEXAS ............................................................................... 4,405
-------
UTAH - 3.26%
Morgan County, Utah Solid Waste Disposal Revenue Bonds, Series 1996
(Holman, Inc. Project), 2.05%, Due 8/1/2031, LOC Wachovia Bank, NA ........................... 1,150 1,150
-------
TOTAL UTAH ................................................................................ 1,150
-------
TOTAL MUNICIPAL OBLIGATIONS ............................................................... 32,564
-------
See accompanying notes
- --------------------------------------------------------------------------------
33
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2004
================================================================================
SHARES VALUE
-------- -------
(DOLLARS IN THOUSANDS)
OTHER INVESTMENTS - 7.54%
Dreyfus Municipal Cash Management Plus, Inc. ............................. 42,044 $ 42
Federated Municipal Obligations Fund ..................................... 1,563,186 1,563
BlackRock Provident MuniCash Fund ........................................ 1,056,159 1,056
-------
TOTAL OTHER INVESTMENTS ............................................. 2,661
-------
TOTAL INVESTMENTS - 99.81% (COST $35,225) ................................ 35,225
-------
OTHER ASSETS, NET OF LIABILITIES - 0.19% ................................. 69
-------
TOTAL NET ASSETS - 100% .................................................. $35,294
=======
Based on the cost of investments of $35,225 for federal income tax purposes at
December 31, 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
- --------------------------------------------------------------------------------
34
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2004
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS)
ASSETS:
Investments in securities at value (cost - $4,870,263,
$133,373 and $35,225, respectively) ..................... $4,870,263 $133,373 $35,225
Repurchase agreements (cost - $526,451,
$130,737 and $0 respectively) .......................... 526,451 130,737 -
Dividends and interest receivable .......................... 10,311 443 77
---------- -------- -------
TOTAL ASSETS ......................................... 5,407,025 264,553 35,302
---------- -------- -------
LIABILITIES:
Payable for investments purchased .......................... - 15,000 -
Management and investment advisory fees payable (Note 2).... 422 22 4
Other liabilities .......................................... 182 12 4
---------- -------- -------
TOTAL LIABILITIES .................................... 604 15,034 8
---------- -------- -------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS....... $5,406,421 $249,519 $35,294
========== ======== =======
See accompanying notes
- --------------------------------------------------------------------------------
35
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
Year Ended December 31, 2004
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS)
INVESTMENT INCOME:
Interest income ........................................... $77,015 $3,739 $511
------- ------ ----
TOTAL INVESTMENT INCOME .............................. 77,015 3,739 511
------- ------ ----
EXPENSES:
Management and investment advisory fees (Note 2)........... 5,461 265 41
Custodian fees ............................................ 382 19 3
Professional fees. ........................................ 132 3 1
Other expenses. ........................................... 125 11 2
------- ------ ----
TOTAL EXPENSES ....................................... 6,100 298 47
------- ------ ----
NET INVESTMENT INCOME .......................................... 70,915 3,441 464
------- ------ ----
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments .......................... 208 15 -
------- ------ ----
NET GAIN ON INVESTMENTS ............................. 208 15 -
------- ------ ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $71,123 $3,456 $464
======= ====== ====
See accompanying notes
- --------------------------------------------------------------------------------
36
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
=========================== ========================= =======================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
=========================== ========================= =======================
2004 2003 2004 2003 2004 2003
=========================== ========================= =======================
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ..................... $ 70,915 $ 52,671 $ 3,441 $ 3,099 $ 464 $ 496
Net realized gain on investments .......... 208 42 15 9 - -
------------ ------------ ----------- ----------- ------- --------
TOTAL INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................... 71,123 52,713 3,456 3,108 464 496
------------ ------------ ----------- ----------- ------- --------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions ............................. 59,602,193 55,478,689 1,351,736 1,085,963 56,379 81,957
Withdrawals ............................... (59,216,512) (57,817,456) (1,340,743) (1,324,638) (61,336) (154,776)
------------ ------------ ----------- ----------- ------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM TRANSACTIONS IN
INVESTORS' BENEFICIAL INTERESTS ....... 385,681 (2,338,767) 10,993 (238,675) (4,957) (72,819)
------------ ------------ ----------- ----------- ------- --------
NET INCREASE (DECREASE) IN NET ASSETS 456,804 (2,286,054) 14,449 (235,567) (4,493) (72,323)
------------ ------------ ----------- ----------- ------- --------
NET ASSETS:
Beginning of period ....................... 4,949,617 7,235,671 235,070 470,637 39,787 112,110
------------ ------------ ----------- ----------- ------- --------
END OF PERIOD ............................. $ 5,406,421 $ 4,949,617 $ 249,519 $ 235,070 $35,294 $39,787
============ ============ =========== =========== ======= =======
See accompanying notes
- --------------------------------------------------------------------------------
37
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
================================================================================
MONEY MARKET
===============================================
YEAR ENDED DECEMBER 31,
===============================================
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
Total return ....................................................... 1.34% 1.13% 1.81% 4.30% N/A
Ratios to average net assets (annualized):
Expenses ...................................................... 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income ......................................... 1.30% 1.14% 1.81% 3.95% 6.40%
- --------------------------------------------------------------------------------
38
================================================================================
U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
============================================= ============================================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
============================================= ============================================
2004 2003 2002 2001 2000 2004 2003 2002 2001 2000
- ---- ----- ----- ----- ----- ---- ----- ----- ----- -----
1.30% 1.11% 1.74% 4.24% N/A 1.18% 1.08% 1.39% 2.71% N/A
0.11% 0.12% 0.12% 0.11% 0.13% 0.11% 0.12% 0.12% 0.13% 0.13%
1.30% 1.13% 1.71% 3.99% 6.27% 1.14% 1.05% 1.39% 2.71% 4.05%
- --------------------------------------------------------------------------------
39
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
================================================================================
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 that was organized as a trust under the laws of the
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated as of
November 1, 2004. Prior to November 1, 2004, the Trust was organized as a trust
under the laws of the State of New York. 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 that the Trust's Board of Trustees (the "Board")
believes would result in a material dilution to shareholders or purchasers, the
Board will promptly consider the appropriate action that 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 that are subject to resale at a
later date. Repurchase agreements are fully collateralized by U.S. Treasury or
U.S. Government agency securities. All collateral is held at the custodian bank,
State Street Bank and Trust Company, or at subcustodian banks. The collateral is
monitored daily by the Manager Portfolio so that the collateral's market value
exceeds the carrying value of the repurchase agreement plus accrued interest.
- --------------------------------------------------------------------------------
40
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has 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 that
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.
Interfund Lending Program
Pursuant to an exemptive order by the Securities and Exchange Commission,
the Portfolios, along with other registered investment companies having
management contracts with the Manager, may participate in an interfund lending
program. This program provides an alternative credit facility allowing the
Portfolios to lend money to other participating series managed by the Manager.
For the year ended December 31, 2004, the Money Market Portfolio earned $1,070
under the credit facility. This amount is included in interest income on the
financial statements.
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.
3. SUBSEQUENT EVENT
Subsequent to December 31, 2004, the AMR Investment Services Money Market
Portfolios will become the American Beacon Master Money Market Portfolios. The
name change becomes effective March 1, 2005.
- --------------------------------------------------------------------------------
41
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited)
================================================================================
A special meeting of shareholders of the American AAdvantage Funds (the
"Trust") was held on August 11, 2004. The meeting related to each series of the
Trust (the "Funds"). The purpose of the meeting was to consider proposals
regarding: (i) re-election of the five current Trustees and the election of
three additional Trustees; (ii) changes to certain fundamental investment
policies of the Funds; and (iii) the adoption of an amendment to the Declaration
of Trust of the Trust to permit the Trustees to amend the Declaration of Trust
in the future without shareholder approval under certain circumstances. Certain
of the Funds ("Feeder Funds") currently operate under a "master-feeder"
structure, pursuant to which a Feeder Fund seeks its investment objective by
investing all of its investable assets in a corresponding portfolio (each a
"Portfolio") of the AMR Investment Services Trust ("AMR Trust") that has an
identical investment objective to the Feeder Fund. Interestholders of the AMR
Trust, principally the Feeder Funds, held a separate meeting to elect Trustees
and to vote on proposed changes to certain fundamental investment policies of
the Portfolios of the corresponding Feeder Funds. In addition, the
interestholders voted on whether to approve a Conversion Agreement pursuant to
which the AMR Trust would convert from a New York common trust to a
Massachusetts business trust. Shareholders of each Feeder Fund were asked to
provide voting instructions to the AMR Trust meeting. Each Feeder Fund cast its
votes at the AMR Trust meeting in the same proportion as the votes cast by the
Feeder Fund's shareholders.
Proposals 1, 3, 4, and 6 were Trust-level matters and therefore required a
majority of the shareholders of the Trust to vote to achieve a quorum. Proposals
2 and 5 were Fund-level matters and therefore required a majority of the
shareholders of a Fund to vote to achieve a quorum for that Fund. A quorum of
the Trust was present for Proposals 1 and 4, and each proposal was approved by
shareholders. Except for the Money Market and Municipal Money Market Funds, a
quorum of each Fund was present for Proposals 2 and 5, and each proposal was
approved by shareholders. A quorum of the Trust was present for Proposals 3 and
6, but there were not enough votes in favor of either proposal for shareholder
approval.
Proposals 2 and 5 for the Money Market and Municipal Money Market Funds and
Proposals 3 and 6 for the Trust were adjourned to a second special meeting of
shareholders on August 24, 2004. A quorum was still not present for the Money
Market and Municipal Money Market Funds with respect to Proposals 2 and 5 at the
August 24th meeting, so those matters were adjourned to a third special meeting
of shareholders on September 17, 2004. A quorum of the Trust was present for
Proposals 3 and 6, but the votes were not recorded and the Trust adjourned these
matters to the September 17th meeting to coincide with the other Fund-level
matters.
At the September 17th meeting, a quorum was present for the Money Market and
Municipal Money Market Funds, and Proposals 2 and 5 were approved by
shareholders. In addition, a quorum of the Trust was present for Proposals 3 and
6, and each proposal was approved by shareholders.
The final voting results for each Proposal are presented on the following
page. The vote tallies for Proposals 1, 3, 4, and 6 include votes cast by
shareholders of Funds not contained in this annual report.
- --------------------------------------------------------------------------------
42
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited) - (Continued)
================================================================================
(1) Elected the following Trustees to the Trust's Board of Trustees: W. Humphrey
Bogart, Brenda A. Cline, Alan D. Feld, Richard A. Massman, Stephen D.
O'Sullivan, William F. Quinn, R. Gerald Turner, and Kneeland Youngblood.
TRUST
------------------------------------------
FOR WITHHELD
----- --------
Bogart 650,590,849.241 14,422,434.627
Cline 650,579,020.453 14,434,263.415
Feld 645,570,380.770 19,442,903.098
Massman 650,575,979.241 14,437,304.627
O'Sullivan 650,346,585.401 14,666,698.477
Quinn 650,521,466.241 14,492,457.627
Turner 647,812,023.453 17,201,260.415
Youngblood 650,456,805.241 14,556,478.627
(2)(a) Approved a change to the fundamental investment limitation on investments
in commodities.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 226,730,052.110 4,564,294.000 32,904,356.120
Against 3,074,933.700 406,295.000 195,123.000
Abstain 11,729,088.080 87,615.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(2)(b) Approved a change to the fundamental investment limitation on lending
securities.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,577,475.230 4,564,294.000 32,865,110.120
Against 7,139,911.580 406,295.000 195,122.000
Abstain 11,816,687.080 87,615.000 39,247.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(2)(c) Approved the deletion of the fundamental investment limitation on
affiliated transactions.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 220,180,992.310 3,477,061.000 32,904,360.120
Against 9,573,919.500 1,493,528.000 195,119.000
Abstain 11,779,162.080 87,615.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(2)(d) Approved a change to the fundamental investment limitation on the
issuance of senior securities.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,154,012.230 4,071,626.000 32,904,360.120
Against 7,530,585.580 894,226.000 195,119.000
Abstain 11,849,476.080 92,352.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
- --------------------------------------------------------------------------------
43
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited) - (Continued)
================================================================================
(2)(e) Approved a change to the fundamental investment limitation on borrowing.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,583,327.230 4,071,626.000 32,904,360.120
Against 7,121,635.580 898,963.000 195,119.000
Abstain 11,829,111.080 87,615.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(2)(f) Approved a change to the fundamental investment limitation on
concentration of investments in the banking industry.
MONEY MKT
---------------
For 222,743,754.230
Against 7,112,587.580
Abstain 11,677,732.080
(3) Approved an amendment to the Trust's Declaration of Trust.
MONEY MKT
---------------
For 510,760,770.656
Against 27,955,243.657
Abstain 24,870,260.385
Broker Non-Votes* 36,787,359.000
(4) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Investment Services Trust (the "AMR Trust") to elect a Board of
Trustees.
TRUST
------------------------------------------
FOR WITHHELD
----- --------
Bogart 440,288,258.060 8,585,009.017
Cline 440,282,948.530 8,590,318.547
Feld 440,288,258.060 8,585,009.017
Massman 440,288,258.060 8,585,009.017
O'Sullivan 440,282,948.530 8,590,318.547
Quinn 440,288,258.060 8,585,009.017
Turner 440,282,948.530 8,590,318.547
Youngblood 440,288,258.060 8,585,009.017
- --------------------------------------------------------------------------------
44
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited) - (Continued)
================================================================================
(5)(a) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a change to the fundamental investment limitation on
investments in commodities with respect to the corresponding portfolio
of the AMR Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 226,456,630.110 4,564,294.000 32,904,356.120
Against 3,292,749.700 188,638.000 195,123.000
Abstain 11,784,694.080 305,272.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(5)(b) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a change to the fundamental investment limitation on
lending securities with respect to the corresponding portfolio of the AMR
Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 221,981,421.230 4,564,294.000 32,865,110.120
Against 7,550,777.580 188,638.000 195,122.000
Abstain 12,001,875.080 305,272.000 39,247.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(5)(c) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve the deletion of the fundamental investment
limitation on affiliated transactions with respect to the corresponding
portfolio of the AMR Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 220,151,923.310 3,477,061.000 32,904,360.120
Against 9,345,520.500 1,275,871.000 195,119.000
Abstain 12,036,630.080 305,272.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(5)(d) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a change to the fundamental investment limitation on
the issuance of senior securities with respect to the corresponding
portfolio of the AMR Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,172,054.230 4,070,791.000 32,865,114.120
Against 7,337,242.580 676,569.000 195,119.000
Abstain 12,024,777.080 310,844.000 39,246.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
- --------------------------------------------------------------------------------
45
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited) - (Continued)
================================================================================
(5)(e) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a change to the fundamental investment limitation on
borrowing with respect to the corresponding portfolio of the AMR Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,003,125.310 4,071,626.000 32,904,360.120
Against 7,526,537.500 681,306.000 195,119.000
Abstain 12,004,411.080 305,272.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(5)(f) Authorized the Trust, on behalf of the Money Market Fund, to vote at a
meeting of the AMR Trust to approve a change to the fundamental
investment limitation on concentration of investments in the banking
industry with respect to the corresponding portfolio of the AMR Trust.
MONEY MKT
---------------
For 222,335,064.310
Against 7,345,953.500
Abstain 11,853,056.080
(6) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a Conversion Agreement.
TRUST
---------------
For 312,363,071.187
Against 20,695,326.179
Abstain 12,389,615.881
Broker Non-Votes* 20,115,849.000
- ---------------
*Certain broker-dealers, third party administrators and other intermediaries who
offer Fund shares to their clients vote on behalf of their clients in favor of
routine proposals (e.g., Proposals 1 and 4), while entering a "non-vote" for
all non-routine proposals. If the underlying clients do not themselves vote the
non-routine proposals, the shares remain in the broker non-vote category and
effectively count as "against" votes.
- --------------------------------------------------------------------------------
46
TRUSTEES AND OFFICERS OF THE TRUST
AND THE AMR INVESTMENT SERVICES TRUST
(Unaudited)
================================================================================
The Trustees and officers of the Trust and AMR Trust are listed below,
together with their principal occupations during the past five years. Unless
otherwise indicated, the address of each person listed below is 4151 Amon Carter
Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees twenty-seven
funds in the fund complex that includes the AMR Trust, the American AAdvantage
Funds, the American AAdvantage Mileage Funds, and the American AAdvantage Select
Funds. The Trust's Statement of Additional Information contains additional
information about the Trustees and is available without charge by calling
1-800-658-5811.
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ------------------ -------------------------------------------
INTERESTED TRUSTEES
TERM
----
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (56) President and President (1986-Present) and Director (2001-Present), AMR Investment
Trustee since 1987 Services, Inc.; Chairman (1989-2003) and Director (1979-1989, 2003-Present),
and AMR Trust American Airlines Federal Credit Union; Director, Crescent Real Estate Equities,
since 1995 Inc. (1994-Present); Director, Pritchard, Hubble & Herr, LLC (investment adviser)
(2001-Present); Director of Investment Committee, Southern Methodist University
Endowment Fund (1996-Present); Member of Advisory Board, Southern Methodist
University Cox School of Business (1999-2002); Member of Pension Manager
Committee, New York Stock Exchange (1997-1998, 2000-2002); Vice Chairman,
Committee for the Investment of Employee Benefits (2004-Present); Chairman of
Defined Benefit Sub-Committee, Committee for the Investment of Employee Benefits
(1982-2004); Director, United Way of Metropolitan Tarrant County (1988-2000,
2004-Present); Trustee, American AAdvantage Select Funds (1999-Present); Trustee,
American AAdvantage Mileage Funds (1995-Present).
Alan D. Feld** (68) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present);
Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint
Properties, Inc. (1994-Present); Trustee, American AAdvantage Select Funds
(1999-Present); Trustee, American AAdvantage Mileage Funds (1996-Present).
NON-INTERESTED TRUSTEES
TERM
----
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (60) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing company)
(1998-2003); Board Member, Baylor University Medical Center Foundation
(1992-2004); Trustee, American AAdvantage Select Funds (2004-Present);
Trustee, American AAdvantage Mileage Funds (2004-Present).
Brenda A. Cline (44) Trustee since 2004 Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art
Foundation (1993-Present); Trustee, Texas Christian University (1998-Present);
Trustee, W.I. Cook Foundation, Inc. (d/b/a Cook Children's Health Foundation)
(2001-Present); Trustee, American AAdvantage Select Funds (2004-Present);
Trustee, American AAdvantage Mileage Funds (2004-Present).
- --------------------------------------------------------------------------------
47
TRUSTEES AND OFFICERS OF THE TRUST
AND THE AMR INVESTMENT SERVICES TRUST - (CONTINUED)
(Unaudited)
================================================================================
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ------------------ -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Richard A. Massman (61) Trustee since 2004 Senior Vice President and General Counsel, Hunt Consolidated, Inc.
(holding company engaged in energy, real estate, farming, ranching and
venture capital activities) (1994-Present); Trustee, American AAdvantage
Select Funds (2004-Present); Trustee, American AAdvantage Mileage Funds
(2004-Present).
Stephen D. O'Sullivan (69) Trustee of Trust Consultant (1994-Present); Trustee, American AAdvantage Select Funds
since 1987 (1999-Present); Trustee, American AAdvantage Mileage Funds (1995-
and AMR Trust Present).
since 1995
R. Gerald Turner (59) Trustee since 2001 President, Southern Methodist University (1995-Present); Director,
225 Perkins Admin. Bldg. ChemFirst (1986-2002); Director, J.C. Penney Company, Inc.
Southern Methodist Univ. (1996-Present); Director, California Federal Preferred Capital Corp.
Dallas, Texas 75275 (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing)
(2003-Present); Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of Directors; Member,
Salvation Army of Dallas Board of Directors; Member, Methodist Hospital
Advisory Board; Member, Knight Commission on Intercollegiate Athletics;
Trustee, American AAdvantage Select Funds (2001-Present); Trustee, American
AAdvantage Mileage Funds (2001-Present).
Kneeland Youngblood (49) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private equity firm)
100 Crescent Court (1998-Present); Director, Burger King Corporation (2004-Present); Trustee,
Suite 1740 The Hockaday School (1997-Present); Director, Starwood Hotels and Resorts
Dallas, Texas 75201 (2001-Present); Member, Council on Foreign Relations (1995-Present);
Director, Just For the Kids (1995-2001); Director, L&B Realty Advisors
(1998-2000); Trustee, Teachers Retirement System of Texas (1993-1999);
Director, Starwood Financial Trust (1998-2001); Trustee, St. Mark's School
of Texas (2002-Present); Trustee, American AAdvantage Select Funds
(1999-Present); Trustee, American AAdvantage Mileage Funds (1996-Present).
OFFICERS
TERM
----
One Year
Brian E. Brett (44) VP since 2004 Vice President, Director of Sales, AMR Investment Services, Inc.
(2004-Present); Regional Vice President, Neuberger Berman, LLC
(investment adviser) (1996-2004).
Nancy A. Eckl (42) VP of Trust since Vice President, Trust Investments, AMR Investment Services, Inc.
1990 and AMR (1990-Present).
Trust since 1995
Michael W. Fields (50) VP of Trust since Vice President, Fixed Income Investments, AMR Investment Services, Inc.
1989 and AMR (1988-Present).
Trust since 1995
Barry Y. Greenberg (41) VP since 1995 and Vice President, Legal, Compliance and Administration, AMR Investment
Secretary since Services, Inc. (1995-Present); Director, Pritchard, Hubble & Herr, LLC
2004 (investment adviser) (2004-Present).
Rebecca L. Harris (38) Treasurer since Vice President, Finance, AMR Investment Services, Inc. (1995-Present).
1995
- --------------------------------------------------------------------------------
48
TRUSTEES AND OFFICERS OF THE TRUST
AND THE AMR INVESTMENT SERVICES TRUST - (CONTINUED)
(Unaudited)
================================================================================
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ------------------ -------------------------------------------
OFFICERS (CONT.)
John B. Roberson (46) VP of Trust since Vice President, Client Relations & Special Projects, AMR Investment
1989 and AMR Services, Inc. (2004-Present); Vice President, Director of Sales, AMR
Trust since 1995 Investment Services, Inc. (1991-2004); Director, Pritchard, Hubble & Herr,
LLC (investment adviser) (2001-Present).
- -----------------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
70, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust and
AMR Trust, as defined by the 1940 Act. Mr. Quinn is President of the Manager.
Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided
legal services within the past two years to one or more of the Trust's and
AMR Trust's sub-advisers.
- --------------------------------------------------------------------------------
49
AMERICAN AADVANTAGE FUNDS
PRIVACY POLICY
(Unaudited)
================================================================================
The American AAdvantage Funds recognizes and respects the privacy of our
shareholders. We are providing this notice to you so you will understand how
shareholder information may be collected and used.
We may collect nonpublic personal information about you from one or more of the
following sources:
o information we receive from you on applications or other forms;
o information about your transactions with us or our service providers; and
o information we receive from third parties.
We do not disclose any nonpublic personal information about our shareholders or
former shareholders to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those employees or
service providers who need to know that information to provide products or
services to you. To ensure the confidentiality of your nonpublic information, we
maintain safeguards that comply with federal standards.
- --------------------------------------------------------------------------------
50
[LOGO OF AMR]
- --------------------------------------------------------------------------------
51
[LOGO OF AMR]
- --------------------------------------------------------------------------------
52
AMERICAN
AADVANTAGE FUNDS(R)
================================================================================
DELIVERY OF DOCUMENTS
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. Delivery of individual
copies will commence thirty days after receiving your request.
If you invest in the Funds through a financial institution, you may be able to
receive the Funds' regulatory mailings, such as the Prospectus, Annual Report
and Semi- Annual Report, by e-mail. If you are interested in this option, please
go to www.icsdelivery.com and search for your financial institution's name or
contact your financial institution directly.
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS:
[LOGO] [LOGO]
BY E-MAIL: ON THE INTERNET:
American_AAdvantage.Funds@aa.com Visit our website at www.aafunds.com
- --------------------------------------------------------------------------------
[LOGO] [LOGO]
BY TELEPHONE: BY MAIL:
Cash Management Class PlanAhead Class(R) Cash Management Class
Institutional Class ------------------ Institutional Class
- -------------------- Call (800) 388-3344 Platinum Class(SM) PlanAhead Class(R)
Call (800) 658-5811 ------------------ ------------------
Platinum Class(SM) American AAdvantage Funds American AAdvantage Funds
------------------- 4151 Amon Carter Blvd., MD 2450 P.O. Box 219643
Call (800) 967-9009 Fort Worth, TX 76155 Kansas City, MO 64121-9643
- --------------------------------------------------------------------------------
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES
In addition to the Schedule of Investments provided in each semiannual and
annual report, each Fund files a complete schedule of its portfolio holdings
with the Securities and Exchange Commission ("SEC") on Form N-Q as of the first
and third fiscal quarters. The Funds' Forms N-Q are available on the SEC's
website at www.sec.gov. The Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549.
Information regarding the operation of the SEC's Public Reference Room may be
obtained by calling 1-800-SEC-0330. A complete schedule of each Fund's portfolio
holdings is also available on the Funds' website (www.aafunds.com) approximately
thirty days after the end of each fiscal quarter.
AVAILIABILITY OF PROXY VOTING POLICY AND RECORDS
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available in each Fund's
Statement of Additional Information, which may be obtained free of charge by
calling 1-800-967-9009 or by accessing the SEC's website at www.sec.gov. Each
Fund's proxy voting record for the most recent year ended June 30 is filed
annually with the SEC on Form N-PX. The Funds' Forms N-PX are available on the
SEC's website at www.sec.gov. Each Fund's proxy voting record may also be
obtained by calling 1-800-967-9009.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP Portland, Maine
Chicago, Illinois
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, Inc.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.
- --------------------------------------------------------------------------------
533227
[AMERICAN AADVANTAGE FUNDS LOGO]
- ---------------------------------------o---------------------------------------
ANNUAL REPORT
December 31, 2004
[GRAPHIC]
S&P 500 INDEX FUND
SMALL CAP INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
MANAGED BY AMR INVESTMENTS
[AA EAGLE]
About AMR Investments
- --------------------------------
AMR Investments is an
experienced provider of
investment advisory services to
institutional and retail
markets. We act as manager of
the American AAdvantage Funds, a
family of diversified mutual
funds, and offer customized
fixed income portfolio
management services.
Our clients include defined
benefit plans, defined
contribution plans, foundations,
endowments, corporations, and
other institutional investors.
AMR Investments is a wholly
owned subsidiary of AMR
Corporation. Incorporated in
1986, we are directly
responsible for the investment
management and oversight of AMR
Corporation's defined benefit
and defined contribution plans,
as well as its fixed income
investments.
Any opinions herein, including forecasts, reflect our judgement as of the end of
the reporting period and are subject to change. Each adviser's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, AMR Investment
Services, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
<Table>
<Caption>
Contents
--------------------------------------------
President's Message..................... 1
Performance Overviews................... 4
American AAdvantage Funds
Statements of Assets and
Liabilities....................... 12
Statements of Operations............. 13
Statements of Changes in Net Assets.. 14
Notes to Financial Statements........ 15
Financial Highlights................. 21
State Street Equity 500 Index Portfolio
Portfolio of Investments............. 32
Statement of Assets and Liabilities.. 38
Statement of Operations.............. 39
Statements of Changes in Net Assets.. 40
Financial Highlights................. 41
Notes to Financial Statements........ 42
Master Small Cap Index Series
Summary Schedule of Investments...... 49
Statement of Assets and Liabilities.. 56
Statement of Operations.............. 57
Statements of Changes in Net Assets.. 58
Financial Highlights................. 59
Notes to Financial Statements........ 60
Master International Index Series
Summary Schedule of Investments...... 69
Statement of Assets and Liabilities.. 75
Statement of Operations.............. 76
Statements of Changes in Net Assets.. 77
Financial Highlights................. 78
Notes to Financial Statements........ 79
Additional Information.....Inside Back Cover
</Table>
American AAdvantage Funds December 31, 2004
[BILL QUINN PICTURE]
FELLOW SHAREHOLDERS,
E nclosed please find the Annual Report for the American AAdvantage S&P 500,
International Equity, and Small Cap Index Funds for the twelve months ended
December 31, 2004.
The year 2004 ended on a positive note, as the major market indices posted
gains. The S&P 500 Index reported a gain of 10.88%, the MSCI EAFE Index
increased 20.25%, and the Dow Jones Industrial Average was up 5.31%.
During the year, the American AAdvantage S&P 500 Index Fund realized an
increase of 10.76%, the American AAdvantage Small Cap Index Fund grew by 17.91%,
and the American AAdvantage International Equity Index Fund returned 20.12%.
Looking forward, each of these Funds will continue to pursue their
objective to replicate the returns, before expenses, of each Fund's
corresponding Index.
Please review the enclosed portfolio listings and detailed financial data.
As always, we welcome the opportunity to serve your financial needs. Should you
have any questions about the enclosed information, please do not hesitate to
contact us at 800-967-9009. You may also access Fund and account information at
www.aafunds.com. Thank you for your continued confidence in the American
AAdvantage Funds.
Sincerely,
-s- WILLIAM F. QUINN
William F. Quinn, President
American AAdvantage Funds
1
(AMERICAN EAGLE LOGO)
2
DOMESTIC ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
The beginning of 2004 brought a significant rise in equities driven by better
than expected earnings. The Russell 2000 Index posted a total return of 6.26%
and the S&P 500 Index posted a total return of 1.69% for the first quarter of
2004.
The second quarter of 2004 showed flat to positive returns for the domestic
equity market influenced mainly by indecisive investors. This behavior stemmed
from continued political tension in the U.S., violence in Iraq, record high oil
prices, and improving economic data.
The flow of economic news continually pointed towards a strengthening
economy. However, the stock market still faced a number of uncertain challenges,
including the geopolitical situation, record high oil prices, U.S. election
build up, and a shifting Fed policy.
The equity markets generally sank in July and August, weighted by
second-quarter earnings releases that failed to offer enough exuberance
regarding the second half of the year, a stunningly weak July jobs report and a
sharp rise in crude oil prices. The fourth quarter, however, proved to be the
break out that investors were looking for in the U.S. equity markets as negative
October news segued into positive November and December news. As a result of
lower oil prices, unwinding of the election uncertainty, reasonably good
economic and earnings news, and the beginning of the seasonally strong year-end
period, the market experienced a positive post-election bounce. As expected, the
Federal Reserve continued to raise the Federal Funds rate. During 2004, the Fed
more than doubled the Federal Funds rate from 1% to its current rate of 2.25%.
Overall, favorable liquidity conditions, stimulative fiscal policy, and rising
earnings expectations have been responsible for the equity bull market that
began in October 2002.
2004 ended with an economy that is beginning to slow, a deceleration in
earnings growth, the Fed continuing to move rates higher, anticipation of
legislative progress on many fronts in Washington and continuing concerns about
the structural problems of debt and deficits as reflected by a significant
decline in the U.S. dollar.
The recent increase in equity prices to new cyclical highs has led to
questions about how much upside potential exists. Valuation levels, at least on
an absolute basis, are somewhat stretched, although the profit environment is
still strong enough to support the market. Equity prices could have fallen as a
result of the Fed's recent rate hike, but clearly have been benefiting from
recent declines in bond yields as well as from the declining dollar.
S&P is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for
use. "Standard and Poor's(R)," "S&P(R)," "Standard & Poor's 500," "S&P500(R)"
and "500" are all trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by State Street Bank and Trust Company.
Russell 2000 Index is a service mark of the Frank Russell Company.
3
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE S&P 500 INDEX FUND(SM)+
December 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2004, the total return of the
Institutional Class of the American AAdvantage S&P 500 Index Fund was 10.76%, in
line with the S&P 500 Index return of 10.88% and in excess of the Lipper S&P 500
Objective Funds Index return of 10.56%.
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL PLANAHEAD S&P 500 LIPPER S&P 500
CLASS CLASS INDEX INDEX
12/96.. $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/97.. $13,309.00 $13,309.00 $13,336.00 $13,308.00
12/98.. $17,151.00 $17,113.00 $17,147.00 $17,079.00
12/99.. $20,702.00 $20,576.00 $20,755.00 $20,601.00
12/00.. $18,807.00 $18,646.00 $18,867.00 $18,685.00
12/01.. $16,528.00 $16,319.00 $16,625.00 $16,404.00
12/02.. $12,847.00 $12,633.00 $12,951.00 $12,746.00
12/03.. $16,478.00 $16,126.00 $16,665.00 $16,345.00
12/04.. $18,251.00 $17,772.00 $18,479.00 $18,071.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-------------------------------------
PERIODS ENDED 12/31/04
-------------------------------------
SINCE
INCEPTION
1 YEAR 3 YEAR 5 YEAR (12/31/96)
------ ------ ------ ----------
Institutional Class(1)... 10.76% 3.36% -2.49% 7.81%
PlanAhead Class(1, 2).... 10.21% 2.89% -2.89% 7.45%
Lipper S&P 500 Objective
Funds Index............. 10.56% 3.28% -2.59% 7.68%
S&P 500 Index............ 10.88% 3.59% -2.30% 7.98%
</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 for
2004. Not surprisingly, the Energy sector, up 31.3%, was the top performer this
year due to surging oil prices, which fueled investor optimism. The second best
performing sector for 2004 was Utilities, which was up 24.5%. Health Care, up
1.9%, was the weakest performing sector for 2004 as threats of competition from
drug imports and concerns about declining new product pipelines punished some of
the larger companies within this sector. Information Technology, up 2.6%, was
not much better than the Health Care sector, having been the worst-performing
sector of the Index during the third quarter of 2004. In general, many of the
more speculative companies in this sector fell due to lackluster spending on
technology by corporate America.
The top contributing stocks to the Index's return for the twelve-month
period ended December 31, 2004 were Exxon Mobil (up 28.0%), General Electric (up
20.7%) and Johnson & Johnson (up 25.2%). The largest detractors for the year
were Pfizer (down 22.3%), Intel (down 26.6%) and Cisco Systems (down 20.3%).
As of December 31, 2004, the Fund's largest sector weightings were
Financials (20.6% of assets), Information Technology (16.0% of assets), and
Health Care (12.7% 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 in approximately the same weightings as the
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. 3.4%
Exxon Mobil Corp. 2.9%
Microsoft Corp. 2.6%
Citigroup, Inc. 2.2%
Wal Mart Stores, Inc. 2.0%
Pfizer, Inc. 1.8%
Bank of America Corp. 1.7%
Johnson & Johnson 1.7%
American Int'l Group, Inc. 1.5%
IBM 1.5%
</Table>
* Percent of total common stock or equity investments held by
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 S&P 500 INDEX FUND(SM) -- CONTINUED
December 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financials 20.6%
Information Technology 16.0%
Health Care 12.7%
Consumer Discretionary 11.9%
Industrials 11.8%
Consumer Staples 10.5%
Energy 7.1%
Telecommunication Services 3.3%
Materials 3.1%
Utilities 2.9%
</Table>
* Percent of total common stocks or equity investments held by
State Street Equity 500 Index Portfolio
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period in each Class and held for the entire period from July 1, 2004
through December 31, 2004.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
Institutional and PlanAhead Classes that invest in the Fund through an IRA may
be subject to a custodial IRA fee of $12 that is typically deducted each
December. If your account was subject to a custodial IRA fee during the period,
your costs would have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed 5% per year rate of return before expenses (not the
Fund's actual return). You may compare the ongoing costs of investing in the
Fund with other funds by contrasting this 5% hypothetical example and the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. Shareholders
of the Institutional and PlanAhead Classes Classes that invest in the Fund
through an IRA may be subject to a custodial IRA fee of $12 that is typically
deducted each December. If your account was subject to a custodial IRA fee
during the period, your costs would have been $12 higher.
You should also be aware that the expenses shown in the table highlight
only your ongoing costs and do not reflect any transaction costs charged by the
Fund. Similarly, the expense examples for other funds do not reflect any
transaction costs charged by those funds, such as sales charges (loads),
redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the
table are useful in comparing ongoing costs only and will not help you determine
the relative total costs of owning different funds. If you were subject to any
transaction costs during the period, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,070.98 $0.89
Hypothetical $1,000.00 $1,024.27 $0.87
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $1,068.55 $3.26
Hypothetical $1,000.00 $1,021.99 $3.18
(5% return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratios
for the six-month period of 0.17%, 0.63%, for the Institutional, and
PlanAhead Classes, respectively, multiplied by the average account value
over the period, multiplied by the number derived by dividing the number of
days in the most recent fiscal half-year (184) by days in the year (366) to
reflect the half-year period.
5
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE SMALL CAP INDEX FUND(SM)
December 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2004, the total return of the
Institutional Class of the American AAdvantage Small Cap Index Fund was 17.91%.
The Fund's performance was slightly below the Russell 2000(R) Index return of
18.33%, and the Lipper Small-Cap Core Funds Index return of 18.36%.
(GRAPH)
<Table>
<Caption>
LIPPER
INSTITUTIONAL SMALL-CAP RUSSELL
CLASS CORE INDEX 2000 INDEX
7/31/00 $10,000.00 $10,000.00 $10,000.00
12/00 $ 9,741.00 $10,166.00 $ 9,725.00
12/01 $ 9,943.00 $10,890.00 $ 9,967.00
12/02 $ 7,917.00 $ 8,795.00 $ 7,926.00
12/03 $11,631.00 $12,391.00 $11,671.00
12/04 $13,714.00 $14,666.00 $13,810.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
PERIODS ENDED 12/31/04
---------------------------
SINCE
INCEPTION
1 YEAR 3 YEAR (7/31/00)
------ ------ ---------
Institutional Class(1).............. 17.91% 11.32% 7.42%
Lipper Small-Cap Core Index......... 18.36% 10.43% 9.06%
Russell 2000 Index.................. 18.33% 11.48% 7.58%
</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.
For the year, 11 of 12 Russell 2000 sectors posted positive returns. The
top-performing sector was Other Energy, returning an impressive 50.5%, followed
by Other (which includes many conglomerates) and Integrated Oils, up 44.8% and
38.1%, respectively. The worst performing sector for the year was Technology,
with a negative return of 1.9%, followed by Consumer Staples, up 13.5%, and
Health Care, up 15.9%.
The Index's best individual performers for 2004 were W.R. Grace & Co, up
429.6%, NitroMed Inc., up 339.8%, and Coldwater Creek Inc., up 321.0%. The worst
performing stocks for the year were Genta Inc., down 83.1%, FLYi Inc., down
82.0%, and Verso Technologies Inc., down 77.7%.
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*
--------------
New Century Financial Corp. (REIT) 0.23%
Terex Corp. 0.21%
Crown Holdings, Inc. 0.20%
Goodyear Tire & Rubber Co. 0.20%
Landstar System, Inc. 0.20%
Valeant Pharmaceuticals International 0.20%
First Bancorp Of Puerto Rico 0.20%
Joy Global, Inc. 0.19%
Energen Corp. 0.19%
Tesoro Corp. 0.19%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financial Services 24.1%
Consumer Discretionary 17.8%
Technology 12.6%
Health Care 11.8%
Materials & Processing 10.0%
Producer Durables 8.1%
Other Energy 4.8%
Autos and Transportation 4.4%
Utilities 4.2%
Consumer Staples 1.6%
Other 0.5%
Integrated Oils 0.1%
</Table>
* Percent of total common stock or equity investments held by
Master Small Cap Index Series
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
6
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE SMALL CAP INDEX FUND(SM) -- CONTINUED
December 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
The examples are based on an investment of $1,000 invested at the beginning
of the period and held for the entire period from July 1, 2004 through December
31, 2004.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
Institutional Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed 5% per year rate of return before expenses (not the
Fund's actual return). You may compare the ongoing costs of investing in the
Fund with other funds by contrasting this 5% hypothetical example and the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. Shareholders
of the Institutional Class that invest in the Fund through an IRA may be subject
to a custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
You should also be aware that the expenses shown in the table highlight
only your ongoing costs and do not reflect any transaction costs charged by the
Fund. Similarly, the expense examples for other funds do not reflect any
transaction costs charged by those funds, such as sales charges (loads),
redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the
table are useful in comparing ongoing costs only and will not help you determine
the relative total costs of owning different funds. If you were subject to any
transaction costs during the period, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,106.47 $1.25
Hypothetical $1,000.00 $1,023.95 $1.20
(5% return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratios
for the six-month period of 0.24%, multiplied by the average account value
over the period, multiplied by the number derived by dividing the number of
days in the most recent fiscal half-year (184) by days in the year (366) to
reflect the half-year period.
7
INTERNATIONAL ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
The first quarter of 2004 began with a renewed investor appetite for risk and
upward movement in the MSCI EAFE in January and February. Fears of terrorist
activity resurfaced as the markets reacted sharply to the attack in Madrid. The
"flight to quality" took over and top performers featured high-quality and value
issues, as market uncertainty caused investors to change favor from the
low-quality, low-price, and high beta securities that performed well in the
fourth quarter of 2003.
The second quarter of 2004 showed positive yet unimpressive 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. The shift
in investor favor from low-quality, low-price, and high beta securities to
higher-quality, higher-cap and lower-beta stocks that began at the end of the
first quarter grew stronger into the second quarter of 2004.
The third quarter proved to be a slightly negative period as the MSCI EAFE
returned -0.28% and the MSCI World returned -1.00%. The war in Iraq and the
risks associated with the geopolitical situation did nothing to ease investors'
fears, especially as oil prices continued to climb.
However, oil prices began to recede in the fourth quarter, and
international market indices broke out of their slump with a vengeance. The MSCI
EAFE returned 15.32% and the MSCI World returned 11.95% for the fourth quarter
alone.
The European markets moved upward over the year, with the Dow Jones STOXX
50 closing at 2,774.77, up 114.40 points or 4.30% in euros, and the FTSE 100
closing at 4,814.30, up 337.40 points or 7.54% in UK sterling. In the Asian
markets, the Hang Seng Index closed up 1,654.20 points at 14,230.14 or 13.15% in
Hong Kong dollars and the Nikkei 225 Index closed up 812.12 points at 11,488.76
or 7.61% in yen.
The European Central Bank (ECB) decided to maintain exchange rates at 2.00%
throughout the year, the lowest level since 1999.
The U.S. dollar is set for the longest annual losing streak since 1987, as
it is being hampered by record current account and fiscal deficits, less
appetite among foreign investors for U.S. assets, and comments from Federal
Reserve and Treasury officials suggesting they favor a weaker dollar. The dollar
stands at a near record low against the euro, down over 15% from its high for
the year. At the end of the year, the dollar traded at a record high against the
yen, but both currencies are sliding in line together against the euro.
Although the regional European economy is lagging, companies are well
placed to benefit from improving external demand. Earnings momentum is building,
but the strong euro will trim unhedged overseas earnings.
UK companies are feeling the effects of stronger sterling, higher interest
rates (via the housing market and retail sales) and modest economic recovery.
In Japan, disappointing economic data has raised questions about the
sustainability of the recovery, but the bottom up evidence supports equity
valuations.
8
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND(SM)
December 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2004, the Institutional Class of
the American AAdvantage International Equity Index Fund posted an impressive
total return of 20.12%, closely tracking the MSCI EAFE Index return of 20.25%
and outperforming the Lipper International Large-Cap Core Funds Index return of
17.10%.
(GRAPH)
<Table>
<Caption>
LIPPER
INSTITUTIONAL EAFE INTERNATIONAL
CLASS INDEX INDEX
- ----------------------------------------------------
7/31/00 $10,000.00 $10,000.00 $10,000.00
12/00 $ 9,297.00 $ 9,338.00 $ 9,191.00
12/01 $ 7,239.00 $ 7,321.00 $ 7,413.00
12/02 $ 6,106.00 $ 6,177.00 $ 6,387.00
12/03 $ 8,479.00 $ 8,560.00 $ 8,687.00
12/04 $10,185.00 $10,294.00 $10,304.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
PERIODS ENDED 12/31/04
---------------------------
SINCE
INCEPTION
1 YEAR 3 YEAR (7/31/00)
------ ------ ---------
Institutional Class(1).............. 20.12% 12.05% 0.42%
Lipper Int'l. Large-Cap Core Funds
Index.............................. 17.10% 4.80% -1.71%
EAFE Index(2)....................... 20.25% 12.02% 0.66%
</Table>
1. Past performance is not indicative of future performance.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Fund performance in the table above does not
reflect the deduction of taxes a shareholder would pay on distributions or
the redemption of shares.
2. Performance is that of the MSCI EAFE Index through
9/30/01, the MSCI Provisional EAFE Index from 10/1/01 through 5/31/02, and
the MSCI EAFE Index thereafter.
All 21 countries in the MSCI EAFE Index ("EAFE") posted positive returns
for the year. Ten countries posted returns in excess of 30% and Finland was the
only country to post single digit growth, coming in at slightly over 6%. The top
performer was Austria, up 71.5%, followed by Norway and Greece, with respective
returns of 53.3% and 46.1%, all in U.S. dollars. The worst performers for the
year were Finland, the Netherlands, and Switzerland with respective returns of
6.1%, 12.2%, and 15.0%.
Turning to sector performance, all 10 EAFE sectors posted positive returns
for the year, led by Utilities, up 33.7%, Energy, up 24.2%, and Financials, up
23.6%. Lagging performers were Information Technology, up 6.8%, Health Care, up
14.3%, and Consumer Staples, up 18.0%. Although they lagged in comparison with
other sectors, all but one sector had double-digit returns for the year.
The Index's best individual performers for 2004 were Aristocrat Leisure
Ltd, up 501.9%, Elan Corp. PLC, up 286.8%, and Rakuten Inc., up 159.3%. The
worst performers were Waterford Wedgwood PLC, down 65.2%, Seat Pagine Gialle
SpA, down 51.6%, and Tiscali, down 46.9%.
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.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF EQUITIES*
--------------
BP plc 2.3%
HSBC Holdings plc 2.1%
Vodafone Group plc 1.9%
GlaxoSmithKline plc 1.5%
Total SA 1.4%
Royal Dutch Petroleum Co. 1.4%
Novartis AG 1.3%
Toyota Motor Corp. 1.3%
Nestle SA 1.2%
Royal Bank of Scotland Group plc 1.2%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES* EAFE
-------------- -----
Financials 27.4% 27.6%
Consumer Discretionary 12.4% 12.3%
Industrials 9.7% 9.5%
Health Care 8.0% 8.0%
Energy 8.0% 8.1%
Consumer Staples 8.0% 8.1%
Telecommunication Services 7.6% 7.7%
Materials 7.3% 7.2%
Information Technology 6.4% 6.3%
Utilities 5.2% 5.2%
</Table>
* Percent of total common stock or equity investments held by
Master International Index Series.
9
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND(SM) -- CONTINUED
December 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
COUNTRY ALLOCATION
(COUNTRY WEIGHTINGS PIE CHART)
<Table>
<Caption>
% OF EQUITIES* EAFE
-------------- -----
United Kingdom 25.1% 25.0%
Japan 21.8% 21.9%
France 9.4% 9.4%
Germany 7.0% 7.0%
Switzerland 6.8% 6.8%
Australia 5.0% 5.1%
Netherlands 4.7% 4.8%
Italy 4.3% 4.3%
Spain 4.1% 4.1%
Sweden 2.5% 2.5%
Hong Kong 1.7% 1.7%
Finland 1.4% 1.4%
Belgium 1.3% 1.3%
Ireland 0.9% 0.9%
Singapore 0.9% 0.8%
Denmark 0.8% 0.8%
Greece 0.6% 0.6%
Norway 0.6% 0.6%
Austria 0.4% 0.4%
Portugal 0.4% 0.4%
New Zealand 0.3% 0.2%
</Table>
* Percent of total common stock or equity investments held by
Master International Index Series
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period and held for the entire period from July 1, 2004 through December
31, 2004.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
Institutional Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed 5% per year rate of return before expenses (not the
Fund's actual return). You may compare the ongoing costs of investing in the
Fund with other funds by contrasting this 5% hypothetical example and the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. Shareholders
of the Institutional Class that invest in the Fund through an IRA may be subject
to a custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
You should also be aware that the expenses shown in the table highlight
only your ongoing costs and do not reflect any transaction costs charged by the
Fund. Similarly, the expense examples for other
10
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND(SM) -- CONTINUED
December 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
funds do not reflect any transaction costs charged by those funds, such as sales
charges (loads), redemption fees or exchange fees. Therefore, the "Hypothetical"
lines of the table are useful in comparing ongoing costs only and will not help
you determine the relative total costs of owning different funds. If you were
subject to any transaction costs during the period, your costs would have been
higher.
<Table>
<Caption>
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,148.13 $1.41
Hypothetical $1,000.00 $1,023.82 $1.33
(5% return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratios
for the six-month period of 0.26%, multiplied by the average account value
over the period, multiplied by the number derived by dividing the number of
days in the most recent fiscal half-year (184) by days in the year (366) to
reflect the half-year period.
11
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2004
- --------------------------------------------------------------------------------
(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................ $ 292,503 $ 40,312 $ 24,465
Receivable for fund shares sold......................... 414 -- --
----------- ---------- ----------
TOTAL ASSETS........................................ 292,917 40,312 24,465
----------- ---------- ----------
LIABILITIES:
Payable for fund shares redeemed........................ 1,783 1,099 1,300
Administrative service fees payable (Note 2)............ 20 2 1
Other liabilities....................................... 102 15 8
----------- ---------- ----------
TOTAL LIABILITIES................................... 1,905 1,116 1,309
----------- ---------- ----------
NET ASSETS.................................................. $ 291,012 $ 39,196 $ 23,156
=========== ========== ==========
ANALYSIS OF NET ASSETS:
Paid-in capital......................................... $ 266,446 $ 31,015 $ 24,132
Undistributed net investment income..................... 128 21 (32)
Accumulated net realized loss........................... (46,710) (270) (1,176)
Unrealized net appreciation of investments and futures
contracts............................................. 71,148 8,430 232
----------- ---------- ----------
NET ASSETS.................................................. $ 291,012 $ 39,196 $ 23,156
=========== ========== ==========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class..................................... 14,894,778 3,117,551 2,464,801
=========== ========== ==========
PlanAhead Class......................................... 2,855,327 N/A N/A
=========== ========== ==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class..................................... $ 16.43 $ 12.57 $ 9.39
=========== ========== ==========
PlanAhead Class......................................... $ 16.23 N/A N/A
=========== ========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
12
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------
(in thousands)
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INDEX INDEX EQUITY INDEX
------- --------- -------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO:
Portfolio income........................................ $5,590 $ 514 $ 572
Portfolio expenses...................................... (124) (36) (24)
------- ------ ------
NET INVESTMENT INCOME ALLOCATED FROM MASTER
PORTFOLIO......................................... 5,466 478 548
------- ------ ------
FUND EXPENSES:
Administrative service fees (Note 2):
Institutional Class................................. 118 23 12
PlanAhead Class..................................... 99 -- --
Transfer agency fees:
Institutional Class................................. 77 11 6
PlanAhead Class..................................... 15 -- --
Custody and Accounting fees............................. 12 18 12
Professional fees....................................... 23 3 1
Registration fees....................................... 24 3 3
Service fees - PlanAhead Class (Note 2)................. 99 -- --
Printing................................................ 40 7 3
Other expenses.......................................... 20 3 --
------- ------ ------
TOTAL FUND EXPENSES................................. 527 68 37
------- ------ ------
NET INVESTMENT INCOME....................................... 4,939 410 511
------- ------ ------
REALIZED AND UNREALIZED GAIN (LOSS) ALLOCATED FROM MASTER
PORTFOLIO:
Net realized gain (loss) from investment transactions... (3,558) 1,654 5,436
Net realized gain from futures transactions............. 814 -- --
Net change in unrealized appreciation of investments and
futures contracts..................................... 26,225 2,795 (739)
------- ------ ------
NET GAIN ON INVESTMENTS............................. 23,481 4,449 4,697
------- ------ ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $28,420 $4,859 $5,208
======= ====== ======
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
13
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(in thousands)
<Table>
<Caption>
S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX
-------------------------- -------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- -------------------------- --------------------------
2004 2003 2004 2003 2004 2003
----------- ------------ ----------- ------------ ----------- ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................ $ 4,939 $ 3,826 $ 410 $ 253 $ 511 $ 175
Net realized gain (loss) on
investments and futures
transactions....................... (2,744) (10,276) 1,654 264 5,436 (66)
Change in net unrealized appreciation
(depreciation) of investments and
futures contracts.................. 26,225 69,056 2,795 8,677 (739) 2,328
-------- --------- --------- -------- -------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... 28,420 62,606 4,859 9,194 5,208 2,437
-------- --------- --------- -------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class.............. (4,253) (3,602) (409) (242) (617) (148)
PlanAhead Class.................. (670) (356) -- -- -- --
Net realized gain from investments
and futures transactions:
Institutional Class.............. -- -- (1,785) -- -- --
-------- --------- --------- -------- -------- -------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS.................... (4,923) (3,958) (2,194) (242) (617) (148)
-------- --------- --------- -------- -------- -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........ 46,823 185,256 101,166 67,986 62,034 6,510
Reinvestments of dividends and
distributions...................... 4,893 3,847 2,194 242 617 148
Cost of shares redeemed.............. (64,181) (188,024) (134,585) (20,651) (54,129) (3,816)
-------- --------- --------- -------- -------- -------
NET INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL SHARE
TRANSACTIONS.................... (12,465) 1,079 (31,225) 47,577 8,522 2,842
-------- --------- --------- -------- -------- -------
NET INCREASE (DECREASE) IN NET ASSETS... 11,032 59,727 (28,560) 56,529 13,113 5,131
-------- --------- --------- -------- -------- -------
NET ASSETS:
Beginning of period.................. 279,980 220,253 67,756 11,227 10,043 4,912
-------- --------- --------- -------- -------- -------
END OF PERIOD*....................... $291,012 $ 279,980 $ 39,196 $ 67,756 $ 23,156 $10,043
======== ========= ========= ======== ======== =======
* Includes undistributed net
investment income of............... $ 128 $ 147 $ 21 $ 22 $ (32) $ 16
======== ========= ========= ======== ======== =======
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
14
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
- --------------------------------------------------------------------------------
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 Institutional
Class of the S&P 500 Index Fund commenced operations on December 31, 1996, and
the Fund commenced sale of a second class of shares, designated as "PlanAhead
Class" shares, on March 2, 1998. The Institutional Class of the Small Cap Index
and the International Equity Index Funds commenced operations on July 31, 2000.
Each Fund invests all of its investable assets in a corresponding
portfolio. The State Street Equity 500 Index Portfolio, Master Small Cap Index
Series and the Master International Index Series (each a "Portfolio" and
collectively the "Portfolios") are open-ended management investment companies
registered under the Act. The value of such investment reflects each Fund's
proportionate interest in the net assets of the corresponding Portfolio.
<Table>
<Caption>
% OF PORTFOLIO
HELD BY FUND AT
AMERICAN AADVANTAGE: PORTFOLIOS: DECEMBER 31, 2004
- -------------------- ----------- -----------------
S&P 500 Index Fund State Street Equity 500 Index Portfolio 10.6%
Small Cap Index Fund Master Small Cap Index Series 11.0%
International Equity Index Fund Master International Index Series 7.6%
</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 each Portfolio are allocated pro rata among the investors in that
Portfolio at the time of such determination.
- --------------------------------------------------------------------------------
15
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
Dividends to Shareholders
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, if any, of net realized capital gains are generally paid annually
and recorded on the ex-dividend date. Dividends are determined in accordance
with income tax principles that may treat certain transactions differently than
generally accepted accounting principles.
Allocation of Income, Expenses, Gains and Losses
Income, expenses (other than those attributable to a specific class), gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class.
Valuation of Shares
The price per share is calculated on each day on which shares are offered
for sale and orders accepted or upon receipt of a redemption request. Net asset
value per share is computed by dividing the value of each Fund's total assets
(which includes the value of the Fund's investment in its Portfolio), less
liabilities, by the number of Fund shares outstanding.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. Actual
results could differ from those estimates.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has 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 each 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.
- --------------------------------------------------------------------------------
16
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
Service Agreement
The Manager and the Trust entered into a Service Agreement that 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% of the average daily net
assets of the PlanAhead Class of the S&P 500 Index Fund.
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.
At December 31, 2004, the employee benefit plans of AMR Corporation and its
subsidiary companies owned 87.3% of the Institutional Class of the S&P 500 Index
Fund, 98.8% of the Small Cap Index Fund and 99.3% of the International Equity
Index Fund.
3. 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 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 tax provision is required.
Dividends are determined in accordance with federal income tax regulations
which may treat certain transactions differently than United States generally
accepted accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements.
The tax character of distributions during the years ended December 31, 2004
and December 31, 2003 were as follows (in thousands):
<Table>
<Caption>
S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX
---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------ ------------ ------------ ------------
2004 2003 2004 2003 2004 2003
------------ ------------ ------------ ------------ ------------ ------------
Distributions paid from:
Ordinary Income:*
Institutional Class..... 4,253 3,602 1,104 242 617 148
PlanAhead Class......... 670 356 -- -- -- --
Long-term capital gain
Institutional Class..... -- -- 1,090 -- -- --
----- ----- ----- --- --- ---
TOTAL TAXABLE
DISTRIBUTIONS............. 4,923 3,958 2,194 242 617 148
===== ===== ===== === === ===
</Table>
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
- --------------------------------------------------------------------------------
17
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
As of December 31, 2004, the components of distributable earnings were as
follows (in thousands):
<Table>
<Caption>
INTERNATIONAL
S&P 500 SMALL CAP EQUITY INDEX
INDEX FUND INDEX FUND FUND
---------- ---------- -------------
Cost basis of investments for federal income tax purposes... $243,662 $32,109 $24,510
Unrealized appreciation................................... 92,971 10,556 (50)
Unrealized depreciation................................... (44,131) (2,353) 6
-------- ------- -------
Net unrealized appreciation/(depreciation)................ 48,840 8,203 (44)
Undistributed ordinary income............................. 121 20 88
Undistributed long-term loss.............................. (24,395) (42) (1,031)
-------- ------- -------
Distributable earnings...................................... $ 24,566 $ 8,181 $ (987)
======== ======= =======
</Table>
Financial reporting records are adjusted for permanent book/tax differences
to reflect tax character. Financial records are not adjusted for temporary
differences. The temporary differences between financial reporting and tax-basis
reporting of unrealized appreciation/(depreciation) are attributable primarily
to the tax deferral of wash sales, the realization for tax purposes of
unrealized gains/(losses) on certain derivative instruments, the tax treatment
of income from investments in real estate investment trusts, and the realization
for tax purposes of unrealized gains /(losses) on investments in passive foreign
investment companies.
Due to the inherent differences in the recognition of income, expenses and
realized gains/(losses) under the United States generally accepted accounting
principles and federal income tax regulations, permanent differences between
book and tax reporting have been identified and appropriately reclassified on
the Statement of Assets and Liabilities without impacting the net assets of the
Fund. These differences are due primarily to the tax treatment of income from
real estate investment trusts, foreign exchange gains/(losses) and
gains/(losses) arising from redemption-in-kind transactions.
Accordingly, the following amounts represent current year permanent
differences that have been reclassified as of December 31, 2004 (in thousands):
<Table>
<Caption>
INTERNATIONAL
S&P 500 SMALL CAP EQUITY INDEX
INDEX FUND INDEX FUND FUND
---------- ---------- -------------
Paid-in-capital............................................. $ (985) $(499) $ 5,282
Undistributed net investment income......................... (35) (2) 58
Accumulated net realized gain/(loss)........................ 1,020 501 (5,340)
</Table>
At December 31, 2004, capital loss carryforward positions for federal
income tax purposes were as follows (in thousands):
<Table>
<Caption>
FUND 2005 2006 2007 2008 2009 2010 2011 2012 TOTAL
- ---- ---- ---- ---- ------ ------ ------- ---- ------ -------
S&P 500 Index Fund................. $23 $815 $45 $8,848 $1,300 $11,516 $635 $1,060 $24,242
International Equity Index Fund.... -- -- -- -- 312 437 282 -- 1,031
</Table>
Net capital loss carryovers utilized for the period ended December 31, 2004
are as follows: Small Cap Index Fund $245,227 and International Equity Index
Fund $79,628.
Net capital and foreign currency losses incurred after October 31, 2004 and
within the taxable year are deemed to arise on the first business day of the
Fund's next taxable year. For the year ended
- --------------------------------------------------------------------------------
18
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
December 31, 2004, the S&P 500 Index Fund and Small Cap Index Fund,
respectively, deferred $152,992 and $41,615, of capital losses to January 1,
2005.
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares of the Funds:
S&P 500 INDEX FUND
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
-------------------------- ----------------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ----------- ------------ ------------ -------------
Shares sold.................... 1,938,941 $ 29,855,229 14,142,227 $ 171,509,436
Reinvestment of dividends...... 269,604 4,244,506 260,652 3,501,218
Shares redeemed................ (3,552,128) (54,721,190) (14,504,514) (176,989,380)
----------- ------------ ------------ -------------
Net decrease in capital shares
outstanding.................. (1,343,583) $(20,621,455) (101,635) $ (1,978,726)
=========== ============ ============ =============
</Table>
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------------- -------------------------
PLANAHEAD CLASS SHARES AMOUNT SHARES AMOUNT
- --------------- --------- ----------- ---------- ------------
Shares sold........................... 1,111,634 $16,968,030 1,087,611 $ 13,747,224
Reinvestment of dividends............. 41,362 648,294 25,890 346,072
Shares redeemed....................... (618,975) (9,459,897) (891,739) (11,034,987)
--------- ----------- ---------- ------------
Net increase in capital shares
outstanding......................... 534,021 $ 8,156,427 221,762 $ 3,058,309
========= =========== ========== ============
</Table>
SMALL CAP INDEX FUND
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
--------------------------- -------------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ----------- ------------- ---------- ------------
Shares sold....................... 8,578,011 $ 101,165,598 6,641,904 $ 67,985,621
Reinvestment of dividends......... 175,390 2,194,134 21,770 241,866
Shares redeemed................... (11,648,975) (134,584,990) (2,108,632) (20,651,424)
----------- ------------- ---------- ------------
Net increase (decrease) in capital
shares outstanding.............. (2,895,574) $ (31,225,258) 4,555,042 $ 47,576,063
=========== ============= ========== ============
</Table>
- --------------------------------------------------------------------------------
19
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
------------------------- ----------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ---------- ------------ -------- -----------
Shares sold............................ 7,529,578 $ 62,034,275 942,076 $ 6,510,253
Reinvestment of dividends.............. 67,124 616,868 19,104 148,248
Shares redeemed........................ (6,385,467) (54,128,524) (545,169) (3,816,176)
---------- ------------ -------- -----------
Net increase in capital shares
outstanding.......................... 1,211,235 $ 8,522,619 416,011 $ 2,842,325
========== ============ ======== ===========
</Table>
5. SUBSEQUENT EVENT
Subsequent to December 31, 2004, AMR Investment Services, Inc. will become
American Beacon Advisors, Inc. and the American AAdvantage Funds will be known
as the American Beacon Funds. The name change becomes effective March 1, 2005.
- --------------------------------------------------------------------------------
20
AMERICAN AADVANTAGE S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2004 2003 2002 2001 2000(B)
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 15.10 $ 11.96 $ 15.62 $ 17.99 $ 20.05
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income............... 0.29 0.21 0.20 0.20 0.23
Net gains (losses) on securities
(both realized and unrealized).... 1.32 3.14 (3.66) (2.38) (2.05)
-------- -------- -------- -------- --------
Total from investment operations........ 1.61 3.35 (3.46) (2.18) (1.82)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................ (0.28) (0.21) (0.20) (0.19)(C) (0.24)(C)
-------- -------- -------- -------- --------
Total distributions..................... (0.28) (0.21) (0.20) (0.19) (0.24)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......... $ 16.43 $ 15.10 $ 11.96 $ 15.62 $ 17.99
======== ======== ======== ======== ========
TOTAL RETURN............................ 10.76% 28.26% (22.27%) (12.12%) (9.15%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................ $244,668 $245,251 $195,368 $254,289 $321,805
Ratios to average net assets
(annualized):(A)
Net investment income.......... 1.85% 1.63% 1.47% 1.22% 1.09%
Expenses....................... 0.17% 0.14% 0.14% 0.15% 0.16%
</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.
- --------------------------------------------------------------------------------
21
AMERICAN AADVANTAGE S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2004 2003 2002 2001 2000(B)
------- ------- -------- -------- -------
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 14.96 $ 11.85 $ 15.49 $ 17.99 $ 20.12
------- ------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income..................... 0.21 0.15 0.14 0.14 0.13
Net gains (losses) on securities (both
realized and unrealized)................ 1.31 3.12 (3.64) (2.39) (2.00)
------- ------- -------- -------- -------
Total from investment operations.............. 1.52 3.27 (3.50) (2.25) (1.87)
------- ------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.25) (0.16) (0.14) (0.25)(C) (0.26)(C)
------- ------- -------- -------- -------
Total distributions........................... (0.25) (0.16) (0.14) (0.25) (0.26)
------- ------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD................ $ 16.23 $ 14.96 $ 11.85 $ 15.49 $ 17.99
======= ======= ======== ======== =======
TOTAL RETURN.................................. 10.21% 27.65% (22.59%) (12.48%) (9.38%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).............................. $46,344 $34,729 $ 24,885 $ 32,284 $ 5,143
Ratios to average net assets
(annualized):(A)
Net investment income................ 1.43% 1.16% 1.06% 0.89% 0.66%
Expenses(D).......................... 0.62% 0.63% 0.55% 0.56% 0.54%
Decrease reflected in above expense
ratio due to absorption of expenses
by AMR Investment Services,
Inc.(D)............................ -- 0.01% 0.08% 0.05% 0.16%
</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) AMR Investment Services, Inc. agreed to reimburse the Class for a portion of
its expenses through March 1, 2003.
- --------------------------------------------------------------------------------
22
AMERICAN AADVANTAGE SMALL CAP INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------
YEAR ENDED DECEMBER 31, JULY 31 TO
----------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
------- ------- -------- ------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 11.27 $ 7.70 $ 9.79 $ 9.69 $ 10.00
------- ------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income.................. 0.14 0.04 0.11 0.09 0.05
Net gains (losses) on securities (both
realized and unrealized)............. 1.87 3.57 (2.10) 0.11 (0.31)
------- ------- -------- ------- -------
Total from investment operations........... 2.01 3.61 (1.99) 0.20 (0.26)
------- ------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.13) (0.04) (0.10) (0.09) (0.05)
Distributions from net realized gain on
investments.......................... (0.58)
Tax return of capital.................. -- -- -- (0.01) --
------- ------- -------- ------- -------
Total distributions........................ (0.71) (0.04) (0.10) (0.10) (0.05)
------- ------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD............. $ 12.57 $ 11.27 $ 7.70 $ 9.79 $ 9.69
======= ======= ======== ======= =======
TOTAL RETURN............................... 17.91% 46.90% (20.37%) 2.07% (2.59%)(B)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................... $39,196 $67,756 $ 11,227 $11,803 $ 4,120
Ratios to average net assets
(annualized):(A)
Net investment income............. 0.90% 1.04% 1.13% 1.36% 1.61%
Expenses.......................... 0.22% 0.24% 0.20% 0.19% 0.50%(C)
Decrease reflected in above
expense ratio due to absorption
of expenses by AMR Investment
Services, Inc................... -- -- -- -- 0.46%(C)
</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.
(C) AMR Investment Services, Inc. agreed to reimburse the Fund for a portion of
its expenses through December 31, 2000 such that the total expense ratio of
the Fund would not exceed 0.50%.
- --------------------------------------------------------------------------------
23
AMERICAN AADVANTAGE INTERNATIONAL EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------------------------------------
YEAR ENDED DECEMBER 31, JULY 31 TO
---------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
----------- ------- -------- -------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 8.01 $ 5.86 $ 7.07 $ 9.21 $ 10.00
------- ------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income............. 0.17 0.14 0.11 0.10 0.02
Net gains (losses) on securities
(both realized and
unrealized)..................... 1.44 2.13 (1.23) (2.12) (0.72)
------- ------- -------- -------- -------
Total from investment operations...... 1.61 2.27 (1.12) (2.02) (0.70)
------- ------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment
income.......................... (0.23) (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................... (0.23) (0.12) (0.09) (0.12) (0.09)
------- ------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD........ $ 9.39 $ 8.01 $ 5.86 $ 7.07 $ 9.21
======= ======= ======== ======== =======
TOTAL RETURN.......................... 20.12% 38.87% (15.65%) (22.14%) (7.03%)(B)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)...................... $23,156 $10,043 $ 4,912 $ 3,773 $ 3,542
Ratios to average net assets
(annualized):(A)
Net investment income........ 2.16% 2.71% 1.97% 1.49% 0.63%
Expenses..................... 0.26% 0.31% 0.25% 0.29% 0.60%(C)
Decrease reflected in above
expense ratio due to
absorption of expenses by
AMR Investment Services,
Inc........................ -- -- -- -- 1.52%(C)
</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.
(C) AMR Investment Services, Inc. agreed to reimburse the Fund for a portion of
its expenses through December 31, 2000 such that the total expense ratio of
the Fund did not exceed 0.60%.
- --------------------------------------------------------------------------------
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
Shareholders and Board of Trustees
American AAdvantage S&P 500 Index Fund
American AAdvantage Small Cap Index Fund
American AAdvantage International Equity Index Fund
We have audited the accompanying statements of assets and liabilities of
the American AAdvantage S&P 500 Index Fund, the American AAdvantage Small Cap
Index Fund, and the American AAdvantage International Equity Index Fund
(collectively, the "Funds") (separate funds comprising the American AAdvantage
Funds), as of December 31, 2004, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for purposes of expressing an opinion on the effectiveness of the Funds'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective American AAdvantage Funds at December 31, 2004, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
-S- ERNST & YOUNG LLP
Chicago, Illinois
February 23, 2005
- --------------------------------------------------------------------------------
25
AMERICAN AADVANTAGE FUNDS
TAX INFORMATION FOR THE TAX YEAR ENDED DECEMBER 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
For corporate shareholders in the Funds, the percentage of ordinary
dividend income distributed for the year ended December 31, 2004, which is
designated as qualifying for the dividends-received deduction, is as follows:
S&P 500 Index Fund 97.0%, Small Cap Index Fund 67.1%, and International
Equity Index Fund 0.0%.
For non-corporate shareholders of the Funds, certain dividends paid may be
subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax
Relief Reconciliation Act of 2003. Of the distributions paid during the year
ended December 31, 2004, the following percentages represent the amount of the
distribution from the Fund that may be considered qualified dividend income:
S&P 500 Index Fund 100.0%, Small Cap Index Fund 31.2%, and International
Equity Index Fund 79.0%.
- --------------------------------------------------------------------------------
26
AMERICAN AADVANTAGE FUNDS
SPECIAL MEETING OF SHAREHOLDERS (unaudited)
- --------------------------------------------------------------------------------
A special meeting of shareholders of the American AAdvantage Funds (the
"Trust") was held on August 11, 2004. The meeting related to each series of the
Trust, including the S&P 500 Index Fund, Small Cap Index Fund and International
Equity Index Fund (the "Funds"). With respect to the Funds, the purpose of the
meeting was to consider Proposal 1 to re-elect the five current Trustees and to
elect three additional Trustees and Proposal 2 to adopt an amendment to the
Declaration of Trust of the Trust to permit the Trustees to amend the
Declaration of Trust in the future without shareholder approval under certain
circumstances.
Both proposals were Trust-level matters and therefore required a majority
of the shareholders of the Trust to vote to achieve a quorum. A quorum of the
Trust was present for Proposal 1, and that proposal was approved by
shareholders. A quorum of the Trust was present for Proposal 2, but there were
not enough votes in favor of the proposal for shareholder approval. Proposal 2
was adjourned to a second special meeting of shareholders on August 24, 2004. A
quorum of the Trust was present for Proposal 2 at the August 24th meeting.
However, the votes were not recorded, and the Trust adjourned this matter to a
third special meeting of shareholders on September 17, 2004 to coincide with
adjourned items for other series of the Trust. At the September 17th meeting, a
quorum was present for Proposal 2, and the proposal was approved by
shareholders.
The final voting results for each Proposal are presented in the following
tables. The vote tallies include votes cast by shareholders of other series of
the Trust not contained in this annual report.
(1) Elected the following Trustees to the Trust's Board of Trustees: W.
Humphrey Bogart, Brenda A. Cline, Alan D. Feld, Richard A. Massman, Stephen D.
O'Sullivan, William F. Quinn, R. Gerald Turner, and Kneeland Youngblood.
<Table>
<Caption>
TRUST
---------------------------------
FOR WITHHELD
--------------- --------------
BOGART...................................................... 650,590,849.241 14,422,434.627
CLINE....................................................... 650,579,020.453 14,434,263.415
FELD........................................................ 645,570,380.770 19,442,903.098
MASSMAN..................................................... 650,575,979.241 14,437,304.627
O'SULLIVAN.................................................. 650,346,585.401 14,666,698.477
QUINN....................................................... 650,521,466.241 14,492,457.627
TURNER...................................................... 647,812,023.453 17,201,260.415
YOUNGBLOOD.................................................. 650,456,805.241 14,556,478.627
</Table>
(2) Approved an amendment to the Trust's Declaration of Trust.
<Table>
<Caption>
TRUST
---------------
FOR......................................................... 510,760,770.656
AGAINST..................................................... 27,955,243.657
ABSTAIN..................................................... 24,870,260.385
BROKER NON-VOTES*........................................... 36,787,359.000
</Table>
* Certain broker-dealers, third party administrators and other intermediaries
who offer Fund shares to their clients vote on behalf of their clients in
favor of routine proposals (e.g., Proposal 1), while entering a "non-vote"
for all non-routine proposals. If the underlying clients do not themselves
vote the non-routine proposals, the shares remain in the broker non-vote
category and effectively count as "against" votes.
- --------------------------------------------------------------------------------
27
AMERICAN AADVANTAGE FUNDS
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with
their principal occupations during the past five years. Unless otherwise
indicated, the address of each person listed below is 4151 Amon Carter
Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees twenty-seven
funds in the fund complex that includes the AMR Investment Services Trust, the
American AAdvantage Funds, the American AAdvantage Mileage Funds, and the
American AAdvantage Select Funds. The Trust's Statement of Additional
Information contains additional information about the Trustees and is available
without charge by calling 1-800-658-5811.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (56) President and President (1986-Present) and Director (2001-Present), AMR
Trustee since Investment Services, Inc.; Chairman (1989-2003) and Director
1987 (1979- 1989, 2003-Present), American Airlines Federal Credit
Union; Director, Crescent Real Estate Equities, Inc.
(1994-Present); Director, Pritchard, Hubble & Herr, LLC
(investment adviser) (2001-Present); Director of Investment
Committee, Southern Methodist University Endowment Fund
(1996-Present); Member of Advisory Board, Southern Methodist
University Cox School of Business (1999-2002); Member of
Pension Manager Committee, New York Stock Exchange
(1997-1998, 2000-2002); Vice Chairman, Committee for the
Investment of Employee Benefits (2004-Present); Chairman of
Defined Benefit Sub-Committee, Committee for the Investment
of Employee Benefits (1982-2004); Director, United Way of
Metropolitan Tarrant County (1988-2000, 2004-Present);
Trustee, American AAdvantage Select Funds (1999-Present);
Trustee, American AAdvantage Mileage Funds (1995-Present).
Alan D. Feld** (68) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties, Inc.
(1994-Present); Trustee, American AAdvantage Select Funds
(1999-Present); Trustee, American AAdvantage Mileage Funds
(1996-Present).
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (60) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing
company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-2004); Trustee, American
AAdvantage Select Funds (2004-Present); Trustee, American
AAdvantage Mileage Funds (2004-Present).
</Table>
- --------------------------------------------------------------------------------
28
AMERICAN AADVANTAGE FUNDS
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Brenda A. Cline (44) Trustee since 2004 Vice President, Chief Financial Officer, Treasurer and
Secretary, Kimbell Art Foundation (1993-Present); Trustee,
Texas Christian University (1998-Present); Trustee, W.I.
Cook Foundation, Inc. (d/b/a Cook Children's Health
Foundation) (2001-Present); Trustee, American AAdvantage
Select Funds (2004-Present); Trustee, American AAdvantage
Mileage Funds (2004-Present).
Richard A. Massman (61) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in energy, real
estate, farming, ranching and venture capital activities)
(1994-Present); Trustee, American AAdvantage Select Funds
(2004-Present); Trustee, American AAdvantage Mileage Funds
(2004-Present).
Stephen D. O'Sullivan (69) Trustee since 1987 Consultant (1994-Present); Trustee, American AAdvantage
Select Funds (1999-Present); Trustee, American AAdvantage
Mileage Funds (1995-Present).
R. Gerald Turner (59) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996- Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (2001- 2003); Director, Kronus
Worldwide Inc. (chemical manufacturing) (2003-Present);
Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Member, Knight Commission on Intercollegiate Athletics;
Trustee, American AAdvantage Select Funds (2001-Present);
Trustee, American AAdvantage Mileage Funds (2001-Present).
Kneeland Youngblood (49) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court equity firm) (1998-Present); Director, Burger King
Suite 1740 Corporation (2004-Present); Trustee, The Hockaday School
Dallas, Texas 75201 (1997-Present); Director, Starwood Hotels and Resorts
(2001-Present); Member, Council on Foreign Relations
(1995-Present); Director, Just For the Kids (1995-2001);
Director, L&B Realty Advisors (1998-2000); Trustee, Teachers
Retirement System of Texas (1993-1999); Director, Starwood
Financial Trust (1998-2001); Trustee, St. Mark's School of
Texas (2002-Present); Trustee, American AAdvantage Select
Funds (1999-Present); Trustee, American AAdvantage Mileage
Funds (1996-Present).
OFFICERS
TERM
------------------
One Year
Brian E. Brett (44) VP since 2004 Vice President, Director of Sales, AMR Investment Services,
Inc. (2004-Present); Regional Vice President, Neuberger
Berman, LLC (investment adviser) (1996-2004).
Nancy A. Eckl (42) VP since 1990 Vice President, Trust Investments, AMR Investment Services,
Inc. (1990-Present).
Michael W. Fields (50) VP since 1989 Vice President, Fixed Income Investments, AMR Investment
Services, Inc. (1988-Present).
</Table>
- --------------------------------------------------------------------------------
29
AMERICAN AADVANTAGE FUNDS
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
Barry Y. Greenberg (41) VP since 1995 and Vice President, Legal, Compliance and Administration, AMR
Secretary since Investment Services, Inc. (1995-Present); Director,
2004 Pritchard, Hubble & Herr, LLC (investment adviser)
(2004-Present).
Rebecca L. Harris (38) Treasurer since Vice President, Finance, AMR Investment Services, Inc.
1995 (1995- Present).
John B. Roberson (46) VP since 1989 Vice President, Client Relations & Special Projects, AMR
Investment Services, Inc. (2004-Present); Vice President,
Director of Sales, AMR Investment Services, Inc.
(1991-2004); Director, Pritchard, Hubble & Herr, LLC
(investment adviser) (2001-Present).
</Table>
- ---------------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
70, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust, as
defined by the 1940 Act. Mr. Quinn is President of the Manager. Mr. Feld's
law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services
within the past two years to one or more of the Trust's sub-advisers.
- --------------------------------------------------------------------------------
30
(AMERICAN EAGLE LOGO)
- --------------------------------------------------------------------------------
31
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 97.5%
CONSUMER DISCRETIONARY - 11.3%
AutoNation, Inc. (a)(f)........ 61,900 $ 1,189
AutoZone, Inc. (a)............. 19,587 1,788
Bed Bath & Beyond, Inc. (a).... 71,414 2,844
Best Buy Co., Inc.............. 76,621 4,553
Big Lots, Inc. (a)............. 28,738 349
Black & Decker Corp............ 18,933 1,672
Brunswick Corp................. 22,029 1,090
Carnival Corp.................. 152,619 8,795
Centex Corp.................... 29,076 1,732
Circuit City Stores, Inc....... 48,139 753
Clear Channel Communications,
Inc.......................... 138,965 4,654
Coach, Inc. (a)................ 44,400 2,504
Comcast Corp. (a)(f)........... 533,067 17,740
Cooper Tire & Rubber Co........ 18,137 391
Dana Corp...................... 36,349 630
Darden Restaurants, Inc........ 37,210 1,032
Delphi Corp. (f)............... 131,567 1,187
Dillard's, Inc. Class A (f).... 19,453 523
Dollar General Corp............ 77,315 1,606
Dow Jones & Co., Inc. (f)...... 19,326 832
Eastman Kodak Co. (f).......... 67,537 2,178
eBay, Inc. (a)................. 159,160 18,507
Family Dollar Stores, Inc...... 39,668 1,239
Federated Department Stores,
Inc.......................... 42,276 2,443
Ford Motor Co. (f)............. 442,155 6,473
Fortune Brands, Inc............ 33,966 2,622
Gannett Co., Inc............... 62,738 5,126
Gap, Inc....................... 212,030 4,478
General Motors Corp. (f)....... 136,773 5,479
Genuine Parts Co............... 41,293 1,819
Goodyear Tire & Rubber Co.
(a)(f)....................... 43,242 634
Harley-Davidson, Inc........... 69,538 4,224
Harrah's Entertainment, Inc.
(f).......................... 26,433 1,768
Hasbro, Inc.................... 42,787 829
Hilton Hotels Corp............. 91,643 2,084
Home Depot, Inc................ 526,857 22,518
International Game Technology.. 81,152 2,790
Interpublic Group of Cos., Inc.
(a)(f)....................... 99,577 1,334
JC Penney & Co., Inc........... 67,088 2,777
Johnson Controls, Inc.......... 44,796 2,842
Jones Apparel Group, Inc....... 29,379 1,074
KB HOME (f).................... 10,931 1,141
Knight-Ridder, Inc............. 18,291 1,224
Kohl's Corp. (a)............... 83,510 4,106
Leggett & Platt, Inc. (f)...... 45,054 1,281
Limited Brands................. 100,169 2,306
Liz Claiborne, Inc............. 25,341 1,070
Lowe's Cos., Inc............... 185,423 10,679
Marriot International, Inc.
Class A...................... 53,439 3,366
Mattel, Inc.................... 97,545 1,901
May Department Stores Co....... 68,567 2,016
Maytag Corp. (f)............... 19,329 408
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
McDonald's Corp................ 299,153 $ 9,591
McGraw-Hill, Inc............... 44,813 4,102
Meredith Corp.................. 11,847 642
New York Times Co. Class A..... 34,745 1,418
Newell Rubbermaid, Inc. (f).... 65,221 1,578
NIKE, Inc. Class B............. 62,213 5,642
Nordstrom, Inc................. 32,538 1,521
Office Depot, Inc. (a)......... 74,470 1,293
OfficeMax, Inc................. 20,919 656
Omnicom Group, Inc............. 44,117 3,720
Pulte Homes, Inc............... 29,936 1,910
Radioshack Corp................ 37,253 1,225
Reebok International, Ltd.
(f).......................... 14,471 637
Reynolds American, Inc. (f).... 34,840 2,738
Sears Roebuck & Co. (f)........ 49,954 2,549
Sherwin-Williams Co............ 33,570 1,498
Snap-On, Inc. (f).............. 14,348 493
Stanley Works.................. 19,732 967
Staples, Inc................... 117,150 3,949
Starbucks Corp. (a)............ 96,826 6,038
Starwood Hotels & Resorts
Worldwide, Inc. Class B...... 49,112 2,868
Target Corp.................... 214,857 11,158
Tiffany & Co................... 34,368 1,099
Time Warner, Inc. (a).......... 1,098,947 21,364
TJX Cos., Inc.................. 115,113 2,893
Toys "R" Us, Inc. (a).......... 50,369 1,031
Tribune Co..................... 74,955 3,159
Univision Communications, Inc.
Class A (a).................. 76,018 2,225
V.F. Corp. (f)................. 25,988 1,439
Viacom, Inc. Class B........... 409,697 14,909
Visteon Corp. (f).............. 30,453 298
Walt Disney Co................. 488,373 13,577
Wendy's International, Inc..... 26,767 1,051
Whirlpool Corp................. 15,666 1,084
Yum! Brands, Inc............... 71,522 3,374
----------
312,296
----------
CONSUMER STAPLES - 10.1%
Adolph Coors Co. Class B (f)... 8,944 677
Alberto Culver Co. Class B
(f).......................... 21,658 1,052
Albertson's, Inc. (f).......... 87,513 2,090
Altria Group, Inc.............. 492,064 30,065
Anheuser-Busch Cos., Inc....... 190,267 9,652
Archer-Daniels-Midland Co...... 159,567 3,560
Avon Products, Inc............. 114,848 4,445
Brown-Forman Corp. Class B..... 28,582 1,391
Campbell Soup Co. (f).......... 96,683 2,890
Clorox Co...................... 36,010 2,122
Coca-Cola Co................... 580,335 24,159
Coca-Cola Enterprises, Inc.
(f).......................... 110,900 2,312
Colgate-Palmolive Co........... 125,535 6,422
ConAgra Foods, Inc............. 124,446 3,665
Costco Wholesale Corp.......... 113,551 5,497
CVS Corp....................... 97,192 4,380
General Mills, Inc............. 85,964 4,273
Gillette Co.................... 238,444 10,678
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
32
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
H.J. Heinz Co.................. 82,320 $ 3,210
Hershey Foods Corp............. 58,008 3,222
Kellogg Co..................... 97,529 4,356
Kimberly-Clark Corp............ 116,564 7,671
Kroger Co. (a)................. 174,022 3,052
McCormick & Co., Inc........... 32,900 1,270
Pepsi Bottling Group, Inc...... 60,453 1,635
PepsiCo, Inc................... 404,210 21,100
Procter & Gamble Co............ 607,922 33,484
Safeway, Inc. (a)(f)........... 105,293 2,078
Sara Lee Corp.................. 186,917 4,512
SuperValu, Inc................. 32,060 1,107
Sysco Corp..................... 154,881 5,912
UST Corp. (f).................. 38,947 1,874
Wal-Mart Stores, Inc........... 1,014,128 53,566
Walgreen Co.................... 243,910 9,359
Wrigley Wm., Jr. Co............ 52,916 3,661
----------
280,399
----------
ENERGY - 6.7%
Amerada Hess Corp. (f)......... 21,202 1,747
Anadarko Petroleum Corp........ 58,954 3,821
Apache Corp.................... 76,830 3,885
Ashland, Inc................... 16,580 968
Baker Hughes, Inc.............. 78,680 3,357
BJ Services Co................. 37,855 1,762
Burlington Resources, Inc...... 92,956 4,044
ChevronTexaco Corp............. 507,994 26,675
ConocoPhillips................. 165,841 14,400
Devon Energy Corp.............. 117,922 4,589
EOG Resources, Inc............. 27,884 1,990
ExxonMobil Corp................ 1,544,302 79,161
Halliburton Co................. 103,986 4,080
Kerr-McGee Corp................ 35,236 2,036
Marathon Oil Corp.............. 81,534 3,066
Nabors Industries, Ltd. (a).... 35,515 1,822
Noble Corp. (a)................ 31,523 1,568
Occidental Petroleum Corp...... 95,523 5,575
Rowan Cos., Inc. (a)(f)........ 25,439 659
Schlumberger, Ltd.............. 141,807 9,494
Sunoco, Inc.................... 17,728 1,448
Transocean, Inc. (a)........... 75,595 3,204
Unocal Corp.................... 62,388 2,698
Valero Energy Corp............. 60,700 2,756
----------
184,805
----------
FINANCIALS - 20.1%
ACE, Ltd....................... 67,355 2,879
AFLAC, Inc..................... 119,516 4,762
Allstate Corp.................. 163,207 8,441
Ambac Financial Group, Inc..... 25,747 2,115
American Express Co............ 301,373 16,988
American International Group,
Inc.......................... 623,983 40,977
AmSouth Bancorp (f)............ 83,319 2,158
AON Corp....................... 74,223 1,771
Apartment Investment &
Management Co. Class A....... 22,300 859
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Archstone-Smith Trust.......... 46,200 $ 1,769
Bank of America Corp........... 967,500 45,463
Bank of New York Co., Inc...... 187,879 6,279
BB&T Corp...................... 130,618 5,492
Bear Stearns Cos., Inc......... 24,299 2,486
Capital One Financial Corp..... 58,815 4,953
Charles Schwab Corp............ 321,893 3,850
Chubb Corp..................... 45,039 3,463
Cincinnati Financial Corp...... 39,700 1,757
CIT Group, Inc................. 49,300 2,259
Citigroup, Inc................. 1,242,671 59,872
Comerica, Inc.................. 40,432 2,467
Compass Bancshares, Inc........ 28,900 1,407
Countrywide Financial Corp..... 140,686 5,207
E*Trade Financial Corp. (a).... 87,400 1,307
Equity Office Properties
Trust........................ 95,241 2,773
Equity Residential............. 66,207 2,395
Fannie Mae..................... 232,429 16,551
Federal Home Loan Mortgage
Corp......................... 165,846 12,223
Federated Investors, Inc. Class
B (f)........................ 25,500 775
Fifth Third Bancorp............ 135,400 6,402
First Horizon National Corp.
(f).......................... 29,117 1,255
Franklin Resources, Inc........ 59,144 4,119
Golden West Financial Corp..... 74,322 4,565
Goldman Sachs Group, Inc....... 115,600 12,027
Hartford Financial Services
Group, Inc................... 71,288 4,941
Huntington Bancshares, Inc..... 53,954 1,337
J.P. Morgan Chase & Co......... 853,819 33,307
Janus Capital Group, Inc....... 56,319 947
Jefferson-Pilot Corp........... 32,160 1,671
KeyCorp (f).................... 95,809 3,248
Lehman Brothers Holdings,
Inc.......................... 63,918 5,592
Lincoln National Corp.......... 41,431 1,934
Loews Corp..................... 43,814 3,080
M & T Bank Corp................ 27,500 2,966
Marsh & McLennan Cos., Inc..... 128,136 4,216
Marshall & Ilsley Corp......... 52,292 2,311
MBIA, Inc...................... 33,758 2,136
MBNA Corp...................... 308,002 8,683
Mellon Financial Corp.......... 100,423 3,124
Merrill Lynch & Co., Inc.
(f).......................... 223,927 13,384
MetLife, Inc................... 176,707 7,158
MGIC Investment Corp. (f)...... 23,262 1,603
Moody's Corp................... 34,865 3,028
Morgan Stanley................. 261,043 14,493
National City Corp............. 163,891 6,154
North Fork Bancorp, Inc........ 110,135 3,177
Northern Trust Corp............ 51,840 2,518
Plum Creek Timber Co., Inc..... 43,080 1,656
PNC Financial Services Group,
Inc.......................... 66,447 3,817
Principal Financial Group,
Inc.......................... 73,750 3,019
Progressive Corp. (f).......... 47,247 4,008
ProLogis....................... 43,400 1,881
Providian Financial Corp.
(a).......................... 69,673 1,148
Prudential Financial, Inc...... 122,300 6,722
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
33
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Regions Financial Corp......... 113,009 $ 4,022
SAFECO Corp. (f)............... 29,664 1,550
Simon Property Group, Inc...... 52,963 3,425
SLM Corp....................... 102,642 5,480
Sovereign Bancorp, Inc......... 81,500 1,838
St. Paul Travelers Cos.,
Inc.......................... 161,925 6,003
State Street Corp. (g)......... 79,225 3,892
SunTrust Banks, Inc............ 89,572 6,618
Synovus Financial Corp......... 72,604 2,075
T. Rowe Price Group, Inc.
(f).......................... 29,990 1,865
Torchmark Corp................. 25,876 1,479
U.S. Bancorp................... 446,561 13,986
UnumProvident Corp. (f)........ 70,835 1,271
Wachovia Corp.................. 384,786 20,240
Washington Mutual, Inc......... 207,113 8,757
Wells Fargo Co................. 405,711 25,215
XL Capital, Ltd. Class A....... 32,632 2,534
Zions Bancorp.................. 21,319 1,450
----------
557,025
----------
HEALTH CARE - 12.2%
Abbott Laboratories............ 373,967 17,445
Aetna, Inc..................... 36,032 4,495
Allergan, Inc.................. 30,991 2,512
AmerisourceBergen Corp......... 26,416 1,550
Amgen, Inc. (a)................ 304,875 19,558
Applera Corp. -- Applied
Biosystems Group............. 47,567 995
Bausch & Lomb, Inc. (f)........ 12,825 827
Baxter International, Inc...... 149,426 5,161
Becton, Dickinson & Co......... 61,729 3,506
Biogen Idec, Inc. (a).......... 80,073 5,334
Biomet, Inc.................... 60,041 2,605
Boston Scientific Corp. (a).... 203,896 7,248
Bristol-Myers Squibb Co........ 462,617 11,852
C.R. Bard, Inc................. 24,494 1,567
Cardinal Health, Inc........... 104,466 6,075
Caremark Rx, Inc. (a).......... 111,408 4,393
Chiron Corp. (a)............... 44,644 1,488
CIGNA Corp..................... 32,389 2,642
Eli Lilly & Co................. 271,897 15,430
Express Scripts, Inc. (a)...... 18,600 1,422
Forest Laboratories, Inc.
(a).......................... 87,006 3,903
Genzyme Corp. (a).............. 56,105 3,258
Gilead Sciences, Inc. (a)...... 105,400 3,688
Guidant Corp................... 77,164 5,563
HCA, Inc....................... 99,359 3,970
Health Management Associates,
Inc. Class A (f)............. 57,298 1,302
Hospira, Inc. (a).............. 37,336 1,251
Humana, Inc. (a)............... 37,625 1,117
IMS Health, Inc................ 55,281 1,283
Johnson & Johnson.............. 710,846 45,082
King Pharmaceuticals, Inc.
(a).......................... 56,932 706
Laboratory Corp. of America
Holdings (a)................. 32,800 1,634
Manor Care, Inc................ 21,251 753
McKesson Corp.................. 69,231 2,178
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Medco Health Solutions, Inc.
(a).......................... 63,872 $ 2,657
MedImmune, Inc. (a)............ 59,465 1,612
Medtronic, Inc................. 290,502 14,429
Merck & Co., Inc............... 532,503 17,115
Millipore Corp. (a)............ 11,628 579
Mylan Laboratories Inc. (f).... 63,800 1,128
Pfizer, Inc.................... 1,803,974 48,509
Quest Diagnostics Inc. (f)..... 24,000 2,293
Schering-Plough Corp........... 355,524 7,423
St. Jude Medical, Inc. (a)..... 83,894 3,518
Stryker Corp................... 97,608 4,710
Tenet Healthcare Corp. (a)..... 109,309 1,200
UnitedHealth Group, Inc........ 157,084 13,828
Watson Pharmaceuticals, Inc.
(a)(f)....................... 25,803 847
Wellpoint, Inc. (a)............ 70,389 8,095
Wyeth.......................... 320,731 13,660
Zimmer Holdings, Inc. (a)...... 58,020 4,649
----------
338,045
----------
INDUSTRIALS - 11.4%
3M Co.......................... 185,884 15,256
Allied Waste Industries, Inc.
(a)(f)....................... 75,867 704
American Power Conversion Corp.
(f).......................... 47,267 1,012
American Standard Cos., Inc.
(a).......................... 50,621 2,092
Apollo Group, Inc. (a)......... 45,375 3,662
Avery Dennison Corp............ 26,370 1,581
Boeing Co...................... 199,645 10,336
Burlington Northern Santa Fe
Corp......................... 91,350 4,322
Caterpillar, Inc............... 82,285 8,024
Cendant Corp................... 248,722 5,815
Cintas Corp.................... 40,382 1,771
Cooper Industries, Ltd......... 21,821 1,481
CSX Corp....................... 50,624 2,029
Cummins, Inc. (f).............. 10,373 869
Danaher Corp. (f).............. 75,026 4,307
Deere & Co..................... 58,441 4,348
Delta Air Lines, Inc. (a)(f)... 30,493 228
Dover Corp..................... 47,913 2,009
Eaton Corp..................... 35,478 2,567
Emerson Electric Co............ 101,335 7,104
Equifax, Inc................... 32,069 901
FedEx Corp..................... 71,646 7,056
Fluor Corp. (f)................ 19,806 1,080
General Dynamics Corp.......... 47,806 5,001
General Electric Co. (e)....... 2,530,423 92,360
Goodrich Co.................... 27,955 912
H&R Block, Inc. (f)............ 38,810 1,902
Honeywell International,
Inc.......................... 207,642 7,353
Illinois Tool Works, Inc....... 71,164 6,596
Ingersoll-Rand Co. Class A..... 41,050 3,296
ITT Industries, Inc............ 22,002 1,858
Lockheed Martin Corp........... 104,871 5,826
Masco Corp..................... 108,974 3,981
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
34
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Monster Worldwide, Inc. (a).... 27,692 $ 932
Navistar International Corp.
(a)(f)....................... 16,880 742
Norfolk Southern Corp.......... 93,261 3,375
Northrop Grumman Corp.......... 89,278 4,853
PACCAR, Inc.................... 40,970 3,297
Pall Corp...................... 29,474 853
Parker-Hannifin Corp........... 28,223 2,138
Pitney Bowes, Inc.............. 54,539 2,524
Power-One, Inc. (a)............ 20,500 183
R.R. Donnelley & Sons Co....... 51,860 1,830
Raytheon Co.................... 107,714 4,183
Robert Half International,
Inc.......................... 41,114 1,210
Rockwell Automation, Inc....... 43,520 2,156
Rockwell Collins, Inc.......... 42,119 1,661
Ryder Systems, Inc............. 15,380 735
Southwest Airlines Co.......... 186,140 3,030
Textron, Inc................... 32,775 2,419
Tyco International, Ltd........ 483,048 17,264
Union Pacific Corp............. 61,040 4,105
United Parcel Service, Inc.
Class B...................... 268,800 22,972
United Technologies Corp....... 121,657 12,573
W.W. Grainger, Inc............. 21,709 1,446
Waste Management, Inc.......... 136,579 4,089
----------
316,209
----------
INFORMATION TECHNOLOGY - 16.2%
ADC Telecommunications, Inc.
(a)(f)....................... 190,527 511
Adobe Systems, Inc............. 56,771 3,562
Advanced Micro Devices, Inc.
(a)(f)....................... 95,384 2,100
Affiliated Computer Services,
Inc. (a)(f).................. 30,200 1,818
Agilent Technologies, Inc.
(a).......................... 115,127 2,775
Altera Corp. (a)............... 87,978 1,821
Analog Devices, Inc............ 88,861 3,281
Andrew Corp. (a)............... 37,727 514
Apple Computer, Inc. (a)....... 97,246 6,263
Applied Materials, Inc. (a).... 403,661 6,903
Applied Micro Circuits Corp.
(a)(f)....................... 75,042 316
Autodesk, Inc.................. 53,630 2,035
Automatic Data Processing,
Inc.......................... 140,838 6,246
Avaya, Inc. (a)(f)............. 107,415 1,848
BMC Software, Inc. (a)......... 51,336 955
Broadcom Corp. (a)............. 77,846 2,513
CIENA Corp. (a)(f)............. 138,988 464
Cisco Systems, Inc. (a)........ 1,578,359 30,462
Citrix Systems, Inc. (a)....... 40,553 995
Computer Associates
International, Inc........... 138,244 4,294
Computer Sciences Corp. (a).... 44,782 2,524
Compuware Corp. (a)............ 92,657 599
Comverse Technology, Inc. (a).. 45,938 1,123
Convergys Corp. (a)............ 35,005 525
Corning, Inc. (a).............. 334,285 3,935
Dell, Inc. (a)................. 595,791 25,107
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Electronic Arts, Inc. (a)...... 72,000 $ 4,441
Electronic Data Systems Corp.
(f).......................... 120,686 2,788
EMC Corp. (a).................. 577,841 8,592
First Data Corp................ 200,104 8,512
Fiserv, Inc. (a)............... 46,347 1,863
Fisher Scientific
International, Inc. (a)...... 27,200 1,697
Freescale Semiconductor, Inc.
(a).......................... 94,408 1,733
Gateway, Inc. (a)(f)........... 91,465 550
Hewlett-Packard Co............. 725,419 15,212
Intel Corp..................... 1,515,203 35,441
International Business Machines
Corp......................... 398,818 39,315
Intuit, Inc. (a)............... 45,051 1,983
Jabil Circuit, Inc. (a)........ 48,013 1,228
JDS Uniphase Corp. (a)(f)...... 344,319 1,091
KLA-Tencor Corp. (a)(f)........ 46,264 2,155
Lexmark International Group,
Inc. Class A (a)............. 30,602 2,601
Linear Technology Corp......... 72,475 2,809
LSI Logic Corp. (a)(f)......... 93,535 513
Lucent Technologies, Inc.
(a)(f)....................... 1,074,672 4,041
Maxim Integrated Products,
Inc.......................... 77,056 3,266
Mercury Interactive Corp.
(a).......................... 21,548 981
Micron Technology, Inc. (a).... 144,032 1,779
Microsoft Corp. (e)............ 2,602,704 69,518
Molex, Inc..................... 44,310 1,329
Motorola, Inc.................. 586,198 10,083
National Semiconductor Corp.... 84,318 1,513
NCR Corp. (a).................. 22,192 1,536
Network Appliance, Inc. (a).... 87,767 2,916
News Corp. Class A (f)......... 609,600 11,375
Novell, Inc. (a)(f)............ 90,942 614
Novellus Systems, Inc. (a)..... 33,669 939
NVIDIA Corp. (a)(f)............ 38,651 911
Oracle Corp. (a)............... 1,231,538 16,897
Parametric Technology Corp.
(a).......................... 61,941 365
Paychex, Inc................... 89,227 3,041
PerkinElmer, Inc............... 31,257 703
PMC-Sierra, Inc. (a)(f)........ 40,024 450
QLogic Corp. (a)............... 21,745 799
QUALCOMM, Inc.................. 393,578 16,688
Sabre Holdings Corp. Class A... 32,324 716
Sanmina-SCI Corp. (a).......... 124,358 1,053
Scientific-Atlanta, Inc. (f)... 36,068 1,191
Siebel Systems, Inc. (a)....... 121,958 1,281
Solectron Corp. (a)............ 226,514 1,207
Sun Microsystems, Inc. (a)..... 817,188 4,396
SunGard Data Systems, Inc.
(a).......................... 67,950 1,925
Symantec Corp. (a)............. 149,000 3,838
Symbol Technologies, Inc....... 56,885 984
Tektronix, Inc................. 23,329 705
Tellabs, Inc. (a).............. 118,575 1,019
Teradyne, Inc. (a)............. 47,092 804
Texas Instruments, Inc......... 411,903 10,141
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
35
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Thermo Electron Corp. (a)...... 38,429 $ 1,160
Unisys Corp. (a)............... 78,879 803
VERITAS Software Corp. (a)..... 101,883 2,909
Waters Corp. (a)............... 27,857 1,303
Xerox Corp. (a)................ 207,942 3,537
Xilinx, Inc.................... 81,704 2,422
Yahoo!, Inc. (a)............... 330,680 12,460
----------
449,611
----------
MATERIALS - 3.0%
Air Products & Chemicals,
Inc.......................... 53,489 3,101
Alcoa, Inc..................... 210,346 6,609
Allegheny Technologies, Inc.... 21,729 471
Ball Corp...................... 26,870 1,182
Bemis Co., Inc................. 25,228 734
Dow Chemical Co................ 226,899 11,234
E.I. Du Pont de Nemours & Co... 237,439 11,646
Eastman Chemical Co............ 18,462 1,066
Ecolab, Inc.................... 60,626 2,130
Engelhard Corp................. 29,030 890
Freeport-McMoRan Copper & Gold,
Inc. Class B (f)............. 41,914 1,602
Georgia-Pacific Group.......... 61,040 2,288
Great Lakes Chemical Corp...... 12,503 356
Hercules, Inc. (a)............. 27,298 405
International Flavors &
Fragrances, Inc.............. 22,204 951
International Paper Co......... 117,956 4,954
Louisiana-Pacific Corp......... 25,759 689
MeadWestvaco Corp.............. 47,388 1,606
Monsanto Co.................... 62,746 3,486
Newmont Mining Corp............ 107,642 4,780
Nucor Corp..................... 37,204 1,947
Pactiv Corp. (a)............... 35,164 889
Phelps Dodge Corp.............. 23,505 2,325
PPG Industries, Inc............ 40,490 2,760
Praxair, Inc................... 76,620 3,383
Rohm & Haas Co................. 52,796 2,335
Sealed Air Corp. (a)........... 20,236 1,078
Sigma-Aldrich Corp............. 16,493 997
Temple-Inland, Inc............. 13,314 911
United States Steel Corp.
(f).......................... 26,902 1,379
Vulcan Materials Co............ 24,096 1,316
Weyerhaeuser Co................ 56,424 3,793
----------
83,293
----------
TELECOMMUNICATION SERVICES - 3.3%
ALLTEL Corp.................... 72,598 4,266
AT&T Corp...................... 187,247 3,569
BellSouth Corp................. 440,428 12,239
CenturyTel, Inc. (f)........... 31,808 1,128
Citizens Communications Co.
(f).......................... 77,677 1,071
L-3 Communications Holdings,
Inc.......................... 28,400 2,080
Nextel Communications, Inc.
Class A (a).................. 265,536 7,966
Qwest Communications
International, Inc. (a)...... 430,622 1,912
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
SBC Communications, Inc........ 795,504 $ 20,500
Sprint Corp. (Fon Group)....... 354,523 8,810
Verizon Communications, Inc.... 663,898 26,895
----------
90,436
----------
UTILITIES - 3.2%
AES Corp. (a).................. 157,314 2,150
Allegheny Energy, Inc.
(a)(f)....................... 30,999 611
Ameren Corp. (f)............... 45,842 2,299
American Electric Power Co.,
Inc.......................... 93,454 3,209
Calpine Corp. (a)(f)........... 144,152 568
CenterPoint Energy, Inc. (f)... 72,493 819
Cinergy Corp................... 42,358 1,763
CMS Energy Corp. (a)(f)........ 49,905 522
Consolidated Edison, Inc....... 56,822 2,486
Constellation Energy Group,
Inc.......................... 42,603 1,862
Dominion Resources, Inc. (f)... 78,687 5,330
DTE Energy Co.................. 41,346 1,783
Duke Energy Corp............... 231,377 5,861
Dynegy Inc. Class A (a)(f)..... 92,330 427
Edison International........... 76,762 2,459
El Paso Corp. (f).............. 153,194 1,593
Entergy Corp................... 53,443 3,612
Exelon Corp.................... 159,978 7,050
FirstEnergy Corp............... 77,712 3,070
FPL Group, Inc. (f)............ 43,689 3,266
KeySpan Corp. (f).............. 37,606 1,484
Kinder Morgan, Inc............. 29,238 2,138
Nicor, Inc. (f)................ 10,913 403
NiSource, Inc.................. 62,967 1,434
Peoples Energy Corp. (f)....... 9,031 397
PG&E Corp. (a)................. 94,523 3,146
Pinnacle West Capital Corp..... 21,481 954
PPL Corp....................... 44,768 2,385
Progress Energy, Inc. (f)...... 58,108 2,629
Public Service Enterprise
Group, Inc. (f).............. 55,822 2,890
Sempra Energy.................. 54,689 2,006
Southern Co.................... 178,858 5,995
TECO Energy, Inc. (f).......... 46,176 708
TXU Corp....................... 57,448 3,709
Williams Cos., Inc. (f)........ 134,837 2,197
Xcel Energy, Inc. (f).......... 93,997 1,711
XTO Energy, Inc................ 62,200 2,201
----------
87,127
----------
TOTAL COMMON STOCKS (COST
$2,082,504,194).......... 2,699,246
----------
<Caption>
PAR
AMOUNT
--------------
(IN THOUSANDS)
U.S. GOVERNMENT SECURITIES - 0.2%
United States Treasury Bill
2.19% due 03/10/05 (b)(c).... $ 4,299 4,281
----------
TOTAL U.S. GOVERNMENT
SECURITIES (COST
$4,281,257).............. 4,281
----------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
36
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
--------------
(IN THOUSANDS)
SHORT TERM INVESTMENTS - 5.7%
AIM Short Term Investment Prime
Portfolio.................... 60,104 60,104
Federated Money Market
Obligations Trust............ 487 487
State Street Navigator
Securities Lending Prime
Portfolio (d)(g) (Note 4).... 98,442 98,442
----------
TOTAL SHORT TERM INVESTMENTS
(COST $159,032,959).......................... 159,033
----------
TOTAL INVESTMENTS - 103.4% (IDENTIFIED COST
$2,245,818,410).............................. 2,862,560
----------
LIABILITIES IN EXCESS OF OTHER
ASSETS - (3.4)%.............................. (95,093)
----------
NET ASSETS - 100%.............................. $2,767,467
==========
</Table>
SCHEDULE OF FUTURES CONTRACTS
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS APPRECIATION
--------- ------------
(DOLLARS IN THOUSANDS)
S&P 500 Financial Futures
Contracts (long) Expiration
date 03/2005............... 364 $1,073
------
Total unrealized appreciation
on open futures contracts
purchased.................. $1,073
======
</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 December 31, 2004.
(g) Affiliated issuer. See table below for more information.
<Table>
<Caption>
NUMBER OF SHARES PURCHASED SHARES SOLD FOR NUMBER OF INCOME EARNED
SHARES HELD FOR THE YEAR THE YEAR ENDED SHARES HELD AT FOR THE YEAR REALIZED GAIN
SECURITY DESCRIPTION AT 12/31/03 ENDED 12/31/04 12/31/04 12/31/04 ENDED 12/31/04 ON SHARES SOLD
-------------------- ----------- ---------------- --------------- --------------- -------------- --------------
State Street Corp....... 84,525 3,400 8,700 79,225 $52,637 $23,855
State Street Navigator
Securities Lending
Prime Portfolio....... 71,146,646 976,149,740 948,854,719 98,441,667 69,912 --
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
37
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
- --------------------------------------------------------------------------------
(amounts in thousands)
<Table>
ASSETS:
Investments in unaffiliated issuers at market
(identified cost $2,144,730) - including $97,986 of
securities loaned (Note 2)............................. $2,760,226
Investments in non-controlled affiliates at market
(identified cost $101,088) (Note 4).................... 102,334
----------
2,862,560
Receivables:
Dividends and interest.............................. 3,608
----------
TOTAL ASSETS........................................ 2,866,168
----------
LIABILITIES:
Payables:
Investment securities purchased..................... 102
Daily variation margin on futures contracts......... 53
Due upon return of securities loaned................ 98,442
Management fees (Note 4)............................ 104
----------
TOTAL LIABILITIES................................... 98,701
----------
NET ASSETS:................................................. $2,767,467
==========
COMPOSITION OF NET ASSETS:
Paid-in capital......................................... $2,149,652
Net unrealized appreciation on investments and futures
contracts.............................................. 617,815
----------
NET ASSETS.................................................. $2,767,467
==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
38
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------
(amounts in thousands)
<Table>
INVESTMENT INCOME:
Dividend income - unaffiliated issuers.................. $ 52,917
Dividend income - non-controlled affiliated issuer...... 53
Interest................................................ 819
Security lending income (Notes 2 and 4)................. 70
--------
TOTAL INVESTMENT INCOME............................. 53,859
EXPENSES:
Management fees (Note 4)................................ $ 1,201
--------
TOTAL EXPENSES...................................... 1,201
--------
NET INVESTMENT INCOME....................................... 52,658
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments - unaffiliated issuers.................. (34,201)
Investments - non-controlled affiliated issuer...... 24
Futures contracts................................... 7,688
--------
(26,489)
--------
Net change in unrealized appreciation (depreciation) on:
Investments......................................... 250,841
Futures contracts................................... (943)
--------
249,898
--------
Net realized and unrealized gain............................ 223,409
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $276,067
========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
39
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
(AMOUNTS IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income......................... $ 52,658 $ 39,264
Net realized loss on investments and futures
contracts.................................... (26,489) (90,744)
Net change in unrealized appreciation
(depreciation)............................ 249,898 641,095
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................ 276,067 589,615
---------- ----------
CAPITAL TRANSACTIONS:
Proceeds from contributions................... 331,241 547,305
Contributions in-kind......................... -- 19,659
Fair value of withdrawals..................... (481,557) (434,455)
Withdrawals in-kind........................... (72,956) --
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL TRANSACTIONS...................... (223,272) 132,509
---------- ----------
TOTAL NET INCREASE IN NET ASSETS.................. 52,795 722,124
NET ASSETS:
Beginning of year............................. 2,714,672 1,992,548
---------- ----------
END OF YEAR................................... $2,767,467 $2,714,672
========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
40
STATE STREET EQUITY 500 INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected supplemental data and ratios to
average net assets:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002 2001 2000*
------------ ------------ ------------ ------------ ------------
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands)...... $2,767,467 $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.................... 1.97% 1.74% 1.57% 1.34% 1.14%+
Portfolio turnover rate**..................... 9% 12% 13% 14% 18%++
Total return (a).............................. 10.86% 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.
- --------------------------------------------------------------------------------
41
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
- --------------------------------------------------------------------------------
1. ORGANIZATION:
The State Street Master Funds (the "Trust") is a registered and diversified
open-end investment company, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"), that was organized as a business trust under the
laws of the Commonwealth of Massachusetts on July 27, 1999. The Trust comprises
seven investment portfolios: the State Street Equity 500 Index Portfolio, the
State Street Equity 400 Index Portfolio, the State Street Equity 2000 Index
Portfolio, the State Street MSCI(R) EAFE(R) Index Portfolio, the State Street
Aggregate Bond Index Portfolio, the State Street Money Market Portfolio, and the
State Street U.S. Government Money Market Portfolio. Information presented in
these financial statements pertains only to the State Street Equity 500 Index
Portfolio (the "Portfolio"). At December 31, 2004, only the Portfolio, State
Street MSCI(R) EAFE(R) Index Portfolio and State Street Money Market 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(R) Index"). The Portfolio uses a
passive management strategy designed to track the performance of the S&P 500(R)
Index. The S&P 500(R) 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 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.
- --------------------------------------------------------------------------------
42
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
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(R) 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 year ended December 31, 2004, the earned income for
the Portfolio and State Street was $69,912 and $23,304, respectively.
The primary risk associated with securities lending is that if the borrower
defaults on its obligation to return the securities loaned because of insolvency
or other reasons, the Portfolio could experience delays and costs in recovering
the securities loaned or in gaining access to the collateral. At December 31,
2004, the value of the securities loaned amounted to $97,985,663. The loans were
collateralized with cash of $98,441,667, which the Portfolio then invested in
the State Street Navigator Securities Lending Prime Portfolio (the "Prime
Portfolio"), an affiliated investment
- --------------------------------------------------------------------------------
43
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
company, and letters of credit from JP Morgan Chase Bank and BNP Paribas in the
amounts of $1,264,800 and $2,150,160, respectively.
Use of Estimates
The Portfolio's financial statements are prepared in accordance with U.S.
generally accepted accounting principles that require the use of management
estimates. Actual results could differ from those estimates.
3. SECURITIES TRANSACTIONS:
For the year ended December 31, 2004, purchases and sales of investment
securities, excluding short-term investments, futures contracts, and in-kind
withdrawals, aggregated to $237,412,033 and $297,872,960, respectively. The
aggregate value of in-kind withdrawals was $72,956,408.
At December 31, 2004, the tax cost of investments was $2,450,998,571. The
aggregate gross unrealized appreciation and gross unrealized depreciation was
$783,440,674 and $371,879,248, respectively, resulting in net appreciation of
$411,561,426 for all securities as computed on a federal income tax basis. The
differences between book and tax cost amounts are primarily due to wash sale
loss deferrals.
4. RELATED PARTY FEES AND TRANSACTIONS:
The Portfolio has entered into an investment advisory agreement with SSgA
Funds Management, Inc. ("SSgA FM"), a subsidiary of State Street Corp. and an
affiliate of State Street, under which SSgA FM 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 FM'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 FM. 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 FM. Investments in State
Street Corp., the holding company of State Street, were made according to its
representative portion of the S&P 500(R) Index. The market value of each of
these investments at December 31, 2004 is listed in the Portfolio of
Investments.
During the year, the Portfolio had investment transactions executed through
State Street Global Markets LLC, a wholly owned subsidiary of State Street
Corp., and an affiliated broker-dealer of SSgA FM. For the year ended December
31, 2004, the Portfolio paid brokerage commissions to State Street Global
Markets LLC of $52,740.
5. INDEMNIFICATIONS:
Like many other companies, the Trust's organizational documents provide
that its officers and trustees are indemnified against certain liabilities
arising out of the performance of their duties to the Trust. In addition, both
in some of its principal service contracts and in the normal course of its
- --------------------------------------------------------------------------------
44
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
business, the Trust enters into contracts that provide indemnifications to other
parties for certain types of losses or liabilities. The Trust's maximum exposure
under these arrangements in unknown as this could involve future claims against
the Trust.
GENERAL INFORMATION (UNAUDITED)
Proxy Voting Policies and Procedures and Record
The Trust has adopted proxy voting procedures relating to portfolio
securities held by the Portfolio. A description of the policies and procedures
is available without charge, upon request, by (i) calling (877) 521-4083 or (ii)
on the website of the Securities and Exchange Commission (the "SEC") at
www.sec.gov. Information on how the Portfolio voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (i) without charge, upon request, by calling (877) 521-4083 or (ii) on
the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Trust files a complete schedule of portfolio holdings with the SEC for
the first and third quarters of its fiscal year (as of March and September of
each year) on Form N-Q. The Trust's Form N-Q is available on the SEC's website
at www.sec.gov. The Trust's Form N-Q may be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. and information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330. The most
recent Form N-Q is available without charge, upon request, by calling (877)
521-4083.
- --------------------------------------------------------------------------------
45
STATE STREET EQUITY 500 INDEX PORTFOLIO
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of State Street Master Funds and
Owners of Beneficial Interest of State Street Equity 500 Index Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the State Street Equity 500 Index
Portfolio (one of the portfolios constituting State Street Master Funds) (the
Portfolio) as of December 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Portfolio's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and brokers or other appropriate auditing procedures where replies from the
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
State Street Equity 500 Index Portfolio of State Street Master Funds at December
31, 2004, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein, in conformity
with U.S. generally accepted accounting principles.
-s- ERNST & YOUNG LLP
Boston, Massachusetts
February 11, 2005
- --------------------------------------------------------------------------------
46
STATE STREET EQUITY 500 INDEX PORTFOLIO
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
STATE STREET MASTER FUNDS
<Table>
<Caption>
NUMBER OF
FUNDS IN FUND OTHER
POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY HELD BY
DATE OF BIRTH ("DOB") TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE TRUSTEE
- --------------------- ----------- ---------------- -------------------------- ------------- ---------------
INDEPENDENT TRUSTEES
Michael F. Holland Trustee and Term: Indefinite Chairman, Holland & 14 Trustee, State
Holland & Company, LLC Chairman of Elected: 7/99 Company L.L.C. (investment Street
375 Park Avenue the Board adviser) (1995-present). Institutional
New York, NY 10152 Investment
DOB: 07/08/44 Trust; Director
of the Holland
Series Fund,
Inc.; and
Director, The
China Fund,
Inc.
William L. Boyan Trustee Term: Indefinite Trustee of Old Mutual 14 Trustee, State
State Street Master Elected: 7/99 South Africa Master Trust Street
Funds (investments) (1997- Institutional
P.O. Box 5049 present); Chairman Investment
Boston, MA 02206 emeritus, Children's Trust; and
DOB: 01/20/37 Hospital (1984-present); Trustee, Old
Director, Boston Plan For Mutual South
Excellence (non-profit) Africa Master
(1994-present); President Trust
and Chief Operations
Officer, John Hancock
Mutual Life Insurance
Company (1959-1999). Mr.
Boyan retired in 1999.
Rina K. Spence Trustee Term: Indefinite President of SpenceCare 14 Trustee, State
7 Acacia Street Elected: 7/99 International LLC (1998- Street
Cambridge, MA 02138 present); Member of the Institutional
DOB: 10/24/48 Advisory Board, Ingenium Investment
Corp., (technology Trust; Director
company) (2001-present); of Berkshire
Chief Executive Officer, Life Insurance
IEmily.com, (internet Company of
company) (2000-2001); America; and
Trustee Eastern Enterprise Director,
(utilities) (1988-2000). IEmily.com
Douglas T. Williams Trustee Term: Indefinite Executive Vice President 14 Trustee, State
State Street Master Elected: 7/99 of Chase Manhattan Bank, Street
Funds (1987-1999). Mr. Williams Institutional
P.O. Box 5049 retired in 1999. Investment
Boston, MA 02206 Trust
DOB: 12/23/40
</Table>
- --------------------------------------------------------------------------------
47
STATE STREET EQUITY 500 INDEX PORTFOLIO
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
FUNDS IN FUND OTHER
POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY HELD BY
DATE OF BIRTH ("DOB") TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE TRUSTEE
- --------------------- ----------- ---------------- -------------------------- ------------- ---------------
OFFICERS
Donald A. Gignac President Term: Indefinite Senior Vice President of -- --
State Street Bank and Elected: 8/03 State Street Bank and
Trust Company Trust Company
2 Avenue de Lafayette (2002-present); Vice
Boston, MA 02111 President of State Street
DOB: 06/14/65 Bank and Trust Company
(1993 to 2002).
Karen Gillogly Treasurer Term: Indefinite Vice President of State -- --
State Street Bank and Elected: 9/03 Street Bank and Trust
Trust Company Company (1999-present);
One Federal Street Audit Senior Manager,
Boston, MA 02110 Ernst & Young LLP (1998-
DOB: 09/03/66 1999).
Julie A. Tedesco Secretary Term: Indefinite Vice President and Counsel -- --
State Street Bank and Elected: 5/00 of State Street Bank and
Trust Company Trust Company
One Federal Street (2000-present); Counsel of
Boston, MA 02110 First Data Investor
DOB: 09/03/57 Services Group, Inc.,
(1994-2000).
Peter A. Ambrosini Chief Term: Unlimited Senior Principal and Chief -- --
SSgA Funds Compliance Elected: 5/04 Compliance and Risk
Management, Inc. Officer Management Officer, SSgA
State Street Financial Funds Management, Inc. and
Center State Street Global
One Lincoln Street Advisors (2001-present);
Boston, MA 02111 Managing Director,
DOB: 12/17/43 PricewaterhouseCoopers LLP
(1986-2001).
</Table>
The Statement of Additional Information includes additional information
about the Trust's Trustees and is available, without charge, upon request, by
calling (toll free) 877-521-4083.
- --------------------------------------------------------------------------------
48
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS
December 31, 2004
- --------------------------------------------------------------------------------
This summary schedule of investments is presented to help investors focus
on the Series' principal holdings. It includes the Series' 50 largest holdings
and each investment of any issuer that exceeds 1% of the Series' net assets.
"Other Securities" represent all issues not required to be disclosed under the
rules adopted by the Securities and Exchange Commission. A complete schedule of
investments is available without charge, upon request, by calling 800-637-3863
or on the Securities and Exchange Commission's Web site at http://www.sec.gov.
<Table>
<Caption>
PERCENT OF
INDUSTRY++ SHARES HELD COMMON STOCKS VALUE NET ASSETS
- ---------- ----------- ------------- ------------ ----------
Advertising Agencies 16,400 +Valassis Communications, Inc. $ 574,164 0.2%
Other Securities 2,211,215 0.6
------------ -----
2,785,379 0.8
------------ -----
Aerospace Other Securities 1,708,095 0.5
Agriculture, Fishing & Ranching Other Securities 435,176 0.1
Air Transport Other Securities 3,142,009 0.9
Aluminum Other Securities 306,914 0.1
Auto Parts: After Market Other Securities 555,610 0.2
Auto Parts: Original Equipment Other Securities 1,521,467 0.4
Auto Trucks & Parts Other Securities 567,594 0.2
Banks: New York City Other Securities 16,180 0.0
Banks: Outside New York City 24,500 Bancorpsouth, Inc. 597,065 0.2
14,444 Cathay General Bancorp 541,650 0.1
14,896 East-West Bancorp, Inc. 625,036 0.2
11,400 First Bancorp/Puerto Rico 724,014 0.2
15,600 First Midwest Bancorp, Inc. 566,124 0.1
21,900 Old National Bancorp 566,334 0.1
4,515 Park National Corp. 611,783 0.2
10,583 Westamerica Bancorporation 617,095 0.2
Other Securities 23,871,994 6.6
------------ -----
28,721,095 7.9
------------ -----
Beverage: Brewers (Wineries) Other Securities 53,175 0.0
Beverage: Soft Drinks Other Securities 315,994 0.1
Biotechnology Research & Production Other Securities 8,839,974 2.4
Building Materials Other Securities 1,793,959 0.5
Building: Air Conditioning Other Securities 713,615 0.2
Building: Cement Other Securities 497,569 0.1
Building: Heating & Plumbing Other Securities 245,991 0.1
Building: Miscellaneous Other Securities 418,854 0.1
Building: Roofing & Wallboard Other Securities 689,889 0.2
Cable Television Services Other Securities 518,605 0.1
Casinos & Gambling Other Securities 3,531,498 1.0
Chemicals 11,500 Cytec Industries, Inc. 591,330 0.2
11,700 +FMC Corp. 565,110 0.2
Other Securities 6,040,395 1.6
------------ -----
7,196,835 2.0
------------ -----
Commercial Information Services Other Securities 1,416,440 0.4
Communications & Media Other Securities 106,880 0.0
Communications Technology 83,400 +Brocade Communications Systems, Inc. 637,176 0.2
Other Securities 6,513,011 1.8
------------ -----
7,150,187 2.0
------------ -----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
49
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY++ SHARES HELD COMMON STOCKS VALUE NET ASSETS
- ---------- ----------- ------------- ------------ ----------
Computer Services, Software & Systems 8,716 +CACI International, Inc. Class A $ 593,821 0.2%
Other Securities 17,232,453 4.7
------------ -----
17,826,274 4.9
------------ -----
Computer Technology Other Securities 6,547,020 1.8
Construction Other Securities 1,005,584 0.3
Consumer Electronics Other Securities 3,719,286 1.0
Consumer Products 7,698 Toro Co. 626,232 0.2
Other Securities 3,299,547 0.9
------------ -----
3,925,779 1.1
------------ -----
Containers & Packaging: Metals & 11,500 Aptargroup, Inc. 606,970 0.1
Glass
54,169 +Crown Holdings, Inc. 744,282 0.2
Other Securities 635,866 0.2
------------ -----
1,987,118 0.5
------------ -----
Containers & Packaging: Paper & Other Securities 240,586 0.1
Plastic
Copper Other Securities 350,400 0.1
Cosmetics Other Securities 793,975 0.2
Diversified Financial Services 38,900 +The BISYS Group, Inc. 639,905 0.2
Other Securities 1,761,774 0.5
------------ -----
2,401,679 0.7
------------ -----
Diversified Materials & Processing Other Securities 2,658,044 0.7
Diversified Production 19,652 +Thomas & Betts Corp. 604,299 0.2
Drug & Grocery Store Chains Other Securities 1,565,080 0.4
Drugs & Pharmaceuticals 27,500 Valeant Pharmaceuticals International 724,625 0.2
Other Securities 8,694,338 2.4
------------ -----
9,418,963 2.6
------------ -----
Education Services Other Securities 1,063,970 0.3
Electrical & Electronics Other Securities 1,076,977 0.3
Electrical Equipment & Components Other Securities 3,418,476 0.9
Electrical: Household Appliances Other Securities 109,826 0.0
Electronics Other Securities 1,626,662 0.4
Electronics: Instruments Gauges & Other Securities 618,556 0.2
Meters
Electronics: Medical Systems Other Securities 3,149,209 0.9
Electronics: Semiconductors/ Other Securities 6,824,688 1.9
Components
Electronics: Technology 16,906 +Trimble Navigation Ltd. 558,574 0.1
Other Securities 2,772,083 0.8
------------ -----
3,330,657 0.9
------------ -----
Energy Equipment Other Securities 237,066 0.1
Energy Miscellaneous 21,565 +Tesoro Corp. 687,061 0.2
Other Securities 1,833,975 0.5
------------ -----
2,521,036 0.7
------------ -----
Engineering & Contracting Services Other Securities 1,032,932 0.3
Entertainment Other Securities 1,069,979 0.3
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
50
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY++ SHARES HELD COMMON STOCKS VALUE NET ASSETS
- ---------- ----------- ------------- ------------ ----------
Fertilizers 38,300 +The Mosaic Co. $ 625,056 0.2%
Other Securities 86,136 0.0
------------ -----
711,192 0.2
------------ -----
Finance Companies Other Securities 635,429 0.2
Finance: Small Loan Other Securities 121,179 0.0
Financial Data Processing Services & Other Securities 2,853,531 0.8
Systems
Financial Information Services Other Securities 975,176 0.3
Financial Miscellaneous Other Securities 2,652,393 0.7
Foods Other Securities 2,740,694 0.7
Forest Products Other Securities 1,220,113 0.3
Forms & Bulk Printing Services Other Securities 145,152 0.0
Funeral Parlors & Cemeteries Other Securities 391,978 0.1
Glass Other Securities 146,169 0.0
Gold Other Securities 332,682 0.1
Health Care Facilities Other Securities 2,559,167 0.7
Health Care Management Services 7,300 +AMERIGROUP Corp. 552,318 0.2
Other Securities 4,125,231 1.1
------------ -----
4,677,549 1.3
------------ -----
Health Care Services Other Securities 2,067,239 0.6
Homebuilding 4,017 Beazer Homes USA, Inc. 587,326 0.1
Other Securities 1,004,763 0.3
------------ -----
1,592,089 0.4
------------ -----
Hotel/Motel Other Securities 165,396 0.0
Household Furnishings Other Securities 2,060,166 0.6
Identification Control & 15,821 IDEX Corp. 640,751 0.2
Filter Devices Other Securities 3,115,618 0.8
------------ -----
3,756,369 1.0
------------ -----
Insurance: Life Other Securities 1,899,177 0.5
Insurance: Multi-Line Other Securities 1,833,527 0.5
Insurance: Property-Casualty Other Securities 4,287,241 1.2
Investment Management Companies Other Securities 1,787,036 0.5
Jewelry Watches & Gemstones Other Securities 89,520 0.0
Leisure Time 10,678 +Penn National Gaming, Inc. 646,553 0.2
17,913 SCP Pool Corp. 571,425 0.2
Other Securities 1,160,812 0.3
------------ -----
2,378,790 0.7
------------ -----
Machine Tools Other Securities 379,664 0.1
Machinery & Engineering Other Securities 185,238 0.0
Machinery: Agricultural Other Securities 101,268 0.0
Machinery: Construction & Handling 15,843 +Terex Corp. 754,919 0.2
Other Securities 932,302 0.3
------------ -----
1,687,221 0.5
------------ -----
Machinery: Industrial/Specialty 16,400 Joy Global, Inc. 712,252 0.2
Other Securities 2,850,974 0.8
------------ -----
3,563,226 1.0
------------ -----
Machinery: Oil Well Equipment & Other Securities 4,699,271 1.3
Services
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
51
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY++ SHARES HELD COMMON STOCKS VALUE NET ASSETS
- ---------- ----------- ------------- ------------ ----------
Machinery: Specialty Other Securities $ 1,277,767 0.3%
Manufactured Housing Other Securities 407,946 0.1
Manufacturing Other Securities 745,529 0.2
Medical & Dental 13,929 +Techne Corp. 541,838 0.1
Instruments & Supplies Other Securities 10,385,339 2.8
------------ -----
10,927,177 2.9
------------ -----
Medical Services Other Securities 930,997 0.3
Metal Fabricating Other Securities 3,482,112 1.0
Metals & Minerals Miscellaneous Other Securities 1,697,475 0.5
Milling: Fruit & Grain Processing 10,789 Corn Products International, Inc. 577,859 0.2
Other Securities 32,832 0.0
------------ -----
610,691 0.2
------------ -----
Miscellaneous: Health Care Other Securities 414,720 0.1
Miscellaneous: Materials & Other Securities 735,782 0.2
Commodities
Miscellaneous: Materials & Processing Other Securities 839,362 0.2
Miscellaneous: Producer Durables Other Securities 135,024 0.0
Multi-Sector Companies Other Securities 1,594,650 0.4
Office Furniture & Business Equipment Other Securities 476,770 0.1
Offshore Drilling Other Securities 152,497 0.0
Oil: Crude Producers 25,490 +Plains Exploration & Production Co. 662,740 0.2
Other Securities 9,053,259 2.5
------------ -----
9,715,999 2.7
------------ -----
Oil: Integrated Domestic Other Securities 539,428 0.1
Paints & Coatings Other Securities 673,280 0.2
Paper Other Securities 1,256,614 0.3
Plastics Other Securities 226,310 0.1
Pollution Control & Environmental Other Securities 780,065 0.2
Services
Power Transmission Equipment Other Securities 295,812 0.1
Printing & Copying Services Other Securities 189,679 0.0
Production Technology Equipment Other Securities 5,041,089 1.4
Publishing: Miscellaneous Other Securities 1,825,923 0.5
Publishing: Newspapers Other Securities 837,381 0.2
Radio & TV Broadcasters Other Securities 1,887,922 0.5
Railroad Equipment Other Securities 288,520 0.1
Railroads Other Securities 920,831 0.3
Real Estate Other Securities 1,319,570 0.4
Real Estate Investment Trusts (REIT) 37,000 American Financial Realty Trust 598,660 0.2
18,200 CarrAmerica Realty Corp. 600,600 0.2
6,695 Essex Property Trust, Inc. 561,041 0.1
13,900 First Industrial Realty Trust, Inc. 566,147 0.1
14,800 Healthcare Realty Trust, Inc. 602,360 0.2
62,300 +La Quinta Corp. 566,307 0.1
13,150 New Century Financial Corp. 840,417 0.2
13,200 Realty, Income Corp. 667,656 0.2
Other Securities 20,728,320 5.7
------------ -----
25,731,508 7.0
------------ -----
Recreational Vehicles & Boats Other Securities 1,471,005 0.4
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
52
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY++ SHARES HELD COMMON STOCKS VALUE NET ASSETS
- ---------- ----------- ------------- ------------ ----------
Rental & Leasing Services: Commercial Other Securities $ 957,987 0.3%
Rental & Leasing Services: Consumer Other Securities 854,120 0.2
Restaurants 14,700 CBRL Group, Inc. 615,195 0.2
19,914 +Sonic Corp. 607,377 0.1
Other Securities 4,764,294 1.3
------------ -----
5,986,866 1.6
------------ -----
Retail Other Securities 13,712,089 3.7
Savings & Loan Other Securities 8,306,168 2.3
Scientific Equipment & Suppliers Other Securities 647,915 0.2
Securities Brokerage & Services Other Securities 1,615,931 0.4
Services: Commercial Other Securities 10,024,140 2.7
Shipping Other Securities 1,459,507 0.4
Shoes Other Securities 1,306,744 0.3
Steel 28,900 Allegheny Technologies, Inc. 626,263 0.2
Other Securities 2,109,814 0.5
------------ -----
2,736,077 0.7
------------ -----
Synthetic Fibers Other Securities 80,367 0.0
Telecommunications Equipment Other Securities 2,101,604 0.6
Textile Products Other Securities 288,571 0.1
Textiles Apparel Manufacturers 18,450 +Quiksilver, Inc. 549,626 0.2
Other Securities 1,544,410 0.4
------------ -----
2,094,036 0.6
------------ -----
Tires & Rubber 50,100 +The Goodyear Tire & Rubber Co.(c) 734,466 0.2
Other Securities 607,537 0.2
------------ -----
1,342,003 0.4
------------ -----
Tobacco Other Securities 934,864 0.3
Toys Other Securities 250,291 0.1
Transportation Miscellaneous 30,800 +Laidlaw International, Inc. 659,120 0.2
Other Securities 618,838 0.1
------------ -----
1,277,958 0.3
------------ -----
Truckers 9,908 +Landstar System, Inc. 729,625 0.2
Other Securities 2,746,879 0.8
------------ -----
3,476,504 1.0
------------ -----
Utilities: Cable TV & Radio Other Securities 116,875 0.0
Utilities: Electrical 62,400 +CMS Energy Corp. 652,080 0.2
Other Securities 4,224,533 1.1
------------ -----
4,876,613 1.3
------------ -----
Utilities: Gas Distributors 11,900 Energen Corp. 701,505 0.2
24,000 Piedmont Natural Gas Co. 557,760 0.1
Other Securities 4,674,848 1.3
------------ -----
5,934,113 1.6
------------ -----
Utilities: Gas Pipelines Other Securities 34,518 0.0
Utilities: Miscellaneous Other Securities 239,112 0.1
Utilities: Telecommunications Other Securities 3,164,793 0.9
Utilities: Water Other Securities 646,361 0.2
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
53
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY++ SHARES HELD COMMON STOCKS VALUE NET ASSETS
- ---------- ----------- ------------- ------------ ----------
Wholesale & International Trade Other Securities $ 143,269 0.0%
Wholesalers Other Securities 713,816 0.2
------------ -----
TOTAL INVESTMENTS IN COMMON STOCKS
(COST - $275,838,140) 357,820,594 97.9
------------ -----
<Caption>
PERCENT OF
INDUSTRY++ SHARES HELD MUTUAL FUNDS VALUE NET ASSETS
- ---------- ----------- ------------ ------------ ----------
Investment Management Companies Other Securities $ 85,320 0.0%
------------ -----
TOTAL INVESTMENTS IN MUTUAL FUNDS
(COST - $74,033) 85,320 0.0
------------ -----
<Caption>
FIXED INCOME SECURITIES
-----------------------
Metal Fabricating Other Securities 686 0.0
------------ -----
TOTAL INVESTMENTS IN FIXED INCOME
SECURITIES (COST - $686) 686 0.0
------------ -----
<Caption>
OTHER INTEREST++++
------------------
Computer Services: Software & Systems Other Securities 0 0.0
------------ -----
TOTAL INVESTMENTS IN OTHER INTEREST
(COST - $0) 0 0.0
------------ -----
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
----------- ---------------------
$ 8,989,590 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I(a) 8,989,590 2.4
11,652,388 Merrill Lynch Liquidity Series, LLC
Money Market Series(a)(b) 11,652,388 3.2
------------ -----
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST - $20,641,978) 20,641,978 5.6
------------ -----
TOTAL INVESTMENTS (COST - $296,554,837*) 378,548,578 103.5
LIABILITIES IN EXCESS OF OTHER ASSETS (12,887,301) (3.5)
------------ -----
NET ASSETS $365,661,277 100.0%
============ =====
</Table>
- ---------------
"Other Securities" represent issues that are not identified as the 50
largest holdings of the Series and issues not exceeding 1% of net assets.
* The cost and unrealized appreciation/depreciation on investments as of
December 31, 2004, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost.............................................. $300,190,875
------------
Gross unrealized appreciation............................... $100,834,680
Gross unrealized depreciation............................... (22,476,977)
------------
Net unrealized appreciation................................. $ 78,357,703
============
</Table>
+ Non-income producing security.
++ For Series compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Series management.
This definition may not apply for purposes of this report, which may combine
such industry sub-classifications for reporting ease. These industry
classifications are unaudited.
++++Other interest represents beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
See notes to financial statements.
- --------------------------------------------------------------------------------
54
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
(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) were as follows:
<Table>
<Caption>
INTEREST/
DIVIDEND
AFFILIATE NET ACTIVITY INCOME
--------- ------------ ---------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I..... $(31,201,939) $182,651..
Merrill Lynch Liquidity Series, LLC Money Market Series..... $ 4,814,262 $107,254
Merrill Lynch Premier Institutional Fund.................... (2,279,374) $ 9,198
</Table>
(b) Security was purchased with the cash proceeds from securities loans.
Financial futures contracts purchased as of December 31, 2004 were as
follows:
<Table>
<Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE DATE FACE VALUE APPRECIATION
--------- ----- ---------- ----------- ------------
36 Russell 2000 Index March 2005 $11,633,855 $137,245
</Table>
Financial futures contracts sold as of December 31, 2004 were as follows:
<Table>
<Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE DATE FACE VALUE DEPRECIATION
--------- ----- ---------- ---------- ------------
3 Russell 2000 Index March 2005 $949,875 $(31,050)
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
55
MASTER SMALL CAP INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2004
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value
(including securities loaned of $10,888,830)
(identified cost - $275,912,859)....................... $357,906,600
Investments in affiliated securities, at value
(identified cost - $20,641,978)........................ 20,641,978
Cash.................................................... 211,025
Cash on deposit for financial futures contracts......... 462,000
Receivables:
Dividends............................................. $ 489,544
Contributions......................................... 459,470
Securities sold....................................... 160,758
Securities lending.................................... 15,160
Interest from affiliates.............................. 14,893
Variation margin...................................... 7,425 1,147,250
----------
Prepaid expenses........................................ 719
------------
TOTAL ASSETS........................................ 380,369,572
------------
LIABILITIES:
Collateral on securities loaned, at value............... 11,652,388
Payables:
Withdrawals........................................... 2,207,235
Securities purchased.................................. 555,364
Investment adviser.................................... 3,509
Other affiliates...................................... 1,743 2,767,851
----------
Accrued expenses and other liabilities.................. 288,056
------------
TOTAL LIABILITIES................................... 14,708,295
------------
NET ASSETS.................................................. $365,661,277
============
NET ASSETS CONSIST OF:
Investors' capital...................................... $283,561,341
Unrealized appreciation - net........................... 82,099,936
------------
NET ASSETS.................................................. $365,661,277
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
56
MASTER SMALL CAP INDEX SERIES
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $1,401 foreign withholding tax)....... $ 3,856,505
Interest (including $182,651 from affiliates)........... 184,147
Securities lending - net................................ 116,452
-----------
TOTAL INCOME........................................ 4,157,104
-----------
EXPENSES:
Professional fees....................................... $ 116,161
Custodian fees.......................................... 58,361
Accounting services..................................... 52,444
Investment advisory fees................................ 34,958
Trustees' fees and expenses............................. 3,500
Printing and shareholder reports........................ 1,107
Pricing fees............................................ 15
Other................................................... 10,526
-----------
TOTAL EXPENSES BEFORE REIMBURSEMENT................. 277,072
Reimbursement of expenses............................... (2,910)
-----------
TOTAL EXPENSES AFTER REIMBURSEMENT.................. 274,162
-----------
INVESTMENT INCOME - NET..................................... 3,882,942
-----------
REALIZED & UNREALIZED GAIN (LOSS) - NET:
Realized gain on:
Investments - net..................................... 13,314,585
Futures contracts - net............................... 1,179,349 14,493,934
-----------
Change in unrealized appreciation on:
Investments - net..................................... 39,572,294
Futures contracts - net............................... (1,698,361) 37,873,933
----------- -----------
TOTAL REALIZED AND UNREALIZED GAIN - NET............ 52,367,867
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $56,250,809
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
57
MASTER SMALL CAP INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
2004 2003
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net................................. $ 3,882,942 $ 2,565,223
Realized gain - net..................................... 14,493,934 459,569
Change in unrealized appreciation - net................. 37,873,933 85,865,588
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 56,250,809 88,890,380
------------- ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 309,457,896 87,919,756
Fair value of withdrawals............................... (335,706,893) (23,066,142)
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL TRANSACTIONS................................... (26,248,997) 64,853,614
------------- ------------
NET ASSETS:
Total increase in net assets............................ 30,001,812 153,743,994
Beginning of year....................................... 335,659,465 181,915,471
------------- ------------
END OF YEAR............................................. $ 365,661,277 $335,659,465
============= ============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
58
MASTER SMALL CAP INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
2004 2003 2002 2001 2000+
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN*...................... 18.15% 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................... 1.11% 1.13% 1.26% 1.45% 1.90%
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).... $365,661 $335,659 $181,915 $182,968 $169,244
-------- -------- -------- -------- --------
Portfolio turnover........................ 37.74% 28.57% 39.00% 48.50% 50.51%
-------- -------- -------- -------- --------
</Table>
- ---------------
* The Series' Investment Adviser has agreed to reimburse the Series for a
portion of its expenses. Without such reimbursement, the Series' performance
would have been lower.
+ Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
See notes to financial statements.
- --------------------------------------------------------------------------------
59
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
- --------------------------------------------------------------------------------
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. The following is a summary of significant
accounting policies followed by the Series.
(a) Valuation of investments
Equity securities that are held by the Series that are traded on stock
exchanges or the Nasdaq National Market are valued at the last sale price or
official close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available ask price for short
positions. In cases where equity securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Trustees of the Trust. Long
positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap or
Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Trustees of the Trust. Short positions traded in the OTC market are valued at
the last available ask price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last ask price. Options purchased are valued at their last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued daily based upon
quotations from market makers. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their last sale price as of the
close of such exchanges. Obligations with remaining maturities of 60 days or
less are valued at amortized cost unless the Investment Adviser believes that
this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the Series.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Series, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Series under the general supervision by the Board of
Trustees of the Trust. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U. S. government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of the
Series are determined as of such times. Foreign currency exchange rates also are
generally determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at
- --------------------------------------------------------------------------------
60
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
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
con-tract. 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.
- --------------------------------------------------------------------------------
61
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
(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 all expenses incurred by the Series will not exceed .08%. This arrangement
has a one-year term and is renewable. FAM reimbursed the Series for the amount
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 December 31,
2004, the Series lent securities with a value of $246,974 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,
- --------------------------------------------------------------------------------
62
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
in a private investment company managed by MLIM, LLC or in registered money
market Series advised by FAM or its affiliates. For the year ended December 31,
2004, MLIM, LLC received $50,177 in securities lending agent fees from the
Series.
For the year ended December 31, 2004, the Series reimbursed FAM $7,957 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 year ended December 31, 2004 were $138,270,159 and $125,776,247,
respectively.
4. SHORT-TERM BORROWINGS:
The Trust, on behalf of the Series, along with certain other funds managed
by FAM and its affiliates, is a party to a $500,000,000 credit agreement with a
group of lenders. The Series may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for leverage.
The Series may borrow up to the maximum amount allowable under the Series'
current prospectus and statement of additional information, subject to various
other legal, regulatory or contractual limits. The Series pays a commitment fee
of .07% 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 Series' election, the federal funds rate plus .50%
or a base rate as defined in the credit agreement. The Series did not borrow
under the credit agreement during the year ended December 31, 2004. On November
26, 2004, the credit agreement was renewed for one year under substantially the
same terms.
- --------------------------------------------------------------------------------
63
MASTER SMALL CAP INDEX SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2004
- --------------------------------------------------------------------------------
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities,
including the summary schedule of investments, of Master Small Cap Index Series,
one of the portfolios constituting Quantitative Master Series Trust (the
"Trust") as of December 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trust's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
December 31, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Master Small Cap Index Series of the Quantitative Master Series Trust as of
December 31, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the five years in the period then
ended, in conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 23, 2005
- --------------------------------------------------------------------------------
64
MASTER SMALL CAP INDEX SERIES
SECTOR REPRESENTATION (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF TOTAL
AS OF DECEMBER 31, 2004 INVESTMENTS
----------------------- ----------------
Financial Services.......................................... 22.4%
Consumer Discretionary...................................... 16.9
Technology.................................................. 11.9
Health Care................................................. 11.4
Materials & Processing...................................... 9.5
Producer Durables........................................... 7.6
Other Energy................................................ 4.6
Auto & Transportation....................................... 4.2
Utilities................................................... 4.0
Consumer Staples............................................ 1.5
Integrated Oils............................................. .1
Other*...................................................... 5.9
</Table>
- ---------------
* Includes portfolio holdings in short-term securities.
- --------------------------------------------------------------------------------
65
MASTER SMALL CAP INDEX SERIES
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- ------- ----------------------- -------------- -------------
INTERESTED TRUSTEE
Terry K. Glenn* President 2000 President and Chairman of the 124 Funds None
P.O. Box 9011 and to Merrill Lynch Investment 163 Portfolios
Princeton, NJ 08543-9011 Trustee Managers, L.P. ("MLIM")/ Fund
Age: 64 present Asset Management, L.P.
("FAM") - Advised Funds since
1999; Chairman (Americas
Region) of MLIM from 2000 to
2002; Executive Vice President
of MLIM and FAM (which terms as
used herein include their
corporate predecessors) from
1983 to 2002; President of FAM
Distributors, Inc. ("FAMD")
from 1986 to 2002 and Director
thereof from 1991 to
2002;Executive Vice President
and Director of Princeton
Services, Inc. ("Princeton
Services") from 1993 to 2002;
President of Princeton
Administrators, L.P. from 1989
to 2002; Director of Financial
Data Services, Inc. since 1985.
</Table>
* Mr. Glenn is a director, trustee or member of an advisory board of certain
other investment companies for which MLIM or FAM acts as investment adviser.
Mr. Glenn is an "interested person," as described in the Investment Company
Act, of the Trust based on his present and former positions with MLIM, FAM,
FAMD, Princeton Services and Princeton Administrators, L.P. The Trustee's
term is unlimited. Trustees serve until their resignation, removal or death,
or until December 31 of the year in which they turn 72. As Trust President,
Mr. Glenn serves at the pleasure of the Board of Trustees.
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- ------- ------------------------------- -------------- -------------
INDEPENDENT TRUSTEES*
Donald W. Burton Trustee 2002 General Partner of The Burton 23 Funds ITC Delta-Com,
P.O. Box 9095 to Partnership, Limited 42 Portfolios Inc., Knology,
Princeton, NJ 08543-9095 Partnership (an Investment Inc., Symbion,
Age: 60 present Partnership) since 1979; Inc.
Managing General Partner of The
South Atlantic Venture Funds
since 1983; Member of the
Investment Advisory Committee
of the Florida State Board of
Administration since 2001.
</Table>
- --------------------------------------------------------------------------------
66
MASTER SMALL CAP INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- ------- ------------------------------- -------------- -------------
M. Colyer Crum Trustee 2000 James R. Williston Professor of 24 Funds Cambridge
P.O. Box 9095 to Investment Management Emeritus, 43 Portfolios Bancorp
Princeton, NJ 08543-9095 Harvard Business School since
Age: 72 present 1996; James R. Williston
Professor of Investment
Management, Harvard Business
School from 1971 to 1996.
Laurie Simon Hodrick Trustee 2000 Professor of Finance and 23 Funds None
P.O. Box 9095 to Economics, Graduate School of 42 Portfolios
Princeton, NJ 08543-9095 Business, Columbia University
Age: 42 present since 1998.
David H. Walsh Trustee 2003 Consultant with Putnam 23 Funds None
P.O. Box 9095 to Investments from 1993 to 2003 42 Portfolios
Princeton, NJ 08543-9095 and employed in various
Age: 63 present capacities therewith from 1973
to 1992; Director, The National
Audubon Society since 1998;
Director, The American Museum
of Fly Fishing since 1997.
Fred G. Weiss Trustee 2000 Managing Director of FGW 23 Funds Watson
P.O. Box 9095 to Associates since 1997; Vice 42 Portfolios Pharmaceuticals,
Princeton, NJ 08543-9095 President, Planning, Investment Inc.
Age: 63 present and Development of Warner
Lambert Co. from 1979 to 1997;
Director of Michael J. Fox
Foundation for Parkinson's
Research since 2000; Director
of BTG International PLC (a
global technology
commercialization company)
since 2001.
</Table>
* The Trustee's term is unlimited. Trustees serve until their resignation,
removal or death, or until December 31 of the year in which they turn 72.
<Table>
<Caption>
POSITION(S)
NAME, ADDRESS AND HELD WITH LENGTH OF
AGE TRUST TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------- ----------- ------------ -------------------------------------------
TRUST OFFICERS*
Donald C. Burke Vice 1997 to First Vice President of MLIM and FAM since 1997 and
P. O. Box 9011 President present and Treasurer thereof since 1999; Senior Vice President and
Princeton, NJ 08543-9011 and 1999 to Treasurer of Princeton Services since 1999 and Director
Age: 44 Treasurer present since 2004; Vice President of FAMD since 1999; Vice
President of MLIM and FAM from 1990 to 1997; Director of
Taxation of MLIM from 1990 to 2001.
Robert C. Doll, Jr. Senior 1999 to President of MLIM/FAM-advised funds since 2005; President of
P.O. Box 9011 Vice present MLIM and FAM since 2001; Co-Head (Americas Region) thereof
Princeton, NJ 08543-9011 President from 2000 to 2001 and Senior Vice President from 1999 to
Age: 50 2001; President and Director of Princeton Services, Inc.
since 2001; President of Princeton Administrators, L.P.
since 2001; Chief Investment Officer of Oppenheimer Funds,
Inc. from 1991 to 1999.
</Table>
- --------------------------------------------------------------------------------
67
MASTER SMALL CAP INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION(S)
NAME, ADDRESS AND HELD WITH LENGTH OF
AGE TRUST TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------- ----------- ------------ -------------------------------------------
Richard J. Vella Vice 1999 to Managing Director and Head of Global Index and Enhanced
P.O. Box 9011 President present Index products for Merrill Lynch Quantitative Advisors since
Princeton, NJ 08543-9011 1999;Managing Director and Head of the Global Index and
Age: 48 Enhanced Index business at Bankers Trust from 1984 to 1999.
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and
P.O. Box 9011 Compliance present First Vice President and Chief Compliance Officer of MLIM
Princeton, NJ 08543-9011 Officer since 2004; Global Director of Compliance at Morgan Stanley
Age: 53 Investment Management from 2002 to 2004; Managing Director
and Global Director of Compliance at Citigroup Asset
Management from 2000 to 2002; Chief Compliance Officer at
Soros Fund Management in 2000; Chief Compliance Officer at
Prudential Financial from 1995 to 2000.
Alice A. Pellegrino Secretary 2004 to Secretary of MLIM, FAM, FAMD and Princeton Services since
P.O. Box 9011 present 2004; Director (Legal Advisory) of MLIM since 2002; Vice
Princeton, NJ 08543-9011 President of MLIM from 1999 to 2002; Attorney associated
Age: 44 with MLIM since 1997.
</Table>
* Officers of the Trust serve at the pleasure of the Board of Trustees.
Further information about the Trust's Officers and Trustees is available in
the Trust's Statement of Additional Information, which can be obtained without
charge by calling 1-800-MER-FUND.
Effective January 1, 2005, Terry K. Glenn, President and Trustee and M.
Colyer Crum, Trustee of Quantitive Master Series Trust retired. The Trust's
Board of Trustees wishes Mr. Glenn and Professor Crum well in their retirements.
Effective January 1, 2005, Robert C. Doll, Jr. became Executive Vice
President and Chief Executive Officer of the Trust.
- --------------------------------------------------------------------------------
68
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS
December 31, 2004
- --------------------------------------------------------------------------------
This summary schedule of investments is presented to help investors focus
on the Series' principal holdings. It includes the Series' 50 largest holdings
and each investment of any issuer that exceeds 1% of the Series' net assets.
"Other Securities" represent all issues not required to be disclosed under the
rules adopted by the Securities and Exchange Commission. A complete schedule of
investments is available without charge, upon request, by calling 800-637-3863
or on the Securities and Exchange Commission's Website at http://www.sec.gov.
<Table>
<Caption>
VALUE PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS (IN U.S. DOLLARS) NET ASSETS
- --------- ----------- ------------- ----------------- ----------
Aerospace & Defense Other Securities $ 1,774,353 0.5%
Air Freight & Logistics Other Securities 1,220,617 0.4
Airlines Other Securities 859,490 0.3
Auto Components Other Securities 2,628,055 0.8
Automobiles 30,782 DaimlerChrysler AG 1,475,293 0.4
27,400 Honda Motor Co., Ltd. 1,419,869 0.4
100,700 Toyota Motor Corp. 4,097,970 1.3
Other Securities 2,483,938 0.8
------------ -----
9,477,070 2.9
------------ -----
Beverages 109,812 Diageo Plc 1,566,454 0.5
Other Securities 2,863,256 0.9
------------ -----
4,429,710 1.4
------------ -----
Biotechnology Other Securities 415,284 0.1
Building Products Other Securities 2,233,628 0.7
Capital Markets 41,795 Credit Suisse Group(a) 1,756,926 0.6
17,874 Deutsche Bank AG Registered Shares 1,586,964 0.5
37,744 UBS AG Registered Shares 3,164,973 1.0
Other Securities 3,401,843 1.0
------------ -----
9,910,706 3.1
------------ -----
Chemicals 18,105 BASF AG 1,304,288 0.4
Other Securities 7,643,946 2.4
------------ -----
8,948,234 2.8
------------ -----
Commercial Banks 52,985 ABN AMRO Holding NV 1,403,667 0.5
28,297 BNP Paribas 2,050,061 0.6
97,327 Banco Bilbao Vizcaya Argentaria
SA(a) 1,726,407 0.5
186,457 Banco Santander Central Hispano SA 2,313,922 0.7
231,125 Barclays Plc 2,600,300 0.8
139,659 HBOS Plc 2,273,756 0.7
395,750 HSBC Holdings Plc 6,678,652 2.1
190,856 Lloyds TSB Group Plc 1,733,189 0.6
156 Mitsubishi Tokyo Financial
Group,Inc. 1,583,293 0.5
272 Mizuho Financial Group,Inc. 1,369,689 0.4
112,438 Royal Bank of Scotland Group Plc 3,782,041 1.2
Other Securities 22,270,978 6.9
------------ -----
49,785,955 15.5
------------ -----
Commercial Services & Supplies Other Securities 3,156,661 1.0
Communications Equipment 161,627 Nokia Oyj 2,552,815 0.8
527,005 Telefonaktiebolaget LM Ericsson(a) 1,681,239 0.5
Other Securities 1,049,704 0.3
------------ -----
5,283,758 1.6
------------ -----
Computers & Peripherals Other Securities 1,587,980 0.5
Construction & Engineering Other Securities 2,218,314 0.7
Construction Materials Other Securities 3,116,913 1.0%
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
69
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
VALUE PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS (IN U.S. DOLLARS) NET ASSETS
- --------- ----------- ------------- ----------------- ----------
Consumer Finance Other Securities $ 1,639,039 0.5%
Containers & Packaging Other Securities 604,901 0.2
Distributors Other Securities 220,921 0.0
Diversified Financial Services 63,707 ING Groep NV CVA 1,927,576 0.6
Other Securities 2,318,381 0.7
------------ -----
4,245,957 1.3
------------ -----
Diversified Telecommunication 99,024 Deutsche Telekom AG 2,241,062 0.7
Services 52,667 France Telecom SA 1,743,874 0.6
138,369 Telefonica SA 2,606,761 0.8
Other Securities 8,094,346 2.5
------------ -----
14,686,043 4.6
------------ -----
Electric Utilities 21,220 E.On AG 1,934,230 0.6
Other Securities 8,304,517 2.6
------------ -----
10,238,747 3.2
------------ -----
Electrical Equipment Other Securities 2,458,057 0.8
Electronic Equipment & Instruments Other Securities 4,069,511 1.3
Energy Equipment & Services Other Securities 208,482 0.0
Food & Staples Retailing 277,338 Tesco Plc 1,713,196 0.5
Other Securities 4,982,017 1.6
------------ -----
6,695,213 2.1
------------ -----
Food Products 14,464 Nestle SA Registered Shares 3,784,223 1.2
19,510 Unilever NV 1,308,180 0.4
Other Securities 4,258,316 1.3
------------ -----
9,350,719 2.9
------------ -----
Gas Utilities Other Securities 2,012,810 0.6
Health Care Equipment & Supplies Other Securities 1,782,124 0.6
Health Care Providers & Services Other Securities 759,345 0.2
Hotels, Restaurants & Leisure Other Securities 3,754,184 1.2
Household Durables 80,000 Matsushita Electric Industrial Co.,
Ltd. 1,269,445 0.4
33,500 Sony Corp. 1,294,623 0.4
Other Securities 3,790,964 1.2
------------ -----
6,355,032 2.0
------------ -----
Household Products Other Securities 1,203,699 0.4
IT Services Other Securities 1,335,428 0.4
Industrial Conglomerates 27,369 Siemens AG 2,320,617 0.7
Other Securities 2,069,171 0.7
------------ -----
4,389,788 1.4
------------ -----
Insurance 53,086 AXA 1,311,817 0.4
11,277 Allianz AG Registered Shares 1,496,038 0.5
Other Securities 10,938,371 3.4
------------ -----
13,746,226 4.3
------------ -----
Internet & Catalog Retail Other Securities 671,141 0.2
Internet Software & Services Other Securities 738,599 0.2
Leisure Equipment & Products Other Securities 1,191,936 0.4
Machinery Other Securities 4,523,726 1.4
Marine Other Securities 833,517 0.2
Media Other Securities 7,598,498 2.4
Metals & Mining 137,224 BHP Billiton Ltd. 1,650,122 0.5
Other Securities 7,328,980 2.3
------------ -----
8,979,102 2.8
------------ -----
Multi-Utilities & Unregulated Power Other Securities 3,342,863 1.0
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
70
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
VALUE PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS (IN U.S. DOLLARS) NET ASSETS
- --------- ----------- ------------- ----------------- ----------
Multiline Retail Other Securities $ 1,437,649 0.4%
Office Electronics 30,000 Canon,Inc. 1,619,010 0.5
Other Securities 663,865 0.2
------------ -----
2,282,875 0.7
------------ -----
Oil & Gas 762,276 BP Plc 7,434,554 2.3
3,849 BP Plc(b) 224,782 0.1
79,504 ENI SpA 1,990,572 0.6
75,688 Royal Dutch Petroleum Co. 4,356,921 1.4
354,749 Shell Transport & Trading Co. Plc 3,024,009 0.9
20,474 Total SA 4,472,165 1.4
Other Securities 3,768,267 1.1
------------ -----
25,271,270 7.8
------------ -----
Paper & Forest Products Other Securities 1,555,647 0.5
Personal Products Other Securities 1,139,877 0.3
Pharmaceuticals 60,203 AstraZeneca Plc 2,183,379 0.7
210,736 GlaxoSmithKline Plc 4,944,119 1.5
800 GlaxoSmithKline Plc(b) 37,912 0.0
84,608 Novartis AG Registered Shares 4,263,511 1.3
24,793 Roche Holding AG 2,854,106 0.9
35,951 Sanofi-Aventis 2,873,343 0.9
31,000 Takeda Pharmaceutical Co., Ltd. 1,561,042 0.5
Other Securities 4,048,357 1.3
------------ -----
22,765,769 7.1
------------ -----
Real Estate Other Securities 7,072,140 2.2
Road & Rail Other Securities 2,957,655 0.9
Semiconductors & Other Securities 2,300,350 0.7
Semiconductor Equipment
Software 7,588 SAP AG 1,355,258 0.4
Other Securities 1,465,474 0.5
------------ -----
2,820,732 0.9
------------ -----
Specialty Retail Other Securities 2,786,130 0.9
Textiles, Apparel & Luxury Goods Other Securities 2,698,029 0.8
Thrifts & Mortgage Finance Other Securities 238,959 0.1
Tobacco Other Securities 2,604,765 0.8
Trading Companies & Distributors Other Securities 2,248,142 0.7
Transportation Infrastructure Other Securities 2,174,776 0.7
Water Utilities Other Securities 494,606 0.1
Wireless Telecommunication Services 683 NTT DoCoMo Inc. 1,259,754 0.4
2,286,456 Vodafone Group Plc 6,200,551 1.9
12,490 Vodafone Group Plc(b) 341,976 0.1
Other Securities 1,556,740 0.5
------------ -----
9,359,021 2.9
------------ -----
TOTAL INVESTMENTS IN COMMON STOCKS
(COST - $260,169,995) 316,890,728 98.4
------------ -----
<Caption>
MUTUAL FUNDS
------------
Diversified Financial Services Other Securities 320,100 0.1
------------ -----
TOTAL INVESTMENTS IN MUTUAL FUNDS
(COST - $232,840) 320,100 0.1
------------ -----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
71
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
VALUE PERCENT OF
INDUSTRY* SHARES HELD PREFERRED STOCKS (IN U.S. DOLLARS) NET ASSETS
- --------- ----------- ---------------- ----------------- ----------
Automobiles Other Securities $ 328,469 0.2%
Chemicals Other Securities 246,013 0.0
Health Care Providers & Services Other Securities 31,421 0.0
Media Other Securities 101,144 0.0
Multi-Utilities & Unregulated Power Other Securities 94,534 0.0
Paper & Forest Product Other Securities 3,217 0.0
------------ -----
TOTAL INVESTMENTS IN PREFERRED
STOCKS (COST - $684,752) 804,798 0.2
------------ -----
<Caption>
WARRANTS(C)
-----------
Food & Staples Retailing Other Securities 20 0.0
Real Estate Other Securities 16,629 0.0
------------ -----
TOTAL INVESTMENTS IN WARRANTS
(COST - $10,862) 16,649 0.0
------------ -----
<Caption>
RIGHTS
------
Consumer Products Other Securities 58 0.0
Household Durables Other Securities 602 0.0
------------ -----
TOTAL INVESTMENTS IN RIGHTS
(COST - $1,555) 660 0.0
------------ -----
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
----------- ---------------------
$ 2,760,907 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I(d).............. 2,760,907 0.9
------------ -----
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST - $2,760,907)...... 2,760,907 0.9
------------ -----
TOTAL INVESTMENTS (COST - $263,860,911**) 320,793,842 99.6
OTHER ASSETS LESS LIABILITIES 1,273,022 0.4
------------ -----
NET ASSETS $322,066,864 100.0%
============ =====
</Table>
- ---------------
"Other Securities" represent issues that are not identified as the largest
50 holdings of the Series and issues not exceeding 1% of net assets.
* For Series compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Series' management.
This definition may not apply for purposes of this report, which may combine
such industry sub-classifications for reporting ease. These industry
classifications are unaudited.
** The cost and unrealized appreciation/depreciation of investments as of
December 31, 2004, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost.............................................. $266,778,196
------------
Gross unrealized appreciation............................... $ 61,477,825
Gross unrealized depreciation............................... (7,462,179)
------------
Net unrealized appreciation................................. $ 54,015,646
============
</Table>
(a) Non-income producing security.
(b) Depositary Receipts.
(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.
See notes to financial statements.
- --------------------------------------------------------------------------------
72
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
(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) were as follows:
<Table>
<Caption>
NET INTEREST
AFFILIATE ACTIVITY INCOME
--------- ----------- --------
Merrill Lynch Liquidity Series,LLC Cash Sweep Series I...... $(7,159,850) $125,093
</Table>
Financial futures contracts purchased as of December 31, 2004 were as
follows:
<Table>
<Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE EXCHANGE DATE FACE VALUE DEPRECIATION
--------- ----- -------- ------------ ---------- ------------
1 CAC40 10 Euro Future Matif March 2005 $ 52,078 $ (53)
(Par)
2 CAC40 10 Euro Future Matif January 2005 $ 103,887 (149)
(Par)
4 DJ Euro Stoxx 50 Eurex March 2005 $ 159,827 456
13 Hang Seng Index Future Hong Kong January 2005 $1,188,774 555
12 IBEX 35 Plus Index Future Spanish January 2005 $1,454,865 20,709
Op
15 OMX Stock Index Future Riyadh January 2005 $ 167,832 19
1 S&P/MIB Index Eurex March 2005 $ 210,652 (981)
2 SPI 200 Index Future Sydney March 2005 $ 159,401 (426)
25 TOPIX Index Future Tokyo March 2005 $2,691,129 108,471
--------
TOTAL UNREALIZED APPRECIATION - NET $128,601
========
</Table>
Forward foreign exchange contracts as of December 31, 2004 were as follows:
<Table>
<Caption>
UNREALIZED
FOREIGN CURRENCY SETTLEMENT APPRECIATION
PURCHASED DATE (DEPRECIATION)
---------------- ------------ --------------
A$ 145,000 January 2005 $ 2,711
CHF 230,000 January 2005 (686)
E 975,000 January 2005 15,532
L 300,000 January 2005 (1,814)
SEK 550,000 January 2005 313
Y 74,500,000 January 2005 7,657
-------
TOTAL UNREALIZED APPRECIATION ON FORWARD FOREIGN
EXCHANGE
CONTRACTS - NET (US$
COMMITMENT - $3,003,395) $23,713
=======
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
73
MASTER INTERNATIONAL INDEX SERIES
GEOGRAPHIC ALLOCATION (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF TOTAL
AS OF DECEMBER 31, 2004 INVESTMENTS
----------------------- ----------------
United Kingdom.............................................. 24.8%
Japan....................................................... 21.2
France...................................................... 9.4
Germany..................................................... 7.0
Switzerland................................................. 6.9
Australia................................................... 5.0
Netherlands................................................. 4.8
Italy....................................................... 4.3
Spain....................................................... 3.7
Sweden...................................................... 2.4
Finland..................................................... 1.5
Belgium..................................................... 1.3
Hong Kong................................................... 1.3
Ireland..................................................... 0.9
Singapore................................................... 0.9
Denmark..................................................... 0.8
Greece...................................................... 0.6
Norway...................................................... 0.6
South Africa................................................ 0.5
Austria..................................................... 0.5
Portugal.................................................... 0.4
New Zealand................................................. 0.2
United States............................................... 0.1
Bermuda..................................................... 0.0*
Other**..................................................... 0.9
</Table>
- ---------------
* Amount is less than 0.1%.
** Includes portfolio holdings in short-term investments.
See notes to financial statements.
- --------------------------------------------------------------------------------
74
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2004
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities,at value
(including securities loaned of $3,117,973) (identified
cost - $261,100,004)................................... $318,032,935
Investments in affiliated securities,at value
(identified cost - $2,760,907)......................... 2,760,907
Cash held as collateral for loaned securities........... 3,266,358
Cash on deposit for financial futures contracts......... 497,670
Foreign cash (cost - $1,625,645)........................ 1,673,195
Unrealized appreciation on forward foreign exchange
contracts.............................................. 26,213
Receivables:
Dividends............................................. $ 637,186
Contributions......................................... 543,132
Variation margin...................................... 539,211
Forward foreign exchange contracts.................... 68,770
Investment adviser.................................... 9,691
Interest from affiliates.............................. 5,093
Securities sold....................................... 1,453 1,804,536
----------
Prepaid expenses........................................ 3,465
------------
TOTAL ASSETS........................................ 328,065,279
------------
LIABILITIES:
Collateral on securities loaned,at value................ 3,266,358
Unrealized depreciation on forward foreign exchange
contracts.............................................. 2,500
Payables:
Withdrawals........................................... 2,297,120
Forward foreign exchange contracts.................... 84,810
Securities purchased.................................. 8,525
Other affiliates...................................... 1,555 2,392,010
----------
Accrued expenses and other liabilities.................. 337,547
------------
TOTAL LIABILITIES................................... 5,998,415
------------
NET ASSETS.................................................. $322,066,864
============
NET ASSETS CONSIST OF:
Investors' capital...................................... $264,900,962
Unrealized appreciation................................. 57,165,902
------------
NET ASSETS.................................................. $322,066,864
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
75
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $1,327,146 foreign withholding tax)... $12,086,551
Interest (including $125,093 from affiliates)........... 202,655
Securities lending - net................................ 178,484
-----------
TOTAL INCOME........................................ 12,467,690
-----------
EXPENSES:
Custodian fees.......................................... $ 198,862
Accounting services..................................... 72,367
Professional fees....................................... 70,824
Pricing fees............................................ 59,733
Investment advisory fees................................ 47,035
Trustees' fees and expenses............................. 3,578
Printing and shareholder reports........................ 1,665
Other................................................... 27,288
-----------
TOTAL EXPENSES BEFORE REIMBURSEMENT................. 481,352
Reimbursement of expenses............................... (40,784)
-----------
TOTAL EXPENSES AFTER REIMBURSEMENT.................. 440,568
-----------
INVESTMENT INCOME - NET..................................... 12,027,122
-----------
REALIZED & UNREALIZED GAIN (LOSS) - NET:
Realized gain on:
Investments - net..................................... 49,709,523
Futures contracts - net............................... 1,150,260
Foreign currency transactions - net................... 769,014 51,628,797
-----------
Change in unrealized appreciation/depreciation on:
Investments - net..................................... 4,963,678
Futures contracts - net............................... (497,964)
Foreign currency transactions - net................... (697,117) 3,768,597
----------- -----------
TOTAL REALIZED AND UNREALIZED GAIN - NET............ 55,397,394
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $67,424,516
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
76
MASTER INTERNATIONAL INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
2004 2003
------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
Investment income - net................................. $ 12,027,122 $ 4,732,220
Realized gain (loss) - net.............................. 51,628,797 (846,178)
Change in unrealized appreciation/depreciation - net.... 3,768,597 79,135,984
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 67,424,516 83,022,026
------------- ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 167,759,330 364,659,614
Fair value of withdrawals............................... (466,245,952) (61,373,002)
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL TRANSACTIONS................................... (298,486,622) 303,286,612
------------- ------------
NET ASSETS:
Total increase (decrease) in net assets................. (231,062,106) 386,308,638
Beginning of year....................................... 553,128,970 166,820,332
------------- ------------
END OF YEAR............................................. $ 322,066,864 $553,128,970
============= ============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
77
MASTER INTERNATIONAL INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- -------
TOTAL INVESTMENT RETURN*.................................... 20.32% 38.97% (15.81%) (21.77%) --
-------- -------- -------- -------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement.......................... .09% .09% .08% .08% .08%
-------- -------- -------- -------- -------
Expenses................................................ .10% .10% .16% .39% 1.34%
-------- -------- -------- -------- -------
Investment income - net................................. 2.55% 2.23% 2.21% 1.20% 1.55%
-------- -------- -------- -------- -------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).................. $322,067 $553,129 $166,820 $195,512 $15,763
-------- -------- -------- -------- -------
Portfolio turnover...................................... 13.50% 8.55% 19.52% 30.19% 5.89%
-------- -------- -------- -------- -------
</Table>
- ---------------
* Total return is required to be disclosed for fiscal years beginning after
December 15, 2000. The Series' Investment Adviser has agreed to reimburse
the Series for a portion of its expenses. Without such reimbursement, the
Series' performance would have been lower.
See notes to financial statements.
- --------------------------------------------------------------------------------
78
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
- --------------------------------------------------------------------------------
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. 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 oft he Trust. Long
positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap or
Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Trustees of the Trust. Short positions traded in the OTC market are valued at
the last available ask price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last ask price. Options purchased are valued at their last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued daily based upon
quotations from market makers. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their last sale price as of the
close of such exchanges. Obligations with remaining maturities of 60 days or
less are valued at amortized cost unless the Investment Adviser believes that
this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the Series.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Series, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Series under the general supervision of the Trust's Board
of Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of the
Portfolio are determined as of such times. Foreign currency exchange rates also
are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are
- --------------------------------------------------------------------------------
79
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
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 securities owned by the Series, sold by the
Series but not yet delivered, or committed or anticipated to be purchased
by the Series.
- --------------------------------------------------------------------------------
80
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
(c) Foreign currency transactions
Transactions denominated in foreign currencies are recorded at the exchange
rate prevailing when recognized. Assets and liabilities denominated in foreign
currencies are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or valuing
(unrealized) assets or liabilities expressed in foreign currencies into U.S.
dollars. Realized and unrealized gains or losses from investments include the
effects of foreign exchange rates on investments.
(d) Income taxes
The Series is classified as a partnership for federal income tax purposes.
As such, each investor in the Series is treated as owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Series. Therefore, no federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be imposed on
interest, dividends and capital gains at various rates. It is intended that the
Series' assets will be managed so an investor in the Series can satisfy the
requirements of subchapter M of the Internal Revenue Code.
(e) Security transactions and investment income
Security transactions are accounted for on the date the securities are
purchased or sold (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend income is
recorded on the ex-dividend dates. Dividends from foreign securities where the
ex-dividend date may have passed are subsequently recorded when the Series has
determined the ex-dividend date. Interest income is recognized on the accrual
basis.
(f) Securities lending
The Series may lend securities to financial institutions that provide cash
or securities issued or guaranteed by the U.S. government as collateral, which
will be maintained at all times in amount equal to at least 100% of the current
market value of the loaned securities. The market value of the loaned securities
is determined at the close of business of the Series and any additional required
collateral is delivered to the Series on the next business day. Where the Series
receives securities as collateral for the loaned securities, it collects a fee
from the borrower. The Series typically receives the income on the loaned
securities but does not receive the income on the collateral. Where the Series
receives cash collateral, it may invest such collateral and retain the amount
earned on such investment, net of any amount rebated to the borrower. Loans of
securities are terminable at any time and the borrower, after notice, is
required to return borrowed securities within five business days. The Series may
pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Series also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML&Co."), which is the limited partner.
- --------------------------------------------------------------------------------
81
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2004
- --------------------------------------------------------------------------------
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 all expenses incurred by the Series will not exceed .12%. This arrangement
has a one-year term and is renewable. For the year ended December 31, 2004, FAM
reimbursed the Series in the amount of $40,784.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a subsidiary of ML &
Co., received $21 in commissions on the execution of portfolio security
transactions for the Series for the year ended December 31, 2004.
For the year ended December 31, 2004, the Series reimbursed FAM $10,318 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 year ended December 31, 2004 were $61,414,436 and $330, 369,421,
respectively.
4. COMMITMENTS:
At December 31, 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 various foreign currencies with an approximate
value of $79,000.
5. SHORT-TERM BORROWINGS:
The Trust, on behalf of the Series, along with certain other funds managed
by FAM and its affiliates, is a party to a $500,000,000 credit agreement with a
group of lenders. The Series may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for leverage.
The Series may borrow up to the maximum amount allowable under the Series
current prospectus and statement of additional information, subject to various
other legal, regulatory or contractual limits. The Series pays a commitment fee
of .07% 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, a teach Series election, the federal funds rate plus .50% or
abase rate as defined in the credit agreement. The Series did not borrow under
the credit agreement during the year ended December 31, 2004. On November 26,
2004, the credit agreement was renewed for one year under substantially the same
terms.
- --------------------------------------------------------------------------------
82
MASTER INTERNATIONAL INDEX SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2004
- --------------------------------------------------------------------------------
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities,
including the summary schedule of investments, of Master International Index
Series, one of the portfolios constituting the Quantitative Master Series Trust
(the "Trust") as of December 31, 2004, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trust's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
December 31, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Master International Index Series of the Quantitative Master Series Trust as of
December 31, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the five years in the period then
ended, in conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 23, 2005
- --------------------------------------------------------------------------------
83
MASTER INTERNATIONAL INDEX SERIES
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- ------- ----------------------- -------------- -------------
INTERESTED TRUSTEE
Terry K. Glenn* President 2000 President and Chairman of the 124 Funds None
P.O. Box 9011 and to Merrill Lynch Investment 163 Portfolios
Princeton, NJ 08543-9011 Trustee Managers, L.P. ("MLIM")/ Fund
Age:64 present Asset Management, L.P.
("FAM") - Advised Funds since
1999; Chairman (Americas
Region) of MLIM from 2000 to
2002; Executive Vice President
of MLIM and FAM (which terms as
used herein include their
corporate predecessors) from
1983 to 2002; President of FAM
Distributors, Inc. ("FAMD")
from 1986 to 2002 and Director
thereof from 1991 to 2002;
Executive Vice President and
Director of Princeton Services,
Inc. ("Princeton Services")
from 1993 to 2002; President of
Princeton Administrators, L.P.
from 1989 to 2002; Director of
Financial Data Services, Inc.
since 1985.
</Table>
* Mr. Glenn is a director, trustee or member of an advisory board of certain
other investment companies for which MLIM or FAM acts as investment adviser.
Mr. Glenn is an "interested person" as described in the Investment Company
Act, of the Trust based on his present and former positions with MLIM, FAM,
FAMD, Princeton Services and Princeton Administrators, L.P. The Trustee's
term is unlimited. Trustees serve until their resignation, removal or death,
or until December 31 of the year in which they turn 72. As Trust President,
Mr. Glenn serves at the pleasure of the Board of Trustees.
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- ------- ----------------------- -------------- -------------
INDEPENDENT TRUSTEES*
Donald W. Burton Trustee 2002 General Partner of The Burton 23 Funds ITC Delta-Com,
P.O. Box 9095 to Partnership, Limited 42 Portfolios Inc., Knology,
Princeton, NJ 08543-9095 Partnership (an Investment Inc., Symbion,
Age: 60 present Partnership) since 1979; Inc.
Managing General Partner of The
South Atlantic Venture Funds
since 1983;Member of the
Investment Advisory Committee
of the Florida State Board of
Administration since 2001.
</Table>
- --------------------------------------------------------------------------------
84
MASTER INTERNATIONAL INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ----------------- ----------- ------- ----------------------- -------------- -------------
M. Colyer Crum Trustee 2000 James R. Williston Professor of 24 Funds Cambridge
P.O. Box 9095 to Investment Management Emeritus, 43 Portfolios Bancorp
Princeton, NJ 08543-9095 Harvard Business School since
Age: 72 present 1996; James R. Williston
Professor of Investment
Management, Harvard Business
School from 1971 to 1996.
Laurie Simon Hodrick Trustee 2000 Professor of Finance and 23 Funds None
P.O. Box 9095 to Economics, Graduate School of 42 Portfolios
Princeton, NJ 08543-9095 Business, Columbia University
Age: 42 present since 1998.
David H. Walsh Trustee 2003 Consultant with Putnam 23 Funds None
P.O. Box 9095 to Investments from 1993 to 2003 42 Portfolios
Princeton, NJ 08543-9095 and employed in various
Age: 63 present capacities therewith from 1973
to 1992; Director, The National
Audubon Society since 1998;
Director, The American Museum
of Fly Fishing since 1997.
Fred G. Weiss Trustee 2000 Managing Director of FGW 23 Funds Watson
P.O. Box 9095 to Associates since 1997; Vice 42 Portfolios Pharmaceuticals,
Princeton, NJ 08543-9095 present President, Planning, Investment Inc.
Age: 63 and Development of Warner
Lambert Co. from 1979 to 1997;
Director of Michael J. Fox
Foundation for Parkinson's
Research since 2000; Director
of BTG International Plc (a
global technology
commercialization company)
since 2001.
</Table>
* The Trustee's term is unlimited. Trustees serve until their resignation,
removal or death, or until December 31 of the year in which they turn 72.
<Table>
<Caption>
POSITION(S)
NAME, ADDRESS, AND HELD WITH LENGTH OF
AGE TRUST TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------ ----------- ------------ -------------------------------------------
TRUST OFFICERS*
Donald C. Burke Vice 1997 to First Vice President of MLIM and FAM since 1997 and
P.O. Box 9011 President present and Treasurer thereof since 1999; Senior Vice President and
Princeton, NJ 08543-9011 and 1999 to Treasurer of Princeton Services since 1999 and Director
Age: 44 Treasurer present since 2004; Vice President of FAMD since 1999; Vice
President of MLIM and FAM from 1990 to 1997; Director of
Taxation of MLIM from 1990 to 2001.
Robert C. Doll, Jr. Senior 1999 to President of MLIM/FAM-advised Funds since 2005; President of
P.O. Box 9011 Vice present MLIM and FAM since 2001; Co-Head (Americas Region) thereof
Princeton, NJ 08543-9011 President from 2000 to 2001 and Senior Vice President from 1999 to
Age: 50 2001; President and Director of Princeton Services, Inc.
since 2001; President of Princeton Administrators, L.P.
since 2001; Chief Investment Officer of Oppenheimer Funds,
Inc. from 1991 to 1999.
</Table>
- --------------------------------------------------------------------------------
85
MASTER INTERNATIONAL INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION(S)
NAME, ADDRESS, AND HELD WITH LENGTH OF
AGE TRUST TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------ ----------- ------------ -------------------------------------------
Richard J. Vella Vice 1999 to Managing Director and Head of Global Index and Enhanced
P.O. Box 9011 President present Index products for Merrill Lynch Quantitative Advisors since
Princeton, NJ 08543-9011 1999; Managing Director and Head of the Global Index and
Age: 48 Enhanced Index business at Bankers Trust from 1984 to 1999.
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and
P.O. Box 9011 Compliance present First Vice President and Chief Compliance Officer of MLIM
Princeton, NJ 08543-9011 Officer since 2004; Global Director of Compliance at Morgan Stanley
Age: 53 Investment Management from 2002 to 2004; Managing Director
and Global Director of Compliance at Citigroup Asset
Management from 2000 to 2002; Chief Compliance Officer at
Soros Fund Management in 2000; Chief Compliance Officer at
Prudential Financial from 1995 to 2000.
Alice A. Pellegrino Secretary 2004 to Secretary of MLIM, FAM, FAMD and Princeton Services since
P.O. Box 9011 present 2004;Director (Legal Advisory) of MLIM since 2002; Vice
Princeton, NJ 08543-9011 President of MLIM from 1999 to 2002; Attorney associated
Age: 44 with MLIM since 1997.
</Table>
* Officers of the Trust serve at the pleasure of the Board of Trustees.
Further information about the Trust's Officers and Trustees is available in
the Trust's Statement of Additional Information, which can be obtained without
charge by calling 1-800-MER-FUND.
Effective January 1, 2005, Terry K. Glenn, President and Trustee and M.
Colyer Crum, Trustee of Quantitative Master Series Trust retired. The Trust's
Board of Trustees wishes Mr. Glenn and Professor Crum well in their retirements.
Effective January 1, 2005, Robert C. Doll, Jr. became Executive Vice
President and Chief Executive Officer of the Trust.
- --------------------------------------------------------------------------------
86
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.
- --------------------------------------------------------------------------------
87
(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. Delivery of individual
copies will commence thirty days after receiving your request.
If you invest in the Funds through a financial institution, you may be able to
receive the Funds' regulatory mailings, such as the Prospectus, Annual Report
and Semi-Annual Report, by e-mail. If you are interested in this option, please
go to www.icsdelivery.com and search for your financial institution's name or
contact your financial institution directly.
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
<Table>
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND RECORDS
In addition to the Schedule of Investments provided in each A description of the policies and procedures that the Funds
semi-annual and annual report, each Fund files a complete use to determine how to vote proxies relating to portfolio
schedule of its portfolio holdings with the Securities and securities is available in each Fund's Statement of
Exchange Commission ("SEC") on Form N-Q as of the first and Additional Information, which may be obtained by calling
third fiscal quarters. The Funds' Forms N-Q are available on 1-800-967-9009 or by accessing the SEC's website at
the SEC's website at www.sec.gov. The Forms N-Q may also be www.sec.gov. Each Fund's proxy voting record for the most
reviewed and copied at the SEC's Public Reference Room, 450 recent year ended June 30 is filed annually with the SEC on
Fifth Street, NW, Washington, DC 20549. Information Form N-PX. The Funds' Forms N-PX are available on the SEC's
regarding the operation of the SEC's Public Reference Room website at www.sec.gov. Each Fund's proxy voting record may
may be obtained by calling 1-800-SEC-0330. Each Fund's also be obtained by calling 1-800-967-9009.
schedule of portfolio holdings may be obtained free of
charge sixty days after the end of the first and third
fiscal quarters by calling 1-800-967-9009.
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES ERNST & YOUNG LLP FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri Chicago, Illinois Portland, Maine
</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, Inc. 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]
533221
[AMERICAN AADVANTAGE FUNDS LOGO]
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 2004
[GLOBE GRAPHIC]
Treasury Inflation Protected Securities Fund
Managed by AMR 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.
American AAdvantage Treasury Inflation Protected Securities Fund
Letter to Shareholders
- --------------------------------------------------------------------------------
Fellow Shareholders:
Enclosed please find the Annual Report for the American AAdvantage Treasury
Inflation Protected Securities Fund for the period from June 30, 2004
(inception of the Fund) through December 31, 2004.
The year began with the lowest Fed Funds rate in 45 years at 1.0%. The U.S.
economy in 2004 can best be characterized as experiencing modest inflation
with a benign outlook. Surprisingly, however, the benchmark 10-year U.S.
Treasury note ended 2004 just as it had started the year, yielding
approximately 4.25% in spite of the Federal Reserve Board increasing the short-
term interest rate by 125 basis points to 2.25%. Even at this level, the
"real" interest rate is below historical levels.
The American AAdvantage Treasury Inflation Protected Securities Fund realized
a return of 3.94% from its inception on June 30, 2004 through December 31, 2004.
Looking forward, the Treasury Inflation Protected Securities Fund will continue
to seek inflation protection and income by investing primarily in inflation-
indexed debt securities.
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 AAdvantage Treasury Inflation Protected Securities Fund
Market Overview
- --------------------------------------------------------------------------------
Yields
Statistics released during the third quarter revealed an economic "soft patch"
that paved the way for TIPS yields to fall 10 to 30 basis points. The TIPS
yield curve flattened marginally during the quarter, with 10-year yields
falling 7 basis points more than 3-year yields. In the fourth quarter, despite
relatively strong economic data, rising nominal yields, and two additional Fed
tightening moves, real yields fell and TIPS performed extremely well. The real
yield curve flattened dramatically during the fourth quarter as 3-year TIPS
yields increased 6 basis points, 10-year TIPS yields fell 12 basis points, and
30-year TIPS yields fell 23 basis points. The TIPS market, as defined by the
Lehman U.S. TIPS Index, returned 2.51% for the quarter; well above the U.S.
Treasury nominal bond return of 0.42%. Foreign inflation-indexed "linkers"
outperformed their U.S. counterparts by 10-20 basis points, on a fully hedged
basis, as weak economic growth in Europe caused yields to decline more
significantly.
Break-even Inflation Rates
In the third quarter, benign inflation data, together with the weaker than
expected economic news, brought about a clear easing in inflation expectations.
Break-even inflation rates (difference between nominal Treasury yield and TIPS
yield) fell 10 to 20 basis points across the curve. The break-even inflation
curve (break-even inflation rates at points along the entire yield curve)
flattened during the quarter, which indicated to us that long-term inflation
expectations were falling by more than short-term inflation expectations. In
the fourth quarter, the break-even inflation curve (break-even inflation rates
along the maturity spectrum) flattened 15 basis points. Simply put, short-term
TIPS out-performed their nominal bond counterparts by a greater amount than
long-term TIPS out-performed their nominal bond counterparts. Year-over-year
CPI inflation rose from 2.5% in September to 3.5% in December, a multi-year
high. The rise was primarily driven by the continued escalation in basic
commodity prices. Oil prices, driven by tight supplies, growing demand, and
concerns about supply disruptions, rose over 30% in 2004. The oil price rise
led natural gas and heating oil prices to multi-year highs. This run up in
commodity prices fueled strong demand for inflation protection among investors.
Higher inflation reports bought about a clear increase in inflation
expectations among market participants. Break-even inflation rates increased
20-30 basis points across the curve. The largest increases in break-even rates
occurred in shorter maturities where nominal yields experienced a more
significant upward move.
Issuance
The second half of the year also brought record new issuance and "new" new
issuance. In July, the U.S. Treasury successfully auctioned a new 10-year
maturity TIP and the first ever 20-year TIP. Bid/cover ratios for the auctions
were in line with recent experience. The U.S. Treasury "reopened" the existing
10-year TIPS in October. The Treasury auctioned an incremental $9 billion of
these securities, which brought the total size of the issue to $19 billion. The
auction was met with good, but not overwhelming demand. In the fourth quarter,
TIPS outstanding surpassed the $250 billion mark.
2
American AAdvantage Treasury Inflation Protected Securities Fund
Performance Overview December 31, 2004 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Fund returned 3.94% for the period from June 30,
2004 (inception of Fund) through December 31, 2004, trailing the Lehman
Brothers 1-10 Yr U.S. TIPS Index (the "Index") return of 4.96%, the Lehman
Brothers U.S. TIPS Index return of 6.45%, and the Lipper TIPS Index return of
6.90%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 6/30/04* THROUGH 12/31/04
(LINE GRAPH)
<Table>
<Caption>
LEHMAN BROS LEHMAN BROS LIPPER
INSTITUTIONAL 1-10 YR US US TIPS TIPS
CLASS TIPS INDEX INDEX INDEX
------------- ----------- ----------- -------
6/04 10,000 10,000 10,000 10,000
12/04 10,394 10,496 10,645 10,690
</Table>
<FN>
* Inception of Institutional Class of Fund
</FN>
<Table>
<Caption>
TOTAL RETURNS
---------------------- VALUE OF
PERIODS ENDED 12/31/04 $10,000
---------------------- 6/30/04-
3 MOS. SINCE INCEP. 12/31/04
------ ------------ ---------
Institutional Class(1).... 1.73% 3.94% $10,394
Lehman Bros. 1-10 Yr.
U.S. TIPS Index......... 1.73% 4.96% $10,496
Lehman Bros. U.S.
TIPS Index.............. 2.51% 6.45% $10,645
Lipper TIPS Index......... 2.71% 6.90% $10,690
</Table>
<FN>
1. Performance shown is historical and may not be indicative of future returns.
Investment returns and principal value will vary, and shares may be worth
more or less at redemption than at original purchase. Performance shown is
as of date indicated and may differ from current performance. To obtain
performance information as of the most recent month-end, please visit
www.aafunds.com or call 1-800-967-9009. Fund performance in the table above
does not reflect the deduction of taxes a shareholder would pay on
distributions or the redemption of shares.
</FN>
Although the Fund underperformed the Index for the six-month time period, most
of the underperformance occurred in July, the Fund's initial month. Although
the Fund began operations on June 30, 2004, it did not have sufficient assets
to create a diversified portfolio of Treasury Inflation Protected Securities
("TIPS") until July 8, 2004. In the first week of July, the TIPS market
rallied by approximately 1%. From July 8th, when the Fund began investing in
the TIPS market the return for the Fund and the Index were comparable.
While the Fund had a small percentage of its assets in non-TIPS during the
period, the vast majority of its assets (over 90%) was invested in TIPS. The
Fund's average maturity and real duration were slightly shorter than the Index,
while the average coupon was slightly lower than the Index.
The Fund remains focused on investing primarily in TIPS to provide inflation
protection and income to its shareholders.
Portfolio Diversification
<Table>
<Caption>
Rating % of Fixed Income
A 1.9%
A+ 0.3%
AAA 97.8%
</Table>
(BAR GRAPH)
<Table>
Sovereign Obligations 0.8%
U.S. Government Sponsored
Agency Instruments 1.8%
Corporate Obligations 2.2%
U.S. Government Treasury
Obligations 95.2%
</Table>
The bar chart above represents the Fund's portfolio as of December 31, 2004.
The Fund's portfolio is actively managed, and its portfolio composition,
credit quality breakdown, and other portfolio characteristics will vary from
time to time. U.S. Treasury Inflation Protected Securities are unrated, but
are backed by the full faith and credit of the government of the United States
of America and are therefore considered by the Fund's investment advisor to be
comparable to bonds rated AAA/Aaa.
3
American AAdvantage Treasury Inflation Protected Securities Fund
Performance Overview (Continued) December 31, 2004 (Unaudited)
- --------------------------------------------------------------------------------
Fund Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of
the period and held for the entire period from July 1, 2004 through December
31, 2004.
Actual Expenses
The "Actual" lines of the table provide information about actual account values
and actual expenses. You may use the information in this line, together with
the amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.6), then multiply the result by the number in the
first line under the heading "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period. Shareholders of the
Institutional Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
Hypothetical Example for Comparison Purposes
The "Hypothetical" lines of the table provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the Fund's
actual return). You may compare the ongoing costs of investing in the Fund
with other funds by contrasting this 5% hypothetical example and the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. Shareholders
of the Institutional Class that invest in the Fund through an IRA may be
subject to a custodial IRA fee of $12 that is typically deducted each December.
If your account was subject to a custodial IRA fee during the period, your
costs would have been $12 higher.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs charged by the Fund.
Similarly, the expense examples for other funds do not reflect any transaction
costs charged by those funds, such as sales charges (loads), redemption fees or
exchange fees. Therefore, the "Hypothetical" lines of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. If you were subject to any transaction costs
during the period, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,039.38 $2.36
Hypothetical $1,000.00 $1,022.82 $2.34
(5% return before expenses)
</Table>
<FN>
* Expenses are equal to the Fund's annualized expense ratio
for the six-month period of 0.23%, multiplied by the average account
value over the period, multiplied by the number derived by dividing the
number of days in the most recent fiscal half-year (184) by days in the year
(366) to reflect the half-year period.
</FN>
4
American AAdvantage Treasury Inflation Protected Securities Fund
Schedule of Investments December 31, 2004
- --------------------------------------------------------------------------------
in thousands, except share amounts
<Table>
<Caption>
PAR/
SHARES VALUE
---------- ----------
U.S. GOVERNMENT SPONSORED AGENCY INSTRUMENTS - 1.70%
Federal National Mortgage Association, 3.678%, Due 2/17/2009 $ 100 $ 101
Tennessee Valley Authority, 3.375%, Due 1/15/2007 241 255
----------
TOTAL U.S. GOVERNMENT SPONSORED AGENCY INSTRUMENTS 356
----------
U.S. GOVERNMENT TREASURY OBLIGATIONS- 91.42%
U.S. Inflation Protected Treasury Notes,
0.875%, Due 4/15/2010 3,839 3,801
1.875%, Due 7/15/2013 1,735 1,785
2.00%, Due 1/15/2014 1,482 1,534
2.00%, Due 7/15/2014 2,061 2,126
3.00%, Due 7/15/2012 1,672 1,866
3.375%, Due 1/15/2007 1,596 1,691
3.375%, Due 1/15/2012 1,290 1,468
3.50%, Due 1/15/2011 324 367
3.625%, Due 1/15/2008 1,365 1,486
3.875%, Due 1/15/2009 1,781 1,996
4.25%, Due 1/15/2010 408 474
4.25%, Due 11/15/2014 550 552
----------
TOTAL U.S. GOVERNMENT TREASURY OBLIGATIONS 19,146
----------
CORPORATE OBLIGATIONS - 2.13% (Note B)
FINANCIAL - 2.13%
Lehman Brothers Holdings, Incorporated, 3.80%, Due 6/2/2009 80 81
Merrill Lynch & Company, Incorporated, 3.70%, Due 3/2/2009 150 149
SLM Corporation, 4.66%, Due 1/31/2014 215 217
----------
TOTAL FINANCIAL 447
----------
TOTAL CORPORATE OBLIGATIONS 447
----------
SOVEREIGN OBLIGATIONS - 0.78%
Republic of France, 3.00%, Due 7/25/2012 106,148 163
----------
TOTAL SOVEREIGN OBLIGATIONS 163
----------
SHORT TERM INVESTMENTS - 3.60%
American AAdvantage Money Market Select Fund (Note A) 754,424 754
----------
TOTAL SHORT TERM INVESTMENTS 754
----------
TOTAL INVESTMENTS - 99.63% (Cost $20,764) 20,866
----------
OTHER ASSETS, NET OF LIABILITIES - 0.37% 77
----------
TOTAL NET ASSETS - 100% $ 20,943
----------
</Table>
(A) The Fund is affiliated by having the same investment advisor. See Note 2.
(B) Variable rate instrument. Interest rates change on specific dates (such
as a coupon or interest payment date). The yield shown represents the
December 31, 2004 coupon rate.
See accompanying notes
5
American AAdvantage Treasury Inflation Protected Securities Fund
Statement of Assets and Liabilities December 31, 2004
- --------------------------------------------------------------------------------
in thousands, except share and per share amounts
<Table>
Assets:
Investments in unaffiliated securities, at value (A).......... $ 20,112
Investments in affiliated securities, at value (B)............ 754
Dividends and interest receivable............................. 203
Receivable for fund shares sold............................... 160
Receivable from Manager for expense reimbursement (Note 2).... 2
----------
Total assets............................................... 21,231
----------
Liabilities:
Payable for investments purchased............................. 252
Payable for fund shares redeemed.............................. 4
Dividends payable............................................. 1
Management and investment advisory fees payable (Note 2)...... 10
Administrative service and service fees payable............... 1
Unrealized depreciation on foreign currency contracts (Note 5) 4
Other liabilities............................................. 16
----------
Total liabilities.......................................... 288
----------
Net assets...................................................... $ 20,943
----------
Analysis of Net Assets:
Paid-in-capital............................................... 20,712
Accumulated net realized gain................................. 133
Unrealized appreciation of investments and foreign currency... 98
----------
Net assets...................................................... $ 20,943
----------
Shares outstanding (no par value):
Institutional Class........................................... 2,061,688
----------
Net asset value, offering and redemption price per share:
Institutional Class........................................... $ 10.16
----------
A Cost of investments in unaffiliated securities $ 20,010
B Cost of investments in affiliated securities $ 754
</Table>
See accompanying notes
6
American AAdvantage Treasury Inflation Protected Securities Fund
Statement of Operations Six Months Ended December 31, 2004 (A)
- --------------------------------------------------------------------------------
in thousands
<Table>
Investment Income:
Interest income............................................... $ 325
Dividend income from affiliated securities.................... 7
----------
Total investment income.................................... 332
----------
Expenses:
Management and investment advisory fees (Note 2).............. 22
Administrative service fees (Note 2).......................... 9
Transfer agent fees........................................... 2
Fund accounting fees.......................................... 2
Professional fees............................................. 13
Registration fees and expenses................................ 1
Organizational costs.......................................... 5
Other expenses................................................ 1
----------
Total expenses............................................. 55
----------
Less fees waived (Note 2)..................................... 15
----------
Net expenses............................................... 40
----------
Net investment income........................................... 292
----------
Realized and unrealized gain on investments:
Net realized gain on investments.............................. 247
Change in net unrealized appreciation or depreciation of:
Investments................................................. 97
Foreign currency contracts.................................. 1
----------
Net gain on investments.................................... 345
----------
Net increase in net assets resulting from operations............ $ 637
----------
</Table>
A The American AAdvantage Treasury Inflation Protected Securities Fund
commenced active operations on June 30, 2004.
See accompanying notes
7
American AAdvantage Treasury Inflation Protected Securities Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
in thousands
<Table>
<Caption>
Six Months
Ended
December 31,
2004 (A)
------------
Increase in Net Assets:
Operations:
Net investment income........................................ $ 292
Net realized gain on investments............................. 247
Change in net unrealized appreciation or depreciation of investments
and foreign currency contracts............................. 98
------------
Net increase in net assets resulting from operations...... 637
------------
Distributions to Shareholders:
Net investment income........................................ (292)
Net realized gain on investments............................. (114)
------------
Net distributions to shareholders......................... (406)
------------
Capital Share Transactions:
Proceeds from sales of shares................................ 28,766
Reinvestment of dividends and distributions.................. 405
Cost of shares redeemed...................................... (8,459)
------------
Net increase in net assets from capital share transactions 20,712
------------
Net increase in net assets..................................... 20,943
------------
Net Assets:
Beginning of period.......................................... --
------------
End of period................................................ $ 20,943
------------
</Table>
A The American AAdvantage Treasury Inflation Protected Securities Fund
commenced active operations on June 30, 2004.
See accompanying notes
8
American AAdvantage Treasury Inflation Protected Securities Fund
Notes to Financial Statements December 31, 2004
- --------------------------------------------------------------------------------
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 Trust's Board of Trustees (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 an 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.
Currency Translation
All assets and liabilities initially expressed in foreign currency values are
converted into U.S. dollar values at the mean of the bid and ask prices of such
currencies against U.S. dollars as last quoted by a recognized dealer. Income,
expenses and purchases and sales of investments are translated into U.S.
dollars at the rate of exchange prevailing on the respective dates of such
transactions. The effect of changes in foreign currency exchange rates on
investments is separately identified from the fluctuations arising from changes
in market values of securities held and is reported with all other foreign
currency gains and losses in the Fund's Statement of Operations.
Forward Foreign Currency Contracts
9
American AAdvantage Treasury Inflation Protected Securities Fund
Notes to Financial Statements December 31, 2004 (Continued)
- --------------------------------------------------------------------------------
The Portfolio may enter into forward foreign currency contracts to hedge the
exchange rate risk on investment transactions or to hedge the value of
portfolio securities denominated in foreign currencies. Forward foreign
currency contracts are valued at the forward exchange rate prevailing on the
day of valuation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results may differ from those estimated.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust 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 that 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 that
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 Fund's average daily net assets plus amounts paid by the Manager to the
investment advisers of the Fund. During the period ended December 31, 2004,
the management fee range, including fees paid to investment advisers, was from
0.15% to 0.25%, depending upon assets under management. Total management fees
were $21,690, of which $13,014 was paid to investment advisers and $8,676 was
retained by the Manager.
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 .10% of the average daily net assets of the Fund.
Investment in Affiliated Fund
The Fund may invest in the American AAdvantage Money Market Select Fund (the
"Select Fund"). The Manager serves as investment adviser to the Select Fund and
receives from the Select Fund an annualized fee equal to 0.10% of the Select
Fund's average daily net assets. During the period, fees earned by the Manager
from the Fund's investment in the Select Fund were $1,151.
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.
Reimbursement of Expenses
10
American AAdvantage Treasury Inflation Protected Securities Fund
Notes to Financial Statements December 31, 2004 (Continued)
- --------------------------------------------------------------------------------
The Manager voluntarily reimbursed a portion of its fees received from the Fund
during the period ended December 31, 2004 to the extent that total Fund
operating expenses exceeded 0.46%. The Manager reimbursed expenses totaling
$14,537 during the period.
Note 3-Federal Income and Excise Taxes
It is the policy of the Fund to comply with the requirements of Subchapter M of
the Internal Revenue Code 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 tax provision is required.
Dividends are determined in accordance with federal income tax regulations that
may treat certain transactions differently than U.S. generally accepted
accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements. During the period ended December 31,
2004, the Fund distributed ordinary income dividends totaling $406,245.
As of December 31, 2004, the components of distributable earnings were as
follows (in thousands):
<Table>
Cost basis of investments for federal income tax purposes........... $20,778
Unrealized appreciation............................................. 115
Unrealized depreciation............................................. (27)
-------
Net unrealized appreciation......................................... 88
Undistributed ordinary income....................................... 148
-------
Distributable earnings.............................................. $ 236
-------
</Table>
Financial reporting records are adjusted for permanent book/tax differences to
reflect tax character. Financial records are not adjusted for temporary
differences. The temporary differences between financial reporting and tax-
basis reporting of unrealized appreciation/(depreciation) are attributable
primarily to the tax deferral of wash sales and current recognition of
unrealized appreciation/(depreciation) on open foreign currency transactions.
Due to the inherent differences in the recognition of income, expenses and
realized gains/(losses) under U.S. generally accepted accounting principles
and federal income tax regulations, permanent differences between book and tax
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities without impacting the net assets of the Fund. These
differences are due primarily to the recognition of certain foreign currency
gains/(losses) as ordinary income for tax purposes.
Net capital and foreign currency losses incurred after October 31, 2004 and
within the taxable year are deemed to arise on the first business day of the
Fund's next taxable year. For the period ended December 31, 2004, the Fund
deferred $3,823 of foreign currency losses to January 1, 2005.
Note 4-Investment Transactions
Purchases and redemptions of investments for the period ended December 31, 2004,
excluding short-term investments, were $53,116,683 and $33,470,330,
respectively. The Fund had purchases and sales of U.S. government securities
of $52,155,266 and $32,897,414, respectively.
A summary of the Fund's transactions in the Select Fund for the period ended
December 31, 2004 is as follows:
11
American AAdvantage Treasury Inflation Protected Securities Fund
Notes to Financial Statements December 31, 2004 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
June 30, 2004 December 31, 2004
Shares/Market Value Purchases Sales Shares/Market Value
- ------------------- ------------- ------------- -------------------
$-- $20,026,639 $19,272,215 $754,424
</Table>
Note 5-Foreign Currency Contracts
In order to protect itself against foreign currency fluctuations, the Fund has
entered into forward contracts to deliver or receive foreign currency in
exchange for U.S. dollars as described below. The Fund bears the market risk
that arises from changes in foreign exchange rates, and accordingly, the
unrealized gain (loss) on these contracts is reflected in the accompanying
financial statements. The Fund also bears the credit risk if the counterparty
fails to perform under the contract. At December 31, 2004, the Fund had
outstanding forward foreign currency contracts as follows (amounts in
thousands):
<Table>
<Caption>
Settlement Unrealized
Contracts to Deliver Date Value Gain/(Loss)
- -------------------- ---------- ------- -----------
122 Euro Currency....................... 01/20/2005 $ 165 $ (4)
------- -----------
TOTAL CONTRACTS TO DELIVER
(Receivable amount $161).............. $ 165 $ (4)
------- -----------
</Table>
The Fund may purchase securities with delivery or payment to occur at a later
date. At the time the Fund enters into a commitment to purchase a security,
the transaction is recorded and the value of the security is reflected in the
net asset value. The value of the security may vary with market fluctuations.
Note 6-Subsequent Event
Subsequent to December 31, 2004, AMR Investment Services, Inc. will become
American Beacon Advisors, Inc. and the American AAdvantage Funds will be known
as the American Beacon Funds. The name change becomes effective March 1, 2005.
Note 7-Capital Share Transactions
The table below summarizes the activity in capital shares (in thousands):
<Table>
<Caption>
Period ended December 31, 2004
- ------------------------------ Shares Amount
-------- ----------
Shares sold........................................ 2,858 $28,766
Reinvestment of dividends.......................... 40 405
Shares redeemed.................................... (836) (8,459)
-------- ----------
Net increase in shares outstanding................. 2,062 $20,712
-------- ----------
</Table>
12
American AAdvantage Treasury Inflation Protected Securities Fund
Financial Highlights (For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Six Months
Ended
December 31,
2004 (A)
------------
Net asset value, beginning of period........................... $ 10.00
------------
Income from investment operations:
Net investment income........................................ 0.18(B)
Net gains on securities (both realized and unrealized)....... 0.21
------------
Total income from investment operations........................ 0.39
------------
Less distributions:
Dividends from net investment income......................... (0.23)
Distributions from net realized gains on securities.......... --
------------
Total distributions............................................ (0.23)
------------
Net asset value, end of period................................. $ 10.16
------------
Total return .................................................. 3.94% (C)
------------
Ratios and supplemental data:
Net assets, end of period (in thousands)..................... $ 20,943
Ratios to average net assets (annualized):
Expenses................................................... 0.46%
Net investment income...................................... 3.34%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager.................... 0.16%
Portfolio turnover rate...................................... 190% (C)
</Table>
A The American AAdvantage Treasury Inflation Protected Securities Fund
commenced active operations on June 30, 2004.
B Based on average shares outstanding.
C Not annualized.
13
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Trustees
American AAdvantage Treasury Inflation Protected Securities Fund
We have audited the accompanying statement of assets and liabilities of
American AAdvantage Treasury Inflation Protected Securities Fund (the "Fund")
(a separate fund comprising the American AAdvantage Funds), including the
schedule of investments, as of December 31, 2004, and the related statements
of operations, the statements of changes in net assets, and the financial
highlights for the period from June 30, 2004 (commencement of operations) to
December 31, 2004. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American AAdvantage Treasury Inflation Protected Securities Fund at December
31, 2004, the results of its operations, the changes in its net assets, and
the financial highlights from June 30, 2004 (commencement of operations) to
December 31, 2004, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 18, 2005
14
American AAdvantage Treasury Inflation Protected Securities Fund
Tax Information for the Tax Year Ended December 31, 2004 (Unaudited)
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The Fund's distributions to shareholders included $114,200 of short-term
capital gains.
15
Trustees and Officers of the Trust
(Unaudited)
- --------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with
their principal occupations during the past five years. Unless otherwise
indicated, the address of each person listed below is 4151 Amon Carter
Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees twenty-seven
funds in the fund complex that includes the AMR Investment Services Trust, the
American AAdvantage Funds, the American AAdvantage Mileage Funds, and the
American AAdvantage Select Funds. The Trust's Statement of Additional
Information contains additional information about the Trustees and is available
without charge by calling 1-800-658-5811.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (56) President and President (1986-Present) and Director (2001-Present), AMR
Trustee since Investment Services, Inc.; Chairman (1989-2003) and Director
1987 (1979- 1989, 2003-Present), American Airlines Federal Credit
Union; Director, Crescent Real Estate Equities, Inc.
(1994-Present); Director, Pritchard, Hubble & Herr, LLC
(investment adviser) (2001-Present); Director of Investment
Committee, Southern Methodist University Endowment Fund
(1996-Present); Member of Advisory Board, Southern Methodist
University Cox School of Business (1999-2002); Member of
Pension Manager Committee, New York Stock Exchange
(1997-1998, 2000-2002); Vice Chairman, Committee for the
Investment of Employee Benefits (2004-Present); Chairman of
Defined Benefit Sub-Committee, Committee for the Investment
of Employee Benefits (1982-2004); Director, United Way of
Metropolitan Tarrant County (1988-2000, 2004-Present);
Trustee, American AAdvantage Select Funds (1999-Present);
Trustee, American AAdvantage Mileage Funds (1995-Present).
Alan D. Feld** (68) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties, Inc.
(1994-Present); Trustee, American AAdvantage Select Funds
(1999-Present); Trustee, American AAdvantage Mileage Funds
(1996-Present).
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (60) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing
company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-2004); Trustee, American
AAdvantage Select Funds (2004-Present); Trustee, American
AAdvantage Mileage Funds (2004-Present).
Brenda A. Cline (44) Trustee since 2004 Vice President, Chief Financial Officer, Treasurer and
Secretary, Kimbell Art Foundation (1993-Present); Trustee,
Texas Christian University (1998-Present); Trustee, W.I.
Cook Foundation, Inc. (d/b/a Cook Children's Health
Foundation) (2001-Present); Trustee, American AAdvantage
Select Funds (2004-Present); Trustee, American AAdvantage
Mileage Funds (2004-Present).
Richard A. Massman (61) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in energy, real
estate, farming, ranching and venture capital activities)
(1994-Present); Trustee, American AAdvantage Select Funds
(2004-Present); Trustee, American AAdvantage Mileage Funds
(2004-Present).
Stephen D. O'Sullivan (69) Trustee since 1987 Consultant (1994-Present); Trustee, American AAdvantage
Select Funds (1999-Present); Trustee, American AAdvantage
Mileage Funds (1995-Present).
</Table>
16
Trustees and Officers of the Trust
(Unaudited) (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
R. Gerald Turner (59) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996- Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (2001- 2003); Director, Kronus
Worldwide Inc. (chemical manufacturing) (2003-Present);
Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Member, Knight Commission on Intercollegiate Athletics;
Trustee, American AAdvantage Select Funds (2001-Present);
Trustee, American AAdvantage Mileage Funds (2001-Present).
Kneeland Youngblood (49) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court equity firm) (1998-Present); Director, Burger King
Suite 1740 Corporation (2004-Present); Trustee, The Hockaday School
Dallas, Texas 75201 (1997-Present); Director, Starwood Hotels and Resorts
(2001-Present); Member, Council on Foreign Relations
(1995-Present); Director, Just For the Kids (1995-2001);
Director, L&B Realty Advisors (1998-2000); Trustee, Teachers
Retirement System of Texas (1993-1999); Director, Starwood
Financial Trust (1998-2001); Trustee, St. Mark's School of
Texas (2002-Present); Trustee, American AAdvantage Select
Funds (1999-Present); Trustee, American AAdvantage Mileage
Funds (1996-Present).
OFFICERS
TERM
------------------
One Year
Brian E. Brett (44) VP since 2004 Vice President, Director of Sales, AMR Investment Services,
Inc. (2004-Present); Regional Vice President, Neuberger
Berman, LLC (investment adviser) (1996-2004).
Nancy A. Eckl (42) VP since 1990 Vice President, Trust Investments, AMR Investment Services,
Inc. (1990-Present).
Michael W. Fields (50) VP since 1989 Vice President, Fixed Income Investments, AMR Investment
Services, Inc. (1988-Present).
Barry Y. Greenberg (41) VP since 1995 and Vice President, Legal, Compliance and Administration, AMR
Secretary since Investment Services, Inc. (1995-Present); Director,
2004 Pritchard, Hubble & Herr, LLC (investment adviser)
(2004-Present).
Rebecca L. Harris (38) Treasurer since Vice President, Finance, AMR Investment Services, Inc.
1995 (1995- Present).
John B. Roberson (46) VP since 1989 Vice President, Client Relations & Special Projects, AMR
Investment Services, Inc. (2004-Present); Vice President,
Director of Sales, AMR Investment Services, Inc.
(1991-2004); Director, Pritchard, Hubble & Herr, LLC
(investment adviser) (2001-Present).
</Table>
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
70, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust, as
defined by the 1940 Act. Mr. Quinn is President of the Manager. Mr. Feld's
law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services
within the past two years to one or more of the Trust's sub-advisers.
17
American AAdvantage Treasury Inflation Protected Securities Fund
Privacy Policy (Unaudited)
- --------------------------------------------------------------------------------
The American AAdvantage Treasury Inflation Protected Securities Fund recognizes
and respects the privacy of our shareholders. We are providing this notice to
you so you will understand how shareholder information may be collected and
used.
We may collect nonpublic personal information about you from one or more of the
following sources:
o information we receive from you on applications or other forms;
o information about your transactions with us or our service providers; and
o information we receive from third parties.
We do not disclose any nonpublic personal information about our shareholders or
former shareholders to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those employees or
service providers who need to know that information to provide products or
services to you. To ensure the confidentiality of your nonpublic information, we
maintain safeguards that comply with federal standards.
18
[BACK COVER]
ITEM 2. CODE OF ETHICS.
The Trust has adopted a code of ethics that applies to its principal
executive and financial officers (the "Code"). The Trust did not amend the
Code nor did it grant any waivers to the provisions of the Code during the
period covered by the shareholder report presented in Item 1. The Code is
filed herewith as Exhibit 99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Trust's Board of Trustees has determined that Stephen O'Sullivan, a
member of the Trust's audit committee, is an "audit committee financial
expert" as defined in Form N-CSR. Mr. O'Sullivan is "independent" as defined
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)
<Table>
<Caption>
Audit Fees Fiscal Year Ended
- ---------- -----------------
$180,713 10/31/2003
$19,903 12/31/2003
$170,039 10/31/2004
$38,887 12/31/2004
</Table>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$0 10/31/2003
$0 12/31/2003
$0 10/31/2004
$0 12/31/2004
</Table>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$39,417* 10/31/2003
$4,500** 12/31/2003
$0 10/31/2004
$0 12/31/2004
</Table>
<FN>
* For review of 2002 tax returns and professional services related to the
collectibility of tax reclaims in Switzerland
** For review of 2002 tax returns
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 10/31/2003
$0 12/31/2003
$0 10/31/2004
$0 12/31/2004
</Table>
(e)(1) Pursuant to its charter, the Trust's audit committee shall have the
following duties and powers pertaining to pre-approval of audit and
non-audit services provided by the Trust's principal accountant:
- to approve, prior to appointment, the engagement of auditors to
annually audit and provide their opinion on the Trust's financial
statements, and, in connection therewith, to review and evaluate
matters potentially affecting the independence and capabilities of
the auditors;
- to approve, prior to appointment, the engagement of the auditors to
provide non-audit services to the Trust, an investment adviser to
any series of the Trust or any entity controlling, controlled by,
or under common control with an investment adviser that provides
ongoing services to the Trust, if the engagement relates directly
to the operations and financial reporting of the Trust;
- to review the arrangements for and scope of the annual audit and
any special audits; and
- to review and approve the fees proposed to be charged to the Trust
by the auditors for each audit and non-audit service.
The audit committee may delegate any portion of its authority, including the
authority to grant pre-approvals of audit and permitted non-audit services,
to a subcommittee of one or more members. Any decisions of the subcommittee
to grant pre-approvals shall be presented to the full audit committee at its
next regularly scheduled meeting.
(e)(2) None of the fees disclosed in paragraphs (b) through (d) above were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.
(f) Not Applicable.
(g)
<Table>
<Caption>
Aggregate Non-Audit Fees for Services Rendered to the:
- ------------------------------------------------------
Adviser's Affiliates Providing
Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended
- ---------- ------- ------------------------------ -----------------
$39,417 $0 N/A 10/31/2003
$4,500 $0 N/A 12/31/2003
$0 $0 N/A 10/31/2004
$0 $0 N/A 12/31/2004
</Table>
(h) Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder reports presented in Item 1. The shareholder report for the S&P
500 Index Fund, the Small Cap Index Fund and the International Equity Index
Fund presented in Item 1 includes a summary schedule of investments for the
Master International Index Series and the Master Small Cap Index Series, both
of which are series of the Master Quantitative Series Trust. A complete
schedule of investments for each of these two series follows.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON DETAILED SCHEDULE OF
INVESTMENTS
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements of Master
International Index Series (the "Series"), one of the portfolios constituting
the Quantitative Master Series Trust (the "Trust") as of December 31, 2004, and
for the year then ended and have issued our report thereon dated February ,
2005, which report and financial statements are included in Item 1 of this
Certified Shareholder Report on Form N-CSR. Our audit also included the Series'
schedule of investments (the "Schedule") as of December 31, 2004 appearing in
Item 6 of this Form N-CSR. This Schedule is the responsibility of the Trust's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, the Schedule referred to above, when considered in relation to the
basic financial statements taken as a whole of the Series referred to above,
presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
February 23, 2005
Master International Index Series
Schedule of Investments as of December 31, 2004 (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Australia - 5.0% Airlines - 0.0% 31,700 Qantas Airways Ltd. $ 92,192
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.2% 26,064 Coca-Cola Amatil Ltd. 166,109
86,856 Foster's Group Ltd. 394,220
8,843 Southcorp Ltd.(a) 29,738
------------
590,067
-----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.0% 5,408 CSL Ltd. 124,000
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.1% 8,347 Macquarie Bank Ltd. 304,259
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 13,503 Orica Ltd. 215,616
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.4% 67,407 Australia & New Zealand Banking Group Ltd. 1,087,983
44,375 Commonwealth Bank of Australia 1,116,616
55,372 National Australia Bank Ltd. 1,250,964
66,143 Westpac Banking Corp. 1,010,547
------------
4,466,110
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 26,433 Brambles Industries Ltd. 144,010
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 7,743 Leighton Holdings Ltd. 74,840
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 19,286 Boral Ltd. 103,863
36,728 CSR Ltd. 76,584
3,992 James Hardie Industries NV 20,967
41,326 Rinker Group Ltd. 345,012
------------
546,426
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.1% 41,043 Amcor Ltd. 236,476
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.1% 1,250 Australian Stock Exchange Ltd. 19,989
23,405 Suncorp-Metway Ltd. 318,874
------------
338,863
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 53,812 Telstra Corp. Ltd. 207,120
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.2% 46,196 Coles Myer Ltd. 357,061
32,686 Woolworths Ltd. 384,595
------------
741,656
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 20,590 Australian Gas Light Co., Ltd. 221,125
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 7,344 Ansell Ltd. 51,410
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.1% 40,746 Mayne Group Ltd. 136,068
2,368 Sonic Healthcare Ltd. 22,609
------------
158,677
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 4,629 Aristocrat Leisure Ltd. 36,105
23,453 TABCORP Holdings Ltd. 317,873
------------
353,978
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 11,639 Computershare Ltd. 51,732
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.2% 15,471 Wesfarmers Ltd. 482,683
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.3% 60,890 AMP Ltd. 346,532
45,366 AXA Asia Pacific Holdings Ltd. 145,806
69,692 Insurance Australia Group Ltd. 351,281
20,087 QBE Insurance Group Ltd. 241,704
------------
1,085,323
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 15,889 John Fairfax Holdings Ltd. 56,672
6,114 Publishing & Broadcasting Ltd. 83,873
------------
140,545
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.8% 52,998 Alumina Ltd. 246,778
137,224 BHP Billiton Ltd. 1,650,122
18,416 BlueScope Steel Ltd. 119,099
11,751 Newcrest Mining Ltd. 160,743
23,360 OneSteel Ltd. 47,062
9,648 Rio Tinto Ltd. 295,867
32,240 WMC Resources Ltd. 182,471
------------
2,702,142
-----------------------------------------------------------------------------------------------------------------
Oil & Gas - 0.1% 20,741 Origin Energy Ltd. 112,024
11,371 Santos Ltd. 75,588
13,785 Woodside Petroleum Ltd. 217,202
------------
404,814
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 5,300 PaperlinX Ltd. 19,610
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.6% 109,739 CFS Gandel Retail Trust 137,639
14,559 Centro Properties Group 65,967
79,688 General Property Trust 233,628
31,118 Investa Property Group 55,129
18,025 Lend Lease Corp., Ltd. 187,220
33,301 Macquarie Goodman Industrial Trust 61,868
46,449 Mirvac Group 178,414
60,690 Stockland 284,974
49,269 Westfield Group(a) 634,559
------------
1,839,398
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 15,831 Toll Holdings Ltd. 159,024
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 86,634 Macquarie Infrastructure Group 230,902
16,500 Patrick Corp. Ltd. 85,108
10,811 Transurban Group 56,781
------------
372,791
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Australia 16,124,887
- -----------------------------------------------------------------------------------------------------------------------------------
Austria - 0.5% Building Products - 0.1% 3,535 Wienerberger AG 168,894
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1% 1,063 Bank Austria Creditanstalt AG 96,085
5,448 Erste Bank der Oesterreichischen Sparkassen AG 291,024
------------
387,109
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 53 RHI AG(a) 1,607
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 568 Mayr-Melnhof Karton AG 96,738
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 9,468 Telekom Austria AG 179,528
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 47 Verbund - Oesterreichische
Elektrizitaetswirtschafts AG 10,471
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Austria Metals & Mining - 0.0% 906 Boehler-Uddeholm AG $ 114,503
(concluded) -----------------------------------------------------------------------------------------------------------------
Oil & Gas - 0.1% 447 OMV AG 134,695
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.0% 4,408 IMMOFINANZ Immobilien Anlagen AG(a) 42,181
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.1% 105,980 Hagemeyer NV - Registered Shrs 244,890
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 1,169 Flughafen Wien AG 88,505
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Austria 1,469,121
- -----------------------------------------------------------------------------------------------------------------------------------
Belgium - 1.3% Beverages - 0.1% 4,637 InBev NV 179,883
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 2,818 Solvay SA 310,260
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 20,207 Dexia 464,731
4,674 KBC Bancassurance Holding 358,952
------------
823,683
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 4,785 Suez SA(a) 65
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 222 D'ieteren SA 41,189
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.4% 39,701 Fortis 1,098,159
3,292 Groupe Bruxelles Lambert SA 268,032
------------
1,366,191
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 4,594 Belgacom SA(a) 198,572
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 837 Electrabel 373,163
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 1,022 Bekaert SA 81,613
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 520 Barco NV 48,098
Instruments - 0.0%
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 1,003 Colruyt SA 163,054
932 Delhaize Group 70,879
950 Delhaize Group(b) 72,058
------------
305,991
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 1,608 Omega Pharma SA 77,045
-----------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.0% 2,040 AGFA-Gevaert NV 69,211
-----------------------------------------------------------------------------------------------------------------
Marine - 0.0% 1,790 Compagnie Maritime Belge SA (CMB) 49,999
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 202 Umicore 19,014
52 Umicore 'STRIP'(a) 7
------------
19,021
-----------------------------------------------------------------------------------------------------------------
Oil & Gas - 0.0% 1,790 Euronav SA 46,471
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1% 4,095 UCB SA 208,173
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 900 Mobistar SA(a) 84,348
Services - 0.0%
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Belgium 4,282,976
- -----------------------------------------------------------------------------------------------------------------------------------
Bermuda - 0.0% Oil & Gas - 0.0% 531 Ship Finance International Ltd. 10,891
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Bermuda 10,891
- -----------------------------------------------------------------------------------------------------------------------------------
Denmark - 0.8% Beverages - 0.0% 356 Carlsberg A/S 18,019
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 2,267 Novozymes A/S Class B(a) 115,161
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 16,440 Danske Bank A/S 503,935
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 2,439 ISS A/S 136,155
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 1,417 FLS Industries A/S Class B(a) 26,670
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 5,926 TDC A/S 250,953
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 820 NKT Holding A/S 23,899
3,995 Vestas Wind Systems A/S(a) 49,640
------------
73,539
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.1% 2,482 Danisco A/S 151,481
2,039 East Asiatic Co., Ltd. A/S 107,119
------------
258,600
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 186 Coloplast A/S Class B 10,213
5,043 GN Store Nord 54,369
1,530 William Demant Holding(a) 71,851
------------
136,433
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 464 Bang & Olufsen A/S Class B 34,678
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 907 Topdanmark A/S(a) 71,432
-----------------------------------------------------------------------------------------------------------------
Marine - 0.1% 44 AP Moller - Maersk A/S 363,414
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2% 3,519 H Lundbeck A/S 78,449
8,260 Novo-Nordisk A/S Class B 451,296
------------
529,745
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 1,730 DSV A/S 117,282
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Denmark 2,636,016
- -----------------------------------------------------------------------------------------------------------------------------------
Finland - 1.5% Auto Components - 0.0% 671 Nokian Renkaat Oyj 101,968
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.8% 1,270 Nokia Oyj (b) 19,901
161,627 Nokia Oyj Class A (b) 2,552,815
------------
2,572,716
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 5,791 Elisa Corp.(a) 93,355
Services - 0.1% 36,201 TeliaSonera AB 215,523
------------
308,878
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 8,990 Fortum Oyj 166,432
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 4,144 Tietoenator Oyj 131,806
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 6,594 Pohjola Group Plc Class D 76,095
9,526 Sampo Oyj 131,554
------------
207,649
-----------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.0% 5,904 Amer Group 103,121
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 2,211 Kone Oyj Class B 171,573
4,366 Metso Oyj 69,196
231 Wartsila Oyj 4,923
------------
245,692
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 447 Outokumpu Oyj 7,990
8,196 Rautaruukki Oyj 97,367
------------
105,357
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.2% 25,249 Stora Enso Oyj Class R 386,783
17,188 UPM-Kymmene Oyj 382,215
------------
768,998
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Finland 4,712,617
- -----------------------------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
France - 9.4% Aerospace & Defense - 0.2% 10,187 European Aeronautic Defense & Space Co. $ 296,180
4,303 Thales SA 206,581
986 Zodiac SA 45,903
------------
548,664
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 3,419 Air France-KLM 65,155
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.2% 4,708 Compagnie Generale des Etablissements Michelin 301,985
3,351 Valeo SA 140,289
------------
442,274
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.3% 5,945 Peugeot SA 377,371
7,187 Renault SA 601,277
------------
978,648
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 1,695 Pernod-Ricard 259,653
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.2% 11,877 Cie de Saint-Gobain 715,494
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 3,543 Air Liquide 654,952
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.2% 28,297 BNP Paribas 2,050,061
21,536 Credit Agricole SA 649,856
10,627 Societe Generale 1,075,411
------------
3,775,328
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.0% 1,954 Societe BIC SA 98,271
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.2% 40,836 Alcatel SA(a) 635,547
4,730 Sagem SA(a) 100,811
------------
736,358
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.1% 2,440 Vinci SA 327,677
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 1,192 Imerys SA 100,049
5,329 Lafarge SA 514,284
------------
614,333
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 52,667 France Telecom SA 1,743,874
Services - 0.5%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.2% 111,163 Alstom(a) 84,615
8,706 Schneider Electric SA 605,882
------------
690,497
-----------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.0% 714 Technip SA 131,989
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.3% 19,212 Carrefour SA 915,031
1,834 Casino Guichard Perrachon SA 146,580
------------
1,061,611
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.2% 7,854 Groupe Danone 725,403
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 3,031 Cie Generale d'Optique Essilor
International SA 237,511
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 6,164 Accor SA 269,869
5,111 Sodexho Alliance SA 154,643
------------
424,512
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.1% 7,780 Thomson 205,683
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 1,852 Atos Origin SA(a) 125,791
3,475 Cap Gemini SA(a) 111,283
------------
237,074
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.4% 53,086 AXA 1,311,817
775 CNP Assurances 55,515
------------
1,367,332
-----------------------------------------------------------------------------------------------------------------
Media - 0.6% 5,229 Lagardere S.C.A. 377,409
4,855 Publicis Groupe 157,390
3,105 Societe Television Francaise 1 101,080
28,319 Vivendi Universal SA(a) 904,191
6,053 Vivendi Universal SA(a)(b) 194,120
------------
1,734,190
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 16,250 Arcelor 374,830
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.1% 2,713 Pinault-Printemps-Redoute 271,595
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 25,778 Suez SA 687,460
Power - 0.3% 8,677 Veolia Environnement 314,080
------------
1,001,540
-----------------------------------------------------------------------------------------------------------------
Oil & Gas - 1.4% 20,474 Total SA 4,472,165
4,140 Total SA 'STRIP'(a) 56
------------
4,472,221
-----------------------------------------------------------------------------------------------------------------
Personal Products - 0.3% 11,713 L'Oreal SA 889,182
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.9% 35,951 Sanofi-Aventis 2,873,343
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.2% 880 Gecina SA 87,199
1,537 Klepierre 136,109
1,964 Unibail 309,136
------------
532,444
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 23,385 STMicroelectronics NV 456,130
Equipment - 0.2%
-----------------------------------------------------------------------------------------------------------------
Software - 0.1% 2,821 Business Objects SA(a) 71,244
2,849 Dassault Systemes SA 143,670
------------
214,914
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.2% 189 Hermes International 37,713
9,557 LVMH Moet Hennessy Louis Vuitton SA 732,006
------------
769,719
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 2,314 Autoroutes du Sud de la France 116,376
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 8,764 Bouygues 405,024
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 30,153,801
- -----------------------------------------------------------------------------------------------------------------------------------
Germany - 6.8% Air Freight & Logistics - 0.1% 18,602 Deutsche Post AG 427,312
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 4,571 Deutsche Lufthansa AG 65,549
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.1% 3,882 Continental AG 246,576
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.6% 30,782 DaimlerChrysler AG 1,475,293
6,849 Volkswagen AG 310,472
------------
1,785,765
-----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.0% 4,938 Qiagen NV(a) 54,031
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.5% 17,874 Deutsche Bank AG Registered Shares 1,586,964
3,609 MLP AG 71,572
------------
1,658,536
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Germany Chemicals - 0.7% 18,105 BASF AG $ 1,304,288
(concluded) 21,327 Bayer AG 722,979
3,872 Linde AG 242,414
------------
2,269,681
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 23,084 Bayerische Hypo-und Vereinsbank AG 523,995
15,285 Commerzbank AG(a) 314,966
15,198 Depfa Bank Plc 255,125
------------
1,094,086
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 2,446 HeidelbergCement AG 147,285
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.1% 3,942 Deutsche Boerse AG 237,259
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 99,024 Deutsche Telekom AG 2,241,062
Services - 0.7%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.6% 21,220 E.ON AG 1,934,230
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 2,386 Epcos AG(a) 35,675
Instruments - 0.0%
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 6,372 Metro AG 350,690
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.1% 1,654 Celesio AG 134,532
1,747 Fresenius Medical Care AG 140,601
------------
275,133
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 3,494 TUI AG 82,731
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.7% 27,369 Siemens AG 2,320,617
860 Siemens AG(b) 72,816
------------
2,393,433
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.7% 11,277 Allianz AG Registered Shares 1,496,038
6,120 Muenchener Rueckversicherungs AG
Registered Shares 752,418
------------
2,248,456
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 4,614 MAN AG 177,737
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 13,676 ThyssenKrupp AG 301,143
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 14,063 RWE AG 777,986
Power - 0.3%
-----------------------------------------------------------------------------------------------------------------
Personal Products - 0.0% 572 Beiersdorf AG 66,553
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2% 3,250 Altana AG 205,461
2,378 Merck KGaA 163,619
5,137 Schering AG 384,105
------------
753,185
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 21,933 Infineon Technologies AG(a) 237,903
Equipment - 0.1%
-----------------------------------------------------------------------------------------------------------------
Software - 0.4% 7,588 SAP AG 1,355,258
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.0% 1,160 Douglas Holding AG 40,995
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.1% 1,332 Adidas-Salomon AG 214,999
481 Puma AG Rudolf Dassler Sport 132,264
------------
347,263
-----------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 0.1% 5,764 Hypo Real Estate Holding AG(a) 238,959
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 21,844,472
- -----------------------------------------------------------------------------------------------------------------------------------
Greece - 0.6% Beverages - 0.0% 5,327 Coca Cola Hellenic Bottling Co. SA 130,333
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 5,222 Alpha Bank AE 182,135
8,873 EFG Eurobank Ergasias SA 304,651
1,938 Emporiki Bank of Greece SA 61,536
8,958 National Bank of Greece SA 295,637
3,787 Piraeus Bank SA 66,197
------------
910,156
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 13,744 Intracom SA 74,352
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 9,858 Technical Olympic SA 53,330
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 2,682 Titan Cement Co. SA 79,472
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 6,542 Hellenic Telecommunications Organization SA 117,555
Services - 0.0%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 5,616 Public Power Corp. 157,098
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 6,153 OPAP SA 170,113
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 4,057 Viohalco, Hellenic Copper and Aluminum
Industry SA 36,947
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 6,600 Cosmote Mobile Telecommunications SA 132,054
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Greece 1,861,410
- -----------------------------------------------------------------------------------------------------------------------------------
Hong Kong - 1.3% Airlines - 0.0% 2,263 Cathay Pacific Airways Ltd. 4,280
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 81,400 BOC Hong Kong Holdings Ltd. 155,517
29,739 Bank of East Asia Ltd. 92,400
19,153 Hang Seng Bank Ltd. 266,127
------------
514,044
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 52,719 Li & Fung Ltd. 88,852
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 20,000 Hong Kong Exchanges and Clearing Ltd. 53,521
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 71,195 PCCW Ltd. 45,111
Services - 0.0%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.2% 50,187 CLP Holdings Ltd. 288,620
56,000 HongKong Electric Holdings 255,767
------------
544,387
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 94,328 Johnson Electric Holdings Ltd. 91,625
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 104,240 Hong Kong & China Gas Company Ltd. 215,247
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 24,990 Shangri-La Asia Ltd. 35,848
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 16,560 Techtronic Industries Co. 36,112
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.2% 59,989 Hutchison Whampoa Ltd. 561,478
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 34,025 SCMP Group Ltd. 14,117
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.5% 42,735 Cheung Kong Holdings Ltd. 426,102
12,000 Hang Lung Properties Ltd. 18,526
32,491 Henderson Land Development Co., Ltd. 168,878
47,890 New World Development Ltd. 53,603
48,421 Sino Land Co. 47,657
36,324 Sun Hung Kai Properties Ltd. 363,347
31,577 Swire Pacific Ltd. Class A 264,066
56,107 Wharf Holdings Ltd. 196,342
------------
1,538,521
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 24,500 MTR Corp. 39,243
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 5,004 ASM Pacific Technology 18,026
Equipment - 0.0%
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 22,000 Esprit Holdings Ltd. 133,030
132,394 Giordano International Ltd. 83,037
------------
216,067
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Hong Kong Textiles, Apparel & Luxury Goods - 0.0% 65,353 Texwinca Holdings Ltd. $ 61,799
(concluded) 21,785 Yue Yuen Industrial Holdings 59,979
------------
121,778
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 18,465 Hopewell Holdings 47,394
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 47,000 Hutchison Telecommunications
Services - 0.0% International Ltd.(a) 42,328
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Hong Kong 4,227,979
- -----------------------------------------------------------------------------------------------------------------------------------
Ireland - 0.9% Airlines - 0.1% 27,680 Ryanair Holdings Plc(a) 197,526
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 27,822 Allied Irish Banks Plc 580,492
30,928 Bank of Ireland 512,133
------------
1,092,625
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 17,002 CRH Plc 455,241
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.1% 22,304 Greencore Group Plc 91,556
4,710 Kerry Group Plc 112,996
------------
204,552
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 25,516 Waterford Wedgwood Plc(a) 2,150
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 3,189 DCC Plc 71,522
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 12,684 Irish Life & Permanent Plc 237,922
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 21,817 Independent News & Media Plc 68,799
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1% 15,345 Elan Corp. Plc(a) 408,811
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 2,786 Grafton Group Plc 30,295
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Ireland 2,769,443
- -----------------------------------------------------------------------------------------------------------------------------------
Italy - 4.3% Aerospace & Defense - 0.1% 312,371 Finmeccanica SpA 282,862
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.0% 12,307 Fiat SpA(a) 98,697
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.2% 10,234 Banca Fideuram SpA 52,999
22,588 Mediobanca SpA 365,670
17,230 Mediolanum SpA 123,399
------------
542,068
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.1% 11,662 Banca Antonveneta SpA(a) 307,520
110,210 Banca Intesa SpA 530,302
36,404 Banca Intesa SpA-RNC 156,364
52,096 Banca Monte dei Paschi di Siena SpA 185,880
29,459 Banca Nazionale del Lavoro SpA(a) 87,852
16,065 Banca Popolare di Milano SCRL 142,395
13,238 Banco Popolare di Verona e Novara Scrl 269,186
16,381 Banche Popolari Unite Scrl 332,942
43,545 Capitalia SpA 199,525
27,091 Sanpaolo IMI SpA 390,335
136,509 UniCredito Italiano SpA 784,876
------------
3,387,177
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 5,565 Italcementi SpA 89,613
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 4,347 FinecoGroup SpA 33,573
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 278,521 Telecom Italia SpA 1,139,525
Services - 0.6% 258,085 Telecom Italia SpA-RNC 837,364
------------
1,976,889
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.4% 116,406 Enel SpA 1,144,124
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.0% 21,946 Snam Rete Gas SpA 127,673
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 4,473 Autogrill SpA(a) 74,741
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 119,974 Pirelli & C SpA 161,770
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.5% 23,052 Alleanza Assicurazioni SpA 321,794
29,685 Assicurazioni Generali SpA 1,007,523
11,651 Riunione Adriatica di Sicurta SpA 263,521
------------
1,592,838
-----------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.0% 170,961 Telecom Italia Media SpA(a) 77,359
2,170 Tiscali SpA(a) 8,064
------------
85,423
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 5,198 Arnoldo Mondadori Editore SpA 59,914
13,547 Gruppo Editoriale L'Espresso SpA 81,757
18,663 Mediaset SpA 236,680
171,874 Seat Pagine Gialle SpA 79,150
------------
457,501
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 16,589 Edison SpA(a) 35,379
Power - 0.0%
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0% 5,245 Rinascente SpA(a) 3,565
5,245 Rozzano -
------------
3,565
-----------------------------------------------------------------------------------------------------------------
Oil & Gas - 0.7% 79,504 ENI SpA 1,990,572
1,875 ENI SpA(b) 235,950
------------
2,226,522
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.1% 5,296 Benetton Group SpA 70,100
9,894 Bulgari SpA 122,246
4,858 Luxottica Group SpA 99,016
------------
291,362
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 9,895 Autostrade SpA 264,961
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 119,449 TIM SpA 892,986
Services - 0.3%
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 13,769,724
- -----------------------------------------------------------------------------------------------------------------------------------
Japan - 21.1% Air Freight & Logistics - 0.0% 11,000 Yamato Transport Co., Ltd. 163,170
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 28,000 Japan Airlines Corp. 81,155
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.5% 3,200 Aisin Seiki Co., Ltd. 81,038
21,000 Bridgestone Corp. 418,074
20,600 Denso Corp. 551,840
1,000 NGK Spark Plug Co., Ltd. 10,354
4,000 NOK Corp. 125,305
12,000 Sanden Corp. 74,246
7,000 Stanley Electric Co., Ltd. 119,957
1,000 Toyoda Gosei Co., Ltd. 20,347
8,000 Toyota Industries Corp. 199,863
------------
1,601,024
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Japan Automobiles - 2.1% 27,400 Honda Motor Co., Ltd. $ 1,419,869
(continued) 88,400 Nissan Motor Co., Ltd. 961,038
100,700 Toyota Motor Corp. 4,097,970
9,000 Yamaha Motor Co., Ltd. 135,083
------------
6,613,960
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.2% 9,000 Asahi Breweries Ltd. 111,457
25,000 Kirin Brewery Co., Ltd. 246,170
27,000 Sapporo Holdings Ltd. 127,794
13,000 Takara Holdings Inc. 84,620
------------
570,041
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.3% 21,000 Asahi Glass Co., Ltd. 231,580
2,000 Central Glass Co., Ltd. 14,170
5,000 Daikin Industries Ltd. 144,433
11,000 JS Group Corp. 199,776
24,000 Nippon Sheet Glass Co., Ltd. 99,307
9,000 Toto Ltd. 85,898
------------
775,164
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.5% 35,000 Daiwa Securities Group Inc. 252,757
1,100 Jafco Co., Ltd. 74,715
44,000 Nikko Cordial Corp. 233,161
65,000 Nomura Holdings Inc. 947,692
------------
1,508,325
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.9% 53,000 Asahi Kasei Corp. 265,336
3,000 Daicel Chemical Industries Ltd. 16,981
30,000 Dainippon Ink and Chemicals Inc. 69,093
3,000 Denki Kagaku Kogyo Kabushiki Kaisha 9,983
2,500 Hitachi Chemical Co., Ltd. 44,745
11,000 Ishihara Sangyo Kaisha Ltd. 25,227
4,000 JSR Corp. 87,635
13,000 Kaneka Corp. 147,165
18,000 Kuraray Co., Ltd. 161,433
42,000 Mitsubishi Chemical Corp. 127,881
18,000 Mitsubishi Gas Chemical Co., Inc. 84,844
1,000 Mitsubishi Rayon Co., Ltd. 3,640
13,000 Mitsui Chemicals Inc. 70,791
12,000 Nissan Chemical Industries Ltd. 94,506
5,110 Nitto Denko Corp. 280,260
11,600 Shin-Etsu Chemical Co., Ltd. 475,456
18,000 Showa Denko KK 46,375
14,000 Sumitomo Bakelite Co., Ltd. 88,397
54,000 Sumitomo Chemical Co., Ltd. 264,546
38,000 Teijin Ltd. 165,024
49,000 Toray Industries Inc. 229,531
6,000 Tosoh Corp. 26,993
57,000 Ube Industries Ltd. 96,233
------------
2,882,075
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 2.1% 12,000 The 77 Bank Ltd. 84,434
31,000 The Bank of Fukuoka Ltd. 204,206
31,000 The Bank of Yokohama Ltd.(a) 195,433
31,000 The Chiba Bank Ltd. 207,231
13,000 The Gunma Bank Ltd. 75,486
17,000 Hokuhoku Financial Group Inc. 46,453
23,000 The Joyo Bank Ltd. 112,228
156 Mitsubishi Tokyo Financial Group Inc. 1,583,293
23,000 Mitsui Trust Holdings Inc. 229,843
272 Mizuho Financial Group Inc. 1,369,689
141,000 Resona Holdings Inc.(a) 286,211
10,000 Shinsei Bank Ltd. 68,118
26,000 The Shizuoka Bank Ltd. 246,375
139 Sumitomo Mitsui Financial Group Inc. 1,010,588
35,000 The Sumitomo Trust & Banking Co., Ltd. 253,098
4,000 Suruga Bank Ltd. 31,931
130 UFJ Holdings Inc. 787,840
------------
6,792,457
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.3% 2,000 Benesse Corp. 70,069
26,000 Dai Nippon Printing Co., Ltd. 417,137
5,000 Kokuyo Co., Ltd. 60,359
500 Meitec Corp. 18,640
117 Rakuten Inc.-When Issued(a) 105,045
6,000 Secom Co., Ltd. 240,070
15,000 Toppan Printing Co., Ltd. 166,439
------------
1,077,759
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.4% 69,000 Fujitsu Ltd. 449,136
52,000 NEC Corp. 323,256
4,300 Seiko Epson Corp. 191,354
93,000 Toshiba Corp. 399,336
------------
1,363,082
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.2% 9,457 COMSYS Holdings Corp. 87,584
3,000 JGC Corp. 27,432
46,000 Kajima Corp. 197,970
9,000 Kinden Corp. 67,278
14,000 Nishimatsu Construction Co., Ltd. 48,775
25,000 Obayashi Corp. 157,607
16,000 Shimizu Corp. 80,258
15,000 Taisei Corp. 58,407
3,000 Toda Corp. 14,638
------------
739,949
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Japan Construction Materials - 0.1% 34,000 Sumitomo Osaka Cement Co., Ltd. $ 83,283
(continued) 47,000 Taiheiyo Cement Corp. 116,961
------------
200,244
-----------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.4% 3,100 Acom Co., Ltd. 232,039
500 Aeon Credit Service Co., Ltd. 37,230
1,850 Aiful Corp. 203,469
3,300 Credit Saison Co., Ltd. 120,123
2,700 ORIX Corp. 366,781
3,550 Promise Co., Ltd. 253,596
2,820 Takefuji Corp. 190,715
------------
1,403,953
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 5,000 Toyo Seikan Kaisha Ltd. 92,222
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 166 Nippon Telegraph & Telephone Corp. 745,194
Services - 0.2%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.0% 25,100 Chubu Electric Power Co., Inc. 602,576
9,900 Electric Power Development Co. 277,281
6,000 Hokkaido Electric Power Co. Inc. 117,986
28,200 The Kansai Electric Power Co., Inc. 572,421
16,400 Kyushu Electric Power Co., Inc. 331,297
17,600 Tohoku Electric Power Co. Inc. 316,034
39,700 The Tokyo Electric Power Co. Inc. 974,388
------------
3,191,983
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.3% 21,000 Fujikura Ltd. 96,731
30,000 Furukawa Electric Co., Ltd.(a) 166,293
13,873 Matsushita Electric Works Ltd. 120,900
68,000 Mitsubishi Electric Corp. 333,132
29,000 Sumitomo Electric Industries Ltd. 315,556
3,000 Ushio Inc. 56,065
------------
1,088,677
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 3,000 Alps Electric Co., Ltd. 44,706
Instruments - 1.2%
4,000 Citizen Watch Co., Ltd. 38,450
15,000 Dainippon Screen Manufacturing Co., Ltd. 92,076
1,500 Hirose Electric Co., Ltd. 175,368
119,000 Hitachi Ltd. 824,534
3,400 Hoya Corp. 383,898
900 Keyence Corp. 201,659
6,100 Kyocera Corp. 469,689
1,200 Mabuchi Motor Co., Ltd. 86,542
8,400 Murata Manufacturing Co., Ltd. 469,718
1,900 Nidec Corp. 231,590
33,000 Oki Electric Industry Co., Ltd.(a) 142,022
10,000 Omron Corp. 238,606
3,800 TDK Corp. 281,468
3,000 Yokogawa Electric Corp. 40,109
------------
3,720,435
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.5% 18,000 Aeon Co., Ltd. 300,381
3,900 FamilyMart Co., Ltd. 113,609
11,000 Ito-Yokado Co., Ltd. 461,599
2,400 Lawson Inc. 88,533
3,200 Matsumotokiyoshi Co., Ltd. 91,188
14,000 Seven-Eleven Japan Co., Ltd. 441,300
4,000 UNY Co., Ltd. 45,711
------------
1,542,321
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.2% 17,000 Ajinomoto Co. Inc. 202,401
3,000 Kikkoman Corp. 28,603
1,000 Nichirei Corp. 3,982
2,000 Nippon Meat Packers Inc. 27,110
11,000 Nisshin Seifun Group Inc. 121,948
5,300 Nissin Food Products Co., Ltd. 132,927
18,000 Snow Brand Milk Products Co., Ltd.(a) 55,333
3,000 Yakult Honsha Co., Ltd. 53,401
7,000 Yamazaki Baking Co., Ltd. 65,170
------------
690,875
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.2% 86,000 Osaka Gas Co., Ltd. 268,566
78,000 Tokyo Gas Co., Ltd. 319,703
------------
588,269
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 6,000 Olympus Corp. 127,940
4,100 Terumo Corp. 110,432
------------
238,372
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 200 Nichii Gakkan Co. 6,480
1,000 Suzuken Co., Ltd. 26,837
------------
33,317
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 1,900 Oriental Land Co., Ltd. 132,019
2,000 Skylark Co., Ltd. 34,391
------------
166,410
-----------------------------------------------------------------------------------------------------------------
Household Durables - 1.2% 2,000 Casio Computer Co., Ltd. 30,858
2,000 Daito Trust Construction Co., Ltd. 95,052
13,000 Daiwa House Industry Co., Ltd. 147,799
1,000 Makita Corp. 17,488
80,000 Matsushita Electric Industrial Co., Ltd. 1,269,445
3,800 Pioneer Corp. 74,168
41,000 Sanyo Electric Co., Ltd. 141,641
20,000 Sekisui Chemical Co., Ltd. 146,189
12,000 Sekisui House Ltd. 139,826
31,000 Sharp Corp. 506,129
33,500 Sony Corp. 1,294,623
------------
3,863,218
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Japan Household Products - 0.2% 17,000 Kao Corp. $ 434,664
(continued) 2,400 Uni-Charm Corp. 115,000
------------
549,664
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.2% 3,100 CSK Corp. 140,373
400 Itochu Techno-Science Corp. 16,005
8 NET One Systems Co., Ltd. 33,337
57 NTT Data Corp. 184,122
1,500 Nomura Research Institute Ltd. 140,529
100 Obic Co., Ltd. 19,859
400 TIS Inc. 17,527
------------
551,752
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.5% 50 Millea Holdings Inc. 741,680
41,000 Mitsui Sumitomo Insurance Co., Ltd. 356,104
29,000 Sompo Japan Insurance Inc. 295,462
7,250 T&D Holdings Inc. 346,687
------------
1,739,933
-----------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.0% 13 Rakuten Inc. 14,843
-----------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.2% 7,300 Softbank Corp. 355,489
62 Yahoo! Japan Corp.(a) 297,687
------------
653,176
-----------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.3% 2,100 Bandai Co., Ltd. 47,751
15,000 Fuji Photo Film Co., Ltd. 547,477
1,400 Sankyo Co., Ltd. 70,772
2,784 Sega Sammy Holdings Inc. 152,961
3,500 Shimano Inc. 99,907
6,600 Yamaha Corp. 100,736
------------
1,019,604
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.7% 20,000 Amada Co., Ltd. 110,471
22,000 Ebara Corp. 101,552
4,100 Fanuc Ltd. 268,078
5,000 Hino Motors Ltd. 37,133
13,000 Ishikawajima-Harima Heavy Industries
Co., Ltd.(a) 17,888
26,000 Kawasaki Heavy Industries Ltd. 42,627
39,000 Komatsu Ltd. 272,890
8,000 Koyo Seiko Co., Ltd. 112,579
47,000 Kubota Corp. 233,005
3,000 Kurita Water Industries Ltd. 43,154
25,000 Minebea Co., Ltd. 109,056
88,000 Mitsubishi Heavy Industries Ltd. 249,907
50,000 Mitsui Engineering & Shipbuilding Co., Ltd. 85,391
3,000 NGK Insulators Ltd. 28,691
14,000 NSK Ltd. 70,362
15,000 NTN Corp. 86,074
1,400 SMC Corp. 160,262
32,000 Sumitomo Heavy Industries Ltd.(a) 118,981
3,700 THK Co., Ltd. 73,300
9,000 Takuma Co., Ltd. 70,879
------------
2,292,280
-----------------------------------------------------------------------------------------------------------------
Marine - 0.1% 11,000 Kawasaki Kisen Kaisha Ltd. 70,743
25,000 Mitsui OSK Lines Ltd. 150,044
37,000 Nippon Yusen Kabushiki Kaisha 199,317
------------
420,104
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 600 Asatsu-DK Inc. 16,893
33 Dentsu Inc. 88,885
26 Fuji Television Network Inc. 56,329
5,000 Toho Co., Ltd. 78,999
4,000 Tokyo Broadcasting System Inc. 65,229
------------
306,335
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.5% 7,000 Dowa Mining Co., Ltd. 45,565
17,900 JFE Holdings Inc. 510,954
54,000 Kobe Steel Ltd. 82,736
10,000 Mitsubishi Materials Corp. 20,982
22,000 Mitsui Mining & Smelting Co., Ltd. 97,043
202,000 Nippon Steel Corp. 494,798
40,000 Nisshin Steel Co., Ltd. 92,125
99,000 Sumitomo Metal Industries Ltd. 134,293
13,000 Sumitomo Metal Mining Co., Ltd. 92,866
------------
1,571,362
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.1% 9,000 Daimaru Inc. 73,690
6,000 Hankyu Department Stores 43,505
1,000 Isetan Co., Ltd. 11,662
7,000 Marui Co., Ltd. 93,725
16,000 Mitsukoshi Ltd. 77,759
1,800 Ryohin Keikaku Co., Ltd. 90,466
4,000 Takashimaya Co., Ltd. 38,489
------------
429,296
-----------------------------------------------------------------------------------------------------------------
Office Electronics - 0.7% 30,000 Canon Inc. 1,619,010
12,000 Konica Minolta Holdings Inc. 159,266
26,000 Ricoh Co., Ltd. 501,630
------------
2,279,906
-----------------------------------------------------------------------------------------------------------------
Oil & Gas - 0.2% 21,000 Nippon Mining Holdings Inc. 98,780
39,000 Nippon Oil Corp. 250,054
6,000 Showa Shell Sekiyu KK 54,631
17,000 Teikoku Oil Co., Ltd. 94,564
10,000 TonenGeneral Sekiyu KK 91,051
------------
589,080
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Japan Paper & Forest Products - 0.1% 39 Nippon Paper Group Inc. $ 175,076
(concluded) 20,000 OJI Paper Co., Ltd. 114,765
------------
289,841
-----------------------------------------------------------------------------------------------------------------
Personal Products - 0.1% 1,700 Aderans Co., Ltd. 39,319
10,000 Shiseido Co., Ltd. 144,823
------------
184,142
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.2% 13,000 Chugai Pharmaceutical Co., Ltd. 214,912
11,100 Daiichi Pharmaceutical Co., Ltd. 239,939
10,000 Eisai Co., Ltd. 328,877
8,000 Fujisawa Pharmaceutical Co., Ltd. 218,991
11,000 Kaken Pharmaceutical Co., Ltd. 72,460
11,000 Kyowa Hakko Kogyo Co., Ltd. 82,658
11,300 Sankyo Co., Ltd. 255,289
14,000 Shionogi & Co., Ltd. 193,598
7,000 Taisho Pharmaceutical Co., Ltd. 152,337
31,000 Takeda Pharmaceutical Co., Ltd. 1,561,042
10,000 Yamanouchi Pharmaceutical Co., Ltd. 389,382
------------
3,709,485
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.4% 14 Japan Real Estate Investment Corp. 118,044
13 Japan Retail Fund Investment Corp. 109,739
2,300 Leopalace21 Corp. 40,492
30,000 Mitsubishi Estate Co., Ltd. 351,322
21,000 Mitsui Fudosan Co., Ltd. 255,148
16 Nippon Building Fund Inc. 136,469
10,000 Sumitomo Realty & Development Co., Ltd. 130,380
26,000 Tokyu Land Corp. 108,598
------------
1,250,192
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.7% 41 Central Japan Railway Co. 334,898
114 East Japan Railway Co. 634,137
15,000 Keihin Electric Express Railway Co., Ltd. 92,369
19,000 Keio Electric Railway Co., Ltd. 111,437
72,000 Kintetsu Corp. 248,736
37,000 Nippon Express Co., Ltd. 182,346
25,000 Odakyu Electric Railway Co., Ltd. 144,920
42,000 Tobu Railway Co., Ltd. 159,852
41,000 Tokyu Corp. 221,665
49 West Japan Railway Co. 197,970
------------
2,328,330
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 1,800 Advantest Corp. 154,406
Equipment - 0.3%
1,200 NEC Electronics Corp. 58,554
6,000 Nikon Corp. 74,129
3,400 Rohm Co., Ltd. 351,713
8,000 Sanken Electric Co., Ltd. 104,694
5,600 Tokyo Electron Ltd. 344,842
------------
1,088,338
-----------------------------------------------------------------------------------------------------------------
Software - 0.3% 5,700 Capcom Co., Ltd. 54,180
3,600 Konami Corp. 83,439
9,000 Namco Ltd. 118,132
3,100 Nintendo Co., Ltd. 389,353
900 Oracle Corp. Japan 46,638
4,000 Trend Micro Inc. 215,868
------------
907,610
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2% 2,800 Aoyama Trading Co., Ltd. 76,237
1,300 Autobacs Seven Co., Ltd. 37,996
2,400 Fast Retailing Co., Ltd. 182,688
600 Shimachu Co., Ltd. 14,843
600 Shimamura Co., Ltd. 43,798
700 USS Co., Ltd. 58,749
4,200 Yamada Denki Co., Ltd. 179,936
------------
594,247
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.1% 1,000 Nisshinbo Industries Inc. 7,485
8,000 Onward Kashiyama Co., Ltd. 116,405
2,000 Toyobo Co., Ltd. 4,821
5,000 Wacoal Corp. 59,969
1,600 World Co., Ltd. 56,212
------------
244,892
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 27 Japan Tobacco Inc. 308,285
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.5% 53,000 Itochu Corp. 245,164
31,000 Marubeni Corp. 85,918
38,000 Mitsubishi Corp. 490,992
39,000 Mitsui & Co., Ltd. 349,771
100 Sojitz Holdings Corp.(a) 433
38,000 Sumitomo Corp. 327,823
------------
1,500,101
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 2,000 Kamigumi Co., Ltd. 15,966
8,000 Mitsubishi Logistics Corp. 78,852
------------
94,818
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 683 NTT DoCoMo Inc. 1,259,754
Services - 0.4%
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Japan 67,911,021
- -----------------------------------------------------------------------------------------------------------------------------------
Netherlands - Air Freight & Logistics - 0.1% 14,776 TPG NV 401,284
4.8% -----------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 10,499 Heineken NV 350,062
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 11,211 Akzo Nobel NV 478,186
1,968 DSM NV 127,384
------------
605,570
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 52,985 ABN AMRO Holding NV 1,403,667
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 1,086 Randstad Holdings NV 42,734
7,896 Vedior NV 128,684
------------
171,418
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Netherlands Diversified Financial Services - 0.6% 3,935 Euronext NV $ 120,184
(concluded) 63,707 ING Groep NV CVA 1,927,576
------------
2,047,760
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 76,315 Royal KPN NV 725,081
Services - 0.2%
-----------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.0% 228 IHC Caland NV 14,485
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 48,361 Koninklijke Ahold NV 374,688
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.5% 6,433 Royal Numico NV 231,980
19,510 Unilever NV 1,308,180
------------
1,540,160
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.4% 47,294 Koninklijke Philips Electronics NV(a) 1,254,188
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 14,185 Getronics NV(a) 32,392
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.2% 48,831 Aegon NV 665,726
-----------------------------------------------------------------------------------------------------------------
Media - 0.3% 27,301 Reed Elsevier NV 372,202
10,501 VNU NV 310,163
8,647 Wolters Kluwer NV 173,598
------------
855,963
-----------------------------------------------------------------------------------------------------------------
Office Electronics - 0.0% 194 OCE NV 2,969
-----------------------------------------------------------------------------------------------------------------
Oil & Gas - 1.4% 75,688 Royal Dutch Petroleum Co. 4,356,921
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.1% 1,655 Corio NV 96,956
1,648 Rodamco Europe NV 130,819
332 Wereldhave NV 36,102
------------
263,877
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 16,636 ASML Holding NV(a) 267,053
Equipment - 0.1%
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 30,280 Hagemeyer NV(a) 69,969
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the Netherlands 15,403,233
- -----------------------------------------------------------------------------------------------------------------------------------
New Zealand - Construction Materials - 0.0% 20,926 Fletcher Building Ltd. 100,060
0.2% -----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 54,856 Telecom Corp. of New Zealand Ltd. 243,678
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 22,289 Contact Energy Ltd. 103,036
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 45,575 Fisher & Paykel Healthcare Corp. 106,657
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 30,232 Fisher & Paykel Appliances Holdings Ltd. 93,897
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 11,556 Tower Ltd.(a) 17,862
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0% 16,257 Warehouse Group Ltd. 42,625
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 5,644 Carter Holt Harvey Ltd. 8,439
253 Tenon Ltd. 402
------------
8,841
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 16,200 Auckland International Airport Ltd. 93,376
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in New Zealand 810,032
- -----------------------------------------------------------------------------------------------------------------------------------
Norway - 0.5% Airlines - 0.0% 2,392 SAS AB(a) 22,413
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 8,336 Yara International ASA(a) 109,763
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1% 19,915 DNB NOR ASA 196,465
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 9,463 Tandberg ASA 117,572
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 913 Telenor ASA 8,291
Services - 0.1% 8,900 Telenor ASA(b) 245,551
------------
253,842
-----------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.0% 3,691 Smedvig ASA Class A 62,008
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.1% 8,570 Orkla ASA 281,580
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 8,611 Storebrand ASA 83,172
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 2,598 Tomra Systems ASA 14,284
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 3,568 Schibsted ASA 101,326
-----------------------------------------------------------------------------------------------------------------
Oil & Gas - 0.2% 791 Frontline Ltd. 35,197
5,039 Norsk Hydro ASA 396,854
23,291 Statoil ASA 365,325
------------
797,376
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 3,089 Norske Skogindustrier ASA 66,812
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Norway 2,106,613
- -----------------------------------------------------------------------------------------------------------------------------------
Portugal - 0.4% Commercial Banks - 0.2% 25,668 Banco BPI SA 103,970
76,415 Banco Comercial Portugues SA Registered Shares 196,309
6,793 Banco Espirito Santo SA Registered Shares 122,804
------------
423,083
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 15,305 Cimpor Cimentos de Portugal SA 86,334
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 24,684 Portugal Telecom SGPS SA Registered Shares 305,321
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 57,220 Energias de Portugal SA 173,441
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 4,098 Jeronimo Martins(a) 54,031
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 38,364 Sonae SGPS SA 55,796
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 2,349 PT Multimedia Servicos de Telecomunicacoes e
Multimedia SGPS SA 59,036
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 7,477 Brisa-Auto Estradas de Portugal SA
Private Shares 68,601
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Portugal 1,225,643
- -----------------------------------------------------------------------------------------------------------------------------------
Singapore - 0.9% Aerospace & Defense - 0.0% 56,213 Singapore Technologies Engineering Ltd. 80,235
-----------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 0.0% 138,954 Singapore Post Ltd. 75,759
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.1% 17,582 Singapore Airlines Ltd. 122,785
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.0% 3,836 Fraser and Neave Ltd. 38,304
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 34,751 DBS Group Holdings Ltd. 342,741
36,598 Oversea-Chinese Banking Corp. 302,667
40,572 United Overseas Bank Ltd. 342,988
------------
988,396
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0% 5,907 Creative Technology Ltd. 88,294
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 3,331 Jardine Cycle & Carriage Ltd. 21,630
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 82,000 Singapore Exchange Ltd. 89,917
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 266,803 Singapore Telecommunications Ltd. 387,358
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 5,000 Venture Corp. Ltd. 48,701
Instruments - 0.0%
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 83,000 Parkway Holdings Ltd. 76,268
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 2,631 Overseas Union Enterprise Ltd. 12,572
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 1,766 Haw Par Corp. Ltd. 5,571
25,914 Keppel Corp. Ltd. 136,523
24,154 SembCorp Industries Ltd. 23,971
------------
166,065
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 107,427 SembCorp Marine Ltd. 89,501
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Singapore Media - 0.1% 36,116 Singapore Press Holdings Ltd. $ 101,773
(concluded) -----------------------------------------------------------------------------------------------------------------
Real Estate - 0.1% 33,833 CapitaLand Ltd. 44,146
29,535 City Developments Ltd. 128,460
------------
172,606
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.1% 104,816 ComfortDelgro Corp. Ltd. 99,525
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 89,002 Chartered Semiconductor Manufacturing Ltd.(a) 53,432
Equipment - 0.0% 1,120 Chartered Semiconductor Manufacturing
Ltd.(a)(b) 6,765
------------
60,197
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 43,000 SembCorp Logistics Ltd. 45,571
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Singapore 2,765,457
- -----------------------------------------------------------------------------------------------------------------------------------
South Africa - Beverages - 0.1% 28,939 SABMiller Plc 480,039
0.5% -----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.4% 50,000 Anglo American Plc 1,182,659
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in South Africa 1,662,698
- -----------------------------------------------------------------------------------------------------------------------------------
Spain - 3.6% Airlines - 0.0% 31,929 Iberia Lineas Aereas de Espana 110,669
-----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.0% 6,228 Zeltia SA 43,597
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.4% 97,327 Banco Bilbao Vizcaya Argentaria SA 1,726,407
4,521 Banco Popular Espanol SA 298,041
186,457 Banco Santander Central Hispano SA 2,313,922
------------
4,338,370
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.2% 6,197 ACS Actividades de Construccion y
Servicios, SA 141,511
446 Acciona SA 39,465
2,428 Fomento de Construcciones y Contratas SA 116,928
3,360 Grupo Ferrovial SA 179,578
5,086 Sacyr Vallehermoso SA 83,995
------------
561,477
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 138,369 Telefonica SA 2,606,761
Services - 0.8% 1,081 Telefonica SA(b) 61,076
------------
2,667,837
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.4% 27,059 Endesa SA 635,925
21,139 Iberdrola SA 537,310
8,894 Union Fenosa SA 233,925
------------
1,407,160
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 738 Gamesa Corp. Tecnologica SA 10,332
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 7,543 Gas Natural SDG SA 233,354
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 7,812 NH Hoteles SA 103,636
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 6,012 Amadeus Global Travel Distribution SA Class A 61,861
8,650 Indra Sistemas SA 147,792
------------
209,653
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 8,309 Corp Mapfre SA 122,427
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 1,688 Antena 3 de Television SA(a) 121,948
628 Sogecable SA(a) 27,879
------------
149,827
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 10,980 Acerinox SA 176,259
-----------------------------------------------------------------------------------------------------------------
Oil & Gas - 0.2% 25,356 Repsol YPF SA 660,352
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.0% 1,764 Metrovacesa SA 82,002
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 7,341 Inditex SA 216,528
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 8,337 Altadis SA 381,891
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 5,353 Abertis Infraestructuras SA 117,872
6,800 Cintra Concesiones de Infraestructuras de
Transporte SA(a) 74,683
------------
192,555
-----------------------------------------------------------------------------------------------------------------
Water Utilities - 0.0% 3,530 Sociedad General de Aguas de Barcelona SA
Class A 73,796
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 11,741,722
- -----------------------------------------------------------------------------------------------------------------------------------
Sweden - 2.4% Airlines - 0.0% 1,680 SAS AB(a) 15,503
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.0% 6,944 Trelleborg AB Class B 118,077
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.1% 12,596 Assa Abloy AB Class B 215,133
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.5% 69,576 Nordea Bank AB 701,477
20,039 Skandinaviska Enskilda Banken AB Class A 387,488
16,874 Svenska Handelsbanken Class A 439,282
------------
1,528,247
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 14,465 Securitas AB 248,143
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.5% 527,005 Telefonaktiebolaget LM Ericsson(a) 1,681,239
1,407 Telefonaktiebolaget LM Ericsson(a)(b) 44,306
------------
1,725,545
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.1% 17,922 Skanska AB Class B 215,078
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 1 Ainax AB 40
1,010 OMX AB(a) 12,919
------------
12,959
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 2,337 Tele2 AB Class B 91,786
Services - 0.1% 30,146 TeliaSonera AB 180,548
------------
272,334
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 2,151 Getinge AB Class B 26,785
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 4,167 Gambro AB Class A 59,413
3,981 Gambro AB Class B 55,862
------------
115,275
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.1% 11,716 Electrolux AB Class B 267,980
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 4,275 WM-data AB Class B 9,264
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 26,296 Skandia Forsakrings AB 130,977
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.4% 5,967 Alfa Laval AB 96,526
4,654 Atlas Copco AB Class A 210,100
2,672 Atlas Copco AB Class B 111,578
1,881 SKF AB Class B 83,784
6,203 Sandvik AB 250,159
3,295 Scania AB Class B 130,404
3,880 Volvo AB Class A 148,009
9,547 Volvo AB Class B 378,553
------------
1,409,113
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Sweden Media - 0.1% 5,496 Eniro AB $ 56,239
(concluded) 2,810 Modern Times Group AB Class B(a) 76,536
------------
132,775
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.1% 277 Billerud AB 4,939
945 Holmen AB Class B 32,707
8,530 Svenska Cellulosa AB Class B 363,899
------------
401,545
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2% 18,171 Hennes & Mauritz AB Class B 633,007
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 17,627 Swedish Match AB 204,243
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Sweden 7,681,983
- -----------------------------------------------------------------------------------------------------------------------------------
Switzerland - Biotechnology - 0.1% 294 Serono SA 193,656
6.9% -----------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 90 Geberit AG Registered Shares 65,852
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 1.5% 41,795 Credit Suisse Group(a) 1,756,926
37,744 UBS AG Registered Shares 3,164,973
------------
4,921,899
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.3% 3,446 Ciba Specialty Chemicals AG Registered Shares 262,140
10,389 Clariant AG 167,653
198 Givaudan 130,421
2,482 Lonza Group AG Registered Shares 139,696
3,542 Syngenta AG 376,285
------------
1,076,195
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 3,995 Adecco SA Registered Shares 201,138
218 SGS SA 152,702
------------
353,840
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.1% 2,235 Logitech International SA Registered Shares(a) 136,604
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 6,780 Holcim Ltd. 408,434
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 1,047 Swisscom AG 412,502
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1% 63,423 ABB Ltd.(a) 354,178
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 2,650 Kudelski SA(a) 97,414
Instruments - 0.0%
-----------------------------------------------------------------------------------------------------------------
Food Products - 1.2% 14,464 Nestle SA Registered Shares 3,784,223
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.2% 850 Nobel Biocare Holding AG 153,988
2,889 Phonak Holding AG Registered Shares 95,275
207 Straumann Holding AG Registered Shares 42,962
2,128 Synthes Inc.(a) 238,607
------------
530,832
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 35 Kuoni Reisen Holding AG Registered Shares 15,390
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.5% 10,717 Swiss Reinsurance Registered Shares 764,356
4,837 Zurich Financial Services AG 806,521
------------
1,570,877
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 40 Schindler Holding AG Participation
Certificates 15,865
282 Sulzer AG 112,158
128,023
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 2.2% 84,608 Novartis AG Registered Shares 4,263,511
24,793 Roche Holding AG 2,854,106
------------
7,117,617
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 1,719 Micronas Semiconductor Holding AG Registered
Equipment - 0.0% Shares(a) 84,280
10 Unaxis Holding AG 994
------------
85,274
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.3% 18,752 Compagnie Financiere Richemont AG 624,187
1,575 Swatch Group AG Class B 231,174
2,276 Swatch Group AG Registered Shares 67,654
------------
923,015
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Switzerland 22,175,825
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom - Aerospace & Defense - 0.3% 109,911 BAE Systems Plc 486,397
24.7% 3,528 Cobham Plc 83,787
5,374 Meggitt Plc 27,006
55,241 Rolls-Royce Group Plc 261,962
1,756,664 Rolls-Royce Group Plc Class B 3,440
------------
862,592
-----------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 0.1% 11,029 Exel Plc 153,092
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 18,233 British Airways Plc(a) 82,263
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.0% 26,018 GKN Plc 118,136
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.0% 1,025 TI Automotive Ltd. A(a) -
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.6% 109,812 Diageo Plc 1,566,454
29,507 Scottish & Newcastle Plc 246,855
------------
1,813,309
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.1% 19,884 BPB Plc 180,665
53,235 Pilkington Plc 112,426
293,091
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.3% 27,983 3i Group Plc 357,806
26,671 Amvescap Plc 164,242
2,797 Close Brothers Group Plc 39,442
12,596 ICAP Plc 65,718
10,234 Man Group Plc 289,223
4,105 Schroders Plc 59,188
------------
975,619
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 18,411 BOC Group Plc 351,175
44,050 Imperial Chemical Industries Plc 203,818
8,117 Johnson Matthey Plc 153,968
------------
708,961
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 5.3% 231,125 Barclays Plc 2,600,300
139,659 HBOS Plc 2,273,756
395,750 HSBC Holdings Plc 6,678,652
190,856 Lloyds TSB Group Plc 1,733,189
2,530 Lloyds TSB Group Plc(b) 93,079
112,438 Royal Bank of Scotland Group Plc 3,782,041
------------
17,161,017
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom Commercial Services & Supplies - 0.3% 29,155 Brambles Industries Plc $ 145,674
(continued) 16,587 Bunzl Plc 138,368
24,611 Capita Group Plc 172,819
3,209 DX Services Plc(a) 22,549
26,991 Group 4 Securicor Plc(a) 72,548
64,193 Hays Plc 153,131
1,493 Intertek Group Plc 20,208
67,222 Rentokil Initial Plc 190,686
2,405 Serco Group Plc 11,082
------------
927,065
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 5,298 Marconi Corp. Plc(a) 57,215
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.1% 12,050 Amec Plc 68,884
24,840 Balfour Beatty Plc 150,344
------------
219,228
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 27,258 Hanson Plc 234,058
9,436 RMC Group Plc 153,806
------------
387,864
-----------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.1% 7,713 Cattles Plc 54,346
14,009 Provident Financial Plc 180,740
------------
235,086
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.1% 20,343 Rexam Plc 179,465
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 1,845 Inchcape Plc 69,250
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 5,899 London Stock Exchange Plc 65,914
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 299,121 BT Group Plc 1,165,794
Services - 0.5% 900 BT Group Plc (b) 35,577
88,222 Cable & Wireless Plc 201,983
------------
1,403,354
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.3% 30,800 Scottish & Southern Energy Plc 515,935
62,819 Scottish Power Plc 486,345
993 Scottish Power Plc(b) 30,942
------------
1,033,222
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 21,146 Kidde Plc 67,596
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 18,858 Electrocomponents Plc 103,095
Instruments - 0.0% 4,902 Premier Farnell Plc 16,093
------------
119,188
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.7% 28,340 Boots Group Plc 356,658
37,427 J Sainsbury Plc 194,371
277,338 Tesco Plc 1,713,196
------------
2,264,225
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.6% 76,752 Cadbury Schweppes Plc 714,678
16,627 Tate & Lyle Plc 150,912
101,803 Unilever Plc 999,736
------------
1,865,326
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.2% 138,266 Centrica Plc 627,142
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 3,902 SSL International Plc 23,598
34,543 Smith & Nephew Plc 353,481
------------
377,079
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 6,950 Alliance Unichem Plc 100,675
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.7% 6,155 Carnival Plc 375,544
79,660 Compass Group Plc 376,613
13,810 Enterprise Inns Plc 210,785
58,530 Hilton Group Plc 319,698
23,682 Intercontinental Hotels Group Plc 294,401
30,006 Mitchells & Butlers Plc 195,869
6,594 Punch Taverns Plc 87,416
21,215 Rank Group Plc 107,529
11,009 Whitbread Plc 178,918
15,467 William Hill Plc 167,480
------------
2,314,253
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.2% 9,646 Barratt Developments Plc 110,098
788 Bellway Plc 12,330
2,907 Berkeley Group Holdings Plc 45,151
10,998 Persimmon Plc 145,905
23,279 Taylor Woodrow Plc 121,566
20,870 Wimpey George Plc 162,076
------------
597,126
-----------------------------------------------------------------------------------------------------------------
Household Products - 0.2% 21,643 Reckitt Benckiser Plc 654,035
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 30,199 LogicaCMG Plc 111,755
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.2% 20,750 Smiths Group Plc 327,468
34,739 Tomkins Plc 169,573
------------
497,041
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.8% 83,550 Aviva Plc 1,007,361
70,102 Friends Provident Plc 207,267
233,606 Legal & General Group Plc 493,351
84,770 Prudential Plc 737,258
106,903 Royal & Sun Alliance Insurance Group 159,063
------------
2,604,300
-----------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.2% 36,424 GUS Plc 656,298
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 9,108 FKI Plc 20,372
11,268 IMI Plc 85,182
206,804 Invensys Plc(a) 61,542
------------
167,096
-----------------------------------------------------------------------------------------------------------------
Media - 1.1% 57,937 Aegis Group Plc 120,132
44,353 British Sky Broadcasting Plc 478,562
11,034 Daily Mail & General Trust 157,187
27,950 EMI Group Plc 142,202
Master International Index Series
Schedule of Investments as of December 31, 2004 (continued) (in U.S. dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Country Industry* Shares Held Common Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom Media (concluded) 9,612 Emap Plc $ 150,493
(concluded) 154,067 ITV Plc 311,323
29,694 Pearson Plc 358,305
45,682 Reed Elsevier Plc 421,422
53,018 Reuters Group Plc 384,255
11,407 Trinity Mirror Plc 139,286
11,903 United Business Media Plc 109,692
41,546 WPP Group Plc 457,049
25,811 Yell Group Plc 218,040
------------
3,447,948
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.8% 91,274 BHP Billiton Plc 1,069,822
194,761 Corus Group Plc(a) 188,831
38,605 Rio Tinto Plc Registered Shares 1,136,226
------------
2,394,879
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 52,187 International Power Plc(a) 154,800
Power - 0.5% 110,593 National Grid Transco Plc 1,053,145
20,598 United Utilities Plc 249,141
8,249 United Utilities Plc Class A 70,872
------------
1,527,958
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.2% 58,300 Marks & Spencer Group Plc 383,921
9,680 Next Plc 306,647
------------
690,568
-----------------------------------------------------------------------------------------------------------------
Oil & Gas - 3.6% 130,742 BG Group Plc 888,582
762,276 BP Plc 7,434,554
3,849 BP Plc(b) 224,782
354,749 Shell Transport & Trading Co. Plc 3,024,009
------------
11,571,927
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 2.2% 60,203 AstraZeneca Plc 2,183,379
210,736 GlaxoSmithKline Plc 4,944,119
800 GlaxoSmithKline Plc(b) 37,912
------------
7,165,410
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.4% 18,022 British Land Co. Plc 310,020
11,899 Hammerson Plc 198,408
17,232 Land Securities Group Plc 463,172
9,912 Liberty International Plc 184,687
18,432 Slough Estates Plc 194,632
------------
1,350,919
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.1% 16,203 Firstgroup Plc 108,490
2,119 National Express Group Plc 33,584
33,050 Stagecoach Group Plc 72,177
------------
214,251
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 41,211 ARM Holdings Plc 87,429
Equipment - 0.0%
-----------------------------------------------------------------------------------------------------------------
Software - 0.1% 21,437 Misys Plc 86,121
66,142 Sage Group Plc 256,829
------------
342,950
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.3% 72,099 Dixons Group Plc 210,403
3,700 HMV Group Plc 18,469
24,040 Kesa Electricals Plc 130,386
83,788 Kingfisher Plc 498,278
24,999 MFI Furniture Plc 59,515
79,661 Signet Group Plc 168,235
------------
1,085,286
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.5% 57,613 British American Tobacco Plc 992,736
26,193 Imperial Tobacco Group Plc 717,610
------------
1,710,346
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.1% 21,556 Wolseley Plc 402,887
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.3% 11,911 Associated British Ports Holdings Plc 108,623
39,638 BAA Plc 444,430
12,221 BBA Group Plc 67,046
29,716 The Peninsular and Oriental Steam
Navigation Co. 169,729
------------
789,828
-----------------------------------------------------------------------------------------------------------------
Water Utilities - 0.1% 15,133 Kelda Group Plc 183,766
12,768 Severn Trent Plc 237,044
------------
420,810
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 2,286,456 Vodafone Group Plc 6,200,551
Services - 2.0% 12,490 Vodafone Group Plc(b) 341,976
------------
6,542,527
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United Kingdom 79,514,801
- -----------------------------------------------------------------------------------------------------------------------------------
United States - Media - 0.0% 1,520 News Corp. Class A 28,363
0.0% -----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United States 28,363
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Common Stocks
(Cost - $260,169,995) - 98.4% 316,890,728
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Funds
- -----------------------------------------------------------------------------------------------------------------------------------
United States - Diversified Financial Services - 0.1% 2,000 iShares MSCI EAFE Index Fund 320,100
0.1% -----------------------------------------------------------------------------------------------------------------
Total Investments in Mutual Funds
(Cost - $232,840) - 0.1% 320,100
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
- -----------------------------------------------------------------------------------------------------------------------------------
Germany - 0.2% Automobiles - 0.1% 230 Porsche AG 146,779
5,476 Volkswagen AG 181,690
------------
328,469
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 2,828 Henkel KGaA 246,013
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 542 Fresenius Medical Care AG 31,421
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 5,512 ProSieben SAT.1 Media AG 101,144
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 2,033 RWE AG 94,534
Power - 0.0%
-----------------------------------------------------------------------------------------------------------------
Total Preferred Stocks in Germany 801,581
- -----------------------------------------------------------------------------------------------------------------------------------
New Zealand - Paper & Forest Products - 0.0% 2,043 Tenon Ltd. (Convertible) 3,217
0.0% -----------------------------------------------------------------------------------------------------------------
Total Preferred Stocks in New Zealand 3,217
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Preferred Stocks
(Cost - $684,752) - 0.2% 804,798
- -----------------------------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2004 (concluded) (in U.S. dollars)
Country Industry* Shares Held Warrants (c) Value
- -----------------------------------------------------------------------------------------------------------------------------------
France - 0.0% Food & Staples Retailing - 0.0% 133 Casino Guichard-Perrach SA $ 20
-----------------------------------------------------------------------------------------------------------------
Total Warrants in France 20
- -----------------------------------------------------------------------------------------------------------------------------------
Singapore - 0.0% Real Estate - 0.0% 5,953 City Developments Limited 16,629
-----------------------------------------------------------------------------------------------------------------
Total Warrants in Singapore 16,629
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Warrants
(Cost - $10,862) - 0.0% 16,649
- -----------------------------------------------------------------------------------------------------------------------------------
Rights (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Ireland - 0.0% Household Durables - 0.0% 61,082 Waterford Wedgewood 660
-----------------------------------------------------------------------------------------------------------------
Total Investments in Rights
(Cost - $1,555) - 0.0% 660
- -----------------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Short-Term Securities
-----------------------------------------------------------------------------------------------------------------
$ 2,760,907 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (e) 2,760,907
-----------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost - $2,760,907) - 0.9% 2,760,907
-----------------------------------------------------------------------------------------------------------------
Total Investments
(Cost - $263,860,911**) - 99.6% 320,793,842
Other Assets Less Liabilities - 0.4% 1,273,022
------------
Net Assets - 100.0% $322,066,864
============
(a) Non-income producing security.
(b) Depositary Receipts.
(c) Warrants entitle the Series to purchase a predetermined number of shares
of common stock and are non-income producing. The purchase price and
number of shares are subject to adjustment under certain conditions until
the expiration date.
(d) The rights may be exercised until 1/07/2005.
(e) Investments in companies considered to be an affiliate of the Series (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) were as follows:
------------------------------------------------------------------------------------------------------
Affiliate Net Activity Interest Income
------------------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $ (7,159,850) $125,093
------------------------------------------------------------------------------------------------------
* For Series compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Series' management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease. These
industry classifications are unaudited.
** The cost and unrealized appreciation/depreciation of investments as of
December 31, 2004, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 266,778,196
=============
Gross unrealized appreciation $ 61,477,825
Gross unrealized depreciation (7,462,179)
-------------
Net unrealized appreciation $ 54,015,646
=============
Financial futures contracts purchased as of December 31, 2004 were as
follows:
------------------------------------------------------------------------------------------------------------------------------
Expiration Unrealized
Number of Contracts Issue Exchange Date Face Value Appreciation (Depreciation)
------------------------------------------------------------------------------------------------------------------------------
1 CAC40 10 Euro Future Matif (Par) March 2005 $52,078 $ (53)
2 CAC40 10 Euro Future Matif (Par) January 2005 $103,887 (149)
4 DJ Euro Stoxx 50 Future Eurex March 2005 $159,827 456
13 Hang Seng Index Future Hong Kong January 2005 $1,188,774 555
12 IBEX 35 Plus Index Future Spanish Op January 2005 $1,454,865 20,709
15 OMX Stock Index Future Riyadh January 2005 $167,832 19
1 S&P/MIB Index Future Eurex March 2005 $210,652 (981)
2 SPI 200 Index Future Sydney March 2005 $159,401 (426)
25 TOPIX Index Future Tokyo March 2005 $2,691,129 108,471
------------------------------------------------------------------------------------------------------------------------------
Total Unrealized Appreciation - Net $ 128,601
===================
Forward foreign exchange contracts as of December 31, 2004 were as
follows:
-----------------------------------------------------------------------------------------
Foreign Settlement Unrealized Appreciation
Currency Purchased Date (Depreciation)
-----------------------------------------------------------------------------------------
AUD 145,000 January 2005 $ 2,711
CHF 230,000 January 2005 (686)
EUR 975,000 January 2005 15,532
GBP 300,000 January 2005 (1,814)
JPY 74,500,000 January 2005 7,657
SEK 550,000 January 2005 313
-----------------------------------------------------------------------------------------
Total Unrealized Appreciation on Forward Foreign Exchange
Contracts - Net (US$ Commitment - $3,003,395) $ 23,713
=================
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON DETAILED SCHEDULE OF
INVESTMENTS
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements of Master
Small Cap Index Series (the "Series"), one of the portfolios constituting the
Quantitative Master Series Trust (the "Trust") as of December 31, 2004, and for
the year then ended and have issued our report thereon dated February 23, 2005,
which report and financial statements are included in Item 1 of this Certified
Shareholder Report on Form N-CSR. Our audit also included the Series' schedule
of investments (the "Schedule") as of December 31, 2004 appearing in Item 6 of
this Form N-CSR. This Schedule is the responsibility of the Trust's management.
Our responsibility is to express an opinion based on our audit. In our opinion,
the Schedule referred to above, when considered in relation to the basic
financial statements taken as a whole of the Series referred to above, presents
fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
February 23, 2005
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Advertising Agencies - 0.8% 3,400 + 24/7 Real Media, Inc. $ 14,926
14,500 + aQuantive, Inc. 129,630
10,535 Advo, Inc. 375,573
15,600 Catalina Marketing Corp. 462,228
800 + Greenfield Online, Inc. 17,592
248 Grey Global Group, Inc. 272,798
7,433 + RH Donnelley Corp. 438,919
16,400 + Valassis Communications, Inc. 574,164
26,500 + Valueclick, Inc. 353,245
7,200 + Ventiv Health, Inc. 146,304
------------
2,785,379
- ---------------------------------------------------------------------------------------------------------------------------
Aerospace - 0.5% 6,434 Curtiss-Wright Corp. 369,376
2,400 + Ducommun, Inc. 50,040
6,426 Heico Corp. 145,163
1,700 + MTC Technologies, Inc. 57,069
9,009 + Moog, Inc. Class A 408,558
16,335 + Orbital Sciences Corp. 193,243
11,334 + Teledyne Technologies, Inc. 333,560
3,900 United Industrial Corp. 151,086
-------------
1,708,095
- ---------------------------------------------------------------------------------------------------------------------------
Agriculture Fishing & Ranching - 0.1% 1,200 Alico, Inc. 70,224
13,378 Delta & Pine Land Co. 364,952
-------------
435,176
- ---------------------------------------------------------------------------------------------------------------------------
Air Transport - 0.9% 12,168 + AAR Corp. 165,728
27,620 + Airtran Holdings, Inc.(c) 295,534
8,299 + Alaska Air Group, Inc. 277,933
11,600 + America West Holdings Corp. Class B(c) 76,328
7,800 + Aviall, Inc. 179,166
18,900 + Continental Airlines, Inc. Class B(c) 255,906
36,300 + Delta Air Lines, Inc.(c) 271,524
10,495 + EGL, Inc. 313,695
9,600 + ExpressJet Holdings, Inc. 123,648
3,723 + FLYi, Inc. 6,590
12,355 + Frontier Airlines, Inc. 140,971
10,556 + Mesa Air Group, Inc. 83,815
22,400 + Northwest Airlines Corp.(c) 244,832
7,385 + Offshore Logistics, Inc. 239,791
4,400 + Pinnacle Airlines Corp. 61,336
20,200 Skywest, Inc. 405,212
-------------
3,142,009
- ---------------------------------------------------------------------------------------------------------------------------
Aluminum - 0.1% 9,600 + Aleris International, Inc. 162,432
5,502 + Century Aluminum Co. 144,482
-------------
306,914
- ---------------------------------------------------------------------------------------------------------------------------
Auto Parts: After Market - 0.2% 1,843 + Aftermarket Technology Corp. 29,672
5,000 + Keystone Automotive Industries, Inc. 116,250
3,200 + Sports Resorts International, Inc. 8,512
3,300 Standard Motor Products, Inc. 52,140
5,699 Superior Industries International 165,556
6,600 + TBC Corp. 183,480
-------------
555,610
- ---------------------------------------------------------------------------------------------------------------------------
Auto Parts: Original Equipment - 0.4% 21,800 ArvinMeritor, Inc. 487,666
12,678 + Collins & Aikman Corp. 55,276
14,500 + Hayes Lemmerz International, Inc. 128,035
3,300 Noble International Ltd. 67,287
2,273 Sauer-Danfoss, Inc. 49,574
3,787 + Stoneridge, Inc. 57,297
800 + Strattec Security Corp. 50,096
13,900 + Tenneco Automotive, Inc. 239,636
8,871 + Tower Automotive, Inc.(c) 21,202
37,400 Visteon Corp. 365,398
-------------
1,521,467
- ---------------------------------------------------------------------------------------------------------------------------
Auto Trucks & Parts - 0.2% 1,550 + Commercial Vehicle Group, Inc. 33,836
8,194 Modine Manufacturing Co. 276,711
9,545 + Wabash National Corp. 257,047
-------------
567,594
- ---------------------------------------------------------------------------------------------------------------------------
Banks: New York City - 0.0% 500 + Signature Bank 16,180
- ---------------------------------------------------------------------------------------------------------------------------
Banks: Outside New York City - 7.9.% 3,940 1st Source Corp. 100,509
3,100 ABC Bancorp 65,100
3,621 Alabama National Bancorporation 233,554
8,318 Amcore Financial, Inc. 267,673
4,950 + AmericanWest Bancorp 100,237
2,726 Arrow Financial Corp. 84,506
1,200 BancTrust Financial Group, Inc. 29,064
1,045 Bancfirst Corp. 82,534
4,715 + The Bancorp Inc. 75,440
24,500 Bancorpsouth, Inc. 597,065
4,086 Bank of Granite Corp. 85,397
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Banks: Outside New York City 3,000 Bank of the Ozarks, Inc. $ 102,090
(continued) 3,313 Banner Corp. 103,332
7,193 Boston Private Financial Holdings, Inc. 202,627
2,300 Bryn Mawr Bank Corp. 50,577
12,128 CVB Financial Corp. 322,120
1,600 Camden National Corp. 63,056
2,577 Capital City Bank Group, Inc. 107,719
1,700 Capital Corp. of the West 79,902
600 + Capital Crossing Bank 18,414
2,300 Capitol Bancorp Ltd. 81,006
5,500 Cascade Bancorp 110,550
14,444 Cathay General Bancorp 541,650
3,200 Center Financial Corp. 64,064
2,886 + Central Coast Bancorp 66,638
9,848 Central Pacific Financial Corp. 356,202
2,200 Century Bancorp, Inc. 64,900
7,951 Chemical Financial Corp. 341,257
13,982 Chittenden Corp. 401,703
12,600 Citizens Banking Corp. 432,810
2,299 City Bank 82,074
6,293 City Holding Co. 228,058
1,800 Clifton Savings Bancorp, Inc. 21,870
4,126 CoBiz, Inc. 83,758
1,900 Columbia Bancorp 64,961
6,341 Columbia Banking System, Inc. 158,462
8,300 Community Bank System, Inc. 234,475
3,177 Community Banks, Inc. 89,464
3,924 Community Trust Bancorp, Inc. 126,971
5,152 Corus Bankshares, Inc. 247,347
14,896 East-West Bancorp, Inc. 625,036
1,400 + EuroBancshares, Inc. 29,400
1,900 FNB Corp.(c) 53,884
1,885 Farmers Capital Bank Corp. 77,172
1,700 Financial Institutions, Inc. 39,525
11,400 First Bancorp/Puerto Rico 724,014
3,036 First Bancorp/Troy NC 82,488
4,014 First Busey Corp. 83,772
9,523 First Charter Corp. 249,217
2,047 First Citizens BancShares, Inc. Class A 303,468
21,440 First Commonwealth Financial Corp. 329,962
4,400 First Community Bancorp, Inc. 187,880
2,894 First Community Bancshares, Inc. 104,416
10,087 First Financial Bancorp 176,523
4,165 First Financial Bankshares, Inc. 186,634
4,444 First Financial Corp. 155,673
5,546 First Merchants Corp. 156,952
15,600 First Midwest Bancorp, Inc. 566,124
1,150 First Oak Brook Bancshares, Inc. 37,272
3,400 First State Bancorporation 124,984
600 The First of Long Island Corp. 29,868
5,400 + Franklin Bank Corp. 98,550
4,741 Frontier Financial Corp. 183,050
1,000 GB&T Bancshares, Inc. 24,120
2,035 German American Bancorp 32,764
7,075 Glacier Bancorp, Inc. 240,833
10,122 Gold Banc Corp., Inc. 147,984
14,900 Greater Bay Bancorp 415,412
9,054 Hancock Holding Co. 302,947
4,152 Hanmi Financial Corp. 149,223
8,660 Harleysville National Corp. 230,356
3,000 Heartland Financial USA, Inc. 60,330
7,081 Independent Bank Corp./MI 211,226
4,845 Independent Bank Corp./Rockland MA 163,519
5,074 Integra Bank Corp. 117,260
3,400 Interchange Financial Services Corp. 88,128
5,848 Irwin Financial Corp. 166,025
3,998 Lakeland Bancorp, Inc. 70,165
1,700 Lakeland Financial Corp. 67,490
5,950 MB Financial, Inc. 250,793
3,477 MBT Financial Corp. 80,910
2,677 Macatawa Bank Corp. 86,440
4,256 Main Street Banks, Inc. 148,662
3,167 MainSource Financial Group, Inc. 75,623
2,380 Mercantile Bank Corp. 94,010
1 Mercantile Bankshares Corp. 52
7,950 Mid-State Bancshares 227,768
3,580 Midwest Banc Holdings, Inc. 78,295
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Banks: Outside New York City 2,129 NBC Capital Corp. $ 56,568
(concluded) 10,913 NBT Bancorp, Inc. 280,682
7,300 Nara Bancorp, Inc. 155,271
9,162 National Penn Bancshares, Inc. 253,787
1,831 Oak Hill Financial, Inc. 71,024
21,900 Old National Bancorp 566,334
4,376 Old Second Bancorp, Inc. 139,507
2,541 Omega Financial Corp. 87,105
6,218 Oriental Financial Group 176,040
15,062 Pacific Capital Bancorp 511,957
4,515 Park National Corp. 611,783
2,398 Peapack Gladstone Financial Corp. 75,657
1,761 Pennrock Financial Services Corp. 68,521
4,510 Peoples Bancorp, Inc. 123,709
2,432 Peoples Holding Co. 80,499
7,000 + Piper Jaffray Cos. 335,650
1,050 Placer Sierra Bancshares 29,862
6,296 PrivateBancorp, Inc. 202,920
5,200 Prosperity Bancshares, Inc. 151,892
11,224 Provident Bankshares Corp. 408,217
9,711 R-G Financial Corp. Class B 377,564
2,684 Republic Bancorp, Inc. Class A 68,979
23,309 Republic Bancorp, Inc. 356,162
5,501 + Riggs National Corp. 116,951
1,444 Royal Bancshares of Pennsylvania Class A 39,026
7,863 S&T Bancorp, Inc. 296,356
2,569 SCBT Financial Corp. 86,235
2,800 SY Bancorp, Inc. 67,480
4,814 Sandy Spring Bancorp, Inc. 184,521
1,603 Santander BanCorp 48,346
3,858 Seacoast Banking Corp. of Florida 85,841
700 Security Bank Corp. 28,000
10,200 + Silicon Valley Bancshares 457,164
4,400 Simmons First National Corp. Class A 127,380
900 Smithtown Bancorp, Inc. 28,575
2,000 Southern Community Financial Corp. 20,700
3,134 Southside Bancshares, Inc. 71,612
20,104 Southwest Bancorp of Texas, Inc. 468,222
4,800 Southwest Bancorp, Inc. 117,504
2,168 State Bancorp, Inc. 59,620
1,800 State Financial Services Corp. Class A 54,180
15,176 Sterling Bancshares, Inc. 216,562
7,162 Sterling Financial Corp. 205,335
3,600 Suffolk Bancorp 125,388
3,688 + Sun Bancorp, Inc. 92,126
13,016 Susquehanna Bancshares, Inc. 324,749
200 Taylor Capital Group, Inc. 6,700
8,261 + Texas Capital Bancshares, Inc. 178,603
13,976 Texas Regional Bancshares, Inc. Class A 456,736
2,620 Tompkins Trustco, Inc. 140,144
3,700 Trico Bancshares 86,580
24,661 Trustco Bank Corp. NY 340,075
14,527 Trustmark Corp. 451,354
4,976 UMB Financial Corp. 281,940
3,830 USB Holding Co., Inc. 95,367
15,250 Umpqua Holdings Corp. 384,453
2,400 Union Bankshares Corp. 92,232
12,800 United Bankshares, Inc. 488,320
9,000 United Community Banks, Inc. 242,370
1,900 Univest Corp. of Pennsylvania 87,438
7,219 Unizan Financial Corp. 190,221
3,450 + Virginia Commerce Bancorp(c) 97,704
2,300 Virginia Financial Group, Inc. 84,318
4,400 Washington Trust Bancorp, Inc. 128,964
6,363 WesBanco, Inc. 203,425
3,990 West Bancorporation, Inc. 70,264
4,700 West Coast Bancorp 119,427
10,583 Westamerica Bancorporation 617,095
2,120 + Western Sierra Bancorp 81,313
6,000 + Wilshire Bancorp, Inc. 99,240
6,200 Wintrust Financial Corp. 353,152
3,700 Yardville National Bancorp 126,762
-------------
28,721,095
- ---------------------------------------------------------------------------------------------------------------------------
Beverage: Brewers (Wineries) - 0.0% 2,500 + Boston Beer Co., Inc. Class A 53,175
- ---------------------------------------------------------------------------------------------------------------------------
Beverage: Soft Drinks - 0.1% 987 Coca-Cola Bottling Co. Consolidated 56,318
1,710 Farmer Bros Co. 41,450
2,600 + Hansen Natural Corp. 95,108
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Beverage: Soft Drinks 2,390 National Beverage Corp. $ 19,885
(concluded) 3,900 + Peet's Coffee & Tea, Inc. 103,233
-------------
315,994
- ---------------------------------------------------------------------------------------------------------------------------
Biotechnology Research & 27,500 + Abgenix, Inc. 284,350
Production - 2.4% 8,285 + Accelrys, Inc. 64,623
5,600 + Aksys Ltd.(c) 31,136
9,687 + Albany Molecular Research, Inc. 107,913
7,280 + Alexion Pharmaceuticals, Inc. 183,456
9,913 + Antigenics, Inc.(c) 100,320
24,200 + Applera Corp. - Celera Genomics Group 332,750
18,019 + Ariad Pharmaceuticals, Inc. 133,881
5,800 + Array Biopharma, Inc. 55,216
5,920 + Arthrocare Corp. 189,795
24,600 + Avant Immunotherapeutics, Inc. 49,446
18,900 + Axonyx, Inc. 116,046
900 + Barrier Therapeutics, Inc. 14,940
4,200 + Bioenvision, Inc. 37,632
3,400 + CancerVax Corp. 36,890
11,424 + Cell Genesys, Inc. 92,534
16,731 + Cell Therapeutics, Inc. 136,190
7,700 + Ciphergen Biosystems, Inc.(c) 33,110
18,557 + Corixa Corp. 67,547
14,267 + Cubist Pharmaceuticals, Inc. 168,779
13,600 + CuraGen Corp.(c) 97,376
9,700 + Curis, Inc. 50,634
8,300 + Cypress Bioscience, Inc. 116,117
1,300 + Cytokinetics, Inc. 13,325
15,900 + deCODE genetics, Inc.(c) 124,179
4,424 + Digene Corp. 115,688
14,700 + Discovery Laboratories, Inc. 116,571
7,878 + Diversa Corp. 68,854
5,500 + Dov Pharmaceutical, Inc. 99,275
10,800 + Dyax Corp. 77,976
17,496 + Encysive Pharmaceuticals, Inc. 173,735
12,200 + Enzon Pharmaceuticals, Inc. 167,384
19,518 + Exelixis, Inc. 185,421
1,900 + Genencor International, Inc. 31,160
29,957 + Genta, Inc.(c) 52,724
16,129 + Geron Corp. 128,548
43,200 + Human Genome Sciences, Inc. 519,264
14,209 + Immunomedics, Inc. 43,195
22,924 + Incyte Corp. 229,011
11,200 + Inkine Pharmaceutical Co. 60,256
7,100 + Integra LifeSciences Holdings Corp. 262,203
9,514 + InterMune, Inc. 126,156
9,300 + Isolagen, Inc.(c) 73,191
2,100 + Kensey Nash Corp. 72,513
5,600 + Keryx Biopharmaceuticals, Inc. 64,792
5,700 + Kosan Biosciences, Inc. 39,501
18,605 + Lexicon Genetics, Inc. 144,282
1,950 + MannKind Corp. 30,713
300 + Marshall Edwards, Inc. 2,684
11,400 + Maxim Pharmaceuticals, Inc. 34,428
7,301 + Maxygen, Inc. 93,380
2,300 + Myogen, Inc. 18,561
9,400 + Myriad Genetics, Inc. 211,594
12,923 + NPS Pharmaceuticals, Inc. 236,232
19,054 + Nabi Biopharmaceuticals 279,141
13,900 + Nanogen, Inc.(c) 102,304
5,600 + Neurogen Corp. 52,416
7,100 + Northfield Laboratories, Inc.(c) 160,105
10,800 + Nuvelo, Inc. 106,380
16,200 + Oscient Pharmaceuticals Corp. 59,130
13,000 + Palatin Technologies, Inc. 34,580
40,555 + Peregrine Pharmaceuticals, Inc.(c) 47,449
24,200 + Pharmos Corp. 34,364
3,900 + Progenics Pharmaceuticals, Inc. 66,924
7,700 + Regeneration Technologies, Inc. 80,696
4,170 + Rigel Pharmaceuticals, Inc. 101,831
7,800 + Seattle Genetics, Inc. 50,934
10,572 + Serologicals Corp. 233,853
8,245 + Tanox, Inc. 125,324
15,032 + Telik, Inc. 287,712
4,800 + Third Wave Technologies, Inc. 41,280
10,240 + Transkaryotic Therapies, Inc. 259,994
5,638 + Trimeris, Inc. 79,890
17,406 + Vicuron Pharmaceuticals, Inc. 303,038
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Biotechnology Research & Production 21,400 + Vion Pharmaceuticals, Inc. $ 100,152
(concluded) 5,000 + Zymogenetics, Inc. 115,000
-------------
8,839,974
- ---------------------------------------------------------------------------------------------------------------------------
Building Materials - 0.5% 2,600 Ameron International Corp. 98,540
5,000 Building Material Holding Corp. 191,450
6,512 LSI Industries, Inc. 74,562
5,168 + NCI Building Systems, Inc. 193,800
10,932 Simpson Manufacturing Co., Inc. 381,527
7,345 Texas Industries, Inc. 458,181
3,409 + Trex Co., Inc. 178,768
6,165 Watsco, Inc. 217,131
-------------
1,793,959
- ---------------------------------------------------------------------------------------------------------------------------
Building: Air Conditioning - 0.2% 14,635 Lennox International, Inc. 297,822
12,038 York International Corp. 415,793
-------------
713,615
- ---------------------------------------------------------------------------------------------------------------------------
Building: Cement - 0.1% 5,478 Eagle Materials, Inc. 473,025
3,200 + US Concrete, Inc. 24,544
-------------
497,569
- ---------------------------------------------------------------------------------------------------------------------------
Building: Heating & Plumbing - 0.1% 1,800 + Aaon, Inc. 28,926
24,950 + Jacuzzi Brands, Inc. 217,065
-------------
245,991
- ---------------------------------------------------------------------------------------------------------------------------
Building: Miscellaneous - 0.1% 9,300 + Comfort Systems USA, Inc. 71,424
3,300 + Drew Industries, Inc. 119,361
8,447 + Griffon Corp. 228,069
-------------
418,854
- ---------------------------------------------------------------------------------------------------------------------------
Building: Roofing & Wallboard - 0.2% 7,451 ElkCorp 254,973
10,800 + USG Corp.(c) 434,916
-------------
689,889
- ---------------------------------------------------------------------------------------------------------------------------
Cable Television Services - 0.1% 89,300 + Charter Communications, Inc. Class A(c) 200,032
5,898 + Crown Media Holdings, Inc. Class A 50,723
17,500 + Insight Communications Co., Inc. Class A 162,225
17,994 + TiVo, Inc.(c) 105,625
-------------
518,605
- ---------------------------------------------------------------------------------------------------------------------------
Casinos & Gambling - 1.0% 17,800 + Alliance Gaming Corp. 245,818
4,500 Ameristar Casinos, Inc. 193,995
7,825 + Argosy Gaming Co. 365,427
9,791 + Aztar Corp. 341,902
10,715 Boyd Gaming Corp. 446,280
1,632 Churchill Downs, Inc. 72,950
3,115 Dover Downs Gaming & Entertainment, Inc. 40,806
1,400 + Empire Resorts, Inc.(c) 15,442
5,375 + Isle of Capri Casinos, Inc. 137,869
6,900 + Lakes Entertainment, Inc.(c) 112,401
9,000 + MTR Gaming Group, Inc. 95,040
8,100 + Magna Entertainment Corp. Class A 48,762
9,000 + Multimedia Games, Inc. 141,840
800 + Nevada Gold & Casinos, Inc. 9,760
11,764 + Pinnacle Entertainment, Inc. 232,692
18,400 + Scientific Games Corp. Class A 438,656
8,000 + Shuffle Master, Inc.(c) 376,800
6,412 + WMS Industries, Inc. 215,058
-------------
3,531,498
- ---------------------------------------------------------------------------------------------------------------------------
Chemicals - 2.0% 6,750 Aceto Corp. 128,520
18,800 Airgas, Inc. 498,388
11,000 Albemarle Corp. 425,810
1,200 American Vanguard Corp. 44,136
6,456 Arch Chemicals, Inc. 185,804
7,100 + Cabot Microelectronics Corp. 284,355
11,201 Calgon Carbon Corp. 101,705
7,385 Cambrex Corp. 200,133
37,960 Crompton Corp. 447,928
11,500 Cytec Industries, Inc. 591,330
2,700 + EnerSys 41,175
5,464 + Energy Conversion Devices, Inc. 105,564
8,300 + Exide Technologies 114,374
11,700 + FMC Corp. 565,110
8,337 Georgia Gulf Corp. 415,183
14,700 Great Lakes Chemical Corp. 418,803
36,100 + Hercules, Inc. 536,085
8,967 MacDermid, Inc. 323,709
3,641 + Medis Technologies Ltd.(c) 66,812
2,634 + NL Industries 58,211
4,400 + NewMarket Corp. 87,560
900 + Nuco2, Inc. 19,971
9,800 + OM Group, Inc. 317,716
2,400 Octel Corp. 49,944
10,595 + Omnova Solutions, Inc. 59,544
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Chemicals 30,667 + PolyOne Corp. $ 277,843
(concluded) 2,700 Quaker Chemical Corp. 67,068
11,206 Schulman A, Inc. 239,920
1,755 Stepan Co. 42,752
3,600 + Ultralife Batteries, Inc. 70,020
15,300 + Valence Technology, Inc.(c) 47,430
22,200 + WR Grace & Co. 302,142
1,850 Westlake Chemical Corp. 61,790
-------------
7,196,835
- ---------------------------------------------------------------------------------------------------------------------------
Commercial Information Services - 0.4% 10,758 + Arbitron, Inc. 421,498
124,900 + CMGI, Inc. 318,495
8,561 + infoUSA, Inc. 95,798
5,700 + LECG Corp. 106,305
31,600 + Looksmart 69,204
1,600 + MarketWatch, Inc. 28,800
3,100 + Neoforma, Inc.(c) 23,839
7,974 + ProQuest Co. 236,828
6,053 + Sourcecorp 115,673
-------------
1,416,440
- ---------------------------------------------------------------------------------------------------------------------------
Communications & Media - 0.0% 12,800 + Entravision Communications Corp. Class A 106,880
- ---------------------------------------------------------------------------------------------------------------------------
Communications Technology - 2.0% 13,200 + Airspan Networks, Inc. 71,676
7,522 + Anaren, Inc. 97,485
8,472 Anixter International, Inc. 304,907
13,500 + Aspect Communications Corp. 150,390
1,400 + Atheros Communications Inc. 14,350
19,278 + Avanex Corp. 63,810
3,159 Bel Fuse, Inc. 106,743
4,288 Black Box Corp. 205,910
12,550 + Broadwing Corp.(c) 114,330
83,400 + Brocade Communications Systems, Inc. 637,176
17,700 + CSG Systems International 330,990
7,200 + Captaris, Inc. 37,152
8,100 + Carrier Access Corp. 86,508
1,672 + Catapult Communications Corp. 40,395
16,988 + CommScope, Inc. 321,073
5,150 + Comtech Telecommunications Corp. 193,691
8 + CycleLogic, Inc. 0
5,000 + Digi International, Inc. 85,950
8,200 + Ditech Communications Corp. 122,590
44,300 + Eagle Broadband, Inc. 29,238
9,313 + Echelon Corp. 78,602
69,600 + Enterasys Networks, Inc. 125,280
20,200 + Entrust, Inc. 76,558
35,800 + Extreme Networks 234,490
52,100 + Finisar Corp.(c) 118,788
25,096 + Harmonic, Inc. 209,301
16,700 + Infonet Services Corp. Class B 33,734
5,477 Inter-Tel, Inc. 149,960
11,100 + InterVoice, Inc. 148,185
6,629 + Ixia 111,433
5,400 + j2 Global Communications, Inc. 65,660
6,700 + KVH Industries Inc. 186,300
12,500 + NMS Communications Corp. 78,875
17,080 + Net2Phone, Inc. 58,072
5,500 + Netgear, Inc. 100,045
9,900 + Network Equipment Technologies, Inc. 97,218
4,900 + Novatel Wireless, Inc. 94,962
35,419 + Oplink Communications, Inc. 69,775
6,083 + Optical Communication Products, Inc. 15,208
9,400 + Paradyne Networks Corp. 33,746
10,300 + Redback Networks, Inc. 55,208
22,440 + Remec, Inc. 161,792
6,408 + Seachange International, Inc. 111,756
13,188 + Secure Computing Corp. 131,616
6,110 + Standard Microsystems Corp. 108,941
27,871 + Stratex Networks, Inc. 62,988
57,900 + Sycamore Networks, Inc. 235,074
5,320 Talx Corp. 137,203
14,700 + Tekelec 300,468
80,300 + Terremark Worldwide, Inc. 51,392
400 + TippingPoint Technologies, Inc. 18,680
2,640 + Ulticom, Inc. 42,319
35,500 + Verso Technologies, Inc. 25,560
6,901 + Viasat, Inc. 167,487
15,300 + WJ Communications 52,632
10,031 + WebEx Communications, Inc.(c) 238,537
16,300 + Westell Technologies, Inc. Class A 110,840
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Communications Technology 14,975 + Zhone Technologies, Inc. $ 37,138
(concluded) -------------
7,150,187
- ---------------------------------------------------------------------------------------------------------------------------
Computer Services, Software & Systems - 11,300 + @Road Inc. 78,083
4.9% 14,000 + ActivCard Corp. 124,600
11,800 + Actuate Corp. 30,090
17,302 + Agile Software Corp. 141,357
5,700 + Altiris, Inc. 201,951
600 + Ansoft Corp. 12,120
11,900 + answerthink, Inc. 55,454
10,432 + Ansys, Inc. 334,450
7,600 + Anteon International Corp. 318,136
20,080 + Ariba, Inc. 333,328
17,995 + Ascential Software Corp. 293,498
12,897 + AsiaInfo Holdings, Inc. 76,866
16,308 + Aspen Technology, Inc. 101,273
7,900 + Authentidate Holding Corp.(c) 48,901
1,600 + Blackboard, Inc. 23,696
3,600 + Blue Coat Systems, Inc. 66,996
27,667 + Borland Software Corp. 323,151
8,716 + CACI International, Inc. Class A 593,821
27,800 + Chordiant Software, Inc. 63,384
16,902 + Ciber, Inc. 162,935
6,100 + Concord Communications, Inc. 67,588
8,400 + Concur Technologies, Inc. 74,844
2,000 + Constellation 3D, Inc. 0
4,900 + Covansys Corp. 74,970
11,964 + Dendrite International, Inc. 232,102
5,137 + Digimarc Corp. 47,877
10,500 + Digital River, Inc. 436,905
15,607 + Digitas, Inc. 149,047
6,600 + eCollege.com, Inc. 74,976
16,139 + Electronics for Imaging 280,980
5,930 + Embarcadero Technologies, Inc. 55,801
12,600 + Epicor Software Corp. 177,534
25,180 + E.piphany, Inc. 121,619
4,545 + EPIQ Systems, Inc. 66,539
3,400 + Equinix, Inc. 145,316
10,419 + F5 Networks, Inc. 507,614
20,079 + Gartner, Inc. Class A 250,184
11,606 + Hyperion Solutions Corp. 541,072
3,800 + Infocrossing, Inc.(c) 64,334
25,500 + Informatica Corp. 207,060
4,300 + iGate Corp. 17,415
14,800 + Internet Capital Group, Inc. 133,200
13,000 + Internet Security Systems 302,250
1,500 + Intervideo, Inc. 19,845
14,425 + Interwoven, Inc. 156,944
9,908 + JDA Software Group, Inc. 134,947
6,300 + Jupitermedia Corp. 149,814
1,300 + Kanbay International, Inc. 40,690
16,958 + Keane, Inc. 249,283
4,438 + Keynote Systems, Inc. 61,777
300 + Kintera, Inc. 2,703
15,200 + Lawson Software, Inc. 104,424
15,000 + Lionbridge Technologies 100,800
7,400 + MAPICS, Inc. 78,070
5,974 + MRO Software, Inc. 77,781
7,600 + MSC.Software Corp. 79,572
15,800 + Macrovision Corp. 406,376
8,200 + Magma Design Automation, Inc. 102,992
9,139 + Manhattan Associates, Inc. 218,239
6,400 + Mantech International Corp. Class A 151,936
23,000 + Manugistics Group, Inc. 66,010
8,200 + Mapinfo Corp. 98,236
16,097 + Matrixone, Inc. 105,435
24,100 + Mentor Graphics Corp. 368,489
7,556 + Mercury Computer Systems, Inc. 224,262
2,400 Merge Technologies, Inc. 53,376
27,300 + Micromuse, Inc. 151,515
4,699 + Micros Systems, Inc. 366,804
3,500 MicroStrategy, Inc. Class A 210,875
18,874 + NetIQ Corp. 230,452
5,185 + Netscout Systems, Inc. 36,191
4,800 + Open Solutions, Inc. 124,608
21,333 + Openwave Systems, Inc. 329,808
3,900 + Opnet Technologies, Inc. 32,838
17,000 + Opsware, Inc. 124,780
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Computer Services, Software & Systems 6,926 + PC-Tel, Inc. $ 54,923
(concluded) 3,300 + PDF Solutions, Inc. 53,163
10,907 + Packeteer, Inc. 157,606
3,357 + PalmSource, Inc. 42,768
85,200 + Parametric Technology Corp. 501,828
2,077 + Pec Solutions, Inc. 29,431
1,400 + Pegasystems, Inc. 11,942
21,791 + Pinnacle Systems, Inc. 132,925
11,308 + Progress Software Corp. 264,042
3,500 QAD, Inc. 31,220
14,900 + Quest Software, Inc. 237,655
33,200 + RealNetworks, Inc. 219,784
19,400 + Retek, Inc. 119,310
600 + SI International, Inc. 18,456
3,789 + SPSS, Inc. 59,260
3,500 + SRA International, Inc. Class A 224,700
5,200 SS&C Technologies, Inc. 107,380
8,261 + SYKES Enterprises, Inc. 57,414
800 + SYNNEX Corp. 19,248
7,099 + SafeNet, Inc. 260,817
2,350 + Salesforce.com, Inc. 39,809
27,392 + Sapient Corp. 216,671
26,795 + ScanSoft, Inc.(c) 112,271
15,427 + Seebeyond Technology Corp. 55,229
9,097 + Serena Software, Inc. 196,859
20,641 + SonicWALL, Inc. 130,451
800 + Staktek Holdings, Inc. 3,712
5,800 + Stellent, Inc. 51,156
14,400 + SupportSoft, Inc. 95,904
1,583 Syntel, Inc. 27,766
5,500 + Tier Technologies, Inc. Class B 50,875
12,885 + Transaction Systems Architects, Inc. Class A 255,767
8,708 + Trizetto Group 82,726
11,800 + Tumbleweed Communications Corp. 39,412
12,200 + Tyler Technologies, Inc. 101,992
6,700 + Ultimate Software Group, Inc. 84,956
3,100 + Verint Systems, Inc. 112,623
9,867 + Verity, Inc. 129,455
95,700 + Vignette Corp. 133,023
12,662 + WatchGuard Technologies 56,093
17,220 + webMethods, Inc. 124,156
6,751 + Websense, Inc. 342,411
24,000 + Wind River Systems, Inc. 325,200
8,100 + Witness Systems, Inc. 141,426
46,200 + Xybernaut Corp.(c) 56,826
9,100 + Zix Corp.(c) 46,865
11,708 + Zoran Corp. 135,579
-------------
17,826,274
- ---------------------------------------------------------------------------------------------------------------------------
Computer Technology - 1.8% 38,200 + Adaptec, Inc. 289,938
22,634 + Advanced Digital Information Corp. 226,793
28,400 + Cray, Inc. 132,344
4,300 + Cyberguard Corp. 27,090
14,400 + Dot Hill Systems Corp. 112,896
25,900 + Emulex Corp. 436,156
9,809 + FalconStor Software, Inc.(c) 93,872
13,082 + Filenet Corp. 336,992
73,700 + Gateway, Inc. 442,937
7,417 + Hutchinson Technology, Inc. 256,406
10,000 Imation Corp. 318,300
15,566 + InFocus Corp. 142,585
11,796 + Intergraph Corp. 317,666
19,703 + Iomega Corp. 109,155
9,900 + Komag, Inc. 185,922
24,674 + Lexar Media, Inc.(c) 193,444
40,400 + McData Corp. 240,784
6,100 + Mobility Electronics, Inc. 52,338
4,300 + Overland Storage, Inc. 71,767
12,594 + PalmOne, Inc.(c) 397,341
25,200 + Perot Systems Corp. Class A 403,956
53,000 + Quantum Corp. 138,860
20,662 + RSA Security, Inc. 414,480
6,242 + Radisys Corp. 122,031
40,047 + Safeguard Scientifics, Inc. 84,900
78,807 + Silicon Graphics, Inc.(c) 136,336
1,200 + SimpleTech, Inc. 5,520
3,600 + Stratasys, Inc. 120,816
7,500 + Synaptics, Inc. 229,350
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Computer Technology 5,900 + Trident Microsystems, Inc. $ 98,648
(concluded) 16,109 + UNOVA, Inc. 407,397
-------------
6,547,020
- ---------------------------------------------------------------------------------------------------------------------------
Construction - 0.3% 3,900 Brookfield Homes Corp. 132,210
5,018 + EMCOR Group, Inc. 226,713
11,071 Granite Construction, Inc. 294,489
3,800 + Perini Corp. 63,422
7,000 + Washington Group International, Inc. 288,750
-------------
1,005,584
- ---------------------------------------------------------------------------------------------------------------------------
Consumer Electronics - 1.0% 14,567 + Alloy, Inc.(c) 117,556
4,653 + Atari Inc. 13,633
42,300 + CNET Networks, Inc. 475,029
4,700 + Digital Theater Systems, Inc. 94,611
32,500 + DoubleClick, Inc. 252,850
38,700 + Earthlink, Inc. 445,824
5,500 + FindWhat.com 97,515
9,600 + Infospace, Inc. 456,480
62,700 + Internap Network Services Corp. 58,311
12,600 + Ipass, Inc. 93,240
5,800 + iVillage, Inc. 35,844
2,400 + Lifeline Systems, Inc. 61,824
12,374 + Midway Games, Inc.(c) 129,927
10,300 + NIC, Inc. 52,324
8,100 + Navarre Corp. 142,560
7,300 + PLATO Learning, Inc. 54,385
8,100 + Sohu.com, Inc.(c) 143,451
10,625 + THQ, Inc. 243,738
13,214 + Take-Two Interactive Software, Inc. 459,715
18,650 + United Online, Inc. 215,035
4,286 + Universal Electronics, Inc. 75,434
-------------
3,719,286
- ---------------------------------------------------------------------------------------------------------------------------
Consumer Products - 1.1% 18,600 American Greetings Class A 471,510
9,700 Blyth, Inc. 286,732
2,312 CSS Industries, Inc. 73,429
8,400 + Jarden Corp. 364,896
2,700 Mannatech, Inc. 51,408
9,873 Matthews International Corp. Class A 363,326
9,463 Nautilus Group, Inc. 228,721
7,800 Oakley, Inc. 99,450
9,876 + Playtex Products, Inc. 78,909
5,800 + RC2 Corp. 189,080
11,791 The Topps Co., Inc. 114,962
7,698 Toro Co. 626,232
14,474 Tupperware Corp. 299,901
4,100 + USANA Health Sciences, Inc. 140,220
1,500 + Water Pik Technologies, Inc. 26,595
15,383 + Yankee Candle Co., Inc. 510,408
-------------
3,925,779
- ---------------------------------------------------------------------------------------------------------------------------
Containers & Packaging: 1,600 + Anchor Glass Container Corp. 10,752
Metals & Glass - 0.5% 11,500 Aptargroup, Inc. 606,970
54,169 + Crown Holdings, Inc. 744,282
4,075 Greif, Inc. 228,200
5,371 + Mobile Mini, Inc. 177,458
3,600 Silgan Holdings, Inc. 219,456
-------------
1,987,118
- ---------------------------------------------------------------------------------------------------------------------------
Containers & Packaging: 19,100 + Graphic Packaging Corp. 137,520
Paper & Plastic - 0.1% 8,052 Myers Industries, Inc. 103,066
-------------
240,586
- ---------------------------------------------------------------------------------------------------------------------------
Copper - 0.1% 10,882 Mueller Industries, Inc. 350,400
- ---------------------------------------------------------------------------------------------------------------------------
Cosmetics - 0.2% 771 + DEL Laboratories, Inc. 26,792
8,393 + Elizabeth Arden, Inc. 199,250
1,700 Inter Parfums, Inc. 27,030
17,426 Nu Skin Enterprises, Inc. Class A 442,272
42,883 + Revlon, Inc. Class A 98,631
-------------
793,975
- ---------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.7% 38,900 + The BISYS Group, Inc. 639,905
4,550 + CB Richard Ellis Group, Inc. 152,653
8,100 + Euronet Worldwide, Inc. 210,762
13,600 FNB Corp. 276,896
18,111 First National Bankshares of Florida, Inc. 432,853
3,000 Greenhill & Co., Inc. 86,100
3,400 + Intersections, Inc. 58,650
10,608 + Jones Lang LaSalle, Inc. 396,845
5,300 + Rewards Network, Inc. 37,100
9,500 + USI Holdings Corp. 109,915
-------------
2,401,679
- ---------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Diversified Materials & 14,160 Acuity Brands, Inc. $ 450,288
Processing - 0.7% 8,316 + Armor Holdings, Inc. 391,018
4,957 Barnes Group, Inc. 131,410
5,547 Brady Corp. 347,076
8,755 Clarcor, Inc. 479,511
6,962 + Hexcel Corp. 100,949
21,914 Olin Corp. 482,546
9,145 Tredegar Corp. 184,820
5,620 Valhi, Inc. 90,426
-------------
2,658,044
- ---------------------------------------------------------------------------------------------------------------------------
Diversified Production - 0.2% 19,652 + Thomas & Betts Corp. 604,299
- ---------------------------------------------------------------------------------------------------------------------------
Drug & Grocery Store Chains - 0.4% 432 Arden Group, Inc. Class A 43,405
17,607 Casey's General Stores, Inc. 319,567
8,231 + Great Atlantic & Pacific Tea Co. 84,368
5,664 Ingles Markets, Inc. Class A 70,177
8,583 Longs Drug Stores Corp. 236,633
4,577 Nash Finch Co. 172,828
5,642 + Pathmark Stores, Inc. 32,780
11,869 Ruddick Corp. 257,439
3,929 + Smart & Final, Inc. 56,538
3,700 Weis Markets, Inc. 142,709
6,129 + Wild Oats Markets, Inc. 53,996
20,800 + Winn-Dixie Stores, Inc.(c) 94,640
-------------
1,565,080
- ---------------------------------------------------------------------------------------------------------------------------
Drugs & Pharmaceuticals - 2.6% 4,700 + Able Laboratories, Inc. 106,925
13,100 + Adolor Corp. 129,952
800 + Advancis Pharmaceutical Corp. 3,056
28,500 + Alkermes, Inc. 401,565
11,025 Alpharma, Inc. Class A 186,874
12,500 + Atherogenics Inc. 294,500
4,000 + Bentley Pharmaceuticals, Inc. 43,000
7,700 + BioCryst Pharmaceuticals, Inc. 44,506
23,748 + BioMarin Pharmaceuticals, Inc. 151,750
5,810 + Bone Care International, Inc. 161,808
3,100 + Bradley Pharmaceuticals, Inc. 60,140
9,000 + CV Therapeutics, Inc. 207,000
1,300 + Caraco Pharmaceutical Laboratories Ltd. 12,415
6,100 + Chattem, Inc. 201,910
10,902 + Connetics Corp. 264,810
700 + Corgentech, Inc. 5,796
6,700 + Cytogen Corp.(c) 77,184
16,200 + Dendreon Corp.(c) 174,636
3,800 + Depomed, Inc.(c) 20,520
10,100 + Durect Corp.(c) 33,128
5,200 + Dusa Pharmaceuticals, Inc. 74,360
7,995 + Enzo Biochem, Inc. 155,663
7,700 + First Horizon Pharmaceutical Corp. 176,253
300 + GTx, Inc. 4,047
12,400 + Genaera Corp. 42,036
22,400 + Genelabs Technologies 26,880
15,936 + Guilford Pharmaceuticals, Inc. 78,883
6,100 + Hollis-Eden Pharmaceuticals(c) 57,462
13,527 + Immunogen, Inc. 119,579
16,800 + Impax Laboratories, Inc. 266,784
15,888 + Indevus Pharmaceuticals, Inc.(c) 94,692
11,000 + Inspire Pharmaceuticals, Inc. 184,470
17,189 + Isis Pharmaceuticals, Inc. 101,415
800 + Ista Pharmaceuticals, Inc. 8,096
11,700 + KV Pharmaceutical Co. Class A 257,985
3,966 + Kos Pharmaceuticals, Inc. 149,280
1,900 + Lannett Co., Inc. 18,715
24,516 + Ligand Pharmaceuticals, Inc. Class B 285,366
26,400 + Medarex, Inc. 284,592
14,027 + Medicines Co. 403,978
7,245 + Neopharm, Inc. 90,635
4,600 + Neose Technologies, Inc. 30,912
100 + NitroMed, Inc. 2,665
8,531 + Noven Pharmaceuticals, Inc. 145,539
9,400 + Onyx Pharmaceuticals, Inc. 304,466
11,500 + Pain Therapeutics, Inc. 82,915
10,200 + Par Pharmaceutical Cos., Inc. 422,076
6,900 + Penwest Pharmaceuticals Co. 82,524
18,115 Perrigo Co. 312,846
4,700 + Pharmacyclics, Inc. 49,209
4,600 + Pharmion Corp. 194,166
10,200 + Pozen, Inc. 74,154
17,317 + Praecis Pharmaceuticals, Inc. 32,902
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Drugs & Pharmaceuticals 7,700 + Priority Healthcare Corp. $ 167,629
(concluded) 13,100 + Quidel Corp. 66,548
12,319 + Regeneron Pharmaceuticals, Inc. 113,458
400 + Renovis, Inc. 5,752
4,050 + SFBC International, Inc. 159,975
12,500 + Salix Pharmaceuticals Ltd. 219,875
1,000 + Santarus, Inc. 9,060
14,800 + Sciclone Pharmaceuticals, Inc. 54,760
14,682 + SuperGen, Inc.(c) 103,508
5,346 + United Therapeutics Corp. 241,372
27,500 Valeant Pharmaceuticals International 724,625
26,900 + Vertex Pharmaceuticals, Inc. 284,333
16,600 + Zila, Inc. 71,048
-------------
9,418,963
- ---------------------------------------------------------------------------------------------------------------------------
Education Services - 0.3% 4,402 + Bright Horizons Family Solutions, Inc. 285,073
4,730 + Learning Tree International, Inc. 63,382
2,700 + Princeton Review, Inc. 16,605
2,449 Renaissance Learning, Inc. 45,453
4,320 Strayer Education, Inc. 474,293
4,700 + Universal Technical Institute, Inc. 179,164
-------------
1,063,970
- ---------------------------------------------------------------------------------------------------------------------------
Electrical & Electronics - 0.3% 12,086 + Benchmark Electronics, Inc. 412,133
700 + Cherokee International Corp. 6,727
1,400 + LeCroy Corp. 32,676
3,600 + OSI Systems, Inc. 81,756
14,298 + Plexus Corp. 186,017
8,432 + Power Integrations, Inc. 166,785
11,900 + TTM Technologies, Inc. 140,420
5,607 + Universal Display Corp. 50,463
-------------
1,076,977
- ---------------------------------------------------------------------------------------------------------------------------
Electrical Equipment & 4,781 AO Smith Corp. 143,143
Components - 0.9% 6,700 + American Superconductor Corp. 99,763
10,771 Baldor Electric Co. 296,526
11,808 CTS Corp. 156,928
8,418 Cohu, Inc. 156,238
6,400 + DDi Corp. 20,352
4,360 Franklin Electric Co., Inc. 184,254
13,990 + General Cable Corp. 193,762
4,308 + Genlyte Group, Inc. 369,109
7,760 + Littelfuse, Inc. 265,082
10,700 + MKS Instruments, Inc. 198,485
2,231 + Powell Industries, Inc. 41,251
21,300 + Power-One, Inc. 189,996
6,600 + Sonic Solutions, Inc.(c) 148,104
4,600 + Spatialight, Inc.(c) 41,170
15,900 + Taser International, Inc.(c) 502,122
13,361 + Technitrol, Inc. 243,170
4,279 + Triumph Group, Inc. 169,021
-------------
3,418,476
- ---------------------------------------------------------------------------------------------------------------------------
Electrical: Household Appliance - 0.0% 6,496 + Applica, Inc. 39,301
1,550 National Presto Industries, Inc. 70,525
-------------
109,826
- ---------------------------------------------------------------------------------------------------------------------------
Electronics - 0.4% 22,612 + Aeroflex, Inc. 274,057
10,563 Agilysys, Inc. 181,050
4,332 BEI Technologies, Inc. 133,772
5,300 + California Micro Devices CP 37,577
3,400 + Cyberoptics Corp. 50,558
4,799 + Daktronics, Inc. 119,447
3,700 + EMS Technologies, Inc. 61,494
3,686 + II-VI, Inc. 156,618
23,200 + Kopin Corp. 89,784
4,900 + LaserCard Corp.(c) 51,401
35,566 + MRV Communications, Inc. 130,527
11,780 Methode Electronics, Inc. 151,373
6,649 Park Electrochemical Corp. 144,150
2,067 + Supertex, Inc. 44,854
-------------
1,626,662
- ---------------------------------------------------------------------------------------------------------------------------
Electronics: Instruments 4,200 + Faro Technologies, Inc. 130,956
Gauges & Meters - 0.2% 7,782 + Itron, Inc. 186,068
3,801 Keithley Instruments, Inc. 74,880
2,500 + Measurement Specialties, Inc. 63,650
4,400 + Metrologic Instruments, Inc. 93,500
5,895 + Zygo Corp. 69,502
-------------
618,556
- ---------------------------------------------------------------------------------------------------------------------------
Electronics: Medical Systems - 0.9% 4,472 Analogic Corp. 200,301
4,800 + Aspect Medical Systems, Inc. 117,408
5,687 + Bruker BioSciences Corp. 22,919
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Electronics: Medical Systems 10,300 + CTI Molecular Imaging, Inc. $ 146,157
(concluded) 6,400 + Candela Corp. 72,704
11,232 + Cardiodynamics International Corp. 58,069
4,370 Datascope Corp. 173,445
1,000 E-Z-Em-Inc. 14,600
7,600 + EPIX Pharmaceuticals, Inc. 136,116
5,500 + Endocardial Solutions, Inc. 64,350
15,350 + eResearch Technology, Inc. 243,298
5,072 + Haemonetics Corp. 183,657
6,800 + Hologic, Inc. 186,796
6,900 + Illumina, Inc. 65,412
11,081 + Intuitive Surgical, Inc. 443,462
7,051 + Luminex Corp. 62,613
8,500 + Microvision, Inc.(c) 59,500
6,188 + Possis Medical, Inc. 83,414
1,200 + Quality Systems, Inc. 71,760
7,132 + TriPath Imaging, Inc. 63,974
15,386 + Visx, Inc. 398,036
8,000 + Wilson Greatbatch Technologies, Inc. 179,360
2,961 + Zoll Medical Corp. 101,858
-------------
3,149,209
- ---------------------------------------------------------------------------------------------------------------------------
Electronics: 10,800 + AMIS Holdings, Inc. 178,416
Semi-Conductors/Components - 1.9% 9,716 + Actel Corp. 170,419
9,641 + Alliance Semiconductor Corp. 35,672
25,200 + Cirrus Logic, Inc. 138,852
10,283 + DSP Group, Inc. 229,619
2,350 + Diodes, Inc. 53,181
7,529 + ESS Technology 53,531
14,827 + Exar Corp. 210,395
3,173 + Excel Technology, Inc. 82,498
8,000 + Formfactor, Inc. 217,120
11,400 + Genesis Microchip, Inc. 184,908
6,193 + IXYS Corp. 63,912
31,100 + Integrated Device Technology, Inc. 359,516
8,638 + Integrated Silicon Solutions, Inc. 70,832
37,500 + Lattice Semiconductor Corp. 213,750
10,500 + MIPS Technologies, Inc. 103,425
7,600 + Merix Corp. 87,552
23,700 + Micrel, Inc. 261,174
20,090 + Microsemi Corp. 348,762
19,100 + Microtune, Inc. 116,701
33,000 + Mindspeed Technologies, Inc. 91,740
5,800 + Monolithic System Technology, Inc. 36,134
42,800 + ON Semiconductor Corp. 194,312
16,500 + Omnivision Technologies, Inc.(c) 302,775
7,700 + PLX Technology, Inc. 80,080
7,693 + Pericom Semiconductor Corp. 72,545
12,164 + Pixelworks, Inc. 137,940
2,702 + Planar Systems, Inc. 30,343
61,300 + RF Micro Devices, Inc. 419,292
6,388 + SBS Technologies, Inc. 89,176
7,300 + Sigmatel, Inc. 259,369
24,476 + Silicon Image, Inc. 402,875
26,858 + Silicon Storage Technology, Inc. 159,805
1,900 + Siliconix, Inc. 69,331
6,561 + Sipex Corp. 30,705
2,300 + Sirf Technology Holdings, Inc. 29,256
47,333 + Skyworks Solutions, Inc. 446,350
6,800 + Tessera Technologies, Inc. 253,028
47,000 + Transmeta Corp.(c) 76,610
6,500 + Tripath Technology, Inc.(c) 8,125
45,136 + Triquint Semiconductor, Inc. 200,855
71,900 + Vitesse Semiconductor Corp. 253,807
-------------
6,824,688
- ---------------------------------------------------------------------------------------------------------------------------
Electronics: Technology - 0.9% 13,623 + Checkpoint Systems, Inc. 245,895
10,580 + Coherent, Inc. 322,055
5,152 Cubic Corp. 129,676
6,574 + DRS Technologies, Inc. 280,775
5,826 EDO Corp. 184,975
4,850 + Herley Industries, Inc. 98,649
30,430 + Identix, Inc. 224,573
2,800 + Innovative Solutions & Support, Inc. 93,408
9,584 + Intermagnetics General Corp. 243,529
24,500 + Kemet Corp. 219,275
2,400 + Maxwell Technologies, Inc. 24,336
3,700 + Scansource, Inc. 229,992
1,500 Sypris Solutions, Inc. 22,965
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Electronics: Technology 27,900 + Titan Corp. $ 451,980
(concluded) 16,906 + Trimble Navigation Ltd. 558,574
-------------
3,330,657
- ---------------------------------------------------------------------------------------------------------------------------
Energy Equipment - 0.1% 19,500 + Capstone Turbine Corp. 35,685
8,900 + Global Power Equipment Group, Inc. 87,576
18,626 + Plug Power, Inc. 113,805
-------------
237,066
- ---------------------------------------------------------------------------------------------------------------------------
Energy Miscellaneous - 0.7% 133,800 + Calpine Corp.(c) 527,172
11,226 + FuelCell Energy, Inc.(c) 111,137
6,400 Holly Corp. 178,368
11,900 + KFX, Inc.(c) 172,788
7,400 + Matrix Service Co. 59,644
5,058 Penn Virginia Corp. 205,203
12,100 + Syntroleum Corp. 97,163
21,565 + Tesoro Corp. 687,061
7,391 + Tetra Technologies, Inc. 209,165
12,197 + Veritas DGC, Inc. 273,335
-------------
2,521,036
- ---------------------------------------------------------------------------------------------------------------------------
Engineering & Contracting 14,402 + Dycom Industries, Inc. 439,549
Services - 0.3% 600 + Infrasource Services, Inc. 7,800
8,897 + Integrated Electrical Services, Inc. 43,061
2,200 + Layne Christensen Co. 39,930
25,600 + Quanta Services, Inc. 204,800
9,277 + URS Corp. 297,792
-------------
1,032,932
- ---------------------------------------------------------------------------------------------------------------------------
Entertainment - 0.3% 1,700 Carmike Cinemas, Inc. 62,050
5,140 Dover Motorsports, Inc. 29,452
8,555 + Gaylord Entertainment Co. 355,289
16,607 + Hollywood Entertainment Corp. 217,386
3,372 + Lodgenet Entertainment Corp. 59,651
9,615 Movie Gallery, Inc. 183,358
4,155 Speedway Motorsports, Inc. 162,793
-------------
1,069,979
- ---------------------------------------------------------------------------------------------------------------------------
Fertilizers - 0.2% 38,300 + The Mosaic Co. 625,056
9,700 + Terra Industries, Inc. 86,136
-------------
711,192
- ---------------------------------------------------------------------------------------------------------------------------
Finance Companies - 0.2% 5,700 + Accredited Home Lenders Holding Co. 283,176
1,600 Asta Funding, Inc. 42,944
3,200 + Circle Group Holdings, Inc. 7,104
3,400 + Education Lending Group, Inc. 52,734
2,650 MortgageIT Holdings, Inc. 47,568
1,500 + United PanAm Financial Corp. 28,590
6,300 + World Acceptance Corp. 173,313
-------------
635,429
- ---------------------------------------------------------------------------------------------------------------------------
Finance: Small Loan - 0.0% 1,750 + Collegiate Funding Services LLC 24,657
2,700 + Encore Capital Group, Inc. 64,206
1,200 + Nelnet, Inc. Class A 32,316
-------------
121,179
- ---------------------------------------------------------------------------------------------------------------------------
Financial Data Processing Services & 8,800 + Advent Software, Inc. 180,224
Systems - 0.8% 495 + CCC Information Services Group 10,994
4,900 + Carreker Corp. 42,140
6,189 + CompuCredit Corp. 169,207
14,000 + Corillian Corp. 68,880
11,300 + Cybersource Corp. 80,795
11,630 + Digital Insight Corp. 213,992
16,288 + eFunds Corp. 391,075
9,523 + eSpeed, Inc. Class A 117,800
14,400 + Hypercom Corp. 85,248
4,000 + iPayment, Inc. 198,080
9,882 John H Harland Co. 356,740
10,449 + Kronos, Inc. 534,257
12,564 NDCHealth Corp. 233,565
15,813 + PRG-Schultz International, Inc. 79,539
15,440 + Portal Software, Inc. 40,916
300 + TNS, Inc. 6,555
6,200 + TradeStation Group, Inc. 43,524
-------------
2,853,531
- ---------------------------------------------------------------------------------------------------------------------------
Financial Information Services - 0.3% 7,100 Factset Research Systems, Inc. 414,924
31,600 + Homestore, Inc. 95,748
10,300 + Interactive Data Corp. 223,922
24,822 + S1 Corp. 224,887
400 Value Line, Inc. 15,695
-------------
975,176
- ---------------------------------------------------------------------------------------------------------------------------
Financial Miscellaneous - 0.7% 3,900 + ACE Cash Express, Inc. 115,674
7,300 Advanta Corp. Class B 177,171
900 + Asset Acceptance Capital Corp. 19,170
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Financial Miscellaneous 9,419 Cash America International, Inc. $ 280,027
(concluded) 300 + Enstar Group, Inc. 18,750
2,500 Federal Agricultural Mortgage Corp. Class B 58,250
5,567 Financial Federal Corp. 218,226
4,900 + First Cash Financial Services, Inc. 130,879
5,700 + Harris & Harris Group, Inc. 93,366
4,899 LandAmerica Financial Group, Inc. 264,203
9,600 + Metris Cos., Inc. 122,400
3,000 + Portfolio Recovery Associates, Inc. 123,660
3,900 Sanders Morris Harris Group, Inc. 69,459
15,136 + Sotheby's Holdings Class A 274,870
4,692 Sterling Bancorp 132,549
5,622 Stewart Information Services Corp. 234,156
933 + Stifel Financial Corp. 19,546
2,676 + Triad Guaranty, Inc. 161,844
2,291 WSFS Financial Corp. 138,193
-------------
2,652,393
- ---------------------------------------------------------------------------------------------------------------------------
Foods - 0.7% 3,634 American Italian Pasta Co. Class A 84,491
2,800 Cal-Maine Foods, Inc.(c) 33,852
11,200 Chiquita Brands International, Inc. 247,072
11,756 Flowers Foods, Inc. 371,254
6,257 + Hain Celestial Group, Inc. 129,332
2,300 J&J Snack Foods Corp. 112,769
1,000 + John B. Sanfilippo & Son 25,780
10,100 Lance, Inc. 192,203
3,400 + M&F Worldwide Corp. 46,308
1,063 + Maui Land & Pineapple Co., Inc. 41,723
5,300 Natures Sunshine Prods, Inc. 107,908
3,700 + Nutraceutical International Corp. 57,017
13,300 + Performance Food Group Co. 357,903
500 + Provide Commerce, Inc. 18,575
10,095 Ralcorp Holdings, Inc. 423,283
2,450 Sanderson Farms, Inc. 106,036
12 Seaboard Corp. 11,976
15,557 Sensient Technologies Corp. 373,212
-------------
2,740,694
- ---------------------------------------------------------------------------------------------------------------------------
Forest Products - 0.3% 3,309 Deltic Timber Corp. 140,467
16,921 Longview Fibre Co. 306,947
5,244 Pope & Talbot, Inc. 89,725
8,497 Potlatch Corp. 429,778
5,834 Universal Forest Products, Inc. 253,196
-------------
1,220,113
- ---------------------------------------------------------------------------------------------------------------------------
Forms & Bulk Printing Services - 0.0% 4,500 Ennis, Inc. 86,625
4,145 The Standard Register Co. 58,527
-------------
145,152
- ---------------------------------------------------------------------------------------------------------------------------
Funeral Parlors & Cemeteries - 0.1% 13,300 + Alderwoods Group, Inc. 151,354
34,424 + Stewart Enterprises, Inc. Class A 240,624
-------------
391,978
- ---------------------------------------------------------------------------------------------------------------------------
Glass - 0.0% 10,900 Apogee Enterprises, Inc. 146,169
- ---------------------------------------------------------------------------------------------------------------------------
Gold - 0.1% 69,800 + Coeur d'Alene Mines Corp.(c) 274,314
3,200 Royal Gold, Inc. 58,368
-------------
332,682
- ---------------------------------------------------------------------------------------------------------------------------
Health Care Facilities - 0.7% 10,000 + American Healthways, Inc. 330,400
36,526 + Beverly Enterprises, Inc. 334,213
5,700 + Genesis HealthCare Corp. 199,671
7,900 + Kindred Healthcare, Inc. 236,605
5,850 LCA-Vision, Inc. 136,832
11,000 + LifePoint Hospitals, Inc. 383,020
1,000 + Medcath Corp. 24,640
2,100 National Healthcare Corp. 74,130
4,200 + Psychiatric Solutions, Inc. 153,552
4,000 + Res-Care, Inc. 60,880
1,824 + Specialty Laboratories, Inc. 20,137
4,237 + Sunrise Senior Living, Inc. 196,427
9,800 + United Surgical Partners International, Inc. 408,660
-------------
2,559,167
- ---------------------------------------------------------------------------------------------------------------------------
Health Care Management Services - 1.3% 7,300 + AMERIGROUP Corp. 552,318
9,041 + Allscripts Healthcare Solutions, Inc. 96,467
10,800 + Amsurg Corp. 319,032
14,000 + Centene Corp. 396,900
8,200 + Cerner Corp. 435,994
2,100 Computer Programs & Systems, Inc. 48,615
2,957 + Corvel Corp. 79,188
12,131 + Eclipsys Corp. 247,836
28,800 + First Health Group Corp. 538,848
17,097 Hooper Holmes, Inc. 101,214
2,800 + Molina Healthcare, Inc. 129,864
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Health Care Management Services 16,900 + OCA, Inc.(c) $ 107,315
(concluded) 5,900 + Omnicell, Inc. 64,900
6,500 + Pediatrix Medical Group, Inc. 416,325
8,998 + Per-Se Technologies, Inc. 142,438
30,700 Select Medical Corp. 540,320
7,226 + Sierra Health Services 398,225
1,900 + WellCare Health Plans, Inc. 61,750
-------------
4,677,549
- ---------------------------------------------------------------------------------------------------------------------------
Health Care Services - 0.6% 2,500 + Alliance Imaging, Inc. 28,125
3,400 + Amedisys, Inc. 110,126
15,400 + Apria Healthcare Group, Inc. 507,430
3,900 + Bio-Reference Labs, Inc. 67,860
2 + Dynacq Healthcare, Inc. 10
5,912 + Gentiva Health Services, Inc. 98,849
4,950 Healthcare Services Group 103,158
6,027 + IDX Systems Corp. 207,690
6,000 + LabOne, Inc. 192,240
4,000 + Matria Healthcare, Inc. 156,280
10,000 + Odyssey HealthCare, Inc. 136,800
16,336 + Province Healthcare Co. 365,110
1,300 + Symbion, Inc. 28,704
3,900 + VistaCare, Inc. Class A 64,857
-------------
2,067,239
- ---------------------------------------------------------------------------------------------------------------------------
Homebuilding - 0.4% 4,017 Beazer Homes USA, Inc. 587,326
1,300 + Dominion Homes, Inc. 32,790
5,060 + Levitt Corp. Class A 154,684
4,400 M/I Homes, Inc. 242,484
3,400 + Meritage Homes Corp. 383,180
800 + Orleans Homebuilders, Inc. 15,880
3,050 Technical Olympic USA, Inc. 77,409
1,400 + William Lyon Homes, Inc. 98,336
-------------
1,592,089
- ---------------------------------------------------------------------------------------------------------------------------
Hotel/Motel - 0.0% 6,579 Marcus Corp. 165,396
- ---------------------------------------------------------------------------------------------------------------------------
Household Furnishings - 0.6% 3,400 American Woodmark Corp. 148,512
3,400 Bassett Furniture Industries, Inc. 66,725
11,800 + The Bombay Co, Inc. 65,254
2,800 + Department 56 46,620
9,400 Ethan Allen Interiors, Inc. 376,188
14,000 Furniture Brands International, Inc. 350,700
5,036 Haverty Furniture Cos., Inc. 93,166
600 Hooker Furniture Corp. 13,620
5,200 + Kirkland's, Inc. 63,908
16,100 La-Z-Boy, Inc. 247,457
4,488 Libbey, Inc. 99,678
3,700 Lifetime Hoan Corp. 58,830
12,700 + Select Comfort Corp. 227,838
2,600 Stanley Furniture Co., Inc. 116,870
4,000 + Tempur-Pedic International, Inc. 84,800
-------------
2,060,166
- ---------------------------------------------------------------------------------------------------------------------------
Identification Control & Filter 7,012 + Advanced Energy Industries, Inc. 64,020
Devices - 1.0 12,967 + Artesyn Technologies, Inc. 146,527
17,541 + Asyst Technologies Inc. 89,284
6,894 C&D Technologies, Inc. 117,474
5,931 + CUNO, Inc. 352,301
3,566 + ESCO Technologies, Inc. 273,334
6,800 + Flanders Corp. 65,280
16,800 + Flowserve Corp. 462,672
1,875 The Gorman-Rupp Co. 43,125
15,821 IDEX Corp. 640,751
7,500 + Magnetek, Inc. 51,750
6,326 Mine Safety Appliances Co. 320,728
11,482 + Paxar Corp. 254,556
8,300 + RAE Systems, Inc. 60,590
3,612 Robbins & Myers, Inc. 86,074
8,927 + Veeco Instruments, Inc.(c) 188,092
5,996 Vicor Corp. 78,608
10,500 + Viisage Technology, Inc. 94,605
7,936 Watts Water Technologies, Inc. Class A 255,857
6,917 X-Rite, Inc. 110,741
-------------
3,756,369
- ---------------------------------------------------------------------------------------------------------------------------
Insurance: Life - 0.5% 11,500 AmerUs Group Co. 520,950
3,300 American Equity Investment Life Holding Co. 35,541
6,700 + Ceres Group, Inc. 34,572
8,009 + Citizens, Inc. 51,017
8,570 Delphi Financial Group Class A 395,505
2,780 Great American Financial Resources, Inc. 48,289
1,142 Kansas City Life Ins. Co. 54,074
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Insurance: Life 662 + National Western Life Insurance Co. Class A $ 110,296
(concluded) 31,400 The Phoenix Cos., Inc. 392,500
7,093 Presidential Life Corp. 120,297
8,800 + Universal American Financial Corp. 136,136
-------------
1,899,177
- ---------------------------------------------------------------------------------------------------------------------------
Insurance: Multi-Line - 0.5% 10,740 Alfa Corp. 163,087
3,186 + CNA Surety Corp. 42,533
6,509 Crawford & Co. Class B 48,817
100 EMC Insurance Group, Inc. 2,164
3,425 FBL Financial Group, Inc. Class A 97,784
6,900 + HealthExtras, Inc. 112,470
8,606 Hilb Rogal & Hobbs Co. 311,881
15,268 Horace Mann Educators Corp. 291,313
1,440 Independence Holding Co. 26,568
3,200 Penn-America Group, Inc. 48,320
2,597 + Pico Holdings, Inc. 53,940
12,639 UICI 428,462
4,137 Zenith National Insurance Corp. 206,188
-------------
1,833,527
- ---------------------------------------------------------------------------------------------------------------------------
Insurance: Property-Casualty - 1.2% 7,500 21st Century Insurance Group 102,000
1,550 Affirmative Insurance Holdings, Inc. 26,102
3,571 + American Physicians Capital, Inc. 128,627
9,266 + Argonaut Group, Inc. 195,791
2,532 Baldwin & Lyons, Inc. Class B 67,832
3,300 Bristol West Holdings, Inc. 66,000
8,045 Commerce Group, Inc. 491,067
12,700 + Danielson Holdings Corp. 107,315
5,500 Direct General Corp. 176,550
2,100 Donegal Group, Inc. Class A 48,153
2,800 + Fpic Insurance Group, Inc. 99,064
5,662 Harleysville Group, Inc. 135,152
6,300 Infinity Property & Casualty Corp. 221,760
1,858 The Midland Co. 58,100
1,100 NYMAGIC, Inc. 27,830
2,800 + Navigators Group, Inc. 84,308
17,615 + Ohio Casualty Corp. 408,844
6,106 + PMA Capital Corp. Class A 63,197
5,956 + Philadelphia Consolidated Holding Co. 393,930
8,723 + ProAssurance Corp. 341,157
6,454 RLI Corp. 268,293
1,500 Safety Insurance Group, Inc. 46,725
9,554 Selective Insurance Group 422,669
3,312 State Auto Financial Corp. 85,615
5,600 United Fire & Casualty Co. 188,776
8,800 Vesta Insurance Group, Inc. 32,384
-------------
4,287,241
- ---------------------------------------------------------------------------------------------------------------------------
Investment Management Companies - 0.5% 7,050 + Affiliated Managers Group 477,567
22,000 Apollo Investment Corp. 332,200
6,000 Calamos Asset Management, Inc. Class A 162,000
500 Capital Southwest Corp. 39,260
1,500 Cohen & Steers, Inc. 24,375
1,696 Gabelli Asset Management, Inc. Class A 82,290
12,800 MCG Capital Corp. 219,264
11,600 National Financial Partners Corp. 450,080
-------------
1,787,036
- ---------------------------------------------------------------------------------------------------------------------------
Jewelry, Watches & Gemstones - 0.0% 4,800 Movado Group, Inc. 89,520
- ---------------------------------------------------------------------------------------------------------------------------
Leisure Time - 0.7% 5,700 Action Performance Cos., Inc. 62,643
23,300 Callaway Golf Co. 314,550
1,400 + Escalade, Inc. 18,704
11,000 + K2, Inc. 174,680
2,200 + Life Time Fitness, Inc. 56,936
10,678 + Penn National Gaming, Inc. 646,553
17,913 SCP Pool Corp. 571,425
24,800 + Six Flags, Inc.(c) 133,176
2,200 + Steinway Musical Instruments 63,668
6,978 Sturm Ruger & Co., Inc. 63,011
6,456 + Vail Resorts, Inc. 144,744
5,200 + West Marine, Inc. 128,700
-------------
2,378,790
- ---------------------------------------------------------------------------------------------------------------------------
Machine Tools - 0.1% 10,992 Lincoln Electric Holdings, Inc. 379,664
- ---------------------------------------------------------------------------------------------------------------------------
Machinery & Engineering - 0.0% 6,761 Applied Industrial Technologies, Inc. 185,238
- ---------------------------------------------------------------------------------------------------------------------------
Machinery: Agricultural - 0.0% 3,913 Lindsay Manufacturing Co. 101,268
- ---------------------------------------------------------------------------------------------------------------------------
Machinery: Construction & 2,600 + ASV, Inc. 124,540
Handling - 0.5% 4,517 + Astec Industries, Inc. 77,738
9,411 Manitowoc Co. 354,324
1,487 NACCO Industries, Inc. Class A 156,730
10,824 Stewart & Stevenson Services 218,970
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Machinery: Construction & Handling 15,843 + Terex Corp. $ 754,919
(concluded) -------------
1,687,221
- ---------------------------------------------------------------------------------------------------------------------------
Machinery: Industrial/Specialty - 1.0% 8,200 + Actuant Corp. Class A 427,630
6,900 + EnPro Industries, Inc. 204,033
12,600 + FSI International, Inc. 58,842
7,057 + Gardner Denver, Inc. 256,099
16,400 Joy Global, Inc. 712,252
3,270 + Kadant, Inc. 67,035
10,803 Kennametal, Inc. 537,665
2,000 + Middleby Corp. 101,440
16,334 + Milacron, Inc. 55,372
9,310 Nordson Corp. 373,052
6,028 Tecumseh Products Co. Class A 288,138
2,737 Tennant Co. 108,522
3,799 Thomas Industries, Inc. 151,656
3,093 Woodward Governor Co. 221,490
-------------
3,563,226
- ---------------------------------------------------------------------------------------------------------------------------
Machinery: Oil Well Equipment & 4,168 CARBO Ceramics, Inc. 287,592
Services - 1.3% 12,737 + Cal Dive International, Inc. 519,033
1,688 + Dril-Quip, Inc. 40,951
29,800 + Global Industries Ltd. 247,042
4,117 Gulf Island Fabrication, Inc. 89,874
23,200 + Hanover Compressor Co. 327,816
14,700 Helmerich & Payne, Inc. 500,388
3,000 + Hornbeck Offshore Services, Inc. 57,900
4,149 + Hydril 188,821
17,746 + Input/Output, Inc. 156,875
44,100 + Key Energy Services, Inc. 520,380
2,200 Lufkin Industries, Inc. 87,798
27,820 + Newpark Resources 143,273
8,604 + Oceaneering International, Inc. 321,101
7,400 + Oil States International, Inc. 142,746
31,281 + Parker Drilling Co. 122,934
3,300 RPC, Inc. 82,896
5,108 + SEACOR Holdings, Inc. 272,767
14,705 + Superior Energy Services 226,604
4,326 + Universal Compression Holdings, Inc. 151,021
9,457 + W-H Energy Services, Inc. 211,459
-------------
4,699,271
- ---------------------------------------------------------------------------------------------------------------------------
Machinery: Specialty - 0.3% 5,100 + Applied Films Corp. 109,956
2,100 Bucyrus International, Inc. 85,344
4,300 Cascade Corp. 171,785
6,625 Engineered Support Systems, Inc. 392,333
9,861 Helix Technology Corp. 171,483
15,098 JLG Industries, Inc. 296,374
5,441 + Semitool, Inc. 50,492
-------------
1,277,767
- ---------------------------------------------------------------------------------------------------------------------------
Manufactured Housing - 0.1% 23,327 + Champion Enterprises, Inc. 275,725
4,205 + Palm Harbor Homes, Inc. 70,980
1,501 Skyline Corp. 61,241
-------------
407,946
- ---------------------------------------------------------------------------------------------------------------------------
Manufacturing - 0.2% 17,259 Federal Signal Corp. 304,794
10,664 + Rayovac Corp. 325,892
4,031 Standex International Corp. 114,843
-------------
745,529
- ---------------------------------------------------------------------------------------------------------------------------
Medical & Dental Instruments & 4,700 + Abaxis, Inc. 68,103
Supplies - 2.9% 3,600 + Abiomed, Inc. 55,584
10,300 + Advanced Medical Optics, Inc. 423,742
5,550 + Advanced Neuromodulation Systems, Inc. 219,003
14,700 + Align Technology, Inc. 158,025
8,900 + American Medical Systems Holdings, Inc. 372,109
2,900 + Animas Corp. 45,327
6,308 Arrow International, Inc. 195,485
5,200 + Bio-Rad Laboratories, Inc. Class A 298,324
8,600 Biolase Technology, Inc.(c) 93,482
3,549 + Biosite, Inc.(c) 218,405
22,600 + Cardiac Science, Inc. 48,364
13,800 + Cepheid, Inc. 137,172
2,313 + Closure Medical Corp. 45,103
7,400 + Conceptus, Inc. 60,051
8,228 + Conmed Corp. 233,840
4,469 + Cyberonics, Inc.(c) 92,598
4,900 + DJ Orthopedics, Inc. 104,958
7,300 Diagnostic Products Corp. 401,865
7,400 + Encore Medical Corp. 50,246
1,600 + Exactech, Inc. 29,264
4,700 + I-Flow Corp. 85,681
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Medical & Dental Instruments & Supplies 2,150 + ICU Medical, Inc.(c) $ 58,781
(concluded) 15,263 + Immucor, Inc. 358,821
8,922 Invacare Corp. 412,732
3,940 + Inverness Medical Innovations, Inc. 98,894
6,900 + Kyphon, Inc. 177,744
2,678 Landauer, Inc. 122,385
6,300 + Laserscope 226,233
11,100 + Lifecell Corp. 113,442
4,200 + Medical Action Industries, Inc. 82,740
14,744 Mentor Corp. 497,463
7,810 + Merit Medical Systems, Inc. 119,337
10,600 + Microtek Medical Holdings, Inc. 43,036
3,637 + Molecular Devices Corp. 73,104
4,200 + NuVasive, Inc. 43,050
7,114 + Ocular Sciences, Inc. 348,657
15,359 + OraSure Technologies, Inc. 103,212
14,000 + Orthologic Corp. 87,500
17,600 + Orthovita, Inc. 73,744
12,998 Owens & Minor, Inc. 366,154
23,473 + PSS World Medical, Inc. 293,765
2,700 + Palomar Medical Technologies, Inc. 70,389
8,714 PolyMedica Corp. 324,945
10,600 + Sola International, Inc. 291,924
9,000 + Sonic Innovations, Inc. 37,530
4,915 + SonoSite, Inc. 166,864
20,300 + Steris Corp. 481,516
5,683 + SurModics, Inc.(c) 184,754
12,900 + Sybron Dental Specialties, Inc. 456,402
13,929 + Techne Corp. 541,838
10,700 + ThermoGenesis Corp. 67,517
11,947 + Thoratec Corp. 124,488
5,900 + Urologix, Inc. 38,173
4,580 + Ventana Medical Systems 293,074
10,200 + Viasys Healthcare, Inc. 193,800
1,824 Vital Signs, Inc. 70,990
8,676 West Pharmaceutical Services, Inc. 217,160
7,300 + Wright Medical Group, Inc. 208,050
600 Young Innovations, Inc. 20,238
-------------
10,927,177
- ---------------------------------------------------------------------------------------------------------------------------
Medical Services - 0.3% 4,300 + America Service Group, Inc. 115,111
856 + Angiodynamics, Inc. 18,960
9,300 + Hanger Orthopedic Group, Inc. 75,330
7,500 + Magellan Health Services, Inc. 256,200
4,781 Option Care, Inc. 82,185
9,997 + Parexel International Corp. 202,939
700 + Proxymed, Inc. 6,874
6,195 + RehabCare Group, Inc. 173,398
-------------
930,997
- ---------------------------------------------------------------------------------------------------------------------------
Metal Fabricating - 1.0% 3,500 CIRCOR International, Inc. 81,060
9,578 Commercial Metals Co. 484,264
5,250 + Encore Wire Corp. 69,983
9,726 Kaydon Corp. 321,153
9,558 + Lone Star Technologies 319,811
14,263 + Maverick Tube Corp. 432,169
7,100 + Metals USA, Inc. 131,705
5,565 NN, Inc. 73,514
4,655 + NS Group, Inc. 129,409
2,556 Penn Engineering & Manufacturing Corp. 46,264
5,805 Quanex Corp. 398,049
7,013 + RTI International Metals, Inc. 144,047
8,647 Reliance Steel & Aluminum Co. 336,887
5,593 Ryerson Tull, Inc. 88,090
18,000 + The Shaw Group, Inc. 321,300
4,158 Valmont Industries, Inc. 104,407
-------------
3,482,112
- ---------------------------------------------------------------------------------------------------------------------------
Metals & Minerals Miscellaneous - 0.5% 7,173 AMCOL International Corp. 144,106
5,511 + Brush Engineered Materials, Inc. 101,953
3,059 Cleveland-Cliffs, Inc. 317,708
3,300 Compass Minerals International, Inc. 79,959
31,244 + GrafTech International Ltd. 295,568
34,500 + Hecla Mining Co. 201,135
5,953 Minerals Technologies, Inc. 397,065
12,064 + Stillwater Mining Co. 135,841
1,000 + Titanium Metals Corp. 24,140
-------------
1,697,475
- ---------------------------------------------------------------------------------------------------------------------------
Milling: Fruit & Grain 10,789 Corn Products International, Inc. 577,859
Processing - 0.2%
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Milling: Fruit & Grain Processing 3,800 MGP Ingredients, Inc. $ 32,832
(concluded) -------------
610,691
- ---------------------------------------------------------------------------------------------------------------------------
Miscellaneous: Health Care - 0.1% 13,500 + NeighborCare, Inc. 414,720
- ---------------------------------------------------------------------------------------------------------------------------
Miscellaneous: Materials & 4,500 + Ceradyne, Inc. 257,445
Commodities - 0.2% 9,679 + Symyx Technologies 291,144
6,589 WD-40 Co. 187,193
-------------
735,782
- ---------------------------------------------------------------------------------------------------------------------------
Miscellaneous: Materials & 8,838 + Insituform Technologies, Inc. Class A 200,357
Processing - 0.2% 4,700 Metal Management, Inc. 126,289
5,655 + Rogers Corp. 243,731
27,759 USEC, Inc. 268,985
-------------
839,362
- ---------------------------------------------------------------------------------------------------------------------------
Miscellaneous: Producer Durables - 0.0% 11,600 + BE Aerospace, Inc. 135,024
- ---------------------------------------------------------------------------------------------------------------------------
Multi - Sector Companies - 0.4% 13,071 + GenCorp, Inc. 242,728
7,294 Kaman Corp. Class A 92,269
8,199 Lancaster Colony Corp. 351,491
5,200 Raven Industries, Inc. 110,812
1,465 + Sequa Corp. Class A 89,585
12,650 Trinity Industries, Inc. 431,112
8,202 Walter Industries, Inc. 276,653
-------------
1,594,650
- ---------------------------------------------------------------------------------------------------------------------------
Office Furniture & Business 1,000 + General Binding Corp. 13,140
Equipment - 0.1% 5,224 + Imagistics International, Inc. 175,840
7,574 Kimball International, Inc. Class B 112,171
10,640 + Presstek, Inc. 102,995
3,400 + Transact Technologies, Inc. 72,624
-------------
476,770
- ---------------------------------------------------------------------------------------------------------------------------
Offshore Drilling - 0.0% 2,927 + Atwood Oceanics, Inc. 152,497
- ---------------------------------------------------------------------------------------------------------------------------
Oil: Crude Producers - 2.7% 1,700 + Atlas America, Inc. 60,775
4,901 Berry Petroleum Co. Class A 233,778
11,600 + Brigham Exploration Co. 104,400
10,874 Cabot Oil & Gas Corp. Class A 481,174
6,000 + Callon Petroleum Co. 86,760
8,400 + Cheniere Energy, Inc. 535,080
13,700 + Cimarex Energy Co. 519,230
2,400 + Clayton Williams Energy, Inc. 54,960
10,457 + Comstock Resources, Inc. 230,577
16,970 + Denbury Resources, Inc. 465,826
5,700 + Edge Petroleum Corp. 83,106
6,200 + Encore Acquisition Co. 216,442
8,000 + Energy Partners Ltd. 162,160
11,200 + FX Energy, Inc.(c) 130,816
14,700 + Forest Oil Corp. 466,284
9,815 Frontier Oil Corp. 261,668
61,743 + Grey Wolf, Inc. 325,386
11,900 + Harvest Natural Resources, Inc. 205,513
3,283 + Houston Exploration Co. 184,866
25,872 + Magnum Hunter Resources, Inc. 333,749
4,200 + McMoRan Exploration Co.(c) 78,540
14,111 + Meridian Resource Corp. 85,372
4,400 + Petroleum Development Corp. 169,708
25,490 + Plains Exploration & Production Co. 662,740
10,320 + Quicksilver Resources, Inc. 379,570
22,837 Range Resources Corp. 467,245
7,420 + Remington Oil & Gas Corp. 202,195
4,749 Resource America, Inc. Class A 154,343
6,887 + Spinnaker Exploration Co. 241,527
9,826 St. Mary Land & Exploration Co. 410,137
6,378 + Stone Energy Corp. 287,584
9,217 + Swift Energy Co. 266,740
4,500 + Todco Class A 82,890
12,508 + Unit Corp. 477,931
17,683 Vintage Petroleum, Inc. 401,227
6,800 + Whiting Petroleum Corp. 205,700
-------------
9,715,999
- ---------------------------------------------------------------------------------------------------------------------------
Oil: Integrated Domestic - 0.1% 6,900 + Delta Petroleum Corp. 107,985
4,500 + Giant Industries, Inc. 119,295
14,600 + KCS Energy, Inc. 215,788
16,500 + Mission Resources Corp. 96,360
-------------
539,428
- ---------------------------------------------------------------------------------------------------------------------------
Paints & Coatings - 0.2% 14,176 Ferro Corp. 328,741
9,540 HB Fuller Co. 271,985
1,780 Kronos Worldwide, Inc. 72,554
-------------
673,280
- ---------------------------------------------------------------------------------------------------------------------------
Paper - 0.3% 8,726 Albany International Corp. Class A 306,806
7,398 + Buckeye Technologies, Inc. 96,248
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Paper 11,074 + Caraustar Industries, Inc. $ 186,265
(concluded) 5,092 Chesapeake Corp. 138,299
9,401 Glatfelter 143,647
7,580 Rock-Tenn Co. Class A 114,913
15,142 Wausau-Mosinee Paper Corp. 270,436
-------------
1,256,614
- ---------------------------------------------------------------------------------------------------------------------------
Plastics - 0.1% 8,354 Spartech Corp. 226,310
- ---------------------------------------------------------------------------------------------------------------------------
Pollution Control & Environmental 16,300 + Darling International, Inc. 71,068
Services - 0.2% 3,400 + Duratek, Inc. 84,694
11,346 + Headwaters, Inc. 323,361
5,767 + Ionics, Inc. 249,942
3,000 + TRC Cos., Inc. 51,000
-------------
780,065
- ---------------------------------------------------------------------------------------------------------------------------
Power Transmission Equipment - 0.1% 8,151 Regal-Beloit Corp. 233,119
3,911 Woodhead Industries, Inc. 62,693
-------------
295,812
- ---------------------------------------------------------------------------------------------------------------------------
Printing & Copying Services - 0.0% 8,982 Bowne & Co., Inc. 146,047
2,400 Schawk, Inc. 43,632
-------------
189,679
- ---------------------------------------------------------------------------------------------------------------------------
Production Technology Equipment - 1.4% 2,200 + ADE Corp. 41,184
10,857 + ATMI, Inc. 244,608
4,200 + August Technology Corp. 44,226
33,800 + Axcelis Technologies, Inc. 274,794
15,488 + Brooks Automation, Inc. 266,703
13,656 Cognex Corp. 381,002
27,968 + Credence Systems Corp. 255,907
10,700 + Cymer, Inc. 316,078
5,231 + Dionex Corp. 296,441
5,508 + Dupont Photomasks, Inc. 145,466
10,061 + Electro Scientific Industries, Inc. 198,805
14,400 + Entegris, Inc. 143,280
7,990 + Esterline Technologies Corp. 260,874
7,855 + FEI Co. 164,955
3,200 + Intevac, Inc. 24,192
18,156 + Kulicke & Soffa Industries, Inc. 156,505
16,603 + LTX Corp. 127,677
7,700 MTS Systems Corp. 260,337
11,099 + Mattson Technology, Inc. 124,975
12,100 + Mykrolis Corp. 171,457
6,162 + Photon Dynamics, Inc. 149,613
10,079 + Photronics, Inc. 166,304
5,300 + Rofin-Sinar Technologies, Inc. 224,985
4,473 + Rudolph Technologies, Inc. 76,801
6,990 + Ultratech, Inc. 131,762
10,642 + Varian Semiconductor Equipment Associates, Inc. 392,158
-------------
5,041,089
- ---------------------------------------------------------------------------------------------------------------------------
Publishing: Miscellaneous - 0.5% 4,681 Advanced Marketing Services 47,091
8,694 Banta Corp. 389,143
3,400 + Consolidated Graphics, Inc. 156,060
1,300 Courier Corp. 67,496
2,782 + Martha Stewart Living Omnimedia Class A(c) 80,734
4,207 + Playboy Enterprises, Inc. Class B 51,704
44,600 + Primedia, Inc. 169,480
31,100 The Reader's Digest Association, Inc. Class A 432,601
9,660 + Scholastic Corp. 357,034
3,300 Thomas Nelson, Inc. 74,580
-------------
1,825,923
- ---------------------------------------------------------------------------------------------------------------------------
Publishing: Newspapers - 0.2% 20,029 Hollinger International, Inc. Class A 314,055
8,500 Journal Communications, Inc. Class A 153,595
12,233 + Journal Register Co. 236,464
2,055 Pulitzer, Inc. 133,267
-------------
837,381
- ---------------------------------------------------------------------------------------------------------------------------
Radio & TV Broadcasters - 0.5% 1,833 + Beasley Broadcasting Group, Inc. Class A 32,132
13,500 + Cumulus Media, Inc. Class A 203,580
17,400 + Emmis Communications Corp. Class A 333,906
1,500 + Fisher Communications, Inc. 73,320
13,100 Gray Television, Inc. 203,050
5,254 Liberty Corp. 230,966
8,400 + Lin TV Corp. Class A 160,440
5,900 + Nexstar Broadcasting Group, Inc. Class A 54,398
20,268 + Paxson Communications Corp. 27,970
10,171 + Regent Communications, Inc. 53,906
5,433 + Saga Communications, Inc. Class A 91,546
3,183 + Salem Communications Corp. Class A 79,416
10,864 Sinclair Broadcast Group, Inc. Class A 100,057
14,584 + Spanish Broadcasting System Class A 154,007
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Radio & TV Broadcasters 1,168 World Wrestling Entertainment, Inc. $ 14,168
(concluded) 7,108 + Young Broadcasting, Inc. Class A 75,060
-------------
1,887,922
- ---------------------------------------------------------------------------------------------------------------------------
Railroad Equipment - 0.1% 500 Greenbrier Cos., Inc. 16,925
12,739 Westinghouse Air Brake Technologies Corp. 271,595
-------------
288,520
- ---------------------------------------------------------------------------------------------------------------------------
Railroads - 0.3% 5,281 Florida East Coast Industries 238,173
6,350 + Genesee & Wyoming, Inc. Class A 178,626
21,876 + Kansas City Southern 387,861
8,902 + RailAmerica, Inc. 116,171
-------------
920,831
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate - 0.4% 1,500 + Avatar Holdings, Inc.(c) 72,150
3,800 + Bluegreen Corp. 75,354
1,900 Consolidated-Tomoka Land Co. 81,700
3,700 + First Acceptance Corp. 33,152
6,000 LNR Property Corp. 377,460
1,300 + Reading International, Inc. Class A 10,868
8,000 + Sunterra Corp. 112,320
250 + Tarragon Corp. 4,463
1,915 + Tejon Ranch Co. 78,132
10,100 + Trammell Crow Co. 182,911
9,900 + WCI Communities, Inc. 291,060
-------------
1,319,570
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 8,340 AMLI Residential Properties Trust 266,880
(REIT) - 7.0% 12,400 Aames Investment Corp. 132,680
10,601 Acadia Realty Trust 172,796
6,100 Affordable Residential Communities 87,535
567 + Alexander's, Inc. 121,905
6,656 Alexandria Real Estate Equities, Inc. 495,340
2,150 American Campus Communities, Inc. 48,354
37,000 American Financial Realty Trust 598,660
10,197 American Home Mortgage Investment Corp. 349,247
15,700 Anthracite Capital, Inc. 194,052
14,800 Anworth Mortgage Asset Corp. 158,508
3,900 Arbor Realty Trust, Inc. 95,706
7,900 Ashford Hospitality Trust, Inc. 85,873
5,899 Bedford Property Investors 167,591
4,650 BioMed Realty Trust, Inc. 103,277
12,347 Brandywine Realty Trust 362,878
8,348 CRT Properties, Inc. 199,183
12,850 Capital Automotive REIT 456,496
10,100 Capital Lease Funding, Inc. 126,250
700 Capital Trust, Inc. 21,497
7,600 Capstead Mortgage Corp. 80,104
18,200 CarrAmerica Realty Corp. 600,600
7,900 Cedar Shopping Centers, Inc. 112,970
5,006 Colonial Properties Trust 196,586
17,075 Commercial Net Lease Realty 351,745
15,803 + Cornerstone Realty Income Trust, Inc. 157,714
9,900 Corporate Office Properties Trust SBI MD 290,565
3,500 Correctional Properties Trust 101,080
11,000 Cousins Properties, Inc. 332,970
6,927 Eastgroup Properties 265,443
8,880 Entertainment Properties Trust 395,604
15,040 Equity Inns, Inc. 176,570
6,194 Equity Lifestyle Properties, Inc. 221,436
9,300 Equity One, Inc. 220,689
6,695 Essex Property Trust, Inc. 561,041
3,850 Extra Space Storage, Inc. 51,321
16,370 + FelCor Lodging Trust, Inc. 239,821
13,900 First Industrial Realty Trust, Inc. 566,147
9,100 GMH Communities Trust 128,310
9,682 Gables Residential Trust 346,519
5,700 Getty Realty Corp. 163,761
10,439 Glenborough Realty Trust, Inc. 222,142
11,756 Glimcher Realty Trust 325,759
1,700 Global Signal, Inc. 46,818
9,500 Government Properties Trust, Inc. 93,670
1,750 Gramercy Capital Corp. 36,050
14,800 Healthcare Realty Trust, Inc. 602,360
7,800 Heritage Property Investment Trust 250,302
8,200 Highland Hospitality Corp. 92,168
15,500 Highwoods Properties, Inc. 429,350
9,420 Home Properties, Inc. 405,060
6,500 HomeBanc Corp. 62,920
23,100 IMPAC Mortgage Holdings, Inc. 523,677
12,792 Innkeepers USA Trust 181,646
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REIT) 13,600 Investors Real Estate Trust $ 142,664
(concluded) 8,878 Kilroy Realty Corp. 379,535
3,200 Kite Realty Group Trust 48,896
8,000 Kramont Realty Trust 187,200
4,500 LTC Properties, Inc. 89,595
62,300 + La Quinta Corp. 566,307
9,220 LaSalle Hotel Properties 293,473
14,642 Lexington Corporate Properties Trust 330,616
9,400 Luminent Mortgage Capital, Inc. 111,860
26,900 MFA Mortgage Investments, Inc. 237,258
9,900 Maguire Properties, Inc. 271,854
24,458 + Meristar Hospitality Corp. 204,224
5,929 Mid-America Apartment Communities, Inc. 244,393
4,500 Mission West Properties 47,880
7,529 National Health Investors, Inc. 219,696
22,059 Nationwide Health Properties, Inc. 523,901
13,150 New Century Financial Corp. 840,417
11,300 Newcastle Investment Corp. 359,114
7,700 Novastar Financial, Inc.(c) 381,150
12,000 Omega Healthcare Investors, Inc. 141,600
6,000 Origen Financial, Inc. 44,880
4,308 PS Business Parks, Inc. 194,291
3,604 Parkway Properties, Inc. 182,903
9,832 Pennsylvania Real Estate Investment Trust 420,810
13,086 Post Properties, Inc. 456,701
13,050 Prentiss Properties Trust 498,510
9,000 RAIT Investment Trust 251,730
5,400 Ramco-Gershenson Properties 174,150
13,200 Realty, Income Corp. 667,656
5,995 Redwood Trust, Inc. 372,230
4,522 Saul Centers, Inc. 172,967
14,600 Saxon Capital Inc. 350,254
17,814 Senior Housing Properties Trust 337,397
4,604 Sovran Self Storage, Inc. 194,013
3,500 Strategic Hotel Capital, Inc. 57,750
8,819 Summit Properties, Inc. 287,147
5,343 Sun Communities, Inc. 215,056
7,100 Sunstone Hotel Investors, Inc. 147,538
10,122 Tanger Factory Outlet Centrs 267,828
15,608 Taubman Centers, Inc. 467,460
6,763 The Town & Country Trust 186,862
8,400 U-Store-It Trust 145,740
9,200 US Restaurant Properties, Inc. 166,152
3,727 Universal Health Realty Income Trust 119,749
5,700 Urstadt Biddle Properties, Inc. Class A 97,185
13,865 Washington Real Estate Investment Trust 469,608
7,255 Winston Hotels, Inc. 85,682
-------------
25,731,508
- ---------------------------------------------------------------------------------------------------------------------------
Recreational Vehicles & Boats - 0.4% 5,743 Arctic Cat, Inc. 152,304
4,407 Coachmen Industries, Inc. 76,505
17,799 + Fleetwood Enterprises, Inc. 239,575
1,450 Marine Products Corp. 37,860
9,224 Monaco Coach Corp. 189,738
12,284 Thor Industries, Inc. 455,122
8,190 Winnebago Industries 319,901
-------------
1,471,005
- ---------------------------------------------------------------------------------------------------------------------------
Rental & Leasing Services: 3,753 Electro Rent Corp. 53,405
Commercial - 0.3% 15,700 GATX Corp. 464,092
3,500 + Marlin Business Services, Inc. 66,500
2,205 McGrath Rentcorp 96,160
14,700 + United Rentals, Inc. 277,830
-------------
957,987
- ---------------------------------------------------------------------------------------------------------------------------
Rental & Leasing Services: 11,793 Aaron Rents, Inc. 294,825
Consumer - 0.2% 2,200 + Amerco, Inc. 101,156
8,395 + Dollar Thrifty Automotive Group 253,529
8,678 + Rent-Way, Inc. 69,511
4,558 + WESCO International, Inc. 135,099
-------------
854,120
- ---------------------------------------------------------------------------------------------------------------------------
Restaurants - 1.6% 3,600 + BJ's Restaurants, Inc. 50,400
12,480 Bob Evans Farms, Inc. 326,227
625 + Buffalo Wild Wings, Inc. 21,756
14,700 CBRL Group, Inc. 615,195
12,350 + CEC Entertainment, Inc. 493,629
18,200 + CKE Restaurants, Inc. 264,082
6,300 + California Pizza Kitchen, Inc. 144,900
4,100 + Cosi, Inc. 24,805
3,500 + Dave & Buster's, Inc. 70,700
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Restaurants 4,350 Domino's Pizza, Inc. $ 77,430
(concluded) 6,748 IHOP Corp. 282,674
12,118 + Jack in the Box, Inc. 446,791
15,300 + Krispy Kreme Doughnuts, Inc.(c) 192,780
5,496 Landry's Restaurants, Inc. 159,714
3,654 Lone Star Steakhouse & Saloon 102,312
8,684 + O'Charleys, Inc. 169,772
7,408 + PF Chang's China Bistro, Inc. 417,441
8,000 + Panera Bread Co. Class A(c) 322,560
4,548 + Papa John's International, Inc. 156,633
9,477 + Rare Hospitality International, Inc. 301,937
4,000 + Red Robin Gourmet Burgers, Inc. 213,880
15,400 + Ryan's Restaurant Group, Inc. 237,468
19,914 + Sonic Corp. 607,377
7,028 + The Steak N Shake Co. 141,122
11,850 Triarc Cos. 145,281
-------------
5,986,866
- ---------------------------------------------------------------------------------------------------------------------------
Retail - 3.7% 1,700 + 1-800 Contacts, Inc. 37,400
7,324 + 1-800-FLOWERS.COM, Inc. Class A 61,595
16,900 + 99 Cents Only Stores 273,104
4,600 + AC Moore Arts & Crafts, Inc. 132,526
18,250 + Aeropostale, Inc. 537,097
1,900 + America's Car Mart, Inc. 72,200
2,600 + Asbury Automotive Group, Inc. 35,828
3,915 Bebe Stores, Inc. 105,627
5,600 Big 5 Sporting Goods Corp. 163,184
1,900 Blair Corp. 67,754
1,900 + Blue Nile, Inc.(c) 52,478
3,700 The Bon-Ton Stores, Inc. 58,275
6,650 + Brookstone, Inc. 130,007
5,979 Brown Shoe Co., Inc. 178,354
1,249 The Buckle, Inc. 36,845
5,792 Burlington Coat Factory Warehouse Corp. 131,478
13,934 + CSK Auto Corp. 233,255
4,450 + Cache, Inc. 80,189
9,800 + Casual Male Retail Group, Inc.(c) 53,410
6,497 + The Cato Corp. Class A 187,243
5,400 + Central Garden and Pet Co. 225,396
4,400 + Charlotte Russe Holding, Inc. 44,440
38,140 + Charming Shoppes 357,372
4,585 + Children's Place 169,782
12,728 Christopher & Banks Corp. 234,832
7,830 + Coldwater Creek, Inc. 241,712
600 + Conn's, Inc. 10,092
5,976 + Cost Plus, Inc. 192,009
500 DEB Shops, Inc. 12,520
10,000 + Dick's Sporting Goods, Inc. 351,500
6,845 + Dress Barn, Inc. 120,472
10,300 + Drugstore.Com 35,020
3,931 + Electronics Boutique Holdings Corp. 168,797
13,535 Fred's, Inc. 235,509
5,000 + GSI Commerce, Inc. 88,900
10,300 + GameStop Corp. Class B 230,823
16 + Gander Mountain Co. 205
7,238 + Genesco, Inc. 225,391
8,100 + Global Imaging Systems, Inc. 319,950
6,200 Goody's Family Clothing, Inc. 56,668
5,532 + Group 1 Automotive, Inc. 174,258
6,939 + Guitar Center, Inc. 365,616
7,458 + Gymboree Corp. 95,612
13,881 + HOT Topic, Inc. 238,614
8,200 Hancock Fabrics, Inc. 85,034
7,961 Handleman Co. 171,002
8,450 + Hibbett Sporting Goods, Inc. 224,855
16,798 + Insight Enterprises, Inc. 344,695
6,962 + The J Jill Group, Inc. 103,664
2,387 + JOS A Bank Clothiers, Inc.(c) 67,552
6,205 + Jo-Ann Stores, Inc. 170,886
1,647 Lawson Products 83,058
12,918 + Linens 'N Things, Inc. 320,366
4,600 Lithia Motors, Inc. Class A 123,372
3,000 + MarineMax, Inc. 89,280
11,061 + Men's Wearhouse, Inc. 353,510
3,400 + Overstock.com, Inc. 234,600
1,259 + PC Connection, Inc. 11,986
3,400 + PC Mall, Inc. 76,092
16,610 PEP Boys-Manny Moe & Jack 283,533
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Retail 2,800 + The Pantry, Inc. $ 84,252
(concluded) 3,500 + Party City Corp. 45,255
19,300 + Payless Shoesource, Inc. 237,390
5,400 + PetMed Express, Inc. 41,094
7,916 + Priceline.com, Inc. 186,738
11,700 + Restoration Hardware, Inc. 67,158
2,300 + Retail Ventures, Inc. 16,330
100 + Rush Enterprises, Inc. Class B 1,731
3,047 Russ Berrie & Co., Inc. 69,593
6,254 + School Specialty, Inc. 241,154
2,600 + Sharper Image Corp. 49,010
7,698 + ShopKo Stores, Inc. 143,799
9,200 Sonic Automotive, Inc. 228,160
6,226 + The Sports Authority, Inc. 160,320
5,000 + Stage Stores, Inc. 207,600
4,003 Stamps.com, Inc. 63,408
6,824 + Stein Mart, Inc. 116,417
9,766 + Too, Inc. 238,876
10,600 + Tractor Supply Co. 394,426
9,730 + Trans World Entertainment 121,333
7,490 + Tuesday Morning Corp. 229,419
5,531 United Auto Group, Inc. 163,662
13,480 + United Natural Foods, Inc. 419,228
6,056 + Valuevision Media, Inc. Class A 84,239
17,900 + Zale Corp. 534,673
-------------
13,712,089
- ---------------------------------------------------------------------------------------------------------------------------
Savings & Loan - 2.3% 6,937 Anchor Bancorp Wisconsin, Inc. 202,214
600 + BFC Financial Corp. 7,590
21,738 Bank Mutual Corp. 264,551
15,342 BankAtlantic Bancorp, Inc. Class A 305,306
9,573 + Bankunited Financial Corp. Class A 305,857
1,800 Berkshire Hills Bancorp, Inc. 66,870
1,900 Beverly Hills Bancorp, Inc. 19,190
19,587 Brookline Bancorp, Inc. 319,660
500 Charter Financial Corp. 21,935
1,900 Citizens First Bancorp, Inc. 45,942
4,250 Coastal Financial Corp. 80,920
12,926 Commercial Capital Bancorp, Inc. 299,625
14,127 Commercial Federal Corp. 419,713
11,749 Dime Community Bancshares 210,425
5,900 Downey Financial Corp. 336,300
4,348 Fidelity Bankshares, Inc. 185,920
4,226 First Financial Holdings, Inc. 138,359
3,240 First Indiana Corp. 72,932
26,484 First Niagara Financial Group, Inc. 369,452
3,000 First Place Financial Corp. 67,170
4,300 First Republic Bank 227,900
5,600 + FirstFed Financial Corp. 290,472
8,350 Flagstar Bancorp, Inc. 188,710
5,575 Flushing Financial Corp. 111,835
3,078 Great Southern Bancorp, Inc. 107,730
7,117 Harbor Florida Bancshares, Inc. 246,319
3,400 Horizon Financial Corp. 69,972
10,000 Hudson River Bancorp 197,900
2,500 IBERIABANK Corp. 165,900
1,800 + ITLA Capital Corp. 105,822
8,100 KNBT Bancorp, Inc. 136,890
7,960 MAF Bancorp, Inc. 356,767
300 NASB Financial, Inc. 11,799
17,911 + Netbank, Inc. 186,454
4,667 Northwest Bancorp, Inc. 117,095
2,896 OceanFirst Financial Corp. 71,386
13,165 + Ocwen Financial Corp. 125,857
4,741 PFF Bancorp, Inc. 219,651
6,228 Partners Trust Financial Group, Inc. 72,556
3,000 Pennfed Financial Services, Inc. 48,240
9,989 Provident Bancorp, Inc. 131,755
1,650 Provident Financial Hldgs 47,603
21,761 Provident Financial Services, Inc. 421,508
8,069 + Sterling Financial Corp. 316,789
7,200 TierOne Corp. 178,920
8,561 United Community Financial Corp. 95,883
10,730 Waypoint Financial Corp. 304,196
400 Westfield Financial, Inc. 10,328
-------------
8,306,168
- ---------------------------------------------------------------------------------------------------------------------------
Scientific Equipment & Suppliers - 0.2% 7,176 + BioVeris Corp. 52,457
13,335 + Newport Corp. 188,024
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Scientific Equipment & Suppliers 9,935 + Varian, Inc. $ 407,434
(concluded) -------------
647,915
- ---------------------------------------------------------------------------------------------------------------------------
Securities Brokerage & Services - 0.4% 2,250 + Archipelago Holdings, Inc. 47,182
900 BKF Capital Group, Inc. 34,110
15,345 CharterMac 375,032
16,000 + Investment Technology Group, Inc. 320,000
35,900 + Knight Trading Group, Inc. Class A 393,105
15,200 + LaBranche & Co., Inc. 136,192
7,761 + NCO Group, Inc. 200,622
5,004 SWS Group, Inc. 109,688
-------------
1,615,931
- ---------------------------------------------------------------------------------------------------------------------------
Services: Commercial - 2.7% 3,963 + 4Kids Entertainment, Inc. 83,302
12,470 ABM Industries, Inc. 245,908
4,005 + AMN Healthcare Services, Inc. 63,720
7,161 + Administaff, Inc. 90,300
4,500 + The Advisory Board Co. 165,960
3,400 Ambassadors Group, Inc. 121,074
3,000 Angelica Corp. 81,150
13,700 + Autobytel, Inc. 82,748
2,401 CDI Corp. 51,333
6,478 + Casella Waste Systems, Inc. 94,838
5,785 Central Parking Corp. 87,643
20,953 + Century Business Services, Inc. 91,355
2,500 + Charles River Associates, Inc. 116,925
3,486 Chemed Corp. 233,945
5,300 + Clark, Inc. 82,256
5,650 + CoStar Group, Inc. 260,917
7,692 + Coinstar, Inc. 206,376
4,400 + Cornell Cos., Inc. 66,792
11,694 + Corrections Corp. of America 473,022
8,300 + Cross Country Healthcare, Inc. 150,064
6,700 + DiamondCluster International, Inc. Class A 96,011
3,302 + Exponent, Inc. 90,772
14,141 + FTI Consulting, Inc. 297,951
2,400 + First Advantage Corp. Class A 48,960
4,481 + Forrester Research, Inc. 80,389
6,377 G&K Services, Inc. Class A 276,889
2,600 + Gartner, Inc. Class B 31,954
3,200 + The Geo Group, Inc. 85,056
7,000 Gevity HR, Inc. 143,920
2,800 + Greg Manning Auctions, Inc.(c) 34,664
17,000 + Harris Interactive, Inc. 134,300
4,358 + Heidrick & Struggles International, Inc. 149,349
4,000 + Hudson Highland Group, Inc. 115,200
2,865 + Insurance Auto Auctions, Inc. 64,233
12,900 Jackson Hewitt Tax Service, Inc. 325,725
5,868 Kelly Services, Inc. Class A 177,096
5,800 + Kforce, Inc. 64,380
11,268 + Korn/Ferry International 233,811
14,622 + Labor Ready, Inc. 247,404
5,404 + MAXIMUS, Inc. 168,172
34,005 + MPS Group, Inc. 416,901
4,000 + Medical Staffing Network Holdings, Inc. 32,760
5,742 + Midas, Inc. 114,840
3,100 + Monro Muffler, Inc. 78,430
15,623 + Navigant Consulting, Inc. 415,572
4,811 + Navigant International, Inc.(c) 58,550
3,817 + Netratings, Inc. 73,172
2,821 + PDI, Inc. 62,852
8,839 + Pegasus Solutions, Inc. 111,371
3,960 Pre-Paid Legal Services, Inc. 148,698
6,716 + Resources Connection, Inc. 364,746
6,468 Rollins, Inc. 170,238
21,100 + Sitel Corp. 51,906
8,200 + Source Interlink Cos., Inc. 108,896
21,029 + Spherion Corp. 176,644
3,340 Startek, Inc. 95,023
12,689 + TeleTech Holdings, Inc. 122,956
18,531 + Tetra Tech, Inc. 310,209
700 + Travelzoo, Inc.(c) 66,801
3,000 Unifirst Corp. 84,840
2,554 + Vertrue, Inc.(c) 96,465
1,659 + Volt Information Sciences, Inc. 48,758
14,418 + Waste Connections, Inc. 493,817
10,625 Watson Wyatt & Co. Holdings 286,344
14,113 + Wireless Facilities, Inc. 133,227
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Services: Commercial 3,700 World Fuel Services Corp. $ 184,260
(concluded) -------------
10,024,140
- ---------------------------------------------------------------------------------------------------------------------------
Shipping - 0.4% 12,492 Alexander & Baldwin, Inc. 529,911
4,300 + Gulfmark Offshore, Inc. 95,761
7,230 + Kirby Corp. 320,867
8,898 Overseas Shipholding Group 491,170
1,800 + Seabulk International, Inc. 21,798
-------------
1,459,507
- ---------------------------------------------------------------------------------------------------------------------------
Shoes - 0.3% 2,200 + Deckers Outdoor Corp.(c) 103,378
9,966 Finish Line Class A 182,378
6,996 K-Swiss, Inc. Class A 203,724
1,492 Kenneth Cole Productions, Inc. Class A 46,043
2,300 + Shoe Carnival, Inc. 29,900
6,555 + Skechers U.S.A., Inc. Class A 84,953
4,012 + Steve Madden Ltd. 75,666
12,935 Stride Rite Corp. 144,484
150 Weyco Group, Inc. 6,644
13,672 Wolverine World Wide, Inc. 429,574
-------------
1,306,744
- ---------------------------------------------------------------------------------------------------------------------------
Steel - 0.7% 35,927 + AK Steel Holding Corp. 519,864
28,900 Allegheny Technologies, Inc. 626,263
7,426 Carpenter Technology 434,124
7,834 Gibraltar Industries, Inc. 185,039
10,500 + Oregon Steel Mills, Inc. 213,045
5,350 Schnitzer Steel Industries, Inc. Class A 181,526
10,897 Steel Dynamics, Inc. 412,778
4,400 Steel Technologies, Inc. 121,044
1,100 + Wheeling-Pittsburgh Corp. 42,394
-------------
2,736,077
- ---------------------------------------------------------------------------------------------------------------------------
Synthetic Fibers - 0.0% 7,518 Wellman, Inc. 80,367
- ---------------------------------------------------------------------------------------------------------------------------
Telecommunications Equipment - 0.6% 3,800 Applied Signal Technology, Inc. 133,950
25,400 + Arris Group, Inc. 178,816
7,185 + Audiovox Corp. Class A 113,379
16,061 Belden CDT, Inc. 372,615
12,334 + C-COR, Inc. 114,706
1,200 + INTAC International 15,492
17,700 + Interdigital Communications Corp. 391,170
5,700 + Mastec, Inc. 57,627
32,377 + Powerwave Technologies, Inc. 274,557
16,600 + SBA Communications Corp. Class A 154,048
6,380 Spectralink Corp. 90,468
14,900 + Symmetricom, Inc. 144,679
22,176 + Terayon Corp. 60,097
-------------
2,101,604
- ---------------------------------------------------------------------------------------------------------------------------
Textile Products - 0.1% 7,500 + DHB Industries, Inc. 142,800
14,621 + Interface, Inc. Class A 145,771
-------------
288,571
- ---------------------------------------------------------------------------------------------------------------------------
Textiles Apparel Manufacturers - 0.6% 2,300 + Carter's, Inc. 78,177
2,200 Cherokee, Inc. 77,616
3,585 + Guess?, Inc. 44,992
4,200 + Hartmarx Corp. 32,634
7,482 Kellwood Co. 258,129
3,702 Oshkosh B' Gosh, Inc. Class A 79,223
5,042 Oxford Industries, Inc. 208,235
2,900 + Perry Ellis International, Inc. 59,015
8,054 Phillips-Van Heusen 217,458
18,450 + Quiksilver, Inc. 549,626
11,017 Russell Corp. 214,611
12,700 + The Warnaco Group, Inc. 274,320
-------------
2,094,036
- ---------------------------------------------------------------------------------------------------------------------------
Tires & Rubber - 0.4% 3,674 Bandag, Inc. 183,002
19,700 Cooper Tire & Rubber Co. 424,535
50,100 + The Goodyear Tire & Rubber Co.(c) 734,466
-------------
1,342,003
- ---------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.3% 14,955 DIMON, Inc. 100,498
5,820 Schweitzer-Mauduit International, Inc. 197,589
3,100 Standard Commercial Corp. 60,326
11,800 + Star Scientific, Inc.(c) 60,003
7,356 Universal Corp. 351,911
9,894 Vector Group Ltd. 164,537
-------------
934,864
- ---------------------------------------------------------------------------------------------------------------------------
Toys - 0.0% 6,830 + Jakks Pacific, Inc. 151,011
7,300 + Leapfrog Enterprises, Inc.(c) 99,280
-------------
250,291
- ---------------------------------------------------------------------------------------------------------------------------
Transportation Miscellaneous - 0.3% 2,700 + HUB Group, Inc. Class A 140,994
30,800 + Laidlaw International, Inc. 659,120
10,400 + Pacer International, Inc. 221,104
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Transportation Miscellaneous 2,900 Quixote Corp. $ 58,957
(concluded) 6,081 + SCS Transportation, Inc. 142,113
1,900 + US Xpress Enterprises, Inc. Class A 55,670
-------------
1,277,958
- ---------------------------------------------------------------------------------------------------------------------------
Truckers - 1.0% 6,041 Arkansas Best Corp. 271,180
6,200 + Central Freight Lines, Inc. 39,060
2,900 + Covenant Transport, Inc. Class A 60,378
6,288 + Forward Air Corp. 281,074
15,980 Heartland Express, Inc. 359,071
12,075 Knight Transportation, Inc. 299,460
9,908 + Landstar System, Inc. 729,625
1,300 + Marten Transport Ltd. 29,549
5,450 + Old Dominion Freight Line 189,660
7,800 Overnite Corp. 290,472
1,200 + PAM Transportation Services 22,500
2,200 + Quality Distribution, Inc. 18,568
12,600 + Swift Transportation Co., Inc. 270,648
7,741 USF Corp. 293,771
14,200 Werner Enterprises, Inc. 321,488
-------------
3,476,504
- ---------------------------------------------------------------------------------------------------------------------------
Utilities: Cable TV & Radio - 0.0% 18,700 + Mediacom Communications Corp. Class A 116,875
- ---------------------------------------------------------------------------------------------------------------------------
Utilities: Electrical - 1.3% 16,675 Avista Corp. 294,647
9,000 Black Hills Corp. 276,120
5,189 CH Energy Group, Inc. 249,331
62,400 + CMS Energy Corp. 652,080
3,903 Central Vermont Public Service Corp. 90,784
15,767 Cleco Corp. 319,439
21,900 Duquesne Light Holdings, Inc. 412,815
12,908 + El Paso Electric Co. 244,478
9,668 The Empire District Electric Co. 219,270
10,800 Idacorp, Inc. 330,156
5,645 MGE Energy, Inc. 203,389
8,486 Otter Tail Corp. 216,648
20,478 PNM Resources, Inc. 517,889
33,677 + Sierra Pacific Resources 353,609
4,600 UIL Holdings Corp. 235,980
10,783 Unisource Energy Corp. 259,978
-------------
4,876,613
- ---------------------------------------------------------------------------------------------------------------------------
Utilities: Gas Distributors - 1.6% 19,338 Atmos Energy Corp. 528,894
5,322 Cascade Natural Gas Corp. 112,826
11,900 Energen Corp. 701,505
3,400 EnergySouth, Inc. 95,336
6,448 The Laclede Group, Inc. 200,855
9,574 New Jersey Resources Corp. 414,937
12,800 Nicor, Inc. 472,832
9,699 Northwest Natural Gas Co. 327,244
11,000 Peoples Energy Corp. 483,450
24,000 Piedmont Natural Gas Co. 557,760
4,966 South Jersey Industries, Inc. 261,013
20,582 + Southern Union Co. 493,556
10,890 Southwest Gas Corp. 276,606
10,624 + Southwestern Energy Co. 538,531
15,200 WGL Holdings, Inc. 468,768
-------------
5,934,113
- ---------------------------------------------------------------------------------------------------------------------------
Utilities: Gas Pipelines - 0.0% 5,631 + Transmontaigne, Inc. 34,518
- ---------------------------------------------------------------------------------------------------------------------------
Utilities: Miscellaneous - 0.1% 64,800 + Aquila, Inc. 239,112
- ---------------------------------------------------------------------------------------------------------------------------
Utilities: Telecommunications - 0.9% 3,700 + AirGate PCS, Inc. 131,720
18,700 + Alamosa Holdings, Inc. 233,189
400 Alaska Communications Systems Group, Inc. 3,452
8,621 + Boston Communications Group 79,658
5,755 CT Communications, Inc. 70,786
1,626 + Centennial Communications Corp. 12,894
77,300 + Cincinnati Bell, Inc. 320,795
6,033 + Commonwealth Telephone Enterprises, Inc. 299,599
4,300 D&E Communications, Inc. 51,815
30,700 + Dobson Communications Corp. Class A 53,725
15,039 + General Communication Class A 166,031
4,492 Golden Telecom, Inc. 118,679
900 + ITC Deltacom, Inc. 1,539
5,700 + Intrado, Inc. 68,970
6,200 Iowa Telecommunications Services, Inc. 133,734
4,421 North Pittsburgh Systems, Inc. 109,331
17,500 + PTEK Holdings, Inc. 187,425
14,389 + Price Communications Corp. 267,492
26,300 + Primus Telecommunications GP 83,634
1,300 Shenandoah Telecom Co. 38,935
4,600 SureWest Communications 130,410
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (continued)
Industry# Shares Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------------------
Utilities: Telecommunications 11,433 + Talk America Holdings, Inc. $ 75,686
(concluded) 17,500 + Time Warner Telecom, Inc. Class A 76,300
8,200 + Triton PCS Holdings, Inc. Class A 28,044
6,820 + USA Mobility, Inc. 240,814
25,300 + Ubiquitel, Inc. 180,136
-------------
3,164,793
- ---------------------------------------------------------------------------------------------------------------------------
Utilities: Water - 0.2% 4,985 American States Water Co. 129,610
5,296 California Water Service Group 199,394
2,589 Connecticut Water Service, Inc. 68,583
3,282 Middlesex Water Co. 62,161
1,974 SJW Corp. 71,854
8,532 Southwest Water Co. 114,759
-------------
646,361
- ---------------------------------------------------------------------------------------------------------------------------
Wholesale & International Trade - 0.0% 4,850 + Central European Distribution Corp.(c) 143,269
- ---------------------------------------------------------------------------------------------------------------------------
Wholesales - 0.2% 6,600 + Brightpoint, Inc. 128,964
3,200 + LKQ Corp. 64,224
11,269 + United Stationers, Inc. 520,628
-------------
713,816
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments in Common Stocks
(Cost - $275,838,140) - 97.9% 357,820,594
===========================================================================================================================
Mutual Funds
- ---------------------------------------------------------------------------------------------------------------------------
Investment Management Companies - 0.0% 3,600 Gladstone Capital Corp. 85,320
-------------
Total Investments in Mutual Funds
(Cost - $74,033) - 0.0% 85,320
===========================================================================================================================
Face Amount Fixed Income Securities
===========================================================================================================================
Metal Fabricating - 0.0% $ 700 Mueller Industries, Inc., 6% due 11/01/2014 686
-------------
Total Investments in Fixed Income Securities
(Cost - $686) - 0.0% 686
===========================================================================================================================
Beneficial Interest/Shares
Held Other Interest**
===========================================================================================================================
Computer Services Software & 500 PetroCorp Incorporated (Escrow Shares) 0
Systems - 0.0% $ 1,600 StorageNetworks, Inc. (Litigation Trust Certificates) 0
-------------
Total Investments in Other Interest (Cost - $0) - 0.0% 0
===========================================================================================================================
Beneficial Interest Short-Term Securities
===========================================================================================================================
$ 8,989,590 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I(a) 8,989,590
11,652,388 Merrill Lynch Liquidity Series, LLC Money Market
Series(a) (b) 11,652,388
=============
Total Investments in Short-Term Securities
(Cost - $20,641,978) - 5.6% 20,641,978
===========================================================================================================================
Total Investments (Cost - $296,554,837*) - 103.5% 378,548,578
Liabilities in Excess of Other Assets - (3.5)% (12,887,301)
-------------
Net Assets - 100.0% $ 365,661,277
=============
* The cost and unrealized appreciation/depreciation on investments as of
December 31,2004, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 300,190,875
=============
Gross unrealized appreciation $ 100,834,680
Gross unrealized depreciation (22,476,977)
-------------
Net unrealized appreciation $ 78,357,703
=============
** Other interest represents beneficial interest in liquidation trusts and
other reoganization entities and are non-income producing.
# 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 industry sub-classifications for reporting ease. These industry
classifications are unaudited.
+ Non-income producing security.
(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) were as follows:
Interest/
Affiliate Net Activity Dividend Income
------------------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $ (31,201,939) $ 182,651
Merrill Lynch Liquidity Series, LLC Money Market Series $ 4,814,262 $ 107,254
Merrill Lynch Premier Institutional Fund (2,279,374) $ 9,198
------------------------------------------------------------------------------------------------------
(b) Security was purchased with the cash proceeds from securities loans.
(c) Security, or a portion of security, is on loan.
Master Small Cap Index Series
Schedule of Investments as of December 31, 2004 (concluded)
Financial futures contracts purchased as of December 31, 2004 were as
follows:
--------------------------------------------------------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
--------------------------------------------------------------------------------------------------------------------------
March
36 Russell 2000 Index 2005 $11,633,855 $ 137,245
--------------------------------------------------------------------------------------------------------------------------
Financial futures contracts sold as of December 31, 2004 were as follows:
--------------------------------------------------------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------------------------------------------------------
March
3 Russell 2000 Index 2005 $949,875 $ (31,050)
--------------------------------------------------------------------------------------------------------------------------
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PUCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. 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 11. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded that
the disclosure controls and procedures of the Trust are effective.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Filed herewith as EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule 30a-2(a)
under the Investment Company Act of 1940 is attached hereto as EX-
99.CERT.
(a)(3) Not Applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American Beacon Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 9, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 9, 2005
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: March 9, 2005